Grossman LLP has notched an important win in a contentious lawsuit over artworks securing a collateralized loan.

Last year, Grossman LLP initiated a federal lawsuit on behalf of a specialty lender who provides loans secured by luxury assets, including art. The dispute arises out of a series of loans to an art dealer who had pledged to the lender as collateral the same blue-chip artworks that a London art gallery, Maddox, claimed he had already sold to them. In an attempt to resolve the problem, Maddox offered our client a pool of “substitute collateral,” including several works by emerging artists, in exchange for permitting Maddox to keep the blue-chip art. And in negotiating this collateral swap, Maddox provided our client with what it said were “good faith” “secondary market” estimates for the substitute collateral. But shortly after our client agreed to the swap, the actual market for those substituted works promptly tanked precipitously, leaving our client with nearly-worthless art as security for its loans, instead of the blue-chip artwork it had originally held..

Maddox sought to dismiss the case on multiple grounds, arguing that it was not responsible for market factors, and that our claims were “implausible.” The federal court disagreed, rejecting each and every one of Maddox’s challenges. The court held that Maddox had expressly represented that its estimates were being made in “good faith,” and that our complaint plausibly alleged that they were not, and that “Maddox was involved in or at least had knowledge of the inflated values of these works.” The case is now well into the discovery process, and we look forward to vindicating our client’s rights.