Opinion
Nos. 12 Civ. 2313PGG 12 Civ. 5263PGG.
10-09-2015
Domenico DE SOLE, and Eleanor De Sole, individually and as assignee of Laura De Sole, Plaintiffs, v. KNOEDLER GALLERY, LLCd/b/a Knoedler & Company, Anne Freedman, Glafira Rosales, Michael Hammer, and Jaime Andrade, and 8–31 Holdings, Inc., Defendants. John D. Howard, individually and as assignee of Jaime Frankfurt, LLC, Plaintiff, v. Ann Freedman, Glafira Rosales, Knoedler Gallery, LLC, d/b/a Knoedler & Company, Michael Hammer, 8–31 Holdings, Inc., Jose Carlos Bergantinos Diaz, and Jaime R. Andrade, Defendants.
Gregory A. Clarick, Aaron Hayes Crowell, Emily Reisbaum, Isaac Berkman Zaur, Clarick Gueron Reisbaum LLP, New York, NY, for Plaintiffs. Andrius R. Kontrimas, Houston, TX, Charles David Schmerler, India Decarmine, Fulbright & Jaworski L.L.P., Mark Allen Robertson, Sarah E. O'Connell, Norton Rose Fulbright US LLP, Nicholas A. Gravante, Jr, Luke William Nikas, Boies, Schiller & Flexner LLP, Silvia L. Serpe, Eric B. Einisman, Paul W. Ryan, Serpe Ryan LLC, New York, NY, Philip J. Iovieno, Boies, Schiller & Flexner LLP, Albany, NY, Anastasios Sarikas, Office of Anastasios Sarikas, Astoria, NY, for Defendants.
Gregory A. Clarick, Aaron Hayes Crowell, Emily Reisbaum, Isaac Berkman Zaur, Clarick Gueron Reisbaum LLP, New York, NY, for Plaintiffs.
Andrius R. Kontrimas, Houston, TX, Charles David Schmerler, India Decarmine, Fulbright & Jaworski L.L.P., Mark Allen Robertson, Sarah E. O'Connell, Norton Rose Fulbright US LLP, Nicholas A. Gravante, Jr, Luke William Nikas, Boies, Schiller & Flexner LLP, Silvia L. Serpe, Eric B. Einisman, Paul W. Ryan, Serpe Ryan LLC, New York, NY, Philip J. Iovieno, Boies, Schiller & Flexner LLP, Albany, NY, Anastasios Sarikas, Office of Anastasios Sarikas, Astoria, NY, for Defendants.
MEMORANDUM OPINION & ORDER
PAUL G. GARDEPHE, District Judge.
These actions arise from the sale of forged paintings that Plaintiffs purchased from Defendant Knoedler Gallery, LLC (“Knoedler”). In addition to Knoedler, the named defendants include 8–31 Holdings, Inc., Knoedler's sole member; Michael Hammer, Knoedler's managing member and the owner of 8–31 Holdings, Inc.; Ann Freedman, Knoedler's former president; and Jaime Andrade, a former Knoedler employee (“Defendants”).The operative complaints assert claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), and state law causes of action for fraud, fraudulent concealment, aiding and abetting fraud, conspiracy to commit fraud, breach of warranty, and unilateral and mutual mistake. (Second Amended Complaint (“SAC”) (De SoleDkt. No. 118) ¶¶ 181–292; Am. Cmplt. (HowardDkt. No. 179) ¶¶ 259–391)).
Between 1994 and 2008 Knoedler sold thirty-two paintings it acquired from Glafira Rosales, a Long Island art dealer, all of which were represented to be works created by well-known Abstract Expressionist artists, such as Mark Rothko, Willem de Kooning, and Jackson Pollock (the “Rosales Paintings”). (Plaintiff's Rule 56.1 Statement of Additional Material Facts (“Pltf. R. 56.1 Add. Stmt.”) (De SoleDkt. No. 236) ¶ 1983; List of Rosales Paintings (De SoleDkt. No. 236), Ex. 53)It is undisputed that all of the paintings Rosales brought to Knoedler—including the two paintings purchased by Plaintiffs—are forgeries. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1025; Defendants' Responses to Requests for Admission (De SoleDkt. No. 236), Exs. 43, 44, 45) Plaintiffs allege that—as early as October 2003—Defendants had reason to doubt the authenticity of the Rosales Paintings. Defendants nonetheless continued to sell the Rosales Paintings at Knoedler until 2008.
Defendants have moved for summary judgment on all of Plaintiffs' claims. In an Order dated September 30, 2015, this Court granted in part and denied in part Defendants' motions. (De SoleDkt. No. 261; HowardDkt. No. 320) The purpose of this opinion is to explain the Court's reasoning.
BACKGROUND
I. FACTS
A. The Knoedler Gallery, Ann Freedman, and Glafira Rosales
The Knoedler Gallery was founded by Michael Knoedler in 1846 and operated continuously for the next 165 years. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1026, 1979; Hammer Decl. in Opp. to TRO (De SoleDkt. No. 236), Ex. 46 ¶ 2) Until it closed in 2011, the Knoedler Gallery was one of New York City's most venerable and respected art galleries. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1028)
In 1971, the gallery was purchased by Armand Hammer, the grandfather of Defendant Michael Hammer, and since that time the Hammer family has been directly responsible for the operations of the Knoedler Gallery. (Hammer Decl. in Opp. to TRO (De SoleDkt. No. 236), Ex. 46 ¶ 2) Knoedler Gallery LLC, the current legal entity, is a Delaware limited liability company that was formed in 2001. (Def. R. 56.1 Stmt. (De SoleDkt. Nos. 219, 220) ¶ 746; Def. Reply to Pltf. 56.1 Add. Stmt. (De SoleDkt. No. 248) ¶ 1026; Def. Ex. 411 (Certificate of Formation)). Defendant 8–31 Holdings, Inc., a Delaware corporation also formed in 2001, is the sole member of Knoedler. (Def. R. 56.1 Stmt. (De SoleDkt. Nos. 219, 220) ¶¶ 743, 745; SAC (De SoleDkt. No. 118) ¶ 17; Am. Cmplt. (HowardDkt. No. 179) ¶ 32)
Defendant Michael Hammer is the president, chief executive officer, chairman, and sole owner of 8–31 Holdings, Inc. (“8–31”), and became the sole manager of Knoedler in 2011. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1033, 1995, 2003; Hammer Dep. (De SoleDkt. No. 236), Ex. 21 at 57)
Defendant Ann Freedman joined Knoedler's corporate predecessor in 1977 as the director of contemporary art. (Def. Reply to Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 248) ¶ 1032; Freedman Dep. (De SoleDkt. No. 236), Ex. 18 at 21; Freedman Lagrange Tr. (De SoleDkt. No. 236), Ex. 51 at 138) In 1994, she became president of M. Knoedler & Co, the gallery's corporate entity at that time.(Def. Reply to Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 248) ¶ 1034; Freedman Dep. (De SoleDkt. No. 236), Ex. 18 at 21) Between 2001 and October 2009, Freedman was Knoedler's sole manager and a director of 8–31.(Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 2002, 2004)
In the mid–1990s, Jaime Andrade, a longtime Knoedler employee, introduced Glafira Rosales to Freedman. (Def. R. 56.1 Stmt. (De SoleDkt. Nos. 208, 228) ¶¶ 1, 1006; (De SoleDkt. No. 236), Ex. 169 at 2) Rosales was a Long Island art dealer who claimed to have access to a collection of previously undiscovered works by certain well-known Abstract Expressionist artists. (Weissman Dep. (De SoleDkt. No. 236), Ex. 40 at 33; Freedman Tr. (De
SoleDkt. No. 236), Ex. 18 at 338; Freedman Lagrange Tr. (De SoleDkt. No. 236), Ex. 51 at 138) Andrade had met Rosales at an art gallery in the early 1990s.(Def. R. 56.1 Stmt. (De SoleDkt. Nos. 208, 228) ¶¶ 2, 1003) Rosales told Andrade that she had a Mexican client who wanted to sell a collection of Abstract Expressionist artworks, but to do so anonymously. (Def. R. 56.1 Stmt. (De SoleDkt. No. 228) ¶ 1004) Andrade reported to Freedman that Rosales had Abstract Expressionist artworks that she wanted to sell. (Id.¶ 1005) Andrade then introduced Rosales to Freedman.(Id.¶ 1006; Freedman Lagrange Tr. (De SoleDkt. No. 236), Ex. 51 at 138, 193–94)
Over the next fifteen years, Rosales provided Knoedler with dozens of previously unknown “masterworks” by well-known Abstract Expressionist artists, and Knoedler sold these paintings to its customers. All of these paintings are forgeries. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1025)
In early 1994, Rosales consigned to Knoedler what she represented to be five paintings by Richard Diebenkorn. (Id.¶¶ 1049–50, List of Rosales Paintings (De SoleDkt. No. 236), Ex. 53 at KG–11152) Rosales represented that these works were from the collection of Cesareo Fontenla and came from the Vijande Gallery in Madrid, Spain. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1051; (De SoleDkt. No. 236), Exs. 52, 53 at KG–11152, 60) Knoedler sold these paintings to its customers at large mark-upswithout submitting them to the Diebenkorn catalogue raisonné committee for authentication.(Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1053, 1055, 1075–76) During a series of meetings in 1994 and 1995, members of the Diebenkorn family informed Freedman that at least two of the five purported Diebenkorns Rosales had provided did not appear to be authentic. (Id.¶¶ 1057, 1060–61) The Diebenkorn family also expressed concern about the lack of documentation for one of the paintings—which the family viewed as highly suspicious—given that the artist and his family kept meticulous records of his work. (Id.¶¶ 1065–67) All of the Diebenkorn paintings were later discovered to be forgeries. (Id.¶ 1025)
Between 1995 and the spring of 1998, Knoedler sold three other works that Rosales had supplied, including a purported Franz Kline and a purported Mark Rothko. These paintings—all of which were forgeries—were allegedly from the collection of a man whom Rosales, Freedman, and others at Knoedler referred to as “Mr. X.” Each painting was sold at a large mark-up.(Id.¶¶ 1025, 1128, 1137; Knoedler Invoices (De SoleDkt. No. 236), Exs. 84, 85, 86, 87)
Freedman testified that Rosales initially told her that these paintings belonged to a friend. (Freedman Lagrange Tr. (De SoleDkt. No. 236), Ex. 51 at 197) The record is not clear as to what else Freedman had been told about these paintings before Knoedler sold them. The Knoedler invoices for two of these works state that they were initially acquired directly from the artist, and all three invoices state that the works were from a private collection in Mexico. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1129–30; Knoedler Invoices (De SoleDkt. No. 236), Exs. 84, 85, 86) Knoedler's invoice for the purported Rothko states that the work is “[t]o be published in the forthcoming catalogue raisonné: Mark Rothko: Works on Paper,by David Anfam, (London: Yale University Press).” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1131; Knoedler Invoice (De SoleDkt. No. 236), Ex. 85)
In May 1998, Hammer increased Freedman's base salary from $278,460 to $300,000 and her profit sharing percentage from 10% to 15%. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1134; Hammer Dep. (De SoleDkt. No. 236), Ex. 21 at 347–48; Internal Memos (De SoleDkt. No. 236), Ex. 88)
At a June 18, 1998 meeting with Rosales, Freedman and Knoedler's head of research “ask[ed] [Rosales for] more details about the ... the collector and his family.” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1135–36; de Medeiros Dep. (De SoleDkt. No. 236), Ex. 9 at 23–25, 98–99) At this meeting, Rosales told Freedman that—as a child in Mexico—she had met a couple who were Jewish émigrés from Europe. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1138.a; Internal Memo (De SoleDkt. No. 236), Ex. 89). The husband—“Mr. X”—made frequent business trips to the United States between the late 1940's and 1970's. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1138.b; Internal Memo (De SoleDkt. No. 236), Ex. 89). During his visits to the United States, Mr. X purchased artworks directly from American painters. (Id.). The couple died in the early 1990s, leaving these paintings to their children. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1138.d; Internal Memo (De SoleDkt. No. 236), Ex. 89).
According to Rosales, the current owner of the collection—Mr. X's son—lived in Mexico City and Zurich. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1138.e; Internal Memo (De SoleDkt. No. 236), Ex. 89). He and his sister both had paintings from their father's collection, but neither was interested in art, and they had been selling the works gradually. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1138.f; Internal Memo (De SoleDkt. No. 236), Ex. 89). Rosales reported that the collector's son “remembers seeing artists in his father's home.” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1138.c; Internal Memo (De SoleDkt. No. 236), Ex. 89) Rosales also told Freedman that the deceased collector had corresponded with various artists, but that these letters had been “disposed of” after his death. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1139; Internal Memo (De SoleDkt. No. 236), Ex. 89) Accordingly, there was no documentation for Mr. X's paintings. (Def. R. 56.1 Stmt. (De SoleDkt. No. 208) ¶ 8)
Rosales stated that Mr. X's collection included “another Still, a Gottlieb, two de Koonings (a painting and a work on paper), a Motherwell Elegy, a Newman, [and] one or two Calders.” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1146; Internal Memo (De SoleDkt. No. 236), Ex. 89) Freedman asked Rosales whether there was a Pollock or a David Smith in the collection. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1148; (De SoleDkt. No. 236), Ex. 89)
Within two weeks of the June 18, 1998 meeting, Knoedler sold two purported Rothkos supplied by Rosales, both allegedly from Mr. X's collection.(Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1142) The invoice for each painting describes its provenanceas follows:
Provenance & Exhibition History
Acquired directly from the Artist in the early 1960's.
Private Collection, Mexico and Switzerland.
(Id.¶ 1144; Knoedler Invoices (De SoleDkt. No. 236), Exs. 90, 91, 93) One of the invoices states that the Rothko is “[t]o be included in the forthcoming catalogue raisonne: Mark Rothko: Works on Paper, by David Anfam, (London: Yale University Press).” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1145; Knoedler Invoice (De SoleDkt. No. 236), Exs. 91, 93)
On August 5, 1998, Freedman told Knoedler's head of research that Rosales had reported that Mr. X's collection included a Pollock. (Pltf. R. 56.1 Resp. (De SoleDkt. No. 236) ¶¶ 1149, 1154) In a telephone conversation that day, Rosales told Freedman that Mr. X's collection included two Stills, a Motherwell Elegy, a Gottlieb, a Pollock, two Newmans, and an Avery. (Id.¶ 1154; August 5, 1998 Memo (De SoleDkt. No. 236), Ex. 94)
Over the next eighteen months, Rosales brought three more Mr. X paintings to Knoedler, and Knoedler sold these paintings to its customers.(Pltf. R. 56.1 Resp. (De SoleDkt. No. 236) ¶ 1150.a) The invoice for one of these paintings—a purported Rothko—described its provenance as follows:
Provenance & Exhibition History
Acquired from the Artist
Private Collection, Switzerland
(Id.¶ 1152; (De SoleDkt. No. 236), Ex. 105) The invoice also states that the work is “[t]o be included in the forthcoming catalogue raisonne of Mark Rothko's works on paper, currently in preparation by the National Gallery of Art, Washington, D.C.” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1153; (De SoleDkt. No. 236), Ex. 105) Freedman began referring to Mr. X as “Secret Santa.” (Def. Reply to Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 248) ¶ 1094; Freedman Dep. (De SoleDkt. No. 236), Ex. 18 at 449–50; de Medeiros Dep. (De SoleDkt. No. 236), Ex. 9 at 90)
At some point between June 1998 and January 2000, the name of Alfonso Ossorio—an Abstract Expressionist artist with close ties to many other Abstract Expressionist artists—began to be associated with the Rosales Paintings. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1158, 1181; January 10, 2000 Memo (De SoleDkt. No. 236), Ex. 106) Freedman initially testified that it was Rosales who had first associated Ossorio with Mr. X's collection. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1159) Freedman later stated, however, that it was Freedman and Knoedler who first “surmised” that Ossorio had assisted Mr. X in purchasing the works in Mr. X's collection. (Id.¶ 1160)
During a January 10, 2000 meeting with Freedman, Rosales “confirm[ed] that the family knew Ossorio well. There may be correspondence. [Mr. X's son] confirmed that [Mr. X] purchased through Ossorio.” (Id.¶ 1161; January 10, 2000 Memo (De SoleDkt. No. 236), Ex. 106) Knoedler began conducting research on Ossorio in or around 2001 (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1171), but was not able to find evidence of a link between Ossorio and the paintings from Mr. X's collection. (Id.¶ 1174)
At a May 26, 2001 meeting, Rosales told Freedman that:
1. the works were “acquired in the 1950s from Pollock, Rothko, Still, Kline, Motherwell, etc. At that time [the artists] did not have contracts with dealers ...”;
2. “It's not clear if the works were purchased from Ossorio (who purchased them directly from the artists) or, with Ossorio's direction and advise, from the artists themselves”; and
3. “All purchases were paid for in cash. The son of the collector remembered seeing his parents pay in cash to one of the artists.... Correspondence was probably lost or thrown out by the daughter after the deaths of her parents. She had much of the paperwork.”
(Id.¶ 1168; May 26, 2001 Memo (De SoleDkt. No. 236), Ex. 108)
In December 2001, Rosales told Freedman that “Gerzso” was a “family name” connected to Mr. X, but was not his name. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1169; December 11, 2001 Memo (De SoleDkt. No. 236), Ex. 109) Knoedler then researched—without success—whether there was a connection between Mr. X and Gunther Gerzso, a well-known Mexican artist. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1170; de Medeiros Dep. (De SoleDkt. No. 236), Ex. 9 at 121–22) Knoedler's research never uncovered a name for Mr. X. (Def. Reply to Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 248) ¶ 1095; Freedman Dep. (De SoleDkt. No. 236), Ex. 18 at 13, 20–21)
B. The 2001 Sale of the “Green Pollock”
In late 2001, Freedman and Knoedler sold a purported Jackson Pollock—Untitled 1949(the “Green Pollock”)—to Jack Levy for $2 million. (Def. R. 56.1 Stmt. (De SoleDkt. No. 223) ¶ 712; Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1182.f; Knoedler Invoice (De SoleDkt. No. 236), Ex. 118) Knoedler had purchased this work from Rosales in March 2001 for $750,000. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1182.f) Knoedler included in the provenance of the painting a reference to Ossorio. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1226; Knoedler Invoice (De SoleDkt. No. 236), Ex. 118
In 2002, Hammer approved an increase in Freedman's profit sharing percentage from 16% to 25%; that year, Knoedler paid Freedman $673,375.42. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1191–92))
The sale of the Green Pollock was conditioned on a favorable review of the work's provenance and authenticity by the International Foundation for Art Research (“IFAR”). (Id.¶ 1201) On October 9, 2003, IFAR issued its report on the Green Pollock (the “IFAR Report”). (Id.¶¶ 1225, 1235) The IFAR report rejects Knoedler and Rosales' claim that Ossorio had been involved in the acquisition of the Green Pollock, and notes that there are “disturbing” differences between the materials used to create the Green Pollock and the materials used to create a known Pollock from the same year.(IFAR Report (De SoleDkt. No. 236), Ex. 140 at 4–7, 8, 10) The report also states that “IFAR's own extensive archival and other research has turned up no documentary material of any kind linking the painting to Pollock, or Ossorio.” (Id.at 1) The conclusion of the IFAR report reads: “given the several strongly negative opinions [from Pollock experts about the authenticity of the work] and the lack of information as to prior ownership, and with no documentation or other evidence to override the concerns of those who do not accept it as a work by Pollock, we cannot currently support its addition to the artist's oeuvre.” (Id.at 10) Based on the IFAR Report, Levy returned the Green Pollock to Knoedler in late 2003, and the Gallery refunded his full purchase price of $2 million. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1256)
In December 2003, Freedman informed Hammer that—based on the IFAR Report—Levy wanted to return the Green Pollock and obtain a refund of the $2 million purchase price. (Def. R. 56.1 Stmt. (De SoleDkt. Nos. 219, 220) ¶¶ 787, 790–91) Hammer read the IFAR report and discussed it with Freedman and other Knoedler executives.(Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1262–63; Defendants' Responses to Requests for Admission (De SoleDkt. No. 236), Ex. 169 at 15; Def. R. 56.1 Stmt. (De SoleDkt. Nos. 219, 220) ¶¶ 793–94)
C. Substitution of David Herbert for Ossorio in Knoedler's Provenance for the Rosales Paintings
Freedman testified that, “after the IFAR report, I pressed Glafira Rosales for more information, and she went back to Mr. X and called me, I believe it was the following month [November 2003] ... and she said, I have information. The advisor was David Herbert.” (Def. Reply to Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 248) ¶ 1307; Freedman Dep. (De SoleDkt. No. 236), Ex. 18 at 381)
Knoedler never informed IFAR that Knoedler had concluded that David Herbert—and not Ossorio—had acted as Mr. X's advisor. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1365) Moreover, Knoedler's search of archives relating to Herbert revealed no evidence of a connection between Herbert and any of the Rosales Paintings. (Id.¶¶ 1341–42, 1353, 1358–59); Defendants' Responses to Requests for Admission (De SoleDkt. No. 236), Ex. 169 at 13)
D. The De Soles' December 2004 Purchase of a “Rothko”
In the fall of 2004, the De Soles called Freedman and Knoedler to arrange a meeting to discuss the possible purchase of a painting by Sean Scully. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1370) The De Soles were aware of Knoedler and Freedman's excellent reputation, having been referred to Knoedler by a friend who collected art. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1368–69, Domenico De Sole Dep. (De SoleDkt. No. 236), Ex. 10 at 103–04) During the meeting at Knoedler, Freedman told the De Soles that she did not have any Scully works available, and she instead showed them works purportedly created by Rothko and Pollock. (Def. R. 56.1 Stmt. (De SoleDkt. No. 208) ¶ 447; Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1371–72) Rosales had brought both of these paintings to Knoedler. (Def. R. 56.1 Stmt. (De SoleDkt. No. 208) ¶ 447)
Freedman told the De Soles that both works “were owned by a Swiss collector that was a client of Knoedler and he had died and his son had decided to sell the paintings.” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1374.a; De Sole Dep. (De SoleDkt. No. 236), Ex. 10 at 136) Freedman also stated that the Rothko had been authenticated by Christopher Rothko and David Anfam, the author of the Rothko catalogue raisonné. (Def. R. 56.1 Stmt. (De SoleDkt. No. 208) ¶ 460; Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1374.g)
The De Soles decided to purchase the “Rothko.” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1392) On November 30, 2004, Knoedler sent the De Soles' agent an invoice—either by Federal Express or by U.S. Mail—for the sale of the work, seeking a payment of $8.3 million.(Id.¶ 1393) The invoice states:
Mark Rothko (1903–1970)
Untitled
1956
Oil on canvas
50 1/8 x 40 1/4 inches
Signed and dated on verso
A 12322
Provenance
The Artist
Private Collection Switzerland
By descent to present owner
Literature
To be included in the forthcoming supplement to the 1998
Rothko catalogue raisonné under preparation by the National
Gallery of Art, Washington, D.C.
(Id.¶ 1393–94; Knoedler Invoice (De SoleDkt. No. 236), Ex. 173) An earlier draft of the invoice states that the Rothko is from a private collection in “Mexico and Switzerland.”(Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1395) The Rothko had been consigned to Knoedler in December 2002. (Id.¶ 1188)
Domenico De Sole asked Freedman to put in writing everything she had told the De Soles about the painting. (Id.¶ 1404) On December 11, 2004, Freedman sent a letter to Laura De Sole that contains the following statements:
1. “This classic Rothko painting was acquired from the artist through the advice and counsel of David Herbert.”
2. “The original owners of the Rothko, a couple whose residences included Switzerland, are now deceased and [the work] was inherited by their son.”
3. Knoedler was “anticipating a loan request from Oliver Wick of the Fondation Beyeler.”
4. “The painting has been viewed by a number of eminent scholars on Rothko as well as specialists on the Abstract Expressionist movement,” including David Anfam, E.A. Carmean, Jr., Jack Flam, Laili Nasr, Stephen Polcari, Christopher Rothko, Irving Sandler, Bonnie Clearwater, Earl A. Powell III, Oliver Wick, and Dana Cranmer.
5. “Importantly, Laili Nasr, manager of the Rothko catalogue raisonnéproject for the National Gallery of Art in Washington, D.C., has written to us about her inten[t]ion to include
the Rothko in the forthcoming catalogue raisonnésupplement.”
6. “Knoedler warrants the authenticity and good title of the painting, Untitled, 1956,and confirms its ‘remarkably good condition.’ ”
(Id.¶ 1419; Def. R. 56.1 Stmt. (De SoleDkt. No. 223) ¶¶ 614–21, 624; December 11, 2004 letter (De SoleDkt. No. 236), Exs. 179, 206)
With respect to the Rothko experts cited by Freedman, Eleanore De Sole believed that Freedman was indicating that “these people had said that [the] painting was real.” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1602) After the De Soles received Freedman's letter, they instructed their agent to make payment to Knoedler. (Id.¶ 1603) On December 17, 2004, the De Soles' agent wired Knoedler the purchase price of $8.3 million.(Id.¶ 1605)
E. Rosales' May 2005 Refusal to Attest to the Authenticity of the Rosales Paintings
In early May 2005, Freedman and Knoedler asked Rosales to sign an “authorization form” that reads as follows:
May 10, 2005
Ann Freedman, President
Knoedler & Company
19 East 70th St.
New York, N.Y. 10021
Dear Ann Freedman,
I the undersigned, Mrs. Glafira Rosales, attest that I am the authorized agent, as well as a close family friend, of a private collector residing in Mexico and Switzerland. The owner requests that the family name remain private. The works of art described on the attached list were acquired by the current owner's father from the artists, with David Herbert as his advisor and agent. The works of art were passed by inheritance to his immediate heirs (son and daughter).
I further attest that the owner has had absolute clear title to, the attached list of works of art, and that he has guaranteed their authenticity. I also affirm that I have had authorization to act as his agent in the handling of their consignments and/or sales to Knoedler & Company.
I assume all legal responsibility for these statements.
(Authorization Form (De SoleDkt. No. 236), Ex. 203; see alsoPltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1627)
Rosales refused to sign the form, stating that she was “not comfortable about including the authenticity clause.” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1628) Rosales explained that the purported owner “has been extremely clear that if we want to continue to do business, these are his terms, so [Rosales] does not want to jeopardize the relationship by pressing him,” and the request would “raise his hackles.” (Id.;May 26, 2005 Memo (De SoleDkt. No. 236), Ex. 204) Accordingly, Knoedler revised the authorization form to omit the authenticity clause. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1629; Revised Authorization Form (De SoleDkt. No. 236), Ex. 205) Rosales did not identify the collector and his son. F. Howard's June 2007 Purchase of a “de Kooning”
Howard saw a purported de Kooning at the Art Dealers Association of America art fair in 2007. (Def. R. 56.1 Stmt. (De SoleDkt. No. 208) ¶ 535; Pltf. R. 56.1 Counter Stmt. (De SoleDkt. No. 232) ¶ 322) Freedman told him “that it was ‘rare’ and rare in the context ... that de Kooning had done very few landscapes, ‘maybe only two or three,’ she'd said, so it had particular value because of its rarity.” (Def. R. 56.1 Stmt. (De SoleDkt. No. 223) ¶ 658) Freedman told Howard that the painting had “impeccable” quality and provenance (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1714.b), and that the work was owned by a man Freedman knew directly who had acquired the painting through an inheritance from his father, a prominent Swiss collector. (Id.¶ 1714.c-d, f). Freedman also told Howard that the owner “want[ed] anonymity” and “so [Freedman] couldn't disclose [his identity].” (Def. R. 56.1 Stmt. (De SoleDkt. No. 223) ¶ 661) Freedman informed Howard that she had “personally” purchased a painting from the same owner. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1714.g)
Freedman did not disclose to Howard, inter alia,that the work had been delivered to Knoedler by Rosales, that it lacked any supporting documentation, that it was one of approximately 30 paintings delivered from Rosales, and that Freedman had never met and did not know the name of the owner or his father. (Id.¶ 1716.a–f)
Howard decided to purchase the painting. (Id.¶ 1722) Knoedler's June 13, 2007 invoice for the “de Kooning” states:
Willem de Kooning (1904–1977)
Untitled
ca. 1956–57
Oil on paper mounted on masonite
20 ½ x 29 inches
Signed at upper right corner: “de Kooning”
A 12537
CA 26933
Provenance
The artist (via David Herbert *)
Private Collection
By descent to present owner
* David Herbert often acted both as agent for the artist and as advisor to the collector (Id.¶ 1718; Knoedler Invoice (De SoleDkt. No. 236), Ex. 233)
G. Lagrange's November 2007 Purchase of the “Lagrange Pollock”
In November 2007, Knoedler sold Pierre Lagrange a purported work by Jackson Pollock for $15.3 million (the “Lagrange Pollock”). (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1795; Knoedler Invoice (De SoleDkt. No. 236), Ex. 146) Knoedler paid Rosales $950,000 for this work, which it obtained from her on June 3, 2002. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1796)
Prior to the sale of the alleged Pollock, Freedman and Knoedler represented to Lagrange's agent that the Pollock was genuine and had been deemed authentic by numerous Pollock experts. (Frankfurt Dep. (De SoleDkt. No. 236), Ex. 17 at 117–18) Freedman and Knoedler further represented that the work would be included in a forthcoming supplement to the Pollock catalogue raisonné then being prepared by the Pollock–Krasner Foundation. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1793; Frankfurt Dep. (De SoleDkt. No. 236), Ex. 17 at 78, 93–94, 101–02, 104–05) Freedman and Knoedler also told Lagrange and his agent that the Pollock had been acquired by a private collector through David Herbert, and was being sold by the collector's son. (Frankfurt Dep. (De SoleDkt. No. 236), Ex. 17 at 92, 101, 105, 126)In 2007, Freedman was paid more than $1.3 million. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1799) On April 24, 2008, Hammer increased Freedman's profit sharing percentage from 25% to 30% of Knoedler's operating income. (Id.¶ 1842)
H. The Dedalus Foundation's December 2007 Claim that the “Motherwells” Rosales had Brought to the Knoedler Gallery Were Forged
The Dedalus Foundation, Inc. is responsible for the Robert Motherwell catalogue raisonné. In three meetings with Freedman in December 2007 and January 2008, Foundation representatives told Freedman that they believed seven purported Motherwell works that Rosales had brought to Knoedler and the Weissman Gallery—owned by a former Knoedler employee—were forged. (Id.¶ 1800–16) In January 2008, Freedman told Rosales about the Foundation's claims and the need to prepare a “bona[ ]fide defense” to these allegations. (Id.¶ 1828; January 18, 2008 letter (De SoleDkt. No. 236), Ex. 277)
As part of that effort, Freedman and Knoedler asked Rosales to complete a form in which she would disclose the identity of the original collector and his son. Freedman also gave Rosales (1) a confidentiality agreement requiring Knoedler not to disclose any information about the purported owner, and (2) a letter Rosales was to provide to the owner requesting an “emergency meeting,” and informing him that the Dedalus Foundation had “strongly questioned the authenticity and legality of [the Motherwells]” that Rosales had brought to Knoedler, and “suggest[ed] that [Knoedler was] selling and trading in art that is counterfeit.” (January 2008 letters (De SoleDkt. No. 236), Exs. 274, 277) Rosales did not identify the original collector or his son.
In March 2008, Knoedler retained James Martin of Orion Analytical, LLP, to conduct forensic tests of two of the alleged Motherwells Rosales had brought to Knoedler. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1837; (De SoleDkt. No. 236), Exs. 281, 282) In October 2008, Orion submitted a draft report indicating that the works were not authentic. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1864–69; Orion Report (De SoleDkt. No. 236), Ex. 292) Although the two paintings had allegedly been created in 1953 and 1955, the pigments used in the paintings did not exist until ten years later. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1866; Orion Report (De SoleDkt. No. 236), Ex. 292 at KG–2614) Moreover, the same acrylic polymer emulsion paint had been used to create both works, and the use of such paint was “ ‘remarkably inconsistent with what is known about Motherwell's use of acrylic paints,’ ” “ ‘rais[ing] questions about when the works were actually painted.’ ” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1867–68; Orion Report (De SoleDkt. No. 236), Ex. 292 at KG–2614–15) Finally, “ ‘both paintings display[ed] patterns of circular abrasions, visible only with magnification, that point ... to the use of an electric sander.’ ” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1869; Orion Report (De SoleDkt. No. 236), Ex. 292 at KG–2614–15)
On November 7, 2008, Freedman, Andrade, and a Knoedler researcher met with Rosales. During that meeting, Rosales stated “that the transactions between Mr. X and the artists continued from the late 1940s through 1964.” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1883; November 7, 2008 Memo (De SoleDkt. No. 236), Ex. 300) Rosales also stated that the current owner “remembers” travelling with his father to artists' studios and “remembers this ending in 1964.” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1884; November 7, 2008 Memo (De SoleDkt. No. 236), Ex. 300) At the meeting, Andrade commented that “David Herbert and Ossorio were close friends,” and both Andrade and Rosales then suggested that “Mr. X may have met David [Herbert] through Ossorio.” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1885; November 7, 2008 Memo (De SoleDkt. No. 236), Ex. 300)
The next day—November 8, 2008—Rosales signed the following statement:
I am a close friend (for over thirty years) to the family of and a liaison on behalf of a gentleman, currently residing in Mexico, with family homes in Switzerland. He prefers information about himself and his family to remain private and confidential. The artworks were acquired by the current owner's father directly from the various artists, and were passed by inheritance to his immediate heirs (son and daughter).
It has recently been explained and clarified, in discussion with the owner, that his father, the original owner, was active in acquiring the works between the late 1940s and 1964. The works were acquired “off the record,” directly from the artist's studios during trips made to New York related to the family business. It is interesting to note that the family had business in common with Alfonso Ossorio's family (the sugar business). In the early years of collecting activity Alfonso Ossorio was his primary advisor.
Later (after 1951, during the Parsons and Janis years), David Herbert (a close friend of Ossorio's) gradually became the collector's primary advisor, in his role as dealer to the artists both in and outside of the gallery system, and he continued in that role through 1964. This was of significant financial support to the artists.
The owner stopped travelling to New York due to a change in the family's business activities, and at the same time ceased purchasing works of art.
The above information is accurate and true to the best of my knowledge.
(Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1886; November 8, 2008 Statement (De SoleDkt. No. 236), Ex. 301)
I. The September 2009 Grand Jury Subpoena, the Termination of Freedman's Employment, and Hammer's Direction that No Additional Rosales Paintings be Sold
On August 31, 2009, 8–31's board of directors passed a resolution forming a Special Committee to investigate the purchases of artwork by Knoedler from Rosales and subsequent sales and attempted sales of this artwork. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1928; 8–31 Board Resolution (De SoleDkt. No. 236), Ex. 312) By August 2009, all Rosales Paintings in Knoedler's inventory were placed on a “not for sale” list. (Def. R. 56.1 Stmt. (De SoleDkt. Nos. 219, 220) ¶¶ 888, 893) Knoedler had six unsold Rosales Paintings at that time. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1984) On September 17, 2009, Hammer requested and obtained a “complete list of the Rosales paintings with date acquired, cost, date sold, selling price, etc.” (Id.¶ 1930; September 17, 2009 email and List of Rosales Paintings (De SoleDkt. No. 236), Ex. 53)
On September 22, 2009, Knoedler was served with a grand jury subpoena. SeeSeptember 24, 2009 email (De SoleDkt. No. 236), Ex. 315. The subpoena related to the Rosales Paintings. (Freedman Lagrange Tr. (De SoleDkt. No. 236), Ex. 51 at 136; October 29, 2009 letter (De SoleDkt. No. 236), Ex. 316; Hammer Dep. (De SoleDkt. No. 236), Ex. 21 at 297) The following month, Hammer decided to put Freedman on administrative leave, a decision Freedman opposed. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1936, 1938–39) At an October 16, 2009 meeting, Hammer told Freedman that the leave of absence was prompted by the grand jury subpoena.(Id.¶¶ 1938, 1941) Within weeks of being put on administrative leave, Freedman resigned her position at Knoedler. (Id.¶ 1947)
On October 27, 2009, Hammer sent a letter to Knoedler clients stating, with no explanation, that Freedman had “resigned.” (Id.¶ 1954) The letter also states: “I wish ... to let you know that I have every confidence in a vibrant and vital future for the gallery.” (Id.¶ 1955; October 27, 2009 letter (De SoleDkt. No. 236), Ex. 308)
In 2009, Knoedler incurred an operating loss of approximately $2.3 million, and in 2010 it suffered a $1.6 million loss. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1960; Hammer Decl. in Opp. to TRO (De SoleDkt. No. 236), Ex. 46 ¶ 3)
J. The Knoedler Gallery Closes
By July 2011, Knoedler was receiving numerous calls from customers expressing concerns about the authenticity of works they had purchased from Knoedler. (Knoedler call log (De SoleDkt. No. 236), Ex. 78) Hammer decided to close Knoedler on November 30, 2011, and announced the closing that same day. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1979; Def. R. 56.1 Stmt. (De SoleDkt. No. 228) ¶ 1000; Knoedler Resolution (De SoleDkt. No. 236), Ex. 325) In connection with the closing, 8–31 and Hammer adopted and approved a “liquidation plan” for Knoedler, which Hammer signed on behalf of both 8–31 and Knoedler. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 2039; Liquidation Plan (De SoleDkt. No. 236), Ex. 325 at KG–11112)
Knoedler's 2011/2012 financial statements show that it issued $23.9 million in distributions to 8–31 at this time. These monies had previously been classified as interdivisional receivables. (8–31 Consolidated Financial Statements (De SoleDkt. No. 236), Exs. 342–344; Def. R. 56.1 Stmt. (De SoleDkt. No. 219) ¶¶ 971, 973–74)
On December 1, 2011, Pierre Lagrange filed a lawsuit in the Southern District of New York alleging that the purported Pollock he had purchased was a forgery. (Lagrange Cmplt. (De SoleDkt. No. 236), Ex. 326) On December 2, 2011, a New York Timesarticle reported on the F.B.I.'s investigation of Knoedler and the abrupt closing of the Gallery. (“Possible Forging of Modern Art is Investigated,” New York Times(De SoleDkt. No. 236), Ex. 327)
Rosales has since admitted that all of the works she sold to Knoedler were “fakes created by an individual residing in Queens.”(Pltf. R. 56.1 Add. Stmt. (De
SoleDkt. No. 236) ¶ 1023–24; Rosales guilty plea allocution (De SoleDkt. No. 236), Ex. 42 at 26–27) Rosales has also admitted that she “agreed with others” to sell the forged works and “to make false representations as to the authenticity and provenance of those works.” (Rosales guilty plea allocution (De SoleDkt. No. 236), Ex. 42 at 26)
II. PROCEDURAL HISTORY
The De Soleaction was filed on March 28, 2012, and the Howardaction was filed on July 6, 2012. (Cmplt. (De SoleDkt. No. 1); Cmplt. (HowardDkt. No. 1)) Defendants filed motions to dismiss (De SoleDkt. Nos. 24, 27, 63, 71, 75; HowardDkt. Nos. 35, 39, 45, 48, 74, 76), and on September 30, 2013, this Court granted in part and denied in part Defendants' motions. De Sole v. Knoedler Gallery, LLC, 974 F.Supp.2d 274, 285–321 (S.D.N.Y.2013).
On November 4, 2013, the De Sole Plaintiffs filed a Second Amended Complaint (“SAC”) (De SoleDkt. No. 118) and Howard filed an Amended Complaint (HowardDkt. No. 179). The De SoleSAC pleads the following causes of action:
(1) substantive RICO and RICO conspiracy claims against all Defendants;
(2) fraud and fraudulent concealment claims against Knoedler, Freedman, and 8–31;
(3) a fraud conspiracy claim against Hammer, 8–31, and Andrade, among others;
(4) an aiding and abetting fraud claim against Hammer, 8–31, and Andrade, among others;
(5) a breach of warranty claim against Knoedler; and
(6) claims of unilateral mistake and mutual mistake against Knoedler.
(SAC (De SoleDkt. No. 118) ¶¶ 181–292)
The HowardAmended Complaint pleads the following causes of action:
(1) substantive RICO and RICO conspiracy claims against all Defendants;
(2) a fraud claim against Knoedler and Freedman;
(3) a fraudulent concealment claim against Hammer, 8–31, Knoedler, and Freedman;
(4) a fraud conspiracy claim against all Defendants;
(5) an aiding and abetting fraud claim against Hammer, 8–31, and Andrade, among others;
(6) a breach of warranty claim against Knoedler; and
(7) claims of unilateral mistake and mutual mistake against Knoedler.
(Am. Cmplt. (HowardDkt. No. 179) ¶¶ 259–391)
Defendants 8–31, Hammer, and Knoedler filed motions to dismiss the De Soles' Second Amended Complaint and Howard's Amended Complaint. (De SoleDkt. Nos. 210, 211, 213, 215; HowardDkt. Nos. 264, 266, 268) On September 30, 2015, this Court granted in part and denied in part Defendants' motions to dismiss. (De SoleDkt. No. 260; HowardDkt. No. 319) In De Sole,this Court dismissed Plaintiffs' fraud and fraudulent concealment claims against 8–31 to the extent that those claims are premised on the notion that 8–31 is liable for Knoedler's actions under the doctrine of respondeat superior.In Howard,this Court dismissed Plaintiff's (1) fraudulent concealment claim against Hammer; (2) breach of warranty claim against Knoedler; and (3) fraud conspiracy claim against 8–31. Defendants' motions to dismiss were otherwise denied.
All Defendants have moved for summary judgment on the remaining claims against them. See De SoleDkt. Nos. 206, 217, 221, 226, 238; HowardDkt. Nos. 270, 277, 281, 284, 288.
DISCUSSION
I. SUMMARY JUDGMENT STANDARD
Summary judgment is warranted when a moving party shows that “there is no genuine dispute as to any material fact” and that that party “is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “A dispute about a ‘genuine issue’ exists for summary judgment purposes where the evidence is such that a reasonable jury could decide in the non-movant's favor.” Beyer v. Cnty. of Nassau, 524 F.3d 160, 163 (2d Cir.2008)(citing Guilbert v. Gardner, 480 F.3d 140, 145 (2d Cir.2007)). “ ‘[W]here the non[-]moving party will bear the burden of proof at trial, Rule 56permits the moving party to point to an absence of evidence to support an essential element of the non [-]moving party's claim.’ ” Lesavoy v. Lane,No. 02 Civ. 10162, 2008 WL 2704393, at *7 (S.D.N.Y. July 10, 2008)(quoting Bay v. Times Mirror Magazines, Inc., 936 F.2d 112, 116 (2d Cir.1991)).
In deciding a summary judgment motion, the Court “ ‘resolve[s] all ambiguities, and credit[s] all factual inferences that could rationally be drawn, in favor of the party opposing summary judgment.’ ” Spinelli v. City of New York, 579 F.3d 160, 166 (2d Cir.2009)(quoting Brown v. Henderson, 257 F.3d 246, 251 (2d Cir.2001)). However, a “ ‘party may not rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment.... [M]ere conclusory allegations or denials ... cannot by themselves create a genuine issue of material fact where none would otherwise exist.’ ” Hicks v. Baines, 593 F.3d 159, 166 (2d Cir.2010)(alteration in original) (quoting Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir.1995)). “Assessments of credibility and choices between conflicting versions of the events are matters for the jury, not for the court on summary judgment.” Eviner v. Eng,No. 13 Civ. 6940(ERK), 2015 WL 4600541, at *6 (E.D.N.Y. July 29, 2015)(quoting Rule v. Brine, Inc., 85 F.3d 1002, 1011 (2d Cir.1996)).
* * * * * *
Because Freedman's scienter or lack of scienter is at the heart of this case, the Court's analysis of Defendants' summary judgment motions begins with Freedman and Knoedler's motions directed at Plaintiffs' fraud and fraudulent concealment claims.
II. FRAUD AND FRAUDULENT CONCEALMENT
Freedman and Knoedler argue that they are entitled to summary judgment on Plaintiffs' fraud and fraudulent concealment claims because (1) there is no evidence that Freedman acted with scienter, and (2) Plaintiffs have not demonstrated that their reliance was justifiable.(Freedman Br. (De SoleDkt. No. 207) at 17–18, 23; Freedman Reply Br. (De SoleDkt. No. 245) at 3; Freedman Br. (HowardDkt. No. 278) at 1, 18, 23; Freedman Reply Br. (HowardDkt. No. 308) at 3)
A. Applicable Law
To prevail on a fraud claim under New York law, plaintiff must establish,
by clear and convincing evidence: (1) a material misrepresentation or omission of fact (2) made by defendant with knowledge of its falsity (3) and intent to defraud; (4) reasonable reliance on the part of the plaintiff; and (5) resulting damage to the plaintiff.
Crigger v. Fahnestock & Co., 443 F.3d 230, 234 (2d Cir.2006)(citing Schlaifer Nance & Co. v. Estate of Warhol, 119 F.3d 91, 98 (2d Cir.1997)).
“The elements of a fraudulent concealment claim under New York law are: (1) a duty to disclose material facts; (2) knowledge of material facts by a party bound to make such disclosures; (3) failure to discharge a duty to disclose; (4) scienter; (5) reliance; and [ (6) ] damages.” Woods v. Maytag Co., 807 F.Supp.2d 112, 124 (E.D.N.Y.2011)(citing Aetna Cas. & Sur. Co. v. Aniero Concrete Co., Inc., 404 F.3d 566, 582 (2d Cir.2005)). With respect to the duty to disclose, “New York recognizes a cause of action to recover damages for fraud based on concealment, where the party to be charged has superior knowledge or means of knowledge, such that the transaction without disclosure is rendered inherently unfair.” Miele v. Am. Tobacco Co., 2 A.D.3d 799, 803, 770 N.Y.S.2d 386 (2d Dept.2003); see also Abrams v. Gen. Motors Corp., 120 Misc.2d 371, 374, 466 N.Y.S.2d 124 (N.Y.Sup.Ct.1983)(“If one party has superior knowledge or has a means of knowledge not available to both parties, then he is under a legal obligation to speak and silence would constitute fraud.”); Nasaba Corp. v. Harfred Realty Corp., 287 N.Y. 290, 293, 39 N.E.2d 243 (1942)(“Concealment with intent to defraud of facts which one is duty-bound in honesty to disclose is of the same legal effect and significance as affirmative misrepresentations of fact.”).
“ ‘Clear and convincing evidence is evidence that makes the fact to be proved “highly probable.” ’ ” Century Pac., Inc. v. Hilton Hotels Corp., 528 F.Supp.2d 206, 219 (S.D.N.Y.2007), aff'd, 354 Fed.Appx. 496 (2d Cir.2009)(quoting Abernathy–Thomas Eng'g Co. v. Pall Corp., 103 F.Supp.2d 582, 595–96 (E.D.N.Y.2000)(quoting 1A New York Pattern Jury Instructions–Civil § 1:64 (3d ed.1999))). “Clear and convincing evidence may, however, be circumstantial, even on summary judgment.” Id.“As the moving party, Defendants have the burden of demonstrating an absence of clear and convincing evidence substantiating Plaintiffs' claims.” Id.“ ‘If, as to the issue on which summary judgment is sought, there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party, summary judgment is improper.’ ” Id.(quoting Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir.1994)).
1. Scienter
“The scienter element for [New York common law fraud] claims is essentially the same as that under federal securities laws.” Saltz v. First Frontier, LP, 782 F.Supp.2d 61, 75 (S.D.N.Y.2010), aff'd sub nom. Saltz v. First Frontier, L.P.,485 Fed.Appx. 461 (2d Cir.2012); see also Dodona I, LLC v. Goldman, Sachs & Co., 847 F.Supp.2d 624, 639 (S.D.N.Y.2012)(“ ‘Because the elements of common-law fraud in New York are substantially identical to those governing § 10(b), the identical analysis applies.’ ”) (quoting In re Optimal U.S. Litig., 837 F.Supp.2d 244, 252 (S.D.N.Y.2011)). Scienter is a “mental state embracing intent to deceive, manipulate, or defraud.”Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007)(quotation marks and citations omitted).
“Plaintiffs may satisfy the scienter requirement by producing ‘evidence of conscious misbehavior or recklessness.’ ” Gould v. Winstar Commc'ns, Inc., 692 F.3d 148, 158 (2d Cir.2012)(quoting ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 198 (2d Cir.2009)); see also Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 194 (2d Cir.2008)(“[R]ecklessness is a sufficiently culpable mental state in the securities fraud context.”) “Scienter based on conscious misbehavior ... requires a showing of ‘deliberate illegal behavior,’ a standard met ‘when it is clear that a scheme, viewed broadly, is necessarily going to injure.’ ” Gould, 692 F.3d at 158(quoting Novak v. Kasaks, 216 F.3d 300, 308 (2d Cir.2000); AUSA Life Ins. Co. v. Ernst & Young, 206 F.3d 202, 221 (2d Cir.2000)).
“Scienter based on recklessness may be demonstrated where a defendant has engaged in conduct that was ‘highly unreasonable, representing an extreme departure from the standards of ordinary care ... to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it.’ ” Gould, 692 F.3d at 158–59(quoting Rothman v. Gregor, 220 F.3d 81, 90 (2d Cir.2000)); Chill v. Gen. Elec. Co., 101 F.3d 263, 269 (2d Cir.1996)(recklessness is “conduct [that] is, at the least, ... highly unreasonable and which represents an extreme departure from the standards of ordinary care ... to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it.”) (internal citation and quotation marks omitted). “Recklessness may be established where a defendant ‘failed to review or check information that [it] had a duty to monitor, or ignored obvious signs of fraud.’ ” Gould, 692 F.3d at 159(quoting Novak, 216 F.3d at 308). “ ‘An egregious refusal to see the obvious, or to investigate the doubtful, may in some cases give rise to an inference of ... recklessness.’ ” Chill, 101 F.3d at 269(quoting Goldman v. McMahan, Brafman, Morgan & Co., 706 F.Supp. 256, 259 (S.D.N.Y.1989))
The Second Circuit is “ ‘lenient in allowing scienter issues to withstand summary judgment based on fairly tenuous inferences,’ because such issues are ‘appropriate for resolution by the trier of fact.’ ” In re DDAVP Direct Purchaser Antitrust Litig., 585 F.3d 677, 693 (2d Cir.2009)(quoting Press v. Chem. Inv. Servs. Corp., 166 F.3d 529, 538 (2d Cir.1999)). “In a [Section] 10(b) action, a court may not grant such relief to the defendants on the ground of lack of scienter unless the plaintiff has failed to present facts that can support an inference of bad faith or an inference that defendants acted with an intent to deceive.” Wechsler v. Steinberg, 733 F.2d 1054, 1059 (2d Cir.1984). “ ‘Whether a given intent existed is generally a question of fact,’ appropriate for resolution by the trier of fact.” Press, 166 F.3d at 538(quoting Grandon v. Merrill Lynch & Co., 147 F.3d 184, 194 (2d Cir.1998)); see also S.E.C. v. First Jersey Sec., Inc., 101 F.3d 1450, 1467 (2d Cir.1996)(“Whether or not a given intent existed, is, of course, a question of fact.”) Nevertheless, “even where state of mind is at issue, summary judgment may be proper ‘where a plaintiff has failed to make a showing of wrongful intent on the part of the defendant sufficient for a reasonable jury to find for plaintiff on that issue.’ ” Cramer v. Devon Grp., Inc., 774 F.Supp. 176, 182 (S.D.N.Y.1991)(quoting Lawford v. New York Life Ins. Co., 739 F.Supp. 906, 913 (S.D.N.Y.1990)). 2. Reliance
“In assessing whether reliance on allegedly fraudulent misrepresentations is reasonable or justifiable, New York takes a contextual view, focusing on the level of sophistication of the parties, the relationship between them, and the information available at the time of the operative decision.” JP Morgan Chase Bank v. Winnick, 350 F.Supp.2d 393, 406 (S.D.N.Y.2004). “ ‘Where a party has the means to discover the true nature of the transaction by the exercise of ordinary intelligence, and fails to make use of those means, he cannot claim justifiable reliance on defendant's misrepresentations.’ ” Brunner v. Estate of Lax,47 Misc.3d 1206(A), 2015 WL 1509815 at *10 (N.Y.Sup.Ct.2015)(quoting Stuart Silver Assoc. v. Baco Dev. Corp., 245 A.D.2d 96, 98–99, 665 N.Y.S.2d 415 (1st Dept.1997)).
Stated differently,
“ ‘if the facts represented are not matters peculiarly within the [defendant's] knowledge, and the [plaintiff] has the means available to [it] of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, [the plaintiff] must make use of those means, or [it] will not be heard to complain that [it] was induced to enter into the transaction by misrepresentations.’ ”
ACA Fin. Guar. Corp. v. Goldman, Sachs & Co.,25 N.Y.3d 1043, 1044 (2015)(quoting Schumaker v. Mather, 133 N.Y. 590, 596, 30 N.E. 755 (1892)); see also Estate of Warhol, 119 F.3d at 98(“[I]f the plaintiff ‘has the means of knowing, by the exercise of ordinary intelligence, the truth, or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations.’ ”) (quoting Mallis v. Bankers Trust Co., 615 F.2d 68, 80–81 (2d Cir.1980) (applying New York law), abrogated in part on other grounds by Peltz v. SHB Commodities, 115 F.3d 1082, 1090 (2d Cir.1997)). Notably, “the obligation to [make use of the means of verification] must be understood as contingent on either ‘indisputable accessto truth-revealing information,’ ... or some suspicious event or information triggering the duty to inquire.” Winnick, 350 F.Supp.2d at 410(quoting Doehla v. Wathne Ltd., Inc.,No. 98 Civ. 6087(CSH), 1999 WL 566311, at *11 (S.D.N.Y. Aug. 3, 1999)(emphasis in Doehla)).
Moreover, “ ‘New York cases recognize that the peculiar knowledge exception applies not only where the facts allegedly misrepresented literally were within the exclusive knowledge of the defendant, but also where the truth theoretically might have been discovered, though only with extraordinary effort or great difficulty.’ ” Id.(quoting DIMON Inc. v. Folium, Inc., 48 F.Supp.2d 359, 368 (S.D.N.Y.1999)and citing Lazard Freres & Co. v. Protective Life Insurance Co., 108 F.3d 1531, 1542 n. 9 (2d Cir.1997)(noting that New York law does not require that the information be “available only to the defendant and absolutely unknowable by the plaintiff before reliance can be deemed justified”)); Mallis, 615 F.2d at 80(“[I]ndeed some cases have imposed liability in situations in which plaintiff could have determined the truth with relatively modest investigation.”).
Courts consider multiple factors in evaluating the reasonableness of a plaintiff's reliance, including the following:
whether the [plaintiff] received any “clear and direct” signs of falsity, see Winnick, 350 F.Supp.2d at 408; whether the [plaintiff] had access to relevant information, see Sawabeh Info. Servs. Co. v. Brody, 832 F.Supp.2d 280, 297–98 (S.D.N.Y.2011); whether the [plaintiff] received a written (purported) confirmation
of the truthfulness of the representations at issue, see DDJ Mgmt., LLC v. Rhone Grp. L.L.C., 15 N.Y.3d 147, 154–55, 905 N.Y.S.2d 118, 931 N.E.2d 87 (2010), and whether the [plaintiff] is “sophisticated,” see Crigger v. Fahnestock & Co., 443 F.3d 230, 235 (2d Cir.2006).
Coraud LLC v. Kidville Franchise Co., 121 F.Supp.3d 387, 394, No. 14 Civ. 9105(JSR), 2015 WL 4930990, at *4 (S.D.N.Y. Aug. 15, 2015); see also Emergent Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc., 343 F.3d 189, 195 (2d Cir.2003)(“In assessing the reasonableness of a plaintiff's alleged reliance, we consider the entire context of the transaction, including factors such as its complexity and magnitude, the sophistication of the parties, and the content of any agreements between them.”) (citation omitted).
“[T]he greater the sophistication of the investor, the more inquiry that is required.” Crigger, 443 F.3d at 235; see also Winnick, 350 F.Supp.2d at 406(“[S]ophisticated business entities are held to a higher standard.”). “As a matter of law, ‘a sophisticated plaintiff cannot establish that it entered into an arm's length transaction in justifiable reliance on alleged misrepresentations if that plaintiff failed to make use of the means of verification that were available to it.’ ” ACA Galleries, Inc. v. Kinney, 928 F.Supp.2d 699, 703 (S.D.N.Y.2013)(quoting HSH Nordbank AG v. UBS AG, 95 A.D.3d 185, 194–95, 941 N.Y.S.2d 59 (1st Dept.2012)(internal quotation marks omitted)), aff'd, 552 Fed.Appx. 24 (2d Cir.2014); see also Crigger, 443 F.3d at 235(“ ‘Where sophisticated businessmen engaged in major transactions enjoy access to critical information but fail to take advantage of that access, New York courts are particularly disinclined to entertain claims of justifiable reliance.’ ”) (quoting Grumman Allied Indus. v. Rohr Indus., Inc., 748 F.2d 729, 737 (2d Cir.1984)).
“Moreover, ‘when the party to whom a misrepresentation is made has hints of its falsity, a heightened degree of diligence is required of it. It cannot reasonably rely on such representations without making additional inquiry to determine their accuracy.’ ” ACA Fin. Guar. Corp.,25 N.Y.3d at 1044–45, 10 N.Y.S.3d 486, 32 N.E.3d 921(quoting Centro Empresarial Cempresa S.A. v. América Móvil, S.A.B. de C.V., 17 N.Y.3d 269, 279, 929 N.Y.S.2d 3, 952 N.E.2d 995 (2011)). “This rule applies where the ‘[c]ircumstances [are] so suspicious as to suggest to a reasonably prudent plaintiff that the defendants' representations may be false’; in such cases, a plaintiff ‘cannot reasonably rely on those representations, but rather must “make additional inquiry to determine their accuracy.” ’ ” Winnick, 350 F.Supp.2d at 406(alterations in original) (quoting Estate of Warhol, 119 F.3d at 98(quoting Keywell Corp. v. Weinstein, 33 F.3d 159, 164 (2d Cir.1994))).
Under New York's contextual approach, “ ‘[t]he question of what constitutes reasonable reliance is always nettlesome because it is so fact-intensive.’ ” DDJ Mgmt., LLC, 15 N.Y.3d 147, 155, 905 N.Y.S.2d 118, 931 N.E.2d 87 (2010)(quoting Estate of Warhol, 119 F.3d at 98) “[R]easonable reliance is therefore a question normally reserved for the finder of fact and not usually amenable to summary judgment.” Coraud, 121 F.Supp.3d at 394, 2015 WL 4930990, at *4.
B. Analysis
Freedman and Knoedler do not dispute that material misrepresentations and omissions were made and that Plaintiffs suffered damages. They contend, however, that Plaintiffs' fraud and fraudulent concealment claims fail because Plaintiffs have not put forth evidence demonstrating that (1) Freedman acted with scienter (i.e.,that her statements were made recklessly or with intent to deceive),and (2) that Plaintiffs' reliance was justifiable. (Freedman Br. (De SoleDkt. No. 207) at 17–18, 23; Freedman Reply Br. (De SoleDkt. No. 245) at 3; Freedman Br. (HowardDkt. No. 278) at 1, 17–18, 23–24; Freedman Reply Br. (HowardDkt. No. 308) at 3)
1. Scienter
The evidence concerning Freedman's efforts to show the Rosales Paintings at art exhibits likewise does not negate fraudulent intent. The public exhibitions had the effect of building a façade of credibility for the Rosales Paintings. Because Freedman and Knoedler had no documented provenance for any of the Rosales Paintings, the “viewing list” and exhibit history—together with Knoedler's endorsement—wasthe documentation Freedman and Knoedler used to sell these paintings.
Freedman's purchase of several Rosales Paintings likewise does not negate Defendants' evidence of fraudulent intent. In April 1997, Freedman swapped a Diebenkorn from her own collection for a Rosales “Rothko.” No money changed hands.(Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1111; (De SoleDkt. No. 236), Ex. 80) On August 1, 2000, Freedman and her husband purchased a “Motherwell” Spanish Elegydirectly from Rosales for approximately $15,000. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1163; (De SoleDkt. No. 236), Ex. 107) Finally, on September 1, 2000, Freedman and her husband purchased a “Pollock” directly from Rosales for $280,000. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1165)
Freedman's motives in swapping for and purchasing these Rosales Paintings will be determined by a jury. It is undisputed that she used the fact that she owned Rosales Paintings as a promotional device. (Def. R. 56.1 Stmt. (De SoleDkt. No. 208) ¶ 540) Moreover, by September 2000—when Freedman purchased a Rosales “Pollock” for $280,000—Knoedler was regularly doubling its money in purchasing and selling Rosales Paintings. SeePltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1142(a); (De SoleDkt. No. 236), Ex. 90 (reflecting June 23, 1998 transaction in which Knoedler sold a purported Rothko for $320,000 and paid Rosales $155,000); Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1142(b); (De SoleDkt. No. 236), Exs. 91, 92 (reflecting July 1, 1998 transaction in which Knoedler sold a purported Rothko for $325,000 and paid Rosales $155,000). Freedman—who was well aware of this fact—might well have concluded that the purchase of the “Pollock” was a wise investment based on prior sales of Rosales Paintings.
“ ‘[I]ssues of motive and intent are usually inappropriate for disposition on summary judgment’ ”—and such is the case here. Litton Indus., Inc. v. Lehman Bros. Kuhn Loeb Inc., 967 F.2d 742, 751 (2d Cir.1992), as amended(Sept. 23, 1992) (quoting Wechsler, 733 F.2d at 1058–59); see also Sound Video Unlimited, Inc. v. Video Shack Inc., 700 F.Supp. 127, 135 (S.D.N.Y.1988)(summary judgment denied where “fraud issue largely hinges upon the credibility of the various parties to the alleged fraud and the believability of their testimony as to what statements were made and with what intention”).
This Court concludes that there are material issues of fact as to whether Freedman and Knoedler acted with fraudulent intent in selling Rosales Paintings to Plaintiffs.
2. Reliance
Freedman contends that Plaintiffs are sophisticated art collectors who had the opportunity to investigate her alleged misrepresentations before purchasing the works. Freedman contends that had Plaintiffs performed “even minimal [due] diligence,” they would have learned the facts that provide the basis for their fraud claims. (Freedman Br. (De SoleDkt. No. 207) at 5, 24, 27, 31–32; Freedman Br. (HowardDkt. No. 278) at 5, 23 n. 6, 24, 28, 31) Although it is true that Plaintiffs had purchased works of art before, this Court cannot conclude—as a matter of law—that Plaintiffs' alleged sophistication and experience rendered them unreasonable in relying on Freedman and Knoedler's representations concerning the paintings. An analysis of the factors cited in Winnickand other cases confirms this conclusion.
As an initial matter, both the De Soles and Howard received “written confirmation of the truthfulness of the representations at issue.” See Coraud, 121 F.Supp.3d at 394, 2015 WL 4930990, at *4(citing DDJ Mgmt., LLC, 15 N.Y.3d at 154–55, 905 N.Y.S.2d 118, 931 N.E.2d 87). The De Soles requested and received a December 11, 2004 letter from Freedman in which she confirmed all of her earlier oral representations about the painting they later purchased, including its authenticity and provenance. SeePltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1404, 1411; see also DDJ Mgmt., LLC, 15 N.Y.3d at 154, 905 N.Y.S.2d 118, 931 N.E.2d 87(“[W]here a plaintiff has gone to the trouble to insist on a written representation that certain facts are true, it will often be justified in accepting that representation rather than making its own inquiry.”). Howard was also provided with an invoice that set forth in writing the authenticity and provenance of the purported de Kooning he had purchased. SeePltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1718; (De SoleDkt. No. 236), Ex. 233.
The representations made by Freedman and Knoedler likewise contained no “hints of [ ] falsity”; to the contrary, Knoedler's sterling reputation lent credibility to Freedman's assertions. See ACA Fin. Guar. Corp.,25 N.Y.3d at 1044, 10 N.Y.S.3d 486, 32 N.E.3d 921.
Moreover, even assuming that “the truth theoretically might have been discovered,” there is evidence in the record suggesting that any such discovery would be possible “only with extraordinary effort or great difficulty.' ” Winnick, 350 F.Supp.2d at 410. The IFAR Report demonstrates the complexity of the task of ascertaining the authenticity and provenance of a work of art, particularly in the absence of any documentation concerning the painting. In preparing its report over a number of months, IFAR showed the “Green Pollock” to numerous Pollock experts; conducted “extensive archival and other research”; conducted materials and technical analysis; and closely examined the paint handling and style of the work, and the legitimacy of the purported Pollock signature. (IFAR Report (De SoleDkt. No. 236), Ex. 140) In sum, assuming that the forged nature of the paintings sold to Plaintiffs could have been discovered, there is evidence in the record suggesting that that discovery would have come “only with extraordinary effort or great difficulty.”
As noted above, “reasonable reliance is ... a question normally reserved for the finder of fact and [is] not usually amenable to summary judgment.”Coraud, 121 F.Supp.3d at 394, 2015 WL 4930990, at *4. Such is the case here.648Crediting Plaintiffs' evidence on this point, a reasonable jury could conclude that Plaintiffs justifiably relied on Freedman and Knoedler's representations. Accordingly, Freedman and Knoedler are not entitled to summary judgment on Plaintiffs' fraud and fraudulent concealment claims.
III. RICO CLAIMS
Knoedler, Freedman, Hammer, and Andrade move for summary judgment on Plaintiffs' substantive RICO and RICO conspiracy claims in the De Soleand Howardactions.(Knoedler Br. (HowardDk. No. 285) at 20–34; Hammer Br. (De SoleDkt. No. 239; HowardDkt. No. 282) at 15–23; Andrade Br. (De SoleDkt. No. 227; HowardDkt. No. 289) at 11–18) Defendants contend that Plaintiffs have failed to adduce evidence sufficient to establish certain elements of their RICO claims. Defendants do not dispute the existence of an enterprise engaged in a pattern of racketeering activity, in which two or more predicate acts were committed that affected interstate commerce. Defendants argue, however, that they did not participate in the alleged fraudulent enterprise and did not commit predicate acts in furtherance of the racketeering enterprise. In addition, Hammer and Andrade argue that they did not conspire to violate the RICO statute, and Hammer argues that he caused Plaintiffs no injury.
A. Applicable Law
To sustain a private cause of action under RICO, a plaintiff must establish: “(1) the defendant's violation of 18 U.S.C. § 1962, (2)an injury to the plaintiff's business or property, and (3) causation of the injury by the defendant's violation.” Lerner v. Fleet Bank, N.A., 459 F.3d 273, 283 (2d Cir.2006)(internal quotation marks and alteration omitted); see also18 U.S.C. § 1964(c)(providing a cause of action for “[a]ny person injured in his business or property by reason of a violation” of Section 1962).
18 U.S.C. § 1962(c)makes it “unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity.” 18 U.S.C. § 1962(c). Thus, in addition to injury and causation, “[t]o establish a civil RICO claim pursuant to § 1962(c), ‘a plaintiff must establish: (1) that the defendant (2) through the commission of two or more acts (3) constituting a “pattern” (4) of “racketeering activity” (5) directly or indirectly ... participates in (6) an “enterprise” (7) the activities of which affect interstate or foreign commerce.’ ” Valenti v. Penn Mut. Life Ins. Co., 850 F.Supp.2d 445, 450 (S.D.N.Y.2012)(quoting Weizmann Institute of Science v. Neschis, 229 F.Supp.2d 234, 254–55 (S.D.N.Y.2002)(citation omitted)), aff'd,511 Fed.Appx. 57 (2d Cir.2013); see also Crawford v. Franklin Credit Mgmt. Corp., 758 F.3d 473, 487 (2d Cir.2014)(“To establish a violation of § 1962(c), a plaintiff must show that the defendant conducted, or participated in the conduct, of a RICO enterprise's affairs through a pattern of racketeering activity.”)
“To establish a conspiracyto violate the civil RICO statute pursuant to 18 U.S.C. § 1962(d)... plaintiff must prove (1) that there existed a conspiracy to commit acts that, if successful, would constitute a substantive civil RICO violation; (2) that defendant agreed to join in, and knowingly participated in, that conspiracy; and (3) that defendant acted in furtherance of the conspiracy in some manner (although not necessarily by the commission of any RICO predicate acts himself).” City of New York v. Chavez, 944 F.Supp.2d 260, 268–69 (S.D.N.Y.2013)(emphasis in original) (citing Valenti, 850 F.Supp.2d at 450–51); see also Crawford, 758 F.3d at 487(“To establish a violation of § 1962(d), a plaintiff must show that the defendant agreed with at least one other entity to commit a substantive RICO offense.”)
B. Analysis
1. Defendants' Participation in the RICO Enterprise
As discussed above, a RICO plaintiff must establish that the defendants “conduct[ed] or participate[d], directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity.” 18 U.S.C. § 1962(c); see Reves v. Ernst & Young, 507 U.S. 170, 177–79, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993). Accordingly, the defendant must have had “some part in directing [the enterprise's] affairs.” Reves, 507 U.S. at 179, 113 S.Ct. 1163. “Of course, the word ‘participate’ makes clear that RICO liability is not limited to those with primary responsibility for the enterprise's affairs, just as the phrase ‘directly or indirectly’ makes clear that RICO liability is not limited to those with a formal position in the enterprise [;] but somepart in directing the enterprise's affairs is required.” Id.(footnote omitted) (emphasis in original). “The [Supreme] Court acknowledged ... that those who ‘operate’ or ‘direct’ a RICO enterprise sufficiently to ‘conduct’ its affairs within the meaning of RICO need not be ‘upper management,’ but might also be ‘lower rung participants in the enterprise who are under the direction of upper management.’ ” United States v. Allen, 155 F.3d 35, 42–43 (2d Cir.1998)(quoting Reves, 507 U.S. at 184, 113 S.Ct. 1163).
In Reves,the Supreme Court ruled that “[t]he ‘operation or management’ test [employed by the Eighth and D.C. Circuits] expresses [RICO's] requirement[s] in a formulation that is easy to apply.” Reves, 507 U.S. at 179, 113 S.Ct. 1163. Simply put, “one is liable under RICO only if he ‘participated in the operation or management of the enterprise itself.’ ” Azrielli v. Cohen Law Offices, 21 F.3d 512, 521 (2d Cir.1994)(quoting Reves, 507 U.S. at 183, 113 S.Ct. 1163).With these precedents in mind, the Court will analyze the arguments and evidence concerning each defendant and their respective roles in the conduct of the affairs of the alleged racketeering enterprise.
a. Freedman and Knoedler
Freedman and Knoedler argue that they “did not know the Rosales Collection works were inauthentic [and thus] they [did] not ‘share a common purpose to engage in [the] particular fraudulent course of conduct’ of selling forged works.” (Knoedler Br. (HowardDkt. No. 285) at 22 (quoting First Cap. Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159, 174 (2d Cir.2004))) Accordingly, “as a matter of law, [they cannot] ‘be considered part of [the] RICO enterprise.’ ” (Knoedler Br. (HowardDkt. No. 285) at 22 (quoting Reed Const. Data Inc. v. McGraw–Hill Companies, Inc., 745 F.Supp.2d 343, 351 (S.D.N.Y.2010))); see also id.at 30 (“Knoedler and Freedman believed the Rosales Collection works were authentic, [and therefore] Knoedler and Freedman could not have shared a common purpose with other members of an association-in-fact enterprise to ‘sell forged paintings.’ ”)
As discussed above in connection with Plaintiffs' fraud and fraudulent concealment claims, however, Plaintiffs have offered ample circumstantial evidence demonstrating that Freedman acted with fraudulent intent and understood that the Rosales Paintings were not authentic. As noted earlier, this evidence includes, inter alia,Freedman and Rosales' fabricated stories of provenance, which shifted dramatically over time; Freedman's efforts to concoct a “cover story” with Rosales; Rosales' willingness to repeatedly sell purported “masterworks” to Knoedler for a fraction of their value on the open market; Rosales' refusal to share any meaningful information about the purported source of the paintings, and her unwillingness to sign a statement representing that the paintings were authentic; Rosales' inconsistent accounts of the size and scope of Mr. X's collection, which grew over time to include more than thirty hitherto undiscovered “masterworks”; the absence of any documentation concerning the paintings; the issues raised about the Diebenkorns Rosales brought to Knoedler early on; and the October 2003 IFAR Report—which Freedman reviewed—and which rejected the concocted provenance tale concerning Ossorio and raised serious concerns about the authenticity of the “Green Pollock” purchased by Jack Levy. Accordingly, Plaintiffs have introduced sufficient evidence to demonstrate that Freedman knew that the representations she was making to Plaintiffs about the paintings they purchased were false.
Moreover, Freedman's state of mind, her knowledge, and her intent present classic jury questions. The Second Circuit “has consistently held [that] where subjective issues regarding a litigant's state of mind, motive, sincerity or conscience are squarely implicated, summary judgment would appear to be inappropriate and a trial indispensable. The need for a full exposition of facts is profound under such circumstances since determining a man's [or a woman's] state of mind is ‘an awesome problem,’ capable of resolution only by reference to a panoply of subjective factors.” Patrick v. LeFevre, 745 F.2d 153, 159 (2d Cir.1984)(internal citations omitted); see also Redd v. New York Div. of Parole,678 F.3d 166, 178 (2d Cir.2012)(“Issues of causation, intent, and motivation are questions of fact.”); Gelb v. Bd. of Elections of City of New York, 224 F.3d 149, 157 (2d Cir.)certified question accepted,95 N.Y.2d 879, 715 N.Y.S.2d 213, 738 N.E.2d 361 (2000)(“[S]ummary judgment is generally inappropriate where questions of intent and state of mind are implicated.”); Meiri v. Dacon, 759 F.2d 989, 998 (2d Cir.1985)(same).Freedman and Knoedler are not entitled to summary judgment on Plaintiffs' RICO claims on the grounds that there is no evidence that they shared the enterprise's illegal purpose. Plaintiffs have proffered evidence that creates material issues of fact concerning this issue.
b. Hammer
Hammer contends that he is entitled to summary judgment on Plaintiffs' RICO claims because there is no evidence that he had “some part in directing [the enterprise's] affairs.” See Reves, 507 U.S. at 179, 113 S.Ct. 1163; Hammer Br. (De SoleDkt. No. 239; HowardDkt. No. 282) at 1819. Hammer argues that the undisputed evidence shows that “did not make any ... request or recommendation or coordinate anyone's efforts to commit fraud related to the sale of any painting acquired from Rosales.” (Hammer Br. (De SoleDkt. No. 239; HowardDkt. No. 282) at 19) Hammer further maintains that he “did not play any part in the marketing or selling of any of the paintings sold by Knoedler,” and “did not direct or encourage anyone to purchase, sell, or paint a forged painting.” (Hammer Br. (De SoleDkt. No. 239; HowardDkt. No. 282) at 18) In sum, Hammer argues that the undisputed evidence shows that he did nothing to direct the alleged enterprise's affairs. (Hammer Br. (De SoleDkt. No. 239; HowardDkt. No. 282) at 19)
Hammer has stated that his family has been “directly responsible for the operations of Knoedler” since the 1970s. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1031; Hammer Decl. in Opp. to TRO (De SoleDkt. No. 236), Ex. 46 ¶ 2) Moreover, as president, CEO, chairman, and sole owner of 8–31 Holdings, Inc.—the sole member of Knoedler—Hammer had the right to exercise complete control over Knoedler's operations. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1033, 1995, 2003; Hammer Dep. (De SoleDkt. No. 236), Ex. 21 at 57)
c. Andrade
Andrade contends that the evidence is “insufficient to demonstrate that he participated in a scheme to defraud.” (Andrade Br. (De SoleDkt. No. 227; HowardDkt. No. 289) at 12, 15; Andrade Reply Br. (De SoleDkt. No. 242; HowardDkt. No. 304) at 9)
Andrade was born in Ecuador and worked at the Knoedler Gallery for more than forty years. (Pltf. R. 56.1 Count. Stmt. (De SoleDkt. No. 232) ¶¶ 989, 993) At Knoedler, Andrade acted as an assistant, hung paintings, greeted visitors, ran errands, and made bank deposits for the accounting department. (Id.¶¶ 995–96) In his last year at the gallery, he made $41,000. (Id.¶ 994) It is apparent from Andrade's deposition, and it is undisputed, that Andrade's native language is Spanish and that he has an uncertain command of the English language. (Id.¶ 1022)
There is evidence that Andrade and Rosales were close friends, that he persuaded her to bring the Mr. X paintings to Knoedler, that he introduced Rosales to Freedman and Knoedler, and that he also introduced her to Julian Weissman, a former Knoedler employee who had his own gallery. (Id.¶ 1017; December 3, 2005 notes (De SoleDkt. No. 236), Ex. 50; Def. Reply to Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 248) ¶ 1196; Weissman Dep. (De SoleDkt. No. 236), Ex. 40 at 27–29) There is no evidence, however, that Rosales told Andrade that Mr. X was fictional and that the Rosales Paintings were forgeries. Moreover, Andrade never represented to anyone that he knew Mr. X or Mr. X's son. While Andrade was a close friend of David Herbert (Pltf. R. 56.1 Count. Stmt. (De SoleDkt. No. 232) ¶ 1020), there is no evidence that he ever represented to anyone that Herbert had told him about a Mexican collector Herbert had advised about purchasing Abstract Expressionist paintings.
Plaintiffs likewise have not demonstrated that Andrade was aware of (1) the prices at which the Rosales Paintings sold, much less the outlandish profits Knoedler earned on the sale of the Rosales Paintings; (2) Rosales' inconsistent accounts of the size and scope of Mr. X's collection; (3) Rosales' unwillingness to sign forms confirming the authenticity of the Rosales Paintings; (4) the issues raised concerning the Diebenkorns Rosales brought to Knoedler early on; and (5) the IFAR Report. Moreover, to the extent that Freedman was making misrepresentations to Knoedler customers about the authenticity and provenance of the Rosales Paintings, there is no evidence that Andrade knew that she was making such misrepresentations. Plaintiffs have likewise not shown that Andrade participated in making misrepresentations to Knoedler customers about Rosales Paintings.
Plaintiffs assert that in late 2002 “it was Andrade who first brought [David] Herbert to Freedman's attention” (Pltf. Br. (De SoleDkt. No. 231) at 113; Pltf. Br. (HowardDkt. No. 292) at 144), but it is undisputed that Andrade's statements to Freedman at that time had nothing to do with the Rosales Paintings. Instead, Andrade spoke to Freedman about a connection between David Herbert and an art collector and patron named Lois Orswell. (Def. Reply to Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 248) ¶¶ 1291–95; Freedman Dep. (De SoleDkt. No. 236), Ex. 18 at 250–51, 254–56) Andrade's comments about Herbert spurred Freedman's interest in him, and subsequent research directed by Freedman indicated to her that Herbert was “a significant and largely unsung hero of the art world.” (Def. Reply to Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 248) ¶¶ 1295, 1301; October 1, 2009 letter (De SoleDkt. No. 236), Ex. 159) While Plaintiffs strain mightily to suggest that Andrade mentioned David Herbert to Freedman as part of a scheme to develop an alternative provenance for the Rosales Paintings (Pltf. Br. (De SoleDkt. No. 231) at 113), the evidence will not bear this inference.
Plaintiffs also point to a November 7, 2008 meeting Andrade attended with Freedman, Rosales, and a Knoedler researcher. (Pltf. Br. (De SoleDkt. No. 231) at 113; Pltf. Br. (HowardDkt. No. 292) at 144) At that meeting, the group discussed the provenance of the Mr. X paintings. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1883; November 7, 2008 Memo (De SoleDkt. No. 236), Ex. 300) Andrade mentioned that “David Herbert and Ossorio were close friends,” and both Andrade and Rosales then stated that “Mr. X may have met David [Herbert] through Ossorio.” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1885; November 7, 2008 memo (De SoleDkt. No. 236), Ex. 300; de Medeiros Dep. (De SoleDkt. No. 236), Ex. 9 at 213–14) The day after this meeting, Rosales signed a statement indicating that she had “recently” spoken with Mr. X's son and that he had confirmed that “[i]n the early years of collecting activity Alfonso Ossorio was his primary advisor. Later (after 1951 ...), David Herbert (a close friend of Ossorio's) gradually became the [Mexican] collector's primary advisor, in his role as dealer to the artists both in and outside of the gallery system, and he continued in that role through 1964.” (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1886; November 8, 2008 Statement (De SoleDkt. No. 236), Ex. 301)
Missing from Plaintiffs' account, however, is evidence that Andrade knew that Rosales had previously represented to Freedman and Knoedler, and that Freedman and Knoedler had represented to customers, that Ossorio alone was Mr. X's intermediary with the Abstract Expressionist artists. Plaintiffs have not cited sufficient evidence to this Court to demonstrate that Andrade knew that Rosales had given shifting accounts of the provenance of the Rosales Paintings, and that varying accounts of provenance had been provided to Knoedler customers who purchased Rosales Paintings.
Moreover, there is no evidence that Andrade's comments at the November 7, 2008 meeting were anything more than idle musing based on the fact that Herbert was a close friend of Ossorio. (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶ 1885) Given that Andrade never represented that he knew Mr. X or Mr. X's son, and that he never represented that David Herbert had told him about a Mexican art collector that Herbert had advised, his statements at this meeting can only be viewed as speculation, and cannot reasonably be viewed as statements that his alleged co-conspirators relied on in connection with advancing the goals of the alleged fraud conspiracy. Nor is there any evidence that Andrade mentioned the connection between Herbert and Ossorio as part of a knowing and intentional effort to assist Rosales and Freedman in perpetrating a fraud on Knoedler's customers. While Rosales and Freedman might have had a vested interest in developing a provenance story that included David Herbert—in order to address authenticity issues that had recently emerged concerning Motherwells that Rosales had brought to Knoedler (Pltf. R. 56.1 Add. Stmt. (De SoleDkt. No. 236) ¶¶ 1800–16)—Andrade had no such interest, because he had no stake in the Rosales Paintings.
IV. AIDING AND ABETTING FRAUD
Hammer and Andrade seek summary judgment on Plaintiffs' aiding and abetting fraud claims, arguing that Plaintiffs have not put forth evidence demonstrating that they had actual knowledge of the fraud scheme and provided substantial assistance to those defrauding Knoedler's customers. (Hammer Br. (De SoleDkt. No. 239; HowardDkt. No. 282) at 8–9; Andrade Br. (De SoleDkt. No. 227; HowardDkt. No. 289) at 19; Andrade Reply Br. (De SoleDkt. No. 242; HowardDkt. No. 304) at 2, 12, 14)
A. Applicable Law
“To establish liability under New York law for aiding and abetting fraud, the [Plaintiffs] must prove: ‘(1) the existence of a fraud; (2) [the] defendant's knowledge of the fraud; and (3) that the defendant provided substantial assistance to advance the fraud's commission.’ ” JP Morgan Chase Bank v. Winnick,406 F.Supp.2d 247, 252 (S.D.N.Y.2005)(quoting Filler v. Hanvit Bank,No. 01 Civ. 9510(MGC), 2003 WL 22110773, at *2 (S.D.N.Y. Sept. 12, 2003)); Lerner, 459 F.3d at 292(same). “ ‘A claim for aiding and abetting fraud must be proven by clear and convincing evidence.’ ” de Abreu v. Bank of Am. Corp., 812 F.Supp.2d 316, 322 (S.D.N.Y.2011)(quoting Primavera Familienstifung v. Askin, 130 F.Supp.2d 450, 488 (S.D.N.Y.2001)).
“A showing of actualknowledge of the alleged fraud is required to support a claim for aiding and abetting fraud; constructive knowledge—the possession of information that would cause a person exercising reasonable care and diligence to become aware of the fraud—is insufficient.” de Abreu, 812 F.Supp.2d at 322(emphasis in original). “ ‘The burden of demonstrating actual knowledge, although not insurmountable, is nevertheless a heavy one.’ ” Id.(quoting Chemtex, LLC v. St. Anthony Enters., Inc., 490 F.Supp.2d 536, 546 (S.D.N.Y.2007)).
“ ‘Substantial assistance occurs when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur.’ ” 2006 Frank Calandra, Jr. Irrevocable Trust v. Signature Bank Corp., 816 F.Supp.2d 222, 237 (S.D.N.Y.2011)(quoting Lerner, 459 F.3d at 295), aff'd,503 Fed.Appx. 51 (2d Cir.2012). “ ‘However, ... mere inaction ... constitutes substantial assistance only if the defendant owes a fiduciary duty directly to the plaintiff.’ ” Id.(quoting Lerner, 459 F.3d at 295). “Whether the assistance is substantial or not is measured, in turn, by whether ‘the action of the aider and abettor proximately caused the harm on which the primary liability is predicated.’ ” Winnick,406 F.Supp.2d at 256(quoting In re WorldCom, Inc. Sec. Litig., 382 F.Supp.2d 549, 560–61 (S.D.N.Y.2005)). “Aider and abettor liability will not attach where the injury was not a direct or reasonably foreseeable result of the defendant's conduct.” Filler,2003 WL 22110773, at *2. “ ‘Awareness and approval, standing alone, do not constitute substantial assistance.’ ” Fid. Funding of California, Inc. v. Reinhold, 79 F.Supp.2d 110, 122 (E.D.N.Y.1997)(quoting Armstrong v. McAlpin, 699 F.2d 79, 92 (2d Cir.1983)).
B. Analysis
For the reasons set forth above in connection with Plaintiffs' substantive RICO and RICO conspiracy claims, Hammer and Andrade are entitled to summary judgment on Plaintiffs' aiding and abetting fraud claims. Plaintiffs have not demonstrated that Hammer and Andrade had actual knowledge of an ongoing fraud scheme at Knoedler, nor have Plaintiffs demonstrated that Hammer and Andrade knowingly and intentionally provided substantial assistance to those allegedly defrauding Knoedler's customers through the sale of Rosales Paintings.
V. CONSPIRACY TO COMMIT FRAUD
Hammer and Andrade have moved for summary judgment on Plaintiffs' conspiracy to commit fraud claims. (Hammer Br. (De SoleDkt. No. 239) at 13–14; Hammer Br. (HowardDkt. No. 282) 13–14; Andrade Br. (De SoleDkt. No. 227) at 1–2, 23; Andrade Br. (HowardDkt. No. 289) at 1–2, 23)
“To establish a claim of civil conspiracy, plaintiff must demonstrate the underlying tort [—here, fraud—], plus the following four elements: (1) an agreement between two or more parties; (2) an overt act in furtherance of the agreement; (3) the parties' intentional participation in the furtherance of a common purpose or plan; and, (4) resulting damage or injury.” IMG Fragrance Brands, LLC v. Houbigant, Inc., 759 F.Supp.2d 363, 386 (S.D.N.Y.2010); see also Kashi v. Gratsos, 790 F.2d 1050, 1055 (2d Cir.1986).
Here, for the reasons discussed in connection with Plaintiffs' RICO claims, Plaintiffs have not proffered evidence sufficient to demonstrate that Hammer and Andrade agreed with someone else to commit fraud at the Knoedler Gallery through the sale of forged paintings brought to the gallery by Rosales. Accordingly, Hammer and Andrade are entitled to summary judgment on Plaintiffs' conspiracy to commit fraud claims.