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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