Sotheby’s Goes To Court in Rybolovlev/Bouvier Dispute Over Leonardo Painting
01/10/2017We’ve written before about the bitter feud between Russian billionaire Dmitry Rybolovlev and his former art dealer, Swiss businessman Yves Bouvier. Our previous post contains more detail, but in short, in 2014, the two had a highly-publicized falling-out after Rybolovlev accused Bouvier of overcharging him—to the tune of as much as $1 billion—for dozens of artworks that Bouvier helped him to acquire.
The dispute has led to litigation in multiple jurisdictions, and has drawn into the fray several other players in the art market who were involved in some of the deals at issue. Last spring, Sotheby’s voluntarily turned over limited discovery to two entities controlled by Rybolovlev that were seeking information connected to the sale of a major painting, Leonardo da Vinci’s Christ as Salvator Mundi, which ended up in Rybolovlev’s collection and is now a focal point in his battle with Bouvier; Sotheby’s decision to cooperate with the discovery request instead of fighting it caused consternation among some in the art world.
Now, Sotheby’s has become not just a discovery target but a litigant; just before Thanksgiving, Sotheby’s filed a suit in federal court in New York, asking for a declaratory judgment that it “complied with all of its obligations” to a group of art dealers (the “Dealers”) in connection with the Salvator Mundi deal and has no liability to those dealers. The basic facts, according to the complaint, are that, in 2013, the Dealers (a group of individuals and business entities acting as a consortium), sold Salvator Mundi (for a total of about $80 million, paid in money and art) to a Bouvier-controlled entity. Sotheby’s acted as an intermediary between the Dealers and Bouvier in that transaction, and received a $3 million commission for facilitating the sale. The Dealers, Sotheby’s alleges, made a huge profit on the sale; Sotheby’s cites reports that one of the Dealers had acquired the work at an estate sale for less than $10,000. (At the time, the work was merely attributed to a “member of Leonardo’s school,” but, due in part to efforts by some of the Dealers, the work was subsequently reattributed to Leonardo himself.)
However, Sotheby’s says that, when the Dealers learned that Bouvier had immediately re-sold the work to Rybolovlev for even more money, the Dealers took the position that they should have received the amount Rybolovlev paid. Sotheby’s notes that they have taken this position “even though Rybolovlev has accused Bouvier of achieving that higher price through fraud” by allegedly lying to Rybolovlev about how much the Dealers were willing to accept for the work, to ultimately persuade Rybolovlev to pay $127.5 million. Sotheby’s says that, since the details of the Rybolovlev-Bouvier feud have become public, the Dealers have been threatening Sotheby’s with litigation, seeking to recover at least the markup Bouvier pocketed.
Sotheby’s emphasizes that it had no role in Bouvier’s resale to Rybolovlev and made no money from that resale; indeed, Sotheby’s says it didn’t even know that Bouvier was planning to flip the Salvator Mundi immediately, let alone how much he was planning to flip it for. Sotheby’s also notes that, while it “connected” the parties (the Dealers and Bouvier) and “facilitated the negotiation,” the price paid by Bouvier to the Dealers was reached via “vigorous” “arms-length” negotiations between one of the Dealers, on the one hand, and a representative of Bouvier, on the other. Sotheby’s claims this is a simple case of “seller’s remorse,” with the Dealers wishing they had made even more money from Salvator Mundi. It asks the court to rule that Sotheby’s breached none of its contracts with the Dealers and had no other obligations to the Dealers, that the Defendants in fact suffered no loss at all, and that even if they did suffer a loss, that loss was not caused by Sotheby’s.
The case is interesting for its glimpse into the secretive world of private art sales. While most people think of Sotheby’s as an auction house, this case highlights Sotheby’s work in a less public forum, as an intermediary facilitating private sales. In such deals, Sotheby’s says, it’s “an industry norm” to keep both buyers’ and sellers’ identities confidential. Sotheby’s also notes that, at the time Sotheby’s connected the Dealers with Bouvier, the Dealers had already been unsuccessfully marketing the work for some time; this, Sotheby’s claims, generally tends to deflate the value of a work. Sotheby’s says that Bouvier asked Sotheby’s to contact the Dealers to tell them that there might be a potential buyer (Bouvier) for Salvator Mundi; at the time, claims Sotheby’s, the Dealers claimed to be in discussions with another buyer to sell the work for $120-125 million, and were hoping to ultimately sell the work for perhaps $150 million. (The Dealers now claim that this other buyer was Rybolovlev, acting through a different intermediary, whom Bouvier ultimately replaced as Rybolovlev’s agent in the negotiations. Sotheby’s, for its part, claims that it did not know what Bouvier intended to do with the work, nor did it know that the ultimate buyer was Rybolovlev; although Rybolovlev was allegedly present at one of the pre-sale viewings, the representative from Sotheby’s allegedly did not know who he was.) Overall, the complaint paints a picture of a segment of the industry that operates in secrecy, from private viewings in a New York apartment to negotiations over dinner in Paris, with each party in the dark about who else is involved in the deal.
It’s also noteworthy that Sotheby’s had had a longstanding client relationship with Bouvier prior to the sale of Salvator Mundi; some have suggested that Sotheby’s arguably had motivation to keep Bouvier happy by getting him a good deal, even though Sotheby’s contractual obligations were to the Dealers. As we have observed before, it is not uncommon in the high-end art world for parties to have relationships and interests in multiple sides of a transaction, or to be unclear about who is acting on behalf of whom—sometimes leads to disputes later.
Litigation will likely focus, in part, on the limited language of the agreements between Sotheby’s and the Dealers in connection with the sale. Sotheby’s characterizes its obligations under an initial contract with the Dealers as “limited to transporting and showing” the work, communicating an initial offer, and holding the work to allow the parties to negotiate further. Then, once the parties had negotiated a purchase price, Sotheby’s signed a separate contract to facilitate the closing. But the case won’t be only about the written word. For example, the Dealers may seize on Sotheby’s statements acknowledging Sotheby’s role in the oral negotiations (for example, Sotheby’s says the Dealers accepted Bouvier’s offer after a Sotheby’s representative advised the Dealers that it was a good price).
The complaint also suggests that a subsequent Sotheby’s appraisal of Salvator Mundi may be an issue in the case. Sotheby’s explains that, after Bouvier finalized the sale with the dealers, he asked Sotheby’s for an insurance appraisal of the work; Sotheby’s provided an insurance valuation of about $113.4 million. Presumably the Dealers see this as evidence that Sotheby’s knew the Dealers should have received more for the work; Sotheby’s tries to preempt that suggestion by explaining that a work’s insurance value is often significantly higher than a work’s fair market value, because appraisers assume that the work will no longer be available on the market, and that the body of the artist’s works (here, Leonardo works, which are quite rare) “will be reduced by one.” Sotheby’s further notes that, while Rybolovlev has since claimed that this appraisal was used by Bouvier “to justify the price” Rybolovlev had paid, Sotheby’s had no knowledge of what Bouvier did with the appraisal. Should the litigation wade into issues of “industry norms,” it’s likely that experts would be called upon to weigh in on what appraisals do—and do not—mean.
The matter will be watched closely by the art world, not only due to the huge prices at stake and high-profile nature of the art and the parties involved, but due to its backdrop: the convoluted loyalties and lack of transparency that so often characterize the high-end art market.
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