Second Circuit Affirms Dismissal Of Fraud Claim
Over Inauthentic Bonnard Painting04/26/2023The Second Circuit recently affirmed the dismissal of a fraud claim by a buyer who bought an artwork in 1985 and had it appraised on several occasions beginning in 2007, but did not sue until after the work was deemed inauthentic in 2018. The case focused on the work’s exclusion from the artist’s catalogue raisonné; the appraisals all expressly noted that the work’s authenticity was only “assumed” because the painting was not in the artist’s catalogue. The court reasoned that in light of such a disclaimer, a reasonable person should have further investigated its authenticity, and therefore the fraud claim’s two-year statute of limitations began to run at that time.
Our previous posts on this case (see here and here) contain more detail, but in short, the plaintiff here is a trust entity, Greenway, affiliated with prominent art collector Neil Wallace. The defendant is Wildenstein & Co., Inc. (“Wildenstein”), a prominent art gallery. And the artwork at issue was a painting, purportedly by French Impressionist Pierre Bonnard, which Greenway bought in 1985 from Wildenstein for $275,000. See Docket No. 1:19-cv-04093-CM (S.D.N.Y.). Greenway claimed that it bought the work in reliance on Wildenstein’s venerable reputation as a dealer with vast experience in French Impressionism and Bonnard specifically.
Thereafter, between 2007 and 2017, Greenway had the painting appraised several times by Christie’s, and each time, the appraisal report contained a disclaimer: “Not included in currently accepted catalogue raisonné; assumes that the recognized authority on the artist would confirm attribution.” Wallace testified that he recalled seeing this disclaimer but did not focus on it or discuss it with Christie’s.
Greenway’s problem only came fully to light in 2018, when, in preparation for a possible sale of the work, the work was submitted to one of the Bonnard catalogue raisonné co-authors, who then opined that Greenway’s work was not a real Bonnard. It turned out that the work in question had never been in the Bonnard catalogue raisonné, which was published in 1974, and in fact, it had actually been rejected from the catalogue around 1974.
Greenway sued Wildenstein in 2019, asserting that either Wildenstein must have reviewed the catalogue raisonné and discovered the work was not included, but failed to disclose that (which, Greenway claimed, would have been a “material omission” amounting to fraud), or Wildenstein failed to consult the catalogue or its author before selling the work (which, Greenway argued, would have been a “reckless failure” amounting to fraud).
Analysis By The District Court and Second Circuit
After the lawsuit was commenced, a federal district court refused to dismiss Greenway’s fraud claims at the pleading stage. But after discovery, the court ruled in 2022 that the claims could not survive summary judgment, on two alternative grounds. First, Greenway’s claims were, as a matter of law, barred by the applicable statute of limitations. And second, Greenway could not, as a matter of law, show reasonable reliance on Wildenstein’s representations about the painting’s authenticity at the time of sale.
Last week, the Second Circuit affirmed based solely on the second ground: Greenway was barred from bringing a fraud claim due to the statute of limitations. See Docket No. 22-1201 (2d Cir.). Under New York law, fraud victims only have six years from the date of the fraud, or two years from the date they reasonably should have discovered the fraud, to file a lawsuit. And here, the fraud allegedly happened in 1985, so the question was when Greenway should have reasonably discovered it. The court focused on the disclaimer in the appraisal reports, which stated that authenticity was only “assumed” because the painting was not in the catalogue raisonné. The Court reasoned that those appraisals “clearly signaled” that the work’s authenticity was “open to question,” and a reasonable person should have done some further investigation into whether the work was authentic; although Greenway failed to do so, knowledge of the issue was “imputed” to Greenway as of that date and therefore the two-year statute of limitations began to run at that time. The court also rejected Greenway’s argument that Wallace had no reason for concern because the appraisal reports indicated that the work was continuing to increase in value; the court stated that it was not reasonable to focus only on the appraisal reports’ valuations “while disregarding the disclaimer on which these valuations were based.”
Case Highlights Importance Of Buyer Diligence
This case contains some key insights for buyers of art. First, where an authoritative authentication resource, such as a catalogue raisonné, exists for an artist’s work, consulting that resource is a vital step in a buyer’s diligence. Artists and their estates as well as scholars and experts exercise care in creating such catalogues, and where a work is not included, galleries and buyers should not assume the work’s authenticity based solely on the representations of third parties (no matter how reputable). As the plaintiff in this case admitted—and as the Court endorsed—“a work’s absence” from a catalogue raisonné “is a bright red flag of inauthenticity.”
Second, owners of artwork must understand the meaning of—and limitations of—appraisal documents. Here, Greenway had the artwork appraised multiple times by a respected institution, but failed to fully appreciate the meaning of the disclaimer in those appraisals, or follow up on the questions raised by that disclaimer.
Finally, buyers ignore red flags at their peril; as the court put it, if a victim “shuts his eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him.” The buyer here argued that the two-year statute of limitations started running only when the work’s inauthenticity was explicitly confirmed in 2018. But the Court rejected that argument, instead ruling that clock started when the fraud could have been discovered with reasonable diligence. And here, that happened when Greenway received notice from the appraisers that the work was excluded from the catalogue raisonné. At that point, the buyer could have sought an expert opinion and discovered the work was inauthentic, and then timely filed a lawsuit. But having failed to do that, the buyer was time-barred from suing in 2019. Art buyers and collectors have a duty to investigate potential issues promptly, lest the New York statute of limitations run out.
Art Law Blog