Court declines to extend collateral estoppel defense in artwork ownership litigation.

In Reif v. Nagy, 2017 NY Slip Op 02920 (April 18, 2017), the First Department affirmed a lower court’s ruling dismissing a complaint brought by heirs claiming ownership to Nazi looted art.  The Court held that collateral estoppel did not apply since a lawsuit involving an earlier art piece did not extend to the other two art pieces.

The two artworks in consideration in the present suit were painted by Egon Shiele and include: (1) “Woman in a Black Pinafore” and (2) “Woman Hiding Her Face” .

The plaintiffs are heirs to cabaret artist, Fritz Grunbaum, who was the owner of the artwork before they were looted by the Nazis prior to his execution during the Holocaust.  The defendant, Nagy, an art dealer, procured the artwork around 2013.

The defendants argued that the principle of collateral estoppel should apply since a third piece, “Seated Woman with a Bent Left Leg (Toro)” was previously the basis of a federal lawsuit in which the Court held against the plaintiffs when establishing ownership of that piece.

However, the Court rejected this argument and declined to extend the principle of collateral estoppel to the current suit since “requires the issue to be identical to that determined in the prior proceeding, and requires that the litigant had a full and fair opportunity to litigate the issue”.

Here, the Court observed that the requirements were not fulfilled since “the purchaser, the pieces, and the time over which the pieces were held differ significantly”.  Thus, the Court declined to impute the status of one piece to another since in its opinion, the artworks were not part of the same collection.

Nevertheless, Nagy prevailed in having the§ General Business Law § 349 cause of action dismissed since the facts did not indicate any consumer type harm envisioned by the statute.

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First Department reiterates factors to be considered in determining art ownership in divorce proceedings.

The First Department recently held in Anonymous v. Anonymous, 2017 NY Slip Op 02613, (April 4th, 2017) that invoices paid by one party does not in itself constitute as  ownership for the purposes of single ownership with respect to marital property.  The Court reiterated the the factors stated in  Susan W. v Martin W. (89 Misc 2d 681 [Sup Ct, Kings County 1977]) are to be considered in determining art ownership: (1) parties’ interest in art; (2) joint involvement in the purchase of art and (3) source of payment e.g joint or single accounts.

The parties were married on May 5th, 1992 and under the prenuptial agreement signed on April 21st, 1992,  specific disposition of any art collection acquired was not explicitly addressed.  However, a key provision of the prenuptial agreement stated that with respect to property in general: “hereafter . . . acquired” by one party remains that party’s separate property.  It provides that “[n]o contribution of either party to the care, maintenance, improvement, custody or repair of . . . [the other’s party] . . . shall in any way alter or convert any of such property . . . to marital property.” (internal citations omitted).  Furthermore, in another key provision: “No property hereafter acquired by the parties or by either of them . . . shall constitute marital property . . . unless (a) pursuant to a subscribed and acknowledged written agreement, the parties expressly designate said property as marital property . . . or (b) title to said property is jointly held in the names of both parties.”  (Internal citations omitted).

Throughout the course of their marriage, the parties obtained art through various channels, and the wife’s contention was the such pieces obtained were jointly held whereas the husband argued that the such pieces where part of his personal collection and thus, outside of marital property.

The husband substantiated his position that he has sole title to the works because the invoices attached to the sale were solely on his name.  The Court disagreed with this argument and held that “that invoices, standing alone, may not be regarded as evidence of title or ownership of the art.”

Court’s reasoning was based on two premises: (1) the plain meaning definition of an invoice and (2) also its reliance in the Supreme Court case, Sturm v Boker, 150 US 312 (1893) which held that “”An invoice . . . is not a bill of sale, nor is it evidence of a sale. It is a mere detailed statement of the nature, quantity, or cost of the goods, or price of the things invoiced, and it is as appropriate to a bailment as a sale. Hence, standing alone, it is never regarded as evidence of title.”  (Internal citations omitted).

In its reasoning, the Court expressed its concerns over potential unreliability of invoices since prices may be distorted and the possibility of inaccurate description of the goods purchased.  As applicable to the parties here, the Court noted that the invoices presented already contained multiple discrepancies including issues with names presented to the auction house and where applicable, actual purchases in private sales, as well as painting explicitly purchased jointly, but the invoice indicating only the husband’s name.

The Court had disregarded the husband’s reliance on Tajan v Pavia & Harcourt (257 AD2d 299 [1st Dept 1999], lv dismissed in part, denied in part 94 NY2d 837 [1999]).  In Tajan, the Court noted that despite reference to a bill of sale produced during an auction “warranted the painting’s good title”, nevertheless, the Tajan Court considered the admissions and other releases of claims by the parties in determining the ownership of the art work.

In considering the wife’s arguments, the Court appeared to rely more on the cases cited, in particular Lindt v Henshel (25 NY2d 357 [1969]) and Susan W. v Martin W. (89 Misc 2d 681 [Sup Ct, Kings County 1977]).  The Lindt, the Court of Appeals held that a wife was entitled to a sculpture since she purchased it without the involvement of her husband and further, attended the auction by herself.  The Court noted that the bid card was signed by her and furthermore, the price of the painting was charged to her account along with the invoice being in her name.  In Susan W., the Court considered factors such as (1) parties’ interest in art; (2) joint involvement in the purchase of art and (3) source of payment e.g joint or single accounts.

Overall, the Court appears to be dismiss invoices as the sole determination of ownership of art between the parties.  The totality of the circumstances of the purchases needs to be considered as stated in the suggested factors in Susan W. and Lindt decisions.

First Appellate Division declines to extend mutual mistake doctrine to commercial art transaction.

In an interesting application of mutual mistake in an art deal transaction, the First Appellate Division, in a split opinion, affirmed in Jerome M. Eisenberg, Inc. v. Hall, 2017 NY Slip Op 01437 (February 23rd, 2017) that the Plaintiff was not entitled to summary judgment for the breach of contract pursuant to the doctrine of mutual mistake.

The Plaintiff, Jerome Eisenberg, purports to be an expert in classical antiquities and is a buyer and seller of various antiquities.  The Plaintiff is also a Qualified Appraiser of the Appraisers Association of America and also has PhD in Roman, Egyptian and Near Eastern Art.

Defendant, Maurice E. Hall, Jr. is an art dealer who transacts primarily in 16th to 19th century European art, and in particular, Renaissance art. He self-proclaims to be only an amateur collector with regards to ancient antiquities. The subject matter between the parties were two pieces: (1) marble head or bust of Faustina II (“Faustina”) and (2) a bronze warrior statue purported to be either from the Etruscan or Roman Era (“Etruscan”). it should be noted that both these pieces are considered to be ancient.

In 2009, the Plaintiff purchased the Faustina from the Defendant’s townhouse and later sold the piece to Mougins Museum of Classical Art in France. In September 2011, the Plaintiff was informed by the Museum that the Faustina was a fake and substantiated their position by submitting two expert valuations.

In April 2011, the Plaintiff purchased the Etruscan and a bronze helmet. At a later stage ,the Plaintiff submitted photographs and the statute to various experts who concluded that based on the style and metallurgical analysis, the Etruscan was produced in the 19th or 20th century which would not qualify it as ancient.

Plaintiff moved for summary judgment and argued that the contract should be voidable under the doctrine of mutual mistake.

The Majority cited the standard set In Matter of Gould v Board of Educ. of Sewanhaka Cent. High School Dist., 81 NY2d 446, 453 [1993] and P.K. Dev. Elvem Dev. Corp., 226 AD.2d 200 (First Dept., 1996) as to whether the plaintiff bore any risk of the mistake due to its “conscious ignorance” of the items’ authenticity. Furthermore, the Court reiterated that where the doctrine of mutual mistake applies, the contract is subject to rescission because it does not represent the meeting of the minds of the parties. In addition, the said mistake must exist at the time of the formation of the contract and must be substantial (internal citations omitted).

The Majority reasoned that while both parties mistakenly assumed that the item in question was ancient, nevertheless there were “ancient, issues of facts exist as to whether plaintiff bore the risk of that mistake due it its “conscious ignorance” of the items’ authenticity”.

The Majority re-iterated that a contract would be voidable if it is entered under a mutual mistake since it does “not represent the meeting of the minds’ of the parties”.   Furthermore, such mutual mistake shall exist at the time of entering the contract and must be substantial (internal citation omitted).

Regardless, there are exceptions where such a mutual mistake may not apply, such as a party’s own negligence. Where a party should “in the exercise of ordinary care, should have known or could have easily ascertained the relevant fact, then the party is deemed to have been “consciously ignorant” and barred from seeking rescission or other damages.  The Majority emphasized that the relevant party “must go beyond its own efforts in order to ascertain relevant facts”.

Thus, under the Majority’s reasoning, the Plaintiffs simply failed to conduct sufficient due diligence despite having the ability and the access to the relevant expertise. It was noted that during previous transactions, the Defendants had produced items with questionable authenticity and thus Plaintiff should have had notice as to the authenticity of the current item.

The Dissent’s fairly expansive reasoning disagreed with one aspect of the Majority’s decision and that is if the Plaintiff was consciously ignorant of the items’ authenticity.

The Dissent supported the Plaintiff’s position that that he genuinely did not believe the artwork in question was inauthentic. However, the disagreement with the Majority’s position was that the Dissent believed that “there is no evidence that the plaintiff consciously ignored its uncertainty as to a crucial fact”. Despite having notice that the Defendants sold inauthentic pieces in the past, with respect to the pieces at hand, there is no indication that the Plaintiff was “uncertain to a crucial fact”. The record did not indicate the circumstances of the details of the previosu transactions, and nevertheless the Plaintiff was refunded for all monies paid and thus suffered no financial loss.

However, the critical distinction between the Majority and the Dissent is that pursuant to Richard L. Feigen & Co. v. Weil, 1992 NY Misc LEXIS 711, aff’d 191 AD.2d 278 (First Dept. , 1993), the Dissent relied on the assertion that “there is no authority for the proposition…that in a contract between an expert and non-expert, rescission based on mutual mistake is unavailable to the expert” (internal citations omitted). The Dissent also cited Uptown Gallery, Inc. v. Doninger (1993 NY Misc LEXIS 661 [Sup. Ct. , New York County 1993]) where the conscious ignorance claim was also set aside on grounds that there was no uncertainty involved in the underlying painting, but the parties simply assumed that the painting was an authentic piece painted by a certain artist.

Ultimately, the majority decided that the Plaintiff bore the risk of the transaction and in essence, could have conducted further due diligence on the pieces whereas the Dissent focused on that such due diligence was unnecessary since there was no apparent uncertainty on the onset of the formation of the contract.