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De Sole v. Knoedler Gallery - A Field of Red Flags

Last month, collectors Domenico and Eleanore De Sole settled their claims against the now defunct Knoedler Gallery and its former president and director, Ann Freedman. The settlement, though hardly surprising, left many questions unanswered and raised other interesting ones. Unfortunately, we will never know whether, in the eyes of a jury, the De Soles’ reliance on the representations made by Knoedler and Freedman was reasonably justified, and whether Knoedler and Freedman intended to defraud.

The Knoedler Gallery, founded in 1846 and considered a New York institution, was one of the most venerable art galleries in the United States. It survived three wars and several recessions. Knoedler abruptly closed its doors in 2011, succumbing to a series of lawsuits.

The demise of Knoedler arguably began in or around 1994, when an obscure Long Island art dealer, Glafira Rosales, met with Freedman, Knoedler’s sole manager and director at the time. Rosales told Freedman that she had a Mexican client who wanted to sell a collection of Abstract Expressionist artworks, but wanted to do so anonymously. Over the next fifteen years, Rosales provided Knoedler with dozens of previously unknown alleged “masterworks” by well-known Abstract Expressionist artists, and Knoedler sold these paintings to its customers. The paintings turned out to be forgeries. In September 2013, Rosales pled guilty to conspiracy to sell the fake artworks, money laundering, and several tax crimes related to the fake art scheme in a criminal action brought against her. In fact, the Rosales paintings were created by a Chinese painter residing in Queens, New York, who received a nominal sum for his creations.

A total of ten lawsuits were filed against Knoedler and Freedman alleging that they knowingly sold inauthentic works of art to their unsuspecting buyers, making millions in profit. While the De Soles and a few other collectors have settled their claims, four lawsuits remain pending.

Doubts About Provenance

The provenance details Rosales initially provided to Freedman were as follows: as a child in Mexico, Rosales had met a Jewish couple, who immigrated to Mexico from Europe. The husband, Mr X, made frequent visits to the U.S. between 1940s and 1970s. During his visits, he purchased a series of paintings directly from American artists. The couple died in the 1990s, leaving these paintings to their children, who now wanted to sell them. According to Freedman, Rosales told her that Alfonso Ossorio, an artist who had ties with many Abstract Expressionist artists, had advised Mr X on his purchases. Rosales’s provenance story would change over time.

Doubts were raised in relation to the provenance of the Rosales paintings as early as the mid-1990’s. During a series of meetings in 1994 and 1995, members of artist Richard Diebenkorn’s family told

Freedman that at least two of the five purported Diebenkorns Rosales had provided her did not appear to be authentic. The Diebenkorn family also expressed concerns 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 works. In spite of these red flags, Knoedler continued to sell the Rosales paintings. Freedman did not question why Rosales consistently sold the paintings to Knoedler well below market value, another red flag. She also did not enquire about Rosales’s background.

In late 2001, Knoedler sold a purported Jackson Pollock to collector Jack Levy for $2 million. Knoedler had purchased the artwork from Rosales for $750,000. Freedman included Ossorio’s name in the provenance of the painting. The sale of the Pollock to Levy was conditioned on a favourable review of the work’s provenance and authenticity by the International Foundation for Art Research (IFAR). IFAR issued its report on the Pollock, rejecting Knoedler’s claim that Ossorio had been involved in the sale and purchase of the Pollock and noting that there were “disturbing” differences between the materials used to create the alleged Pollock and the materials used to create a known Pollock from the same year. The IFAR report concluded that “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.” Levy returned the Pollock and was issued a refund.

In light of the IFAR report, Freedman testified that she pressed Rosales for more information, at which point Rosales changed her story in relation to the provenance. Freedman testified that Rosales told her that the advisor to Mr X was not Ossorio, but rather David Herbert, a deceased art world figure and long- time companion of a Knoedler employee who had introduced Rosales to Freedman. Knoedler’s search of archives relating to Herbert revealed no evidence of a connection between Herbert and the Rosales paintings. Remarkably, none of these problematic facts were deemed as a red flag by Knoedler and Freedman. Knoedler did not inform IFAR that it had concluded that David Herbert and not Ossorio had acted as Mr X’s advisor.

Freedman so firmly believed in the Rosales paintings that she and her husband invested hundreds of thousands of dollars buying some of those artworks for themselves, all the while ignoring an even more conspicuous red flag. A purported Pollock purchased by Freedman in 2000 from Rosales contained a prominent clue. The artist’s signature in the artwork was misspelled, signed Pollok instead of Pollock.

The De Soles and the Rothko

In the fall of 2004, Freedman showed the De Soles works purportedly created by artists Mark Rothko and Jackson Pollock. Freedman relayed the provenance information Rosales had provided her, and added that the Rothko had been authenticated by Christopher Rothko, the son of Rothko, and David Anfam, the author of the Rothko catalogue raisonné. The De Soles agreed to purchase the Rothko from

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Knoedler for $8.3 million, yielding a 773% profit for the gallery. Knoedler had purchased the Rothko from Rosales for $950,000. Before wiring the funds, the De Soles prudently asked Freedman to provide them with a letter stating everything she had told them about the painting. Freedman’s letter to the De Soles affirmed that the painting was a Rothko, provided an authenticity warranty, reiterated the provenance she had orally conveyed to them, stated that Knoedler was “anticipating a loan request from Oliver Wick of the Foundation Beyeler” and that it had 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. This last statement was included to create an impression that a significant number of ‘insiders’ had acknowledged that the painting was by Rothko. As it turned out, that impression was misleading. These scholars may have viewed the painting, but several of them testified that they did not comment on whether the painting was by Rothko or not.

The Sales Continue

In 2007, Knoedler sold a purportedly “rare” Willem De Kooning supplied by Rosales to collector John Howard. Freedman told Howard that the owner wanted anonymity, so she could not disclose the owner’s identity, but that she personally had purchased a painting from the owner. Freedman did not tell Howard that she had never met the owner, and that there was a want of proper documentation in relation to the provenance. In November 2007, Knoedler sold a purported work by Pollock, also supplied by Rosales, to collector Pierre Lagrange for $15.3 million. Prior the sale of the alleged Pollock, Knoedler and Freedman told Lagrange that the Pollock was genuine and had been deemed authentic by numerous Pollock experts. Again, Freedman embellished the facts she shared with Lagrange.

In December 2007 and January 2008, the Dedalus Foundation, Inc., responsible for the Robert Motherwell catalogue raisonné, told Freedman that they believed that seven purported Motherwell works that Rosales had brought to Knoedler were forgeries. In March 2008, Freedman retained James Martin of Orion Analytical, LLP to conduct forensic tests on the alleged Motherwells Rosales had brought to Knoedler. Orion’s report indicated that the works were not authentic.

On September 22, 2009, Knoedler was served a grand jury subpoena relating to the Rosales paintings. The following month, Hammer decided to put Freedman on administrative leave, after which she resigned. In 2011, Knoedler began receiving numerous calls from its customers expressing concern about the authenticity of the works they had purchased from the gallery. Under pressure, in November 2011, Knoedler closed its doors.

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The Red Flags and the Law

In their summary judgment papers, Knoedler and Freedman did not dispute that material misrepresentations and omissions were made to the De Soles, and that the De Soles suffered damage. Instead, they argued that there is no evidence that (i) they acted with scienter (i.e., intent to defraud), a requisite element to prove fraud, and (ii) the De Soles’s reliance on these statements and omissions was reasonably justified. The court held that these questions were questions of fact that must be answered by a jury. In denying Knoedler and Freedman’s motion for summary judgment, the court did take the opportunity to provide a scathing review of Freedman’s conduct. In its opinion, the court noted that the De Soles had offered ample circumstantial evidence demonstrating that Freedman acted with fraudulent intent and knew that the Rosales paintings were inauthentic. This evidence included, inter alia, the fabricated stories of provenance, which shifted dramatically over time; the efforts to concoct a “cover story” with Rosales; Rosales’s willingness to repeatedly sell purported “masterworks” to Knoedler for a fraction of their value on the open market; Rosales’s 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’s inconsistent accounts of the size and scope of Mr. X’s collection, which grew over time to include more than thirty undiscovered “masterworks”; the absence of any documentation concerning the paintings; the doubts raised by the Diebenkorns brought to Freedman’s attention early on; and the October 2003 IFAR Report, reviewed by Freedman, which rejected the fictitious provenance tale concerning Ossorio and raised serious concerns about the authenticity of the Pollock sold to Jack Levy.

The court also pointed out that Freedman exaggerated the significance of the experts and scholars opining on the Rosales paintings. Indeed, nearly all of the Rothko experts Freedman cited to the De Soles testified that they did not authenticate the painting. Moreover, many of the experts Freedman relied on testified that they were never asked by Freedman to authenticate works of art, and that they did not make a statement as to any artwork’s authenticity. The court also added that Freedman used the fact that she owned some of the Rosales paintings herself as a promotional device.

On the issue of reliance, the court held that, as a matter of law, a sophisticated claimant cannot establish that it entered into an arm’s length transaction in justifiable reliance on alleged misrepresentations if that claimant failed to make use of the means of verification that were available to them. The court further held that “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.” Applying the law, the court left the ultimate question of reasonable reliance for the jury to answer, but acknowledged that the De Soles made additional enquiries, as they cautiously requested and received a letter from Freedman in which she confirmed all of her earlier oral representations about the Rothko, including its authenticity and provenance. The court further

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opined that any discovery of inauthenticity would be possible “only with extraordinary effort or great difficulty.” According to the court, the IFAR Report demonstrated 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 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. The court rightly pointed out that a collector would normally not have the resources or the time to invest in such extensive research before buying a work of art.

De Sole v Knoedler involved many other interesting facets and claims, which, for the sake of brevity, this article does not cover. One thing is clear, however. There were a field of red flags in this case, all of which were ignored by Knoedler and Freedman.

Implications for the Art Market

The Knoedler saga serves as an important reminder to collectors that they ought to (i) ask questions, (ii) do their own research and take independent advice, (iii) demand strong contractual warranties, and (iv) avoid blind trust.

Provenance and authenticity are often related. The lack of provenance is a red flag. Certain names in the provenance can be red flags too. Independent research may be called for, if only to assess the risks of the red flags becoming a significant problem after money has changed hands.

One of the obstacles in the way of independent research is confidentiality. Red flags are not always visible to the prospective buyer’s naked eye. While maintaining confidentiality of owners may be an accepted practice in the art world, the Knoedler litigation highlights the importance of knowing the identity of the owner. Had Knoedler insisted on knowing more about the infamous Mr X, Rosales’s fraud would have probably come to light. No amount of due diligence and superb contract drafting will ever fully protect buyers from being lied to. This, of course, does not undermine the importance of having good contracts in place and conducting the appropriate level of due diligence. If anything, the Knoedler litigation underscores the importance of both.

By Azmina Jasani

Published 31 March 2016

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