On Friday, the firm earned a decisive win in a long-running dispute against “former hedge-fund star” Philip Falcone, obtaining a fraud judgment in connection with a series of loans that Falcone took from our client—secured by his wife’s 20-carat Harry Winston diamond ring, as well as artworks by Picasso, Hirst, and Prince.
 
As the Court recounted in its written decision, Falcone (along with his wife) entered into a $92 million loan and guaranty in 2013 secured by various collateral, including four pieces of fine art.  And in connection with that transaction, Falcone and his wife created a new entity, “First Street LLC,” to which they transferred ownership of the art.  By 2018, Plaintiff had defaulted on that loan. 
 
Following notice of default, he attempted to raise money through additional secured loans, including a series of loans from our client.  One of the loans Falcone took from our client was secured by the diamond ring, which he said had been valued in excess of $6 million.  Between September of 2019 and October of 2020, Falcone entered into a succession of further loans with our client—secured by the four artworks, which Falcone physically delivered to our client—each memorialized in a written loan agreement where Falcone represented and warranted that (i) he personally owned the property, (ii) the works were not subject to any personal property mortgage, security agreement, or pledge agreement; and (iii) there were no claims, liens or encumbrances against the collateral.  But those representations and warranties were false. 
 
In February of 2020, the original lender sued Falcone on the 2013 loan and sought to foreclose on the artworks.  In that litigation, Falcone stipulated that he would refrain from transferring or pledging any of that property.  Nonetheless, shortly after, Falcone pledged certain of the artworks to our client.  Falcone then defaulted on those loans as well, prompting our client to foreclose and sell them at public auction.  Upon learning about this foreclosure, the original lender sued our client, claiming to have superior title—revealing that Falcone had misrepresented to our client his ownership and the status of those artworks.  Our client then settled that dispute with the original lender.
 
In late 2021, Falcone filed a lawsuit claiming that our client should not have foreclosed on the loans and sold the collateral.  Our client, in turn, filed counterclaims against Falcone on the basis that he had committed fraud and breach of contract by misrepresenting his ownership and legal status of the artworks.  After securing dismissal of Falcone’s usury and replevin claims on a pre-discovery motion for summary judgment in 2023, we moved for summary judgment on our client’s fraud and contract counterclaims.
 
Following briefing and lengthy oral argument, on Friday the Court delivered our client a complete and decisive win, finding as a matter of law that Falcone had made material misrepresentations “clearly intended on their face to induce Defendant to issue the loans that later resulted in substantial financial injury.”  In doing so, the Court rejected Falcone’s arguments that our client was somehow aware (or should have been aware) that the collateral was pledged to other entities in connection with other loans (particularly because a UCC search would not have revealed the truth unless our client had known the name of Falcone’s entity, First Street LLC).  The Court then went on to hold that “while generally a court may not weight the credibility of an affirmant on summary judgment, it may do so where it clearly appears that the issues are not genuine, but feigned.”  And here, the Court held, in a rebuke of Falcone’s incredible new affidavit testimony, Falcone’s “affidavit only feigns to raise issues of fact regarding reliance,” in part based on “what the affidavit stops short of outright alleging,” i.e., that he somehow had earlier revealed his misrepresentations to our client, and in part based on “basic common sense.” 

We are pleased to have achieved this favorable outcome for our client, and proud to continue our record of litigation victories in the complex arena of art-backed loan transactions (see recent wins here, here, and here).