Grossman LLP | Bitter Dispute Between Gallery and Client Illustrates Need For Clarity in Art Deals
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  • Bitter Dispute Between Gallery and Client Illustrates Need For Clarity in Art Deals
    05/11/2015
    Beginning in the 1990s, art collector Richard McKenzie, Jr. frequently turned to Manhattan’s Forum Gallery and its director Robert Fishko for assistance in purchasing artwork, both for McKenzie’s own collection and for the Seven Bridges Foundation, which McKenzie founded to support emerging artists.  But when McKenzie’s and Fishko’s longstanding relationship went sour and accusations began flying, the result was years of public acrimony and protracted litigation in two different states.  The basic message to have emerged from this bitter legal battle is that clear contracting at the outset any art-related course of dealing often will head off problems before they arise.

    McKenzie and Fishko did business together, and developed a personal friendship, over the course of more than a decade.  However, sometime prior to 2011, the parties’ relationship deteriorated, ultimately leading to multiple lawsuits.  The first, Forum Gallery, Inc. v. Seven Bridges Foundation, Inc. & Richard C. McKenzie, Jr., FST-CV-11 5013609-S (Conn. Sup. Ct. 2011), arose when Forum allegedly delivered a work to McKenzie for his consideration, but McKenzie refused to either return or pay for it.  The second, Forum Gallery, Inc. v. Seven Bridges Foundation, Inc., FST-CV-12 6012684-S (Conn. Sup. Ct. 2012), arose when gallery attempted to enforce a purported settlement agreement requiring McKenzie to release his claims against the Forum parties, but which he later repudiated.  That case was put on hold pending the outcome of the third case, Richard C. McKenzie, Jr. & Seven Bridges Foundation, Inc. v. Robert Fishko, Cheryl Fishko and Forum Gallery, Inc., 12-cv-07297 (S.D.N.Y. 2012), a federal lawsuit filed in New York in which McKenzie asserted claims including breach of contract, fraud, breach of fiduciary duty and unfair and deceptive trade practices, arising out of what McKenzie characterized as the Forum parties’ practice of inflating prices and pocketing excessive profits during the parties’ long course of dealing.  The fourth case, originally filed in Connecticut Superior Court, FST-CV14-6021702-S, and later removed to federal district court in Connecticut (Docket No. 14-cv-00574), involved still more allegations by McKenzie, including an assertion that he bought works by Renoir and Rodin from the Forum parties in the early 2000s and later learned that they were fakes.

    In late February, the Southern District of New York considered the parties’ cross-motions for summary judgment in the third action and dismissed McKenzie’s claims against the Forum parties in their entirety.  See McKenzie v. Fishko, No. 12CV7297-LTS-KNF, 2015 WL 685927, at *1-2 (S.D.N.Y. Feb. 13, 2015).  McKenzie’s claims revolved around both “primary market” sales (the sale of artwork by living artists for the first time, often at gallery exhibits) and “secondary market” sales (that is, works being resold at galleries or in private sales and often involves the works of deceased artists).  As to primary market sales, McKenzie alleged that Fishko told him the Forum parties would give McKenzie a 20% discount on the “list price” of any works by artists that Forum represented.  As to secondary market sales, McKenzie alleged that Fishko told him Forum would negotiate with other dealers to get Plaintiffs the “best possible price” on such works, and would then charge McKenzie that acquisition price plus a 5% commission. McKenzie alleged that the Forum parties breached those obligations by manipulating or otherwise falsifying the list or acquisition prices to which the discounts were applied, thereby increasing Defendants’ profits.

    The court held that McKenzie’s breach of contract claims failed as a matter of law because he had not made an adequate showing that there was an enforceable contract in place between the parties regarding pricing.

    Plaintiffs do not deny that they agreed to pay the prices, and accept the discounts reflected, on the invoices issued with various transactions . . . . [T]he crux of Plaintiffs’ claims is the contention that Defendants had agreed to base primary market pricing on “list prices” that differed in some unspecified way from the prices on which the transactions were actually concluded, and that Defendants were contractually obligated to base secondary market sales prices on the actual acquisition costs of the works. Plaintiffs proffer no evidence, however, of specific commitments in this regard.

    McKenzie had offered only “generalized assertions about alleged agreements and actions taken in contravention of them,” and had given inconsistent testimony regarding the terms of the secondary market agreement; there was not enough evidence from which a jury could “determine the material terms of the alleged contracts, and whether they had been breached.”  In other words, the court held that the terms of the purported agreement were “so vague and indefinite that there is no basis or standard for deciding whether the agreement had been kept or broken, or to fashion a remedy, and no means by which such terms may be made certain.”  Accordingly, there was no enforceable contract as to the overall pricing arrangements McKenzie described.

    McKenzie’s claims for breach of fiduciary duty also failed; in addition to being largely duplicative of his breach of contract claim, the court held that there was insufficient evidence demonstrating that the Forum parties owed McKenzie or his foundation any fiduciary obligations.  The court held that Fishko’s superior “knowledge or expertise in the art field” did not establish a fiduciary relationship, and that as a general matter, “when parties deal at arms length in a commercial transaction, no relation of confidence or trust sufficient to find the existence of a fiduciary relationship will arise absent extraordinary circumstances.”  This is true even where the parties have a longstanding relationship.  Here, the court ruled that the parties’ transactions were each priced according to negotiated formulae, and there was no fiduciary relationship.

    This case is consistent with other recent decisions in which courts have rejected the existence of a fiduciary relationship between an art dealer and a client, even where the parties have enjoyed a close relationship for years or even decades.  This case also reminds parties engaged in art transactions of the importance of clear contracting.  These parties dealt with one another for years, and transacted millions of dollars of business, with little paperwork beyond bare-bones invoices.  When McKenzie later sought to show that he believed his dealer had charged more than was consistent with the parties’ mutual (but unwritten) pricing agreements for primary and secondary market sales, he could not show that such agreements existed in a form that was clear enough to enforce.  Furthermore, McKenzie’s allegations regarding the authenticity of some of the works he obtained through the Forum parties illustrate the importance of clearly spelling out exactly what a dealer is and is not warranting regarding a work’s authenticity and provenance; with proper drafting, a buyer can protect an investment in art, and a seller can protect his or her reputation from suggestions of shady dealings.  Overall, more comprehensive contracting might have clarified the parties’ understandings, prevented some of the parties’ disputes in the first place, and helped resolve their disputes and litigation in a more timely and less expensive fashion.