Grossman LLP | Russian Collector’s Claims Against Sotheby’s Clear Initial Hurdle In Ongoing Rybolovlev-Bouvier Feud
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  • Russian Collector’s Claims Against Sotheby’s Clear Initial Hurdle In Ongoing Rybolovlev-Bouvier Feud
    For years now, we have followed the bitter dispute between Dmitry Rybolovlev, a Russian billionaire, and his onetime art dealer, Swiss businessman Yves Bouvier.   Now, a new ruling permits Rybolovlev-affiliated entities to move forward with claims that auction house Sotheby’s facilitated Bouvier’s purported fraud.  (The news comes on the heels of last month’s announcement that Sotheby’s is being acquired by French-Israeli businessman Patrick Drahi, in a deal that will take the auction house off the publicly-traded stock market and put it back in private hands.)
    Our previous posts (see here, here, here and here) have more detail, but in short , Bouvier helped Rybolovlev build a massive art collection—until their relationship soured when Rybolovlev allegedly learned that Bouvier had charged huge markups on some of Rybolovlev’s acquisitions.  Rybolovlev says he was defrauded—he believed Bouvier was acting as his agent, negotiating the best price on artworks on Rybolovlev’s behalf and taking a flat fee in exchange for his services.  Bouvier says he was an independent seller who was free to buy and resell art for as much as the market would bear, and that Rybolovlev, a sophisticated businessman, was capable of protecting himself.  The feud has resulted in legal proceedings in no less than five countries, from Monaco to Singapore.    
                A few years ago, Sotheby’s was drawn into the fray.   First, Sotheby’s was sued by a group of art dealers from whom Bouvier bought a masterpiece by Leonardo da Vinci, Salvator Mundi, for $80 million in a deal facilitated by Sotheby’s.  Bouvier then flipped Salvator Mundi to Rybolovlev for more than $130 million.  (Rybolovlev, for his part, later sold Salvator Mundi for over $450 million, but is still pursuing Bouvier for allegedly overcharging him on that work and others.)   The consortium of sellers has since settled its dispute with Sotheby’s.  See S.D.N.Y. Docket 1:16-cv-09043-ALC.) 
    But that was not the end of Sotheby’s involvement in the Bouvier affair.  In 2017, entities controlled by Rybolovlev began seeking discovery from Sotheby’s, in order to aid various foreign civil and criminal proceedings against Bouvier.  See In re Accent Delight International Ltd. and Xitrans Finance Ltd., 1:16-mc-00125-JMF (S.D.N.Y. 2016).  Sotheby’s has also been involved in overseas litigation related to the feud. 
    Claims Against Sotheby’s
                And in late 2018, Rybolovlev directly sued Sotheby’s in federal court in New York.  See Accent Delight Int'l Ltd. v. Sotheby's,  S.D.N.Y. Docket No. 18-CV-9011.  The complaint alleges that, of the thirty-plus deals on which Rybolovlev believes Bouvier cheated him, Sotheby’s played a role in more than a dozen (involving not only Salvator Mundi but also works by Klimt, Modigliani, Magritte, Matisse, Gauguin, and other famed artists).  The complaint is consistent with claims Rybolovlev has made in other proceedings; it alleges that Bouvier would often reach an agreement with a seller on a purchase price, but then tell Rybolovlev that the negotiations were still ongoing, so as to persuade Rybolovlev to offer a higher price.  It further alleges that Sotheby’s knew Bouvier, a longtime Sotheby’s ally, was selling works to Rybolovlev at unfair markups, and facilitated Bouvier’s scheme by, among other things, providing information, appraisals and valuation estimates that supported the supposedly-inflated prices Bouvier charged Rybolovlev.  Claims asserted against Sotheby’s include aiding and abetting fraud, as well as aiding and abetting Bouvier’s breach of fiduciary duty. 
    In addition, the complaint asserts that, by suing Rybolovlev’s entities in an action in Switzerland last year, Sotheby’s breached a tolling agreement.  The complaint alleges that, after Rybolovlev’s entities obtained discovery in its earlier SDNY action, they sought the SDNY’s leave to use that discovery to sue Sotheby’s in the United Kingdom.  Learning of this plan, Sotheby’s preemptively filed its own lawsuit in Switzerland, which had the effect of preventing Rybolovlev plaintiffs from filing a competing suit in the U.K.—hence, they filed in the U.S. instead.  The plaintiffs allege that Sotheby’s decision to file in Switzerland was a breach of a 2016 tolling agreement between the parties, in which Sotheby’s pledged to give the plaintiffs 14 days’ notice before filing any related litigation.  Sotheby’s, for its part, argues that the tolling agreement had been terminated by the time it sued in Switzerland.
    The complaint seeks damages to the tune of $380 million.  It also asks the court to enjoin Sotheby’s purportedly improper Swiss action.
    This Month’s Ruling Against Sotheby’s
                After the suit was initiated, Sotheby’s moved to dismiss it on the basis of a doctrine called “forum non conveniens,” which permits a court to exercise discretion to dismiss a claim even where it is filed in a proper venue with valid jurisdiction.  In the alternative, Sotheby’s asked that the court dismiss or stay the New York case in deference to the related (Sotheby’s-initiated) case that is already underway in Switzerland, on grounds of “international comity” (essentially, out of respect for the foreign court). 
                In a decision filed on June 25, the court rejected Sotheby’s arguments.  It held that a dismissal on the basis of forum non convieniens was not appropriate because Sotheby’s failed to show that New York was genuinely inconvenient or that litigation in Switzerland was significantly preferable; witnesses and evidence were located in multiple jurisdictions, and Sotheby’s is based in New York.   Likewise, the court declined to dismiss the case on international comity grounds, where there were no “exceptional circumstances” to justify the court giving up its own jurisdiction; the mere existence of a parallel foreign proceeding is not enough.  And indeed, the court observed that the New York suit includes issues not present in the Swiss case (in particular, the claims regarding the purported breach of the tolling agreement).  The court also noted that, while the Swiss suit was filed first, it has not made much progress, and the New York case is arguably further advanced along the path to a final adjudication of claims. 
                Additionally, Sotheby’s argued that the Rybolovlev entities’ claims regarding the tolling agreement should be dismissed.  Sotheby’s primary argument on this point was that the tolling agreement had been terminated, by its terms, before the Swiss action was filed.  The court disagreed, concluding that the plaintiffs’ letter seeking leave of the Southern District of New York (which foreshadowed the plaintiffs’ intention to use the discovery obtained there to sue in the U.K.) did not itself constitute a “Notice of Suit” that would have terminated the contract.  Sotheby’s also argued that even if there had been a breach, the breach had not actually damaged plaintiffs.  But the court agreed with plaintiffs that, had they been able to file in the U.K. as they had originally intended, the Switzerland and New York actions might not have been necessary, meaning plaintiffs would have lower legal fees; the court noted, additionally, that plaintiffs can also sue for nominal damages.  Finally, the court rejected Sotheby’s invocation of “laches”—in which Sotheby’s argued that the plaintiffs had unreasonably delayed in bringing this contract claim.  The court reasoned that laches only applies where a delay has prejudiced the other party, and here, there was no indication that Sotheby’s had been prejudiced, especially where the Swiss suit has not advanced very far, due to Sotheby’s own delay in moving that suit forward.
                The court did side with Sotheby’s on one point.  The plaintiffs had asked the court to issue an injunction directing Sotheby’s to withdraw its purportedly-improper Swiss lawsuit.  The court refused, noting that such an injunction barring a foreign lawsuit is an extreme measure, and was inappropriate here, where the Swiss lawsuit covers matters not at issue in the New York suit. 
                Finally, the court took up the parties’ dispute over whether certain details of this litigation should be kept out of public view.  The court held that, while in some cases, confidential pricing information should be kept under seal and not publicly accessible, such measures were inappropriate here, where details about the parties’ dealings “lie at the very heart of the litigation.”  The court did agree to temporarily keep under seal a document from the Swiss litigation, because the Swiss court has not yet decided whether to seal the document there; the New York court agreed to allow the Swiss court to rule on that issue first. 
    What’s Next
    As for next steps, Sotheby’s must now file an answer to the complaint in this case, and a conference is scheduled before the court at the end of July.  This initial ruling is largely focused on procedural questions, rather than getting to the heart of the claims against Sotheby’s.  But the decision is illustrative of the fact that, when international art dealings go sour, parties risk not just a lawsuit, but potentially multiple overlapping proceedings across multiple jurisdictions.  Such complex litigation situations can result in additional expenses; the inconvenience and inefficiency of litigating in more than one forum; and questions about how to protect confidential information that may be at issue in one or more of the cases.  Parties to art transactions can sometimes mitigate some of these risks through careful contracting at the outset of a deal, including strategic use of forum selection clauses that agree in advance where any disputes should be resolved (although it’s not clear that such contracting would have helped Sotheby’s here, where Sotheby’s was not itself a party to the Rybolovlev-Bouvier deals at issue).  But in today’s global art market, a litigant may find itself waging court battles across the globe. 
    ATTORNEY: Kate Lucas
    CATEGORIES: AuctionLegal Developments