Jenny C Gu
Schindler Cohen & Hochman, New York

Steven R Schindler
Schindler Cohen & Hochman, New York
sschindler@schlaw.com

Introduction

A recent decision cautions that art buyers who fail to conduct minimal diligence in the face of red flags may be foreclosed from claiming fraud over the misattribution of purchased artwork. In Greenway II LLC v Wildenstein & Co Inc,^[1] the Second Circuit Court of Appeals issued a summary order affirming the lower court’s decision to dismiss a buyer’s fraud claim over a painting’s authenticity as time-barred, where the buyer received appraisal reports disclosing that the painting had not been authenticated but failed to investigate until years later.  

Case background

In 1985, art collector Neil Wallace purchased a painting titled Still Life with Basket of Fruit (the ‘Painting’) from the gallery of Wildenstein & Co Inc (‘W&Co’) that was attributed to French impressionist painter Pierre Bonnard. Wallace was advised in his purchase by a contemporary art curator at the Boston Museum of Fine Art. At the time of purchase, W&Co issued Wallace a fact sheet and an invoice, both of which stated that the Painting was not in the Pierre Bonnard catalogue raisonné.

Beginning in 2007 and through to 2017, Wallace received at least eight appraisals for the Painting from Christie’s, Inc (‘Christie’s’), each of which contained the following disclaimer: ‘Not included in currently accepted catalogue raisonné; assumes that the recognized authority on the artist would confirm attribution’. Wallace reviewed the disclaimers but did not further inquire into the Painting’s authenticity.

Only in 2018, when Wallace sought to auction his collection through Christie’s, did he submit the Painting to the author of the Bonnard catalogue raisonné, Guy de Dauberville, for authentication and inclusion in an upcoming supplement. Dauberville declined to include the work in his upcoming supplement, and Christie’s withdrew the Painting from auction.

Thereafter, in 2019, Wallace, through the corporate entity Greenway II LLC (‘Greenway’), commenced an action for fraud against W&Co, alleging that it was reckless for W&Co to sell the Painting as an authentic Bonnard when it knew that the Painting was absent from the Bonnard catalogue raisonné. Greenway’s claim hinged the allegation that such absence was a ‘bright red flag of inauthenticity’.

District Court decision

Judge McMahon of the District Court for the Southern District of New York granted W&Co’s motion for summary judgment and dismissed Greenway’s claim on two alternative grounds.^[2] First, the court held the claim was barred by the statute of limitations, because Christie’s appraisal reports put Wallace on inquiry notice of fraud. Under New York law, fraud claims must be commenced within either six years of the fraud or two years from the time the plaintiff discovered the fraud, or ‘could with reasonable diligence have discovered it’.^[3] The District Court found that a person of ordinary intelligence would have inquired into the Painting’s authenticity upon seeing Christie’s disclaimer, which advised that the Painting was not in the catalogue raisonné and that no ‘recognized authority’ had yet confirmed attribution.^[4] This was particularly true for Wallace, because Greenway’s own complaint specifically alleged that a work’s absence from the catalogue raisonné is a ‘bright red flag of inauthenticity’.

The District Court also dismissed the claim on the alternative ground that Greenway failed to establish ‘reasonable reliance’, which is one of the elements of a fraud claim. The court noted that Wallace not only received documents from W&Co disclosing the Painting’s absence from the Bonnard catalogue raisonné, he was also advised by an art expert who could have explained to him the purported significance of such absence. Even if Wallace was an unsophisticated purchaser, he had ‘the means available to him of knowing […] the truth or the real quality of the subject of the representation’.^[5] Wallace’s blind reliance on W&Co was, therefore, unreasonable as a matter of law.

Second Circuit decision

The Second Circuit, in a summary order, affirmed the District Court’s decision on statute of limitations grounds, without reaching the reasonable reliance question. The court held that ‘[a]ny reasonable trier of fact would be compelled to find that the disclaimer in the Appraisal Reports […] would suggest to a person of ordinary intelligence the probability that he has been defrauded’.^[6] The reports ‘prompted a duty to conduct at least some investigation’.^[7] The court rejected Greenway’s argument that Wallace failed to understand the significance of the disclaimer and that, in any event, he paid no attention to it because the appraised value of the Painting increased over the years. The court noted that the express disclaimer that authenticity was only assumed and would need to be confirmed ‘clearly signaled that the Painting’s authenticity was open to question’.^[8] Additionally, ‘a person of ordinary intelligence’ would not have focused only on the valuation and disregarded the disclaimer.^[9] The court imputed knowledge of the Painting’s inauthenticity to Greenway as of April 2007, when Wallace first began receiving appraisals, and concluded that Greenway’s 2019 fraud claim was time-barred.

Conclusion

Both the Second Circuit and District Court decisions make clear that art buyers cannot turn a blind eye to red flags. Even if they are unsophisticated, buyers are required to review information in their possession and conduct a timely inquiry where that information raises doubts about a work’s authenticity. The District Court decision further suggests that a buyer cannot blindly rely on a seller, even a reputable one, but must instead investigate obvious red flags disclosed by the seller at the time of sale. This is particularly true if the buyer has access to any outside experts. Buyers who ignore warning signs do so at their own peril and may find themselves without recourse.