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Financier Claims Art Fraud Over Rockwell, Rodin and Renoir Works

Submitted by Amaris Elliott-Engel on Sun, 03/15/2015 - 12:39

Here's a piece I wrote for the Connecticut Law Tribune regarding a Connecticut financier who alleges his Manhattan art dealer defrauded him:

The art world has become a big business, with more than $6 billion in modern art and $1.26 billion in contemporary art sold in 2011. And with big business comes big litigation.

Multiple lawsuits filed by a Connecticut financial executive alleging that his Manhattan art dealer defrauded him illustrates the stakes raised when buyers spend thousands, even millions, of dollars procuring art.

Richard C. McKenzie Jr., a Greenwich-based financier, has spent $200 million on art for his Seven Bridges Foundation, which aims to support up-and-coming artists by purchasing their work. The foundation also displays paintings by famous artists in order to inspire budding artists.

In a lawsuit pending in Connecticut federal court, McKenzie alleged that he was defrauded into buying an allegedly fake Pierre-Auguste Renoir painting, an Auguste Rodin sculpture and a Ernst Barlach bronze cast for a total of close to $570,000 by Manhattan gallery Forum Gallery. McKenzie asserts that Robert Fishko, the proprietor of Forum Gallery, befriended McKenzie's former wife and McKenzie himself, gained their trust and nurtured a business relationship that turned fraudulent.

McKenzie also is seeking punitive damages for $1.7 million.

In total, Forum Gallery and Fishko were paid $11.8 million during the dozen years Fishko was McKenzie's exclusive agent in finding art for his collection, according to the plaintiff's court papers.

In a separate lawsuit in New York federal court, McKenzie asserted that Forum Gallery and Fishko marked up the costs of procuring paintings by Norman Rockwell and other artists. McKenzie also alleged that Forum Gallery violated the contract it had with him on the terms on which it was to buy art for him on the primary and secondary markets.

McKenzie stated in court papers that a principal of a competing gallery told him that Fishko bought a Ralph Goings painting on his behalf at such a high price that the gallery pocketed $398,125, or a 114 percent profit. Fishko responded in court papers that the profit margin was only 13.1 percent.

In an interview, Fishko said that his long-time business relationship with McKenzie went sour after a California-based art dealer told McKenzie that Fishko's gallery had been overcharging him and misrepresenting the value of the art it had sold him. Fishko denies this. "I'm very proud of the work that I do for the artists that I represent and I'm very, very sure that Mr. McKenzie and the Seven Bridges Foundation … received everything that he bargained for and more," Fishko said.

There was no wrongdoing, fraud or violations of contractual or fiduciary obligations, Fishko added.

All the allegations in the New York case were struck down this month after U.S. District Judge Laura Taylor Swain, of the Southern District of New York, ruled against McKenzie's claims for fraud, breach of contract and breach of fiduciary duty. The judge said McKenzie could not show that Fishko misrepresented the prices at which sellers were willing to deal regarding the Rockwell and Goings paintings.

"Plaintiffs' evidentiary proffers fall far short of the clear and convincing showing required to demonstrate fraud," Swain said.

McKenzie has filed a third amended complaint in the Connecticut lawsuit pending before U.S. District Judge Janet Bond Arterton, but the judge has not yet made a decision on allowing the submission of the complaint. In the complaint, McKenzie set out a cloak-and-dagger scenario in which Fishko led him through Paris back alleys to a dimly lit apartment of a seller in financial straits to induce him to buy a fake Renoir painting. Fishko called that allegation an "absurd fabrication."

Even though McKenzie bought the Renoir painting in 2000, the Rodin sculpture in 2002, and the Barlach bronze cast in 2002, he alleges that he did not have reason to discover that the works were allegedly fake or inauthentic until 2014 when the various' artists committees decided to not include his property in their catalogs.

However, Fishko's counsel, Andrew Nevas, of Verrill Dana in Westport, said in court papers that his clients have provided proof of the authenticity of the artistic works. "McKenzie's willingness to advance knowingly inconsistent and false allegations is, sadly, not a surprise, as he is a serial and vexatious litigator," defense documents stated.

Forum Gallery's and Fishko's counsel maintain that the statute of limitations on all of McKenzie's claims have expired because he did not conduct due diligence about the authenticity of the Renoir and the two sculptures until 2014. "McKenzie, an extraordinarily sophisticated plaintiff who has purchased tens of millions of dollars of art, cannot evade the obvious fact that he had the means available to him to verify Forum's alleged representations himself," the defense said.

The defense is also going to seek sanctions for the prosecution of "patently unfounded, insufficient and time-barred claims."

Eric Grayson, the founder of commercial law boutique Grayson & Associates in Greenwich, said in an interview that his client can prove the higher standard of clear and convincing evidence needed to show fraud in the Connecticut lawsuit. The true test of the authenticity of the Rodin, Barlach and Renoir artworks is whether Fishko would "buy the three pieces back if he's that convinced that they are authentic works," Grayson said.

Fishko "took advantage of relationships that he had with Mr. McKenzie," Grayson said. "We are going to pursue this diligently with vigilance."

As for the New York case, McKenzie is a considering an appeal, Grayson said.

Fishko said there has been a sea change in the art business in the last 20 years because many investors now "come into the art business because they feel it's either a good place to put money or invest money." But the whole reason for Seven Bridges Foundation and McKenzie's art procurement was not for investment but to promote art by inspiring art, Fishko said.

Outside art law expert Robert A. Darwell, the founder of Sheppard Mullin Richter & Hampton's art law practice and a senior partner at the firm, said that there has not been an increase in litigation specifically because there is a new wave of collectors entering the art market. But because the value of art has been rising and there are more investors in the art world, Darwell said "it tends to lead to heightened sensitivities and potential claims."

Art appraisers, museums and galleries are facing more litigation, including for speaking freely about the authenticity of works, Darwell said.

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White House Proposes Bankruptcy for Some Student Debt

Current bankruptcy law mostly prohibits educational loans from being discharged in bankruptcy. But the White House is considering how to make it easier for student loans to be discharged in bankruptcy court, the Wall Street Journal's Josh Mitchell reports. President Barack Obama directed his administration to study whether bankruptcy should be expanded for all student loan borrowers.

Mitchell reports that only 713 lawsuits were filed to discharge student loans in bankruptcy in 2014.

Petitioners to discharge student-loan debt have to show they have an undue hardship and that they never could afford to pay their monthly loan payments. Both federal loans and private loans are nondischargeable.

www.wsj.com

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Consumer Financial Protection Bureau Criticizes Mandatory Arbitration Agreements

The Consumer Financial Protection Bureau has conducted a study of mandatory arbitration for consumers, finding that less than 10 percent of consumers won awards in cases with American Arbitration Association neutrals, The National Law Journal's Jenna Greene reports. In contrast, consumers won 1,200 individual lawsuits in court, and consumers won $2.7 billion in cash, in-kind relief, expenses and fees through class actions.

The agency also found no evidence that arbitration clauses led to lower prices for consumers, Greene further reports.

The study could lay the groundwork for the agency to regulate arbitration agreements in the financial-services sector, Greene also reports.

www.nationallawjournal.com

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NM Justices Reject Social Worker Privilege Against Reporting Child Abuse

The New Mexico Supreme Court has ruled that mandated child reporters must report suspected child abuse and neglect no matter the circumstances, the Associated Press' Vik Jolly said. The court rejected an intermediate appellate court ruling finding that social workers are privileged against having to report child abuse and neglect when they learn information during counseling sessions.

www.santafenewmexican.com

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Religious Protection Law Doesn't Protect Church Fund From Sex Abuse Victims, 7th Circuit Rules

The Seventh Circuit has ruled that a $55 million cemetery trust fund isn't off limits from the creditors of the Archdiocese of Milwaukee, the Associated Press reports. Sex abuse victims and their lawyers argue that the trust fund was created to shield money from them. The archdiocese has filed for bankruptcy because hundreds of sex-abuse victims have filed claims against the archdiocese.

The archdiocese argued that the Religious Freedom Restoration Act protected the trust fund from a court-appointed committee the represents sexual assault victims and other creditors in bankruptcy court, but the court rejected that argument because creditors aren't the government.

www.washingtonpost.com

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NJ Supreme Court Puts Judges in Charge of Affordable Housing

After Governor Chris Christie's administration failed to established new guidelines for affordable housing, the New Jersey Supreme Court put judges in charge instead, NJ.com's Brent Johnson reports. Under the court's order, courts will decided on a case-by-case basis how many homes in a town should be available to low-income and moderate-income residents. Over 30 years ago, the state Supreme Court ruled that New Jersey municipalities must provide a fair share of affordable homes to low-income residents.

www.nj.com

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Eighth Circuit: No First Amendment Right to Source of Execution Drugs

Submitted by Amaris Elliott-Engel on Mon, 03/09/2015 - 11:40

The U.S. Court of Appeals for the Eighth Circuit has ruled that death-row inmates in Missouri don’t have a First Amendment right to learn the identities of the pharmacies that compound the drug used in executions.

The Eighth Circuit, sitting en banc, noted that there has not been a history of public access to the identities of the pharmacies that supply the drugs used in lethal injections.

Second, the court said the inmates’ complaint “provides no basis to conclude that public access to detailed information about execution protocols plays a significant positive role in the functioning of the process in question, given that the practical effect of public disclosure would likely be frustration of the state’s ability to carry out lawful sentences.” 

In a per curiam opinion, the Eighth Circuit also ruled that death-row inmates must show in their complaints that execution methods are unconstitutional by alleging, one, that the method of execution is very likely to cause unconstitutionally painful deaths and, two, that there is an alternative method of execution that would “significantly reduce a substantial risk of serious pain.” 

Several death-row prisoners in Missouri are challenging the use of compounded pentobarbital in executions as cruel and unusual punishment. Among other arguments, the defendants allege that super-potent pentobarbital could result in their suffocation and difficulty breathing before they lose consciousness.

In dissent, Circuit Judge Kermit E. Bye said that the majority’s ruling would impose heightened pleading standards when death-row inmates challenge their method of execution.

“The majority opinion establishes heightened pleading requirements for death-row inmates challenging a state’s method of execution under the Eighth Amendment,” Bye said. “This imposition is in opposition to governing Supreme Court precedent and the Federal Rules of Civil Procedure. In other words, the Eighth Circuit now prevents death-row inmates from truly accessing the federal courts: a death-row inmate cannot benefit from discovery and is prohibited from challenging even a truly unconscionable method of execution if no other methods are readily available and obvious at the pleading stage.”

The majority disagreed that they imposed a heightened pleading requirement, ruling “the prisoners fail to satisfy their burden under the Eighth Amendment because they rely entirely on hypothetical and speculative harms that, if they were to occur, would only result from isolated mishaps,” according to the per curiam opinion.

The court’s ruling was 7-3 on most issues.

Judge Steven M. Colloton joined the majority except for the section of the opinion finding that the death-row inmates inadequately plead in their complaint that they face a substantial risk of severe pain by the use of pentobarbital. Judge Bobby E. Shepherd joined the majority except for the ruling that prisoners must identify an alternative method of execution in their complaints.

While the court rejected the facial challenge in this case, the court did allow an as-applied challenge to proceed in the case of Bucklew v. Lombardi. The inmate in that case alleges that his execution could result in excruciating pain because of a serious medical condition. 

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UN:$6 Billion Investment in Disaster Relief Would Save $360 Billion

Natural disasters are costing $250 billion to $300 billion annually, the U.N. Office for Disaster Risk Reduction said in a report released last week. According to the Associated Press' Edith M. Lederer, the report estimates that, if a $6 billion investment is made every year, the cost from disasters would be reduced by $360 billion over the next 15 years. Andrew Maskrey, lead author of the 2015 Global Assessment Report on Disaster Risk Reduction, said climate change will make the costs of disasters increase even more.

www.msn.com

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Progress Slow for Law on Tribal Remains, Sacred Objects

The Native American Grave Protection and Repatriation Act was a landmark human rights law when it was enacted 25 years ago: mandating that federal agencies return American Indian remains and sacred objects collected during a long history of colonialism and mistreatment of American Indians. But the law has been "stymied by poorly curated collections, long-lost records and limited operating budgets," E&E Publishing's Dyland Brown reports. NAGPRA was enacted without funding, and "limited budgets, legal expertise and access to land for reburial create a gulf between the number of items available for repatriation and those physically returned." The Government Accountability Office has found that there is poor compliance with NAGPRA, including poor curation practices by federal agencies and federally funded museums and poor documentation of American Indian remains and sacred objects.

www.eenews.net

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Legislation Introduced to Reform Oregon's DNA Testing Law

In the 14 years since Oregon enacted a law to allow defendants to get DNA testing to show they might be innocent, only two have gotten judges to approve such testing. As a result, legislators in Oregon have introduced a bill to reform the state's DNA testing law for defendants, Oregon Public Broadcasting's Amelia Templeton reports.

Under current law, defendants have to show that DNA testing on specific pieces of evidence would conclusively prove their innocence. The new bill would relax the standard, requiring defendants to "present a theory of defense supported by DNA evidence, and prove that a favorable DNA result would lead to finding that person would not have been convicted if the testing had been done before their trial," Templeton reports.

www.opb.org

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