Court Rules Collector Can Proceed With Claims Against Jeff Koons LLC and Gagosian Gallery Over Failure to Deliver Three Koons Works
09/26/2019We wrote last year about a suit filed in New York state court (see No. 651889/2018, N.Y. Co.) by a disgruntled art collector seeking redress for the problems he has allegedly encountered in trying to purchase three sculptures by famed artist Jeff Koons. Last month, a court ruled that the collector’s claims can proceed to the next phase of litigation.
Our previous post (see here) has more details, but we reiterate some background here. The plaintiff in the case, Steven Tananbaum, sued Jeff Koons LLC (or JKL, the entity through which Koons does business) and the elite Gagosian Gallery, which represents Koons. His allegations focused on JKL’s and Gagosian’s practices of requiring would-be Koons buyers to sign onerous one-sided contracts requiring huge deposits and installment payments, while simultaneously giving them sham timelines for expected delivery. He accuses the defendants of putting buyers between a rock and a hard place; if they stop making further payments because they haven’t received assurance of delivery, they may lose the money they’ve already paid, but if they continue to make payments, the defendants (he claims) essentially get an interest-free loan while unreasonably delaying in providing the buyer with the work or even information about its progress.
Since Tananbaum initiated the suit, he has changed counsel and dropped his claims against JKL, leaving only Gagosian as a defendant. He also amended his complaint. In the amended complaint, Tananbaum outlines what he has paid (about $13 million so far) for three Koons works that have yet to be delivered, apparently due to lengthy delays in fabrication. He asserts New York state law claims including breach of the various sale contracts; breach of the implied covenant of good faith and fair dealing as to each sale; and claims under the New York’s Arts and Cultural Affairs Law (NYACAL). He seeks to rescind the contracts, and has also requested money damages, interest, exemplary damages, and attorneys’ fees.
A Late-Summer Ruling On The Motion to Dismiss
The parties exchanged some limited discovery, and Gagosian moved to dismiss the amended complaint in its entirety. In late August, the Court issued a decision that will allow most of Tananbaum’s claims to move forward to the discovery phase of the case.
As to the contract claims, Gagosian argued that Tananbaum failed to adequately allege a breach. The main thrust of Gagosian’s argument is that there was never a firm promise regarding delivery date; the contracts only provided estimated dates. But the court held that, under New York’s Uniform Commercial Code, where a contract doesn’t provide a definite time for delivery, whether a delay constitutes a breach depends on “what constitutes acceptable commercial conduct in view of the nature, purpose and circumstances.” And that, in turn, was not appropriate to decide on a motion to dismiss.
As to two of the works, the Court noted that Tananbaum’s allegations of unreasonable delay were weaker because he bought them after his first purchased work was already significantly delayed. Nevertheless, the court held that the breach of contract claims could proceed based on a UCC provision (N.Y. U.C.C. § 2-609) that deals with situations where a party to a sale contract has “reasonable grounds for insecurity” as to whether the other party will perform; in such cases, the law gives the party the right to demand “adequate assurance of due performance.” If they fail to receive it, that is treated as a repudiation of the contract. Here, Tananbaum claims that, after he suffered repeated delays in delivery of these works, he demanded adequate assurance that Gagosian would perform, and Gagosian refused to provide that assurance. The Court held there were at least factual questions as to whether Tananbaum had reasonable grounds for insecurity, and thus he had sufficiently alleged a repudiation by Gagosian. (The court did dismiss the claims for breach of the implied covenant of good faith, agreeing with Gagosian that they were duplicative of the other contract claims.)
As to the NYACAL claims, Tananbaum had invoked a provision (§ 15.01) that requires sellers of sculptures in “multiples” to provide certain information to buyers. Gagosian urged that the works at issue are not covered by the provisions regarding “multiples”; rather, they are “fine art,” which is a separately defined term under the statute. The Court agreed with Gagosian as to one of the works, Venus, because the contract of sale for that work stated that the work was one of five “unique” versions. The Court ruled, however, that the other two works, Eros and Diana, “may qualify as limited-edition multiples” under the statute. NYACAL defines “limited edition multiples” as works of art that are “produced from a master” and “held out as limited to a maximum number of multiples.” The Court held that the allegations in the complaint were adequate to suggest that these two works might fall into that definition.
As a backstop argument, Gagosian had also argued that even assuming the works were multiples, the complaint didn’t adequately allege Gagosian had failed to make the statutory disclosures. But the Court disagreed. The statute requires that, on request prior to payment for a multiple, the seller must provide information including where the multiple was fabricated. Here, the Court held, the complaint sufficiently alleged a violation where Gagosian had not provided certain information because the works were not fabricated yet. The Court rejected, however, the notion that Gagosian had provided inaccurate disclosures by describing the dates for the works as “2016—“; the open-ended date was not false.
Finally, Gagosian succeeded in striking Tananbaum’s demand for treble damages for allegedly “willful” NYACAL violations. The Court held that the allegations of willfulness were conclusory, especially where Tananbaum was represented by an art advisor and proceeded with the purchase even after he did not receive the information he sought.
Interestingly, both sides have indicated that they will appeal aspects of the decision. Meanwhile, discovery regarding the surviving claims will proceed; the docket indicates that this will apparently include discovery requests to entities in Germany that fabricate the Koons works at issue. Thus, the case will continue for now, although the economic exposure for Gagosian has been reduced, in that Tananbaum (unless he prevails on appeal) has lost the opportunity to obtain treble damages. We’ll continue to monitor the case as it progresses.
Koons Disputes Through The Years
We have written about disputes involving Jeff Koons artworks on several occasions in recent years. For example, in 2014, we wrote about the unsuccessful claims against Gagosian by entities connected to billionaire collector Ron Perelman, which included allegations related to the sale of a Koons sculpture called Popeye. And in a 2016 case (see here, here, and here), another disgruntled buyer sued the Zwirner Gallery over a delayed delivery of a Jeff Koons work; after most of the claims survived a motion to dismiss, the parties reached a confidential settlement.
Indeed, last spring, just after Tananbaum filed, another collector, movie producer Joel Silver, filed a lawsuit along the same lines. Although Silver’s case only named the Gagosian as a defendant, the claims were similar in that they focused on the long delay in delivery, coupled with the one-sidedness of the sales contracts. After Silver narrowly defeated a motion to dismiss, it was revealed that Silver’s litigation was being funded by Perelman; shortly thereafter, Silver discontinued the suit.
These cases are emblematic of some of the issues that can arise from imbalances in bargaining power in art deals. Here, demand for Koons’s works is so robust, and Gagosian so effectively controls the Koons market, that Gagosian can more or less dictate the terms of Koons deals; if a buyer balks at allegedly-onerous terms or practices, someone else will be happy to take his place. The question is when these situations are simply a function of supply and demand, and when they have crossed over into legally-actionable conduct.
This case in particular focuses on what the parties’ rights are where a contract does not specify a precise delivery date. The UCC provides that, in the absence of a specific contract term, delivery must be within a reasonable time (N.Y. U.C.C. § 2-309); but as the Court observed, that is generally a fact-intensive question. Tananbaum also highlights another relevant UCC provision: § 2-609 may, under some circumstances, give a buyer the ability to demand “adequate assurance” that the other party will perform, and if the other party fails to provide it within 30 days, that qualifies as a repudiation of the contract. But this section leaves plenty of room for dispute about how it should be applied; for example, what constitutes “reasonable grounds for insecurity”? Or “adequate assurance”? The demanding party, while awaiting that assurance, may suspend his performance, but only “if commercially reasonable”—but what does that mean? This section may be an effective tool in some disputes, but is by no means clear-cut.
This case is also worth watching for its potential interpretation of NYACAL. For example, how should a seller of multiples satisfy its disclosure obligations with respect to works that are being sold before they physically exist (as is often the case for Koons works)? How should courts draw a line between unique works of “fine art” and “multiples”? Here, the court focused on contract language describing one of the works, Venus, as “1 of 5 unique versions,” while the other two works, Eros and Diana, were described as part of an “edition.”
Finally, it’s worth noting that courts continue to particularly scrutinize claims brought by sophisticated collectors who are advised by professional art advisors, as Tananbaum was here; that was relevant to the Court’s decision to strike his treble damages request. Likewise, the Court refused to allow him to proceed with allegations that Gagosian acted “willfully” where he went forward with the purchase despite having information he now claims was insufficient. Overall, for those involved in art transactions, this case is a reminder of why seeking pre-sale legal advice, including scrutiny of the contract terms and an understanding of the legal landscape governing art deals, may help avoid disputes later.
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