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ACA Galleries, Inc. v. Kinney, 552 Fed.Appx. 24 (2014)

552 Fed.Appx. 24 West Headnotes (1) This case was not selected for publication in West's Federal Reporter. RULINGS BY SUMMARY ORDER DO NOT HAVE [1] Sales PRECEDENTIAL EFFECT. CITATION TO A Mistake SUMMARY ORDER FILED ON OR AFTER JANUARY Under New York law, purchaser of painting 1, 2007, IS PERMITTED AND IS GOVERNED BY could not obtain rescission of the purchase FEDERAL RULE OF APPELLATE PROCEDURE based on mutual mistake after discovering the 32.1 AND THIS COURT'S LOCAL RULE 32.1.1. painting was a forgery; although seller ensured WHEN CITING A SUMMARY ORDER IN A the availability of an arts foundation to inspect DOCUMENT FILED WITH THIS COURT, A PARTY and authenticate the painting prior to its sale, the MUST CITE EITHER THE FEDERAL APPENDIX purchaser instead elected to ask the foundation to OR AN ELECTRONIC DATABASE (WITH THE inspect the painting following its purchase, and NOTATION “SUMMARY ORDER”). A PARTY CITING the purchaser was aware that its self-conducted A SUMMARY ORDER MUST SERVE A COPY OF IT pre-purchase inspection provided it with only ON ANY PARTY NOT REPRESENTED BY COUNSEL. limited knowledge with respect to the fact to United States Court of Appeals, which the mistake related but treated its limited Second Circuit. knowledge as sufficient.

ACA GALLERIES, INCORPORATED, a/k/a ACA 2 Cases that cite this headnote American Masters, Inc., Plaintiff–Appellant, v. Joseph A. KINNEY, Defendant–Appellee. * *24 Appeal from the United States District Court for No. 13–1099–cv. the Southern District of New York (Miriam Goldman | Cedarbaum, Judge). Jan. 15, 2014. UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the Synopsis judgment is AFFIRMED. Background: Art purchaser brought rescission and fraud action against art seller after the painting it purchased turned Attorneys and Law Firms out to be a forgery. The United States District Court for the *25 Daniel A. Fried (Susan R. Nudelman, on the brief), Law Southern District of New York, Miriam Goldman Cedarbaum, Office of Susan R. Nudelman, Dix Hills, NY, for Appellant. J., 928 F.Supp.2d 699,granted seller's motion for summary judgment. Purchaser appealed. Zara Watkins, New York, NY, for Appellee.

PRESENT: RICHARD C. WESLEY, PETER W. HALL and DENNY CHIN, Circuit Judges. Holding: The Court of Appeals held that purchaser of painting could not obtain rescission of purchase based on mutual mistake after discovering painting was a forgery. SUMMARY ORDER

ACA Galleries, Inc. appeals from the February 25, 2013 Affirmed. judgment and February 21, 2013 opinion and order of the United States District Court for the Southern District of New Procedural Posture(s): On Appeal; Motion for Summary York (Miriam Goldman Cedarbaum, Judge ), granting Joseph Judgment. Kinney summary judgment and denying ACA's motion for

summary judgment. We assume the parties' familiarity with N.Y.S.2d 318 (3d Dep't 2010). Moreover, ACA was aware that an authentication by the Foundation “would make the the facts and issues raised on appeal. 1 painting more saleable at a higher price.” Bergen Aff. ¶ 9. ACA could have accepted the higher price that accompanies It is uncontested that ACA made out a prima facie case of certainty of authenticity, but chose instead to accept the risk mutual mistake under New York law. See Gould v. Bd. that the painting was a forgery. The contract is not voidable of Ed. of Sewanhaka High Sch. Dist., 81 N.Y.2d 446, 453, merely because the consciously accepted risk came to pass. 599 N.Y.S.2d 787, 616 N.E.2d 142 (1993). However, ACA cannot obtain rescission because of its failure to investigate ACA's arguments about Kinney's title are waived; we decline the authenticity of the painting at issue. See, e.g., P.K. Dev. v. to consider them in light of the facts of this case, in which Elvem Dev. Corp., 640 N.Y.S.2d 558, 226 A.D.2d 200, 201 the record reflects no dispute as to ACA's lawful claim to the (1st Dep't 1996). Although Kinney ensured the availability painting. We have considered all of ACA's arguments and find of the Milton & Sally Avery Arts Foundation to inspect them to be without merit. and authenticate the painting prior to its sale, ACA instead elected to ask the Foundation to inspect the painting following For the reasons stated above, the judgment of the district court its purchase. ACA was aware that its self-conducted pre- is AFFIRMED. purchase inspection provided it with “only limited knowledge with respect to the facts to which the mistake relates but treat[ed its] limited knowledge as sufficient.” Restatement All Citations (Second) of Contracts § 154(b); see also Rose Inn of Ithaca, 552 Fed.Appx. 24 Inc. v. Great American Ins. Co., 75 A.D.3d 737, 739, 905

Footnotes * The clerk of the court is directed to amend the caption to conform with the listing of the parties above.

1 The standard of review is neither contested nor determinative. Lederman v. NYC Dep't of Parks and Recreation, 731 F.3d 199, 202 (2d Cir.2013).

Attorneys and Law Firms 763 F.Supp. 768 United States District Court, *768 LeBoeuf, Lamb, Leiby & MacRae, New York City S.D. New York. (Ellen August, of counsel), for plaintiff.

ARTCURIAL, S.A., Plaintiff, *769 John B. Koegel, New York City (Norman H. Zivin, of v. counsel), for defendants. Chester LOWENTHAL, Esq., and Hand– In–Hand Galleries Ltd., Defendants. MEMORANDUM AND ORDER No. 89 Civ. 6409 (RO). | OWEN, District Judge: May 20, 1991. This lawsuit arises out of plaintiff Artcurial's purchase of Synopsis a painting from defendant Chester Lowenthal, an art dealer Buyer of unauthentic painting brought action against art and owner of Hand-in-Hand Galleries Ltd. in New York. dealer to recover for fraud by representing that painting was Artcurial, a French corporation, paid Lowenthal $180,000 for an original. The District Court, Owen, Senior District Judge, a painting that Lowenthal represented to be an authentic work held that art dealer's fraudulent sale of painting warranted by the deceased Spanish painter Manolo Millares. Shortly punitive damages award of $100,000. after plaintiff took possession of the painting and shipped it to France, it became aware that the painting was not an authentic Judgment for buyer. Millares. Plaintiff also learned that in fact Mr. Lowenthal had purchased the painting two months earlier for only $2200 and therefore knew that the painting was not an authentic Millares. Plaintiff commenced this action to recover the purchase price West Headnotes (2) of the painting and punitive damages for the fraud perpetrated by the defendant. [1] Fraud Amount Awarded Although trial of this matter was scheduled for Monday, May 20, 1991, a fact of which Mr. Lowenthal was made aware Art dealer's fraudulent sale of unauthentic by his counsel, counsel for the defendants represented to the painting for $180,000 after buying it for $2,200 Court on the morning of trial that he has been unable to locate two months earlier warranted punitive damages or communicate with Mr. Lowenthal for several months. As award of $100,000 under New York law. counsel represented that he was unable to present a defense 1 Cases that cite this headnote in the absence of Mr. Lowenthal, a judgment of default was entered in favor of the plaintiff, and defense counsel's request to be relieved was granted, leaving only the matter of damages [2] Fraud to be determined. Knowledge of Defendant Art dealer's representation that painting was [1] The matter of compensatory damages is plainly original was knowingly fraudulent and was established and uncontroverted by reference to the amount breach of trust under New York law; dealer that plaintiff paid for the painting, $180,000, plaintiff standing bought painting for $2,200 two months before ready to return the painting upon payment of the judgment, selling it for $180,000 and subsequently or apply it against the judgment as appropriate. Plaintiff disappeared and failed to defend fraud suit. also seeks punitive damages in the amount of $200,000 for the fraud perpetrated by Mr. Lowenthal. Under the law of New York, which governs in this diversity action, an award of punitive damages is appropriate where “the defendant's conduct has constituted ‘gross, wanton, or willful fraud

or other morally culpable conduct’ to an extreme degree.” supported by Mr. Lowenthal's disappearance and consequent failure to defend. Smith v. Lightning Bolt Productions, Inc., 861 F.2d 363, 371 (2d Cir.1988) (citing Borkowski v. Borkowski, 39 Upon all of these circumstances, I conclude that an award of N.Y.2d 982, 387 N.Y.S.2d 233, 233, 355 N.E.2d 287 (1976)). punitive damages is appropriate in this case. The evidence Although the defendant's default enables the Court to accept before me reveals that Mr. Lowenthal acted in gross disregard as true all of the allegations in plaintiffs complaint, in light of his contractual obligations toward Artcurial, and he of plaintiff's application for punitive damages, a review of breached the duty of trust between himself as one who held the documentary evidence submitted to me on this subject is himself out as an art dealer and his purchaser. 861 F.2d appropriate. at 372. Accordingly, I deem it appropriate to award damages beyond simply the amount that defendant swindled out of That proof establishes that the painting sold by Mr. Lowenthal Artcurial in order to *770 “warn the defendant and others not in fact is not an authentic Millares. Mr. Millares' widow, Elvireta Millares, and Juan Manual Bonet, Member of the to engage in similar conduct....” 861 F.2d at 373. Bearing International Association of Art Critics and the author of a these considerations in mind, I find an award in the amount of comprehensive catalogue of Millares' works, both examined $100,000 in punitive damages to be appropriate. I observe in the painting and determined that it was not an original work. this regard that Mr. Lowenthal's default does not in any way Their affidavits with respect to the authenticity of the painting bear upon this inquiry, as he was on notice of plaintiff's claim are uncontroverted. for punitive damages in the complaint, he is an attorney duly admitted to practice law in the State of New York and he was represented by able counsel throughout this litigation. [2] Furthermore, Mr. Lowenthal admitted in deposition testimony on April 4, 1990 that he paid “under $10,000” for the painting, and the evidence submitted by plaintiff Accordingly, plaintiff may submit a judgment in the amount that Mr. Lowenthal in fact paid $2200 for the painting only of $180,000 for compensatory damages, $100,000 in punitive two months before he resold it to Artcurial is credible and damages, together with costs and disbursements to be taxed uncontroverted. The conclusion that Mr. Lowenthal knew that by the Clerk. So ordered. the painting was a fake when he purchased it is inescapable, and therefore his representation to Artcurial that he was All Citations selling an original Millares was fraudulent. This conclusion is 763 F.Supp. 768

The eP rfect Fake: Creativity, Forgery, Art and the Law Michael J. Clark

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Recommended Citation Michael J. Clark, The Perfect Fake: Creativity, Forgery, Art and the Law, 15 DePaul J. Art, Tech. & Intell. Prop. L. 1 (2004) Available at: https://via.library.depaul.edu/jatip/vol15/iss1/2

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THE PERFECT FAKE: CREATIVITY, FORGERY, ART AND THE LAW Michael J. Clark, J.D., Ph.D.*

I. INTRODUCTION

... [I]f it is later proven that the painting had been wrongly attributed to a master when it was the work of a student, what is left but the painting? - Scott Hodes, 'Legal Rights in the Art and Collectors' World' '

Art [is] the truly metaphysical activity of man.... [T]he existence of the world is justified only as an aesthetic phenomenon. - Friedrich Nietszche, 'The Birth of Tragedy'2

The more total society becomes, the greater the reification of the mind and the more paradoxical its effort to escape reification on its own ... To write poetry after Auschwitz is barbaric.

* Assistant Professor of Literature, Film and Law, Department of Engkish, Portland State University. 1. SCOTT HODES, LEGAL RIGHTS IN THE ART AND COLLECTORS' WORLD 44 (1986). 2. FRIEDRICH NIETZCHE, THE BIRTH OF TRAGEDY 22 (Walter Kaufmann trans.) (1967).

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- Theodor Adorno, 'Prisms'3

Great art remains stable and unobscure because the feelings that it awakens are independent of time and place, because its kingdom is not of this world. - Clive Bell, 'Art'4

... [A] 11 the rulers are the heirs of those who conquered before them.. .Whoever has emerged victorious participates to this day in the triumphal procession in which present rulers step over those who are lying prostrate. According to traditional practice, the spoils are carried along in the procession. They are called cultural treasures, and a historical materialist views them with cautious detachment. For without exception the cultural treasures he surveys have an origin which he cannot contemplate without horror. They owe their existence not only to the efforts of the great minds who have created them, but also to the anonymous toil of their contemporaries. There is no document of civilization which is not at the same time a document of barbarism; barbarism taints also the manner in which it was transmitted from one owner to another. - Walter Benjamin, Theses on the Philosophyof History5

Legal concerns surrounding the forgery of artworks are often deeply vexing, largely because such questions inevitably demand the kind of interdisciplinary discussions that the law is ill suited to

3. THEODOR ADORNO, PRIsMs 34 (Sherry and Samuel Weber trans.) (1990). 4. CLIVE BELL, ART 102 (1949). 5. Walter Benjamin, Theses on the Philosophy of History VII, in ILLUMINATIONS 256 (Harry Zohn trans., Hannah Arendt ed.) (1968).

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undertake. For example, questions about the forgery of paintings invariably raise questions about the very elements that constitute "originality" and "authenticity" from an artistic perspective.6 Although such terms have grown to possess specific legal meanings, particularly in the area of copyright law, they are more properly suited to the aesthetic dimension. Such questions place legal practitioners in a difficult spot. In spite of the generally omnivorous and insatiable character of legal thinking, forays into the world of art and aesthetics have often been greeted with skepticism by the very lawyers and judges charged with such ventures. The reasons have much to do with a series of unstated presumptions about the role of art in its relation with the larger "society." That is, many hold that the artistic sphere is by nature exempt from rules that operate in other social arenas.7 Prohibitions against censorship are just one manifestation of such beliefs. But there is a simpler, more straightforward reason for the tendency of judicial reason to avoid substantive discussions of works of art as well-a lack of expertise. Judges are, in general, well versed in legal reasoning and history, but may well be generally ignorant of the central issues, themes, and historical circumstances that drive the art world. In this regard, law's relation to art is much (though not wholly) like law's relation to religion: to the largest extent possible (and at least in principle), it adheres to a position of carefully guarded non-interference. This attitude is famously articulated by Oliver Wendell Holmes in Bleistein, v. Donaldson Lithography Co., where he supported a plaintiff's right to copyright a circus poster:

6. Copyright law demands that works of authorship (i.e., anything owing its existence to an author) possess a de minimis level of originality in order to receive protection from infringement. 17 U.S.C. § 102 (a). 7. The strongest statement of art's autonomy is found in Immanuel Kant's Critique of Judgment, where he points out that judgments of art (unlike more pragmatically concerned judgments) are the product of an "entirely disinterested satisfaction or dissatisfaction." Such a posture underscores the belief that art is exempt from the demands of everyday life. IMMANUEL KANT, THE CRITIQUE OF JUDGMENT 55 (1931).

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It would be a dangerous undertaking for persons trained only to the law to constitute themselves final judges of the worth of pictorial illustrations outside of the narrowest and most obvious limits. At the one extreme, some works of genius would be sure to miss appreciation. Their very novelty would make them repulsive until the public had learned the new language in which their author spoke... At the other end, copyright would be denied to a 8 public less educated than the judge.

Justice Holmes' admonition has served as a touchstone of American copyright law for almost a century, but it has implications far beyond the particular circumstances it addressed. First, his elitism is apparent: He presumes that the "public" (who he apparently assumes has less well-developed aesthetic sensibilities than other segments of the population) would reject any art form with which they were not wholly familiar.9 Further, he assumes that judges - given their education and tolerance - would be more open to new forms. This is a highly dubious presupposition. But most important for our purposes here, Justice Holmes points out perhaps the central aesthetic and legal paradox regarding forgery of works of art: the question of the creative act and its embodiment as the "signature" of an authentic work. When pressed, one finds that the law is indeed ill equipped to understand the forgery of works of art qua art. Or, to use a slightly different formulation, we might say that law must engage in a form of translation of the work itself into a fungible commodity when concerned with the forgery of artworks. To be addressed

8. Bleistein v. Donaldson Lithographing, Inc., 23 S. Ct. 298 (1903). 9. One wonders, for instance, what Justice Holmes would have thought of rap or hip-hop music. The innovative and anti-elitist elements of rap and hip- hop are apparent to anyone who has ever listened to such music, and its appreciation is obvious to the uneducated public that mills about in the background of Justice Holmes' world. Indeed, it is likely that an "educated" judge would be more likely to be "repulsed" by some of the elements of the most radical moments in rap.

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appropriately, art must become an object of property and contract in the eyes of the law. In what follows I shall attempt to discuss three separate elements in legal and aesthetic considerations of the forgery of paintings. First, I will discuss the question of the authentic work itself. In that section I offer various definitions of forgery, as well as of ancillary terms such as authenticity, originality, and creativity. My central concern will be the development of an aesthetic understanding of genuineness as a component in our apprehension of a work of art, as well as aesthetic theories which address the question of what art does for us. Second, I will raise questions about authenticity or genuineness in an era of mechanical reproduction. What, for instance, do we make of mass-produced artworks of the sort produced by Andy Warhol in the sixties and seventies of the twentieth century? How does Warhol's work challenge notions of aesthetic authenticity? In that context, I will briefly discuss Walter Benjamin's famous essay, "The Work of Art in the Age of Mechanical Reproduction," where he argues that although the perfectly reproduced work of art (as in a reproduction of the Mona Lisa) may fulfill the central demands of an aesthetic experience of the work, there is still something lacking - a nebulous element he calls the work's "aura." I will also address some troubling questions raised by Nelson Goodman in his book Languages of Art, particularly his questions about the relevance of a "perfect fake" to the act of aesthetic appreciation. Finally, I will discuss the specifically legal responses to incidents of forgery, emphasizing the (not altogether unreasonable) translations in perception of the work of art that legal remedies for forgery demand; and I will also discuss some important questions about intent to deceive as a component in forgery cases. The latter point is of central importance, for the perception of an artwork is on some level an act of faith and historical trust. To perceive a work of art is not only to look at pigments on a canvas, nor is it merely to perceive technical arrangements of color and shape. It is also a way to perceive various histories or traditions. During a time when histories and traditions are being eradicated by commercial and political forces far beyond the understanding or

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control of ordinary individuals, it is a charming twist that the law - which must convert artworks into commercial entities in order to protect the ownership interests of private buyers - should serve to protect those traditions. Such are the ironies of law, ironies that seem to multiply when it comes into contact with art.

II. WHAT IS WRONG WITH FORGERY?

A. Aesthetic Background

From a strictly formal aesthetic perspective, the fact that a work of art is an exact duplication of another work should be of no import. A simple scenario suffices to prove this point: Late one night thieves enter the Louvre and replace Leonardo's Mona Lisa with an exact visual and tactile reproduction. The next day, thousands of museum-goers shuffle by, stopping for a moment to admire the enigmatic character of the model's smile, perhaps joking about the way the model's eyes seem to follow the viewer throughout the room. In short, the audience has "experienced" the Mona Lisa. Or have they? While this scenario seems to raise more questions than it could ever answer, it nonetheless shows that any conclusions about the problem will depend in large part upon how we think about art. Put differently, we might say that every perception of a work of art entails some kind of theory about what art does and should do. To view a work of art is to have (either overtly or unconsciously) a theory of art. This point may be made more clear by outlining the general parameters those theories may take. In his study of romanticism and aesthetics, The Mirror and the Lamp, ° Meyer Abrams argues that there are four primary coordinates for aesthetic appreciation - the mimetic, pragmatic, expressive, and formalist." Abrams diagrams these coordinates in the following fashion:

10. M.H. ABRAMS, THE MIRROR AND THE LAMP 6 (1953). 11. Id. at 6.

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World (Mimetic theory)

Work (Formalist or Objective theory)

Audience Artist (Pragmatic theory) (Expressive theory)

Abrams' point is to illustrate that various and often quite distinct demands can be made by the perceiver of an artwork. For the mimetic theorist, for instance, the work of art is judged according to the degree with which it is able to imitate the world around it - verisimilitude is the central critical principle.12 Such a perspective might endorse realism in its most extreme form, as in the stark "superrealism" of sculptor John De Andrea. 3 The central characteristic of a work judged from this perspective is the technical skill or craft of the artist: how well has she portrayed the external world? The idea of the artist imparting some unique ingredient to the artwork is absent here; indeed, such addition by the artist would entail a flaw in the work. The pragmatic theorist asks that the work do something for its audience. 4 The work should teach, or inform, or emotionally

12. Id. at 7. 13. De Andrea's work takes the circumstance of persons in everyday life reproduces them in sculptural forms that are virtually indistinguishable from the real thing. See EDWARD LUCIE-SMITH, ART TODAY 481 (1989). 14. ABRAMS, supra note 10, at 14.

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move us. This theory finds its origins in the work of Aristotle, who in his classic work, On the Art of Poetry, introduced the famous theory of catharsis: a demand that the work of art move us emotionally, purge us of these emotions, and ultimately, by that process of immersion in the emotional life of the work, make us more rational. 5 The criteria for judgment is thus the distance between what we think a work ought to do and what a particular work in fact does.' 6 The expressive theorist holds that work of art is the embodiment of the artist's powerfully held feelings. 7 The work is thus a signal of the artist's innermost secrets. This attitude is embodied most profoundly in the work of romantic artists and is probably the prevailing attitude toward works of art today. According to Wordsworth (probably the most influential theoretical representative of expressive theories), a work of art is "the spontaneous overflow of powerful feelings."' 8 As such, the viewer of a work of art is in some sense exposed to the particular circumstances of the author at the moment of the work's creation. Finally, the formalist theorist attempts to look at the work in the absence of any external forces. 9 That is, she attempts to isolate the work from any circumstances that surrounded its production, history, and current status. For the formalist, what counts is simply what is on the canvas - how the images, colors, shapes, and dynamics of the work hold together. The question of how one responds to a forged artwork depends to a large extent upon which of these four aesthetic perspectives one occupies. To some extent, the mimetic and pragmatic critics would only be partially troubled by the knowledge that a work has a "perfect fake." In both cases, the essential aesthetic demand made by the viewer would be met. This is even more strongly the

15. ARISTOTLE, ON THE ART OF POETRY 49 (T.S. Dorsch trans.) (1965). 16. Id. at 50. See also MONROE BEARDSLEY, AESTHETICS FROM CLASSICAL GREECE TO THE PRESENT 48 (1990). 17. ABRAMS, supra note 10, at 20. 18. William Wordsworth, preface to LYRICAL BALLADS, 2D. EDITION, in HAZARD ADAMS, CRITICAL THEORY SINCE PLATO 437,441 (1992). 19. ABRAMS, supra note 10, at 23.

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case with the formalist, for whom a work is an embodiment of images and symbols separate from historical contingency. Indeed, formalist critics argue that it is only from such a perspective that the notion of the "timeless" masterpiece can make any sense. It is only the work - what we see or experience on canvas - that matters. All else is history, or confusion, or extraneous data. Philosopher of art Alfred Lessing characterizes this strict formalist position in the following:

Considering a work of art aesthetically superior because it is genuine, or inferior because it is forged, has little to do with aesthetic judgment or criticism .... [I]t is impossible to understand what is wrong with a forgery unless it be first made quite clear that the answer will not be in terms of its aesthetic worth."

Lessing points out a number of other important elements surrounding the concept and practice of forgery. First, he says, we should note that the concept of forgery implies a concept of authenticity - the one cannot exist without the other." Although this may seem obvious on its face, the idea of an authentic work (with the special characteristics of unique authorship, history, and symbolic force) is a relatively recent phenomenon: an artwork did not always circulate as a manifestation of individual authorship, nor was the question of its "genuineness" raised. Indeed, the origins of forgery as such can be traced back to a relatively recent period in the history of art." Furthermore, it is only with the growth of capital transfers of painting that a non-aesthetic impulse for forgery came about. 3 In the classical era, for instance, "copying" was a common and unremarkable artistic activity. It is

20. Alfred Lessing, Wat is Wrong with Forgery? in DENIS DuTroN, THE FORGER'S ART 58, 59 (1983). 21. Lawrence Scott Bauman, Legal Control of the Fabrication and Marketing of Fake Paintings,24 STAN. L. REv. 930-31 (1972). 22. Id. at 931. 23. Id.

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only in an era when artworks become exchangeable as commodities that the concept of the forged artwork arises.24 Second, Lessing points out that forgery is a negative concept.25 It refers not to any specific characteristics that a work possesses, but to those characteristics that the work fails to possess. In short, it implies the absence of pedigree. Lessing concludes from such observations that the concept of forgery is a moral claim that has only post hoc effects upon aesthetic claims. It is by no means clear that a work of art is inferior, qua work of art, simply because it is a forgery: The plain fact is that aesthetically it makes no difference whether a work of art is authentic or a forgery, and instead of being embarrassed at having praised a forgery, critics should have the courage of their convictions and take pride in having praised work of beauty.26 Expressive theories of art provide a stark contrast to the formalist position. For the expressive theorist, the work of art embodies the specific historical and personal circumstances of the author at the time of the work's creation. As such, the work is more than the formal concatenation of visible images; it is an historical artifact as well. For the expressive theorist, who is speaking, from what perspective, matters as much as what is being said. Indeed, what is being said can only be understood by knowing who spoke. In short, the work of art is a bundle of elements not restricted to the four corners of the work itself. It embodies extra-aesthetic materials, or what philosopher of art Walter Benjamin calls the work's "aura."27 Obviously, the aesthetic response of an expressive theorist to a fake will be markedly different than that of the formalist. The latter assiduously attempts to expel any extra-textual or extra- aesthetic concerns from the process of aesthetic reception, while the former includes the work's conditions of production and

24. Lessing, supra note 20, at 58. 25. Id. at 62. 26. Id. 27. Walter Benjamin, The Work of Art in the Age of Mechanical Reproduction, in ILLUMINATIONS 217, 220 (1968).

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history, as well as the name and importance of the author, as essential elements in the process of aesthetic reception. The result of such differences in approach and interpretation lead to a number of differences in the response one has to the forgery of artworks, especially when based on strictly aesthetic grounds. Most importantly, the formalist may not care if a work is a perfect fake or not; what matters is how the work looks, not who made it, 28 owned it, or signed it.

B. Commodificationof the Work ofArt

In the contemporary art world it has become virtually impossible to separate aesthetic from economic concerns. 29 As was suggested earlier, this transformation in our understanding of an artwork is irretrievably intertwined with the advent of capitalism, whereby all objects of production (in this case painting) became convertible into a monetary value. Current-day obsession with the sale value of a particular artwork evinces this intermingling of aesthetic and monetary criteria of judgment, almost certainly to the detriment of our relation with artworks themselves. The dramatic increases in the value of artworks in the past two decades provide further evidence of the transformation of our

28. The flip-side of this situation can be found in works associated with celebrities. A recent auction of part of the collection of Barbara Streisand saw artworks selling at what experienced collectors felt were extraordinarily high prices. The reason for the high prices was found in the fact that the works' provenance could be traced at some point to Streisand herself. In this case the value of an artwork became a function of celebrity. See Streisand Collection on the Market, NEW YORK TIMES, July 7, 1994, at 32. 29. The fundamental intertwining of economics and painting (in particular) was exemplified by a New York City Department of Consumer Affairs order to post prices on all artworks in commercial galleries. The policy was intended to assist consumers in an arena traditionally filled with arcane and snobbish rules of behavior. As one might expect, the proposal was lambasted by gallery owners, dealers, and members of the inner circle of art as "creat[ing] a psychological barrier that inhibits the viewer from reacting to work on its own merits." Douglas McGill, Galleries are in Distress over Order to Start Posting Prices on Artworks, N.Y. TIMES, Feb. 12, 1988, at C20.

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relationship to such works. Works of art appear on the front pages of major newspapers not as a consequence of their aesthetic virtues (ostensibly the reason they matter to us in the first place) but only when their sale value rockets skyward. In 1990, Van Gogh's "Portrait of Dr. Gachet" was sold at Christie's auction house in New York City for the sum of $82.5 million.3" Immediately afterward, Renoir's "Au Moulin de la Galette" was sold for $78.1 million.3 Much less well-known works saw their values inflate wildly during the 1980's and 1990's. During the 1970's works of art emerged as a far superior investment than the securities markets themselves. From roughly 1960 to 1975, the Dow Jones industrial average rose approximately 38% in value; a sampling of 32 French Impressionist works rose 230% during the same period. Such astronomical commodity fetishism makes the artworld ripe for swindlers of many sorts. As artworks further undergo the transformation from object of aesthetic expression or formal beauty into a mechanism for increasing wealth, the likelihood of forgery increases. Most importantly, as this transformation continues, an understanding of art in its modern sense - as an object designed for disinterested aesthetic contemplation33 - diminishes in importance, and specifically legal remedies for various forms of manipulation and deceit surrounding artworks will move further and further in the direction of simple protection of property rights.34 There is no visible alternative to such a

30. Judith M. Nelson, Art Forgery and Copyright Law: Modifying the Originality Requirement to Prevent the Forgingof Artworks, 8 CARDOZO ARTS AND ENT. L.J. 683, 694 (1990). 31. Id. at 693. 32. Id. at 694. 33. The notion that the work of art should be an object of "disinterested aesthetic satisfaction" stems from Immanuel Kant, who argued that only by seeing the work as a non-utilitarian object could an authentic aesthetic judgment take place. Thus to judge an artwork by its economic value is utterly non- aesthetic. See IMMANUEL KANT, THE CRITIQUE OF JUDGMENT 74 - 94 (1975). 34. ADORNO, supra note 3, at 32. The idea that aesthetic contemplation should be disinterested, and that art should be exempt from the rules and circumstances of everyday life is a fundamental condition of art in the modem (post-1800) world. Theodor Adomo characterizes this tendency in the

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development; as a result, the commodification of art will continue, codified in the legal mechanism of contemporary life. The irony - or tragedy, depending upon where one sits - is that it is impossible in the contemporary art world to look at a painting without considering the vast sums spent for it; its commercial worth, its prior owners, and the fights one had to undergo to "acquire" it all become components of the work's aura. In short, the work's worth as art has become a function of its worth as commercial object. In such a context, art and utility, once so profoundly opposed, merge.

C. Nelson Goodman and the Impossibility of the "PerfectFake"

Among contemporary philosophers of art, few have delved as deeply into the dynamics of authenticity, reproduction, and fakery surrounding painting as Nelson Goodman. His work raises important questions about what is at stake in the very distinction between original and fake, and in the process, he challenges many of our easy presumptions about how to perceive a work of art. He begins, for instance, by pointing out that the question of a certain kind of forgery - exact reproduction - makes no sense with what he calls "allographic" works. 5 These are works which are the product of notation, like music or novels, whose very reproducibility is part of the essence of their identity as artworks. There is, says Goodman, no sense in saying that the Chicago Symphony recently faked a version of Beethoven's Sixth symphony. Nor is there sense in purchasing the notes of a particular score by Beethoven as an investment or commodity: once in the public domain, the work is free for all to "possess" and use as they see fit. 6 This is not the case with all forms of art, however. Goodman

following cryptic but powerful passage: "[T]he abstractness of modernism is a provocative challenge to the illusory notion that life still subsists. In addition, abstraction is a means to achieve the kind of aesthetic distancing which traditional phantasy no longer provides." THEODOR ADORNO, AESTHETIC THEORY 32 (1984). 35. NELSON GOODMAN, LANGUAGES OF ART 113 (1976). 36. Id. at 118.

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also offers the term "autographic" to refer to that class of works for which a specific "signature" counts.37 More specifically, we might say that the work's signature is both what uniquely counts about the work (it carries the artist's specific "touch") and what guarantees that the particular work is what it claims to be (the work is authenticatedby the signature). Painting, sculpture, and other plastic and visual arts epitomize autographic works, and thus their capacity to be faked becomes an important issue. It may be worthwhile at this point to revisit our hypothetical situation of an audience of visitors to the Louvre who saw not the Mona Lisa of Leonardo, but an exact reproduction of the same. From a strictly formalist perspective, one might conclude that there was no relevant aesthetic difference between the experience of the audience on that particular day and the experience of another audience that had the good fortune to view the real Mona Lisa (i.e., the Mona Lisa whose pigments were applied by Leonardo himself). But Goodman points out that in fact the audiences may well have had unique experiences, even though they were not aware of the fact." First, he points out that there is a difference between "merely looking" at a painting and placing oneself in an "aesthetic posture" with relation to a painting. It is a fortunate or unfortunate fact (depending on myriad extraneous factors) that one can acquire a certain degree of training in perceiving works of art, just as one can acquire special insights into basketball by watching a number of games closely, or into rock and roll by listening to early Beatles albums with special attentiveness and care. Aesthetic perception is thus distinguished from merely looking; it is, rather, looking from a specifically aesthetic stance.39 Yet when we are looking at a painting to determine whether it was in fact painted by Leonardo, we will look for different things than we might were we looking from an aesthetic perspective. Obviously, the kind of delight and befuddlement we might

37. Id. at 113. 38. Id. at 115. 39. Id. at 113.

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experience in considering the expression on the model's face will be virtually expelled as an element in our reception. Such an (entirely legitimate) aesthetic response is irrelevant in the context of looking for the work's authenticity. Second, the kinds of things we might look for to ascertain the work's genuineness - again, in contrast to "just" looking - will change the focus of our reception. Brush-stroke style, pigment thickness, the movement of light in and through the work, will become evidentiary rather than aesthetic signifiers. In short, aesthetic reception becomes aesthetic interrogation. Ultimately, Goodman concludes that the inquiry into a work's authenticity may well be unsolvable by aesthetic means. Something about the identity of the painting may be beyond any given looking at the painting.4" Consequently, the identity of a painting may not be found in any discernible aesthetic difference whatsoever. At this point we find ourselves in the peculiar position of ceasing to consider the work of art qua work of art and instead begin to see it as an historical artifact. We have moved, in short, from the formalist to expressive/historicist perspective. Or perhaps we have begun to look at an artwork as an element in an evidentiary puzzle. Indeed, Goodman asks whether our interest in the lineage of a work has something to do with our peculiar dependency upon authorship as a principle of understanding. In an enormously individualist and romantic era, do we need to hang what we see on the name of a person in order for it to make sense? Has authorship become more important than the object itself?. Has art fallen prey to the cult of the celebrity?4 From a legal perspective, Goodman's conclusion makes perfect sense. Legal considerations about works or art are concerned with

40. Id. at 117. 41. Michel Foucault, What is an Author?, in LANGUAGE, COUNTER-MEMORY, PRACTICE 113 (1977). Foucault points out that modern art analyzes works largely according to what he calls the "author-principle." In such an environment, names mean more than the raw substance of the work itself. In Foucault's words: "[T]he 'author-function' is tied to the legal and institutional discourses... [I]t is not defined by the spontaneous attribution of a text to its creator, but through a series of precise and complex procedures." Id.

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a characteristic of the work beyond the visual. Such considerations see the work as property. Thus is the law beyond the aesthetic. For law to work, it must translate art into an entity defined in the law's own terms.

D. Kinds and Purposes of Forgery

Although Goodman's analysis raises fascinating aesthetic questions, it is presented in such a fashion that more common "real world" situations concerning forgery are understated. Indeed, the "perfect fake" is a highly unlikely possibility in the case of great masterpieces, since they generally have quite clear records of provenance.4" In short, Goodman's hypothetical case is idealized to such an extent that it moves beyond virtually all of the circumstances the law is likely to face. The perfect fake, in fact, is only one member of a class of forgeries whose essential feature lies in the fact that a work of art's origin and history is somehow misrepresented. We can identify a number of different kinds of such misrepresentations:

1. Exact copying: Producing and selling a reproduction as the original (Goodman's "perfect fake").

42. There are fascinating exceptions, however. The intentional production of a perfect fake in the contemporary art world is highly unlikely, largely due to the massive development of communications capacity in the world of the information network. Nonetheless, there are examples of artworks purported to be classical masterpieces whose authenticity are in serious doubt. Georges de la Tour's The Fortune Teller, a part of the Metropolitan Museum of Art's collection, is an example of a work whose status as an original or forgery is still unresolved, despite the work's representation as an authentic masterpiece. A more playful example is found in Michelangelo's Cupid. After producing the sculpture, the artist himself decided to attempt to pass the work off as a work in acidic soil to induce a patina, then shipped the work to Rome where it was sold as a piece of the classical era. See ANN WALDRON, TRUE OR FALSE? AMAZING ART FORGERIES 8 -10 (1983).

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2. Completion: Taking the unfinished work of an artist and completing that work without clear statement of the fact that the work is not the sole product of the original artist.

3. Signature or Provenanceforgery: Ascribing the signature of a famous artist to a piece actually created by someone else, and producing false records of creation and ownership to support the false claim.

4. Pastiche: Using various elements from diverse or unfinished works combining them to create an artwork with a claim of integrity such that the work is ascribed to the original artist.43

5. "School" misrepresentation: Attributing the work of a member of an artist's school (a student of Rubens, for instance) to the master's hand.

43. Completion and Pastiche forgeries are, interestingly enough, quite prevalent in literary works of art, particularly in cases where an author dies with large numbers of unfinished manuscripts on hand. Usually the work of assembling and publishing such works is left to the executor of the author's estate. Although such an arrangement is clearly within the bounds of legality, it has led to important debates among literary scholars about the appropriateness of issuing such posthumous works, and about the appropriateness of attributing such works to the dead author. Mark Twain's brooding, melancholy work, The Mysterious Strangeris virtually a case study of the issue. That work, in a highly fluid manuscript form (Twain had 3 separate versions of the text in process at the time of his death), was later published by one of his editors in a remarkably shortened and bowdlerized version which still circulates today as the "definitive" edition, despite compelling evidence to the contrary. See MARK TWAIN'S MYSTERIOUS STRANGER MANUSCRIPTS (William M. Gibson, ed., University of California at Berkeley Press) (1969).

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6. Stylistic forgery: Painting a novel image in the style of another (usually dead) artist and claiming that the work was a hitherto unknown product of that artist's hand."

Misrepresentation of one sort or another is the fundamental legal concern common to all of the types of forgery listed above, an issue which we shall turn to in the next section. It is important to note, however, that each of these modes of forgery may have specific factual peculiarities that make it likely that legal responses and remedies might vary dramatically depending upon the circumstances of the case. Forgery in the strict sense - the intentional deception by artists, owners, collectors, or dealers concerning the origin and history of a work - is relatively rare when compared to cases of innocent misattribution. The latter do not include the element of intent, and are an ongoing and troubling occurrence in museums throughout the world. Our concerns here will skirt the particularities of innocent misattribution, though one should note that many of the remedies involved will be quite similar whether a misrepresentation is made innocently or with intention to deceive. Obviously, the most frequent incentives for art forgery in its strict sense lie in the hope of financial reward.45 Given the enormous growth in the value of artworks on the open market, a talented forger stands ready to earn astronomical sums.46

44. Laurence Scott Bauman, Legal Control of the Fabricationand Marketing of Fake Paintings,24 STAN. L. REV., 930, 932 (1972). See also RALPH LERNER & JUDITH BRESLER, ART LAW: THE GUIDE FOR COLLECTORS, INVESTORS, DEALERS, AND ARTISTS 56 (1989). The latter is certainly the best, most thorough, most sophisticated example of a hombook concerning art law. 45. See HANS TIETZE, GENUINE AND FALSE 9- 17 (1948). 46. The case of David Stein provides a powerful example. Stein was an art dealer and artist with remarkably chameleon-like talents. At one point he had produced some forty-one paintings in the style of such artists as Picasso, Chagall, Matisse, Miro, Bracque and Klee. Ultimately he was arrested and charged with grand larceny and forgery; while in prison he continued to paint works "in the style of' his various subjects. The irony of his case is found in the fact that his works actually gained notoriety and collectibility as a result of his

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However, non-monetary motives exist as well, as was seen in the case of Hans van Meegeren, whose career as a producer of great fakes in the style of the great 17th century Dutch painter Jan Vermeer was the product of a desire to wreak revenge upon and havoc within a critical establishment in the artworld that he found repulsive. In many ways, van Meergeren was remarkably successful, and we shall return to his extraordinary tale later.47

E. Non-legalprotections from forgery

The best protection from forgery lies in acquiring unimpeachable guarantees of provenance. The likelihood of this increases when one purchases artworks from reputable dealers. Indeed, reputable dealers have made great efforts to guarantee the propriety of all transactions they conduct.48 Unfortunately, the world is filled with disreputable dealers who will do their best to thwart any impulse toward propriety. Furthermore, even the greatest auction houses may fall prey to accusations of misrepresentation. Areyh v. Christie's International is a case in point.49 There, Eskandar Aryeh, a New York businessperson, purchased a Faberge imperial egg in 1977 for the price of $250, 000-at that time the highest price ever paid for such a work. Aryeh refused delivery when he began to have doubts about the egg's authenticity. Christie's provided an additional letter of certification, but Areyh refused to accept the letter as sufficient proof of the egg's authenticity and once again refused delivery. Shortly thereafter, Christie's filed criminal and civil proceedings against him in Swiss court. As those proceedings were underway, Christie's provided an additional letter of certification, this time from A. Kenneth

famous status as grand forger. See LERNER & BRESLER, supra note 44. 47. See SEPP SCHULLER, FORGERS, DEALERS, EXPERTS 95 - 105 (1960). 48. This includes careful representation of the position a gallery or auction house holds regarding the authorship and authenticity of a work. See Appendix A for an example of the types of characterizations a house will affix to a work in order to allay (or intensify) fears about the work's status. 49. Areyh v. Christie's Int'l, Index no. 1030/86 (N.Y. Sup. Ct. 1986).

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Snowman, an internationally renowned expert on Faberge eggs. Aryeh accepted this certification, and paid Christie's the $250,000 price of the egg as well as $150,000 in legal fees, interest, and costs. Christie's dropped the suits. Eight years later, Aryeh decided to sell the egg at Christie's New York. At the time, an authentic Faberge egg might sell for as much as $1.6 million. On the eve of the sale, Snowman (the same expert who had authenticated Aryeh's egg eight years earlier) revised his opinion and declared the egg inauthentic. Aryeh immediately brought suit against Christie's claiming that the 1977 sale was fraudulent, seeking $37 million in damages. The suit was settled before coming to trial. 1 The point, of course, is that even the best auction houses make mistakes, some of which are made with less ingenuousness than others. In Aryeh, the mistakes made were particularly egregious: the same expert (Snowman) came to radically different conclusions on two separate occasions, each one in support of the auction house's interests at the time. The mercenary quality of both expert and auction house would seem to be evident. Aryeh is illuminating for another reason. The buyer in that case was well informed, as evidenced by his initial refusal of delivery. His case is unique. The vast majority of purchases of artworks are impulsive, with buyers "shockingly uninformed" about the nature of the object to be purchased, its provenance, or its physical condition. 2 The degree to which buyers can be "shockingly uniformed" is made clear in a 1990 case, Balog v. Center Art Gallery-Hawaii,

50. Id. at 88. 51. Lerner and Bresler suggest that Areyh's suit would have succeeded, largely due to the fact that strong evidence existed pointing to fraudulent conspiracy on Christie's behalf. Indeed, Snowman himself had issued uncertainties about the egg's authenticity just prior to the 1977 auction at which Aryeh had purchased it. LERNER & BRESLER, supra note 44, at 59. 52. LERNER & BRESLER, supra note 44, at 49. They add: "Defects abound in artwork as frequently as in other property. Accordingly, the art buyer should observe the same precautions ordinarily used by the prudent buyer in other commercial transactions of like value."

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Inc." There, Edward and Helen Balog, non-professional collectors of art,54 purchased a number of pieces from the Center Art Gallery in Hawaii; the gallery claimed that the works were either originals or limited editions by the surrealist painter Salvador Dali. Over a period of four years, the Balogs spent approximately $36,200 on seven different works. During that time, the Balogs received periodic notices entitled "Confidential Appraisal - Certificates of Authenticity" from the Center Art Gallery, which maintained that (1) the works were "produced by Dali as exclusive originals or limited editions," and (2) that the works had appreciated in value since their purchase by the Balogs. After seeing media reports questioning the veracity of the claims made by the Center Art Gallery, and after ascertaining that the artworks they had purchased had uncertain provenance, the Balogs sued, asserting breach of express warranty under the Uniform Commercial Code. The case is interesting for two reasons. First, defendant Center Art Gallery asserted that the statute of limitations under the U.C.C. had expired," barring any action by the plaintiffs. The court

53. Balog v. Center Art Gallery-Hawaii, 745 F. Supp. 1556 (Haw. 1990). 54. Id. at 1556. The court draws explicit attention to the fact that the plaintiffs in this case "were private collectors but... claim to have no special expertise regarding the authenticity of the artwork in their collection." Later, the court adds that the value of the works in question - approximately $36,000 - rendered extensive authentication of provenance by the buyer both "redundant and ridiculous," due to the costs such authentication would entail. This holding, while laudable in many respects, raises extremely difficult questions concerning definitions and thresholds: What, after all, makes a buyer a "nonexpert?" And at what point does the value of a work of art become sufficiently substantial to shift responsibility for authentication from seller to buyer? Compare this case to Areyh v. Christie, supra note 49, where even the most even-handed and expert circumstances of both buyer and seller did not eliminate the vexatious difficulties of forgery, mislabeled, or fake art. 55. U. C. C. § 2-313. Under that section of the Code, "a breach occurs when tender of delivery is made," and "a cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach." Under such governing provisions, the statute of limitations would have expired by the time the Balogs brought their case. However, the next sentence in the Code adds that the breach upon tender rule is suspended where the warranty "explicitly extends to future performance of the goods and discovery of the

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dismissed this claim, holding that even though breach of warranty occurs under the U.C. C. when tender of delivery is made (that is, when the non-complying paintings were delivered), the statute was tolled by the fact that the warranty extended to "future performance of the goods," and by the fact that discovery of the breach would necessarily have to "await the time of such performance."56 The court made a compelling analogy to the wine collector who purchases 100 cases of a wine held out by the seller to be of great complexity, from a superior vintage, and thus almost certain to accrue in value; since the investment value of such a commodity is maximized by holding it unopened for ten, twenty, or even thirty years, a breach would only be discovered long after the statute of limitations has run, thus leaving the aggrieved buyer, who "discovers that his wine is not Romanee Conti at all, but Algerian Rouge," without recourse. 7 The court rejected Central Art's plea for dismissal, and it did so by pointing out that paintings, like wine, are peculiar commodities, and that the scrutiny they receive under the law must be of a special order. 8 Since any "test of the promise of authenticity"59 of such works is often deferred until the moment of a future sale, the initial buyer must rely on representations by the seller concerning

breach must await the time of such performance." 56. See Balog, 745 F. Supp. 1556 (1990). 57. Id. at 1571. 58. Id. at 1571. The court's stunningly intelligent, if not brilliant, decision reads as follows: Since artwork does not 'perform' in the traditional sense of goods covered by the U.C.C., and since the authenticity of a work of art, i.e., its 'performance' would not change over time, Center Art's warranty necessarily guaranteed the present and future existence of the art as authentic works of Salvador Dali. To force buyers to secure an additional warranty of future performance.., would be not only redundant, but ridiculous ....This is especially the case where, as is often the situation with art, no test of the promise of authenticity is expected or required until a future time - namely, the time of future sale. Id. 59. Id. at 1571.

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the certification of the artwork. Those representations create an explicit "warranty of future performance,"6 sufficient to toll the applicable statute of limitations.6 Second, and most importantly, the court makes an explicit - though definitionally nebulous - distinction between the kind of purchasers that one finds in transfers of artworks, resulting in what would seem to be a two-part analysis. In such circumstances, where the seller was a dealer in artworks and the buyer was a nonprofessional "private collector," the court establishes a standard by which responsibility for discovery of breach rests almost entirely with the seller, provided the seller had made affirmations of fact about the artwork that the buyer relied upon. If such facts exist (in which the description by seller to a nonprofessionalbuyer is part of the basis of the bargain), a second step must take place, in which the relative value of the artwork to the cost of buyer-funded authentication must take place. In short, if the artwork in question is not so valuable as to warrant buyer- financed authentication, responsibility for discovery of the breach tolls the statute of limitations.62 In the court's words, "where buyers are sold artwork of such a value that it would be prohibitively expensive to obtain a verification of authenticity in addition to the representations of the seller, and where the merchant is a seller of such artwork, the buyer is justified in relying on those representations and their claim for breach of warranty will accrue at the time they discover or reasonably should have discovered that the artwork was not authentic."63 This is a remarkably consumer-friendly result. And although it provides important protections for private collectors who have "no special expertise regarding the authenticity of the artwork in their collection," the decision raises extremely difficult questions about the threshold at which such a rule will be invoked. The court does not establish a standard; it might have said, for instance, that in sales where the initial sale value of the work of art is more than

60. Id. at 1571. 61. Balog, 745 F. Supp. at 1573. 62. Id. 63. Id.

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four times (or five, or six) the cost of securing additional certification, the buyer is required to do so to ensure protection under U.C.C. 2-3 13. In short, although the decision of the District Court is in this instance quite laudable, the application of their methodology for determining where and how this new rule will apply makes its future cloudy at best. The "non-expert" collector would be wise to use all methods possible to guarantee provenance well in advance of purchase - in short, via non-legal, private means.

F. Methods of authentication

When suspicions about the provenance or authenticity of an artwork arise, three basic courses of action are available to the concerned party. The first, and most obvious, is to re-evaluate the documentation concerning the work. Unfortunately, documentation is more easily forged than the work itself,6 and can thus be an extremely unreliable method for assuring authenticity. A second method of verification is termed "stylistic" inquiry. In such instances an expert in the particular field, or someone with exceptional knowledge regarding the stylistic dynamics of the artist in question reviews the work at hand. Often this entails some degree of comparative analysis: A work from the painter's past is compared to the questioned work in the hope of detecting any anomalies in brushstroke technique, foundation structure, and the like. A classic example is found in brushstroke analysis of the Otto Wacker gallery's Reaper in a Cornfield by Van Gogh.65 In that case, a number of Van Gogh experts had immediate suspicions about the authenticity of the work, confirmed by a comparison of minor style differences. The conclusion - that the work was a forgery - was proven further by scientific analysis. There are vast difficulties with stylistic analysis, however, which we shall turn to in our discussion of Hans van Meegeren below.

64. LERNER & BRESSLER, supra note 44, at 57. 65. Timothy W. Ryback, The So-Called Van Goghs, in ART NEWS, Summer 2000, at 5.

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Most importantly, however, stylistic analysis is a classic example of a subjective test. It rests on the particular status and stance of the expert in question. Such a mode of analysis thus carries with it all the inherent difficulties of such tests in the other areas of law and criticism - most importantly, the likelihood of bias or nonuniversalizable conclusions. The third method of analysis is scientific. Such analysis is often used in addition to, or in conjunction with, the subjective analysis described above (such was the case in the Otto Wacker/Van Gogh forgeries). The greatest virtue of such a mode of analysis is its objectivity: results are inherently universalizable and thus subject to absolute verification by other, identically situated testing methods. Tests may also be targeted to specific characteristics of the artwork itself. Radiocarbon dating, for instance, can help establish differences in the age and nature of the materials used, and in the artist's technique, that may betray a forger's hand. The difficulty with all of these methods is they are both expensive and logistically difficult to undertake. The unfortunate result is that a number of forged artworks continue to go undetected in various art sales, with each additional transfer increasing the difficulty of exposing their fraudulence.

III. LEGAL PROTECTION AND REMEDIES CONCERNING FORGERY AND MISREPRESENTATION

A number of different areas of law are applicable to questions surrounding misrepresentation, fraud, or mistake in the sale of artworks. The most obvious and well-established relevant law is found in common law rules pertaining to contract, particularly as they are codified in the Uniform Commercial Code. In addition, buyers unfairly injured in an art sales transaction may find useful legal recourse in tort law,66 Federal and State Penal statutes

66. An in-depth discussion of tort remedies is beyond the scope of this particular analysis, although a defrauded or misled purchaser would be well advised to look into this avenue as a means of recovery. Such a strategy would aim at proving professional malpractice as a result of some degree of negligence in any area surrounding the sale. In addition, such claims as breach of fiduciary

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(particularly in cases where intent to deceive or defraud is present), 67 and in legislation enacted in specific jurisdictions where sales are particularly prevalent in commercial transactions. 68 New York State and California, for instance, have both enacted business laws aimed at insuring the propriety of sales involving artworks.69 The Uniform Commercial Code (hereinafter, U.C.C.) is the most important legal instrument for insuring the propriety of transactions involving artworks. Section 1-203 of the Code mandates good faith in the creation and execution of any sales contract."0 In addition, it provides a site from which to compel restitution in the event of a faulty sale. Unfortunately, the fact that the U.C.C. covers only transactions of tangible personal property entails that certain types of artwork will not be governed by it. Environmental art, for instance, is not "personal property" of the sort envisioned under the U.C.C.7" Furthermore, the degree to which the characteristics of an artwork are "tangible" in a traditional commercial sense is highly uncertain. This is particularly the case given the enormous volatility of price and prestige accorded various artists and artworks in different periods. In their hornbook entitled Art Law, Lerner and Bressler cite three basic ways in which express warranties may be created: warranty by affirmation of fact or promise; warranty by description; statements of opinion by an art merchant (a merchant dealing in goods of that kind).72

duty, financial conflict of interest, and defamation or disparagement are plausible additional means of correcting the harm caused by a faulty sale. See Steven Mark Levy, Liability of the Art Expert for Professional Malpractice, 1991 Wis. L. REv. 595 (1991). 67. LERNER & BRESLER, supra note 44, at 58. 68. Id. 69. Id. at 90. 70. U.C.C. § 1-203. 71. Environmental art is one of many novel forms developed in contemporary or postmodem art. This form utilizes existing geographical conditions and various types of artistic embellishment to create an artistic scene - as in the case of Christo's "Running Fence" (a white cloth fence running for miles along the northern California landscape). 72. LERNER & BRESLER, supra note 44, at 59-61.

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In addition, they suggest the following two methods for the creation of an implied warranty: warranty of merchantability; warranty of fitness for a particular use.73 What follows will survey the applicability of each of these forms of warranty arising under the U.C.C. as applied to artworks.

A. Express Warranties under U.C.C. 2-313

The U.C.C. offers powerful mechanisms to discourage misrepresentation in the case of paintings. It also provides means for restitution in the event of a faulty sale. More specifically, U.C.C. 2-3 13 provides an automatic presumption that the sale in question is conducted in accordance with "any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain. . ." A representation which becomes a part of the basis of the bargain may manifest itself in an "affirmation of fact or promise,"75 a mere "description" of the goods76 (as in, "this is a fine example of Rauschenberg's early work"), or even in "statements of opinion" by the seller.77 The last mechanism for generating a warranty is particularly troubling and dangerous for art dealers. What a dealer thinks is "mere opinion" rises to the level of warranty of authenticity if the dealer is an art merchant." From a legal perspective, what matters is whether the seller is someone who ordinarily deals in goods of the kind. This supports the general tenor of U.C.C. provisions, which aim at protecting the sanctity and fairness of business dealings. When an art dealer (who in principal has greater knowledge concerning the goods in question) makes a representation about a painting, it rises to the level of factual claim. The kind of puffing one sees on an automobile sales lot has

73. Id. at 64-9. 74. U.C.C. § 2-313(1)(a). 75. LERNER & BRESLER, supra note 44, at 60. 76. Id. 77. Id. at 61. 78. U.C.C. § 2-313, note 8; U.C.C. § 2-103.

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no place in the transfer of artwork. Furthermore, disclaimers have no effect unless they are clearly and prominently displayed, and the dealer has made no assertion of authenticity. Hence a dealer who purported to sell a Picasso lithograph would give rise to an express or implied warranty which would be unaffected by the attachment of disclaimer. The rationale of the U.C.C. is simple: contracts of sale should be made within relatively uniform commercial circumstances; these circumstances imply relatively full disclosure of all pertinent facts to the parties involved.79 Disclaimers serve to undermine such a covenant, and, in the language of U.C.C. 2-313, are "repugnant" and without effect save in extremely limited circumstances." A number of important consequences flow from the various provisions attached to U.C.C. Section 2-313. First, for an express warranty to spring into existence, there must be a core description of the goods to be sold8 which becomes part of the "basis of the bargain" itself.82 Moreover, an express warranty may be created regardless of the seller's intention to make such a warranty.83 Thus when a dealer or gallery84 makes representations about an artwork, and those representations are part of the basis of the bargain between seller and buyer, an express warranty will arise. Moreover, if a "merchant" makes in good faith an assertion that turns out to be false, an action will still lie; in short, good faith is no defense to a false assertion. Thus as express warranty may arise in any number of representations found in the ordinary course of business revolving around transactions of art: documents, brochures, catalogs, advertisements, even announcements, may

79. U.C.C. § 2-313, note 1. 80. Id. 81. U.C.C. § 2-313(1)(b). 82. U.C.C. § 2-313(1)(a). 83. U.C.C. § 2-313(2). 84. U.C.C. § 2-104 defines "merchant" as a person who deals in goods of the kind (here, a painting or similar artwork), or as one who by her occupation holds herself out as having knowledge or skill peculiar to the practices or goods involved in the transaction. 85. U.C.C. § 2-313(2); See also Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286 (6th Cir. 1982).

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give rise to a warranty under U.C.C. 2-313. The precise time when affirmations about an artwork are made is not material in establishing an express warranty.86 In other words, a warranty may arise from oral representations about the quality of a work made prior to, during, or after a sale. The fundamental standard is that of good faith and fair dealing. The latter point - comments made after a sale - deserves special notice. For instance, a representation made after a sale by a dealer can give rise to increased liability in the form of a warranty.

B. Implied Warranties under UC.C. 2-314

An implied warranty of merchantability springs into existence when the goods in question (here again, a painting) are purchased from a seller who is a "merchant with respect to goods of that kind.""7 An art dealer is such a merchant, and her sale of an artwork implies in relevant part that the artwork sold will meet the following conditions: 1. It will "pass without objection in the trade under the contract description.""8 2. It is fit for the "ordinary purposes" such works are put to.89 3. It will "confirm to the promise or affirmations of fact made on the ... label."90 The effect of these provisions is not hard to determine in the case of artworks. Once a sale is made, any objection to a work's authenticity (by a future buyer or third-party, or instance) will suggest that a breach has occurred.9 Further, "ordinary purposes"

86. U.C.C. § 2-313, note 7. 87. U.C.C. § 2-314(1). 88. U.C.C. § 2-314(1)(a). 89. U.C.C. § 2-314(l)(c). 90. U.C.C. § 2-314(1)(f). 91. In theory and in general practice, this is a non-problematic assertion. Dealer A sells a work to buyer B, who is then told that the work is inauthentic, or that its certification is faulty. B has a straightforward cause of action against A. Why? Because the work would not "pass without objection" under the circumstances of ordinary trade practices. But some fakes (as in the case of van Meegeren's Vermeer works) pass for some time in the trade without objection.

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can be construed broadly. Aesthetic enjoyment is not the outer limit of such ordinary usage; part of the ordinary purpose of an artwork is as an investment, and this property of the work is protected under U.C.C. Sec. 2-314. Finally, "label" in this context may be read as "certificate of provenance." A faulty certificate, even if its inaccuracy is unknown to the merchant-seller, does not alleviate the merchant's warranty obligation. Case law has shown that inquiries into the validity of title are part of an art dealer's ordinary course of business. Hence a dealer has a duty to ascertain the status of title of any work she sells.92

C. Circumstances in which Breach Occurs

If a buyer purchases an artwork on the strength of affirmations which provide the basis of the bargain, and the goods in question ultimately fail to conform, a breach of express warranty has occurred.93 The buyer may bring suit regardless of whether the seller acted in good faith or with malicious intent (though the latter might give rise to criminal action for fraudulent

Galleries and art merchants have attempted to protect themselves from the consequences of implied warranties by making explicit representations of the degree of certainty with which they endorse (1) the artwork's authenticity; (2) the artwork's provenance; and (3) the certainty of the work's certification. The effect of such disclaimers (acceptable under 2-314 if the buyer is afforded full opportunity to examine the goods in question and the defect is visible by such means of examination) is to alleviate the exposure of the merchant-seller to liability under the implied warranty sections of the U.C.C., and to increase the risk confronted by the buyer. See U.C.C. § 2-316, Comment 8; see also LERNER & BRESLER, supra note 44, at 69. 92. See Porter v. Wertz, 416 N.Y.S.2d 254 (1979) afd, 53 N.Y.2d 696 (1981). In this case, the bizarre circumstances that surrounded the consignment of a painting owned by Porter to an individual posing as Wertz, who then sold the painting to the Feigen gallery, led to the court's ruling in support of Porter's action both intermediary and gallery. The gallery was held to be operating outside the standard commercial standards applicable at the time - particularly in its failure to inquire who sold the painting - and was ordered to reimburse Porter (the original owner) the value of the painting at the time of sale, plus costs. 93. LERNER & BRESLER, supra note 44, at 60.

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misrepresentation). This applies as well to cases where a work which is likely to be authentic is affixed with forged documentation to further allay any fears about authenticity. In such a case the mere fact of inauthentic documentation might render the pedigree of the work questionable. The seller may be forced to reimburse the buyer for an diminution in value stemming form the faulty certification (potentially a massive sum); or he may be forced to compensate the buyer for any costs incurred in assuring certification; or, finally, he may be subject to punitive damages in the event that he acted in bad faith. The crucial issues for both buyer and seller of artworks are that a warranty of genuineness is presumed in the very fabric of the sale. This is underscored by Note 8 to U.C.C. Sec. 2-313: "What statements of the seller have in the circumstances and in objective judgment become part of the basis of the bargain? As indicated above, all of the statements of the seller do so unless good reason is shown to the contrary." In this context, "good reason" would probably entail no less than a written disclaimer by an established expert in the field. Hence an art merchant is cautioned that standards for "puffing" legitimate to the used auto market are simply inapplicable in the transfer of "autographic" artworks.9" Other protections are available under the U.C.C., but they are beyond the scope of this paper. The general fact is that protections and remedies exist under the U.C.C. for a variety of transactional elements which are present in the sale of an artwork. In sum, the U.C.C. provides express and implied warranties applicable to a number of the sale characteristics of an artwork, including those of title, fitness for ordinary use, fitness for a particular use, merchantability, and conformity to representations made before, during, and after a sale. The purchaser of an autographic artwork would be wise to create a checklist with the U.C.C. in mind; indeed, a wise purchaser would ask that the merchant or non- merchant dealer agree in writing to conform to the requirements of such a list. Such a practice would alleviate uncertainty from both ends of the seller-purchaser dynamic, and would certainly be

94. U.C.C. § 2-313, note 8.

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a contract into which a reputable art dealer would enter without hesitation.

D. New York Business Law

New York's position as a world center for the sale of major artworks has led to its passage of statutes aimed specifically at regulating the art market. Such laws have come to serve as litmus tests for the validity of a transfer and have been emulated by other states, most notably Michigan, Illinois, and California.95 Sales that fail to meet the standards established by New York law are generally held with great suspicion in other large art markets.96 Two areas of New York law are of specific importance here. The first specifically concerns forgery, and follows general laws prohibiting the intentional falsification or creation of written documents like checks, promissory notes, and the like. Such laws have been modified for specific application to the artworld and are generally referred to as "criminal-simulation statutes." These statutes provide criminal penalties for the intentional production or modification of any object such that its age, uniqueness or authorship is falsely represented.97 Although such statutes may serve to discourage fraudulent misrepresentation, the astronomical sums available to the unscrupulous art dealer tend to blunt their effect. Furthermore, the utility of such penal statutes to the defrauded buyer or seller are negligible; more effective remedies are found in U.C.C. provisions and tort law. Finally, the criminal intent requirement of N.Y. Penal Law 170.45 creates proof issues

95. LERNER & BRESLER, supra note 44, at 92. 96. Id. at 93. 97. The specific language of the statute reads as follows: A person is guilty of criminal simulation when: 1) With intent to defraud, he makes or alters any object in such manner that it appears to have antiquity, rarity, source or authorship which it does not in fact possess; or 2) With knowledge of its true character and with intent to defraud, he utters or possesses an object so simulated. Criminal simulation is a class A misdemeanor. N.Y. Penal Law Sec. 170.45 (McKinney 1975 & Supp. 1988).

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that maybe extremely difficult to meet in the often nebulous and arcane world of international art sales. A second New York law may prove more useful in guaranteeing the authenticity and propriety of transfers of painting. These statutes work to extend and underscore the express warranty requirements found in U.C.C. 2-313. In essence, any written instrument involved in the transfer of an artwork will result in the creation of an express warranty of authenticity. Such warranties are intended to be unaffected by any disclaimer. Finally, the opinion of a seller becomes a factual element of the bargain: "puffing" rises to the level of material fact.98

IV. HANS VAN MEEGEREN: FORGERY FOR OTHER THAN FINANCIAL ENDS

The foregoing analyses would be incomplete without a brief discussion of the stunning case of Hans van Meegeren's forgery of the works of Jan Vermeer. Van Meegeren's case crystallizes many of the legal issues surrounding the faulty or misrepresentational transfer of artworks, but it also reiterates many of the questions raised earlier about contemporary relationships of the audience to an artwork. In van Meegeren's case, we find the question of art qua art posed once again. Van Meegeren, while commercially employed as an illustrator and decorative artist, entertained the perfectly legitimate wish that his work be received with some degree of appreciation by the high-critical elements of the Dutch artistic community. Early in his career, the critical community saw his works with promise; in particular, his technical skill was deemed remarkable. Unfortunately, his work was increasingly seen as lacking "psychological penetration."99 One critic referred to his work as combining a "unique, fluid way of painting" with "insipid and sweet, sometimes miserably forsaken" images.00 Such

98. N.Y. Arts & Cult. Aff. Law Sec. 13.01 (McKinney 1984 and Supp. 1988). 99. Lessing, supra note 20, at 10. 100. Id.

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disappointments led to his decision, sometime during the late 1920's, to prove two things: First, the pomposity and fraudulence of the world of art experts; and second, his own status as a brilliant painter. "' To this end van Meegeren produced nine of the greatest forgeries in the history of Western art. He chose to create works so intimately in the style of Pietr de Hooch and Jan Vermeer that they would be received as authentic "undiscovered" paintings by the masters. One of his works, "Christ and the Disciples at Emmaus" was hailed by J. Decoen, a leading expert on the work of Vermeer, as Vermeer's greatest accomplishment, done in a style that would demand a rethinking of the entirety of that painter's corpus. °2 The quality of his forgeries was so great that the European critical community refused to believe van Meergeren's claims even after he admitted his fraud. Indeed, even after the trial was completed, and after van Meegeren had created another painting "in the style of' Vermeer to prove his culpability, some critics continued to doubt that all of the works were forgeries. Decoen, the critic alluded to earlier, uttered the following while van Meegeren's sentence was being determined:

I must recall that the moment of greatest anguish for me was when the verdict [of van Meegeren] was being considered. The court might, according to an ancient Dutch Law, have ordered the destruction of all the pictures. One shudders at the thought that one could, officially, have destroyed two of the most moving works which Vermeer has created."3

Van Meegeren's tale continued still further: In the 1950's a group of critics, still unconvinced that the stylistic analysis employed by the Dutch court in determining that the works were forgeries, sought to show that at least two of the paintings were

101. Id.atll. 102. Id. at 22. 103. Id. at 61.

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authentic. These efforts - so illuminative of the enormous importance of "authenticity" as an element in determining the validity of an artwork - were finally laid to rest by radiographic analysis, which concluded that the works were in fact produced in 0 4 the 2 0 th century. Van Meegeren's ironic and sad end tells much about ineluctability and enigmatic character of art. Depressed and battered by his court case, van Meegeren died in prison at the age of 58. His works-both his forgeries and his original works - have gained status and commercial value as a result of their exposure as frauds. Perhaps in van Meegeren's case the raw fact of art expresses itself in pure form: In his work, questions about authenticity, originality, and beauty emerge, and art presents itself in its enigmatic, unknowable character.

104. Id. at 20.

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https://via.library.depaul.edu/jatip/vol15/iss1/2 36 De Sole v. Knoedler Gallery, LLC, 137 F.Supp.3d 387 (2015)

[5] buyers stated claim against gallery for unilateral mistake. 137 F.Supp.3d 387 United States District Court, Motion granted in part and denied in part. S.D. New York. Procedural Posture(s): Motion to Dismiss. Domenico DE SOLE, and Eleanore De Sole, individually and as assignee of Laura De Sole, Plaintiffs, West Headnotes (49) v. KNOEDLER GALLERY, LLC d/b/a Knoedler & [1] Racketeer Influenced and Corrupt Company, Ann Freedman, Glafira Rosales, Jose Organizations Carlos Bergantinos Diaz, Michael Hammer, 8–31 Elements of violation in general Holdings, Inc., and Jaime Andrade, Defendants. A Racketeer Influenced and Corrupt John D. Howard, individually and as Organizations Act (RICO) plaintiff must plead assignee of Jaime Frankfurt, LLC, Plaintiff, facts demonstrating (1) that the defendant (2) v. through the commission of two or more acts (3) Ann Freedman, Glafira Rosales, Knoedler Gallery, constituting a pattern (4) of racketeering activity LLC, d/b/a Knoedler & Company, Michael Hammer, (5) directly or indirectly invests in, or maintains 8–31 Holdings, Inc., José Carlos Bergantinos an interest in, or participates in (6) an enterprise Diaz, and Jaime R. Andrade, Defendants. (7) the activities of which affect interstate or foreign commerce. 18 U.S.C.A. § 1962(c). Nos. 12 Civ. 2313(PGG), 12 Civ. 5263(PGG). | Signed Sept. 30, 2015. [2] Racketeer Influenced and Corrupt Synopsis Organizations Background: Buyers of allegedly forged paintings brought Mail and wire fraud action against art galleries, gallery employees, art dealer, To establish Racketeer Influenced and Corrupt holding company that was sole member of gallery, and Organizations Act (RICO) claims based on mail member's owner, alleging claims under Racketeer Influenced and wire fraud, a complaint must, as a threshold and Corrupt Organizations Act (RICO) and state law causes of matter, allege the existence of a fraudulent action for fraud, fraudulent concealment, aiding and abetting scheme. 18 U.S.C.A. § 1961(1)(B). fraud, conspiracy to commit fraud, breach of warranty, and unilateral and mutual mistake. Defendants moved to dismiss.

[3] Racketeer Influenced and Corrupt Organizations Holdings: The District Court, Paul G. Gardephe, J., held that: Nexus between enterprise and acts Racketeer Influenced and Corrupt [1] complaint sufficiently alleged RICO enterprise; Organizations Association with or participation in [2] buyers stated RICO claim against member's owner; enterprise; control or intent To establish Racketeer Influenced and Corrupt [3] buyer stated fraud conspiracy claim against owner; Organizations Act (RICO) claims based on mail and wire fraud, a complaint must allege that the [4] appraisal equitably tolled limitations period for buyer's defendant caused the mailing or use of the wires breach of warranty claim against gallery and gallery's and that the mailing or use of the wires was for president; and the purpose of executing the scheme or, in other

words, incident to an essential part of the scheme. Association with or participation in enterprise; control or intent 18 U.S.C.A. § 1961(1)(B). Buyers of paintings pleaded facts demonstrating that owner of limited liability company (LLC) art gallery's sole member participated in a fraudulent [4] Racketeer Influenced and Corrupt scheme to sell forged artwork through his Organizations privately-owned art gallery, which was furthered Causal relationship; direct or indirect injury by the use of interstate mails and wires, as Where a Racketeer Influenced and Corrupt required to satisfy predicate act requirement of Organizations Act (RICO) violation is predicated Racketeer Influenced and Corrupt Organizations on acts of fraud, a plaintiff must allege that Act (RICO) claim; complaint alleged that owner the defendant's acts were not only the “but for” knowingly permitted gallery's president to use cause of plaintiff's injury, but the proximate highly reputable art gallery to fraudulently sell cause as well, necessitating some direct relation forged artwork, rewarded president for her between the injury asserted and the injurious unlawful conduct and provided incentives for conduct alleged; a link that is too remote, purely her to continue it, and took ill-gotten gains contingent, or indirect is insufficient. 18 from fraudulent sales for his own benefit, and U.S.C.A. § 1962(c). that owner funded, supervised, conducted, and monitored conduct of fraudulent scheme. 18 U.S.C.A. §§ 1343, 1961(1)(B). [5] Racketeer Influenced and Corrupt Organizations Association with or participation in enterprise; control or intent [7] Racketeer Influenced and Corrupt Organizations Buyers of paintings sufficiently alleged that Causal relationship; direct or indirect injury owner of limited liability company (LLC) art gallery's sole member participated in Proximate cause for Racketeer Influenced and conduct of Racketeer Influenced and Corrupt Corrupt Organizations Act (RICO) purposes Organizations Act (RICO) enterprise, as required requires some direct relation between the injury for RICO claims; complaint alleged that asserted and the injurious conduct alleged. 18 owner participated in the RICO enterprise by U.S.C.A. § 1962(c). knowingly permitting gallery's president to use highly reputable art gallery to fraudulently sell forged artwork, by rewarding president for [8] Racketeer Influenced and Corrupt her unlawful conduct and incentivizing her to Organizations continue it, and by taking the ill-gotten gains Causal relationship; direct or indirect injury from fraudulent sales for his own benefit, and that owner funded, supervised, conducted, and Buyers of paintings alleged sufficient facts to demonstrate that they suffered an injury as a monitored conduct of fraudulent scheme. 18 result of actions of owner of sole member U.S.C.A. § 1962(c). of limited liability company (LLC) art gallery in connection with the alleged racketeering 1 Cases that cite this headnote enterprise to sell forged paintings, as required for Racketeer Influenced and Corrupt Organizations [6] Racketeer Influenced and Corrupt Act (RICO) claim; complaint alleged that “but Organizations for” owner's management of gallery, including Mail and wire fraud his decision to permit gallery to be used for Racketeer Influenced and Corrupt the purpose of selling paintings that owner Organizations had reason to believe were not authentic,

buyers would not have suffered the injuries demonstrating that the defendant agreed to join they alleged, and that gallery's “preeminent” an enterprise with knowledge that predicate acts and “impeccable” 165–year–old reputation was would be committed by some member of the a central factor in their decisions to purchase enterprise. 18 U.S.C.A. § 1962(d). works. 18 U.S.C.A. § 1962(c).

[12] Fraud [9] Conspiracy Fraudulent Concealment Nature and Elements in General The elements of a fraudulent concealment claim A plaintiff bringing a Racketeer Influenced and under New York law are: (1) a duty to disclose Corrupt Organizations Act (RICO) conspiracy material facts, (2) knowledge of material facts claim must demonstrate that the defendant by a party bound to make such disclosures, agreed to participate in a charged enterprise's (3) failure to discharge a duty to disclose, (4) affairs through a pattern of racketeering, not scienter, (5) reliance, and (6) damages.

a conspiracy to commit predicate acts. 18 4 Cases that cite this headnote U.S.C.A. § 1962(a–d).

1 Cases that cite this headnote [13] Federal Civil Procedure Motion and proceedings thereon [10] Conspiracy Buyer of allegedly forged paintings abandoned Conspiracy to defraud fraudulent concealment claim under New York law against owner of sole member of limited Buyers of paintings sufficiently stated Racketeer liability company (LLC) art gallery, where Influenced and Corrupt Organizations Act buyer offered no factual or legal argument in (RICO) conspiracy claim against owner of opposition to owner's arguments, on motion limited liability company (LLC) art gallery's to dismiss, that buyer failed to plead facts sole member; complaint alleged that owner demonstrating that member of LLC made participated in the RICO enterprise by a partial or ambiguous statement to buyer, knowingly permitting gallery's president to use possessed superior knowledge not readily highly reputable art gallery to fraudulently sell available to buyer, and had a relationship with forged artwork, by rewarding president for buyer or his agent, and therefore had a duty to her unlawful conduct and incentivizing her to disclose. continue it, and by taking the ill-gotten gains from fraudulent sales for his own benefit, and 1 Cases that cite this headnote that owner funded, supervised, conducted, and

monitored conduct of fraudulent scheme. 18 [14] Fraud U.S.C.A. § 1962(d). Persons liable Aiding and abetting fraud under New York law has three elements: (1) that an independent [11] Conspiracy wrong exists, (2) that the aider or abettor knows Nature and Elements in General of that wrong's existence, and (3) that substantial Conspiracy assistance be given in effecting that wrong. Combination A plaintiff bringing a Racketeer Influenced and Corrupt Organizations Act (RICO) conspiracy [15] Federal Civil Procedure claim is not required to demonstrate that the Fraud, mistake and condition of mind defendant agreed to commit any predicate act; instead, plaintiff need only plead facts

To meet requirements of pleading with proceed; whether the assistance is substantial or particularity, a claim for aiding and abetting not is measured, in turn, by whether the action fraud requires plaintiff to plead facts showing of the aider and abettor proximately caused the the existence of a fraud, defendant's knowledge harm on which the primary liability is predicated. of the fraud, and that the defendant provided substantial assistance to advance the fraud's commission. Fed.Rules Civ.Proc.Rule 9(b), 28 [19] Conspiracy U.S.C.A. Pleading To make a prima facie factual showing of a conspiracy under New York law, a plaintiff must [16] Federal Civil Procedure allege the primary tort and four elements: (a) a Fraud, mistake and condition of mind corrupt agreement between two or more persons, Buyer of allegedly forged painting stated claim (b) an overt act in furtherance of the agreement, for aiding and abetting fraud under New (c) the parties' intentional participation in the York law against owner of sole member of furtherance of a plan or purpose, and (d) the limited liability company (LLC) art gallery with resulting damage or injury. required particularity; complaint alleged that owner regularly reviewed detailed information concerning gallery's sales, expenses, and [20] Conspiracy profits, most of which flowed from forged Pleading paintings, owner knew that paintings were newly Buyer of allegedly forged painting stated claim discovered and had unconfirmed provenances, for fraud conspiracy under New York law owner read report expressing severe skepticism against owner of sole member of limited regarding authenticity of one painting and chose liability company (LLC) art gallery; complaint not to inform buyers, owner was told of each sale alleged facts that created strong inference of and knew that mark-ups gallery received were owner's actual knowledge that paintings were extraordinarily high, owner provided incentives not authentic, and that sales of paintings were for gallery president to sell more forged fraudulent, alleged that owner intentionally paintings, and owner took actions to conceal entered into a corrupt agreement with gallery fraud. president to sell paintings that were not authentic, engaged in overt acts in furtherance of the conspiracy to sell forged paintings to buyers, and [17] Fraud buyers who paid millions of dollars for paintings Persons liable suffered injuries as a result of fraud conspiracy. Under New York law, a complaint adequately alleges the knowledge element of an aiding and abetting claim when it pleads not constructive [21] Corporations and Business Organizations knowledge, but actual knowledge of the fraud as Single business enterprise discerned from the surrounding circumstances. To establish liability as an alter ego under New York law, plaintiffs must allege that (1) entities operated as a single economic entity, and (2) [18] Fraud there was an overall element of injustice or Persons liable unfairness in defendants' use of the corporate A defendant provides “substantial assistance” form. required for aiding and abetting fraud claim under New York law only if he affirmatively assists, helps conceal, or by virtue of failing to [22] Labor and Employment act when required to do so enables the fraud to Scope of Employment

Under the New York common law doctrine of respondeat superior, an employer may be held liable for the tortious acts of an employee [27] Corporations and Business Organizations committed within the scope of his employment. Fraud

3 Cases that cite this headnote Buyer of allegedly forged painting plausibly alleged that owner of holding company that was limited liability company (LLC) art gallery's [23] Labor and Employment sole member was company's employee, as Furtherance of Employer's Business required for company to be held liable for To state a claim for respondeat superior under owner's fraud related to sale of paintings under New York law, a plaintiff must plead facts respondeat superior; complaint alleged that showing, among other things, that the tortious owner was president and sole owner of company, conduct causing the injury was undertaken received a $400,000 salary from company, and within the scope of the employee's duties to regularly attended board meetings, and that the employer and was thus in furtherance of owner's actions related to sales of paintings and the employer's interests; an employee's actions incentives provided to gallery president to sell fall within the scope of employment where the paintings were taken in his capacity as president purpose in performing such actions is to further of company. the employer's interest, or to carry out duties incumbent upon the employee in furthering the employer's business. [28] Corporations and Business Organizations Fraud 3 Cases that cite this headnote Labor and Employment Fraud; misrepresentation [24] Labor and Employment Complaint sufficiently alleged that art gallery Furtherance of Employer's Business president and former gallery employee were An employer will not be held liable under acting in scope of their employment with limited the doctrine of respondeat superior under New liability company (LLC) art gallery and holding York law for actions which were not taken in company, which was sole member of LLC, furtherance of the employer's interest and which when they sold paintings, as required to hold were undertaken by the employee for wholly company liable for fraudulent concealment, personal motives. aiding and abetting, and fraud conspiracy claims under theory of respondeat superior under 1 Cases that cite this headnote New York law; primary function at gallery was to sell paintings at a profit, and in [25] Corporations and Business Organizations allegedly selling numerous forged art works at Parent and subsidiary corporations gallery, president was acting within the scope The doctrine of respondeat superior does not of her responsibilities, and former employee render a parent company liable for the conduct of was likewise acting within the scope of his a subsidiary under New York law. responsibilities when he allegedly persuaded dealer to bring paintings to gallery, introduced dealer to gallery and president, and provided art expert's name to president to use in furtherance [26] Labor and Employment Relation of Parties of the fraudulent scheme. The key element of respondeat superior under New York law is an employment relationship [29] Labor and Employment between the alleged tortfeasor and the party that Scope of Employment the plaintiff is seeking to hold vicariously liable.

Courts consider the following factors in incentives provided to gallery president to sell determining whether an employee's actions are paintings were taken in his capacity as president within the scope of his employment, as required of holding company. for respondeat superior under New York law: the connection between the time, place and occasion for the act, the history of the relationship between [33] Sales employer and employee as spelled out in actual Making and Requisites practice, whether the act is one commonly Sales done by such an employee, the extent of Reliance departure from normal methods of performance, Sales and whether the specific act was one that the Basis of bargain employer could reasonably have anticipated. In order to demonstrate that an express warranty was created under New York law, a plaintiff [30] Labor and Employment must prove that the statement falls within the Fraud; misrepresentation definition of warranty, that she relied on it, and that it became part of the basis for the bargain. Under New York law an employer does not have N.Y.McKinney's Uniform Commercial Code § to approve, or even be aware of, a representation 2–313(1)(a). made by an employee to be liable for that representation under respondeat superior.

[34] Limitation of Actions Concealment of Cause of Action [31] Corporations and Business Organizations Liability for acts and debts of company Limitation of Actions Suspension or stay in general; equitable Under Delaware law, sole member of limited tolling liability company (LLC) art gallery could not be held personally liable for painting buyer's The doctrine of equitable tolling applies under fraudulent concealment claim based on alleged New York law where defendant's fraudulent sale of forged paintings on grounds that sole conduct results in plaintiff's lack of knowledge member was beneficial owner and controlling of a cause of action. member of art gallery. 6 West's Del.C. § 18– 1 Cases that cite this headnote 303(a).

[35] Limitation of Actions [32] Corporations and Business Organizations Estoppel to rely on limitation Fraud Limitation of Actions Buyer of allegedly forged painting plausibly Suspension or stay in general; equitable alleged that owner of holding company that was tolling limited liability company (LLC) art gallery's sole Under New York law, the doctrines of equitable member was holding company's employee, as tolling or equitable estoppel may be invoked required for holding company to be held liable to defeat a statute of limitations defense for owner's aiding and abetting fraud related when the plaintiff was induced by fraud, to sale of paintings under respondeat superior; misrepresentations or deception to refrain from complaint alleged that owner was president and filing a timely action. sole owner of holding company, received a 2 Cases that cite this headnote $400,000 salary from holding company, and regularly attended board meetings, and that owner's actions related to sales of paintings and [36] Limitation of Actions

Concealment of Cause of Action by defendants, separate from those that provide Limitation of Actions the factual basis for the underlying cause of Suspension or stay in general; equitable action, and that these subsequent actions by tolling defendants somehow kept plaintiff from timely bringing suit. For equitable tolling to apply under New York law, plaintiff must show that the defendant wrongfully concealed its actions, such that plaintiff was unable, despite due diligence, [40] Limitation of Actions to discover facts that would allow him to Suspension or stay in general; equitable bring his claim in a timely manner, or that tolling defendant's actions induced plaintiff to refrain Buyer of allegedly forged painting failed from commencing a timely action. to allege that he saw letter announcing gallery president's resignation and allegedly 1 Cases that cite this headnote misrepresenting the circumstances surrounding president's departure from gallery, or that buyer [37] Limitation of Actions relied on it, as required under New York Suspension or stay in general; equitable law to apply equitable tolling to statute of tolling limitations on buyer's breach of express warranty claim against art gallery and gallery's president. When deciding whether to equitably toll the N.Y.McKinney's Uniform Commercial Code § running of the statute of limitations, the issue 2–313(1)(a). is not whether plaintiff was in possession of all of the information necessary to prevail on 1 Cases that cite this headnote his claims, but whether plaintiff had enough information to commence a lawsuit. [41] Limitation of Actions Suspension or stay in general; equitable tolling [38] Limitation of Actions Concealment of Cause of Action Reasonable reliance on a defendant's misrepresentations is a required element for Limitation of Actions invoking equitable tolling under New York law. Suspension or stay in general; equitable tolling 3 Cases that cite this headnote To allege fraudulent concealment sufficient to justify equitable tolling, a plaintiff must [42] Limitation of Actions either plausibly allege that the defendant took Concealment of Cause of Action affirmative steps to prevent the plaintiff's discovery of his claim or injury or that the Limitation of Actions wrong itself was of such a nature as to be self- Suspension or stay in general; equitable concealing. tolling Written appraisal of painting provided by 1 Cases that cite this headnote art gallery to buyer of painting reaffirming authenticity of painting was act to conceal art [39] Limitation of Actions gallery's prior fraudulent conduct related to sale Suspension or stay in general; equitable of allegedly forged art, and thus equitably tolled tolling limitations period for painting buyer's breach of warranty claim against gallery and gallery's To benefit from the equitable tolling doctrine president under New York law; appraisal was not under New York law, a plaintiff must establish part of original sale, and was provided more than that subsequent and specific actions were taken three years after buyer purchased painting.

1 Cases that cite this headnote

[43] Limitation of Actions Mistake as Ground for Relief [47] Contracts A cause of action for mistake under New York Mutual mistake law accrues at the time of the alleged mistake. Under New York law, while mutual mistake will justify rescission where the mistake exists at the N.Y.McKinney's CPLR 213(6). time the contract is entered into and the mistake is substantial, it may not be invoked by a party to avoid the consequences of its own negligence. [44] Limitation of Actions Concealment of Cause of Action 1 Cases that cite this headnote Limitation of Actions Suspension or stay in general; equitable [48] Sales tolling Mistake Written appraisal of painting provided by Buyers stated claim against art gallery for art gallery to buyer of painting reaffirming unilateral mistake under New York law; buyers authenticity of painting was act to conceal art alleged that they believed that they were buying gallery's prior fraudulent conduct related to sale authentic painting by artist from gallery, that of allegedly forged art, and thus equitably tolled painting was forgery, and that gallery and limitations period for painting buyer's claim gallery's president acted with fraudulent intent. against gallery and gallery's president under New York law; appraisal was not part of original sale, 1 Cases that cite this headnote and was provided more than three years after buyer purchased painting. [49] Sales Mistake Buyers stated claim against art gallery for mutual [45] Contracts mistake under New York law; buyers alleged that Mistake both gallery and buyers believed that painting Under New York law, in order for a court to allow was authentic painting, and painting was forgery. rescission of a contract on the basis of unilateral mistake, a party must establish that (i) he entered into a contract under a mistake of material fact, and that (ii) the other contracting party either knew or should have known that such mistake Attorneys and Law Firms was being made. *394 Gregory A. Clarick, Aaron Hayes Crowell, Emily 2 Cases that cite this headnote Reisbaum, Isaac Berkman Zaur, Clarick Gueron Reisbaum LLP, New York, NY, for Plaintiffs. [46] Contracts Andrius R. Kontrimas, Houston, TX, Charles David Mistake Schmerler, India Decarmine, Fulbright & Jaworski L.L.P., Reformation of Instruments Mark Allen Robertson, Sarah E. O'Connell, Norton Rose Mistake and fraud Fulbright U.S. LLP, Nicholas A. Gravante, Jr., Luke William New York law does not permit reformation or Nikas, Boies, Schiller & Flexner LLP, Silvia L. Serpe, Eric B. rescission of a contract for unilateral mistake Einisman, Paul W. Ryan, Serpe Ryan LLC, New York, NY, alone; a unilateral mistake must be coupled with Philip J. Iovieno, Boies, Schiller & Flexner LLP, Albany, NY, some fraud. Anastasios Sarikas, Office of Anastasios Sarikas, Astoria, NY, for Defendants.

PROCEDURAL HISTORY 3 MEMORANDUM OPINION & ORDER I. CLAIMS PLED IN EARLIER COMPLAINTS PAUL G. GARDEPHE, District Judge. The De Sole action was filed on March 28, 2012, and the Plaintiffs Domenico De Sole, Eleanore De Sole, and John Howard action was filed on July 6, 2012. (Cmplt. (De Sole Howard bring these actions against Defendant Knoedler Dkt. No. 1); Cmplt. (Howard Dkt. No. 1)) On September Gallery, LLC (“Knoedler”); 8–31 Holdings Inc. (“8–31”), 13, 2012, the De Sole Plaintiffs filed an amended complaint Knoedler's sole member; Michael Hammer, Knoedler's against Defendants Knoedler Gallery, LLC d/b/a Knoedler managing member and the owner of 831 Holdings, Inc.; Ann & Company, Ann Freedman, Glafira Rosales, Jose Carlos Freedman, Knoedler's former president; Glafira Rosales, an Bergantinos Diaz, Michael Hammer, and Jaime Andrade. art dealer who brought certain paintings to Knoedler; Jose (Am. Cmplt. (De Sole Dkt. No. 17)) The De Sole Amended Carlos Bergantinos Diaz, Rosales's “longtime companion”; Complaint pleads the following causes of action: and Jaime Andrade, a former Knoedler employee who (1) substantive RICO and RICO conspiracy claims against 1 introduced Rosales to Knoedler and Freedman. (Second all Defendants; Amended Complaint (“SAC”) (De Sole Dkt. No. 118) ¶¶ 1620, 226, 244, 248; Am. Cmplt. (Howard Dkt. No. 179) ¶¶ (2) fraud and fraudulent concealment claims against 12, 23–25, 31–34) Knoedler and Freedman;

On September 30, 2013, this Court issued a memorandum (3) a fraud conspiracy claim against all Defendants; and opinion and order granting in part, and denying in part, (4) an aiding and abetting fraud claim against Hammer, Defendants' motions to dismiss the complaints in both actions. Andrade, Bergantinos Diaz, and Rosales. De Sole v. Knoedler Gallery, LLC, 974 F.Supp.2d 274, 285 (S.D.N.Y.2013). Plaintiffs in both actions *395 then (Id. ¶¶ 136–208) This complaint does not assert any claims filed amended complaints. (See SAC (De Sole Dkt. No. against 8–31 Holdings, Inc. See id. 118); Am. Cmplt. (Howard Dkt. No. 179)). The amended complaints allege that paintings that Plaintiffs purchased from Plaintiff Howard's original complaint asserted claims against Knoedler—on the representation that they had been created Ann Freedman, Glafira Rosales, Knoedler Gallery, LLC, d/ b/a Knoedler & Company, Michael Hammer, 8–31 Holdings, by Mark Rothko and Willem de Kooning—were forgeries. 2 Inc., Jose Carlos Bergantinos Diaz, and Jaime R. Andrade. Plaintiffs assert causes of action arising under the Racketeer (Howard Dkt. No. 1 (Cmplt.)) Howard's Complaint pleads the Influenced and Corrupt Organizations Act (“RICO”), 18 following causes of action: U.S.C. § 1962 et seq., and state law causes of action for fraud, fraudulent concealment, aiding and abetting fraud, (1) substantive RICO and RICO conspiracy claims against conspiracy to commit fraud, breach of warranty, and unilateral all Defendants; and mutual mistake. (SAC (De Sole Dkt. No. 118) ¶¶ 181– (2) a fraud claim against Knoedler and Freedman; 292; Am. Cmplt. (Howard Dkt. No. 179) ¶¶ 259–391) (3) fraudulent concealment and a fraud conspiracy claim On October 1, 2014, Defendants 8–31, Hammer, and against Knoedler, Hammer, and Freedman; Knoedler moved to dismiss certain claims in the De Sole Second Amended Complaint and the Howard Amended (4) an aiding and abetting fraud claim against Hammer; Complaint. (De Sole Dkt. Nos. 210, 211, 213, 215; Howard Dkt. Nos. 264, 266, 268) For the reasons stated below, (5) a breach of warranty claim against Knoedler and Defendants' motions to dismiss will be granted in part and Freedman; and denied in part. *396 (6) claims of unilateral mistake and mutual mistake against Knoedler.

(Id. ¶¶ 305–415)

The De Sole Amended Complaint and the Howard Complaint With respect to Howard's breach of warranty claim against contain the following factual allegations concerning Hammer: Knoedler and Freedman, Howard asserted that Freedman and Knoedler made the following representations to him and his (1) In 2003, Freedman faxed to Hammer a 2003 advisor and agent—Jaime Frankfurt: [International Foundation for Art Research] report related to a purported Jackson Pollock painting sold to Jack Levy. (1) the [w]ork was created by Willem de Kooning in 1956– The report called into question the provenance of the 57; painting. (Am. Cmplt. (De Sole Dkt No. 17) ¶¶ 39, 42–44; Cmplt. (Howard Dkt. No. 1) ¶¶ 43, 4648, 65–67) (2) the [w]ork was owned by the son of a Swiss private collector who obtained the [w]ork from de Kooning via (2) A handwritten note on the reverse side of the cover David Herbert; sheet for the above-referenced fax contains the following phrases in quotation marks: “discreet sources are my stock (3) the [w]ork came directly to Knoedler from in trade,” “don't kill the goose that's laying the Golden egg,” an individual, whom Knoedler and Freedman knew and “I am not going to change my way of doing business. If personally; and you are not [comfortable]—step away.” (Cmplt. (Howard (4) the [w]ork was a “rare” and “distinctive” example of Dkt. No. 1) ¶ 69; Am. Cmplt. (De Sole Dkt. No. 17) ¶ 45) a de Kooning landscape and that it was of “impeccable” (3) Hammer determined Freedman's compensation based quality and provenance. on Knoedler's profits, and—during the years that sales (Cmplt. (Howard Dkt. No. 1) ¶ 377) Howard further alleged of Rosales-related paintings were at their peak—he twice that Knoedler and Freedman's representations to Howard increased her compensation. (Am. Cmplt. (De Sole Dkt No. and Frankfurt constitute express warranties under N.Y.U.C.C. 17) ¶¶ 8, 15, 100) § 2–313(1). (Id. ¶ 380) Howard also alleged that “the (4) Hammer was aware that payments to Rosales were representations concerning authenticity and provenance in the wired to Bergantinos Diaz's brother in Spain. (Cmplt. invoice by defendants (who are art merchants) to Howard (Howard Dkt. No. 1) ¶¶ 38, 192) (who is *397 not) constitute express warranties under § 13.01 of the New York Arts and Cultural Affairs Law.” (Id. ¶ (5) Hammer knew of the outsized profits Knoedler derived 381) Finally, Howard claimed that “Freedman and Knoedler from sales of paintings obtained from Rosales. (Am. Cmplt. concealed ... information [about authenticity and provenance] (De Sole Dkt. No. 17) ¶ 8; Cmplt. (Howard Dkt. No. 1) ¶¶ from Howard such that Howard was unable, despite due 186, 278) diligence, to bring his claims in a timely manner.” (Id. ¶ 383)

(6) Hammer profited from the alleged fraudulent scheme. With respect to Howard's unilateral mistake and mutual (Am. Cmplt. (De Sole Dkt. No. 17) ¶ 8) mistake claims against Knoedler, the Howard Complaint alleges that “Howard [had a] mistaken belief that: (1) the As to 8–31 Holdings, Inc., the Howard Complaint [w]ork was owned by a Swiss private collector who obtained alleged that the [w]ork through David Herbert and passed title “by Knoedler's sole member is defendant 8–31 Holdings, Inc., descent” to his son; (2) there were no questions about a Delaware corporation which lists its most recent principal the [w]ork's authenticity; and (3) the [w]ork was fully place of business with the New York Secretary of State marketable.” (Id. ¶ 391) Howard purchased the painting as 19 East 70th Street, New York, New York but, on “without any knowledge of these mistakes,” “exercised information and belief, is actually located at a warehouse reasonable diligence in investigating the [w]ork prior to its somewhere on Manhattan's West Side. On information and purchase,” and “would not have been able to ascertain the belief, 8–31 Holdings, Inc. also owns Hammer Galleries, truth concerning his mistaken belief at the time of the sale LLC (another art gallery) and Knoedler Archivum, Inc., the of the [w]ork because such information was exclusively in latter of which, on information and belief, owns one of the the defendants' possession.” (Id. ¶¶ 392–94) Howard further most-valuable art archives and libraries in the world. alleged that a mutual mistake “existed by virtue of both Howard's and Knoedler's mutual mistake that the [w]ork was (Cmplt. (Howard Dkt. No. 1) ¶ 18) an authentic de Kooning.” (Id. ¶ 406) The Howard Complaint

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 10 De Sole v. Knoedler Gallery, LLC, 137 F.Supp.3d 387 (2015) pleads the same two mistake claims against Knoedler with Finally, Plaintiffs allege that Hammer was aware of respect to Frankfurt's mistaken belief. 4 (Id. ¶¶ 247, 397–404, the large profits Knoedler realized on the sale of 410–15) works obtained from Rosales. Plaintiffs have not alleged, however, what mark-ups are customary in the industry for II. RESOLUTION OF DEFENDANTS' FIRST MOTION works created by artists of this stature. TO DISMISS In sum, neither complaint alleges sufficient facts to All Defendants moved to dismiss. (De Sole Dkt. Nos. 24, 27, demonstrate that Hammer “conduct[ed] or participate[d], 63, 71, 75; Howard Dkt. Nos. 35, 39, 45, 48, 74, 76) On directly or indirectly, in the conduct of [the alleged] September 30, 2013, this Court granted in part and denied in enterprise's affairs through a pattern of racketeering part Defendants' motions. De Sole, 974 F.Supp.2d 274. activity.” 18 U.S.C. § 1962(c). Plaintiffs' allegations are likewise not sufficient to demonstrate that Hammer A. Dismissal of All Claims Against Hammer committed fraudulent concealment, aided and abetted This Court dismissed all claims against Hammer in both fraud, or conspired to commit fraud. All of these claims fail because of the absence of facts sufficient to demonstrate cases, De Sole, 974 F.Supp.2d at 302–04, reasoning as that Hammer “knew or should have known about the ... follows: [f]raud.” In re Alstom SA Sec. Litig., 406 F.Supp.2d The 2003 IFAR report is not sufficient to demonstrate 433, 498 (S.D.N.Y.2005) Accordingly, all claims against that Hammer was put on notice of the alleged fraud. Hammer will be dismissed. The report states that “IFAR believes that too many reservations exist to make a positive attribution to Jackson De Sole, 974 F.Supp.2d at 302–04. Pollock.” (Howard Cmplt. ¶ 46) According to Plaintiffs' complaints, the report does not state or suggest that the painting is a forgery. (De Sole Am. Cmplt. ¶ 42; Howard B. Dismissal of All Claims Against 8–31 Cmplt. ¶¶ 46–48) The report goes on to say that it In Howard, this Court dismissed all claims against 8–31. is “inconceivable” that Pollock sold the work through Id. at 304. The allegations against 8–31 were as follows: Ossorio. (Howard Cmplt. ¶¶ 46–48) While this aspect of the report questions the alleged provenance of the work, it does not directly challenge its authenticity. (Id.) Knoedler's sole member is defendant As to the handwritten statements on the back of the fax 8–31 Holdings, Inc., a Delaware cover sheet, the complaints do not allege who authored corporation which lists its most recent them, nor do Plaintiffs allege that these statements were principal place of business with the shared with Hammer. New York Secretary of State as 19 East 70th Street, New York, New Hammer's role in determining Freedman's compensation York but, on information and belief, does not demonstrate that he knew of the alleged ongoing is actually located at a warehouse fraud. Similarly, Plaintiffs do not explain why Hammer's somewhere on Manhattan's West Side. knowledge that payments to Rosales were being wired to On information and belief, 8–31 Bergantinos Diaz's brother should have led him to suspect Holdings, Inc. also owns Hammer that the paintings Rosales was providing to Knoedler Galleries, LLC (another art gallery) were forged. It is apparent—from the facts alleged in and Knoedler Archivum, Inc., the the complaints—that the use of intermediaries in the art latter of which, on information and world is common. The De Soles, Howard, and *398 belief, owns one of the most-valuable Lagrange all wired their payments through intermediaries. art archives and libraries in the world. (De Sole Am. Cmplt. ¶¶ 63, 130, 133; Howard Cmplt. ¶ 321; Lagrange Cmplt. ¶ 40)

for the claim” to support equitable tolling. De Sole, 974 De Sole, 974 F.Supp.2d at 304 (quoting Cmplt. (Howard Dkt. No. 1) ¶ 18) This Court held that those allegations were F.Supp.2d at 318–19 (citing Armstrong v. McAlpin, 699 “not sufficient to sustain any cause of action against [8– F.2d 79, 90 (2d Cir.1983)). This Court further noted that 31].” Id. This Court further noted that “Howard has not pled equitable tolling based on fraudulent concealment requires facts sufficient to demonstrate that it would be appropriate to a plausible allegation “ ‘that the defendant took affirmative pierce the corporate veil, nor has he presented a piercing the steps to prevent the plaintiff's discovery of his claim or injury or that the wrong itself was of such a nature as to corporate veil analysis in his briefing.” Id. at 304 n. 12. be self-concealing.’ ” Id. (quoting State of New York v. Hendrickson Bros., 840 F.2d 1065, 1083 (2d Cir.1988)). C. Dismissal of Certain Claims Against Knoedler In De Sole, as to Knoedler, this Court dismissed Plaintiffs' As to Howard's mistake claims against Knoedler, this Court fraud conspiracy claim, but otherwise denied Knoedler's determined that both unilateral mistake and mutual mistake had been adequately pled. “As to unilateral mistake, it is motion. Id. at 321. In Howard, this Court dismissed clear (and uncontested) that Howard believed that the work he Plaintiff's RICO, RICO conspiracy, fraud conspiracy, and breach of warranty claims against Knoedler, but otherwise purchased was a genuine de Kooning.” 5 Id. at 320 (citing denied Knoedler's motion. Id. Cmplt. (Howard Dkt. No. 1) ¶ 392). As to mutual mistake,

Howard's breach of warranty claim against Knoedler was dismissed because it was untimely and equitable tolling did Howard has adequately pled that Knoedler knew or should not apply. Id. at 318–19. In reaching this conclusion, this have known that the de Kooning was not authentic, Court noted that “the plain language of the statute [N.Y. but that Freedman misrepresented it as such anyway. U.C.C. § 2–725(2) ] makes clear that the [four-year] statute (Howard Cmplt. ¶¶ 232, 270). As discussed above, of limitations generally begins to run ‘on tender of delivery,’ Howard has sufficiently pleaded allegations of fraud and that lack of knowledge of a defect has no effect on the against Knoedler. Collins [v. Harrison–Bode, 303 F.3d 429, running of the limitations period.” Id. at 318. Given “that 435 (2d Cir.2002).] Howard purchased the painting from Freedman and Knoedler While Knoedler argues that both mistake claims should on June 13, 2007, and filed this action on July 6, 2012,” “the be dismissed because Howard did not exercise ordinary breach of warranty claim is untimely unless the statute was care and was consciously ignorant of the work he extended for some reason.” Id. “Howard ha[d] not pointed purchased, these issues cannot be resolved as a matter of to any provision in the New York U.C.C. that would have law at this stage of the proceedings. The cases cited by extended the limitations period,” however. Id. at 318. Knoedler (Howard Dkt. No. 40 at 28–29) were decided at summary judgment, not on the pleadings. *399 This Court also concluded that equitable tolling did not apply, because Howard had not “allege[d] [any] Id. at 320–21. facts indicating that ... Knoedler prevented him from exercising his rights during the limitations period.” Id. at III. THE DE SOLE SECOND AMENDED COMPLAINT 319. In fact, “Howard's complaint does not allege a single AND HOWARD AMENDED COMPLAINT communication, interaction, or dealing with ... Knoedler On November 4, 2013, the De Sole Plaintiffs filed a following the June 13, 2007 sale.” Id. Although Howard Second Amended Complaint (De Sole Dkt. No. 118) and alleged that “Knoedler concealed ... information [about Howard filed an Amended Complaint (Howard Dkt. No. authenticity and provenance] from Howard such that Howard 179). The De Sole SAC includes many of the same claims was unable, despite due diligence, to bring his claims in a pleaded in the Amended Complaint, but adds (1) breach timely manner” (Howard Cmplt. ¶ 383), this allegation is of warranty, unilateral mistake, and mutual mistake claims inadequate to invoke equitable tolling because “[g]eneralized against Knoedler; (2) 8–31 Holdings as a defendant and or conclusory allegations of fraudulent concealment are not asserts claims for fraud, fraudulent concealment, substantive sufficient to toll a statute of limitations,” and because “a RICO and RICO conspiracy, aiding and abetting fraud, plaintiff may not rely on the same act that forms the basis and fraud conspiracy against 8–31; and (3) and re-pleads RICO, RICO conspiracy, fraudulent concealment, *400

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 12 De Sole v. Knoedler Gallery, LLC, 137 F.Supp.3d 387 (2015) fraud conspiracy, and aiding and abetting fraud claims against Hammer. Accordingly, the De Sole SAC pleads the following IV. DEFENDANTS' SECOND ROUND OF MOTIONS causes of action: TO DISMISS Defendant Hammer has moved to dismiss all claims brought (1) substantive RICO and RICO conspiracy claims against against him in the De Sole SAC and in the Howard Amended all Defendants; Complaint. (Hammer Br. (De Sole Dkt. No. 214) at 1; Hammer Br. (Howard Dkt. No. 267) at 1) (2) fraud and fraudulent concealment claims against Knoedler, Freedman, and 8–31; Defendant Knoedler has moved to dismiss the breach of warranty and mistake claims asserted against it in the De Sole (3) a fraud conspiracy claim against Hammer, 8–31, SAC. (Knoedler Br. (De Sole Dkt. No. 212) at 1) Knoedler Andrade, Bergantinos Diaz, and Rosales; argues that all of these claims are untimely (id. at 1–2); that (4) an aiding and abetting fraud claim against Hammer, 8– no actionable warranties exist (id. at 10–12); and that any 31, Andrade, Bergantinos Diaz, and Rosales. mistake is a result of Plaintiffs' own negligence. (Id. at 13–15) Knoedler has also moved to dismiss the breach of warranty (5) a breach of warranty claim against Knoedler; and claim asserted in the Howard Amended Complaint, arguing that that claim is time-barred. (Knoedler Br. (Howard Dkt. (6) claims of unilateral mistake and mutual mistake against No. 269) at 3–12) 7 Knoedler.

(SAC (De Sole Dkt. No. 118) ¶¶ 181–292) Defendant 8–31 has moved to dismiss the fraud, fraudulent concealment, aiding and abetting fraud, and conspiracy to The Howard Amended Complaint reasserts all causes of commit fraud claims asserted against it in the De Sole action alleged in the original complaint, but adds causes of SAC and Howard Amended Complaint, to the extent that action for (1) fraudulent concealment, aiding and abetting those claims are founded on a respondeat superior theory of fraud, and fraud conspiracy against 8–31; and (2) fraud liability. (8–31 Br. (De Sole Dkt. No. 216) at 1, 3; 8–31 Br. conspiracy, and aiding and abetting fraud against Andrade. (Howard Dkt. No. 265) at 1, 3, 9) Accordingly, Howard's Amended Complaint pleads the following causes of action: *401 DISCUSSION (1) substantive RICO and RICO conspiracy claims against all Defendants; I. MOTION TO DISMISS STANDARD “To survive a motion to dismiss, a complaint must contain (2) a fraud claim against Knoedler and Freedman; sufficient factual matter, accepted as true, to ‘state a claim (3) a fraudulent concealment claim against Hammer, 8–31, to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, Knoedler, and Freedman; 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)

(4) a fraud conspiracy claim against all Defendants; 6 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “In considering a motion to dismiss ... the court is to accept as true all (5) aiding and abetting fraud claims against Hammer, 8– facts alleged in the complaint,” Kassner v. 2nd Ave. 31, Andrade, Rosales, and Bergantinos Diaz; Delicatessen Inc., 496 F.3d 229, 237 (2d Cir.2007) (citing (6) a breach of warranty claim against Knoedler; and Dougherty v. Town of N. Hempstead Bd. of Zoning Appeals, 282 F.3d 83, 87 (2d Cir.2002)), and must “draw (7) claims of unilateral mistake and mutual mistake all reasonable inferences in favor of the plaintiff.” Id. (citing against Knoedler. Fernandez v. Chertoff, 471 F.3d 45, 51 (2d Cir.2006)). (Am. Cmplt. (Howard Dkt. No. 179) ¶¶ 259–391) A complaint is inadequately pled “if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement,’ ”

Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting (quoting Stevelman v. Alias Research, Inc., 174 F.3d 79, 84 (2d Cir.1999) (internal quotation marks and citation Twombly, 550 U.S. at 557, 127 S.Ct. 1955), and does not omitted)). provide factual allegations sufficient “to give the defendant fair notice of what the claim is and the grounds upon which it rests.” Port Dock & Stone Corp. v. Oldcastle Ne., Inc., II. SUBSTANTIVE RICO CLAIM

507 F.3d 117, 121 (2d Cir.2007) (citing Twombly, 550 U.S. A. Applicable Law at 555, 127 S.Ct. 1955). [1] To sustain a private cause of action under RICO, a plaintiff must allege: “(1) *402 the defendant's violation “In considering a motion to dismiss for failure to state a of 18 U.S.C. § 1962, (2) an injury to the plaintiff's claim pursuant to Rule 12(b)(6), a district court may consider business or property, and (3) causation of the injury by the facts alleged in the complaint, documents attached to the complaint as exhibits, and documents incorporated by the defendant's violation.” Lerner v. Fleet Bank, N.A., reference in the complaint.” DiFolco v. MSNBC Cable 459 F.3d 273, 283 (2d Cir.2006) (internal quotation marks L.L.C., 622 F.3d 104, 111 (2d Cir.2010) (citing Chambers and alteration omitted); see also 18 U.S.C. § 1964(c) v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002); (providing a cause of action for “[a]ny person injured in his Hayden v. Cnty. of Nassau, 180 F.3d 42, 54 (2d Cir.1999)). business or property by reason of a violation” of Section Moreover, “[w]here a document is not incorporated by 1962). To prove a substantive RICO violation, a plaintiff must reference, the court may never[the]less consider it where the demonstrate, inter alia, that the defendant was “employed by complaint ‘relies heavily upon its terms and effect,’ thereby or associated with an[ ] enterprise engaged in, or the activities rendering the document ‘integral’ to the complaint.” Id. of which affect, interstate or foreign commerce, ... [and that the defendant] conduct[ed] or participate[ed], directly or (quoting Mangiafico v. Blumenthal, 471 F.3d 391, 398 (2d indirectly, in the conduct of such enterprise's affairs through Cir.2006)). A district court may also “rely on matters of public record in deciding a motion to dismiss under Rule 12(b)(6).” a pattern of racketeering activity....” 18 U.S.C. § 1962(c). Accordingly, a plaintiff must plead facts demonstrating “(1) Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 75 that the defendant (2) through the commission of two or (2d Cir.1998); see also Blue Tree Hotels Inv. (Can.), Ltd. more acts (3) constituting a ‘pattern’ (4) of ‘racketeering v. Starwood Hotels & Resorts Worldwide, Inc., 369 F.3d 212, activity’ (5) directly or indirectly invests in, or maintains 217 (2d Cir.2004) (“[W]e may also look to public records ... an interest in, or participates in (6) an ‘enterprise’ (7) the in deciding a motion to dismiss.”) “In the motion to dismiss activities of which affect interstate or foreign commerce.” context, ... a court should generally take judicial notice ‘to Moss v. Morgan Stanley, Inc., 719 F.2d 5, 17 (2d Cir.1983). determine what statements [the documents] contain[ ] ... not for the truth of the matters asserted.’ ” Schubert v. City of Rye, The “pattern of racketeering activity” elements are adequately 775 F.Supp.2d 689, 698 (S.D.N.Y.2011) (quoting Kramer pled where the plaintiff makes factual allegations sufficient v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir.1991)). to demonstrate that the defendants committed two or more predicate acts as part of a pattern of racketeering activity. Fed.R.Civ.P. 9(b) sets standards for pleading fraud claims, Here, Plaintiffs allege that Defendants committed two or more and requires that “[i]n alleging fraud or mistake, a party must acts of mail and wire fraud; mail and wire fraud are included state with particularity the circumstances constituting fraud in the statutory definition of “racketeering activity.” 18 or mistake.” Fed.R.Civ.P. 9(b); see also In re Pfizer Inc. U.S.C. § 1961(1)(B). 8 Sec. Litig., 584 F.Supp.2d 621, 632–33 (S.D.N.Y.2008). Rule 9(b) requires a plaintiff to “ ‘(1) specify the statements that the [2] [3] To establish RICO claims based on mail and plaintiff contends were fraudulent, (2) identify the speaker, wire fraud, a complaint must, as a threshold matter, allege (3) state where and when the statements were made, and (4) “the existence of a fraudulent scheme.” McLaughlin explain why the statements were fraudulent.’ ” Kottler v. v. Anderson, 962 F.2d 187, 190–91 (2d Cir.1992). The Deutsche Bank AG, 607 F.Supp.2d 447, 462 (S.D.N.Y.2009) complaint must also allege that “the defendant ‘caused’ the

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 14 De Sole v. Knoedler Gallery, LLC, 137 F.Supp.3d 387 (2015) mailing or use of the wires” and that “the mailing or use of [5] A RICO plaintiff must allege that the defendant the wires ‘was for the purpose of executing the scheme or, “conduct[ed] or participate[d], directly or indirectly, in the in other words, incident to an essential part of the scheme.’ conduct of [a RICO] enterprise's affairs through a pattern of ” Maersk, Inc. v. Neewra, Inc., 687 F.Supp.2d 300, racketeering activity.” 18 U.S.C. § 1962(c); see Reves 332 (S.D.N.Y.2009) (quoting United States v. Bortnovsky, v. Ernst & Young, 507 U.S. 170, 177–79, 113 S.Ct. 1163, 879 F.2d 30, 36 (2d Cir.1989)) (internal quotation marks 122 L.Ed.2d 525 (1993). In other words, the defendant must omitted). In short, a RICO complaint must provide “a detailed have had “some part in directing [the enterprise's] affairs.” description of the underlying [fraudulent] scheme and the Reves, 507 U.S. at 179, 113 S.Ct. 1163. Hammer argues connection of the mail and/or wire communications to the that Plaintiffs have not adequately alleged that he participated scheme.” In re Sumitomo Copper Litig., 995 F.Supp. 451, in the RICO enterprise. (Hammer Br. (De Sole Dkt. No. 214) 456 (S.D.N.Y.1998). at 2, 9; Hammer Reply Br. (De Sole Dkt. No 240) at 31)

[4] A RICO plaintiff must also plead facts sufficient to In Reves, the Supreme Court has interpreted the phrase “to demonstrate that plaintiff suffered an injury and that the conduct or participate, directly or indirectly, in the conduct plaintiff's injury was caused by the defendant's racketeering of such enterprise's affairs,” § 1962(c), to mean that activities. See Ideal Steel Supply Corp. v. Anza, 652 “one must participate in the operation or management of F.3d 310, 323 (2d Cir.2011). Where, as here, a RICO the enterprise itself.” Reves, 507 U.S. at 185, 113 S.Ct. violation is predicated on acts of fraud, a plaintiff must 1163. Simply put, “one is liable under RICO only if he allege that the defendant's acts were not only the “but ‘participated in the operation or management of the enterprise for” cause of plaintiff's injury, but the proximate cause as well, necessitating “some direct relation between the injury itself.’ ” Azrielli v. Cohen Law Offices, 21 F.3d 512, asserted and the injurious conduct alleged”; “[a] link that 521 (2d Cir.1994) (quoting Reves, 507 U.S. at 185, is too remote, purely contingent, or indirect is insufficient.” 113 S.Ct. 1163). “In the Second Circuit, ‘the “operation or Hemi Grp., LLC v. City of New York, 559 U.S. 1, 8, 130 management” test typically has proven to be a relatively S.Ct. 983, 175 L.Ed.2d 943 (2010) (internal quotation marks, low hurdle for plaintiffs to clear, especially at the pleading citation, and alteration omitted). This causation requirement stage....’ ” City of New York v. LaserShip, Inc., 33 is necessary because “the less direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiff's F.Supp.3d 303, 310 (S.D.N.Y.2014) (quoting First Capital damages attributable *403 to the violation, as distinct from Asset Mgmt. v. Satinwood, Inc., 385 F.3d 159, 175–76 (2d Cir.2004)). other, independent, factors.” Ideal Steel, 652 F.3d at 316 (quoting Anza v. Ideal Steel Supply Corp., 547 U.S. 451, Here, Plaintiffs allege that Hammer participated in the 458, 126 S.Ct. 1991, 164 L.Ed.2d 720 (2006)) (internal RICO enterprise by (1) “knowingly permitting Freedman quotation marks and alteration omitted). to use Knoedler ... to fraudulently sell forged artworks”; “by rewarding Freedman for her unlawful conduct and incentivizing her to continue it”; and “by taking the ill-gotten B. Analysis gains from [the fraudulent] sales for his own benefit.” (SAC Hammer contends that the RICO claims against him should (De Sole Dkt No. 118) ¶ 211; see also Am. Cmplt. (Howard be dismissed because Plaintiffs have not adequately alleged Dkt. No. 179) ¶ 267) The De Sole Plaintiffs also allege that he (1) conducted or participated in a RICO enterprise's that Hammer participated in the enterprise “by directing that affairs, (2) committed a predicate act, or (3) caused any injury. the ... IFAR Report be shared only with Knoedler's investment (Hammer Br. (De Sole Dkt. No. 214) at 9–16; Hammer Br. partners, but not its [potential buyers].” (SAC (De Sole Dkt. (Howard Dkt. No. 267) at 9–19) Hammer does not challenge No. 118) ¶ 211) The De Sole and Howard Plaintiffs both the existence of a RICO enterprise. 9 allege that Hammer, inter alia, “fund [ed], supervis[ed], conduct[ed], and monitor[ed] the conduct of the fraudulent scheme.” (SAC (De Sole Dkt. No. 118) ¶ 226(d); Am. Cmplt. (Howard Dkt. No. 179) ¶ 292) 1. Hammer's Participation in the RICO Enterprise

The facts alleged in each complaint provide an ample ¶¶ 12, 19, 46; Am. Cmplt. (Howard Dkt. 179) ¶¶ 34, record on which to conclude that Hammer participated 231, 234, 246, 255) In particular, Hammer managed and in the operation or management or “played some part in oversaw Knoedler's finances. (SAC (De Sole Dkt. No. *404 directing” the affairs of the alleged racketeering 118) ¶ 19; Am. Cmplt. (Howard Dkt. 179) ¶ 231) In his enterprise. Moreover, both the De Sole SAC and the role at Knoedler, Hammer personally reviewed detailed Howard Amended Complaint plead facts giving rise to a information about Knoedler's financial condition, sales, strong inference of Hammer's knowledge of the scheme and profits and was responsible for determining the and intent to defraud. Hammer's overarching role in the compensation of officer-level personnel, including Ann alleged racketeering enterprise was to permit Freedman to Freedman. 11 (SAC (De Sole Dkt. No. 118) ¶¶ 12, 19, use the Knoedler Gallery—a 165–year–old institution with 4748, 148; Am. Cmplt. (Howard Dkt. 179) ¶¶ 120, 231) an excellent reputation in the art world, and an institution Howard also alleges that Hammer received Knoedler's that Hammer controlled—to facilitate the sale of paintings quarterly and annual financial statements, including Hammer had reason to be believe were not authentic. (SAC summaries of significant transactions, and that Hammer (De Sole Dkt. No. 118) ¶¶ 1–3, 19, 47(e), 73, 188; Am. Cmplt. “periodically requested and received information about (Howard Dkt. 179) ¶¶ 1, 25, 231, 267) the amount of cash *405 Knoedler had on hand and about items in Knoedler's inventory.” 12 (Am. Cmplt. Knoedler's blue-chip reputation was a key element of the (Howard Dkt. 179) ¶ 231) enormous success and longevity of the fraudulent enterprise. Rosales—a “virtually unknown Long Island [art] dealer”— could not have commanded multi-million dollar prices for 4. Hammer knew that Glafira Rosales—an art dealer—was these undocumented forgeries without the backing of an delivering to Knoedler numerous paintings (the “Rosales esteemed “brand” in the art world. (SAC (De Sole Dkt. No. Paintings”) allegedly created by the most important 118) ¶ 4); Am. Cmplt. (Howard Dkt. 179) ¶¶ 2, 25) Knoedler abstract expressionist painters, such as Pollock, Rothko, —the “oldest and most venerable art gallery in New York Motherwell, and de Kooning; that Rosales would City” at that time—provided the credibility that drove the not reveal the collector's identity; that there was no enterprise. (SAC (De Sole Dkt. No. 118) ¶ 3; Am. Cmplt. paperwork documenting the provenance of these works; (Howard Dkt. 179) ¶¶ 1–2, 25) The scheme used “Knoedler's that all of these paintings were purportedly “newly gravitas and goodwill developed over 165 years in the fine discovered” works with no established provenance; that art business” to sell forged artwork to Knoedler's customers. efforts had been made to confirm the provenance of these (SAC (De Sole Dkt. No. 118) ¶ 73; Am. Cmplt. (Howard paintings, and that that effort had not been successful. Dkt. 179) ¶¶ 25, 265–66, 313) This element was Michael (SAC (De Sole Dkt. No. 118) ¶¶ 12(a), 47(a), 95, 245; Hammer's central contribution to the enterprise. Am. Cmplt. (Howard Dkt. 179) ¶¶ 27, 232, 240) 13

Moreover, Plaintiffs have put forward many particularized 5. In his capacity as President of 8–31, Hammer appointed allegations supporting an inference that Hammer had the Freedman to serve as president and sole manager of requisite knowledge of the fraud. Plaintiffs have alleged facts Knoedler in or about 2001. (SAC (De Sole Dkt. No. 118) showing that ¶¶ 16, 20, 39) Freedman informed Hammer of every sale of a Rosales Painting at the time the sale was made. (Id. 1. Hammer is the president and sole owner of 8–31 at 12, 47, 147; Am. Cmplt. (Howard Dkt. 179) ¶¶ 27, Holdings, Inc., which is the sole member and sole owner 231–32) of Knoedler. (SAC (De Sole Dkt. No. 118) ¶¶ 12, 16; Am. Cmplt. (Howard Dkt. 179) ¶¶ 32, 34) 6. Hammer knew that Knoedler's mark-ups for Rosales Paintings were extraordinarily high. SAC 2. Hammer was directly responsible for Knoedler's (De Sole Dkt. No. 118) ¶¶ 12(b)-(c), 211, 245, operations at all relevant times. (SAC (De Sole Dkt. No. 257; Am. Cmplt. (Howard Dkt. 179) ¶¶ 27, 136) 118) ¶ 47(e); Am. Cmplt. (Howard Dkt. 179) ¶ 34) During Hammer's tenure, profits on individual sales 3. As Chairman of Knoedler and President of 8–31, skyrocketed—all due to Rosales-sourced works. Hammer had extensive knowledge of and involvement From 1996 to 2003, Knoedler's average mark-up on sales of Rosales Paintings was over 200%. SAC in Knoedler's business. 10 (SAC (De Sole Dkt. No. 118)

(De Sole Dkt. No. 118) ¶ 45) As to works the a painting known to be a Pollock [from the same gallery purchased and resold, Knoedler saw profits period]. (Pl. Ex. 140 at 8, 10) The conclusion of the as high as 630% and 1500%. 14 (SAC (De Sole IFAR report reads: “given the several strongly negative Dkt. No. 118) ¶¶ 42–44; Am. Cmplt. (Howard Dkt. opinions [from Pollock experts about the authenticity 179) at 33; see also id. at 31–36) Mark-ups of this of the work] and the lack of information as to prior ownership, and with no documentation or other evidence magnitude are highly unusual in the art industry. 15 to override the concerns of those who do not accept (SAC (De Sole Dkt. *406 No. 118) ¶¶ 12(b), 43, it as a work by Pollock, we cannot currently support 47, 147, 257; Am. Cmplt. (Howard Dkt. 179) at 20 its addition to the artist's oeuvre.” (Pl. Ex. 140 at 8) n. 3 & ¶¶ 134–35) Knoedler's profits from works Based on the IFAR report, Knoedler agreed to take back sold on consignment also increased dramatically. the purported Pollock from Levy and to refund the $2 Whereas typical commissions on consigned works million purchase price. (SAC (De Sole Dkt. No. 118) range from 10% to 20% above the sum payable ¶ 57; Am. Cmplt. (Howard *407 Dkt. No. 179) at ¶¶ to the original owner, profits on works consigned 84, 91) Although Hammer insisted that a potential co- 16 by Rosales were as high as 360%. SAC (De investor in the Pollock painting be provided with a copy Sole Dkt. No. 118) ¶¶ 42–44; Am. Cmplt. (Howard of the IFAR Report (SAC (De Sole Dkt. No. 118) ¶¶ 12, Dkt. 179) ¶ 134) Such high-margin sales were 61; Am. Cmplt. (Howard Dkt. No. 179) ¶ 88), he took no highly unusual by both Knoedler's standards and steps to ensure that potential purchasers of other Rosales by industry standards. (SAC (De Sole Dkt. No. Paintings would receive a copy of that report. (SAC (De 118) ¶¶ 43–45, 147; Am. Cmplt. (Howard Dkt. Sole Dkt. No. 118) ¶¶ 12, 61; Am. Cmplt. (Howard Dkt. 179) ¶ 134) That Knoedler was able to repeatedly No. 179) ¶ 91) purchase from Rosales—an art dealer—numerous previously unknown works from acknowledged 8. Given that Hammer was responsible for the masters such as Pollock, Rothko, Motherwell, and gallery's operations and routinely reviewed detailed de Kooning for a fraction of the value such works information concerning Knoedler's sales, expenses, commanded in the marketplace strongly suggested and profits, he was aware that over the period that the Rothko and the other Rosales Paintings between 1994 and Knoedler's closing in 2011, were not authentic. (SAC (De Sole Dkt. No. 118) ¶¶ profits from sales of Rosales Paintings accounted 13, 28, 41–45, 95; Am. Cmplt. (Howard Dkt. No. for nearly all of Knoedler's profits. (SAC (De 179) at ¶¶ 5(a), 11, 27) As noted above, Hammer Sole Dkt. No. 118) ¶¶ 12, 43, 46–47, 107–08, was contemporaneously aware of all of these sales 135, 147; Am. Cmplt. (Howard Dkt. 179) ¶¶ and the profits Knoedler had realized on these sales. 26, 231, 234) Hammer also personally received millions in profits obtained by Knoedler from the 7. Hammer read “very carefully” an October 9, 2003 report sale of Rosales Paintings, and millions more in from the International Foundation for Art Research Knoedler profits were transferred to Hammer's (the “IFAR report”) concerning the authenticity and holding company, 8–31. (Id. at ¶¶ 12, 47, 109, 171– provenance of a purported Jackson Pollock painting that 72, 180; Am. Cmplt. (Howard Dkt. 179) ¶¶ 26, 234) Rosales had sold to Knoedler for $750,000 in March 2001, and which the gallery had sold several months 9. Hammer directly supervised Freedman and later to a buyer named Jack Levy for $2 million. (SAC determined her compensation. Freedman's (De Sole Dkt. No. 118) at ¶¶ 50–51, 148; Am. Cmplt. compensation doubled during the period from 2002 (Howard Dkt. No. 179) at ¶¶ 83, 91) The sale to Levy to 2008, largely as a result of profits Knoedler was conditioned on a favorable review of the work's realized from the sale of Rosales Paintings. authenticity by the IFAR. (SAC (De Sole Dkt. No. 118) Hammer steadily increased Freedman's share of at ¶ 52; Am. Cmplt. (Howard Dkt. No. 179) ¶ 84) The Knoedler's profits from 16% in 2002 to 30% in IFAR report rejects Rosales's claim that her clients had 2008. The De Sole Plaintiffs contend that Hammer's acquired the Pollock through Alfonso Ossorio, Pollock's repeatedly increased Freedman's profit share to close friend and patron, and concludes that there are incentivize her to continue to bring into the gallery, “disturbing” differences between the materials used to and sell, more of the Rosales Paintings. (SAC (De create the Levy Pollock and the materials used to create

Sole Dkt. No. 118) ¶¶ 12, 13, 16, 20, 39, 48, 123, Jersey, Inc. v. Philip Morris, Inc., 113 F.Supp.2d 345, 367 247; Am. Cmplt. (Howard Dkt. No. 179) ¶ 120) 17 (E.D.N.Y.2000) (“RICO liability for any particular defendant is not ... premised on establishing that each defendant actually 10. After Knoedler received a grand jury subpoena, committed two predicate acts, but only that each defendant Hammer fired Freedman and then sent a letter to all was ‘involved’ in the commission of two predicate acts that Knoedler customers announcing that Freedman had are sufficiently related and continuous to establish a pattern.”) “resigned.” 18 (SAC (De Sole Dkt. No. 118) at ¶¶ 129– (emphasis and citations omitted). Likewise, “to prove a 31, 277; Am. Cmplt. (Howard Dkt. 179) ¶¶ 121–24, violation of 18 U.S.C. § 1343, it need only be shown that a 127, 237) Between 2001 and 2010, Hammer and 8–31 defendant was one of the participants in a fraudulent scheme had built up $23 million of debt to Knoedler, classified which was furthered by the use of interstate transmission as “interdivisional receivables,” which indebtedness was reclassified in 2010 to be a “dividend” to 8–31— facilities.” Corey, 566 F.2d at 431; see also City of effectively forgiving the loans and transferring those New York v. Smokes–Spirits.com., Inc., 541 F.3d 425, 446 (2d assets from Knoedler to 8–31. (Am. Cmplt. (Howard Cir.2008), rev'd and remanded on other grounds sub. nom. Dkt. 179) ¶¶ 251–54) Hemi Grp., LLC v. City of New York, 559 U.S. 1, 130 These pleaded facts are sufficient to create a plausible S.Ct. 983, 175 L.Ed.2d 943 (2010); United States v. Fasciana, inference that Hammer participated in the operation and 226 F.Supp.2d 445, 452 (S.D.N.Y.2002) (“In order to prove management of the alleged RICO enterprise, that he exercised wire fraud under 18 U.S.C. § 1343, [one] must prove a some degree of control over *408 the RICO enterprise, and defendant was one of the participants in a fraudulent scheme that he knew of its fraudulent objective. which was furthered by the use of interstate transmission facilities.”).

2. Predicate Acts Here, Plaintiffs have pleaded facts demonstrating that Hammer participated in a fraudulent scheme to sell forged [6] The De Sole and Howard Plaintiffs have alleged artwork through his privately-owned art gallery—a scheme predicate acts of mail and wire fraud, in violation of 18 which was furthered by the use of interstate mails and wires. Accordingly, Plaintiffs have pleaded sufficient facts to satisfy U.S.C. §§ 1341 and 1343. In addition, Howard alleges the predicate act requirement. false labeling of visual art, in violation of 18 U.S.C. § 2318, as a predicate act. Hammer argues, however, that Plaintiffs have not alleged that Hammer committed a predicate act and, in particular, have not alleged that “Hammer used the 3. Causation mail or the wires for the purpose of executing the alleged scheme.” (Hammer Br. (De Sole Dkt. No. 214) at 16–17; [7] Hammer also argues that he did not cause Plaintiffs any Hammer Reply Br. (De Sole Dkt. No 240) at 29–31; Hammer injury. (Hammer Br. (De Sole Dkt. No. 214) at 9–16) To state a civil RICO claim, a plaintiff is required to show that Br. (Howard Dkt. No. 267) at 17–19) a RICO predicate offense “not only was a ‘but for’ cause of The Second Circuit has held, however, that “[t]o prove a his injury, but was the proximate cause as well.” Holmes v. violation of 18 U.S.C. § 1341, [one] need only show Sec. Investor Prot. Corp., 503 U.S. 258, 268, 112 S.Ct. 1311, that a defendant was one of the participants in a scheme to 117 L.Ed.2d 532 (1992). Proximate cause for RICO purposes defraud, and that the mails were used in furtherance of that requires “some direct relation between the injury asserted and the injurious conduct alleged.” Id. scheme.” United States v. Corey, 566 F.2d 429, 431 (2d Cir.1977); see also Chanayil v. Gulati, 169 F.3d 168, 170– [8] Here, Plaintiffs have alleged sufficient facts to 71 (2d Cir.1999) (“The elements of mail ... fraud include demonstrate that they suffered an injury as a result of (1) the existence of a scheme to defraud, (2) the defendant's Hammer's actions in connection with the alleged racketeering knowing participation in the scheme, and (3) the use of ... enterprise. As discussed above, “but for” Hammer's mail ... communications in interstate commerce in furtherance management of Knoedler—including his decision to permit of the scheme.”); Blue Cross and Blue Shield of New Knoedler to be used for the purpose of *409 selling the

Rosales Paintings, paintings that Hammer had reason to [10] Hammer argues that Plaintiffs' RICO conspiracy claims believe were not authentic—neither the De Soles nor Howard must be dismissed because they have failed to plead facts would have suffered the injuries they allege. Indeed, Plaintiffs demonstrating that (1) he agreed to commit a predicate act; or allege that Knoedler's “preeminent” and “impeccable” 165– (2) knew about or took steps to participate in a scheme to sell year–old reputation was a central factor in their decisions to forged artwork. (Hammer Br. (De Sole Dkt. No. 214) at 18; purchase the works. (SAC (De Sole Dkt. No. 118) ¶¶ 2–3, 92, Hammer Reply Br. (De Sole Dkt. No. 240) at 37; Hammer Br. 188; Am. Cmplt. (Howard Dkt. No. 179) ¶¶ 202, 313) (Howard Dkt. No. 267) at 19; Hammer Reply Br. (Howard Dkt. No. 302) at 37) * * * [11] A plaintiff bringing a RICO conspiracy claim is The De Sole SAC and Howard's Amended Complaint allege not required to demonstrate that the defendant agreed to sufficient facts to demonstrate that Hammer “conduct[ed] or commit any predicate act, however. Instead, plaintiff need participate[d], directly or indirectly, in the conduct of [the only plead facts demonstrating that the defendant agreed alleged] enterprise's affairs through a pattern of racketeering to join an enterprise with knowledge that predicate acts would be committed by some member of the enterprise. activity.” 18 U.S.C. § 1962(c). Accordingly, Hammer's See Pizzonia, 577 F.3d at 463; see also Fertitta v. Knoedler motion to dismiss Plaintiffs' substantive RICO claim is Gallery, LLC, No. 14 Civ. 2259(JPO), 2015 WL 374968, denied. at *6 (S.D.N.Y. Jan. 29, 2015). Moreover, as to Hammer's argument that Plaintiffs have not pled facts demonstrating III. RICO CONSPIRACY CLAIM that he knew about, or took steps to participate in a scheme to sell forged artwork, this Court concluded above—in A. Applicable Law discussing Plaintiffs' substantive RICO claim—that Plaintiffs [9] Section 1962(d) prohibits any person from conspiring had pled facts sufficient to demonstrate that Hammer knew to violate any of the substantive provisions of subsections of the fraudulent scheme and participated in it through his management of Knoedler and interactions with Freedman. § 1962(a)- (c). A plaintiff bringing a RICO conspiracy claim must demonstrate that the defendant agreed to Plaintiffs' factual allegations are sufficient to make out a participate “ ‘in a charged enterprise's affairs' through a RICO conspiracy claim *410 against Hammer. Hammer's pattern of racketeering, ‘not a conspiracy to commit predicate motion to dismiss this claim is denied. acts.’ ” United States v. Pizzonia, 577 F.3d 455, 463 (2d Cir.2009) (quoting United States v. Persico, 832 F.2d 705, IV. FRAUDULENT CONCEALMENT 713 (2d Cir.1987)). The Reves “operation or management” Hammer has moved to dismiss Howard's fraudulent test, however, does not apply to RICO conspiracy. Id. at 462 n. concealment claim. (Hammer Br. (Howard Dkt. No. 267) at 4. “Assuming that a RICO enterprise exists, [one] must prove 23) only that the defendant[ ] ... know[s] the general nature of the conspiracy and that the conspiracy extends beyond [his] individual role[ ].” United States v. Zichettello, 208 F.3d A. Applicable Law 72, 99 (2d Cir.2000) (internal quotation marks and citations [12] “The elements of a fraudulent concealment claim under New York law are: (1) a duty to disclose material facts; (2) omitted); see also Salinas v. United States, 522 U.S. 52, knowledge of material facts by a party bound to make such 64, 118 S.Ct. 469, 139 L.Ed.2d 352 (1997) (“A person ... may disclosures; (3) failure to discharge a duty to disclose; (4) be liable for [RICO] conspiracy even though he was incapable scienter; (5) reliance; and (6) damages.” Woods v. Maytag of committing the substantive offense.”); United States v. Yannotti, 541 F.3d 112, 122 (2d Cir.2008) ( “[D]efendant need Co., 807 F.Supp.2d 112, 124(E.D.N.Y.2011) (citing Aetna only know of, and agree to, the general criminal objective of Cas. & Sur. Co. v. Aniero Concrete Co., Inc., 404 F.3d 566, a jointly undertaken scheme.”). 582 (2d Cir.2005)); see also Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir.1993) (New York recognizes a duty to disclose by a party to a business transaction in B. Analysis three situations: “first, where the party has made a partial

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 19 De Sole v. Knoedler Gallery, LLC, 137 F.Supp.3d 387 (2015) or ambiguous statement ... second, when the parties stand Defendants' motion regarding these ... claims”); Bonilla v. in a fiduciary or confidential relationship with each other ... Smithfield Assoc. LLC, No. 09 Civ. 1549(DC), 2009 WL and third, ‘where one party possesses superior knowledge, 4457304, at *4 (S.D.N.Y. Dec. 4, 2009) (dismissing claims as not readily available to the other, and knows that the other abandoned where plaintiff “fail[ed] to respond” to defendants' is acting on the basis of mistaken knowledge.’ ”) (citations arguments). Accordingly, Hammer's motion to dismiss *411 omitted). Howard's fraudulent concealment claim is granted. 19

With respect to the duty to disclose, “New York recognizes a cause of action to recover damages for fraud based on V. AIDING AND ABETTING FRAUD concealment, where the party to be charged has superior Hammer has moved to dismiss the aiding and abetting fraud knowledge or means of knowledge, such that the transaction claims alleged by the De Soles and Howard. (Hammer Br. (De Sole Dkt. No. 214) at 4–9; Hammer Br. (Howard Dkt. No. without disclosure is rendered inherently unfair.” Miele 267) at 4–9) v. Am. Tobacco Co., 2 A.D.3d 799, 803, 770 N.Y.S.2d 386 (2d Dep't 2003) (citations omitted); see also Abrams v. Gen. Motors Corp., 120 Misc.2d 371, 374, 466 N.Y.S.2d 124 A. Applicable Law (Sup.Ct.N.Y.Cty.1983) (“If one party has superior knowledge [14] [15] Aiding and abetting fraud has three elements: or has means of knowledge not available to both parties, “ ‘(1) that an independent wrong exist[s]; (2) that the aider then he is under a legal obligation to speak and silence or abettor know[s] of that wrong's existence; and (3) that would constitute fraud.”) (citations omitted); Nasaba Corp. substantial assistance be given in effecting that wrong.’ v. Harfred Realty Corp., 287 N.Y. 290, 295, 39 N.E.2d 243 ” Adelphia Recovery Trust v. Bank of Am., N.A., 624 (1942) ( “Concealment with intent to defraud of facts which one is duty-bound in honesty to disclose is of the same legal F.Supp.2d 292, 312 (S.D.N.Y.2009) (quoting Landy v. Fed. effect and significance as affirmative misrepresentations of Deposit Ins. Corp., 486 F.2d 139, 162–163 (3d Cir.1973)). fact.”). To meet Rule 9(b) pleading requirements, “ ‘a claim for aiding and abetting fraud requires plaintiff to plead facts showing [ ] the existence of a fraud, defendant's knowledge B. Analysis of the fraud, and that the defendant provided substantial [13] The Howard Amended Complaint alleges that Hammer assistance to advance the fraud's commission.’ ” Adelphia is liable for fraudulent concealment because he was effectively the beneficial owner and controlling member of Recovery Trust, 624 F.Supp.2d at 312 (quoting Wight v. Knoedler, had actual knowledge of the alleged fraud, and BankAmerica Corp., 219 F.3d 79, 91 (2d Cir.2000)). directed many of Knoedler's acts of fraud and concealment. (Am. Cmplt. (Howard Dkt. 179) ¶ 325) B. Analysis Hammer argues that Howard's fraudulent concealment claim must be dismissed because Howard has not pled facts 1. The De Soles' Aiding and Abetting Fraud Claim demonstrating that Hammer (1) made a “a partial or ambiguous statement” to Howard; (2) “possessed superior [16] [17] Hammer argues that the De Sole Plaintiffs have knowledge” not readily available to Howard; and (3) had a not alleged “facts showing that Mr. Hammer had actual relationship with Howard or Frankfurt, and therefore had a knowledge of the purported fraud.” (Hammer Br. (De Sole duty to disclose. (Hammer Br. (Howard Dkt. No. 267) at 23) Dkt. No. 214) at 4) To survive a motion to dismiss, a complaint must allege “actual knowledge of fraud with the Howard has offered no factual or legal argument in opposition particularity necessary to survive the heightened pleading to Hammer's motion. See Pltf. Br. (Howard Dkt. No. 292) at requirements of Federal Rule of Civil Procedure 9(b).” 50–125. Under these circumstances, dismissal is appropriate. Lerner, 459 F.3d at 292–93. “[U]nder New York law, a See, e.g., Brandon v. City of New York, 705 F.Supp.2d complaint adequately alleges the knowledge element of an 261, 268 (S.D.N.Y.2010) (dismissing claims as abandoned aiding and abetting claim when it pleads ‘not ... constructive where plaintiff “did not raise any arguments opposing knowledge, but actual knowledge of the fraud as discerned from the surrounding circumstances.’ ” Krys v. Pigott, 749

act when required to do so enables [the fraud] to proceed.’ F.3d 117, 127 (2d Cir.2014) (quoting Oster v. Kirschner, 77 A.D.3d 51, 56, 905 N.Y.S.2d 69 (1st Dep't 2010)). ” JP Morgan Chase Bank v. Winnick, 406 F.Supp.2d 247, 256 (S.D.N.Y.2005) (quoting Nigerian Nat'l Petroleum Here, the De Sole Plaintiffs have set forth numerous Corp. v. Citibank, N.A., No. 98 Civ. 4960(MBM), 1999 particularized allegations supporting an inference that WL 558141, at *8 (S.D.N.Y. July 30, 1999)). “Whether Hammer had actual knowledge of the purported fraud. These the assistance is substantial or not is measured, in turn, by allegations are essentially the same as those discussed above whether ‘the action of the aider and abettor proximately in connection with Plaintiffs' RICO claims. The De Sole caused the harm on which the primary liability is predicated.’ Plaintiffs have alleged, inter alia, that (1) Hammer regularly reviewed detailed information concerning Knoedler's sales, ” Id. (quoting In re WorldCom, Inc. Sec. Litig., 382 expenses, and profits—most of which, during the relevant F.Supp.2d 549, 560–61 (S.D.N.Y.2005)). period, flowed from the Rosales Paintings (SAC (De Sole Dkt. No. 118) ¶¶ 12, 43, 46–47, 107–08, 135, 147); (2) Here, the SAC alleges that Hammer provided substantial Hammer knew that the Rosales Paintings were “newly assistance by, inter alia, (1) allowing Freedman to use the discovered” and had unconfirmed provenances (id. ¶¶ 12(a), respected Knoedler name and platform to lure victims; (2) 47(a), 95); (3) Hammer read “very carefully” the IFAR incentivizing Freedman to sell more Rosales Paintings by report expressing severe skepticism regarding the authenticity repeatedly increasing her profit sharing percentage; (3) taking of one of the Rosales Paintings and chose not to inform action to conceal the fraud, including suppressing the IFAR Rosales Painting buyers of it (id. ¶¶ 12(e), 61, 148); (4) Report, firing Freedman, and misrepresenting the basis for her Hammer was told of each sale of a Rosales Painting and departure from Knoedler. (SAC (De Sole Dkt. No. 118) ¶¶ knew that the *412 mark-ups Knoedler was receiving were 131, 247) extraordinarily high compared to either Knoedler or industry norms (id. ¶¶ 12, 42–45, 211, 245, 257); and (5) Hammer fired Hammer argues that the allegation that he “allowed” Freedman after receiving a grand jury subpoena related to the Freedman to use Knoedler is inadequate to constitute Rosales Paintings, but told investors that she had decided to substantial assistance because it alleges only mere inaction. “resign.” (Id. ¶ ¶ 129–31, 277) (Hammer Br. (De Sole Dkt. No. 214) at 7–8 (citing Mazzaro de Abreu v. Bank of America Corp., 525 These allegations demonstrate far more than unwitting F.Supp.2d 381, 391 (S.D.N.Y.2007) ( “inaction is substantial oversight. They suggest that Hammer knew a combination of assistance only when the defendant owes a fiduciary duty facts from which the fraud would have been obvious. Hammer directly to the plaintiff”) (internal quotation marks and knew that the Rosales Paintings were of unconfirmed citations omitted))) Hammer discussed every sale of a Rosales provenance, and that one of them had all but been deemed Painting with Freedman, however, and his decision to permit a forgery. He also knew that the Rosales Paintings were Freedman to use the Knoedler platform to sell the Rosales being purchased by Knoedler at incredibly low prices Paintings was a critical aspect of the alleged fraud scheme. compared to what the gallery ultimately sold them for. Further Knoedler's standing as the oldest and most prominent art strengthening the inference of his knowledge, Hammer dealer in New York City facilitated the selling of paintings allegedly directed the suppression of the IFAR report— that lacked sufficient provenance. (SAC (De Sole Dkt. which might have undermined sales of the remaining Rosales No. 118) ¶¶ 1–3, 73, 145) The facts pleaded in the SAC Paintings—and, after an investigation began, Hammer lied also make clear that Hammer was not a passive overseer to investors about the reason Freedman—who had purchased of Knoedler. The De Sole Plaintiffs allege that Hammer the suspect art—had left Knoedler. Taken together, these directly managed Knoedler's operations, routinely reviewed allegations strongly support an inference that Hammer knew its financial condition—including all sales, expenses, and of the fraud at Knoedler. profits—and was responsible for determining the *413 compensation of Knoedler's officers, including Freedman. [18] Hammer argues, however, that the SAC does not plead (SAC (De Sole Dkt. No. 118) ¶¶ 12, 39, 47–48) In this facts demonstrating that he “provided ‘substantial assistance’ regard, the SAC alleges that Hammer repeatedly increased to the fraud.” (Hammer Br. (De Sole Dkt. No. 214) at 7) Freedman's profit share, thus incentivizing her to sell more “ ‘A defendant provides substantial assistance only if [he] Rosales Paintings at the gallery, given that nearly all of the affirmatively assists, helps conceal, or by virtue of failing to gallery's profits were attributable to the Rosales Paintings. (Id.

¶¶ 48, 123, 134–35, 146, 247) Hammer also played a critical provided substantial assistance to the fraud by (1) allowing role in determining Knoedler's response to the IFAR report, Freedman to use the Knoedler name and platform to lure including the dissemination of the report. (Id. ¶¶ 12, 59–61, victims (Am. Cmplt. (Howard Dkt. 179) ¶¶ 1–2, 25); (2) 148, 245) incentivizing Freedman to sell more Rosales Paintings by increasing her profit sharing percentage (id. ¶ 120); (3) Hammer also argues that his alleged concealment of the fraud taking action to conceal the fraud, including deciding not to does not constitute “substantial assistance,” because the SAC share the IFAR report with Rosales Painting buyers, firing alleges no more than mere inaction. (Hammer Br. (De Sole Freedman, and misrepresenting the basis for her departure Dkt. No. 214) at 8) The SAC alleges more than mere inaction, from Knoedler. (Id. ¶¶ 91, 121–24, 127, 237) Accordingly however. With knowledge that the provenance of one of the —for the same reasons as discussed above with respect paintings that Rosales had brought to the gallery could not be to the De Sole SAC—the Howard Amended Complaint verified, Hammer decided that Knoedler would continue to contains sufficient allegations *414 that Hammer provided sell Rosales Paintings, and that buyers would not be told of substantial assistance to the fraud. the IFAR report's conclusions. Hammer's firing of Freedman, and alleged misrepresentations concerning the reasons for her Hammer's motion to dismiss Howard's aiding and abetting departure from Knoedler, could also be regarded as attempts fraud claim is denied. to conceal the fraud. 20

VI. CONSPIRACY TO COMMIT FRAUD Hammer's motion to dismiss the De Soles' aiding and abetting Hammer has moved to dismiss the fraud conspiracy claims fraud claim is denied. alleged by the De Soles and Howard. (Hammer Br. (De Sole Dkt. No. 214) at 18–21; Hammer Br. (Howard Dkt. No. 267) at 20–22) 2. Howard's Aiding and Abetting Fraud Claim

Hammer has also moved to dismiss Howard's aiding and A. Applicable Law abetting fraud claim, arguing that Howard has not alleged [19] “To make a prima facie factual showing of a “facts showing that Mr. Hammer had actual knowledge of conspiracy, ‘a plaintiff must allege the primary tort[—here, the purported fraud.” (Hammer Br. (Howard Dkt. No. 267) fraud—]and four elements: (a) a corrupt agreement between at 4) Howard's Amended Complaint contains essentially two or more persons, (b) an overt act in furtherance of the same allegations concerning Hammer's knowledge as the agreement, (c) the parties' intentional participation in described above with respect to the De Sole Plaintiffs' aiding the furtherance of a plan or purpose, and (d) the resulting and abetting claim. See Am. Cmplt. (Howard Dkt. 179) damage or injury.’ ” In re Sumitomo Copper Litig., 120 ¶¶ 27, 231 (Hammer regularly reviewed detailed financial reports); id. ¶¶ 27, 232, 240 (Hammer was aware of the F.Supp.2d 328, 339 (S.D.N.Y.2000) (quoting Chrysler unconfirmed provenances); id. ¶¶ 88–89, 91 (Hammer read Capital Corp. v. Century Power Corp., 778 F.Supp. 1260, the IFAR report); id. ¶¶ 27, 136 (Hammer knew the mark- 1267 (S.D.N.Y.1991)); see also Kashi v. Gratsos, 790 F.2d ups were extraordinary); id. ¶¶ 121–24, 127, 237 (Hammer 1050, 1055 (2d Cir.1986). fired Freedman after the grand jury subpoena). Accordingly, for the same reasons discussed above in connection with the De Soles' aiding and abetting claim, Howard's Amended B. Analysis Complaint pleads sufficient facts to create a strong inference [20] Hammer argues that the fraud conspiracy claims of Hammer's actual knowledge that the Rosales Paintings brought by the De Soles and Howard must be dismissed were not authentic and that the sales of these paintings were because their complaints (1) do not allege any facts that fraudulent. suggest that Hammer entered into an agreement to defraud Plaintiffs; (2) allege that Hammer did not become aware of the The Howard Amended Complaint also contains similar fraud until years after the scheme began, and it is not plausible allegations to the De Soles' with respect to Hammer's that he joined the conspiracy later; and (3) do not allege that “substantial assistance” to the fraud scheme. Just as in the Hammer actually knew that the information provided to the De Sole SAC, the Amended Complaint alleges that Hammer De Soles and Howard was false or misleading. (Hammer Br.

(De Sole Dkt. No. 214) at 18–21; Howard Br. (Howard Dkt. No. 267) at 20–22) VII. ALTER EGO Hammer has moved to dismiss Plaintiffs' claims to the extent For the reasons discussed above, this Court finds that the De those claims are based on the theory that he is the alter ego Soles' SAC and Howard's Amended Complaint allege facts of Knoedler. (Hammer Br. (De Sole Dkt. No. 214) at 21– that create a strong inference of Hammer's actual knowledge 22; Hammer Br. (Howard Dkt. No. 267) at 24–25) Neither that the Rosales Paintings were not authentic, and that the Howard nor the De Sole Plaintiffs have offered a factual or legal argument in opposition to Hammer's motion. See sales of those paintings were fraudulent. 21 In addition, Pltf. Br. (Howard Dkt. No. 292) at 177–98; Pltf. Br. (De both the De Soles' SAC and Howard's Amended Complaint Sole Dkt. No. 231) at 177–99. Under these circumstances, adequately allege that Hammer intentionally entered into a corrupt agreement with Freedman to sell paintings that dismissal is appropriate. See, e.g., Brandon, 705 F.Supp.2d at 268 (dismissing claims as abandoned where plaintiff were not authentic. See Eaves v. Designs for Fin., Inc., “did not raise any arguments opposing Defendants' motion 785 F.Supp.2d 229, 257–58 (S.D.N.Y.2011) (“allegations of regarding these ... claims”); Bonilla, 2009 WL 4457304, at *4 ‘intimate business relationship between’ defendant and third- (dismissing claims as abandoned where plaintiff “fail[ed] to party, ‘[defendant's] knowledge of [third party's] unlawful respond” to defendants' arguments). acts,’ and fraudulent misrepresentations ‘constitute sufficient facts from which a trier of fact could infer an agreement’ [21] Even if Plaintiffs' alter ego claims against Hammer had ”) (quoting First Fed. Sav. & Loan Ass'n of Pittsburgh not been abandoned, dismissal would be appropriate because v. Oppenheim, Appel, Dixon & Co., 629 F.Supp. 427, 444 Plaintiffs have not sufficiently alleged an alter ego claim (S.D.N.Y.1986)). *415 Finally, both the De Soles' SAC against Hammer. To establish Hammer's liability as an alter and Howard's Amended Complaint allege overt acts in ego of Knoedler, Plaintiffs must allege that “(1) ... [Hammer furtherance of the conspiracy to sell forged paintings to the and Knoedler] operated as a single economic entity, and (2) ... De Soles and Howard, and injuries suffered by these plaintiffs there was an overall element of injustice or unfairness” in as a result of the fraud conspiracy. See, e.g., SAC (De Sole Defendants' use of the corporate form. NetJets Aviation, Dkt. No. 118) ¶¶ 2–4; Am. Cmplt. (Howard Dkt. No. 179) ¶¶ Inc. v. LHC Commc'ns, LLC, 537 F.3d 168, 177 (2d Cir.2008). 2, 4–6, 16–17; see also Chrysler Capital Corp. v. Century Plaintiffs' alter ego allegations concern almost exclusively 8– Power Corp., 778 F.Supp. 1260, 1267 (S.D.N.Y.1991) (fraud 31's relationship with Knoedler, however. See Am. Cmplt. conspiracy requires “at least one overt act by one of the (Howard Dkt. No. 179) ¶¶ 241–58; SAC (De Sole Dkt. No. conspirators in furtherance of the unlawful plan”). In short, 118) ¶¶ 162–80. With respect to Hammer, Plaintiffs make the fraud conspiracy claims of the De Sole Plaintiffs and only the conclusory allegations that Hammer “dominat[ed]” Howard are adequately pled. Knoedler and that Hammer “ignored the formal corporate distinctions” between himself and Knoedler. (Am. Cmplt. Hammer argues that, according to the De Soles' SAC and (Howard Dkt. No. 179) ¶¶ 241, 258; SAC (De Sole Dkt. Howard's Amended Complaint, he did not become aware of No. 118) ¶¶ 162, 180) Such vague and conclusory assertions the purported fraud until years after the fraudulent scheme are wholly insufficient to establish the prerequisites for veil began, and it is not plausible that he joined the conspiracy piercing. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (complaint later. (Hammer Br. (De Sole Dkt. No. 214) at 19–20; Hammer is inadequately pled “if it tenders ‘naked assertion[s]’ devoid Br. (Howard Dkt. No. 267) at 21) Assuming arguendo that Hammer was not aware of the fraud scheme at the outset, of ‘further factual enhancement’ ” (quoting Twombly, 550 Plaintiffs' complaints adequately plead that he became aware U.S. at 557, 127 S.Ct. 1955)). Accordingly, dismissal is that the Rosales Paintings were not authentic, and that he appropriate on these grounds as well. nonetheless permitted Freedman to use Knoedler to market and sell these forged paintings. *416 Hammer's motion to dismiss Howard and the De Soles' alter ego claims is granted. Accordingly, Hammer's motions to dismiss Plaintiffs' fraud conspiracy claims is denied. VIII. RESPONDEAT SUPERIOR

8–31 has moved to dismiss Plaintiffs' claims to the extent omitted). “ ‘An employer will not be held liable under [the those claims are based on a theory of respondeat superior. (8– doctrine of respondeat superior] for actions which were not 31 Br. (De Sole Dkt. No. 216) at 6–8; 8–31 Br. (Howard Dkt. taken in furtherance of the employer's interest and which were No. 265) at 6–8) undertaken by the employee for wholly personal motives.’ ” Doe, 12 F.Supp.3d at 677 (quoting Galvani v. Nassau A. Applicable Law Cty. Police Indemnification Review Bd., 242 A.D.2d 64, 68, [22] “Under the [New York] common law doctrine of 674 N.Y.S.2d 690 (2d Dep't 1998)) (alteration in original). respondeat superior, an employer may be held liable for the tortious acts of an employee committed within the scope B. Analysis of his employment.” Abdelhamid v. Altria Grp., Inc., 515 F.Supp.2d 384, 394 (S.D.N.Y.2007); see also Nerey 1. The De Soles' Claims Against 8–31 v. Greenpoint Mortgage Funding, Inc., 116 A.D.3d 1015, 1016, 985 N.Y.S.2d 252 (2d Dep't 2014) (“Pursuant to the The SAC asserts claims of fraud and fraudulent concealment doctrine of respondeat superior, an employer is vicariously against 8–31 on a respondeat superior theory. (SAC (De Sole liable for torts committed by an employee within the scope of Dkt. No. 118) ¶¶ 192, 202) The SAC also alleges that 8–31 employment and in furtherance of the employer's business.”); is liable for Glidepath Holding B.V. v. Spherion Corp., 590 F.Supp.2d 1. “Hammer's conduct in aiding and abetting [ ] fraud[,] 435, 453 (S.D.N.Y.2007) (“It is black-letter agency law in because Hammer participated in the racketeering scheme New York that an employer is liable for the representations in his capacity as the President of 8–31”; of its agents when those representations are made within the scope of the agent's employment.”) (citing 2A N.Y.Jur.2d 2. “Andrade's conduct in aiding and abetting [ ] fraud under Agency & Indep. Contractors § 290 (2007)); Bektic– the doctrine of respondeat superior ”; and Marrero v. Goldberg, 850 F.Supp.2d 418, 434 (S.D.N.Y.2012) *417 3. Hammer's, Freedman's, and Andrade's conspiring (“ ‘The doctrine of respondeat superior renders a master to commit fraud under the doctrine of respondeat vicariously liable for a tort committed by his servant while superior and as the alter ego of Knoedler. acting within the scope of his employment.’ ”) (quoting Dilworth v. Goldberg, No. 10 Civ. 2224(RJH)(GWG), (Id. ¶¶ 251–52, 262) 8–31 moves to dismiss these claims to 2011 WL 3501869, at *29 (S.D.N.Y. July 28, 2011) report the extent they are based on a theory of respondeat superior. and recommendation adopted, No. 10 Civ. 2224(RJH), 2011 (8–31 Br. (De Sole Dkt. No. 216) at 1, 3) WL 4526555 (S.D.N.Y. Sept. 30, 2011)) (internal quotation marks and citation omitted). [25] As to the fraud and fraudulent concealment claims, the SAC does not specify whether 8–31 is liable for Knoedler's [23] [24] “To state [a] claim for respondeat superior, conduct, Freedman's conduct, or both. See SAC (De Sole Dkt. a plaintiff must plead facts showing, among other things, No. 118) ¶¶ 192, 202 (“8–31 is liable as Knoedler's alter that the tortious conduct causing the injury was undertaken ego and under the doctrine of respondeat superior.”). To the within the scope of the employee's duties to the employer extent that the De Soles are claiming that 8–31 is liable for and was thus in furtherance of the employer's interests.” fraud and fraudulent concealment as a result of the acts of Knoedler—on a theory of respondeat superior—those claims Doe v. Alsaud, 12 F.Supp.3d 674, 677 (S.D.N.Y.2014). “ are not viable. Knoedler is a subsidiary of 8–31 (id. ¶ 17), ‘An employee's actions fall within the scope of employment and the doctrine of respondeat superior “does not render where the purpose in performing such actions is to further a parent company liable for the conduct of a subsidiary.” the employer's interest, or to carry out duties incumbent upon the employee in furthering the employer's business.’ Abdelhamid, 515 F.Supp.2d at 394. Accordingly, to the extent that the SAC's fraud and fraudulent concealment ” Guzman v. United States, No. 11 Civ. 5834(JPO), claims against 8–31 are premised on the notion that 8–31 is 2013 WL 543343, at *9 (S.D.N.Y. Feb. 14, 2013) (quoting liable for Knoedler's actions under the doctrine of respondeat Beauchamp v. City of New York, 3 A.D.3d 465, 466, 771 superior, those claims are dismissed. N.Y.S.2d 129 (2d Dep't 2004)) (internal quotation marks

8–31 further argues that it cannot be held liable for the 244, 248) The SAC claims that Andrade's participation in actions of Hammer, Andrade, or Freedman under the doctrine the alleged racketeering scheme was within the scope of his of respondeat superior. (8–31 Br. (De Sole Dkt. No. 216) employment at 8–31. (Id. ¶ 212) at 3, 5–7) In this regard, 8–31 contends that it is not the employer of any Knoedler employee, and pays employment 8–31 contends that “ ‘a strong presumption [exists] that a taxes for Knoedler employees merely because Knoedler is a parent corporation is not the employer of its subsidiary's disregarded entity for income tax purposes. 22 (Id. at 5–6) employees,’ ” and that nothing in the SAC overcomes this presumption. (8–31 Br. (De Sole Dkt. No. 216) at 5 (quoting [26] “The key element of respondeat superior ... is an Lusk v. Foxmeyer Health Corp., 129 F.3d 773, 778 (5th employment relationship between the alleged tortfeasor and Cir.1997))) It is not necessary to resolve this issue at this the party that the plaintiff is seeking to hold vicariously stage of the case, however, because the SAC alleges both liable.” Abdelhamid, 515 F.Supp.2d at 398. “ ‘The respondeat superior and alter ego theories of liability against determination of whether an employer-employee relationship 8–31, and 8–31 has not contested the alter ego allegations in exists turns on whether the alleged employer exercises control its motion to dismiss. The alter ego allegations and the other over the results produced, or the means used to achieve facts pled in the SAC are more than sufficient at this stage for the results. Control over the means is the more important this Court to conclude that the SAC has plausibly alleged that consideration.’ ” Chuchuca v. Chuchuca, 67 A.D.3d 948, 950, Freedman and Andrade were employees of 8–31.

890 N.Y.S.2d 573 (2nd Dep't 2009) (quoting Abouzeid v. [28] [29] 8–31 argues, however, that Freedman and Grgas, 295 A.D.2d 376, 377, 743 N.Y.S.2d 165 (2nd Dep't Andrade's actions were not within the scope of their 2002)). employment at 8–31. 23 (8–31 Br. (De Sole Dkt. No. 216) at 7) Courts consider the following factors in determining [27] Here, Hammer is the president and sole owner of 8– whether an employee's actions are within the scope of his 31 (SAC (De Sole Dkt. 118) ¶¶ 12, 16–17, 19, 147, 167) employment: He received a $400,000 salary from 8–31, and regularly attended 8–31 board meetings. (Id. ¶ 147) The SAC alleges that Hammer's actions—as described in the SAC—“were “the connection between the time, place and occasion for taken in his capacity as the President of 8–31.” (Id. ¶ 19) The the act; the history of the relationship between employer SAC plausibly alleges that Hammer is 8–31's employee. and employee as spelled out in actual practice; whether the act is one commonly done by such an employee; the extent The SAC further alleges that 8–31 employed Freedman, of departure from normal methods of performance; and paid Freedman, and provided her with W–2 forms. (Id. ¶¶ whether the specific act was one that the employer could 17, 20, 48) All of Freedman's compensation, including her reasonably have anticipated.” incentive compensation, was paid by 8–31, and Freedman Sgaliordich v. Lloyd's Asset Mgmt., No. 10 Civ. was a director of 8–31 between 2001 and October 2009. 03669(ERK), 2011 WL 441705, at *3–4 (E.D.N.Y. Feb. 8, (Id. ¶¶ 20, 48, 167) Freedman and Knoedler—one of 8– 31's principal subsidiaries—sold the Rosales Paintings and, in 2011) (quoting Riviello v. Waldron, 47 N.Y.2d 297, 303, *418 doing so, reaped “tremendous profits” for Freedman, 418 N.Y.S.2d 300, 391 N.E.2d 1278 (1979)). Knoedler, Hammer, and 8–31. (Id. ¶¶ 151, 162) The acts that Freedman and Andrade are alleged to have engaged in were well within the scope of their employment. The SAC further alleges that Andrade was an employee Freedman's primary function at Knoedler was to sell paintings of both Knoedler and 8–31, and that, at all relevant times, at a profit, and in allegedly selling numerous forged art Andrade received paychecks and W–2 forms from 8–31. (Id. works at Knoedler, Freedman was acting within the scope ¶¶ 17, 23, 28) The SAC alleges that Andrade introduced of her responsibilities. (SAC (De Sole Dkt. No. 118) ¶¶ Rosales to Knoedler and Freedman, participated in meetings 2–3, 30) Andrade was likewise acting within the scope of relating to the alleged RICO art fraud scheme, and provided his responsibilities when he allegedly (1) persuaded Rosales Freedman with the name of David Herbert—Andrade's to bring the Rosales Paintings to Knoedler; (2) introduced deceased friend and a major figure in the art world—in Rosales to Knoedler and Freedman; and (3) provided David furtherance of that fraudulent scheme. (Id. ¶¶ 10, 213, 226, Herbert's name to Freedman to use in furtherance of the

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 25 De Sole v. Knoedler Gallery, LLC, 137 F.Supp.3d 387 (2015) fraudulent scheme. (SAC (De Sole Dkt. No. 118) ¶¶ 10, and concealment, and had actual knowledge of the alleged 28, 117, 213, 244, 248) These acts—selling paintings and fraud.” (Am. Cmplt. (Howard Dkt. No. 179) ¶ 326) bringing paintings to Knoedler for sale at the gallery—were central to Freedman and Andrade's job functions. [31] Knoedler is a Delaware limited liability corporation and 8–31 is its sole member. (Id. ¶¶ 31, 32) “[T]he Delaware *419 [30] “An employer does not have to approve, or Limited Liability Company Act permits a member in an even be aware of, a representation made by an employee to LLC to be an active participant in management and still be liable for that representation.” Glidepath Holding, 590 to retain limited liability.” Great Lakes Chem. Corp. v. F.Supp.2d at 453. “An agent does not cease to act within Monsanto Co., 96 F.Supp.2d 376, 391–92 (D.Del.2000). his or her authority merely because the agent is engaged Indeed, Delaware law makes clear that, except as otherwise in a fraud upon a third person.” 2A N.Y. Jur.2d Agency & *420 provided elsewhere in the statute or by agreement, “no Indep. Contractors § 290. It is thus plausibly alleged that member or manager of a limited liability company shall be Freedman and Andrade's actions were “undertaken within obligated personally for any [ ] debt, obligation or liability the scope of the employee's duties to the employer and was of the limited liability company solely by reason of being a member or acting as a manager of the limited liability thus in furtherance of the employer's interests.” 24 Doe, 12 company.” 6 Del.Code Ann. § 18–303(a). Thus, to the extent F.Supp.3d at 677; see also U.S. Commodity Futures Trading the Amended Complaint asserts a fraudulent concealment Comm'n v. Byrnes, 58 F.Supp.3d 319, 329 (S.D.N.Y.2014) claim against 8–31 on the grounds that 8–31 is the beneficial (“Although the Employees' disclosures were inconsistent owner and controlling member of Knoedler, that claim will with their official duties and contrary to NYMEX policy, it is be dismissed. not unreasonable to infer from their alleged conduct that they thought they were advancing NYMEX's purposes.”). 8–31 has not disputed Howard's alter ego allegations, however, and those allegations are sufficient at this The De Sole Plaintiffs have plausibly alleged fraudulent stage to preserve Howard's fraudulent concealment claim concealment, aiding and abetting, and fraud conspiracy 25 against 8–31. 8–31's motion to dismiss Howard's fraudulent claims against 8–31. See Selechnik v. Law Office of concealment claim is denied. Howard R. Birnbach, 82 A.D.3d 1077, 1080, 920 N.Y.S.2d 128 (2d Dep't 2011). 8–31's motion to dismiss these claims is denied. b. Aiding and Abetting Fraud

The Amended Complaint alleges that “8–31 is liable for 2. Howard's Claims Against 8–31 Andrade's conduct in aiding and abetting [ ] fraud under the doctrine of respondeat superior,” and that “8–31 is 8–31 has moved to dismiss Howard's fraudulent concealment liable for Hammer's conduct in aiding and abetting the fraud 26 and aiding and abetting claims to the extent they (1) because Hammer participated in the racketeering scheme in are based on a theory of respondeat superior; and (2) his capacity as the President of 8–31.” (Am. Cmplt. (Howard “attempt[ ] to impose liability based on the fact that 8–31 is the Dkt. No. 179) ¶¶ 344–45) 8–31 moves to dismiss this claim, controlling member of Knoedler or [based on] allegations that arguing that it cannot be held liable for the actions of Andrade fail to meet the particularity requirement of Rule 9(b).” (8–31 or Hammer under the doctrine of respondeat superior. (8–31 Br. (Howard Dkt. No. 265) at 3) Br. (Howard Dkt. No. 265) at 6–8)

[32] As noted earlier, Howard has pled sufficient facts to demonstrate Hammer's knowing involvement in the a. Fraudulent Concealment fraud scheme. Moreover, the Amended Complaint plausibly The Amended Complaint alleges that “8–31 is liable alleges that Hammer was 8–31's employee, as he was 8– for fraudulent concealment because it was effectively the 31's president, received an annual salary of approximately beneficial owner and controlling member of Knoedler, was $400,000 from 8–31, and received expense reimbursements Knoedler's alter ego, directed many of the fraudulent activities for “travel and entertainment” from 8–31. (Am. Cmplt. (Howard Dkt. No. 179) ¶¶ 231, 246, 248, 255) Moreover,

Howard has plausibly alleged that Hammer's actions were private collector who obtained the taken in his capacity as president of 8–31 and within the scope [w]ork from de Kooning via David of his employment. Herbert; (3) the [w]ork came directly to Knoedler from an individual, As to Andrade, 8–31 again argues that it is not the employer of whom Knoedler and Freedman knew any Knoedler employee. (8–31 Br. (Howard Dkt. No. 265) at personally; and (4) the [w]ork was 5) It is not necessary for this Court to resolve the respondeat a “rare” and “distinctive” example superior issue at this time, however, because 8–31 has not of a de Kooning landscape and that challenged Howard's allegations demonstrating that 8–31 is it was of “impeccable” quality and Knoedler's alter ego. For reasons already discussed—based provenance. on the allegations of the Amended Complaint—there is no viable argument that Andrade was not acting within the scope of his employment at Knoedler. See Am. Cmplt. (Howard (Am. Cmplt. (Howard Dkt. No. 179) ¶ 355–57) Howard Dkt. No. 179) ¶¶ 269, 292, 338, 341. 8–31's motion to dismiss also alleges that “the representations concerning authenticity Howard's aiding and abetting fraud claim is denied. and provenance in the invoice by defendants (who are art merchants) to Howard (who is not) constitute express warranties under § 13.01 of the New York Arts and Cultural IX. BREACH OF WARRANTY Affairs Law.” (Id. ¶ 359) Knoedler has moved to dismiss Plaintiffs' breach of warranty claims. (Knoedler Br. (De Sole Dkt. No. 212) at 5–6, 10–12; Knoedler argues that Howard's breach of warranty claim must Knoedler Br. (Howard Dkt. No. 269) at 5–12) be dismissed because (1) it is untimely; and (2) Frankfurt is an “art merchant” who advised Howard in connection with this A. Howard's Breach of Warranty Claim Against purchase, and therefore no warranty claim lies. (Knoedler Br. Knoedler (Howard Dkt. No. 269) at 5–12; Knoedler Reply Br. (Howard [33] In the Amended Complaint, Howard alleges that Dkt. No. 303) at 3–15) Knoedler and Freedman's representations to him and Frankfurt constitute an express warranty under N.Y. U.C.C. Under Section 2–725(1) of New York's Uniform Commercial Code, an action for breach of warranty must be brought within § 2313(1) 27 and *421 § 13.01 of the New York Arts and four years of the date the cause of action accrues. N.Y. U.C.C. Cultural Affairs Law. (Am. Cmplt. (Howard Dkt. No. 179) § 2–725(1). Section 2–725(2) provides that ¶¶ 358–59) An express warranty is “[a]ny affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain.” N.Y. U.C.C. § 2–313(1)(a). “In order to demonstrate that an [a] breach of warranty occurs when express warranty was created under New York law, a plaintiff tender of delivery is made, except that ‘must prove that the statement falls within the definition of where a warranty explicitly extends to warranty, that she relied on it, and that it became part of the future performance of the goods and basis for the bargain.’ ” Kraft v. Staten Island Boat Sales, Inc., discovery of the breach must await the time of such performance the cause of 715 F.Supp.2d 464, 473 (S.D.N.Y.2010) (quoting Daley action accrues when the breach is or v. McNeil Consumer Prod., Co., 164 F.Supp.2d 367, 377 should have been discovered. (S.D.N.Y.2001)).

Howard alleges that Freedman and Knoedler made the N.Y. U.C.C. § 2–725(2). The statute further provides that “[a] following representations to him and Frankfurt: cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach.” Id. In sum, the plain language of the statute makes clear (1) the [w]ork was created by Willem that the statute of limitations generally begins to run “on de Kooning in 1956–57; (2) the [w]ork tender of delivery,” and that lack of knowledge of a defect was owned by the son of a Swiss has no effect on the running of the limitations period.

that plaintiff was unable, despite due diligence, to discover See Brady v. Lynes, No. 05 Civ. 6540(DAB), 2008 WL facts that would allow him to bring his claim in a timely 2276518, at *11 (S.D.N.Y. June 2, 2008) (argument that manner, or that defendant's actions induced plaintiff to *422 breach occurs upon discovery is “contrary to black letter law”); Morgan v. Abco Dealers, Inc., No. 01 Civ. refrain from commencing a timely action.” De Sole, 974 9564(PKL), 2007 WL 4358392, at *6 (S.D.N.Y. Dec. 11, F.Supp.2d at 318 (citing Statistical Phone Philly v. NYNEX 2007); Orlando v. Novurania of Am., Inc., 162 F.Supp.2d Corp., 116 F.Supp.2d 468, 482 (S.D.N.Y.2000)); see also 220, 224 (S.D.N.Y.2001). Marshall, 51 F.Supp.3d at 462 (plaintiff must show that “ ‘the defendant wrongfully concealed material facts,’ which In previously dismissing Howard's breach of warranty claim, ‘prevented plaintiff's discovery of the nature of the claim,’ this Court noted that it is undisputed that Howard purchased and that ‘plaintiff exercised due diligence in pursuing the the de Kooning painting from Knoedler and Freedman on discovery of the claim during the period plaintiff seeks to have June 13, 2007, and filed this action on July 6, 2012. De tolled’ ”) (quoting Koch v. Christie's Int'l PLC, 699 F.3d Sole v. Knoedler Gallery, LLC, 974 F.Supp.2d 274, 318 (S.D.N.Y.2013). Accordingly, Howard's breach of warranty 141, 157 (2d Cir.2012)); Abbas v. Dixon, 480 F.3d 636, claim is untimely unless the statute was extended for some 642 (2d Cir.2007) (“ ‘Due diligence on the part of the plaintiff reason. Id. Howard has not pointed to any provision in the in bringing [an] action,’ ... is an essential element of equitable New York U.C.C. that would have extended the limitations relief.”) (quoting Doe v. Holy See (State of Vatican City), 17 period. A.D.3d 793, 794, 793 N.Y.S.2d 565 (3rd Dep't 2005)).

[34] [35] Having concluded that the breach of warranty [37] [38] “ ‘When deciding whether to toll the running of claim is untimely, the Court must consider whether any the statute of limitations, the issue is not whether Plaintiff was equitable principle should be applied to preserve the claim. in possession of all of the information necessary to prevail Howard argues that the statute of limitations was equitably on his claims, but whether plaintiff had enough information tolled as a result of Knoedler's fraudulent concealment. (Am. to commence a lawsuit.’ ” De Sole, 974 F.Supp.2d Cmplt. (Howard Dkt. No. 179) ¶¶ 361–63; Howard Opp. Br. (Howard Dkt. No. 292) at 204–11) The doctrine of equitable at 318 (quoting Statler, 775 F.Supp.2d at 483). “To tolling applies where defendant's fraudulent conduct results allege fraudulent concealment sufficient to justify equitable tolling, ... a plaintiff must either plausibly allege ‘that the in plaintiff's lack of knowledge of a cause of action. 28 defendant took affirmative steps to prevent the plaintiff's Marshall v. Hyundai Motor Am., 51 F.Supp.3d 451, 462 discovery of his claim or injury or that the wrong itself was (S.D.N.Y.2014); see also Pearl v. City of Long Beach, 296 of such a nature as to be self-concealing.” Id. at 318–19 F.3d 76, 82 (2d Cir.2002); Fertitta, 2015 WL 374968, at *8 (quoting State of New York v. Hendrickson Bros., 840 F.2d (“The breach of warranty claim arises under New York law 1065, 1083 (2d Cir.1988)). In previously dismissing Howard's and, therefore, this Court applies both New York's statute of breach of warranty claim, this Court concluded that Howard limitations and its equitable *423 tolling doctrine.”) (citing had not pled facts demonstrating either that Knoedler “took Statistical Phone Philly, 116 F.Supp.2d at 482 (citation affirmative steps to prevent [his] discovery of his claim or omitted)); Access Northern Sec. Corp. v. Linear Corp., No. 97 injury or that the wrong itself was of such a nature as to be Civ. 2937(KMW), at *4–6, 1998 WL 566815 (S.D.N.Y. Sept. self-concealing.” Id. at 318–19. 4, 1998) (applying equitable tolling to a breach of warranty claim under N.Y. U.C.C. § 2–725); Statler, D.C. v. Dell, Howard now alleges that (1) “Knoedler intentionally Inc., 775 F.Supp.2d 474, 482–83 (E.D.N.Y.2011) (discussing concealed all information that would place a purchaser on equitable tolling in the context of a breach of warranty claim notice that there were serious concerns with the Rosales Collection works, including the FBI investigation and the under N.Y. U.C.C. § 2–725); Jackson v. Eddy's LI RV Ctr., Herrick Feinstein report that caused Knoedler to discontinue Inc., 845 F.Supp.2d 523, 531–33 (E.D.N.Y.2012) (same). sales of [such] works”; and (2) Hammer directed “Knoedler employees not [to] divulge any information that would lead [36] “For equitable tolling to apply, plaintiff must show purchasers to believe that there were problems with the works that the defendant wrongfully concealed its actions, such

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 28 De Sole v. Knoedler Gallery, LLC, 137 F.Supp.3d 387 (2015) they had purchased.” (Am. Cmplt. (Howard Dkt. No. 179) ¶¶ the circumstances surrounding Freedman's departure from 362, 364) Knoedler. 30 (Id. ¶¶ 363–64)

[39] To benefit from the equitable tolling doctrine under *425 In August 2009, Knoedler offered to sell a forged New York law, a “ ‘plaintiff[ ] [must] establish that subsequent Motherwell painting to Howard. Knoedler shipped the and specific actions [were taken by defendants, separate from painting to Frankfurt for delivery to Howard. (Am. Cmplt. those that provide the factual basis for the underlying cause (Howard Dkt. No. 179) ¶ 221) Freedman and Knoedler of action, and that these subsequent actions] by defendants represented to Frankfurt and Howard that this painting had the somehow kept [plaintiff] from timely bringing suit.’ ” 29 same provenance as the de Kooning Howard had previously purchased. (Id. ¶ 222) The Amended Complaint alleges, *424 Corsello v. Verizon New York, Inc., 18 N.Y.3d 777, however, that Freedman had “commissioned” Pei–Shen Qian 789, 944 N.Y.S.2d 732, 967 N.E.2d 1177 (2012) (quoting —the creator of the Rosales Paintings—to create a forged Zumpano v. Quinn, 6 N.Y.3d 666, 674, 816 N.Y.S.2d 703, Motherwell “for the purpose of inducing Howard to purchase 849 N.E.2d 926 (2006)); see also Ross v. Louise Wise it.” (Id. ¶¶ 43, 211, 215) Accordingly, the purpose of creating Services, Inc., 8 N.Y.3d 478, 491, 836 N.Y.S.2d 509, 868 the forged Motherwell was to make another sale to Howard, N.E.2d 189 (2007) (with respect to negligence and emotional not to conceal Knoedler's prior fraud in selling the alleged de distress claims, stating that “[f]or the [equitable estoppel] Kooning to Howard. Knoedler's attempted sale of a forged doctrine to apply, a plaintiff may not rely on the same Motherwell to Howard provides no basis for equitable tolling. act that forms the basis for the claim—the later fraudulent misrepresentation must be for the purpose of concealing the [40] As to Hammer's October 27, 2009 letter announcing Freedman's “resignation,” the Amended Complaint alleges former tort”); Keitt v. New York City, 882 F.Supp.2d 412, the following: 439 (S.D.N.Y.2011) (“New York law provides for equitable tolling where a defendant ‘wrongfully deceived or misled the 121. Upon information and belief, in or around 2009, plaintiff in order to conceal the existence of a cause of action.’ a grand jury was empaneled to investigate Freedman, Rosales, Knoedler and the Rosales Collection works. ”) (citation omitted); Kotlyarsky, 195 Misc.2d at 153, 757 In September 2009, the grand jury issued subpoenas to N.Y.S.2d 703 (“Equitable tolling ... is applicable where the Freedman and Knoedler seeking information [concerning defendant has wrongfully deceived or misled the plaintiff in the Rosales Paintings]. order to conceal the existence of a cause of action.”) (citations omitted). “[W]here the alleged concealment consisted of 122. Shortly after Knoedler received the grand jury nothing but defendants' failure to disclose the wrongs they had subpoena, Hammer fired Freedman. committed, [New York courts] have held that the defendants were not estopped from pleading a statute of limitations 123. Under Hammer's direction, Freedman's departure— defense.” Corsello, 18 N.Y.3d at 789, 944 N.Y.S.2d 732, which attracted significant press attention—was carefully 967 N.E.2d 1177. Because “mere silence or failure to disclose managed to ensure that no connection could be drawn between Freedman's supposed “resignation” and the the wrongdoing is insufficient,” De Sole, 974 F.Supp.2d at Rosales Collection works. 318, Howard's allegations that Knoedler did not disclose the FBI investigation and its lawyers' internal investigation—and 124. Hammer, in his role as Chairman of Knoedler, instructed its employees not to disclose information about art also sent letters to every Knoedler customer and contact works Knoedler had sold—are insufficient to justify equitable informing them of this personnel change without stating the tolling. truth, which as Freedman herself characterized it, was that she had been “kicked out.” In the Amended Complaint, however, Howard contends that Knoedler took affirmative steps to prevent Howard's 125. Even though press reports noted that Knoedler was discovery of his claim: (1) Knoedler continued to sell losing important artist clients as a result of Hammer's certain purported Robert Motherwell paintings supplied deliberate decision to leave the issue “murky,” Hammer by Rosales through 2009; and (2) on October 27, 2009, kept the real reasons for Freedman's termination quiet Hammer sent a letter to all Knoedler clients misrepresenting so that no one, including plaintiff and the other

victims, suspected that she had been “kicked out” in action, is an essential element when plaintiff seeks the shelter connection with the sales of questionable artworks from an of [the equitable estoppel] doctrine”), aff'd, 8 N.Y.3d 901, undocumented source. 834 N.Y.S.2d 74, 865 N.E.2d 1240 (2007); Twersky v. Yeshiva Univ., 993 F.Supp.2d 429, 442–43 (S.D.N.Y.2014) (“In order .... to invoke equitable estoppel, a plaintiff must also demonstrate reasonable reliance on the defendant's misrepresentations, 127. On October 27, 2009, Hammer sent a letter by mail and due diligence in bringing a claim when the conduct on Knoedler letterhead to all of Knoedler's clients. It relied upon as a basis for equitable estoppel ceases to be announced Freedman's “resignation,” but was silent about operational.”), aff'd 579 Fed.Appx. 7 (2d Cir.2014); Corp. the fact that she had been terminated, let alone the reason Trade, Inc. v. Golf Channel, No. 12 Civ. 8811(PKC), 2013 for her termination. The purpose of the letter was to inform WL 5375623, at *6 (S.D.N.Y. Sept. 24, 2013) (“ ‘Equitable clients—falsely—that all was well with Knoedler, and estoppel is appropriate where the plaintiff is prevented from concluded by stating that Hammer “very much look[ed] filing an action within the applicable statute of limitations forward to the continuance *426 of our much-valued due to his or her reasonable reliance on deception, fraud or relationship with you.” misrepresentations by the defendant.’ ”) (quoting Putter v. N. (Am. Cmplt. (Howard Dkt. No. 179) ¶¶ 121–25, 127) Shore Univ. Hosp., 7 N.Y.3d 548, 552, 825 N.Y.S.2d 435, 858 N.E.2d 1140 (2006)). [41] Hammer's alleged misrepresentations concerning the circumstances of, and reasons for, Freedman's departure can Because Howard has not alleged that he saw Hammer's plausibly be read as an attempt to prevent discovery of October 27, 2009 letter, much less that he relied on it, there the fraud scheme. Howard has not alleged that he saw the is no basis to apply equitable tolling. Howard's breach of letter, however, much less that he relied on it. Reasonable warranty claim against Knoedler is dismissed. reliance on a defendant's misrepresentations is a required element for invoking equitable tolling. See Zumpano v. B. The De Soles' Breach of Warranty Claim Against Quinn, 6 N.Y.3d 666, 674, 816 N.Y.S.2d 703, 849 N.E.2d Knoedler 926 (2006) (“the plaintiff must demonstrate reasonable The De Soles allege that Knoedler and Freedman made the reliance on the defendant's misrepresentations”); Simcuski following representations directly to them: v. Saeli, 44 N.Y.2d 442, 449, 406 N.Y.S.2d 259, 377 N.E.2d 713 (1978) (reliance is a necessary element for invoking doctrine of equitable estoppel); Dombroski v. Samaritan (1) the [w]ork was created by Mark Hosp., 47 A.D.3d 80, 82–83, 846 N.Y.S.2d 430 (3d Dep't Rothko; (2) the [w]ork was owned 2007) (“Even where an intentional misrepresentation is by the son of a Swiss private thus established, to invoke the [equitable estoppel] doctrine collector who obtained the [w]ork a plaintiff must demonstrate reasonable reliance on the from Rothko via David Herbert; (3) defendant's misrepresentations and due diligence on the part the [w]ork came directly to Knoedler of the plaintiff in bringing the action.”) (internal citations from an individual, whom Knoedler and Freedman knew personally; and and quotation marks omitted); Shared Commc'ns Servs. of (4) the [w]ork had been authenticated ESR, Inc. v. Goldman, Sachs & Co., 38 A.D.3d 325, 326, 832 by numerous experts, including *427 N.Y.S.2d 32 (1st Dep't 2007) (“there is no basis for tolling the David Anfam and Christopher Rothko. statute of limitations under New York's doctrine of equitable estoppel, since plaintiff failed to show that it was prevented from timely filing an action due to reasonable reliance by it on ‘deception, fraud or misrepresentations' by defendant”) (SAC (De Sole Dkt. No. 118) ¶ 267) The De Soles also allege (citation omitted); Pahlad v. Brustman, 33 A.D.3d 518, that in a December 11, 2004 letter, Knoedler and Freedman 519–520, 823 N.Y.S.2d 61 (1st Dep't 2006) (“plaintiff state: “Knoedler warrants the authenticity and good title of must demonstrate reasonable reliance on the defendant's [the purported Rothko painting sold to the De Soles].” (Id. ¶ misrepresentations, ... and due diligence on the part of the 270) The De Soles claim that these representations constitute plaintiff in ascertaining the facts, and in commencing the an express warranty under N.Y. U.C.C. § 2–313(1). (Id. ¶ 269)

worth $9 million, Knoedler was—in effect—reaffirming the Knoedler argues that the De Soles' breach of warranty claim authenticity of the Rothko and acting to conceal its prior must be dismissed because (1) it is untimely; and (2) the De fraudulent conduct. The De Soles have thus plausibly alleged Soles have not properly alleged a warranty. (Knoedler Br. (De that Knoedler—by intentionally providing a false appraisal, Sole Dkt. No. 212) at 1, 5–12; Knoedler Reply Br. (De Sole “ ‘took affirmative steps to prevent the plaintiff's discovery Dkt. No. 241) at 3–15) of his claim or injury....’ ” De Sole, 974 F.Supp.2d at

It is undisputed that the De Soles purchased the Rothko from 318–19 (citing Armstrong v. McAlpin, 699 F.2d 79, 90 Knoedler and Freedman on December 17, 2004. (SAC (De (2d Cir.1983)). Accordingly, this Court concludes that the Sole Dkt. No. 118) ¶¶ 88, 217(e)) Accordingly, the De Soles' De Soles have pled facts sufficient to make out an equitable breach of warranty cause of action accrued on that date, and tolling claim. Knoedler's motion to dismiss the De Soles' the statute of limitations expired on December 17, 2008. breach of warranty claim is denied. Given that the De Soles filed this action on March 28, 2012 (see Cmplt. (De Sole Dkt. No. 1)), their breach of warranty X. UNILATERAL AND MUTUAL MISTAKE claim is untimely unless the statute was extended for some The De Soles assert claims for unilateral mistake and mutual reason. The De Soles have not pointed to any provision in mistake against Knoedler. (SAC (De Sole Dkt. No. 118) the New York U.C.C. that extended the limitations period. ¶¶ 279–92) Knoedler has moved to dismiss these claims, Instead, the De Soles assert that the doctrine of equitable arguing that are time barred, and that the De Soles did not tolling applies to preserve their breach of warranty claim exercise ordinary care and were “consciously ignorant” about against Knoedler. (SAC (De Sole Dkt. No. 118) ¶ 275) the purported Rothko they purchased. (Knoedler Br. (De Sole Dkt. No. 212) at 6–10, 13–15) [42] The De Soles argue that a written appraisal Knoedler provided to them on January 19, 2008—which states that “ ‘the probable cost of replacing the [Rothko] with a similar A. Statute of Limitations work’ ” is $9 million—constitutes a misrepresentation that [43] Mistake claims are governed by a six-year statute of triggers equitable tolling. (SAC (De Sole Dkt. No. 118) ¶ 276) The De Soles further argue that Knoedler knew that the limitations. See N.Y. C.P.L.R. 213(6). A cause of action for Rosales Paintings were forgeries at the time it provided the mistake accrues at the time of the alleged mistake. Here, the appraisal, but provided the false valuation of the “Rothko” De Soles purchased the alleged Rothko from Knoedler and in order to prevent the De Soles from becoming aware of a Freedman on December 17, 2004; accordingly, the statute of limitations expired on December 17, 2010. Because the De potential claim against Knoedler. (Id. ¶ 276) 31 Soles filed this action on March 28, 2012 (see Cmplt. (De Sole Dkt. No. 1)), their mistake claims are untimely unless the Knoedler contends, however, that its January 19, 2008 statute was extended for some reason. The De Soles do not appraisal was not an “affirmative act of concealment,” but argue that the limitations period was extended. Instead, they instead is part of “ ‘the same act that forms the basis for contend that equitable tolling applies. (SAC (De Sole Dkt. No. [Plaintiffs' breach of warranty] claim,’ ” and thus does not 118) ¶¶ 286, 292) provide a basis for equitable tolling. (Knoedler Br. *428 (De

Sole Dkt. No. 212) at 8 (quoting De Sole, 974 F.Supp.2d at [44] For the reasons stated above in connection with the De 319); see also Knoedler Reply Br. (De Sole Dkt. No. 241) at Soles' breach of warranty claim, this Court concludes that the 10) This argument is incorrect. The appraisal was not part of January 19, 2008 appraisal Knoedler provided to the De Soles the original sale of the purported Rothko. Knoedler provided constitutes a sufficient factual basis—at the pleading stage— the appraisal to the De Soles more than three years after they to make out a claim for equitable tolling. See First Am. Title had purchased the painting, so that the De Soles could obtain Ins. Co. of New York v. Fiserve Fulfillment Servs., Inc., No. 06 insurance coverage for the painting. (SAC (De Sole Dkt. No. Civ. 7132, 2008 WL 282019, at *4 (S.D.N.Y. Jan. 25, 2008) 118) ¶¶ 124, 276) Under the circumstances, it is reasonable to (applying the doctrine of equitable tolling in the context of infer that the De Soles relied on Knoedler's valuation. a breach of contract claim); Bridgeway Corp. v. Citibank, N.A., 132 F.Supp.2d 297, 304 (S.D.N.Y.2001) (same). In representing to the De Soles—more than three years after the sale of the purported Rothko—that the painting was

“Even where a party must go beyond its own efforts in order B. Applicable Law Concerning Mistake Claims to ascertain relevant facts (such as obtaining experts' reports), courts have held that the party must bear the risk of mistake 1. Unilateral Mistake if it chooses to act on its otherwise limited knowledge.” Id. at 201–02, 640 N.Y.S.2d 558. Thus, a party “bears the risk of [45] “A ‘unilateral mistake’ occurs when ‘only one of the mistake when ... he is aware, at the time the contract is made, parties to a bilateral *429 transaction is in error.’ ” Healy that he has only limited knowledge with respect to the facts v. Rich Prods. Corp., 981 F.2d 68, 73 (2d Cir.1992) (quoting to which the mistake relates but treats his limited knowledge 21 N.Y. Jur.2d Contracts § 121 (1982)). “Under New York as sufficient.” Restatement (Second) of Contracts § 154(b). law, in order for a court to allow rescission of a contract on the basis of unilateral mistake, ‘a party must establish that (i) he entered into a contract under a mistake of material fact, C. Analysis and that (ii) the other contracting party either knew or should [48] [49] The De Soles have adequately pled unilateral mistake and mutual mistake claims against Knoedler. As to have known that such mistake was being made.’ ” Creative unilateral mistake, it is undisputed that the De Soles believed Waste Mgmt., Inc. v. Capitol Envtl. Servs., Inc., 429 F.Supp.2d that the painting they purchased was a genuine Rothko. (SAC 582, 599 (S.D.N.Y.2006) (quoting Ludwig v. NYNEX Serv. (De Sole Dkt. No. 118) ¶ 280) Moreover, the SAC contains Co., 838 F.Supp. 769, 795 (S.D.N.Y.1993)), supplemented, numerous allegations that Knoedler and Freedman acted with 458 F.Supp.2d 178 (S.D.N.Y.2006). fraudulent intent. (Id. ¶¶ 2, 8, 94, 96, 150) As to mutual mistake, the De Soles allege—in the alternative—that both [46] New York law does not permit reformation or rescission they and Knoedler mistakenly believed that the painting the of a contract for unilateral mistake alone. See Collins v. De Soles purchased was a genuine Rothko. (Id. ¶ 288) Harrison–Bode, 303 F.3d 429, 435 (2d Cir.2002). A unilateral While Knoedler argues that both mistake claims should be mistake must be “coupled with some fraud.” Allen v. dismissed because the De Soles did not exercise ordinary care WestPoint–Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.1991); see and were consciously ignorant of the painting *430 they had also AMEX Assurance Co. v. Caripides, 316 F.3d 154, 161 purchased, these issues cannot be resolved as a matter of law (2d Cir.2003) (holding that reformation requires “a mistake at this stage of the proceedings. The cases cited by Knoedler on one side, and fraud on the other”). (Knoedler Br. (De Sole Dkt. No. 212) at 13–15) were decided at summary judgment, not on the pleadings.

2. Mutual Mistake Knoedler's motion to dismiss the De Soles' mistake claims is denied. [47] “ ‘A “mutual mistake” occurs when “both ... parties to a bilateral transaction share the same erroneous belief and their acts do not in fact accomplish their mutual intent.” ’ ” CONCLUSION Creative Waste Mgmt., Inc., 429 F.Supp.2d at 608 (quoting Healy, 981 F.2d at 73 (quoting 21 N.Y.Jur.2d Contracts § Knoedler's motion to dismiss in De Sole (Dkt. No. 211) is 121 (1982))). Under New York law, “[w]hile mutual mistake denied, and Hammer and 8–31's motions to dismiss in De Sole will justify rescission where the mistake exists at the time the (Dkt. Nos. 210, 213, 215) are granted in part and denied in contract is entered into and the mistake is substantial[,] ... it part as set forth above. may not be invoked by a party to avoid the consequences of its own negligence.” P.K. Dev., Inc. v. Elvem Dev. Corp., 226 Knoedler's motion to dismiss the breach of warranty claim A.D.2d 200, 202, 640 N.Y.S.2d 558 (1st Dep't 1996) (citing in Howard (Dkt. No. 268) is granted, and Hammer and 8– 31's motions to dismiss in Howard (Dkt. Nos. 264, 266) are Da Silva v. Musso, 53 N.Y.2d 543, 552, 444 N.Y.S.2d 50, granted in part and denied in part as set forth above. 428 N.E.2d 382 (1981); Vandervort v. Higginbotham, 222 A.D.2d 831, 832, 634 N.Y.S.2d 800 (3rd Dep't 1995)).

The Clerk of the Court is directed to terminate the following motions: De Sole, 12 Civ. 2313 (Dkt. Nos. 210, 211, 213, All Citations 215); Howard, 12 Civ. 5263 (Dkt. Nos. 264, 266, 268). 137 F.Supp.3d 387 SO ORDERED.

Footnotes 1 This Court has entered default judgments against Rosales and Bergantinos Diaz. (De Sole Dkt. Nos. 157, 164; Howard Dkt. Nos. 224, 228) 2 The De Sole Plaintiffs allege that they purchased a forged Rothko from Knoedler in December 2004. (Second Amended Complaint (De Sole Dkt. No. 118) at ¶ 2) Howard asserts that he purchased a forged de Kooning from Knoedler in June 2007. (Am. Cmplt. (Howard Dkt. No. 179) ¶ 9) 3 The factual background concerning these cases is discussed at length in this Court's September 30, 2013 Memorandum Opinion and Order, familiarity with which is assumed. De Sole v. Knoedler Gallery, LLC, 974 F.Supp.2d 274, 285– 95 (S.D.N.Y.2013). 4 Frankfurt has assigned all of his claims to Howard. See Cmplt. (Howard Dkt. No. 1) ¶ 247; Am. Cmplt. (Howard Dkt. No. 179) ¶ 166. 5 As to whether a contract existed between Howard and Knoedler, this Court concluded that “Howard has pled sufficient facts at this stage ... to demonstrate that Frankfurt was acting as his agent in purchasing the painting from Knoedler,” and noted that, in any event, “Frankfurt has assigned all of his claims to Howard.” Id. (citing Cmplt. (Howard Dkt. No. 1) ¶¶ 242, 247). 6 Howard has voluntarily dismissed this claim as to Knoedler. (Howard Br. in Opp. to Summary Judgment (Howard Dkt. No. 292) at 140 n. 35) 7 Knoedler also moved to dismiss Howard's fraud conspiracy claim, but Howard has voluntarily dismissed that claim as against Knoedler. (Howard Br. in Opp. to Summary Judgment (Howard Dkt. No. 292) at 140 n. 35). 8 Howard also alleges that Defendants trafficked in counterfeit labels, in violation of 18 U.S.C. § 2318. Trafficking in counterfeit labels is listed in 18 U.S.C. § 1961(1) as an offense that constitutes racketeering activity. 9 This Court previously concluded—with respect to the De Sole Amended Complaint and the Howard Complaint—that Plaintiffs' “allegations are sufficient to make out a RICO enterprise.” See De Sole, 974 F.Supp.2d at 301. The same is true for the De Sole SAC and the Howard Amended Complaint. 10 Knoedler did not maintain a board of directors or financial records separate and apart from 8–31's records. (SAC (De Sole Dkt. No. 118) ¶ 178; Am. Cmplt. (Howard Dkt. 179) ¶ 256) 11 Hammer stated in a sworn declaration that he was “directly responsible for the operations” of Knoedler. (SAC (De Sole Dkt. No. 118) ¶ 47(e)) 12 As further indication of Hammer's active involvement in Knoedler's business, the Howard Amended Complaint alleges that Hammer charged $1.46 million to Knoedler in business-related expenses. (Am. Cmplt. (Howard Dkt. 179) ¶ 235) 13 Howard alleges that Hammer was aware contemporaneously of all the material circumstances of these transactions and discussed the circumstances of each transaction with Freedman at the time the sale occurred, including the “phony provenance” and, later, the “revised phony provenance.” (Am. Cmplt. (Howard Dkt. 179) ¶¶ 27, 232, 240) Howard alleges that Hammer knew that the works “had been acquired from Rosales and Bergantinos Diaz, and were being sold with a phony provenance and for extraordinary profits.” (Am. Cmplt. (Howard Dkt. 179) ¶ 232) 14 In 2007, Pierre Lagrange purchased a Jackson Pollock for $15.3 million which Knoedler had purchased from Rosales for $950,000—yielding over 1500% in profits. See Am. Cmplt. (Howard Dkt. 179) at 33. In 2001, Knoedler purchased a purported Rothko from Rosales for $750,000 and sold it the next year for $5.5 million—yielding over 630% in profits. See SAC (De Sole Dkt. No. 118) ¶¶ 42–44. Although art dealers commonly purchase works as investments, profits of this magnitude are highly unusual for gallery-purchased works sold in a short period of time, and a “red flag regarding the legitimacy of the transaction and authenticity of the work.” (SAC (De Sole Dkt. No. 118) ¶ 44) The profits Knoedler received from the sale of the works at issue in these cases are no exception—Knoedler received profits of approximately 770% and 360% from the De Sole's Rothko and Howard's de Kooning, respectively. (SAC (De Sole Dkt. No. 118) ¶¶ 88, 95; Am. Cmplt. (Howard Dkt. 179) ¶¶ 132(a)-(b))

15 Howard alleges that “[a] gallery that purchases a work as an investment and holds it for several years can expect a higher return, but at the outset no more than three to four times the amount it paid.” (Am. Cmplt. (Howard Dkt. 179) ¶ 135) Howard Shaw, the President of Hammer Galleries, testified that he found the size of the profits “surprising and troubling,” but that Hammer was “contemporaneously aware of the mark-ups.” (Am. Cmplt. (Howard Dkt. 179) ¶ 136) 16 In 2000, Knoedler accepted a purported Pollock from Rosales on consignment, agreeing to pay $670,000 to the “owner” of the work, and sold it later that year for $3.1 million—yielding over 360% in profits. See SAC (De Sole Dkt. No. 118) ¶ 42. 17 Howard alleges only that Hammer increased Freedman's profit sharing in April 2008 from 25% to 30%, and that this increase occurred six days before the sale of a $7 million Rothko. (Am. Cmplt. (Howard Dkt. 179) ¶ 120) 18 While Hammer argues that acts such as this—which occurred many years after Plaintiffs purchased the art works at issue —do not constitute proof of Hammer's participation in the RICO enterprise (see Hammer Br. (De Sole Dkt. No. 214) at 13), “ ‘[a] scheme to defraud may well include later efforts to avoid detection of the fraud.’ ” Hottinger v. Amcoal Energy

Corp., No. 89 Civ. 6391(LMM), 1994 WL 652499, at *6 (S.D.N.Y. Nov. 17, 1994) (quoting S.E.C. v. Holschuh, 694 F.2d 130, 143 (7th Cir.1982)). 19 Even if this claim had not been abandoned, dismissal would be appropriate. Howard's Amended Complaint does not allege that Hammer ever knew of, interacted with, or communicated with Howard prior to Howard's purchase of the de Kooning. See Am. Cmplt. (Howard Dkt. No. 179) ¶¶ 138–211. Accordingly, the Amended Complaint does not plead facts demonstrating that Hammer made a “partial or ambiguous statement” to Howard, that Hammer had a relationship with Howard that created a duty to disclose, or that Hammer knew that Howard was “acting on the basis of mistaken

knowledge.” See Brass, 987 F.2d at 150. 20 Hammer's argument that his alleged acts are not plausibly linked to the De Soles' injury fails for the same reasons discussed above in connection with Plaintiffs' substantive RICO claim. 21 The De Soles' fraud conspiracy claim is based on allegations that Hammer had knowledge of the fraud by virtue of (1) the IFAR Report, which he reviewed and understood; (2) the documents demonstrating Knoedler's failed efforts to verify the provenance of the Rosales Paintings; (3) the outsized profits associated with sales of the Rosales Paintings, which were highly unusual for the art industry; (4) direct communications with Freedman about every sale of a Rosales Painting, about Rosales, and about Knoedler's “research” of the provenance of the Rosales Paintings. (SAC (De Sole Dkt. No. 118) ¶ 257) Howard's fraud conspiracy claim is based on allegations that Hammer had knowledge of the fraud by virtue of (1) the IFAR Report; (2) his contemporaneous awareness of the details of each transaction concerning the Rosales Paintings; (3) the documents demonstrating Knoedler's failed efforts to verify the provenance of the Rosales Paintings; and (4) the outsized profits Knoedler made on the sales of Rosales Paintings, which for years accounted for all of Knoedler's profits. (Am. Cmplt. (Howard Dkt. No. 179) ¶ 350) 22 8–31 asserts that Knoedler is a single-member LLC and is a disregarded entity for income tax purposes. As a result, 8– 31 files Knoedler's tax returns, pays Knoedler's taxes, and treats Knoedler's employees as its own for tax purposes. (8– 31 Br. (De Sole Dkt. No. 216) at 5) In offering 8–31's alleged reasons for addressing Knoedler's tax obligations, 8–31 seeks to introduce material not pled in either the SAC or Howard's Amended Complaint. Such factual allegations cannot be considered by this Court on a motion to dismiss. 23 To the extent that 8–31 argues in this context that Plaintiffs have not pled facts demonstrating Hammer's involvement in the alleged fraudulent scheme (see 8–31 Br. (De Sole Dkt. No. 216) at 7), that argument is rejected for the reasons stated above. Moreover, the Court concludes that all of Hammer's acts on behalf of 8–31 were within the scope of his employment. 24 8–31 contends that because Andrade was also an employee of Knoedler, his actions were “taken within the scope of his employment with Knoedler” and cannot be attributed to 8–31. (831 Br. (De Sole Dkt. No. 216) at 7–8) Given the unchallenged alter ego allegations here, Andrade's work for Knoedler was also performed for 8–31. 25 Howard may not recover on his fraud conspiracy claim against 8–31 to the extent it alleges respondeat superior liability for Freedman's conduct in the fraud conspiracy, however. The SAC does not allege a fraud conspiracy claim against Freedman. Accordingly, the De Soles may not recover against 8–31 for fraud conspiracy on a respondeat superior basis

to the extent that they are relying on Freedman's conduct. See Shapiro v. Kronfeld, No. 00 Civ. 6286, 2004 WL 2698889, at *24 (S.D.N.Y. Nov. 24, 2004) (dismissing claims premised upon a theory of respondeat superior because

“there can be no imposition of vicarious liability in the absence of underlying liability”); see also San Diego Cnty.

Employees Ret. Ass'n v. Maounis, 749 F.Supp.2d 104, 129 (S.D.N.Y.2010) (same); Anwar v. Fairfield Greenwich Ltd., 728 F.Supp.2d 372, 459 (S.D.N.Y.2010) (same). 26 The Amended Complaint's fraud conspiracy claim contains no allegations concerning 8–31. See Am. Cmplt. (Howard Dkt. No. 179) ¶¶ 346–353. Accordingly, 8–31's motion to dismiss is granted as to this claim. 27 N.Y. U.C.C. § 2–313 provides: (1) Express warranties by the seller are created as follows: (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. (2) It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty. N.Y. U.C.C. § 2–313. 28 “ ‘Under New York law, the doctrines of equitable tolling or equitable estoppel may be invoked to defeat a statute of limitations defense when the plaintiff was induced by fraud, misrepresentations or deception to refrain from filing a timely

action.’ ” Marshall v. Hyundai Motor Am., 51 F.Supp.3d 451, 462 (S.D.N.Y.2014) (quoting Abbas v. Dixon, 480 F.3d 636, 642 (2d Cir.2007) (internal quotations marks omitted)). Howard argues that the doctrine of equitable estoppel— rather than the doctrine of equitable tolling—applies here. (Howard Opp. Br. (Howard Dkt. No. 292) at 205 n. 57) However, “the reported decisions of the federal and state courts do not always mean the same thing by their use of these phrases,

and phrases to which some judges ascribe different meanings are used interchangeably by other judges.” Pearl v. City of Long Beach, 296 F.3d 76, 81 (2d Cir.2002). It has been said that “New York appears to use the label ‘equitable estoppel’ to cover both the circumstances ‘where the defendant conceals from the plaintiff the fact that he has a cause of action [and] where the plaintiff is aware of his cause of action, but the defendant induces him to forego suit until after the

period of limitations has expired.’ ” Pearl, 296 F.3d at 82 (quoting Joseph M. McLaughlin, Practice Commentaries, N.Y. C.P.L.R. C201:6, at 63 (McKinney 1990)). However, some New York courts distinguish between the two circumstances, and refer only to the latter circumstance as equitable estoppel: Although both the doctrines of equitable estoppel and equitable tolling have a common origin, they are applied in different circumstances. Equitable estoppel is applicable where the plaintiff knew of the existence of the cause of action, but the defendant's misconduct caused the plaintiff to delay in bringing suit. Equitable tolling, on the other hand, is applicable where the defendant has wrongfully deceived or misled the plaintiff in order to conceal the existence of a cause of action.

Kotlyarsky v. New York Post, 195 Misc.2d 150, 153, 757 N.Y.S.2d 703 (Sup.Ct. Kings Cnty.2003) (internal

citations omitted); see also Marshall, 51 F.Supp.3d at 463; Statler, D.C. v. Dell, Inc., 775 F.Supp.2d 474, 482 (E.D.N.Y.2011). For the sake of clarity, and because Howard does not assert that he knew of the existence of the cause of action long before filing suit, this Court will refer to Howard's claim as one for equitable tolling. See Howard Opp. Br.

(Howard Dkt. No. 292) at 204–05; Shared Commc'ns Servs. of ESR, Inc. v. Goldman, Sachs & Co., 38 A.D.3d 325, 326, 832 N.Y.S.2d 32 (1st Dep't 2007). 29 Howard's allegations that “Freedman and Knoedler concealed ... information [about authenticity and provenance] from Howard such that Howard was unable, despite due diligence, to bring his claims in a timely manner” are thus insufficient, because Howard relies on these same allegations in pleading his RICO and fraud claims. (Am. Cmplt. (Howard Dkt. No. 179) ¶ 361) Moreover, as this Court stated in its September 30, 2013 opinion and order, such “[g]eneralized or conclusory

allegations of fraudulent concealment are not sufficient to toll a statute of limitations.” De Sole, 974 F.Supp.2d at 319

(citing Armstrong v. McAlpin, 699 F.2d 79, 90 (2d Cir.1983)). Howard further alleges that “[t]he nature of the wrong was self-concealing,” and that “there was no way for Howard or any other victim to ascertain the accuracy of Knoedler's warranties.” (Am. Cmplt. (Howard Dkt. No. 179) ¶ 362) The Second

Circuit rejected this argument in a case involving a forged John Singer Sargent painting, however. See Rosen v. Spanierman, 894 F.2d 28, 32 (2d Cir.1990) (discovery exception to statute of limitations set forth in N.Y. U.C.C. § 2–725(2) did not apply where plaintiffs contended that they had been duped into purchasing a forged painting). The Rosen court found that the forged nature of the purported Sargent painting was discoverable at the time of delivery through measures

that were not “extraordinary.” Rosen, 894 F.2d at 32 (“While we would hesitate to deem the alleged defect here readily discoverable if extraordinary measures were required to detect the flaw, a painting's lack of authenticity is readily apparent to the trained eye of an art expert.”). Even assuming arguendo that the task of determining the inauthenticity of Howard's alleged de Kooning was more challenging than determining the legitimacy of the Sargent painting in Rosen, Howard has not pled facts sufficient to demonstrate that “[t]he nature of the wrong was self-concealing,” and that “there was no way for Howard or any other victim to ascertain the accuracy of Knoedler's warranties.” See Am. Cmplt. (Howard Dkt. No. 179) ¶ 362. 30 Howard also cites a February 11, 2011 letter Knoedler sent to Pierre Lagrange, who had purchased a purported Pollock from Knoedler. (Howard Am. Cmplt. ¶¶ 239, 363) The Amended Complaint asserts that “when Pierre Lagrange expressed concerns about the ‘Pollock’ he had purchased from Knoedler, [Knoedler] responded by a faxed letter dated February 11, 2011 that ... simply restated the misrepresentations Freedman had made to Lagrange in 2007 [when he purchased the painting].” (Id. ¶ 239) Howard has not plausibly alleged that Knoedler's alleged misrepresentations to Lagrange were made for the purpose of concealing Knoedler's fraud on Howard, however. The apparent purpose of Knoedler's February 11, 2011 letter to Lagrange was to assuage Lagrange's concerns. Moreover, the Amended Complaint does not allege that Howard ever knew of, read, or relied on Knoedler's letter to Lagrange. Accordingly, the Lagrange letter provides no basis for equitable tolling in connection with Howard's breach of warranty claim against Knoedler. 31 The De Soles also argue that the statute of limitations was tolled because “Knoedler's scheme was ... inherently self- concealing. There was no way for the De Soles or any other victim to ascertain the accuracy of Knoedler's warranties, and Knoedler intentionally concealed all information that would place a purchaser on notice that there were serious concerns with the Rosales Collection works....” (SAC (De Sole Dkt. No. 118) ¶ 278) This argument is rejected for the same reasons set forth above in connection with Howard's breach of warranty claim. The De Soles further contend that equitable tolling is warranted based on Hammer's October 27, 2009 letter announcing Freedman's “resignation.” (Id. ¶ 277) Given that the statute of limitations on Howard's breach of warranty claim expired in

December 2008, however, Hammer's October 27, 2009 letter is irrelevant to the tolling inquiry. See Koch v. Christie's Int'l PLC, 699 F.3d 141, 157 (2d Cir.2012) (“While [plaintiff] makes specific allegations with respect to [certain events in 2006], the District Court correctly found that those allegations were irrelevant because the statute of limitations had already run by that time.”); Katopodis et al. v. Marvin Windows and Doors, 105 A.D.3d 633, 634, 964 N.Y.S.2d 123 (1st Dep't 2013) (finding “no basis for the [lower] court to extend the statute of limitations based on a September 9, 2009 letter sent by defendant, which offered to provide certain replacement parts pursuant to the terms of the express limited warranty,” because “the statute of limitations already had expired at the time the letter was sent”).

306 F.Supp.3d 560 West Headnotes (38) United States District Court, S.D. New York.

EQUINOX GALLERY LIMITED, Plaintiff, [1] Federal Civil Procedure v. Matters considered in general Fred DORFMAN, individually and d/b/ In deciding a motion to dismiss, the court may a Dorfman Projects, Dorfman Projects refer to documents attached to the complaint as LLC, and Fred Dorfman, Inc., Defendants. an exhibit or incorporated in it by reference, to matters of which judicial notice may be taken, or 17 Civ. 230 (GBD) to documents either in plaintiffs' possession or of | which plaintiffs had knowledge and relied on in Signed 01/25/2018 bringing suit. Fed. R. Civ. P. 12(b)(6).

Synopsis Background: Art purchaser brought action against art [2] Federal Civil Procedure dealer for violation of Racketeer Influenced and Corrupt Fraud, mistake and condition of mind Organizations Act (RICO), fraud, breach of warranty, and unilateral mistake, arising out of alleged sale of stolen In addition to meeting plausibility requirement, painting and alleged racketeering activity. Dealer filed motion a plaintiff alleging fraud or mistake must also to dismiss. satisfy heightened pleading standards. Fed. R. Civ. P. 9(b), 12(b)(6).

Holdings: The District Court, George B. Daniels, J., held that: [3] Federal Civil Procedure Fraud, mistake and condition of mind [1] allegations that artwork was transported from Connecticut to New York and then sold to purchaser who was located in To meet heightened pleading standard for Vancouver alleged impact on interstate commerce; allegation of fraud or mistake, a complaint must: (1) specify the statements that the plaintiff [2] allegations alleged closed-end pattern of racketeering contends were fraudulent, (2) identify the activity; speaker, (3) state where and when the statements were made, and (4) explain why the statements [3] allegations alleged that association-in-fact enterprise were fraudulent. Fed. R. Civ. P. 9(b). existed;

[4] no basis existed for equitable tolling of breach of warranty [4] Federal Civil Procedure claim under New York law; Fraud, mistake and condition of mind A plaintiff alleging a cause of action sounding in [5] allegations alleged reasonable reliance; and fraud must set forth with sufficient particularity the who, what, when, where, and how of the [6] allegations provided sufficient basis for jury to award alleged fraud. Fed. R. Civ. P. 9(b). punitive damages.

[5] Racketeer Influenced and Corrupt Motion granted in part and denied in part. Organizations Mail and wire fraud Procedural Posture(s): Motion to Dismiss; Motion to Dismiss for Failure to State a Claim. Racketeer Influenced and Corrupt Organizations Act (RICO) claims premised on mail and wire

fraud merit heightened scrutiny in light of the ongoing organization, formal or informal, and by routine use of mail and wire communications in evidence that the various associates function as a business operations and the attendant ease with continuing unit. 18 U.S.C.A. § 1961(4). which a plaintiff may attempt to fashion a RICO claim based on allegations that may turn out to

be insufficient to plausibly support one. 18 [9] Racketeer Influenced and Corrupt U.S.C.A. § 1961 et seq. Organizations Informal entities; associations-in-fact An association-in-fact enterprise, for purposes of [6] Commerce Racketeer Influenced and Corrupt Organizations Criminal or racketeer influenced and Act (RICO), must have at least three structural corrupt organizations features: a purpose, relationships among those Racketeer Influenced and Corrupt associated with the enterprise, and longevity Organizations sufficient to permit these associates to pursue the Particular enterprises enterprise's purpose. 18 U.S.C.A. § 1961(4). Allegations that stolen artwork was transported from Connecticut to New York and then sold to purchaser who was located in Vancouver alleged [10] Racketeer Influenced and Corrupt impact on interstate commerce as required to Organizations prove art dealer was enterprise for purposes of Enterprise Racketeer Influenced and Corrupt Organizations A Racketeer Influenced and Corrupt Act (RICO). 18 U.S.C.A. § 1962(c). Organizations Act (RICO) complaint is not required to allege that a particularly organized structure existed. 18 U.S.C.A. § 1961(4). [7] Racketeer Influenced and Corrupt Organizations Informal entities; associations-in-fact [11] Racketeer Influenced and Corrupt An enterprise, for purposes of Racketeer Organizations Influenced and Corrupt Organizations Act Presumptions and burden of proof (RICO), need not be a formal legal entity, nor The existence of an enterprise, for purposes of must it have a hierarchical structure or a chain of Racketeer Influenced and Corrupt Organizations command. 18 U.S.C.A. § 1961(4). Act (RICO), may be inferred from evidence showing that persons associated with the enterprise engaged in a pattern of racketeering [8] Racketeer Influenced and Corrupt activity. 18 U.S.C.A. § 1961(4). Organizations What constitutes enterprise in general Racketeer Influenced and Corrupt [12] Racketeer Influenced and Corrupt Organizations Organizations Informal entities; associations-in-fact Enterprise An enterprise, for purposes of Racketeer Allegations in a Racketeer Influenced and Influenced and Corrupt Organizations Act Corrupt Organizations Act (RICO) complaint (RICO), may consist of a group of persons must at a minimum establish an enterprise that is associated together for a common purpose more than the sum of the participants in a series of engaging in a course of conduct, the existence of which is proven by evidence of an of independent predicate acts. 18 U.S.C.A. § 1961(4).

(RICO) claim can be satisfied either by showing a closed-ended pattern, a series of related [13] Racketeer Influenced and Corrupt predicate acts extending over a substantial period Organizations of time, or by demonstrating an open-ended’ Predicate acts in general pattern of racketeering activity that poses a threat of continuing criminal conduct beyond “Racketeering activity,” for purposes of the period during which the predicate acts Racketeer Influenced and Corrupt Organizations Act (RICO), is defined to encompass dozens were performed. 18 U.S.C.A. §§ 1961(1), of state and federal offenses, known in RICO 1961(5). parlance as predicates. 18 U.S.C.A. § 1961(5). [17] Racketeer Influenced and Corrupt Organizations [14] Racketeer Influenced and Corrupt Time and duration Organizations The mere fact that predicate acts span two- What are predicate acts; racketeering or years is insufficient, without more, to establish a criminal activity pattern of racketeering activity under Racketeer Racketeer Influenced and Corrupt Influenced and Corrupt Organizations Act Organizations (RICO). 18 U.S.C.A. §§ 1961(1), 1961(5). Mail and wire fraud Predicates, for purposes of Racketeer Influenced and Corrupt Organizations Act (RICO), include [18] Racketeer Influenced and Corrupt any act indictable under specified federal Organizations statutes, such as those relating to mail and wire Pattern of Activity fraud. 18 U.S.C.A. §§ 1961(1), 1961(5). Factors, other than period of time, such as the number and variety of predicate acts, the number of both participants and victims, and [15] Racketeer Influenced and Corrupt the presence of separate schemes are relevant Organizations in determining whether closed-ended continuity Continuity or relatedness; ongoing activity exists for purposes of closed-end racketeering To meet the pattern of racketeering activity activity under Racketeer Influenced and Corrupt element of a Racketeer Influenced and Corrupt Organizations Act (RICO). 18 U.S.C.A. §§ Organizations Act (RICO) claim, a plaintiff must allege that the predicate acts have continuity 1961(1), 1961(5). plus relationship which combines to produce a pattern. 18 U.S.C.A. § 1961(5). [19] Commerce Criminal or racketeer influenced and corrupt organizations [16] Racketeer Influenced and Corrupt Racketeer Influenced and Corrupt Organizations Organizations Continuity or relatedness; ongoing activity Multiple mailings or communications; mail Racketeer Influenced and Corrupt or wire fraud Organizations To state a mail and wire fraud claim under Time and duration Racketeer Influenced and Corrupt Organizations Continuity requirement for a Racketeer Act (RICO), a plaintiff must allege that the Influenced and Corrupt Organizations Act defendant made two predicate communications,

via interstate commerce, that constitute a pattern alleged that association-in-fact enterprise existed consisting of art dealer, dealer's business entities, of racketeering activity. 18 U.S.C.A. §§ 1341, and artist's assistant as required to state 1343, 1961(1), 1961(5). claim under Racketeer Influenced and Corrupt Organizations Act (RICO). 18 U.S.C.A. §§ 1961(1), 2314, 2315, 2318. [20] Federal Civil Procedure Fraud, mistake and condition of mind Allegations of mail and wire fraud claim under [23] Sales Racketeer Influenced and Corrupt Organizations Making and Requisites Act (RICO) should state the contents of the Under New York Law, to demonstrate that communications, who was involved, where and an express warranty was created, a plaintiff when they took place, and explain why they were must prove that the statement falls within the fraudulent. 18 U.S.C.A. §§ 1341, 1343, definition of warranty, that she relied on it, and 1961(1), 1961(5); Fed. R. Civ. P. 9(b). that it became part of the basis for the bargain.

[21] Racketeer Influenced and Corrupt [24] Limitation of Actions Organizations Agreements as to period of limitation Multiple mailings or communications; mail Tolling agreement entered into by art dealer or wire fraud and art advisor did not allow art purchaser to Allegations that art dealer and artist's assistant bring breach of warranty claim for art purchased knowingly sold and caused to be transported almost nine years before action commenced, artist's artworks, that predicate acts of mail fraud, where cause of action accrued when purchaser wire fraud, and interstate transportation of stolen purchased artwork, claim must have been goods had similar purpose, similar methods commenced within four years after accrual, and of commission, similar victims, and similar tolling agreement only tolled four years. N.Y. results, and details regarding roles that dealer Uniform Commercial Code §§ 2-102, 2-105 , and assistant played in scheme, alleged closed- 2-312, 2-313, 2-725. end pattern of racketeering activity as required to state claim under Racketeer Influenced [25] Limitation of Actions and Corrupt Organizations Act (RICO). 18 Estoppel to rely on limitation U.S.C.A. §§ 1961(1), 2314, 2315, 2318. Limitation of Actions Suspension or stay in general; equitable tolling [22] Racketeer Influenced and Corrupt Organizations Under New York law, the doctrines of equitable Particular enterprises tolling or equitable estoppel may be invoked to defeat a statute of limitations defense Allegations that art dealer and artist's assistant when the plaintiff was induced by fraud, shared common purpose and goal of selling misrepresentations or deception to refrain from stolen art for profit, that assistant was responsible filing a timely action. for providing stolen artwork and signing affidavits as to authenticity, that dealer, by and through entities, would present works to interested buyers, and that enterprise had [26] Limitation of Actions sufficient longevity to pursue purpose of Estoppel to rely on limitation selling stolen artwork to unsuspecting buyers, Limitation of Actions

Concealment of Cause of Action insufficient. N.Y. Uniform Commercial Code §§ Limitation of Actions 2-102, 2-105, 2-312, 2-313. Suspension or stay in general; equitable tolling Under New York law, in order to toll the [29] Federal Civil Procedure statute of limitations under equitable tolling or Construction of pleadings equitable estoppel, a plaintiff must show that Federal Civil Procedure the defendant wrongfully concealed its actions, Matters deemed admitted; acceptance as such that plaintiff was unable, despite due true of allegations in complaint diligence, to discover facts that would allow him Even on a motion to dismiss, where a document to bring his claim in a timely manner, or that cited in the complaint is inconsistent with defendant's actions induced plaintiff to refrain the allegations set forth in the complaint, the from commencing a timely action. document, not the allegations, control, and the court need not accept the allegations in the complaint as true. [27] Limitation of Actions Estoppel to rely on limitation Limitation of Actions [30] Fraud Suspension or stay in general; equitable Time to sue and limitations tolling Sales Under New York law, in order to toll the statute Action by buyer of limitations under equitable tolling or equitable Art purchaser's fraud and mistake claims against estoppel, a plaintiff must establish that it was art dealer arising from sale of stolen artwork the defendants' subsequent actions, separate were not governed by Uniform Commercial from the ones for which they sue, that kept it Code's (UCC) four-year statute of limitations, from bringing suit, and that its reliance on the and thus claims were timely under New York subsequent misrepresentations was reasonable. law; fraud and mistake claims were sufficiently distinct from facts and circumstances giving rise to breach of warranty claim, tolling agreement [28] Limitation of Actions between dealer and art advisor tolled statute Suspension or stay in general; equitable of limitations for four years, and fraud and tolling mistake claims were brought within statute of No basis existed for equitable tolling of art limitations period under New York law for fraud purchaser's breach of warranty claim under New and mistake claims. N.Y. CPLR § 213(6), (8); York law against art dealer arising from sale of N.Y. Uniform Commercial Code § 2-725. stolen artwork; tolling was appropriate where alleged misconduct was entirely distinct from and came after events giving rise to underlying [31] Fraud claim, confidentiality agreement which may Elements of Actual Fraud have prohibited purchaser from independently Under New York law, a claim for fraud verifying provenance of purchased artwork was consists of five elements: (1) misrepresentation tendered in connection with sale of artwork of a material fact, (2) the falsity of that itself, emails from dealer and artist's assistant misrepresentation, (3) scienter, or intent to to art advisor were made in effort to sell more defraud, (4) reasonable reliance on that forged paintings rather than to conceal prior representation, and (5) damage caused by such fraud, and assistant's false certification draft reliance. prepared almost four years after sale was by itself

as required to state claim, under New York law, [32] Fraud for fraud arising out sale of stolen artwork. Fed. Reliance on Representations and R. Civ. P. 9(b). Inducement to Act Fraud Relations and means of knowledge of [36] Damages parties Breach of contract In assessing the reasonableness of a plaintiff's Where an action has its genesis in the contractual alleged reliance on fraud, courts consider the relationship between the parties, a plaintiff entire context of the transaction, including seeking punitive damages must show that: (1) factors such as its complexity and magnitude, the defendant's conduct must be actionable as an sophistication of the parties, and the content of independent tort, (2) the tortious conduct must be any agreements between them. Fed. R. Civ. P. sufficiently egregious, (3) the egregious conduct 9(b). must be directed to plaintiff, and (4) it must be part of a pattern directed at the public generally. 1 Cases that cite this headnote

[33] Fraud [37] Damages Relations and means of knowledge of Grounds for Exemplary Damages parties To merit an award of punitive damages, a Where matters are held to be peculiarly plaintiff must show that the tortious conduct is within defendant's knowledge, for purposes of gross and involves high moral culpability. alleged reliance on fraud, a plaintiff may rely on his representations without prosecuting an investigation, as he had no independent means of [38] Damages ascertaining the truth. Fed. R. Civ. P. 9(b). Breach of contract Art purchaser's allegations in lawsuit against art dealers for violation of the Racketeer Influenced [34] Fraud and Corrupt Organizations Act (RICO), fraud, Duty to Investigate and unilateral mistake, arising out of sale of A plaintiff cannot close his eyes to stolen artwork, provided a sufficient basis for a an obvious fraud, and cannot demonstrate jury to award punitive damages; action had its reasonable reliance without making inquiry and genesis in the contractual relationship between investigation, for purposes of alleged reliance the parties, and defendants' alleged tortious on fraud, if he has the ability, through ordinary conduct was actionable as an independent tort intelligence, to ferret out the reliability or truth of the defendant's statements. and involved high moral culpability. 18 U.S.C.A. § 1961 et seq. 1 Cases that cite this headnote

[35] Fraud Reliance on Representations and Attorneys and Law Firms Inducement to Act Allegations that art purchaser reasonably relied *565 Lindsay Elizabeth Hogan, Judd Benjamin Grossman, on affidavit by artist's assistant prepared by art Grossman LLP, New York, NY, for Plaintiff. seller and provided to art advisor attesting to Mark Scott Pincus, Pincus Law LLC, Gerald J. Di Chiara, authenticity of artwork, and that artwork was in New York, NY, for Defendants. fact created by artist, alleged reasonable reliance

studio and its books and records, including a ledger that contained a description and inventory number for each of MEMORANDUM DECISION AND ORDER Johns' completed artworks. (Id. ¶¶ 37–38.) He also had access to Johns' unfinished works and was responsible for GEORGE B. DANIELS, United States District Judge maintaining a file drawer holding such works and others that Johns' had not yet authorized to be placed into the art This civil RICO action, brought by Plaintiff Equinox market. In addition, Meyer was responsible for destroying Gallery Limited (“Equinox Gallery”) against Defendant Fred pieces that Johns was not satisfied with or otherwise did not Dorfman and two business entities he exclusively owns and want included among his body of finished works. (Id. ¶ 39.) In controls, Dorfman Projects LLC and Fred Dorfman, Inc. the 1990s, however, Meyer began stealing artwork from the (collectively, “Defendants”), arises out of an alleged scheme studio, taking drawings that Johns had wanted discarded— to sell stolen Jasper Johns artwork to unsuspecting buyers. sometimes straight from the trash—as well as some of Johns' (Compl., ECF No. 1, at 1, 6.) Plaintiff asserts federal claims unfinished works. (Id. ¶¶ 40–41.) against all Defendants under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961 Sometime in 2003, Meyer and Fred Dorfman were et seq., as well as claims for fraud, breach of warranty, and introduced. 2 For the next three years, Dorfman embarked unilateral mistake, for allegedly selling to Plaintiff one such on a campaign to convince Meyer to allow him to represent painting stolen from Johns' art studio by his longtime studio the latter as an independent artist. What Meyer did not know, assistant, James Meyer. (Compl. ¶ 1, 103–265.) Defendants however, was that Dorfman never intended to represent him move to dismiss the complaint pursuant to Rules 9(b) and or his interests, but rather sought only to use him to gain 12(b)(6) of the Federal Rules of Civil Procedure and to strike access to Jasper Johns' artwork. (Id. ¶¶ 43–44.) Indeed, from Plaintiff's request for punitive damages. (Mot. to Dismiss, 2003 through 2006, other than two pieces that he bought for ECF No. 21; Defs.' Mem. in Supp. of Mot. to Dismiss (“Defs.' himself, Dorfman never sold any of Meyer's art to any other Mem.”), ECF No. 23, at 1–2.) galleries or collectors. Instead, Dorfman repeatedly asked Meyer if he had access to Johns' discarded and/or unfinished Defendants' motion to dismiss is GRANTED as to Plaintiff's works and pressured him to obtain as many of them as claim for breach of warranty and DENIED in all other he could so that the pair could sell them for profit. (Id. ¶ respects. 44.) In or about the fall of 2006, Meyer finally acquiesced and began delivering discarded and unfinished artwork from Johns' studio—some of which he had already previously I. BACKGROUND stolen—to Dorfman to sell to his contacts in the art world. (Id. ¶¶ 45–46.) Since its incorporation in 1976, Defendant Fred Dorfman, Inc., which is solely owned and operated by Defendant Fred The alleged scheme was well planned and carefully executed Dorfman, has been recognized in the fine-art community for to ensure its longevity. For instance, to convince prospective its expertise in presenting contemporary artists to a wide buyers that the stolen works were authentic, that Meyer had audience of collectors, galleries, and dealers. 1 (Compl. ¶¶ good title, and that Johns had authorized their sale, Dorfman 21–22.) According to Plaintiff, however, more recently it has had affidavits prepared for Meyer's signature attesting that been involved in a criminal racketeering scheme *566 to sell Johns had given him the various works as gifts. 3 (Id. ¶ nearly forty pieces of art stolen from renowned contemporary 47.) Dorfman also provided counterfeit labels that were artist Jasper Johns' studio by one of Johns' longtime and sometimes affixed to the back of stolen artwork to create the trusted studio assistants, James Meyer. (Id. ¶ 1.) impression that their sale had been authorized by Johns. (Id. ¶¶ 159, 224–25.) Through his business entities, Dorfman also For many years, Jasper Johns has maintained an art studio provided written assurances to prospective buyers certifying, in Sharon, Connecticut. (Id. ¶ 35.) In 1985, James Meyer falsely, that the purchased artworks would be included in the became one of Johns' studio assistants. In that position, Jasper Johns catalogue raisonne and recorded in his studio he helped Johns create artworks and assisted with various archives when they were prepared. 4 (Id. ¶ 48.) In some administrative and record-keeping tasks. By virtue of his instances, *567 Dorfman even provided buyers with false role as studio assistant, Meyer had unfettered access to the records, including fictitiously-assigned inventory numbers so

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 7 Equinox Gallery Limited v. Dorfman, 306 F.Supp.3d 560 (2018) 94 UCC Rep.Serv.2d 946 as to give the appearance that the artworks were finished and Following the sale to Plaintiff, Dorfman and his business authorized for sale. (Id.) entities sold at least another fourteen stolen Johns artworks to unsuspecting purchasers. In doing so, Dorfman continued In addition, Meyer sometimes fabricated other documents assuring prospective buyers that the artworks were given to purportedly taken from the studio's ledger of registered Meyer as gifts. (Id. ¶¶ 79–80.) For instance, on January 20, artworks, describing the artwork, listing its fictitious 2010, Dorfman forwarded an email (the “January 20, 2010 inventory number, and stating falsely that the work had been email”) from Meyer to the same art adviser who connected gifted to Meyer. On occasion, Meyer even placed these fake Dorfman with Plaintiff, indicating the stolen works “were pages into the ledger, photographed them in that setting, given” to *568 Meyer. On February 2, 2010, Dorfman and then provided them to Dorfman so that they could be forwarded another email to the art advisor from Dorfman's transmitted to prospective buyers. (Id. ¶ 56.) Further, and wife (the “February 2, 2010 email”) providing additional to ensure that Johns never learned of the scheme, Dorfman information about the Johns artworks, and indicating that the imposed confidentiality and re-sale restrictions prohibiting art advisor has “no reason to believe that the work is anything buyers from disclosing the sale, including by reselling, but in [Meyer's] rightful possession.” (Id. ¶¶ 81–82.) The exhibiting, or loaning the works to others for at least eight February 2, 2010 email went on to confirm that the stolen years following the sale. (Id. ¶ 49.) artwork “was a gift from Jasper” and that the art adviser can “justifiably rely on [Meyer's] sworn statement.” (Id. In mid-December 2007, Dorfman, by and through his ¶ 82.) Later, in September 2011, Dorfman drafted a false business entities, contacted an art adviser seeking prospective certification “to be shared with Plaintiff,” which indicated buyers for a particular piece of stolen Jasper Johns artwork. 5 that the artwork it purchased would be included in Johns' As with all the other stolen Johns artwork that Dorfman sold, catalogue raisonne and recorded in his studio's archives. (Id. he represented to the art adviser that Johns had gifted the ¶ 98.) piece to Meyer. According to the complaint, even though he was speaking with the art advisor, Dorfman knew that the Where necessary, Meyer and Dorfman took other steps to art advisor was working on behalf of Plaintiff, a prospective conceal their scheme and ensure its survival. For instance, buyer. Plaintiff is an art gallery located in Vancouver, British in January 2010, one victim sent an image to Jasper Johns' Columbia. (Id. ¶¶ 18, 59–60.) Dorfman provided the art studio of a piece that it purchased from Dorfman. (Id. ¶¶ advisor with images and additional details about the work, 85–86.) Meyer promptly contacted Dorfman and sought his who in turn shared them with Plaintiff. The art adviser also assistance in having the artwork returned to the studio. To helped Plaintiff negotiate and consummate the sale. (Id. ¶ cover their tracks, Meyer asked Dorfman to “wipe” it with 61.) Despite it being an authentic Jasper Johns painting, “glass cleaner” to eliminate fingerprints and send it “with no even containing his signature, Plaintiff asserts that it would return information” so its origin could not be traced. Dorfman have never bought the painting had it known the truth of its acquiesced, responding to Meyer as follows: “Tell me exactly provenance. (Id. ¶¶ 62–63.) what you want and how you want it and [y]ou will get it.” (Id. ¶ 86.) As with all the other stolen Johns paintings he sold, Dorfman had an affidavit prepared attesting to Meyer's ownership of In total, of the eighty-three individual pieces Meyer stole from the artwork and its authenticity. (Id. ¶ 64.) Meyer executed Johns' studio, forty-two were provided to Dorfman, of which the affidavit on January 11, 2008, and had it notarized thirty-seven were sold for a profit exceeding $9 million. (Id. ¶ by Dorfman's wife. (Id. ¶¶ 64–65.) On or about the same 50.) As the mastermind behind the scheme, Dorfman and his date, a separate confidentiality agreement was drafted for business entities pocketed almost two-thirds of the profits, or Plaintiff's signature, requiring Plaintiff to “keep the Artwork approximately $5.99 million. Eventually, however, the fraud private and ... not sell or loan the Drawings to anyone was discovered and in August 2013, Meyer was indicted by or any institution within the first ten (10) years of his a federal grand jury sitting in this District and charged with ownership.” (Id. ¶ 66.) Plaintiff accepted the terms of the sale one count of transporting stolen property across state lines and and on January 15, 2008, was invoiced a bill for $800,000 to one count of wire fraud. (Id. ¶ 89; see also Compl., Ex. B.) In June 2014, he pled guilty to the interstate transportation purchase the Johns artwork. 6 (Id. ¶¶ 67, 69, 72.) of stolen property and was sentenced to an eighteen-month term of imprisonment and two years of supervised release. He

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 8 Equinox Gallery Limited v. Dorfman, 306 F.Supp.3d 560 (2018) 94 UCC Rep.Serv.2d 946 was also ordered to pay restitution to the victims, including as true all well-pleaded allegations in the complaint and Jasper Johns. According to Plaintiff, the artwork it purchased draw all reasonable inferences in the plaintiff's favor. 7 See from Dorfman in January 2008, i.e. the one at issue in this case, was identified in the order of restitution as one of the N.J. Carpenters Health Fund v. Royal Bank of Scot. Grp., stolen Johns artworks. (Compl. ¶ 90; see also Compl., Ex. D.) PLC, 709 F.3d 109, 119–20 (2d Cir. 2013); Chambers v. Dorfman was never indicted or otherwise charged with any Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002), The criminal wrongdoing. court, however, need not credit “mere conclusory statements,” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937, nor must it give Under an October 17, 2016 assignment agreement, the effect to “legal conclusions couched as factual allegations.” art advisor who purchased the stolen artwork for Plaintiff assigned to the latter all claims it had against Dorfman and Port Dock & Stone Corp. v. Oldcastle Ne., Inc., 507 F.3d his business entities arising out of the sale of the stolen 117, 121 (2d Cir. 2007) (citing Twombly, 550 U.S. at 555, artwork, including its rights under a statute of limitations 127 S.Ct. 1955). tolling agreement it entered into with Defendants in July 2015. Under the July 2015 tolling agreement, Defendants agreed that the time period beginning on August 1, 2012, B. Rule 9(b)'s Heightened Pleading Standards until August 1, 2016, would not be included in computing the [2] [3] [4] In addition to meeting the requirements of relevant statute of limitations for any claim by the art advisor Rule 12(b)(6), a plaintiff alleging fraud or mistake, as here, or any of its transferees. (Id. ¶¶ 93, 100.) This action followed must also satisfy the heightened pleading standards of Rule on January 11, 2017. (See id. at 47.) 9(b), which requires such a party to “state with particularity the circumstances constituting fraud or mistake.” Fed. R. Plaintiff asserts federal claims against Dorfman and his Civ. P. 9(b). To meet this standard, “a complaint must business entities for violating and conspiring to violate the ‘(1) specify the statements that the plaintiff contends were RICO Act, as well as state law claims for fraud, breach fraudulent, (2) identify the speaker, (3) state where and when of warranty, and unilateral mistake. (Id. ¶¶ 103–265.) In the statements were made, and (4) explain why the statements particular, Plaintiff charges Defendants with engaging in were fraudulent.’ ” Wood ex rel. U.S. v. Applied Research numerous predicate acts of racketeering activity, including Assocs., Inc., 328 Fed.Appx. 744, 747 (2d Cir. 2009) (quoting transporting stolen goods, mail fraud, wire fraud, and trafficking *569 in counterfeit labels with respect to works Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 of visual art. (Id. ¶¶ 167–229.) Plaintiff seeks compensatory (2d Cir. 1994) ). In other words, a plaintiff alleging a cause damages, rescission of the sale, treble damages and attorneys' of action sounding in fraud must set forth with sufficient fees under RICO, and punitive damages. (Id. at 47.) particularity the “who, what, when, where[,] and how of the alleged fraud.” U.S. ex rel. Kester v. Novartis Pharm. Corp., 23 F.Supp.3d 242, 252 (S.D.N.Y. 2014) (citation II. LEGAL STANDARDS omitted).

A. Federal Rule of Civil Procedure 12(b)(6) [1] To survive a motion to dismiss brought under Rule 12(b)(6), “a complaint must contain sufficient factual matter, III. PLAINTIFF'S RICO CLAIMS accepted as true, to ‘state a claim to relief that is plausible The RICO Act confers a private right of action for treble on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 damages to “[a]ny person injured in his business or property S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. by reason of a violation” of the RICO statute. 18 U.S.C. § Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 1964(c); see also Bridge v. Phx. Bond & Indem. Co., 553 L.Ed.2d 929 (2007) ). “A claim has facial plausibility when U.S. 639, 647, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008). The the plaintiff pleads factual content that allows the court to RICO statute, in relevant part, makes it unlawful, “for any draw the reasonable inference that the defendant is liable for person employed by or *570 associated with any enterprise the misconduct alleged.” Iqbal, 556 U.S. at 678, 129 S.Ct. engaged in, or the activities of which affect, interstate or 1937. In deciding a 12(b)(6) motion, the court must accept foreign commerce, to conduct or participate, directly or

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 9 Equinox Gallery Limited v. Dorfman, 306 F.Supp.3d 560 (2018) 94 UCC Rep.Serv.2d 946 indirectly, in the conduct of such enterprise's affairs through United States v. Turkette, 452 U.S, 576, 583, 101 S.Ct. a pattern of racketeering activity.” 8 18 U.S.C. § 1962(c). 2524, 69 L.Ed.2d 246 (1981) ). Thus, to establish a civil RICO claim, a plaintiff must show “(1) conduct (2) of an enterprise (3) through a pattern (4) of [9] [10] [11] [12] Such an “association-in-fact enterprise must have at least three structural features: a purpose, racketeering activity.” DeFalco v. Bernas, 244 F.3d 286, relationships among those associated with the enterprise, 306 (2d Cir. 2001) (citations omitted). and longevity sufficient to permit these associates to pursue [5] Because “the mere assertion of a RICO claim has an the enterprise's purpose.” Boyle, 556 U.S. at 946, 129 almost inevitable stigmatizing effect on those named as S.Ct. 2237. *571 Absent these structural requirements, “any defendants,”—and undoubtedly since liability premised on two thieves in cahoots would constitute an association-in- such claims carry with them the threat of treble damages fact.” Foster v. 2001 Real Estate, No. 14-CV-9434 (RWS), and attorneys' fees—civil RICO has often been referred to 2015 WL 7587360, at *4 (S.D.N.Y. Nov. 24, 2015) (citation as the “litigation equivalent of a thermonuclear device.” omitted). That is not to say, however, that a complaint must allege that a particularly organized structure existed. Katzman v. Victoria's Secret Catalogue, 167 F.R.D. 649, Indeed, as the Supreme Court has explained, the existence 655 (S.D.N.Y. 1996) (citations omitted); see, e.g., Palatkevich of an enterprise may be inferred from evidence showing that v. Choupak, 152 F.Supp.3d 201, 216 (S.D.N.Y. 2016); persons associated with the enterprise engaged in a pattern Turner v. N.Y. Rosbruch/Harnik, Inc., 84 F.Supp.3d 161, 168 (E.D.N.Y. 2015). Accordingly, courts are encouraged to of racketeering activity. Boyle, 556 U.S. at 947, 129 S.Ct. dismiss RICO allegations at an early stage of the litigation 2237; see also Turkette, 452 U.S. at 583, 101 S.Ct. 2524 where it is otherwise appropriate to do so. Katzman, 167 (noting that while the enterprise must exist “separate and apart from the pattern of activity in which it engages,” the “proof F.R.D. at 655 (quoting Figueroa Ruiz v. Alegria, 896 F.2d used to establish these separate elements may in particular 645, 650 (1st Cir. 1990) ). In addition, RICO claims premised on mail and wire fraud merit heightened scrutiny in light of cases coalesce”); United States v. Coonan, 938 F.2d 1553, “the routine use of mail and wire communications in business 1559 (2d Cir. 1991) (“[T]he existence of an association- operations” and the attendant ease with which a plaintiff may in-fact is oftentimes more readily proven by what it does, attempt to fashion a RICO claim based on allegations that may rather than by abstract analysis of its structure.”) (citation turn out to be insufficient to plausibly support one. Crawford and quotation marks omitted). Nonetheless, to survive a v. Franklin Credit Mgmt. Corp., 758 F.3d 473, 489 (2d Cir. motion to dismiss, the allegations in the complaint must at a 2014) (citation omitted). minimum establish an enterprise that is “more than the sum of the participants in a series of independent [predicate acts].”

A. Enterprise Cedar Swamp Holdings, Inc. v. Zaman, 487 F.Supp.2d [6] [7] [8] A RICO “enterprise” is defined to “include[ ] 444, 452 (S.D.N.Y. 2007). any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated B. Pattern of Racketeering Activity in fact although not a legal entity.” 18 U.S.C. § 1961(4). [13] [14] To allege a “pattern of racketeering activity,” An enterprise need not be a formal legal entity, nor must RICO requires proof of two or more predicate acts that it have a “hierarchical structure or a ‘chain of command.’ occurred within ten years of each other. 18 U.S.C. ” Boyle v. United States, 556 U.S. 938, 948, 129 S.Ct. § 1961(5). “Racketeering activity,” in turn, is defined to 2237, 173 L.Ed.2d 1265 (2009). Rather, it may consist of “ ‘a “encompass dozens of state and federal offenses, known group of persons associated together for a common purpose in RICO parlance as predicates.” RJR Nabisco, Inc. v. of engaging in a course of conduct,’ the existence of which European Cmty., ––– U.S. ––––, 136 S.Ct. 2090, 2096, is proven by ‘evidence of an ongoing organization, formal or 195 L.Ed.2d 476 (2016). “These predicates include any act informal, and by evidence that the various associates function ‘indictable’ under specified federal statutes,” such as those as a continuing unit.’ ” 9 First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159, 173 (2d Cir. 2004) (quoting

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 10 Equinox Gallery Limited v. Dorfman, 306 F.Supp.3d 560 (2018) 94 UCC Rep.Serv.2d 946 relating to mail and wire fraud, among others. Id.; see also [19] [20] “To state a mail and wire fraud claim under RICO, 18 U.S.C. § 1961(1). a plaintiff must allege that the defendant made two predicate communications, via interstate commerce, that constitute a [15] [16] To meet the “pattern of racketeering activity” pattern of racketeering activity.” Mills v. Polar Molecular element, a plaintiff must allege that the predicate acts have Corp., 12 F.3d 1170, 1176 (2d Cir. 1993) (citation omitted); “continuity plus relationship which combines to produce a see also 18 U.S.C. §§ 1341, 1343; McLaughlin v. pattern.” H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239, Anderson, 962 F.2d 187, 190–91 (2d Cir. 1992) (“To prove a 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989) (citation omitted). violation of the mail fraud statute, plaintiffs must establish the This so-called continuity requirement “can be satisfied either existence of a fraudulent scheme and a mailing in furtherance by showing a ‘closed-ended’ pattern—a series of related of the scheme.”). Those allegations “should state the contents predicate acts extending over a substantial period of time— of the communications, who was involved, where and when or by demonstrating an ‘open-ended’ pattern of racketeering they took place, and explain why they were fraudulent.” activity that poses a threat of continuing criminal conduct beyond the period during which the predicate acts were Mills, 12 F.3d at 1176. performed.” Spool v. World Child Int'l Adoption Agency, The RICO statute defines racketeering activity to include, 520 F.3d 178, 183 (2d Cir. 2008) (citations omitted). Here, inter alia, acts indictable under Sections 2314, 2315 , and Plaintiff does not advance an argument that Defendants engaged in an open-ended pattern of racketeering activity. 2318 of Title 18 of the United States Code. See 18 U.S.C. (Pl.'s Mem. in Opp'n. of Mot. to Dismiss (“Pl.'s Mem.”), ECF § 1961(1). Section 2314 prohibits, among other things, the No. 30, at 21 n.8.) Accordingly, the analysis below will focus interstate or foreign transport of stolen goods valued at $5,000 only on whether the complaint adequately alleges a closed- or more. Id. § 2314. Section 2315 prohibits the knowing end pattern of racketeering activity. receipt, sale, concealment, possession, or disposition of stolen goods that have been transported interstate or abroad after [17] [18] As noted, to demonstrate closed-end continuity, a being stolen, unlawfully converted, or taken. Id. § 2315. plaintiff must allege “a series of related predicates extending Section 2318 prohibits trafficking in counterfeit labels affixed to works of visual art. Id. § 2318. over a substantial period of time.” Cofacredit, S.A. v. Windsor Plumbing Supply Co., Inc., 187 F.3d 229, 242 (citation omitted) (emphasis added). Closed-end continuity is D. Plaintiff's Allegations State a Claim Under RICO primarily a temporal concept, and while not a bright-line rule, Defendants incorrectly argue that Plaintiff's RICO claims the Second Circuit has “never held a period of less than two must be dismissed because the complaint's allegations years to constitute a ‘substantial period of time.” Spool, fail to establish that Defendants engaged in predicate 520 F.3d at 184 (citation omitted). The mere fact, however, acts with sufficient continuity to constitute a “pattern of that predicate acts span two-years is *572 insufficient, racketeering activity,” and that the purported “association- without more, to establish a pattern of racketeering activity. in-fact” enterprise between Meyer, Dorfman, and Dorfman's business entities existed independently of the activity in First Capital, 385 F.3d at 181. Other factors, “such as which its members engaged. (Defs.' Mem. at 7–14.) the number and variety of predicate acts, the number of both participants and victims, and the presence of separate [21] First, the complaint adequately alleges that Dorfman, schemes are also relevant in determining whether closed- by and through his business entities, and Meyer engaged ended continuity exists.” DeFalco, 244 F.3d at 321. in a closed-end pattern of racketeering activity. Specifically, Plaintiff alleges that from 2006 through at least February 2012, Dorfman and Meyer knowingly sold and caused to C. Predicate Acts be transported thirty-seven stolen Jasper Johns artworks to Plaintiff alleges that Defendants engaged in at least four more than twenty purchasers in the United States and around predicate acts: mail fraud, wire fraud, transporting stolen the globe. (Compl. ¶¶ 163–65, 169–211.) Plaintiff alleges goods, and trafficking in counterfeit labels with respect to further that the predicate acts of mail fraud, wire fraud, works of visual art. (Compl. ¶ 167.) and interstate transportation of stolen goods had a similar

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 11 Equinox Gallery Limited v. Dorfman, 306 F.Supp.3d 560 (2018) 94 UCC Rep.Serv.2d 946 purpose, similar methods of commission, similar victims, and a fraudulent enterprise to sell forged art). Finally, Plaintiff similar results—namely, the sale of stolen artwork for profit has alleged that the enterprise had sufficient longevity—over six years—to permit its associates, Meyer and Dorfman, to to unsuspecting buyers. See H.J., Inc., 492 U.S. at 240, pursue the enterprise's purpose of selling stolen Jasper Johns 109 S.Ct. 2893. Plaintiff's allegations identify in sufficient artwork to unsuspecting buyers. Indeed, in January 2010, detail the roles that Dorfman and Meyer each played in the when it appeared that they were at risk of being caught, Meyer scheme, including Meyer's role in stealing the artworks and and Dorfman joined forces to conceal their scheme and ensure signing the knowingly false affidavits attesting to his status the enterprise's survival. Plaintiff has thus adequately alleged as their rightful owner, and Dorfman's role in finding buyers, the existence of an association-in-fact enterprise consisting negotiating the sales, and shipping the *573 stolen artwork of Meyer, Dorfman, and Dorfman's business entities, See to their respective purchasers, as well as the precise nature of their fraudulent statements and conduct. (See Compl. ¶¶ 50– Boyle, 556 U.S. at 946, 129 S.Ct. 2237. 66, 79, 163–65, 169–211.) Accordingly, Plaintiff's complaint plausibly states a RICO That the scheme involved “little variety” in the fraudulent claim sufficient to defeat Defendants' motion to dismiss. 10 acts, may have been committed by only two individual actors, and involved the stolen artwork of just one artist, (Defs.' Mem. at 10–11), is of little consequence, “Courts have routinely found that continuity exists where the alleged scheme spans IV. PLAINTIFF'S STATE LAW CLAIMS such a substantial period of time, even where only a single Apart from its RICO claims, Plaintiff also asserts state law victim or single scheme was involved.” Marini v. Adamo, claims against all Defendants for fraud, breach of warranty, 812 F.Supp.2d 243, 253, 262–63 (E.D.N.Y. 2011) (finding 11 closed-end continuity where the plaintiff alleged that the *574 and unilateral mistake. (Compl. ¶¶ 103–49, 244– defendants engaged in a single scheme to defraud at least five 65.) victims over six years for a total alleged loss of approximately $14.5 million, and collecting cases). Moreover, Defendants' A. Plaintiff's Breach of Warranty Claim characterization of the Meyer/Dorfman plot as “a discrete scheme with a narrow purpose,” (Defs.' Mem. at 11), ignores the magnitude of Plaintiff's allegation that Meyer and 1. Plaintiff's Breach of Warranty Claim Dorfman worked in tandem to defraud more than twenty is Untimely Under U.C.C. § 2–725 victims over six years to the tune of more than $9 million. [23] Plaintiff's sixth cause of action is for breach of warranty Plaintiff has therefore adequately alleged that Dorfman and under Sections 2–312 and 2–313 of the Uniform Commercial Meyer engaged in a pattern of racketeering activity. Code (“UCC”). (Compl. ¶¶ 244–45.) Article 2 of the UCC governs the sale of goods, including the sale of fine art. [22] Second, Plaintiff has sufficiently alleged that an association-in-fact enterprise existed consisting of Meyer, See N.Y. U.C.C. §§ 2–102, 2–105; De Sole v. Knoedler Dorfman, and Dorfman's business entities. Plaintiff alleges Gallery, LLC, 974 F.Supp.2d 274, 316–17 (S.D.N.Y. 2013). that Meyer and Dorfman shared a common purpose and Section 2–312 provides that “there is in a contract for sale a goal of selling stolen art for profit. It has also alleged warranty by the seller that the title conveyed shall be good, and articulated with sufficient detail the nature of the and its transfer rightful.” Id. § 2–312(1). Under Section 2– relationships between Meyer, Dorfman, Dorfman's entities, 313, “[a]ny affirmation of fact or promise made by the seller and the enterprise. In particular, Plaintiff alleges that Meyer to the buyer which relates to the goods and becomes part of the was responsible for providing the stolen artwork and signing basis of the bargain creates an express warranty that the goods affidavits as to their “authenticity,” while Dorfman, by and shall conform to the affirmation or promise.” Id. § 2–313(1) through his business entities—the name, reputation and (a). “[T]o demonstrate that an express warranty was created resources of which were critical to enabling the enterprise under New York law, a plaintiff must prove that the statement to succeed—would present those works to interested buyers. falls within the definition of warranty, that she relied on it, and See De Sole v. Knoedler Gallery, LLC, 137 F.Supp.3d 387, that it became part of the basis for the bargain.” Kraft v. Staten 404 (S.D.N.Y. 2015) (noting that an art gallery's “blue-chip Island Boat Sales, Inc., 715 F.Supp.2d 464, 473 (S.D.N.Y. reputation was a key element of the enormous success” of 2010) (citation and quotation marks omitted).

Plaintiff's breach of warranty claim is time-barred under [28] Here, Plaintiff argues that equitable tolling should be Section 2–725 of the UCC. (See Defs.' Mem. at 15–16.) applied because Defendants perpetrated a fraud that was self- Section 2–725 provides that “[a]n action for breach of any concealing, and because they took additional steps to conceal contract for sale [governed by Article 2 of the UCC] must be from Plaintiff the existence of the cause of action. (Pl.'s Mem. commenced within four years after the cause of action has at 23.) In particular, Plaintiff claims it was lulled into inaction accrued.” N.Y. U.C.C. § 2–725(1). “A cause of action accrues by: (1) the purchase agreement's confidentiality clause; (2) when the breach occurs, regardless of the aggrieved party's the January 20, 2010 email from Meyer indicating that the lack of knowledge of the breach[,]” and a “breach of warranty artworks were “given” to him; (3) the February 2, 2010 email occurs when tender of delivery is made.” Id. § 2–725(2). from Dorfman's wife indicating that the artwork was a gift from Jasper; and (4) the September 2011 certification that the [24] Plaintiff's claim is plainly barred by Article 2's statute sold artwork would be included in the Jasper Johns' catalogue of limitations. Plaintiff purchased the artwork at issue on or raisonne. (Id. at 23–24.) about January 15, 2008, and commenced this action almost nine years later, on January 11, 2017. The tolling agreement Although it is unclear whether the confidentiality agreement entered into by Defendants and the art advisor cannot save described in the complaint even prohibited Plaintiff from Plaintiff's breach of warranty claim; it only tolled the time independently verifying the provenance of the purchased period from August 1, 2012, through August 1, 2016. Because artwork, it is undisputed that it was tendered to Plaintiff more than four years elapsed between January 15, 2008, in connection with the sale of the artwork itself. Equitable and August 1, 2012, Plaintiff's breach of warranty claim is tolling is appropriate, however, only where the alleged untimely. misconduct comes after—and is entirely distinct from—the events giving rise to the underlying claim. See Corsello, 944 N.Y.S.2d 732, 967 N.E.2d at 1184. Accordingly, the 2. Equitable Tolling Does Not Apply confidentiality clause cannot provide an adequate basis for equitable tolling. 13 [25] [26] [27] Nevertheless, Plaintiff urges that the statute of limitations be tolled as a result of Defendants' fraudulent [29] For the same reasons, Plaintiff cannot benefit from concealment of the artwork's true origin. (Pl.'s Mem. at 23– the January 20, 2010 and February 2, 2010 emails; those 25.) “Under New York law, the doctrines of equitable tolling statements were “made in an effort to sell more forged or equitable estoppel may be invoked to defeat a statute of paintings, rather than to conceal Defendants' prior fraud.” limitations defense when the plaintiff was induced by fraud, Martin Hilti Family Tr. v. Knoedler Gallery, LLC, 137 misrepresentations or deception to refrain from filing a timely F.Supp.3d 430, 469 (S.D.N.Y. 2015). In support of their action.” 12 *575 Abbas v. Dixon, 480 F.3d 636, 642 (2d motion to dismiss, Defendants have submitted copies of the Cir. 2007) (citation and quotation marks omitted). In other complete emails referenced in the complaint, all of which words, a plaintiff “must show that the defendant wrongfully explicitly reference paintings different from the one Plaintiff concealed its actions, such that plaintiff was unable, despite purchased in January 2008. (See Letter to the Court from due diligence, to discover facts that would allow him to Gerald J. Di Chiara dated June 14, 2017, ECF No. 37, bring his claim in a timely manner, or that defendant's Exs. 4–5 (discussing a Jasper Johns painting identified as actions induced plaintiff to refrain from commencing a timely an *576 “Untitled 1982 triptych on canvas”).) Even on a action.” De Sole, 974 F.Supp.2d at 318. In addition, a motion to dismiss, where a document cited in the complaint plaintiff must establish that it was the defendants' subsequent is inconsistent with the allegations set forth in the complaint, actions—“separate from the ones for which they sue”—that “the document, not the allegations, control, and the court need not accept the allegations in the complaint as true.” kept it from bringing suit, Corsello v. Verizon N.Y., Inc., 18 N.Y.3d 777, 944 N.Y.S.2d 732, 967 N.E.2d 1177, 1184 (2012) TufAmerica, Inc. v. Diamond, 968 F.Supp.2d 588, 592 (citations omitted), and that its reliance on the subsequent (S.D.N.Y. 2013) (citation and quotation marks omitted). Accordingly, these emails provide no basis for equitable misrepresentations was “reasonable.” Zumpano v. Quinn, tolling. See Hilti, 137 F.Supp.3d at 468–69 (denying equitable 6 N.Y.3d 666, 816 N.Y.S.2d 703, 849 N.E.2d 926, 929 (2006). tolling where defendant sought to sell additional fake Rothko

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 13 Equinox Gallery Limited v. Dorfman, 306 F.Supp.3d 560 (2018) 94 UCC Rep.Serv.2d 946 paintings by referencing a prior fraudulent sale of a Rothko fraud and breach of warranty, both of which the district court from “the same source”). dismissed under the UCC's four-year statute of limitations. Id. at 29. On appeal, the Second Circuit agreed that the Finally, the September 2011 certification, allegedly prepared breach of warranty claim was untimely but reversed as to almost four years after the sale, is by itself insufficient to justify equitable tolling. Moreover, there is no allegation in the fraud claim. Id. at 30. The court began its analysis by the complaint that the certification was ever provided to observing that under New York law, a plaintiff may not assert Plaintiff, much less that Plaintiff relied on it in sleeping “fraud claims that are merely incidental to claims for breach on its rights. See Twersky v. Yeshiva Univ., 993 F.Supp.2d of contract.” Id. at 35. The court went on, however, to find 429, 442–43 (S.D.N.Y. 2014) (“In order to invoke equitable *577 that since the plaintiffs' fraud claim was, as here, a estoppel, a plaintiff must ... demonstrate reasonable reliance claim that they had been fraudulently induced into purchasing on the defendant's misrepresentations[.]”); see also Hilti, 137 the painting, it was “separate and distinct from a claim for F.Supp.3d at 469 (declining to apply equitable tolling where breach of contract under New York law,” and thus subject to the plaintiff failed to allege that it even knew of the subsequent fraudulent statement). the longer statute of limitations for fraud claims. Id. at 35– 36 & n.2 (citations omitted). Other courts have ruled similarly Plaintiff's breach of warranty claim is therefore DISMISSED with respect to fraud and mistake claims in circumstances as untimely. akin to those alleged here. See, e.g., Rouse v. Elliot Stevens, Ltd., No. 13-CV-1443 (SN), 2016 WL 8674688, at *4–5 (S.D.N.Y. June 24, 2016) (dismissing breach of contract claim B. Plaintiff's Remaining State Law Claims as untimely but allowing fraud claim to proceed since the Defendants argue that Plaintiff's fraud and mistake claims plaintiff's fraudulent inducement claim was “separate and should be dismissed as duplicative of their claim for breach distinct from [its] breach of contract claim”); Hilti, 137 of warranty. (See Defs.' Mem. at 22–24.) In the alternative, F.Supp.3d at 459, 465–66 (analyzing timeliness of breach Defendants argue that this Court should dismiss Plaintiff's of warranty claim under Section 2–725 of the UCC and of fraud-based and mistake claims as time-barred since they fraud and mistake claims separately under Section 213 arise from the same facts as its breach of warranty claim and are thus governed by the UCC's four-year statute of New York's Civil Practice Law and Rules); De Sole, 974 F.Supp.2d at 317–20 (allowing mistake claims to proceed of limitations. 14 (Id. at 16.) Defendants also argue that but dismissing breach of warranty claim as untimely under Plaintiff's fraud-based claims should be dismissed for failing Section 2–725 of the UCC). to comply with Rule 9(b)'s heightened pleading requirements. (Id. at 24–25.) Accordingly, this Court finds that Plaintiff's fraud and mistake claims are sufficiently distinct from the facts and circumstances giving rise to its breach of warranty claim 1. Plaintiff's Fraud and Unilateral Mistake and are thus not governed by the UCC's four-year statute of Claims are Properly Before This Court limitations. 15 In New York, a cause of action based upon mistake must be brought within six years, while an action As an initial matter, insofar as Plaintiff's breach of warranty based on fraud must be commenced within “six years from claim has already been dismissed, Defendants' argument that the date the cause of action accrued or two years from the time the fraud-based and mistake claims are duplicative of its the plaintiff or the person under whom the plaintiff claims breach of warranty claim fails. discovered the fraud, or could with reasonable diligence have [30] Defendants' alternative argument that Section 2–725 of discovered it.” N.Y. C.P.L.R. § 213(6), (8). It is undisputed the UCC governs Plaintiff's fraud and mistake claims fails, that Plaintiff purchased the artwork at issue on or about too; indeed, that argument was considered and rejected by January 15, 2008, and that the tolling agreement entered into by Defendants and the art advisor tolled the statute of the Second Circuit in Rosen v. Spanierman, 894 F.2d 28 limitations from August 1, 2012, through August 1, 2016. (2d Cir. 1990). In Rosen, the plaintiffs were buyers of a Because this action was filed on January 11, 2017, Plaintiff's painting that turned out to be a fake. They asserted claims for fraud and mistake claims are timely.

De Sole, 974 F.Supp.2d at 313 (same). Here, Defendants are a highly esteemed art gallery and, at the time of the sale, 2. Plaintiff Has Satisfied Rule 9(b) Meyer, the purported seller, held himself out both as having good title and as Jasper Johns' aide for twenty-four years; [31] Under New York law, “a claim for fraud consists of under these circumstances, it is by no means clear how or five elements: (1) misrepresentation of a material fact; (2) why Plaintiff should have suspected that the sale was not the falsity of that misrepresentation; (3) scienter, or intent to legitimate. defraud; (4) reasonable reliance on that representation; and (5) damage caused by such reliance.” Kottler v. Deutsche Further, Meyer's claim of good title to the artwork is certainly Bank AG, 607 F.Supp.2d 447, 462 (S.D.N.Y. 2009) (citation a matter uniquely within his knowledge and one which and quotation marks omitted). As noted, Rule 9(b) of the presented few viable options for ascertaining its truth. To Federal Rules of Civil Procedure requires a plaintiff asserting be sure, Plaintiff does not allege that it ever tried to contact a fraud claim to “state with particularity the circumstances Meyer to verify his claims, but doing so would likely have constituting fraud,” including an explanation of why the been seen as unnecessary in light of the affidavit he provided. Moreover, requiring Plaintiff to have reached out to Jasper statements were fraudulent. Fed R. Civ. P. 9(b); Kottler, Johns himself to ascertain the artwork's authenticity and 607 F.Supp.2d at 462. Here, the only apparent element in verify Meyer's title to it seems both unduly burdensome dispute is whether Plaintiff's reliance was reasonable. and impractical, not to mention in contravention of accepted industry norms. See Joseph P. Carroll Ltd. v. Baker, 889 [32] [33] [34] “In assessing the reasonableness of a F.Supp.2d 593, 602 (S.D.N.Y. 2012). plaintiff's alleged reliance,” *578 courts “consider the entire context of the transaction, including factors such Defendants argue that Plaintiff has failed to meet its burden as its complexity and magnitude, the sophistication of of demonstrating that its reliance was reasonable because “it the parties, and the content of any agreements between has not pled any facts about its diligence procedures.” (Defs.' them.” Emergent Capital Inv. Mgmt., LLC v. Stonepath Mem. at 24.) Plaintiff, however, alleges that it reasonably Grp., Inc., 343 F.3d 189, 195 (2d Cir. 2003) (citation relied on Meyer's affidavit, which Defendants prepared and omitted). Where “matters are held to be peculiarly within provided to the art advisor, because it lacked adequate means defendant's knowledge, it is said that plaintiff may rely [on of verifying Meyer's assertions since the fact that the artwork his representations] without prosecuting an investigation, as was stolen was known only to Meyer—the purported owner he had no independent means of ascertaining the truth.” —and Dorfman. (Compl. ¶¶ 75, 103, 106, 111.) In addition, Plaintiff alleges that because the artwork was in fact created Crigger v. Fahnestock & Co., 443 F.3d 230, 234 (2d Cir. by Jasper Johns, and because it is common for artists to 2006) (citation and quotation marks omitted). By contrast, baiter or gift works to their aides, it was reasonable to “[a] plaintiff cannot close his eyes to an obvious fraud, believe the work was authentic and that Meyer held good and cannot demonstrate reasonable reliance without making title. (Id. ¶¶ 62, 74.) Whether Plaintiff engaged in particular inquiry and investigation if he has the ability, through “diligence procedures,” as Defendants characterize them, is ordinary intelligence, to ferret out the reliability or truth” of beside the point; all Plaintiff must show is that its reliance was the defendant's statements. Id. reasonable, which it may do without explaining the precise nature and extent, if any, of its due diligence. Ultimately, [35] Whether Plaintiff's reliance on Defendants' whether Plaintiff's reliance was reasonable remains a question representations was reasonable cannot be resolved as a for the trier of fact to decide after weighing all the relevant matter of law on Defendants' motion to dismiss. Indeed, as facts and circumstances surrounding the transaction. the Second Circuit has counseled, “[t]he question of what constitutes reasonable reliance is always nettlesome because it is so fact-intensive.” Schlaifer Nance & Co. v. Estate *579 V. PLAINTIFF'S DEMAND of Warhol, 119 F.3d 91, 98 (2d Cir. 1997); see also Hilti, FOR PUNITIVE DAMAGES 137 F.Supp.3d at 483 (denying motions to dismiss plaintiff's fraud claims and finding question of fact on issue of reliance); Finally, Defendants ask this Court to strike Plaintiff's demand for punitive damages since “[t]he simple misrepresentation

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 15 Equinox Gallery Limited v. Dorfman, 306 F.Supp.3d 560 (2018) 94 UCC Rep.Serv.2d 946 of a piece of artwork's provenance, whether intentional or victims, including Plaintiff, out of more than $9 million. unintentional, is not an extraordinary act that should subject Indeed, Dorfman's associate in the enterprise was indicted for a defendant to punitive damages.” (Defs. Mem. at 25.) his conduct and sentenced to a term of incarceration. Finally, Plaintiff has alleged that the pattern of tortious activity targeted members of the public both at home and abroad. [36] [37] A party's entitlement to punitive damages is not automatic. Rather, where, as here, an action “has its genesis Punitive damages may therefore be an appropriate remedy in in the contractual relationship between the parties,” a plaintiff this case. See Ball v. Cook, No. 11-CV-5926 (RJS), 2012 seeking punitive damages must show that “(1) defendant's WL 4841735, at *11–13 (S.D.N.Y. Oct. 9, 2012) (awarding $1 conduct must be actionable as an independent tort; (2) the million in punitive damages to an art collector whose works tortious conduct must be [sufficiently] egregious ...; (3) the had been sold without his knowledge or consent); Artcurial, egregious conduct must be directed to plaintiff; and (4) it must S.A. v. Lowenthal, 763 F.Supp. 768, 769–70 (S.D.N.Y. 1991) be part of a pattern directed at the public generally.” N.Y. (awarding $100,000 in punitive damages to a plaintiff who Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 639 N.Y.S.2d 283, purchased fake artwork held out to be authentic). 662 N.E.2d 763, 767 (1995). To merit an award of punitive damages, a plaintiff must show that the tortious conduct “is gross and involves high moral culpability.” Walker v. VI. CONCLUSION Sheldon, 10 N.Y.2d 401, 223 N.Y.S.2d 488, 179 N.E.2d 497, Defendants' Motion to Dismiss is GRANTED as to Plaintiff's 499 (1961); see also Rocanova v. Equitable Life Assurance claim for breach of warranty and DENIED in all other Soc'y of U.S., 83 N.Y.2d 603, 612 N.Y.S.2d 339, 634 N.E.2d respects. Plaintiff's sixth cause of action for breach of 940, 943 (1994) (holding that punitive damages are available warranty is therefore DISMISSED with prejudice. where a fraud “evince[es] a high degree of moral turpitude and demonstrate[es] such wanton dishonesty as to imply a The Clerk of Court is directed to close the motion at ECF No. criminal indifference to civil obligations”) (citation omitted). 21 accordingly.

[38] Plaintiff's allegations provide a sufficient basis for a SO ORDERED. jury to award punitive damages. Defendants' alleged tortious conduct is actionable as an independent tort and involved high moral culpability. Over the course of six years, Defendants All Citations engaged in an elaborate scheme to swindle over twenty 306 F.Supp.3d 560, 94 UCC Rep.Serv.2d 946

Footnotes 1 Although Fred Dorfman has always operated Fred Dorfman, Inc. as “Dorfman Projects,” he never formed the defendant- company known as “Dorfman Projects LLC” until well after the events at issue in this case concluded. (See Compl. ¶¶ 21, 23–24.) For the sake of clarity, and because it is alleged that at all relevant times Fred Dorfman exercised complete dominion and control over both entities, the names “Fred Dorfman, Inc.,” “Dorfman Projects,” and “Dorfman Projects LLC” are used interchangeably throughout this memorandum decision and order. (See id. ¶¶ 23–29.) 2 The principal place of Dorfman's business is in nearby New York City. (Compl. ¶ 21.) 3 The complaint alleges that Dorfman's wife, Susan Spagna, notarized each affidavit. (See Compl. ¶ 53.) During oral argument, however, plaintiff's counsel asserted that Ms. Spagna, an attorney by trade, drafted the affidavits, as well. (Oral Arg. Tr., ECF No. 43, at 51:15–52:1.) 4 “A catalogue raisonne is regarded as a definitive catalogue of the works of a particular artist; inclusion of a painting in a catalogue raisonne serves to authenticate the work, while non-inclusion suggests that the work is not genuine.” Kirby v. Wildenstein, 784 F.Supp. 1112, 1113 (S.D.N.Y. 1992). 5 The art adviser is identified in the complaint only as a “Midwest corporation owned by a non-New York resident.” (Compl. ¶ 19.) 6 To ensure that the identities of the buyer and seller be kept confidential, as is common practice in private art sales, the transaction was memorialized by two invoices: one from Dorfman to the art advisor and one from the art advisor to

Plaintiff. The invoice sent to Plaintiff from the art advisor included a fictitious inventory number for the artwork that was provided by Dorfman. (Compl. ¶¶ 68–70.) 7 “In deciding a motion to dismiss under Rule 12(b)(6), the court may refer ‘to documents attached to the complaint as an exhibit or incorporated in it by reference, to matters of which judicial notice may be taken, or to documents either in plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit.’ ” Fishbein v. Miranda, 670

F.Supp.2d 264, 271 (S.D.N.Y. 2009) (quoting Brass v. Am. Film Tech., Inc., 987 F.2d 142, 150 (2d Cir. 1993) ).

8 The RICO statute also makes it unlawful to conspire to engage in such activity. See 18 U.S.C. § 1962(d).

9 In addition, the enterprise must be engaged in, or its activities must affect, interstate or foreign commerce. See 18 U.S.C. § 1962(c). Under well-settled Second Circuit case law, this requirement is met so long as the plaintiff can show

a “minimal effect on interstate commerce.” DeFalco v. Bernas, 244 F.3d 286, 309 (2d Cir. 2001). Here, Plaintiff has alleged that Meyer transported the stolen Jasper Johns artwork from Johns' studio in Connecticut to Dorfman's place of business in New York and that they sold it to Plaintiff, who is located in Vancouver. (Compl. ¶¶ 169–71.) Accordingly, Plaintiff has sufficiently alleged an impact on interstate commerce. 10 Defendants seek dismissal of Plaintiff's fifth cause of action for RICO conspiracy by arguing that such a claim must be dismissed where a complaint fails to establish a “substantive claim for civil RICO.” (Defs.' Mem. at 15.) Since, for the reasons stated above, Plaintiff's complaint states a claim under RICO, Plaintiff's RICO conspiracy claim survives Defendants' motion to dismiss. 11 Plaintiff's state law claims properly invoke this Court's diversity jurisdiction; the amount in controversy exceeds $75,000 and Plaintiff is a resident of a foreign state while Defendants are all residents of New York. See 28 U.S.C. § 1332(a). When a federal district court sits in diversity, it generally applies the substantive law of the state in which it sits.

Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996). Accordingly, and because the parties suggest no alternative, Plaintiff's state law claims are analyzed under New York law. 12 Since Plaintiff's breach of warranty claim arises under New York law, this Court applies New York's equitable tolling doctrine. See Statistical Phone Philly v. NYNEX Corp., 116 F.Supp.2d 468, 482 (S.D.N.Y. 2000) (citation omitted). 13 Plaintiff's reliance on De Sole v. Knoedler Gallery, LLC, 137 F.Supp.3d 387 (S.D.N.Y. 2015), is inapposite. (Pl.'s Mem. at 23.) The court in De Sole seemed to suggest that equitable tolling may be appropriate where the fraudulent act is

self-concealing, relying on New York v. Hendrickson Bros., 840 F.2d 1065 (2d Cir. 1988). 137 F.Supp.3d at 423. As another court has pointed out, however, that proposition seems to be in tension with well-settled New York case law holding that, to invoke equitable tolling of the statute of limitations, “a plaintiff may not rely on the same act that forms the basis for the claim—the later fraudulent misrepresentation must be for the purpose of concealing the former tort.” Fertitta

v. Knoedler Gallery, LLC, No. 14-CV-2259 (JPO), 2015 WL 374968, at *9 (S.D.N.Y. Jan. 29, 2015) (citing Ross v. Louise Wise Servs., Inc., 8 N.Y.3d 478, 836 N.Y.S.2d 509, 868 N.E.2d 189, 198 (2007) ). 14 Although Plaintiff asserts three distinct causes of action for “fraud,” “aiding and abetting fraud,” and “fraudulent concealment,” (see Compl. ¶¶ 103–49), Defendants, in seeking their dismissal, treat them as one, referring to them simply as Plaintiff's “fraud-based claims.” (See Defs.' Mem. at 16–24.) Accordingly, this Court's analysis does not differentiate between Plaintiff's fraud claims.

15 Plaintiff's reliance on Wuhu Import & Export Corp. v. Capstone Capital LLC, 39 A.D.3d 314, 834 N.Y.S.2d 129 (1st

Dep't 2007), is misplaced. In Wuhu, the causes of action for fraud and breach of contract were “all premised on the

same allegation, namely, nonpayment for goods.” 39 A.D.3d at 315, 834 N.Y.S.2d 129. Here, by contrast, the fraud and mistake claims are based on independent representations that were made before the parties even entered into a

contract and are thus distinct from Plaintiff's claim that Defendants intentionally breached its warranty. See Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737, 743–44 (2d Cir. 1979) (“New York law recognizes the right to plead contract and tort causes of action arising out of a single transaction, although different statutes of limitation may apply to the separate claims.”).

Procedural Posture(s): Motion for Summary Judgment. 386 F.Supp.3d 319 United States District Court, S.D. New York. West Headnotes (37) The MARTIN HILTI FAMILY TRUST, Plaintiff, v. KNOEDLER GALLERY, LLC d/b/a [1] Federal Civil Procedure Knoedler & Company et al., Defendants. Materiality and genuineness of fact issue Frances Hamilton White, Plaintiff, A dispute about a genuine issue exists for v. summary judgment purposes where the evidence Ann Freedman et al., Defendants. is such that a reasonable jury could decide in the non-movant's favor. Fed. R. Civ. P. 56(a). 13 Civ. 0657 (PGG), 13 Civ. 1193 (PGG) | Signed 05/08/2019 [2] Federal Civil Procedure Weight and sufficiency Synopsis Where the non-moving party will bear the Background: Buyers of allegedly forged paintings from burden of proof at trial, Federal Rule of Civil art gallery brought action against owner of gallery, Procedure governing summary judgment permits owner's sole member, and member's sole shareholder, the moving party to point to an absence of alleging claims under the Racketeer Influenced and Corrupt evidence to support an essential element of the Organizations Act (RICO), and state law causes of action non-moving party's claim. Fed. R. Civ. P. 56. for fraud, fraudulent concealment, aiding and abetting fraud, fraud conspiracy, and conspiracy to commit fraudulent concealment. Defendants moved for summary judgment. [3] Federal Civil Procedure Weight and sufficiency A party may not rely on mere speculation or Holdings: The District Court, Paul G. Gardephe, J., held that: conjecture as to the true nature of the facts to overcome a motion for summary judgment. Fed. [1] shareholder of sole member of art gallery's owner was not R. Civ. P. 56. liable for violation of RICO Act or conspiracy to violate civil RICO statute;

[2] shareholder was not liable to foreign trust from [4] Federal Civil Procedure Liechtenstein, the buyer of painting, for claims alleging Weight and sufficiency violation of RICO Act or conspiracy to violate civil RICO On a motion for summary judgment, mere statute; conclusory allegations or denials cannot by themselves create a genuine issue of material fact [3] shareholder was not liable for fraud-based claims; where none would otherwise exist. Fed. R. Civ. P. 56. [4] genuine issue of material fact precluded summary judgment for owner as to issue of successor liability; and [5] Federal Civil Procedure [5] genuine issues of material fact precluded summary Ascertaining existence of fact issue judgment on painting buyers' alter ego claim against sole Assessments of credibility and choices between member of LLC. conflicting versions of the events are matters for the jury, not for the court on a motion for summary judgment. Fed. R. Civ. P. 56. Motions granted in part and denied in part.

predicate acts him or herself. 18 U.S.C.A. § 1962(d). [6] Racketeer Influenced and Corrupt Organizations Elements of violation in general [9] Conspiracy Racketeer Influenced and Corrupt Conspiracy to defraud Organizations Racketeer Influenced and Corrupt Persons Entitled to Sue or Recover Organizations To sustain a private cause of action under Association with or participation in Racketeer Influenced and Corrupt Organizations enterprise; control or intent (RICO) Act, a plaintiff must establish: (1) the There was no evidence the shareholder of sole defendant's violation of RICO statute; (2) an member of art gallery's owner, a limited liability injury to the plaintiff's business or property; and company (LLC), managed operations of gallery, (3) causation of the injury by the defendant's engaged in scheme to sell forged paintings violation. 18 U.S.C.A. § 1962. through gallery, or was aware of profits earned by gallery through sale of forged paintings, as required for claims brought by buyers of [7] Racketeer Influenced and Corrupt allegedly forged paintings from gallery against Organizations shareholder, alleging violation of Racketeer Elements of violation in general Influenced and Corrupt Organizations (RICO) Act, as well as conspiracy to violate civil RICO Racketeer Influenced and Corrupt Organizations statute. 18 U.S.C.A. §§ 1962(c), (d). Persons Entitled to Sue or Recover In addition to injury and causation, to establish a civil Racketeer Influenced and Corrupt [10] Conspiracy Organizations (RICO) Act claim, plaintiff Conspiracy to defraud must establish: (1) defendant; (2) through the Racketeer Influenced and Corrupt commission of two or more acts; (3) constituting Organizations a pattern; (4) of racketeering activity; (5) directly Business, property, or proprietary injury; or indirectly participates in; (6) an enterprise; (7) personal injuries the activities of which affect interstate or foreign Foreign trust organized and located in commerce. 18 U.S.C.A. § 1962(c). Liechtenstein did not sustain a “domestic injury” when it purchased an allegedly forged painting from art gallery and, thus, the shareholder of [8] Conspiracy sole member of art gallery's owner, a limited Nature and Elements in General liability company (LLC), was not liable to trust for claims alleging violation of Racketeer To establish a conspiracy to violate the civil Influenced and Corrupt Organizations (RICO) Racketeer Influenced and Corrupt Organizations Act, as well as conspiracy to violate civil RICO (RICO) Act statute, plaintiff must prove: (1) statute; trust relinquished control over its money there existed a conspiracy to commit acts that, in Liechtenstein when it authorized transfer of if successful, would constitute a substantive civil funds to gallery's bank account in New York. RICO violation; (2) defendant agreed to join in, and knowingly participated in, that conspiracy; 18 U.S.C.A. §§ 1962(c), 1962(d). and (3) that defendant acted in furtherance of the conspiracy in some manner, although not necessarily by the commission of any RICO [11] Fraud

Elements of Actual Fraud There was no evidence the shareholder of Under New York law, a fraud claim requires: sole member of art gallery's owner, a limited (1) misrepresentation of a material fact; (2) the liability company (LLC), had actual knowledge falsity of that misrepresentation; (3) scienter, or of an ongoing scheme at gallery to sell forged intent to defraud; (4) reasonable reliance on that paintings, agreed to commit fraud at gallery, or representation; and (5) damage caused by such knowingly and intentionally provided substantial reliance. assistance to those allegedly defrauding gallery's customers, as was required for claims brought by 1 Cases that cite this headnote buyers of allegedly forged paintings from gallery against shareholder alleging fraud, fraudulent concealment, aiding and abetting fraud, aiding [12] Fraud and abetting fraudulent concealment, conspiracy Fraudulent Concealment to commit fraud, and conspiracy to commit The elements of a fraudulent concealment claim fraudulent concealment under New York law. 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; [16] Federal Courts (3) failure to discharge a duty to disclose; (4) Conflict of Laws; Choice of Law scienter; (5) reliance; and (6) damages. In a federal question action where a federal court is exercising supplemental jurisdiction over state claims, the federal court applies the choice-of- [13] Fraud law rules of the forum state. Persons liable Under New York law, aiding and abetting fraud requires: (1) an independent wrong; (2) the aider [17] Action or abettor knows of that wrong's existence; and What law governs (3) substantial assistance be given in effecting that wrong. Under New York law, the first step in a choice of law analysis is to determine whether an actual conflict exists between the laws of the jurisdictions involved; where an actual conflict [14] Conspiracy exists, New York courts seek to apply the law of Nature and Elements in General the jurisdiction with the most significant interest Under New York law, conspiracy requires: (1) a in, or relationship to, the dispute. corrupt agreement between two or more persons; (2) an overt act in furtherance of the agreement; (3) the parties' intentional participation in the [18] Corporations and Business Organizations furtherance of a plan or purpose; and (4) the Pleading resulting damage or injury. To state a claim based on successor liability, a plaintiff must plead enough facts for the Court to infer that one of the exceptions to the general [15] Conspiracy rule finding that a business entity acquiring the Conspiracy to defraud assets from another business generally results in Fraud no successor liability. Knowledge of defendant Fraud Fraudulent Concealment [19] Corporations and Business Organizations Fraud Exceptions to Successor Non-Liability Persons liable

Both Delaware and New York law recognizes the following exceptions to the rule that a business entity acquiring the assets from another business [23] Corporations and Business Organizations generally results in no successor liability; (1) De facto merger where the buyer expressly assumed the debt at Under Delaware law, a plaintiff attempting issue; (2) where the transaction amounted to a to demonstrate a de facto merger meets fraud; (3) where the transaction constitutes a de the “continuity of ownership” requirement if facto merger; or (4) where the successor is a mere shareholders of the predecessor corporation continuation of the predecessor. acquire a direct ownership interest in the 1 Cases that cite this headnote successor corporation. 1 Cases that cite this headnote [20] Corporations and Business Organizations De facto merger [24] Corporations and Business Organizations Under New York law, the hallmarks of a Mere continuation de facto merger include: (1) continuity of The mere continuation exception to the rule ownership; (2) a cessation of ordinary business that a business entity acquiring the assets and dissolution of the acquired corporation as from another business generally results in no soon as possible; (3) assumption by the successor successor liability applies where it is not of the liabilities ordinarily necessary for the simply the business of the original corporation uninterrupted continuation of the business of which continues, but the corporate entity itself, the acquired corporation; and (4) a continuity and there is a common identity of directors, of management, personnel, physical location, stockholders, and the existence of only one assets, and general business operation. corporation at the completion of the transfer. 1 Cases that cite this headnote

[25] Corporations and Business Organizations [21] Corporations and Business Organizations Mere continuation De facto merger Where there is a common identity of directors Under Delaware law, a de facto merger requires and stockholders, and where the predecessor the following elements: (1) one corporation entity transfers not only assets, but also business transfers all of its assets to another corporation; location, employees, management and good will (2) payment is made in stock, issued by the to the successor, the mere continuation exception transferee directly to the shareholders of the to the rule that a business entity acquiring the transferring corporation; and (3) in exchange for assets from another business generally results in their stock in that corporation, the transferee no successor liability is applicable. agreeing to assume all the debts and liabilities of the transferor.

[26] Corporations and Business Organizations Mere continuation [22] Corporations and Business Organizations The underlying theory of the mere continuation De facto merger exception to the rule that a business entity Under New York law, it is sufficient for a plaintiff acquiring the assets from another business attempting to demonstrate a de facto merger to generally results in no successor liability, is that allege that shareholders of the selling corporation if a corporation goes through a mere change in hold even an indirect interest in the assets, in form without a significant change in substance, order to allege continuity of ownership between it should not be allowed to escape liability. selling and acquiring corporations.

[27] Federal Civil Procedure [30] Corporations and Business Organizations Corporations and business organizations Domination or control by shareholder Genuine issue of material fact as to whether Corporations and Business Organizations owner of art gallery, a limited liability company Parent and subsidiary corporations in (LLC), was a “mere continuation” of its general predecessor such that it could be found liable Corporations and Business Organizations under a “mere continuation” theory of successor Disregarding Entity; Piercing Protective liability, under either Delaware or New York Veil law, in connection with sale of forged painting Under Delaware law, the central question precluded summary judgment for owner, as to to determine whether a court may pierce issue of successor liability, in action brought the corporate veil and impose liability on by buyers of allegedly forged paintings from shareholders of corporation or members of gallery, alleging claims under the Racketeer limited liability company (LLC) or subsidiary Influenced and Corrupt Organizations Act entity, is whether the individual or parent (RICO), and state law causes of action for fraud, corporation has complete domination and control fraudulent concealment, aiding and abetting over the entity such that it no longer has legal or fraud, fraud conspiracy, and conspiracy to independent significance of its own. commit fraudulent concealment. 18 U.S.C.A. § 1962(c). [31] Corporations and Business Organizations Justice and equity in general [28] Corporations and Business Organizations Corporations and Business Organizations Liability for acts and debts of company Alter ego in general Under Delaware law, a limited liability company Under the alter ego theory of piercing the (LLC), formed by one or more entities and/ corporate veil, a plaintiff must demonstrate a or individuals as its members, provides limited mingling of the operations of the entity and its liability akin to the corporate form. owner plus an overall element of injustice or unfairness.

[29] Corporations and Business Organizations Reasons and Justifications [32] Corporations and Business Organizations Corporations and Business Organizations Factors Considered Liability for Corporate Debts and Acts Courts consider the following factors in Corporations and Business Organizations determining whether a corporation and its Disregarding Entity; Piercing Protective dominant shareholder operate as a single Veil economic entity, such that it may pierce Corporations and Business Organizations corporate veil and impose liability on Liability for acts and debts of company shareholder: (1) whether the corporation was adequately capitalized for the corporate Under Delaware law, the shareholders of a undertaking; (2) whether the corporation was corporation and the members of a limited solvent; (3) whether dividends were paid, liability company (LLC) generally are not liable corporate records kept, officers and directors for the debts of the entity; however, courts functioned properly, and other corporate may pierce the corporate veil where there is formalities were observed; (4) whether the fraud or where the corporation is in fact a mere dominant shareholder siphoned corporate funds; instrumentality or alter ego of its owner.

and (5) whether, in general, the corporation simply functioned as a facade for the dominant [36] Federal Civil Procedure shareholder. Corporations and business organizations Genuine issues of material fact as to whether sole shareholder of sole member of art gallery's [33] Corporations and Business Organizations owner, a limited liability company (LLC), and Justice and equity in general member acted as single economic entity through shareholder's potential siphoning of money from When determining whether a corporation member for personal purchases, such that sole and its dominant shareholder operate as a shareholder could be held liable for gallery's single economic entity, such that it may sale of allegedly forged paintings, as well as pierce corporate veil and impose liability on whether observance of corporate distinctions shareholder, a plaintiff must allege injustice between shareholder and member would result or unfairness that is a result of an abuse of in fundamental injustice precluded summary the corporate form, which is satisfied where judgment on painting buyers' alter ego claim corporation was used to engage in conduct against sole member of LLC under Delaware that was inequitable, prohibited, an unfair trade law. practice, or illegal.

[37] Corporations and Business Organizations [34] Corporations and Business Organizations Single business enterprise Justice and equity in general Under Delaware law, when determining for Corporations and Business Organizations purposes of alter ego claim whether parent Fraud or illegal acts in general and subsidiary corporations were operated as When determining whether a corporation single economic unit, “siphoning” suggests the and its dominant shareholder operate as a improper taking of funds the owner was not single economic entity, such that it may legally entitled to receive. pierce corporate veil and impose liability on shareholder, a plaintiff need not prove the corporation was created with fraud or unfairness in mind; it is sufficient to prove that it was so used. Attorneys and Law Firms

*324 James A. Janowitz, Rebecca Marie Siegel, Ross [35] Federal Civil Procedure McClintic Bagley, Stephanie Rachel Kline, William Laurence Corporations and business organizations Charron, Pryor Cashman LLP, New York, NY, for Plaintiff.

Genuine issues of material fact as to whether Charles David Schmerler, Mark Allen Robertson, India sole member of limited liability company (LLC), DeCarmine, Fulbright & Jaworski L.L.P., Sarah E. O'Connell, which owned art gallery, and LLC acted as single Norton Rose Fulbright US LLP, New York, NY, for economic entity, such that sole member could be Defendants Knoedler, Hammer Galleries LLC. held liable for gallery's sale of allegedly forged paintings, as well as whether observance of Charles David Schmerler, Pro Hac Vice, Mark Allen corporate distinctions between member and LLC Robertson, India DeCarmine, Fulbright & Jaworski L.L.P., would result in fundamental injustice precluded James Hamilton Neale, Winslett Studnicky McCormick & summary judgment on painting buyers' alter Bomser, Sarah E. O'Connell, Norton Rose Fulbright US LLP, ego claim against sole member of LLC under New York, NY, for Defendant Michael Hammer. Delaware law. Charles David Schmerler, Mark Allen Robertson, India DeCarmine, Fulbright & Jaworski L.L.P., James Hamilton

Neale, Winslett Studnicky McCormick & Bomser, Sarah E. City's most venerable and respected art galleries. (Pltf. R. 56.1 O'Connell, Norton Rose Fulbright US LLP, New York, NY, Add. Stmt. (Hilti Dkt. No. 220) ¶ 1196) for Defendant 8-31 Holdings, Inc. In 1971, the Gallery was purchased by Armand Hammer, the grandfather of Defendant Hammer, and since that time MEMORANDUM OPINION & ORDER the Hammer family has been directly responsible for the operations of the Gallery. (Id. ¶ 1379) The Gallery is owned Paul G. Gardephe, United States District Judge by Defendant Knoedler LLC, a Delaware limited liability corporation. (Cert. of Formation (Hilti Dkt. No. 218-181)) *325 Plaintiffs in these actions are the Martin Hilti Family Defendant 8-31, a Delaware corporation, is the sole member Trust (the “Trust”) and Frances Hamilton White. These of Knoedler. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ actions arise from Plaintiffs' purchase of forged paintings 865; Cert. of Formation (Hilti Dkt. No. 218-79)) Defendant from the Knoedler Gallery, an art gallery in Manhattan. The Hammer is the president, chief executive officer, chairman, Defendants that are the subject of this opinion are Knoedler and sole owner of 8-31, and became the sole manager of Gallery, LLC (“Knoedler LLC”), the owner of the gallery; Knoedler LLC in *326 2011. (Def. R. 56.1 Stmt. (Hilti Dkt. 8-31 Holdings, Inc. (“8-31”), Knoedler LLC's sole member; No. 218) ¶ 857; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) and Michael Hammer, 8-31's sole shareholder (collectively, ¶¶ 1104, 1106; Hammer Decl. (Hilti Dkt. No. 219-45) ¶ 1) “Defendants”). The operative complaints assert claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), and state law causes of action for fraud, fraudulent A. The “Rosales Paintings” concealment, aiding and abetting fraud, conspiracy to commit In the mid-1990s, Ann Freedman – then the sole manager fraud, and conspiracy to commit fraudulent concealment. and president of the Gallery 3 – was introduced to a Long (Second Am. Cmplt. (“SAC”) (Hilti Dkt. No.163); Am. Island art dealer, Glafira Rosales. (Def. R. 56.1 Stmt. (Hilti Cmplt. (White Dkt. No. 37)) Dkt. No. 218) ¶ 1) Rosales claimed to represent the son of a wealthy deceased art collector whom she referred to Defendants have moved for summary judgment. (Hilti Dkt. as “Mr. X.” Rosales told Freedman that Mr. X was a “a Nos. 212, 214, 216; White Dkt. Nos. 165, 167, 169) Hammer wealthy businessman who [had] lived in both Mexico and seeks summary judgment on all claims against him (Def. Switzerland, was connected with the art world in the mid-20th 1 Hammer Br. (Hilti Dkt. No. 213) at 8); 8-31 seeks summary century[,] and had acquired works out of artists' studios of judgment on the RICO claims against it in Hilti , and on that era.” (Id. ¶ 6) Mr. X had, in particular, purchased works all claims against it that are based on an alter ego theory by certain well-known Abstract Expressionist artists. (Id. of liability (Def. 8-31 Br. (Hilti Dkt. No. 215) at 10); and ¶ 7; Andrade Dep. (Hilti Dkt. No. 218-14) at 335:19-21; Knoedler LLC seeks summary judgment on all claims against see Freedman Dep. (Hilti Dkt. No. 219-4) at 260:11-25, it in White, and on the RICO claims alleged against it in 472:13-16) “According to Rosales, the collector stored the Hilti. (Def. Knoedler Br. (Hilti Dkt. No. 217) at 7) In a March works for decades. When he died the works were bequeathed 31, 2019 Order, this Court granted in part and denied in part to his son. The son was not an art collector and was not Defendants' motions. (Hilti Dkt. No. 246, White Dkt. No. interested in keeping the works, so he engaged his family 196) The purpose of this opinion is to explain the Court's friend, Rosales, to sell them in a discrete manner.” (Def. R. reasoning. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 7) Rosales told Freedman that Mr. X's son wished to remain anonymous, and she provided Freedman with only vague background information concerning him and his family. (Id. ¶ 5) BACKGROUND 2

I. FACTS Over the next fifteen years, Rosales provided the Gallery with The Knoedler Gallery (the “Gallery”) was founded by dozens of previously undiscovered works by well-known Michael Knoedler in 1846 and operated continuously for the Abstract Expressionist artists (the “Rosales Paintings”), and next 165 years. (Hammer Decl. (Hilti Dkt. No. 219-45) ¶ 2) the Gallery sold these paintings to its customers. (Rosales Until it closed in 2011, the Gallery was one of New York Painting List (Hilti Dkt. No. 219-104)) All of these paintings were forgeries. (Sept. 16, 2013 Rosales Plea Tr. at 27:11-18),

United States v. Rosales, No. 13 Crim. 518 (KPF) (S.D.N.Y. Sept. 16, 2013), Dkt. No. 23 (guilty plea allocution). 4 Freedman told Hammer that she was conducting research concerning the provenance of the Rosales Paintings, and that she had retained Carmean to assist in that research. (Pltf. 1. Provenance R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1002-03, 1008) As the Gallery sold Rosales Paintings, Freedman and her Freedman kept Hammer apprised of the results of her research staff conducted research into the provenance of these works. 5 “as it was developing,” and she “did not conceal anything (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 15; Pltf. R. 56.1 from” Hammer regarding this research. (Id. ¶¶ 1009-10) Add. Stmt. (Hilti Dkt. No. 220) ¶ 1006) In her deposition, Freedman testified, however, that she did not mention Glafira Freedman referred to this undertaking as “the project.” (Pltf. Rosales to Hammer in writing, and does not recall speaking R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 998, 1000) with Hammer about Rosales. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 261-63) In 2000, Freedman retained E.A. Carmean – a noted art historian – to lead an effort to determine the provenance of During the years that the Gallery was selling the Rosales the Rosales Paintings. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) Paintings, Freedman's share of the Gallery's profits grew ¶¶ 11, 15; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ significantly: from 10% to 15% in 1998; to 25% in 2002; 1006-07) “Carmean helped a group within [the Gallery] to to 30% in 2008. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. come up with [a] purported link” between Mr. X and Alfonso 220) ¶¶ 1040-41, 1044-46) Hammer approved each increase Ossorio, a well-known Filipino-American artist and *327 in Freedman's share of the Gallery's profits. (Id. ¶ 1041) early collector of the paintings of Abstract Expressionist artists, including Jackson Pollock. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1011-13; Freedman Dep. (Hilti Dkt. 2. White Purchase No. 219-4) at 261:12-17; IFAR Rpt. (Dkt. No. 219-95) at 6; Carmean Dep. (Dkt. No. 219-11) at 117:9-18) When asked In March 2000, Plaintiff Frances White and her then-husband, whether there was a connection between Mr. X and Ossorio, Harvey White, purchased four paintings from the Gallery, Rosales represented to Freedman that Mr. X had known including a purported Jackson Pollock that had been brought Ossorio. (Freedman Dep. (Hilti Dkt. No. 219-4) at 257:16-17; to the Gallery by Rosales. The Whites paid $ 5 million for 259:10-12) the four paintings. 7 (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 41-42, 44) Freedman told the Whites that the Pollock Thereafter, Freedman and the Gallery represented to clients was owned by an unknown art collector in Switzerland. (Id. that at least some of the Rosales Paintings were originally ¶¶ 51-52) The April 2000 invoice for the Whites' purchase purchased with Ossorio's assistance. (See, e.g. , IFAR Rpt. includes the following provenance for the Pollock: “Private (Hilti Dkt. No. 219-95)) Freedman viewed as “significant” Collection, Switzerland.” (Id. ¶ 74) to provenance information suggesting that a well-known art figure such as Ossorio facilitated the sale of art to a collector. The Whites had purchased at least nine paintings from the (Freedman Dep. (Hilti Dkt. No. 219-4) at 305:20-22) Gallery before their purchase of the purported Pollock. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1395) The Whites In 2003, however, the International Foundation for Art knew Freedman, who *328 had invited them to visit the Research (“IFAR”) prepared a report (the “IFAR Report”) Gallery sometime before their March 2000 visit. (Id. ¶¶ concerning a Rosales Painting – a work purportedly created 1399-1400) by Jackson Pollock – and concluded that the Ossorio connection posited by the Gallery was “inconceivable.” 6 The Whites divorced in 2001, and ownership of the purported (IFAR Rpt. (Hilti Dkt. No. 219-95) at 7) After this report was Pollock passed to Plaintiff White. (Def. R. 56.1 Stmt. (Hilti released, Freedman and the Gallery began representing that Dkt. No. 218) ¶ 76) David Herbert – another well-known figure in the art world – was the advisor who aided Mr. X in amassing his collection, instead of Ossorio. (Freedman Dep. (Hilti Dkt. No. 219-4) at 3. The Trust's Purchase 303:6-304:9) Rosales “confirmed” this purported connection between Mr. X and Herbert. (Id. at 304:7-17)

Plaintiff Martin Hilti Family Trust is a foreign trust organized Report reads: “[G]iven the several strongly negative opinions under the laws of Liechtenstein and located in Liechtenstein. [from Pollock experts about the authenticity of the work] and (Id. ¶ 77) The Trust purchases and owns fine art, which is the lack of information as to prior ownership, and with no exhibited at the Hilti Art Foundation in Liechtenstein. (Pltf. documentation or other evidence to override the concerns of R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1201-02) those who do not accept it as a work by Pollock, we cannot currently support its addition to the artist's oeuvre.” (Id. at 13) In October 2002, Michael Hilti – a representative of the Trust – visited the Gallery. (Id. ¶ 1203) Freedman told Hilti that In December 2003, Freedman told Hammer that – based on she had an “exceptional Rothko for sale,” but that it was not the IFAR Report – Levy wanted to return the Green Pollock available for viewing at that time. (Def. R. 56.1 Stmt. (Hilti and obtain a refund of the $ 2 million purchase price. (Def. Dkt. No. 218) ¶¶ 99-100, 102) Freedman provided Hilti with R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 153) Hammer read the a photograph of the painting and a written description of the IFAR report and discussed it with Freedman and other Gallery work and its provenance. 8 (Id. ¶ 102) Freedman told Hilti executives. (Id. ¶¶ 156-70) that the painting came from a private collection. (Id. ¶ 111)

Freedman offered to deliver the painting to the Trust in 5. Knoedler's Profits Liechtenstein, so that it could be viewed before a purchase decision was made. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. In September 2006 and November 2006 memoranda, Peter 220) ¶ 1207) In November 2002, the purported Rothko was Sansone – 8-31's chief financial officer – informed Hammer delivered to the Trust in Liechtenstein. (Def. R. 56.1 Stmt. that Knoedler's gross profits had increased, even while its (Hilti Dkt. No. 218) ¶ 118) The Trust decided to purchase the sales had decreased. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. painting, and it did so by transferring $ 5.5 million from its 220) ¶¶ 1084, 1089) One of Sansone's memos discloses that bank account in Liechtenstein to Knoedler's bank account in the Gallery had made a 363% profit on one painting. (Id. New York. (Id. ¶ 130) ¶ 1087) This painting was a Rosales Painting, although the memo does not say as much. (Id.; Def. R. 56.1 Cntrstmt. (Hilti Dkt. No. 232-1) ¶ 1087) 4. IFAR Report In late 2001, Freedman and Knoedler sold a purported Jackson Pollock (the “Green Pollock”) to Jack Levy for $ 2 million. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 6. Internal Investigation and Criminal Investigation 151-52) Knoedler had purchased this work from Rosales for On August 31, 2009, 8-31's board of directors passed a $ 750,000. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ resolution forming a special committee to investigate the 1027) Knoedler included in the provenance of the painting a 10 reference to Ossorio. (IFAR Rpt. (Hilti Dkt. No. 219-95) at 3) purchase and sale of Rosales Paintings by the Gallery. (Board Resolution (Hilti Dkt. No. 219-216)) On September Levy's purchase of the Green Pollock was conditioned on a 17, 2009, Hammer requested and obtained a “complete list favorable review of the work's provenance and authenticity of the Rosales paintings with date acquired, cost, date sold, by IFAR. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 152) On selling price, etc.” (Rosales Painting List (Hilti Dkt. No. October 9, 2003, IFAR issued its report concerning the Green 219-104)) According to Hammer, he was not aware of any Pollock. (IFAR Rpt. (Hilti Dkt. No. 219-95) at 2) The IFAR issues regarding the authenticity of the Rosales Paintings until Report rejects the Gallery and Rosales' claim that Ossorio this time. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 193) had been involved in the acquisition of the Green Pollock, and notes that there are “disturbing” differences between the On September 22, 2009, Knoedler was served with a grand materials used to create the Green Pollock and the materials jury subpoena that sought information related to the Rosales 11 used to create a known Pollock from the same year. 9 (Id. Paintings. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1065) In October 2009, Hammer put Freedman at 4-7, 8, 10) The *329 report also states that “IFAR's own extensive archival and other research has turned up no on administrative leave. (Id. ¶¶ 1067, 1072-73) Freedman documentary material of any kind linking the painting to subsequently resigned from her position at the Gallery. (Def. Pollock, or Ossorio.” (Id. at 3) The conclusion of the IFAR

R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 294; Pltf. R. 56.1 Add. Pierre Lagrange filed a lawsuit in this District alleging that Stmt. (Hilti Dkt. No. 220) ¶ 1071) the purported Pollock he had purchased from Knoedler for $ 15.3 million was a forgery. Lagrange v. Freedman, No. On October 27, 2009, Hammer sent a letter to Knoedler 11 Civ. 8757 (PGG) (S.D.N.Y. Dec. 1, 2011), Dkt. No. clients stating, with no explanation, that Freedman had 1 (Cmplt.) 13 On December 2, 2011, a New York Times “resigned.” (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ article reported on the F.B.I.'s investigation of Knoedler 1070; Oct. 27, 2009 Ltr. (Hilti Dkt. No. 219-91)) Hammer and the abrupt closing of the Gallery. Patricia Cohen, states: “I wish ... to let you know that I have every confidence Possible Forging of Modern Art is Investigated, Dec. in a vibrant and vital future for the gallery.” (Oct. 27, 2009 2, 2011, https://www.nytimes.com/2011/12/03/arts/design/ Ltr. (Hilti Dkt. No. 219-91)) federal-inquiry-into-possible-forging-of-modernist-art.html (last visited March 13, 2019). In 2010, Knoedler's interdivisional receivables due from 8-31 – amounting to *330 more than $ 13 million – were Rosales has since admitted that all of the works she sold reclassified as distributions to 8-31. (Pltf. R. 56.1 Add. Stmt. to Knoedler were “fakes created by an individual residing (Hilti Dkt. No. 220) ¶¶ 1142, 1144; Def. R. 56.1 Stmt. (Hilti in Queens.” 14 *331 United States v. Rosales, No. 13 Cr. Dkt. No. 218) ¶ 578) 518 (KPF) (S.D.N.Y.), Dkt. No. 23 (Sept. 16, 2013 Plea Tr.) at 27:17. Rosales has further admitted that she “agreed with others” to sell the forged works and “to make false 7. The Knoedler Gallery Closes representations as to the authenticity and provenance of those works.” Id. at 26:16-20. On November 30, 2011, Hammer announced that the Gallery would close that same day. 12 (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1196; Knoedler Resolution & Liquidation B. Corporate Structure Plan (Hilti Dkt. No. 219-101)) In connection with the closing In connection with Defendants' motions for summary of the Gallery, 8-31 and Hammer approved a “liquidation judgment, the parties make a number of arguments plan” for the Gallery, which Hammer signed on behalf of both concerning the corporate structure of, and dealings between, 8-31 and Knoedler LLC. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. Knoedler LLC and 8-31, and about Hammer's relationship No. 220) ¶ 1188; Knoedler Resolution & Liquidation Plan with these entities. For example, Knoedler LLC argues that (Hilti Dkt. No. 219-101) at 3) Pursuant to the liquidation plan, it cannot be held liable for White's injuries, because White Knoedler LLC was required to, inter alia, “make reasonable purchased her painting in 2000 – a year before Knoedler LLC provision for the satisfaction of[ ] all legally enforceable was formed. (Def. Knoedler LLC (Hilti Dkt. No. 217) at 13) claims and obligations of [Knoedler LLC], including ... White argues, however, that Knoedler LLC is responsible for all conditional, contingent, or unmatured claims known her injuries under a successor liability theory. (Pltf. White to [Knoedler LLC] and all claims which are known to Br. (White Dkt. No. 172) at 18, 23) Moreover, Plaintiffs [Knoedler LLC] but for which the identity of the claimant is argue that – under an alter ego theory of liability – Hammer unknown.” (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ can be held responsible for 8-31's actions, and 8-31 can be 1189; Knoedler Resolution & Liquidation Plan (Hilti Dkt. No. held liable for Knoedler LLC's actions. (Pltf. Jt. Br. (Hilti 219-101) at 4) Dkt. No. 222) at 86-87) Claims premised on theories of successor liability and alter ego liability call for fact-intensive Ruth Blankschen – 8-31 and Knoedler LLC's chief financial inquiries. Here, analysis of the parties' arguments must begin officer at this time – testified that “she was not informed the with a discussion of the corporate structure of and dealings ‘liquidation plan’ existed and did not otherwise know that between Knoedler LLC and 8-31, and Hammer's relationship such a reserve was called for.” (Pltf. R. 56.1 Add. Stmt. (Hilti with these entities. Accordingly, the Court considers below Dkt. No. 220) ¶ 1192) Michael Hammer testified that he did the formation of Knoedler LLC and 8-31; the relationship not have personal knowledge of who was implementing the between Knoedler LLC and 8-31; and Hammer's relationship plan of liquidation. (Id. ¶ 1195) with these entities.

On December 1, 2011 – the day after Hammer announced that he was closing the Gallery effective immediately –

Ernst & Young prepared this valuation in connection with a “review of reorganization options” for Knoedler-Modarco's 1. Pre-2001 Corporate Structure: shareholders, and cautioned that its work “should not be used Knoedler-Modarco and 8-31 as a basis to get a transaction price.” (Pltf. R. 56.1 Cntrstmt. Prior to 2001, the Gallery was operated by the M. Knoedler (Hilti Dkt. No. 219) ¶ 885) & Co. division of Knoedler-Modarco, Inc. (Hammer Decl. (Hilti Dkt. No. 218-3) ¶ 30) Knoedler-Modarco had three Sansone executed the asset purchase agreement on behalf divisions: M. Knoedler & Co., Hammer Galleries, and of Knoedler-Modarco, and Freedman executed the asset Knoedler Publishing. (Id. ¶ 30) Knoedler-Modarco was purchase agreement on behalf of Knoedler LLC. (Knoedler originally owned by Michael Hammer's grandfather – who Gallery LLC asset purchase agreement (Hilti Dkt. No. owned 74.1 percent of its shares – and Morris Liebowitz – 219-124) at 103) Knoedler-Modarco and Knoedler LLC were who owned 24.9 percent of its shares. (Id. ¶¶ 30-32) After represented by the same law firm. (Pltf. R. 56.1 Add. Stmt. Hammer's grandfather died in 1990, his shares in Knoedler- (Hilti Dkt. No. 220) ¶¶ 1439-41) Modarco were transferred to a charitable trust, and then to the Maccabee Group, a Caymans Island not-for-profit entity. With respect to this transaction, Sansone testified that: (1) he (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1380, 1384; is not aware of anyone having negotiated its terms; (2) he Hammer Decl. (Hilti Dkt. No. 218-3) ¶ 32) does not recall discussing the asset purchase agreement with Freedman; (3) he did not read the asset purchase agreement Michael Hammer purchased Liebowitz's shares in 1992. before he signed it; and (4) he did not ask anyone to (Hammer Decl. (Hilti Dkt. No. 218-3) ¶ 31) Hammer testified summarize the asset purchase agreement before he signed that – from 1992 on – he has been the sole decision-maker it. (Id. ¶¶ 1432-34) Sansone viewed this transaction as a for Knoedler-Modarco. The other shareholder in Knoedler- “reorganization.” (Sansone Dep. (Hilti Dkt. No. 219-33) at Modarco – the Maccabee Group – has not participated in 418:23) making decisions for the company. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1393; Hammer Dep. (Hilti Dkt. No. With respect to this transaction, Freedman testified that (1) 219-28) at 478-79) she did not read the asset purchase agreement before she signed it; (2) she did not participate in any negotiations In 2001, Hammer incorporated 8-31, and formed Knoedler regarding this transaction; and (3) she signed the agreement LLC, Hammer Galleries LLC, and Knoedler Publishing LLC because she “was asked to,” although she could not remember – all under Delaware law. (Def. R. 56.1 Stmt. (Hilti Dkt. No. by whom. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 218) ¶¶ 856, 858, 861-64) Hammer is the sole shareholder 1435-37) of 8-31, and 8-31 is the sole member of each LLC. (Id. ¶¶ 857, 865-66, 868; Hammer Decl. (Hilti Dkt. No. 218-3) ¶ Neither Hammer nor Sansone could recall this transaction 33) In a series of asset purchase agreements in 2001, the being discussed at a Knoedler-Modarco board meeting. (Id. three *332 LLCs purchased certain assets and liabilities ¶¶ 1442-46) from Knoedler-Modarco's three divisions. (Knoedler Gallery LLC asset purchase agreement (Hilti Dkt. No. 219-124); There was significant overlap between the board of directors Hammer Galleries LLC asset purchase agreement (Hilti Dkt. and executive officers of Knoedler-Modarco, 8-31, and No. 219-132)) Knoedler LLC at the time of the asset sale. Knoedler- Modarco's board of directors consisted of Michael Hammer, Knoedler LLC purchased the assets and some liabilities of his wife Dru Hammer, Peter Sansone, Ann Freedman, and the M. Knoedler & Co. division for $ 14,008,000, which Richard Lynch. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ was comprised of $ 7 million in real property and a note for 1407) 8-31's board of directors consisted of Michael Hammer, 16 $ 7,008,000. 15 (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ Sansone, Freedman, and Lynch. (Id. ¶ 1408) Michael 884; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1403; Hammer was the president of both Knoedler-Modarco and Hammer Decl. (Hilti Dkt. No. 218-3) ¶ 35) The purchase 8-31. (Id. ¶¶ 1414-15) Sansone was the chief financial officer price for the M. Knoedler & Co. division was based on a of Knoedler-Modarco, 8-31, and Knoedler LLC. (Id. ¶¶ valuation by Ernst & Young. (Def. R. 56.1 Stmt. (Hilti Dkt. 1412-13) Freedman was the president of the M. Knoedler & No. 218) ¶ 887; Hammer Decl. (Hilti Dkt. No. 218-3) ¶ 36)

Co. division of Knoedler-Modarco, and the president and sole (Hilti Dkt. No. 220) ¶¶ 1101-02) Similarly, Freedman was manager of Knoedler LLC. (Id. ¶ 1411) vice president and director of 8-31, and the sole manager and president of Knoedler LLC. 17 (Pltf. R. 56.1 Cntrstmt. (Hilti After the asset purchase agreements with Knoedler LLC, Dkt. No. 219) ¶ 463; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. Hammer Galleries LLC, and Knoedler Publishing LLC were 220) ¶¶ 1107) 8-31 also shared accounting and administrative consummated, Knoedler-Modarco held the *333 following staff with Knoedler LLC and the two other LLCs 18 (Pltf. assets: (1) the Gallery's archives; (2) about 150 paintings; and R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1111-13), and (3) two promissory notes – the $ 7,008,000 promissory note 8-31 and Knoedler LLC shared office space and a telephone from Knoedler LLC, and a $ 5,886,000 note from Hammer number. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ Galleries LLC. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) 1115, 1121) Moreover, no 8-31 employee had an 8-31 email ¶¶ 896-97, 905, 907, 920-21, 924) In March 2007, after address; 8-31 employees used Knoedler LLC and Knoedler the Knoedler LLC and Hammer Galleries LLC promissory Publishing e-mail addresses. (Id. ¶¶ 1116-21) notes held by Knoedler-Modarco were paid in full, Knoedler- Modarco was dissolved. (Id. ¶¶ 926-27; Pltf. R. 56.1 Add. On April 1, 2001, 8-31 and Knoedler LLC entered into a Stmt. (Hilti Dkt. No. 220) ¶ 1428) At that time, Knoedler- Management Agreement. (Def. R. 56.1 Stmt. (Hilti Dkt. No. Modarco had two board members: Michael Hammer and Dru *334 218) ¶ 498; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. Hammer. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 220) ¶ 1135) The Management Agreement provides that 8-31 1429) will charge Knoedler LLC “101% of the actual costs incurred by [8-31] on behalf of [Knoedler LLC] for salaries, wages, After the asset purchase agreement between Knoedler- benefits, guaranteed draws and other employment[-]related Modarco and Knoedler LLC was consummated, the Gallery's expenses incurred in connection with the delivery of ... operations, location, personnel, and telephone number did [s]ervices.” (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 499; not change. (Id. ¶¶ 1452-57; Freedman Dep. (Hilti Dkt. Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1138, 1140) No. 219-4) at 690:9-691:14) Invoices issued by the Gallery The Management Agreement indicates that the services 8-31 before and after the transaction reflect the same trade name will provide to Knoedler LLC will include accounting, IT, – Knoedler & Company – and state that the Gallery was legal, administrative and operational support, payroll, and established in 1846. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. human resources. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 220) ¶¶ 1397-98, 1458) 500)

According to Defendants, 8-31 never provided the services 2. Post-2001 Corporate Structure: 8-31, listed in the Management Agreement, and the Management Knoedler LLC, and Michael Hammer Agreement was never implemented. (Id. ¶¶ 501, 510) Plaintiffs contend, however, that 8-31 did provide the services listed in the Management Agreement – or arranged for outside a. Relationship Between 8-31 and Knoedler LLC professionals to provide such services – but that the 101% 8-31 is a holding company for Knoedler LLC, Hammer fee term set forth in the Management Agreement was not Galleries LLC, and Knoedler Publishing LLC, and has no observed. (Pltf. R. 56.1 Cntrstmt. (Hilti Dkt. No. 219) ¶¶ 501, operations or revenue of its own. (Def. R. 56.1 Stmt. (Hilti 510; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1138) Dkt. No. 218) ¶¶ 458-59) 8-31 holds board and shareholder meetings, has enacted by-laws, has elected officers and According to Plaintiffs, Knoedler LLC – and Hammer directors, and appoints sole managers for the three LLCs. (Id. Galleries LLC and Knoedler Publishing LLC – regularly ¶¶ 487-90) 8-31 and Knoedler LLC maintain separate bank transferred funds to 8-31 “unrelated to any need by accounts, general ledgers, and financial statements. (Id. ¶¶ [Knoedler LLC] or service performed for Knoedler [LLC] 490, 492-93) by 8-31.” (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1128; see id. ¶ 1126; Def. R. 56.1 Stmt. (Hilti Dkt. No. 8-31 and Knoedler LLC shared employees, however. For 218) ¶ 514) These transfers occurred when 8-31 needed example, Sansone – and later, Ruth Blankschen – served as money. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1128) vice president, secretary, treasurer, and chief financial officer The funds 8-31 needed were transferred from the account of both 8-31 and Knoedler LLC. (Pltf. R. 56.1 Add. Stmt. of whichever LLC had cash available at the time. 19 (Id. ¶

1129) According to Defendants, 8-31 used those funds to Decl. (Hilti Dkt. No. 218-3) ¶ 8) Hammer contends, however, pay business expenses for 8-31 and the three LLCs, such as that he was not involved in Knoedler's acquisition or sale of taxes, profit sharing, salaries, 20 directors' fees, accounting art, the marketing of any specific work of art, the pricing fees, charitable gifts, insurance, automobile expenses, and of any work of art, the decision to exhibit any work of art, executive credit card bills. (Def. R. 56.1 Stmt. (Hilti Dkt. No. or “any communications with purchasers about a sale of a 218) ¶¶ 515, 522) According to Plaintiffs, however, much of work of art.” (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 205, the cash transferred from the three LLCs to 8-31 was used 245, 247, 250; Hammer Decl. (Hilti Dkt. No. 218-3) ¶ 17) to pay Hammer's personal expenses, including bills related Although Hammer testified that he met with people in order to Hammer's automobiles and credit cards. (Pltf. R. 56.1 to promote the LLCs (Hammer Dep. (Hilti Dkt. No. 219-28) Cntrstmt. (Hilti Dkt. No. 219) ¶ 515) at 827:16-837:3), he could not recall whether any of these individuals – or anyone referred by these people – had ever “Prior to 2009, each transfer of cash from Knoedler [LLC] purchased anything from Knoedler LLC or the other LLCs. to 8-31 other than for payroll was recorded on Knoedler's (Id. at 837:14-840:19) general ledger and financial statements as an interdivisional receivable and on 8-31's general ledger and financial Hammer regularly used a corporate credit card to pay for his statements as an interdivisional payable.” (Def. R. 56.1 Stmt. business expenses and his personal expenses. (Pltf. R. 56.1 (Hilti Dkt. No. 218) ¶ 525) Sansone and Blankschen both Add. Stmt. (Hilti Dkt. No. 220) ¶ 1208) He also provided testified, however, that they did not expect that 8-31 would corporate credit cards to his ex-wife, Dru Hammer, and to ever repay Knoedler LLC for the funds it transferred to his sons, Viktor and Armie Hammer, all of whom used these credit cards to pay for both business and personal expenses. 8-31. 21 (Id. ¶¶ 532-33) (Id. ¶¶ 1209-10) In total, the Hammers charged $ 2.7 million to their corporate cards between 2005 and 2014. (Hammer In 2010, Knoedler LLC's interdivisional receivables from Decl. (Hilti Dkt. No. 218-3) ¶ 51) 8-31 amounted to $ 13.5 million (according to Plaintiffs) or $ 14.6 million (according to Defendants). (Pltf. R. 56.1 Add. Hammer and his staff reviewed the corporate credit card Stmt. (Hilti Dkt. No. 220) ¶¶ 1142, 1144; Def. R. 56.1 Stmt. statements monthly, categorizing each charge as a business or (Hilti Dkt. No. 218) ¶ 578) After Knoedler LLC received personal expense. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ the grand jury subpoena in 2010, *335 8-31 reclassified the 585-92; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1213) Knoedler LLC receivables as “distributions” to 8-31. (Pltf. Hammer reimbursed 8-31 for the charges he categorized as R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1142) Defendants personal expenses, which amounted to $ 1.1 million. (Def. argue that Hammer was not involved in this accounting R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 961) Hammer did not change, while Plaintiffs contend that Hammer directed the provide 8-31 with any information about the purpose of his reclassification. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 572; business expenses, however. For example, if he categorized Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1142) a dinner as a business expense, he did not disclose who attended the dinner, or what the business purpose of the dinner was. Moreover, no one at 8-31 asked Hammer about his b. Relationship Between 8-31 and Hammer business expenses or otherwise reviewed his claimed business expenses. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ At all relevant times, Michael Hammer lived in California, did 1215) not regularly visit the Gallery, and did not maintain an office at Knoedler's building in Manhattan. (Def. R. 56.1 Stmt. (Hilti The Hammers' alleged business expenses include, inter alia, Dkt. No. 218) ¶¶ 464-65, 469) meals, drinks, airfare on private and commercial flights, hotels, and car shows. (Id. ¶¶ 1218-20, 1226-27, 1243, 1286) Hammer describes his role at 8-31 as follows: “[I engaged in] Hammer does not recall the business purpose of certain regular efforts to support and expand the brand recognition charges he categorized as business expenses, and he did not of the three [LLC] subsidiaries and thereby improve and maintain records concerning these charges. (See, e.g., id. ¶ increase their revenue. As part of that, I sought out and met 1229 ($ 2,565 charge from Barney's); id. ¶ 1247 ($ 1,649 regularly with high net worth collectors of art in multiple charge from Le Beach Club's health and beauty spa); id. ¶¶ locations around the country and outside the United States. I also met with directors of galleries and museums.” (Hammer

1266-67 *336 (Dru Hammer charges from two hotels, a to otherwise promote the Gallery business, and that “[i]t liquor store, a home furnishing store, and a grocery store)) was important for the image to arrive and meet [potential clients] on the level that they like, that they're used to.” According to Plaintiffs, Hammer sometimes identified a charge as a business expense, and later identified a refund of (Id. ¶ 1301) that charge as a personal refund. (Id. ¶¶ 1234, 1278-79) For example, in February 2010, Hammer categorized a $ 3,176 As the president of 8-31, Hammer decides how many vehicles charge from a hotel in Bora Bora as a business expense, he needs for business purposes. 23 (Id. ¶ 1302) Hammer but in March 2010, he categorized a refund of that same does not recall discussing any vehicle purchase with 8-31's charge as a personal refund. (Id. ¶¶ 1278-79; Feb. 2010 chief financial officer – or anyone else – before making the Stmt. (Hilti Dkt. No. 219-174) at 6; March 2010 Stmt. (Hilti purchase. 24 (Id. ¶ 1353) Hammer typically used his own Dkt. No. 219-175) at 2) Hammer concedes that there were funds to purchase the vehicles and customizations, and later occasions where he (1) charged an expense as a business obtained reimbursement from 8-31. (Id. ¶ 1303) Hammer expense with the intent to later categorize it as personal generally obtained titles for the cars in his own name, or his expense, but did not do so (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. name and the name of 8-31. (Id. ¶ 1304) Other than Hammer, No. 220) ¶ 1275 (more than $ 10,000 in airfare associated no one associated with 8-31 or the LLCs drove the cars. with his son's trip to New Zealand charged as a business (Id. ¶ 1311) On one occasion in which Hammer requested expense)), and (2) mistakenly categorized charges as business reimbursement for a car, he told 8-31's chief financial officer expenses that he now recognizes were personal in nature (id. that the reimbursement was for “work and improvements on ¶¶ 1259-62 (Dru Hammer's personal expenses associated with the ‘company’ [car].” (Id. ¶ 1307) two trips to Paris); Hammer Decl. (Hilti Dkt. No. 218-3) ¶ 63 (acknowledging that the Paris charges were personal expenses)). II. PROCEDURAL HISTORY Hilti was filed on January 29, 2013, and White was filed Dru Hammer testified that a number of charges on her on February 21, 2013. (Cmplt. (Hilti Dkt. No. 1); Cmplt. corporate credit card that were categorized as business (White Dkt. No. 1)) Defendants moved to dismiss Plaintiffs' expenses were actually personal in nature. (Pltf. R. 56.1 Amended Complaints (Hilti Dkt. No. 91, 93; White Dkt. No. Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1221-22, 1236, 1259-62) 72, 74), and on *338 September 30, 2015, this Court granted For example, 8-31 paid for several meals that had no in part and denied in part Defendants' motions. Martin Hilti business purpose. (Dru Hammer Dep. (Hilti Dkt. No. 219-10) Family Trust v. Knoedler Gallery, LLC, 137 F. Supp. 3d 430 at 175:10-178:25) Dru Hammer also disagreed with the (S.D.N.Y. 2015), Hilti Dkt. No. 132, White Dkt. No. 108. categorization of several expenses that Michael Hammer had defended as legitimate business expenses. (Pltf. R. 56.1 In a December 22, 2015 order, this Court granted the Trust Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1236, 1238-39, 1245-46) permission to re-plead its alter ego theory of liability as to For example, in October 2006, the Hammers traveled to Hammer in a second amended complaint (Dec. 22, 2015 Barcelona. According to Dru Hammer, the purpose of the trip Order (Hilti Dkt. No. 161)), and on December 28, 2015, the was to visit their son, and there was no business purpose. Trust filed a Second Amended Complaint (“SAC”). (SAC (Id. ¶ 1236) Michael Hammer maintains, however, that he (Hilti Dkt. No. 163)) The SAC pleads the following causes conducted business on this trip, and that the $ 17,500 in of action: airfare, hotel, and food expenses was properly classified as a business expense. (Def. R. 56.1 Cntrstmt. (Hilti Dkt. No. (1) substantive RICO and RICO conspiracy as against all 232-1) ¶ 1236) Defendants; (2) fraud and fraudulent concealment as against all Between 2001 and 2010, 8-31 paid for at least seven luxury Defendants; vehicles purchased by Hammer. 22 (Pltf. R. 56.1 Add. Stmt. (Hilti *337 Dkt. No. 220) ¶ 1300) Hammer testified that (3) conspiracy to commit fraud and conspiracy to commit fraudulent concealment as against Hammer and 8-31; he used the cars for business purposes to meet with high net and worth individuals interested in purchasing expensive art or

(4) aiding and abetting fraud and aiding and abetting *7 (S.D.N.Y. July 10, 2008) (quoting *339 Bay v. Times fraudulent concealment as against Hammer and 8-31. Mirror Magazines, Inc., 936 F.2d 112, 116 (2d Cir. 1991)).

(Id.) 25 [3] [4] [5] In deciding a summary judgment motion, the Court “ ‘resolve[s] all ambiguities, and credit[s] all factual White's Amended Complaint (Am. Cmplt. (White Dkt. No. inferences that could rationally be drawn, in favor of the party 37)) pleads the following clauses of action: opposing summary judgment.’ ” Spinelli v. City of New

(1) substantive RICO and RICO conspiracy as against all York, 579 F.3d 160, 166 (2d Cir. 2009) (quoting Brown Defendants; v. Henderson, 257 F.3d 246, 251 (2d Cir. 2001)). However, a “ ‘party may not rely on mere speculation or conjecture (2) fraud and fraudulent concealment as against all as to the true nature of the facts to overcome a motion Defendants; for summary judgment.... [M]ere conclusory allegations or denials ... cannot by themselves create a genuine issue of (3) conspiracy to commit fraud as against Hammer and 8-31; material fact where none would otherwise exist.’ ” Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (alteration in (4) aiding and abetting fraud as against Hammer and 8-31. original) (quoting Fletcher v. Atex, Inc., 68 F.3d 1451, (Id.) 1456 (2d Cir. 1995)). “Assessments of credibility and choices between conflicting versions of the events are matters for Defendants have now moved for summary judgment. As the jury, not for the court on summary judgment.” Eviner discussed above, Hammer seeks summary judgment on all v. Eng, No. 13 Civ. 6940 (ERK), 2015 WL 4600541, at *6 claims against him (Def. Hammer Br. (Hilti Dkt. No. 213) at (E.D.N.Y. July 29, 2015) (quoting Rule v. Brine, Inc., 85 8); 8-31 seeks summary judgment on the RICO claims against F.3d 1002, 1011 (2d Cir. 1996)). it in Hilti, and on all claims against it that are based on an alter ego theory of liability (Def. 8-31 Br. (Hilti Dkt. No. 215) at 10); and Knoedler LLC seeks summary judgment on all II. RICO CLAIMS claims against it in White, and on the RICO claims alleged against it in Hilti. (Def. Knoedler Br. (Hilti Dkt. No. 217) at 7). A. Hammer's Liability In De Sole v. Knoedler Gallery, LLC, 139 F. Supp. 3d 618 (S.D.N.Y. 2015) – which also involves (1) forged Rosales DISCUSSION Paintings sold by the Gallery, and (2) many of the same causes of action alleged here against Hammer, 8-31, and Knoedler I. SUMMARY JUDGMENT STANDARD LLC – this Court found that Hammer was entitled to summary [1] [2] Summary judgment is warranted when a moving party shows that “there is no genuine dispute as to any judgment on the RICO claims against him. Id. at 655. No material fact” and that that party “is entitled to judgment as different result is appropriate here, given that Plaintiffs have a matter of law.” Fed. R. Civ. P. 56(a). “A dispute about a offered much less evidence of Hammer's knowledge of the ‘genuine issue’ exists for summary judgment purposes where ongoing alleged fraud at the Gallery related to the sale of the the evidence is such that a reasonable jury could decide in the Rosales Paintings. non-movant's favor.” Beyer v. Cnty. of Nassau, 524 F.3d 160, 163 (2d Cir. 2008) (citing Guilbert v. Gardner, 480 1. Legal Standard F.3d 140, 145 (2d Cir. 2007)). “ ‘[W]here the non[-]moving party will bear the burden of proof at trial, Rule 56 permits [6] To sustain a private cause of action under RICO, a the moving party to point to an absence of evidence to support plaintiff must establish: “(1) the defendant's violation of 18 an essential element of the non[-]moving party's claim.’ ” U.S.C. § 1962, (2) an injury to the plaintiff's business or Lesavoy v. Lane, No. 02 Civ. 10162, 2008 WL 2704393, at property, and (3) causation of the injury by the defendant's

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 15 Martin Hilti Family Trust v. Knoedler Gallery, LLC, 386 F.Supp.3d 319 (2019) RICO Bus.Disp.Guide 13,195 violation.” Lerner v. Fleet Bank, N.A., 459 F.3d 273, 283 (2d Cir. 2006) (internal quotation marks and alteration 2. Analysis omitted); see also 18 U.S.C. § 1964(c) (providing a cause of action for “[a]ny person injured in his business or property [9] In De Sole, this Court granted Hammer summary judgment on the RICO claims against him, finding that the by reason of a violation” of Section 1962). De Sole plaintiffs had not offered sufficient evidence that he knowingly participated in the alleged RICO enterprise. The [7] 18 U.S.C. § 1962(c) makes it “unlawful for any person employed by or associated with any enterprise engaged Court's reasoning in De Sole is directly applicable here, in, or the activities of which affect, interstate or foreign because the evidentiary record concerning Hammer is less commerce, to conduct or participate, directly or indirectly, developed than in De Sole, but the arguments premised in the conduct of such enterprise's affairs through a pattern on that record are largely the same. Accordingly, set forth of racketeering activity.” 18 U.S.C. § 1962(c). Thus, in below is the Court's reasoning in granting Hammer summary addition to injury and causation, “[t]o establish a civil RICO judgment on the De Sole plaintiffs' RICO claims: claim pursuant to § 1962(c), ‘a plaintiff must establish: Hammer contends that he is entitled to summary judgment (1) that the defendant (2) through the commission of two or on Plaintiffs' RICO claims because there is no evidence that more acts (3) constituting a “pattern” (4) of “racketeering he had “some part in directing [the enterprise's] affairs.” activity” (5) directly or indirectly ... participates in (6) an “enterprise” (7) the activities of which affect interstate or See Reves [v. Ernst & Young], 507 U.S. [170] at 179 foreign commerce.’ ” Valenti v. Penn Mut. Life Ins. Co., 850 [113 S.Ct. 1163, 122 L.Ed.2d 525 (1993) ]; Hammer Br. F. Supp. 2d 445, 450 (S.D.N.Y. 2012) (quoting cra Institute (De Sole Dkt. No. 239; Howard Dkt. No. 282)[ ]. Hammer of Science v. Neschis, 229 F.Supp. 2d 234, 254-55 (S.D.N.Y. argues that the undisputed evidence shows that [he] “did 2002) (citation omitted)), aff'd, 511 F. App'x 57 (2d Cir. not make any ... request or recommendation or coordinate 2013); see also Crawford v. Franklin Credit Mgmt. Corp., 758 anyone's efforts to commit fraud related to the sale of any painting acquired from Rosales.” (Hammer Br. (De Sole F.3d 473, 487 (2d Cir. 2014) (“To establish a violation of § Dkt. No. 239; Howard Dkt. No. 282) at 19) Hammer further 1962(c), a plaintiff must show that the defendant conducted, maintains that he “did not play any part in the marketing or or participated in the conduct[ ] of[,] a RICO enterprise's selling of any of the paintings sold by Knoedler,” and “did affairs through a pattern of racketeering activity.”) not direct or encourage anyone to purchase, sell, or paint a forged painting.” ( [Id.] at 18) In sum, Hammer argues that *340 [8] “To establish a conspiracy to violate the civil the undisputed evidence shows that he did nothing to direct RICO statute pursuant to 18 U.S.C. § 1962(d) ... plaintiff the alleged enterprise's affairs. ( [Id.] at 19) must prove (1) that there existed a conspiracy to commit acts that, if successful, would constitute a substantive civil RICO Hammer has stated that his family has been “directly violation; (2) that defendant agreed to join in, and knowingly responsible for the operations of [the Gallery]” since the participated in, that conspiracy; and (3) that defendant acted 1970s. (Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 236) in furtherance of the conspiracy in some manner (although ¶ 1031; Hammer Decl. in Opp. to TRO (De Sole Dkt. not necessarily by the commission of any RICO predicate acts No. 236), Ex. 46 ¶ 2) Moreover, as president, CEO, himself).” City of New York v. Chavez, 944 F. Supp. 2d 260, chairman, and sole owner of 8-31 Holdings, Inc. – the sole 268-69 (S.D.N.Y. 2013) (emphasis in original) (citing Valenti, member of Knoedler – Hammer had the right to exercise 850 F.Supp.2d at 450-51); see also Crawford, 758 F.3d at 487 complete control over Knoedler's operations. (Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. No. 236) ¶¶ 1033, 1995, 2003; (“To establish a violation of § 1962(d), a plaintiff must Hammer Dep. (De Sole Dkt. No. 236), Ex. 21 at 57) show that the defendant agreed with at least one other entity to commit a substantive RICO offense.”) The evidence demonstrates, however, that Hammer's contact with Knoedler was sporadic. Hammer lived in California (Def. R. 56.1 Stmt. ( [De Sole] Dkt. Nos. 219[,] 220) ¶ 761), and rarely visited Knoedler (Freedman Dep.

(De Sole Dkt. No. 236), Ex. 18 at 37; see also Del Deo 236), Ex. 21 at 131-34, 214, 218) Hammer testified Dep. (De Sole Dkt. No. 236), Ex. 13 at 40–41 (Hammer that the financial information he received about Knoedler visited the gallery “very infrequently”)). Hammer typically was never broken down into individual sales, but instead spoke by telephone with Freedman “every three or four “would be one number for sales, one number for cost weeks.” (Freedman Dep. (De Sole Dkt. No. 236), Ex. 18 of sales, gross profit and then all of these expenses. It at 35-36) There is no evidence that Hammer was the day- was just a summary.... [W]e never had serious detailed to-day manager of Knoedler, *341 and his testimony that information.” ( [id.] at 133-34) In sum, there is no evidence he played no role in the selling of paintings at Knoedler that Hammer was aware of Knoedler's profit margins on the is unrebutted. (Hammer Dep. (De Sole Dkt. No. 236), Ex. sale of any particular Rosales Painting, or on any collection 21 at 195-96, 214, 215, 216-17, 371-72) Indeed, there is of Rosales Paintings. Accordingly, Hammer's knowledge no evidence that Hammer ever had any contact with a of the underlying fraud scheme cannot be premised on an Knoedler customer who bought a Rosales Painting. awareness that Knoedler was making outlandish profits on the sale of Rosales Paintings. There is also no evidence that Hammer was aware of the outlandish profits Knoedler made on each Rosales As to Hammer's knowledge concerning the source and Painting. Hammer testified that, on an annual basis, he saw provenance of the Rosales Paintings, Freedman testified “a summary of the ‘numbers’ [for Knoedler,] which would that Hammer knew that Rosales was the source of the include sales, expenses, et cetera.” (Hammer Dep. (De Sole works, that the works were “newly discovered,” that Dkt. No. 236), Ex. 21 at 58) There is no evidence that Knoedler was researching the provenance of the works, Hammer was ever shown the profit margin for any sale of and that Knoedler did not know the identity of the owner. a Rosales Painting or any collection of Rosales Paintings, (Freedman Dep. (De Sole Dkt. No. 236), Ex. 18 at however, nor is there any evidence that he was made aware 334-39) There is no evidence, however, that Hammer that all of Knoedler's profits were derived from sales of was aware of (1) Rosales' shifting provenance stories; (2) Rosales Paintings. Rosales' inconsistent accounts of the size and scope of Mr. X's collection; (3) Rosales' unwillingness to sign forms While Freedman testified that she had a “general confirming *342 the authenticity of the Rosales Paintings; recollection” that she informed Hammer of each sale of a or (4) the issues raised concerning the Diebenkorns Rosales Rosales Painting (Pltf. R. 56.1 Count. Stmt. (De Sole Dkt. brought to Knoedler early on. There is likewise no evidence No. 232) ¶¶ 777-81; Freedman Dep. (De Sole Dkt. No. that Hammer ever met Rosales or ever discussed the 236), Ex. 18 at 432, 613; Pltf. R. 56.1 Add. Stmt. (De Sole Rosales Paintings with her. Finally, to the extent that Dkt. No. 236) ¶¶ 1036-37) – because she deemed “every Freedman was making misrepresentations to Knoedler sale” of a Rosales Painting to be a sale of an “important customers about the provenance of the Rosales Paintings, [A]bstract [E]xpression[ist] work[ ]” (Freedman Dep. there is no evidence that Hammer knew that she was (De Sole Dkt. No. 236), Ex. 18 at 613) – she did not making those misrepresentations. There is likewise no testify that she told Hammer what the profit margin evidence that Freedman ever told Hammer that there was was on any Rosales Painting, or on any collection of reason to question the authenticity or provenance of the Rosales Paintings. Freedman's testimony that “Hammer Rosales Paintings. Freedman's conclusory testimony that was interested to know what[ ]transacted” (id. at 137), she “would have told Michael Hammer what [she] knew was “aware of sales in general,” and “oftentimes [saw] [about how the Mexican collector came to own the Rosales paperwork regarding sales” ( [id.] at 137, 334) does not Paintings]” ( [id.] at 338-39) is not sufficient to create a demonstrate that Hammer was aware of the outlandish material issue of fact as to whether Hammer understood profits Knoedler made on the sale of Rosales Paintings. that the paintings were forgeries. Similarly, Freedman's testimony that Hammer spoke with Knoedler's chief financial officer about financial matters Hammer testified that he never discussed with Freedman or at the gallery (id. at 136-37) does not demonstrate that any other Knoedler employee a connection between David Hammer was informed of the profit margins associated Herbert and Mr. X, and that he doesn't know who David with sales of Rosales Paintings. Herbert is. (Hammer Dep. (De Sole Dkt. No. 236), Ex. 21 at 201) Hammer “never got involved in the purchases Hammer denies any knowledge of Knoedler's profit margin and sales, so [he] didn't even know who most of the artists on Rosales Paintings. (Hammer Dep. (De Sole Dkt. No. were.” (Id. at 215) Although Freedman testified that “it was

explained [to Hammer] that there was an owner and that we to share the IFAR Report with any customer preparing to did not know the identity and that the owner owned works purchase a Rosales Painting, however. of art” (Freedman Dep. (De Sole Dkt. No. 236), Ex. 18 at 339), this testimony does not demonstrate that Hammer The IFAR Report – standing alone – is not sufficient to understood that the Rosales Paintings were not authentic. demonstrate that Hammer knew that all of the Rosales Paintings – including those purchased by Plaintiffs – were Hammer did review “very carefully” the IFAR Report forgeries. Plaintiffs have not shown that Hammer should concerning the “Green Pollock” purchased by Jack Levy. have realized that the IFAR Report cast doubt on the (Hammer Dep. (De Sole Dkt. No. 236), Ex. 21 at 170-71) authenticity and provenance of all of the Rosales Paintings. As discussed above, the IFAR report rejects Knoedler Moreover, Plaintiffs have not cited evidence demonstrating and Rosales' claim that Ossorio had been involved in the that – over the more than ten years that Rosales Paintings acquisition of the Green Pollock, and notes that there were sold at Knoedler – any other issue concerning the are “disturbing differences” between the materials used authenticity of a Rosales Painting was brought to Hammer's to create the Green Pollock and the materials used to attention. create a known Pollock from the same year. (IFAR Report (De Sole Dkt. No. 236), Ex. 140 at 8, 14) The report Because a reasonable jury could not conclude that Hammer also states that “IFAR's own extensive archival and other was aware of an ongoing fraud scheme at Knoedler, research has turned up no documentary material of any kind the actions of Hammer cited by Plaintiffs – such as linking the painting to Pollock, or Ossorio.” (Id. at 1) The regularly increasing Freedman's compensation – cannot be conclusion of the IFAR report reads: “given the several viewed as acts in furtherance of the racketeering enterprise. strongly negative opinions [from Pollock experts about the Moreover, the fact that Hammer received a share of authenticity of the work] and the lack of information as Knoedler's profits does not demonstrate that he was a to prior ownership, and with no documentation or other knowing participant in a fraud scheme at Knoedler evidence to override the concerns of those who do not accept it as a work by Pollock, we cannot currently support De Sole, 139 F. Supp. 3d at 651-55 (footnotes omitted). its addition to the artist's oeuvre.” (Id. at 10) Based on the IFAR Report, Levy returned the Green Pollock to Knoedler Plaintiffs argue that “evidence obtained in discovery in [the in late 2003, and the Gallery refunded his full purchase instant] cases, including evidence not available or not relied price of $ 2 million. (Pltf. R. 56.1 Add. Stmt. (De Sole Dkt. upon in [ De Sole], warrant[s] a different decision here” No. 236) ¶ 1256) than in De Sole. (Pltf. Jt. Br. (Hilti Dkt. No. 222) at 114) Hammer discussed the IFAR Report with Freedman, Plaintiffs' arguments are not persuasive. directed her to refund Levy's purchase price, and to “do whatever research she needed to do to answer the[ ] First, Plaintiffs argue that “Hammer knew of and authorized questions [raised in the report].” (Hammer Dep. (De Sole the ‘Project’ of research into newly-discovered works from Dkt. No. 236), Ex. 21 at 187-90) Hammer testified that Rosales.” ( Id.) As discussed above, however, the Court Freedman told him that the IFAR report was “inconclusive” and “not right” and that she “didn't believe in [it].” (Id. considered in De Sole Freedman's testimony that Hammer at 186) Hammer and Freedman did not discuss Mr. X, (1) knew about Knoedler's acquisition of “newly discovered” Alfonso Ossorio, or anything else related to the provenance works; (2) knew that Rosales was the source of these of the Green Pollock. (Id. at 168, 186) Moreover, Freedman works; and (3) knew that Knoedler was conducting research did not tell Hammer that Knoedler had sold other *343 concerning the provenance of these works. The evidentiary paintings from the same source that had b[r]ought the record here establishes no more than what this Court found Green Pollock to Knoedler. (Id. at 188) When Hammer insufficient in De Sole. asked Freedman if there was any problem with the Green Pollock, she told him “absolutely not.” (Id. at 188) Hammer Plaintiffs also contend that Hammer “knew of the profits nonetheless directed Freedman to share the IFAR Report with an individual who was preparing to invest in the Green generated by sales of” the Rosales Paintings. ( Id.) There Pollock. (Id. at 193-94) Hammer did not direct Freedman is evidence that Sansone wrote two memoranda in 2006 explaining that Knoedler's gross profits had increased while

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 18 Martin Hilti Family Trust v. Knoedler Gallery, LLC, 386 F.Supp.3d 319 (2019) RICO Bus.Disp.Guide 13,195 its gross sales had decreased, and one of these memos states 7; Def. Hammer Br. (Hilti Dkt. No. 213) at 41; Def. 8-31 Br. that Knoedler made a 363% profit on a single painting. (Pltf. (Hilti Dkt. No. 215) at 45) R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1084, 1089, 1091) But there is no evidence that Hammer was ever shown data setting forth Knoedler's profits on a particular Rosales 1. Legal Standard Painting, or on all sales of Rosales Paintings. For example, In RJR Nabisco, Inc. v. European Cmty., ––– U.S. ––––, with respect to the memorandum discussing a 363% profit 136 S. Ct. 2090, 195 L.Ed.2d 476 (2016), the Supreme on a single painting, there is no evidence that Hammer was Court considered whether RICO's substantive provisions and told that this painting was a Rosales Painting. (Def. R. 56.1 private right of action apply extraterritorially. Id. at 2101. Cntrstmt. (Hilti Dkt. No. 232-1) ¶ 1087) The Court concluded that (1) RICO's substantive provisions apply extraterritorially only to the extent the predicate acts Again, there is no significant difference between the proof underlying the RICO claim at issue apply extraterritorially, as to profits offered in De Sole and the evidence here. id. at 2105; and (2) “[i]rrespective of any extraterritorial While the evidence here shows that, at least by 2006, Hammer application of [RICO's substantive provisions], ... [RICO's had access to information indicating that the Gallery was private right of action] does not overcome the presumption generating large profits, it does not show that he “was aware against extraterritoriality. A private RICO plaintiff therefore of the outlandish profits Knoedler *344 made on each must allege and prove a domestic injury to its business or Rosales Painting.” De Sole, 139 F. Supp. 3d at 655. In sum, property,” id. at 2106 (emphasis in original); see also id. Plaintiffs have not proffered new evidence as to the Gallery's at 2111 (“ Section 1964(c) requires a civil RICO plaintiff profits that would justify altering the decision made in De to allege and prove a domestic injury to business or property Sole. and does not allow recovery for foreign injuries”) (emphasis added). In so holding, the Supreme Court emphasized that Finally, Plaintiffs contend that Hammer “ignored and “the presumption against extraterritoriality must be applied concealed the IFAR report when, based on his knowledge of separately to both RICO's substantive prohibitions and its the ‘Project,’ he also knew that the painting addressed in the IFAR report was part of a larger collection of work.” (Pltf. private right of action.” ( Id. at 2108) Because the plaintiffs Jt. Br. (Hilti Dkt. No. 222) at 114) Again, this is not new in RJR Nabisco stipulated that they had not suffered a information, and Plaintiffs do not make a new argument. “domestic injury,” the Court did not address the meaning of In De Sole, this Court discussed in detail Hammer's this term. Id. at 2111. knowledge of the IFAR Report, and whether he knew that the painting that was the subject of the IFAR Report was part of a larger collection of paintings that had been sold by the In Bascuñán v. Elsaca, 874 F.3d 806 (2d Cir. 2017), however, the Second Circuit addressed what constitutes a Gallery. De Sole, 139 F. Supp. 3d at 654-55. Plaintiffs have “domestic injury” for purposes of extraterritorial application not offered new evidence that would give the Court a basis of RICO. Id. at 814. The court for altering the conclusion in De Sole.

Accordingly, as in De Sole, Hammer is entitled to conclude[d] that an injury to tangible summary judgment on Plaintiffs' substantive RICO and RICO property is generally a domestic injury conspiracy claims. only if the property was physically located in the United States, and that a defendant's use of the U.S. financial B. Whether The Trust Has Demonstrated a “Domestic system to conceal or effectuate his tort Injury” does not, on its own, turn an otherwise Defendants argue that the Trust's RICO claims fail as a matter foreign injury into a domestic one. of law because a RICO plaintiff must demonstrate that it suffered a “domestic injury,” and the Trust's injury occurred in Liechtenstein. (Def. Knoedler Br. (Hilti Dkt. No. 217) at

(Hilti Dkt. No. 220) ¶ 1207; Def. R. 56.1 Stmt. (Hilti Dkt. No. Id. at 819. Accordingly, where a plaintiff suffers an injury 218) ¶ 118) The Trust decided to purchase the painting after it was delivered to the Trust in Liechtenstein. (Def. R. 56.1 to tangible property – *345 including money 26 – “absent Stmt. (Hilti Dkt. No. 218) ¶ 118) There is no evidence that some extraordinary circumstance, the injury is domestic if any trustee, beneficiary, or representative of the Trust was in the plaintiff's property was located in the United States when the United States when the Trust's purchase of the purported it was stolen or harmed, even if the plaintiff himself resides Rothko was consummated. Instead, the Trust's purchase of the abroad.” Id. at 820-21. The court stressed that the focus of painting occurred when it transferred $ 5.5 million from its the domestic injury analysis is on the location of the plaintiff's bank account in Liechtenstein to Knoedler's bank account in property when it is harmed, and not on the location of the New York. (Id. ¶¶ 126, 130) defendant when wrongful conduct was committed. Id. at 819 (“[I]mportantly, the only domestic connections alleged Defendants contend that, under Bascuñán, the Trust did here were acts of the defendant.” (emphasis in original)). not suffer a “domestic injury.” (Def. Knoedler Br. (Hilti Dkt. No. 217) at 29) In Bascuñán, the court identified four In this District, courts have interpreted RJR Nabisco as injuries: two involved the theft of money from foreign bank requiring a domestic injury without considering whether accounts, which was subsequently transferred to accounts there is an extraterritorial application of RICO's substantive in the United States. Bascuñán, 874 F.3d at 818. The provisions. Accordingly, these courts analyze – as an Second Circuit held that these were not “domestic injuries,” initial matter – whether a RICO plaintiff has sustained a explaining that “a defendant's use of the U.S. financial system domestic injury. Where a domestic injury has not been to conceal or effectuate his tort does not, on its own, turn an shown, the RICO claim is dismissed. There is no analysis as to whether RICO's substantive provisions are being otherwise foreign injury into a domestic one.” Id. at 819. applied extraterritorially. 27 See, e.g. , *346 Dandong Old The two other injuries involved the theft of money and “bearer N.E. Agric. & Animal Husbandry Co. v. Hu, No. 15 shares” located in the United States. Id. at 818-19. The Civ. 10015 (KPF), 2017 WL 3328239, at *15 (S.D.N.Y. Second Circuit concluded that these were “domestic injuries” Aug. 3, 2017) (“Plaintiff did not sufficiently prove that it suffered a domestic injury from the alleged price-inflation under RJR Nabisco, because the property was inside the scheme; in consequence, the claims under 18 U.S.C. United States when it was stolen. Id. at 824. § 1962(d) against each Defendant must be dismissed.”); Yanchukov v. Finskiy, No. 15 Civ. 8128 (JPO), 2017 WL Here, Defendants argue that the Trust was injured in 3491965, at *8 (S.D.N.Y. Aug. 14, 2017) (dismissing RICO Liechtenstein when the funds constituting the purchase price claim because plaintiffs did not suffer a domestic injury, for the purported Rothko were transferred from the Trust's without considering whether RICO's substantive provisions Liechtenstein bank account to Knoedler LLC's bank account in New York. (Def. Knoedler Br. (Hilti Dkt. No. 217) at were being applied extraterritorially); City of Almaty, 29) According to Defendants, Knoedler LLC's use of a bank Kazakhstan v. Ablyazov, 226 F. Supp. 3d 272, 288 (S.D.N.Y. account in the United States is not relevant to the question of 2016) (same). where the Trust suffered an injury. (Id.)

The Trust argues, however, that Defendants' focus on the 2. Analysis financial transaction is misplaced. (Pltf. Hilti Br. (Hilti Dkt. Here, Hilti learned about the purported Rothko when he No. 221) at 13-14) The Trust contends that its injury is that visited the Gallery in Manhattan and was provided with false “it owns a fake work of art that was created in the United information about the painting. (Def. R. 56.1 Stmt. (Hilti States.” (Id.) According to the Trust, this case is not like Dkt. No. 218) ¶¶ 98-102, 111) The purported Rothko was not available to be shown, however, and Hilti was merely given Bascuñán, because the Trust a photograph of the painting. (Id. ¶ 102-03) Accordingly, as a courtesy, the Gallery delivered the painting to the Trust in Liechtenstein, so that the Trust could view the painting before parted with its money voluntarily in deciding whether to purchase it. (Pltf. R. 56.1 Add. Stmt. the belief that it was acquiring a

genuine work of art through a United that a party experiences or sustains injuries to its intangible States marketplace, and from a very property at its residence, which for a corporation like Armada important *347 and reputable dealer is its principal place of business.”); Cevdet Aksut Ve Ogullari within that market. The fact that Koll.Sti v. Cavusoglu, 756 Fed.Appx. 119, 124 (3d Cir. [the Trust's] property was worthless 2018) (“Because its injury is not felt in the United States, because of the corrupt activities of [plaintiff] has not suffered a domestic injury.”). Accordingly, Knoedler and others in the U.S. evidence that Defendants' “corrupt activities” took place in renders [the Trust's] injury “domestic,” the United States does not demonstrate that the Trust suffered not “foreign.” a “domestic injury.” 28

[10] The Court concludes that the Trust's injury occurred (Id. at 5) where it relinquished *348 control over its property. Because the Trust relinquished control over its money in As discussed above, however, the “domestic injury” analysis Liechtenstein – when it authorized a transfer of funds from turns on the location of the plaintiff's property when it was its Liechtenstein bank account to Knoedler's New York harmed, not on the location where the defendant's misconduct account – the Trust's injury was suffered in Liechtenstein. took place. Bascuñán, 874 F.3d at 819; see also City of See Bascuñán, 874 F.3d at 820-21 (money is “property Almaty, Kazakhstan v. Ablyazov, No. 15 Civ. 5345 (AJN), that can be fairly said to exist in a precise location”; “[w]hile 2018 WL 3579100, at *2 (S.D.N.Y. July 25, 2018) (“[T]he money is, of course, ultimately fungible, the money allegedly ‘appropriate subject of the inquiry’ is not the location of the stolen as a result of this scheme was situated in a specific injurious conduct but ‘the location where the injury itself geographical location at the time of injury such that we can treat it as tangible property for purposes of this inquiry”; arose.’ ”) (quoting City of Almaty, 226 F. Supp. 3d at held that plaintiff suffered a “domestic injury” where stolen 282); Newman v. Jewish Agency for Israel, No. 16 Civ. 7593 money was located in the United States); Elsevier Inc., (WHP), 2017 WL 6628616, at *5 (S.D.N.Y. Dec. 28, 2017) 2017 WL 5135992, at *1, *4 (defendant represented that it (it is “improper[ to] turn[ ] the focus” of the domestic injury was purchasing academic journals from plaintiff for “valid analysis “on the location of the Defendants, and not ... on personal use” – and thus paid a discounted price – when in the location of Plaintiffs' property or financial interests”); fact it was doing so “on behalf of institutions that would Elsevier Inc. v. Pierre Grossmann, IBIS Corp., No. 12 Civ. have otherwise paid significantly higher prices”; held that 5121 (KPF), 2017 WL 5135992, at *4 (S.D.N.Y. Nov. 2, plaintiff's property was harmed where plaintiffs “relinquished 2017) (“To determine whether a plaintiff has satisfied [the 29 domestic injury] requirement, courts in this District have control” of that property under false pretenses). adopted a ‘locus-of-effects approach,’ which ‘focus[es] on where the plaintiff felt the effects of the injury’ rather than Because the Trust has not demonstrated a “domestic injury,” ‘where the defendant committed the injury-inducing acts.’ ”) Defendants are entitled to summary judgment on the Trust's (quoting Dandong, 2017 WL 3328239, at *11); Yanchukov, RICO claims. 2017 WL 3491965, at *5 (“[C]ourts in this district have consistently held that determining the location of a RICO III. FRAUD CLAIMS injury depends on where the plaintiff suffered the injury – not Hammer has moved for summary judgment on the common where the injurious conduct took place.”); see also Humphrey law fraud claims against him. (Def. Hammer Br. (Hilti Dkt. v. GlaxoSmithKline PLC, 905 F.3d 694, 702 (3d Cir. 2018) No. 213) at 42-44) In Hilti and White, Plaintiffs allege (“[T]here is a general consensus among the courts that have fraud, conspiracy to commit fraud, and aiding and abetting had to apply RJR Nabisco that the location of a RICO fraud; in Hilti, the Trust also alleges aiding and abetting injury depends on where the plaintiff ‘suffered the injury’ – fraudulent concealment and conspiracy to commit fraudulent not where the injurious conduct took place.”); cf. Armada concealment; and in White Plaintiff alleges fraudulent (Singapore) PTE Ltd. v. Amcol Int'l Corp., 885 F.3d 1090, concealment. 1094 (7th Cir. 2018) (“[T]he Supreme Court directs us to focus on where the injury is suffered.... It is well understood

In De Sole, this Court granted Hammer summary 312 (S.D.N.Y. 2009) (quoting Landy v. Fed. Deposit Ins. Corp., 486 F.2d 139, 162-163 (3d Cir. 1973)). judgment on the common law fraud claims against him. De Sole, 139 F.Supp.3d at 658-59 (aiding and abetting fraud; conspiracy to commit fraud). Plaintiffs have not proffered evidence that would justify a different result here. 4. Conspiracy to Commit Fraud and Fraudulent Concealment

A. Legal Standards [14] Conspiracy requires “ ‘(a) a corrupt agreement between two or more persons, (b) an overt act in furtherance of the 1. Fraud agreement, (c) the parties' intentional participation in the [11] Under New York law, a fraud claim requires “ ‘(1) furtherance of a plan or purpose, and (d) the resulting damage misrepresentation of a material fact; (2) the falsity of that misrepresentation; (3) scienter, or intent to defraud; (4) or injury.’ ” In re Sumitomo Copper Litig., 120 F. Supp. 2d reasonable reliance on that representation; and (5) damage 328, 339 (S.D.N.Y. 2000) (quoting Chrysler Capital Corp. caused by such reliance.’ ” Kottler v. Deutsche Bank AG, v. Century Power Corp., 778 F. Supp. 1260, 1267 (S.D.N.Y. 607 F. Supp. 2d 447, 462 (S.D.N.Y. 2009) (quoting Granite 1991)); see also Kashi v. Gratsos, 790 F.2d 1050, 1055 (2d Partners, L.P. v. Bear, Stearns & Co., 17 F. Supp. 2d 275, 286 Cir. 1986). (S.D.N.Y. 1998)).

B. Analysis 2. Fraudulent Concealment [15] For the reasons set forth above in connection with [12] “The elements of a fraudulent concealment claim under Plaintiffs' substantive RICO and RICO conspiracy claims, New York law *349 are: (1) a duty to disclose material facts; Hammer is entitled to summary judgment on Plaintiffs' fraud, (2) knowledge of material facts by a party bound to make fraudulent concealment, aiding and abetting fraud, aiding and such disclosures; (3) failure to discharge a duty to disclose; abetting fraudulent concealment, conspiracy to commit fraud, and conspiracy to commit fraudulent concealment claims. (4) scienter; (5) reliance; and (6) damages.” Woods v. Plaintiffs have not demonstrated that Hammer (1) had actual Maytag Co., 807 F. Supp. 2d 112, 124 (E.D.N.Y. 2011) (citing knowledge of an ongoing fraud scheme at the Gallery; (2) Aetna Cas. & Sur. Co. v. Aniero Concrete Co., Inc., 404 agreed to commit fraud at the Gallery; or (3) knowingly and intentionally provided substantial assistance to those F.3d 566, 582 (2d Cir. 2005)); see also Brass v. Am. allegedly defrauding the Gallery's customers. Accordingly, Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993) (New Hammer is entitled to summary judgment on Plaintiffs' York recognizes a duty to disclose by a party to a business common law fraud claims. transaction in three situations: “first, where the party has made a partial or ambiguous statement ... second, when the parties stand in a fiduciary or confidential relationship with IV. SUCCESSOR LIABILITY each other ... and third, where one party possesses superior White purchased the forged Pollock in 2000, when the knowledge, not readily available to the other, and knows that Knoedler Gallery was owned by Knoedler-Modarco. (Def. R. the other is acting on the basis of mistaken knowledge”) 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 41; Hammer Decl. (Hilti (citations omitted). Dkt. No. 218-3) ¶ 30) Defendant Knoedler LLC argues that it cannot be held liable for a transaction that occurred prior to its formation in 2001, and 8-31 argues that it cannot be held 3. Aiding and Abetting Fraud and Fraudulent liable as Knoedler LLC's alter ego. (Def. Knoedler Br. (Hilti Concealment Dkt. No. 217) at 13; Def. 8-31 Br. (Hilti Dkt. No. 215) at 10 [13] Aiding and abetting fraud has three elements: “ ‘(1) that n.2) White argues that Knoedler LLC can be held liable as an independent wrong exist[s]; (2) that the aider or abettor Knoedler-Modarco's successor-in-interest, and that 8-31 can know[s] of that wrong's existence; and (3) that substantial be held liable as Knoedler LLC's alter ego. (Pltf. White Br. assistance be given in effecting that wrong.’ ” Adelphia (White Dkt. No. 172) at 7; Pltf. Jt. Br. (Hilti Dkt. No. 222) Recovery Trust v. Bank of Am., N.A., 624 F. Supp. 2d 292, at 86, 101)

the successor is a mere continuation of the predecessor.”

*350 A. Applicable Law Hayden Capital USA, LLC, 2012 WL 1449257, at *4 [16] [17] “In a federal question action where a federal court (citations omitted). Only the latter two exceptions are at issue is exercising supplemental jurisdiction over state claims, the here. (Def. Knoedler Br. (Hilti Dkt. No. 217) at 19, 24; Pltf. federal court applies the choice-of-law rules of the forum White Br. (White Dkt. No. 172) at 18, 23) state.” Manning Int'l Inc. v. Home Shopping Network, Inc., 152 F. Supp. 2d 432, 436 n.3 (S.D.N.Y. 2001). “Under the [20] Under New York law, the hallmarks of a de facto merger law of New York, the forum state, the first step in a choice of include: law analysis is to determine whether an actual conflict exists between the laws of the jurisdictions involved.” Forest (1) continuity of ownership; (2) Park Pictures v. Universal Tel. Network, Inc., 683 F.3d 424, a cessation of ordinary business 433 (2d Cir. 2012). Where an actual conflict exists, “New and dissolution of the acquired York courts seek to apply the law of the jurisdiction with the corporation as soon as possible; (3) most significant interest in, or relationship to, the dispute.” assumption by the successor of the Lazard Freres & Co. v. Protective Life Ins. Co., 108 F.3d liabilities ordinarily necessary for the uninterrupted continuation of the 1531, 1539 (2d Cir. 1997) (citing Brink's Ltd. v. South business of the acquired corporation; African Airways, 93 F.3d 1022, 1030 (2d Cir. 1996)); see also and (4) a continuity of management, Forest Park Pictures, 683 F.3d at 433. personnel, physical location, assets, and general business operation. In ruling on Defendants' motions to dismiss, this Court concluded that “[i]t is not necessary to resolve the issue of which state's law applies to the successor liability issue ... Societe Anonyme Dauphitex v. Schoenfelder Corp., No. 07 because New York and Delaware law are generally in Civ. 489 (RWS), 2007 WL 3253592, at *3 (S.D.N.Y. Nov. agreement, and to the extent they differ, that difference has no bearing on resolution of the successor liability issue 2, 2007) (citing Cargo Partner AG v. Albatrans, Inc., 352 here.” Martin Hilti Family Trust, 137 F. Supp. 3d at 456. As F.3d 41, 46 (2d Cir. 2003)). Moreover, “there is significant discussed below, that analysis remains accurate. support in the case law for the notion that ‘not all [of] these elements are necessary to find a de facto merger.’ ” Id. [18] [19] “To state a claim based on successor liability, a (quoting Fitzgerald v. Fahnestock & Co., Inc., 286 A.D.2d plaintiff must plead enough facts for the Court to infer that one 573, 574-75, 730 N.Y.S.2d 70 (1st Dep't 2001)). of the exceptions to ‘the general rule finding that a business entity acquiring the assets from another business generally *351 [21] Under Delaware law, a de facto merger requires results in no successor liability.’ ” New York v. Town of the following elements: Clarkstown, 95 F.Supp.3d 660, 682 (S.D.N.Y. 2015) (quoting City of Syracuse v. Loomis Armored US, LLC, 900 F. Supp. 2d 274, 288 (N.D.N.Y. 2012)); Hayden Capital USA, LLC (1) one corporation transfers all of v. Northstar Agri Indus., LLC, No. 11 Civ. 594 (DAB), 2012 its assets to another corporation; (2) WL 1449257, at *4 (S.D.N.Y. Apr. 23, 2012) (“[B]oth New payment is made in stock, issued by the York and Delaware recognize that when one company sells transferee directly to the shareholders or transfers all of its assets to another company, the acquiring of the transferring corporation; and (3) company generally does not become liable for the debts or in exchange for their stock in that liabilities of the seller/transferor.”). “Both Delaware and New corporation, the transferee agreeing to York [ ] recognize that there are [four] exceptions to this assume all the debts and liabilities of rule: (1) where the buyer expressly assumed the debt at issue; the transferor. (2) where the transaction amounted to a fraud; (3) where the transaction constitutes a de facto merger; or (4) where

3103 (HB), 2010 WL 2899438, at *5 (S.D.N.Y. July 19, SungChang Interfashion Co. v. Stone Mountain Accessories, Inc., No. 12 Civ. 7280 (ALC) (DCF), 2013 WL 5366373, 2010) (quoting Colon, 477 F. Supp. 2d at 626-27) (internal at *14 (S.D.N.Y. Sept. 25, 2013) (quoting Magnolia's at quotation marks and citation omitted). Accordingly, where Bethany, LLC v. Artesian Consulting Eng'rs Inc., No. S11 there is a common identity of directors and stockholders, and C04013, 2011 WL 4826106, at *3 (Del. Super. Ct. Sept. 19, where the predecessor entity transfers not only assets, but 2011)). also business location, employees, management and good will to the successor, this exception is applicable. McDarren v. [22] [23] Although under both New York and Delaware Marvel Entm't Group, Inc., No. 94 Civ. 910 (LMM), 1995 WL law a plaintiff attempting to demonstrate a de facto merger 214482, at *8 (S.D.N.Y. Apr. 11, 1995). “ ‘[T]he underlying must allege continuity of ownership between the selling theory of the exception is that [ ] if [a] corporation goes and acquiring corporations, the two states interpret this through a mere change in form without a significant change in element differently. Under New York law, it is sufficient substance, it should not be allowed *352 to escape liability.’ to allege that “shareholders of the selling corporation hold ” Silverman Partners LP, 2010 WL 2899438, at *5 (quoting Societe Anonyme, 2007 WL 3253592, at *6) (second and even an indirect interest in the assets.” Id. (citing In third alterations in original). re New York City Asbestos Litig., 15 A.D.3d 254, 256, 789 N.Y.S.2d 484 (1st Dep't 2005) (“The first criterion, “ ‘The successor issue is “highly fact-specific” and typically continuity of ownership, exists where the shareholders of the predecessor corporation become direct or indirect cannot be determined as a matter of law.’ ” In re General shareholders of the successor corporation as the result of the Motors LLC Ignition Switch Litig., No. 14 MD 2543 (JMF), successor's purchase of the predecessor's assets, as occurs in a 2017 WL 6509256, at *7 (S.D.N.Y. Dec. 19, 2017) (quoting stock-for-assets transaction.”)). “In contrast, under Delaware Commercial Lubricants, LLC v. Safety-Kleen Sys., Inc., 14- law, the ‘continuity of ownership’ element is only met CV-7483 (MKB), 2017 WL 3432073, at *21 (E.D.N.Y. Aug. if shareholders of the predecessor corporation acquire a 8, 2017) (quoting Aguas Lenders Recovery Grp. v. Suez, direct ownership interest in the successor corporation.” Id. at S.A., 585 F.3d 696, 703 (2d Cir. 2009))) (alterations in *15 (emphasis in original) (citations omitted). As discussed original). below, the Court need not resolve whether New York or Delaware law should be applied to the de facto merger issue, because Knoedler LLC has not demonstrated that it is entitled B. Analysis to summary judgment on White's successor liability claim to Knoedler LLC contends that White cannot prove successor the extent that claim is premised on a “mere continuation” liability under the “mere continuation” exception, because theory. Knoedler-Modarco continued to exist for six years after Knoedler LLC, Hammer Galleries LLC, and Knoedler As to the “mere continuation” exception, under both New Publishing LLC entered into asset purchase agreements with York and Delaware law, the “exception ... is only available Knoedler-Modarco. (Def. Knoedler Br. (Hilti Dkt. No. 217) where ‘it is not simply the business of the original corporation at 25-26) Because the “mere continuation” exception requires which continues, but the corporate entity itself.’ ” Id. at that only one corporation exist at the end of the transaction, Knoedler LLC argues that White's claim fails as a matter of *16 (quoting Colon v. Multi–Pak Corp., 477 F.Supp.2d law. (Id. at 25) 620, 626-27 (S.D.N.Y. Mar. 7, 2007) (citations omitted)). “[Because] there is no actual conflict between Delaware and Courts in this District have repeatedly held, however, that New York law on the mere continuation exception, [this the continued existence of the predecessor corporation is not Court] will apply New York law.” Id. dispositive of a mere continuation claim. See, e.g. , In [24] [25] [26] “The mere continuation exception applies re General Motors LLC Ignition Switch Litig., 2017 WL where ‘it is not simply the business of the original corporation 6509256, at *17-18 (denying summary judgment on a mere which continues, but the corporate entity itself[,]’ and there continuation successor liability claim where the predecessor is a ‘common identity of directors, stockholders, and the corporation co-existed with the successor corporation for existence of only one corporation at the completion of the two years); McDarren, 1995 WL 214482, at *8 (denying transfer.’ ” Silverman Partners LP v. Verox Grp., No. 08 Civ. summary judgment on mere continuation successor liability

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 24 Martin Hilti Family Trust v. Knoedler Gallery, LLC, 386 F.Supp.3d 319 (2019) RICO Bus.Disp.Guide 13,195 claim where predecessor corporation still existed at the promissory notes, and the company was dissolved once the time of litigation); Societe Anonyme, 2007 WL 3253592, promissory notes were repaid. (Def. R. 56.1 Stmt. (Hilti at *5-7 (denying motion to dismiss mere continuation Dkt. No. 218) ¶¶ 896-97, 905, 907, 920-21, 924) There successor liability claim where the predecessor corporation is no evidence that Knoedler-Modarco sold the archives or paintings before dissolving, or that it otherwise engaged in still existed at the time of litigation); Kidz Cloz, Inc. v. any business activity after its transactions with the three Officially For Kids, Inc., No. 00 Civ. 6270 (DC), 2002 WL newly created LLCs. In sum, there is substantial evidence that 1586877, at *5 (S.D.N.Y. July 17, 2002) (denying motion Knoedler-Modarco was left in a sufficiently altered state such to dismiss mere continuation successor liability claim where that the “existence of only one corporation” factor is satisfied. the predecessor corporation survived the asset transfer); Tommy Lee Handbags Mfg. Ltd. v. 1984 Corp., 971 F. Supp. Moreover, Knoedler-Modarco no longer existed when this 2d 368, 380 (S.D.N.Y. 2013) (denying motion to dismiss litigation was commenced. (Id. ¶¶ 926-27; Pltf. R. 56.1 Add. mere continuation successor liability claim where plaintiff Stmt. (Hilti Dkt. No. 220) ¶ 1428) “[W]here courts have did not allege dissolution of the predecessor corporation); rejected successor liability on the basis of [this] factor, it has Time Warner Cable, Inc. v. Networks Grp., LLC, No. 09 generally been because the predecessor corporation was still Civ. 10059 (DC), 2010 WL 3563111, at *7 (S.D.N.Y. Sept. 9, 2010) (denying motion to dismiss mere continuation viable when the decision was rendered.” In re General successor liability claim where the predecessor corporation Motors LLC Ignition Switch Litig., 2017 WL 6509256, at *8. continued to exist). Instead, a mere continuation successor liability claim can survive where there is a continuity of Moreover, it is undisputed that the Knoedler Gallery ownership, management, location, personnel, and good will continued to operate in the same location and with the same with the predecessor business, and where the predecessor personnel and management after the Knoedler-Modarco asset corporation is in some way fundamentally altered by the sale. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1452-57) asset transfer – for example, it no longer operates as a Indeed, Freedman testified that nothing changed in the business or is left with few or no assets. 30 *353 See, Gallery's operations as a result of this transaction. (Freedman Dep. (Hilti Dkt. No. 219-4) at 690:9-691:14) Before and e.g., In re General Motors LLC Ignition Switch Litig., after the transaction, the Knoedler Gallery held itself out as 2017 WL 6509256, at *8 (denying summary judgment on a gallery that was founded in 1846, and continued to operate mere continuation claim where (1) there was continuity under the trade name “Knoedler & Company.” (Pltf. R. 56.1 of “personnel, management, physical location, assets and Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1397-98, 1458) It is general business operations”; (2) predecessor corporation co- likewise undisputed that the board of directors of Knoedler- existed with successor corporation for two years; but (3) Modarco was nearly identical to the board of directors of 8-31 predecessor company was dissolved by the time of litigation); – the only difference is that Dru Hammer was not a member McDarren, 1995 WL 214482, at *8 (denying summary of 8-31's board at the time of the Knoedler-Modarco asset sale judgment on mere continuation claim where there was in 2001; she joined 8-31's board in 2003. 31 (Id. ¶¶ 1407-09) continuity of “business location, employees, management Finally, it is undisputed that *354 Hammer owned 24.9% and good will,” and predecessor corporation was “no longer of Knoedler-Modarco, and that he is the sole shareholder of actively involved in the toy business”); Societe Anonyme, 32 2007 WL 3253592, at *6-7 (denying motion to dismiss mere 8-31. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 857, 913) continuation claim where there was continuity of ownership, location, personnel and management, and predecessor existed Finally, Plaintiffs have offered evidence that the Knoedler- as a “shell corporation” with no assets). Modarco transaction was one where a “ ‘corporation [went] through a mere change in form without a significant change in Prior to Knoedler-Modarco's execution of asset purchase substance.’ ” Silverman Partners LP, 2010 WL 2899438, at *5 agreements with the three newly created LLCs, Knoedler- (quoting Societe Anonyme, 2007 WL 3253592, at *6). Here, Modarco owned and operated three art galleries. (Hammer Sansone – the chief financial officer of Knoedler-Modarco, Decl. (Hilti Dkt. No. 218-3) ¶ 30) After the asset purchase Knoedler LLC, and 8-31 – referred to this transaction as a agreements were executed, Knoedler-Modarco no longer “reorganization.” (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. operated any business. It was left with three assets – 220) ¶¶ 1412-13; Sansone Dep. (Hilti Dkt. No. 219-33) the Knoedler Gallery archives, 150 paintings, and two at 418:23) Moreover, all parties to the Knoedler-Modarco

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 25 Martin Hilti Family Trust v. Knoedler Gallery, LLC, 386 F.Supp.3d 319 (2019) RICO Bus.Disp.Guide 13,195 transaction were represented by the same law firm, and no the entity....” Id. However, “Delaware law permits a court deponent could recall discussing the transaction at a board to pierce the corporate veil ‘where there is fraud or where meeting. Indeed, the executives who signed the Knoedler- [the corporation] is in fact a mere instrumentality or alter ego Modarco/Knoedler LLC asset purchase agreement – Sansone for Knoedler-Modarco, and Freedman for Knoedler LLC – do of its owner.’ ” Id. at 176 (quoting Geyer v. Ingersoll not recall reading the asset purchase agreement; negotiating Publications Co., 621 A.2d 784, 793 (Del. Ch. 1992)). the agreement; or discussing the agreement with anyone The central question is whether “the individual [or parent before signing it. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) corporation] has ‘complete domination and control’ over the ¶¶ 1432-37, 1439-46; Sansone Dep. (Hilti Dkt. No. 219-33) entity such that it ‘no longer ha[s] legal or independent at 418:23) And, as discussed above, Freedman testified significance of [its] own.’ ” Carotek, Inc. v. Kobayashi that there was no change in the Gallery's operations as a Ventures, LLC, 875 F. Supp. 2d 313, 350 (S.D.N.Y. 2012) result of the Knoedler-Modarco/Knoedler LLC transaction. (Freedman Dep. (Hilti Dkt. No. 219-4) at 690:9-691:14) (quoting Wallace ex rel. Cencom Cable Income Partners II, L.P. v. Wood, 752 A.2d 1175, 1183 (Del. Ch. 1999)). The Court concludes that a reasonable jury could find that the Knoedler-Modarco/Knoedler LLC transaction was a “mere [31] Under the alter ego theory of piercing the corporate veil, change in form.” Accordingly, Knoedler LLC “ ‘should not a plaintiff must demonstrate “a mingling of the operations be allowed to escape liability.’ ” Silverman Partners LP, 2010 of the entity and its owner plus an ‘overall element of WL 2899438, at *5 (quoting Societe Anonyme, 2007 WL injustice or unfairness.’ ” NetJets Aviation, 537 F.3d at 176 3253592, at *6). (quoting Harco Nat. Ins. Co. v. Green Farms. Inc., Civ. A. No. 1131, 1989 WL 110537, at *5 (Del. Ch. Sept. 19, 1989)). [27] Because there is a genuine issue of material fact as to The Second Circuit “has stated this as a two-pronged test whether Knoedler LLC can be found liable under a “mere focusing on (1) whether the [dominant shareholder and the continuation” theory of successor liability, Knoedler LLC's corporation] in question operated as a single economic entity, motion for summary judgment on this issue will be denied. and (2) whether there was an overall element of injustice or unfairness.” Id. at 177 (citing Fletcher, 68 F.3d at V. ALTER EGO LIABILITY 1457). The Trust asserts claims of fraud and fraudulent concealment against Hammer and 8-31 under an alter ego theory [32] Courts consider the following factors in determining of liability. (SAC (Hilti Dkt. No. 162)) White *355 whether a corporation and its dominant shareholder operate likewise asserts claims of fraud, fraudulent concealment, and as a “single economic entity”: conspiracy to commit fraud against Hammer and 8-31 under “[W]hether the corporation was adequately capitalized for an alter ego theory of liability. (Am. Cmplt. (White Dkt. No. the corporate undertaking; whether the corporation was 37)) Hammer and 8-31 have moved for summary judgment solvent; whether dividends were paid, corporate records on these claims to the extent they are based on an alter ego kept, officers and directors functioned properly, and other theory of liability. (Def. Hammer. Br. (Hilti Dkt. No. 213) at corporate formalities were observed; whether the dominant 6; Def. 8-31 Br. (Hilti Dkt. No. 215) at 7) shareholder siphoned corporate funds; and whether, in general, the corporation simply functioned as a facade for A. Applicable Law the dominant shareholder.” [28] [29] [30] Under Delaware law, 33 “a limited liability company (or ‘LLC’), formed by one or more entities and/ Fletcher, 68 F.3d at 1458 (quoting Harco Nat. Ins. Co., or individuals as its ‘members,’ ... provides ‘limited liability 1989 WL 110537, at *4). *356 “ ‘[N]o single factor c[an] justify a decision to disregard the corporate entity, but ... some akin to the corporate form.’ ” NetJets Aviation, Inc. v. LHC Commc'ns, LLC, 537 F.3d 168, 176 (2d Cir. 2008) (quoting combination of them [i]s required.’ ” NetJets Aviation, 537 Elf Atochem North America, Inc. v. Jaffari, 727 A.2d 286, F.3d at 177 (quoting Harper v. Del. Valley Broadcasters, 287 (Del. 1999)). “The shareholders of a corporation and the Inc., 743 F.Supp. 1076, 1085 (D. Del. 1990)) (alterations in members of an LLC generally are not liable for the debts of original).

Stahlex-Interhandel Tr. v. W. Union Fin. Servs. E. Eur. [33] [34] In addition, “a plaintiff must allege injustice or Ltd., No. 99-CV-2246, 2002 WL 31359011, at *5 (S.D.N.Y. unfairness that is a result of an abuse of the corporate form.” Oct. 21, 2002)). Nat'l Gear & Piston, Inc. v. Cummins Power Sys., LLC, 975 F. Supp. 2d 392, 406 (S.D.N.Y. 2013); see also TradeWinds Airlines, Inc. v. Soros, No. 08 Civ. 5901 (JFK), 2012 WL B. Whether 8-31 is Knoedler LLC's Alter Ego 983575, at *6 (S.D.N.Y. Mar. 22, 2012) (“This ‘injustice must [35] In De Sole, this Court concluded that a reasonable consist of more than merely the tort or breach of contract that jury could find that 8-31 is Knoedler LLC's alter ego. De is the basis of the plaintiff's lawsuit[.]’ ”) (quoting NetJets Sole, 139 F. Supp. 3d at 669. Plaintiffs have not proffered Aviation, 537 F.3d at 183). This prong is satisfied where evidence justifying a different result here. “the corporation was used to engage in conduct that was ‘inequitable,’ ‘prohibited,’ or an ‘unfair trade practice,’ or 1. Operation as a Single Entity ‘illegal.’ ” NetJets Aviation, 537 F.3d at 177 (quoting Mobil Oil Corp. v. Linear Films, Inc., 718 F.Supp. 260, a. Mingling of Operations and 269 (D. Del. 1989); David v. Mast, No. 1369-K, 1999 WL Observance of Corporate Formalities 135244, at *2 (Del. Ch. Mar. 2, 1999); Martin v. D.B. Martin Co., 10 Del.Ch. 211, 219 (Del. Ch. 1913)). However, “the plaintiff need not prove that the corporation was created with Here – as in De Sole – there is “substantial evidence of fraud or unfairness in mind. It is sufficient to prove that it was (1) a mingling of Knoedler [LLC] and 8-31's operations, and so used.” NetJets Aviation, 537 F.3d at 177 (citing Martin, (2) a disregard of corporate formalities in Knoedler [LLC] 10 Del.Ch. at 219; Sonne v. Sacks, No. CIV.A. 4416, 1979 and 8-31's interactions.” Id. at 666. WL 178497, at *2 (Del. Ch. June 12, 1979)). As to overlap in operations, the two companies had the same Courts generally apply the same analysis whether the corporate address *357 (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. dominant shareholder is an individual or another corporation. No. 220) ¶¶ 1119); 8-31 conducted its business in Knoedler See TradeWinds Airlines, Inc., 101 F.Supp.3d at 278– LLC's offices (id. ¶ 1121); and the two companies shared a telephone system. (Id. ¶ 1115) Moreover, 8-31 employees 79 (applying Fletcher test to individual dominant did not have 8-31 e-mail addresses. For example, 8-31 and shareholder); Wilson v. Thorn Energy, LLC, 787 F. Supp. Knoedler LLC's chief financial officer, Ruth Blankschen, 2d 286, 297 (S.D.N.Y. 2011) (“To hold Huggins personally used a Knoedler LLC e-mail address and an 8-31 e-mail liable for the obligations of the Defendant Entities, Plaintiffs signature. (Id. ¶¶ 1116-18; Blankschen e-mail (Hilti Dkt. must first show that Huggins and the Defendant Entities No. 219-100) at 2) 8-31 and Knoedler LLC also shared an operated as a single economic unit.”) (citing NetJets accounting department. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1111) “This significant mingling of office space Aviation, 537 F.3d at 177); Jet Star Enterprises, Ltd. and infrastructure weighs in favor of finding that Knoedler v. Soros, No. 05 Civ. 6585 (HB), 2006 WL 2270375, [LLC] and 8-31 operate as a single economic entity.” De at *6 (S.D.N.Y. Aug. 9, 2006) (applying Fletcher test to individual dominant shareholder). “These principles are Sole, 139 F. Supp. 3d at 666 (citing Soroof Trading Dev. [also] generally applicable ... [when] one of the entities in Co. v. GE Fuel Cell Systems, 842 F. Supp. 2d 502, 522 question is an LLC,” but “[i]n the alter-ego analysis of an (S.D.N.Y. 2012) (denying summary judgment on alter ego LLC, somewhat less emphasis is placed on whether the LLC claim under Delaware law where, inter alia, two entities observed internal formalities because fewer such formalities shared office space, one of the entities “did not lease its office space,” “office space did not have a plaque or other sign are legally required.” NetJets Aviation, 537 F.3d at 178. indicating the presence” of more than one entity; and there was evidence of significant “mingling of the operations”)). “As a fact-specific inquiry, ‘the issue of corporate disregard is generally submitted to the jury.’ ” Overton v. Art Fin. Partners LLC, 166 F. Supp. 3d 388, 404 (S.D.N.Y. 2016) (quoting

8-31 argues that – because it is a holding company – “notions Defendants argue that the Management Agreement was not of infrastructure and office space in this circumstance do implemented because 8-31 did not perform the services not constitute indicia of overlap or absence of corporate contemplated in the agreement. (Def. 8-31 Br. (Hilti Dkt. No. formalities.” (Def. 8-31 Br. (Hilti Dkt. No. 215) at 13) While 215) at 18-19; Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 8-31 may make this argument to a jury, it does not warrant 501, 510) However, Defendants also argue that the money summary judgment in its favor on the alter ego issue. Knoedler LLC transferred to 8-31 was used to pay Knoedler LLC's business expenses (Def. 8-31 Br. (Hilti Dkt. No. 215) “There is also evidence that 8-31 and Knoedler [LLC] have at 25-26; Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 515, 522), including payroll and accounting – two services that are a significant overlap in personnel.” De Sole, 139 F. Supp. referenced in the Management Agreement. 3d at 666. For example, Sansone and Blankschen each served as a vice president, secretary, treasurer, and chief financial In sum, there is substantial evidence that Knoedler LLC and officer of both 8-31 and Knoedler LLC. (Pltf. R. 56.1 Add. 8-31 disregarded the Management Agreement and “ ‘failed Stmt. (Hilti Dkt. No. 220) ¶¶ 1101-02) Freedman was both to follow legal formalities when contracting with each other.’ Knoedler LLC's sole manager and president, and a vice president and director of 8-31. (Def. R. 56.1 Stmt. (Hilti ” NetJets Aviation, 537 F.3d at 178 (quoting Trustees of Dkt. No. 218) ¶ 198; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. Village of Arden v. Unity Construction Co., No. C.A. 15025, No. 220) ¶ 1107) Hammer was the president, chief executive 2000 WL 130627, at *3 (Del. Ch. Jan. 26, 2000)). Where two officer, chairman, and sole owner of 8-31, and became the sole entities fail to follow legal formalities in their dealings with manager of Knoedler LLC in 2009. (Def. R. 56.1 Stmt. (Hilti one another, this is “ ‘tantamount to declaring that [they] are Dkt. No. 218) ¶ 857; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. indeed one [and] the same.’ ” Id. 220) ¶¶ 1104, 1106; Hammer Decl. (Hilti Dkt. No. 219-45) ¶ 1) Moreover, Hammer's family has been “directly responsible for the operations of Knoedler” since the 1970's. (Hammer Decl. (Hilti Dkt. No. 219-45) ¶ 2) b. 8-31's Siphoning of Funds from Knoedler

A reasonable jury could conclude that – in 2010 – 8-31 Finally, there is evidence that 8-31 and Knoedler LLC siphoned more than $ 13 million from Knoedler LLC. disregarded corporate formalities in their dealings with each It is undisputed that, in 2010, Knoedler's interdivisional other. In 2001, for example, Knoedler LLC and 8-31 entered receivables due from 8-31 – worth more than $ 13 million – into a Management Agreement to govern the services 8-31 were reclassified as “distributions” to 8-31. (Pltf. R. 56.1 Add. would provide to Knoedler LLC. This agreement includes Stmt. (Hilti Dkt. No. 220) ¶¶ 1142, 1144; Def. R. 56.1 Stmt. payroll and accounting services. (Def. R. 56.1 Stmt. (Hilti (Hilti Dkt. No. 218) ¶ 578) On its face, this reclassification is Dkt. No. 218) ¶ 498; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. evidence that 8-31 eliminated a significant asset of Knoedler 220) ¶ 1135) In return for these services, the Management LLC and liability of 8-31. Agreement calls for Knoedler LLC to pay 8-31 “101% of the actual costs incurred by [8-31] on behalf of [Knoedler Defendants argue, however, that for nearly a decade the LLC].” (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 499) It is fund transfers from Knoedler LLC to 8-31 were incorrectly undisputed that this agreement was never implemented, and classified as “interdivisional receivables” on these entities' that no other agreement governing the relationship between general ledgers and financial statements. (Def. 8-31 Br. (Hilti 8-31 and Knoedler LLC was ever entered into. (Id. ¶ 510; Dkt. No. 215) at 28) John Salomon, Defendants' accounting Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1138) Instead, expert, testified that where “a holding company receiv[es a] Knoedler LLC simply and regularly transferred money to transfer [that it] does not have the ability to repay[, ]and no 8-31 whenever 8-31 needed money and Knoedler LLC had expectation can exist that it should or would be able to make cash on hand. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 514; repayment, the transfer from the subsidiary should not be Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1126, 1128) classified as a receivable on the subsidiary's general ledger These transfers were unrelated to any services performed and financial statement.” (Def. R. 56.1 Stmt. (Hilti Dkt. No. *358 by 8-31 for Knoedler LLC. (Pltf. R. 56.1 Add. Stmt. 218) ¶ 541) (Hilti Dkt. No. 220) ¶ 1128)

Moreover, Sansone and Blankschen – who each served as vice president, secretary, treasurer, and chief financial officer for A reasonable jury could also find an “overall element both 8-31 and Knoedler LLC – testified that they understood of injustice or unfairness,” NetJets Aviation, Inc., that 8-31 would not be able to repay these funds to Knoedler. 537 F.3d at 177, if a corporate distinction between (Def. 8-31 Br. (Hilti Dkt. No. 215) at 28; Def. R. 56.1 Stmt. 8-31 and Knoedler [LLC] were recognized. As discussed (Hilti Dkt. No. 218) ¶¶ 937-38) According to Defendants, above, Plaintiffs have proffered sufficient evidence for “[e]ven if this Court were to conclude that the interdivisional a reasonable jury to conclude that 8-31 siphoned [more receivables were not actually distributions, the value of the than $ 13] million from Knoedler [LLC]. There is also interdivisional receivables was zero,” because 8-31 was not evidence that the ... distribution to 8-31 occurred shortly able to repay Knoedler. (Def. 8-31 Br. (Hilti Dkt. No. 215) at after federal authorities commenced an investigation into 32-33) 8-31 contends that the reclassification was thus proper, Knoedler [LLC's] activities.... This sequence of events and did not constitute siphoning. (Id. at 35-41) gives rise to an inference that the purpose of transferring [more than $ 13] million from Knoedler [LLC] to 8-31 was The Court concludes that the parties' dispute about the to shield those assets from the reach of law enforcement propriety of the 2010 reclassification presents a jury issue. or Knoedler [LLC's] creditors, and constitutes evidence of As an initial matter, there is ample evidence that the “injustice or unfairness that is a result of an abuse of the classification of interdivisional receivables was not a mere corporate form.” See Nat'l Gear & Piston, Inc., 975 F. Supp. oversight. Knoedler LLC and 8-31 used the receivable/ 2d at 406. payable language consistently from 2001 through 2010, and under the leadership of two different chief financial De Sole, 139 F. Supp. 3d at 669. officers. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1125, 1131) Indeed, it was not until Knoedler *359 LLC came under criminal investigation that 8-31 decided that the decade-long accounting treatment of these transactions * * * * was a mistake. (Id. ¶ 1144) Moreover, in 2008 an outside Plaintiffs have proffered sufficient evidence to demonstrate auditor asked Blankschen to explain 8-31's interdivisional that a reasonable jury could find that (1) 8-31 and Knoedler accounts in connection with an audit of 8-31's 2005 taxes. LLC operated as a single entity; and (2) the observance (Interdivisional Accounts E-mail (Hilti Dkt. No. 219-53) at 6) of corporate distinctions between these two entities under Blankschen provided the auditor with a detailed explanation the circumstances would result in a fundamental injustice. of how 8-31 records its interdivisional receivables and The evidence offered by 8-31 at best raises issues of fact. payables, referring to these accounts as assets and liabilities. Accordingly, 8-31 is not entitled to summary judgment on (Id.) Finally, the financial accounting policies attached to Plaintiffs' claims to the extent those claims rely on a theory Knoedler LLC and 8-31's consolidated financial statements 34 plainly state that “[a]ccounts receivable are stated at the of alter ego liability. amounts management expects to collect.” (E.g., 8-31 & LLCs' Consolidated Financial Statements (Hilti Dkt. No. 218-130) C. Hammer Analysis at 6)

While 8-31's arguments may raise an issue of fact regarding 1. Operation as a Single Entity the nature of the accounting reclassification, a reasonable jury could conclude that 8-31 siphoned off more than $ 13 million a. Hammer's Siphoning of 8-31's Funds from Knoedler LLC in 2010. [36] Plaintiffs contend that a reasonable jury could conclude that Hammer siphoned *360 money from 8-31 by charging personal expenses to his corporate credit card and by 2. Fundamental Unfairness purchasing luxury vehicles for his personal use.

As this Court concluded in De Sole:

803) Hammer alone determined how many vehicles he would purchase for business use, and he did not discuss these i. Use of Corporate Credit Card purchases with 8-31's chief financial officer. (Pltf. R. 56.1 and Purchase of Luxury Vehicles Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1302, 1353) Moreover, Hammer charged $ 2.7 million on his corporate credit card, Hammer twice sold company cars and retained the proceeds. and 8-31 paid those charges. (Def. R. 56.1 Stmt. (Hilti Dkt. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 791, 793; Pltf. No. 218) ¶ 961; Hammer Decl. (Hilti Dkt. No. 218-3) ¶ R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1314) When 8-31 51) Hammer charged both business and personal expenses personnel learned what he had done, the proceeds from one on his corporate credit card, and later informed 8-31 which car were reported to the IRS as income to Hammer (Def. R. charges were business-related and which were personal. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 746; Pltf. R. 56.1 Cntrstmt. (Hammer Decl. (Hilti Dkt. No. 218-3) ¶ 51) Hammer (Hilti Dkt. No. 219) ¶ 746), and Hammer issued a promissory allegedly reimbursed 8-31 for the personal expenses that 8-31 note to 8-31 in the amount of the proceeds from the other had paid. (Id.) The only evidence that the expenses Hammer car. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 794; Pltf. R. designated as business-related were in fact legitimate business 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1339, 1342). Hammer regularly sold cars within a year of their purchase (Def. R. expenses is Hammer's testimony. 35 No one maintained 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 717-18, 762; Pltf. R. 56.1 records regarding the purpose of these charges, and Hammer Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1312-14), and sometimes at did not submit any explanation of the alleged business-related a loss. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 762; Pltf. R. charges to 8-31. Moreover, no one at 8-31 regularly reviewed 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1313). He did not keep the charges Hammer designated as business expenses. (Pltf. records of his business use of these vehicles. (Pltf. R. 56.1 R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1215; Hammer Decl. Cntrstmt. (Hilti Dkt. No. 219) ¶ 809) He referred to one of the (Hilti Dkt. No. 218-3) ¶ 52) cars paid for by 8-31 as “the ‘company’ Mercedes,” placing quotation marks around the word “company.” (Pltf. R. 56.1 There is substantial evidence that some of the charges Add. Stmt. (Hilti Dkt. No. 220) ¶ 1307) In sum, a reasonable Hammer designated as business expenses were personal in jury could find that Hammer purchased these luxury cars for nature: Hammer admitted that (1) he could not recall the personal use. business purpose of certain charges (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1229, 1247, 1266-67); (2) at times [37] Under Delaware law, “[s]iphoning suggests ‘the he intended to reimburse 8-31 for certain personal expenses, improper taking of funds that the owner was not legally but never did so (id. ¶ 1275); and (3) certain charges he entitled to receive.’ ” In re Autobacs Strauss, Inc., 473 categorized as business expenses were actually personal in nature. (Id. ¶¶ 1259-62; Hammer Decl. (Hilti Dkt. No. 218-3) B.R. 525, 557 (Bankr. D. Del. 2012) (quoting In re The ¶ 63). There is also evidence that Hammer sometimes used Heritage Organization, 413 B.R. 438, 517 n.69 (Bankr. N.D. refunds related to charges he had designated as business Tx. 2009)). Applying Delaware law, the Second Circuit expenses to offset his personal expenses. (Pltf. R. 56.1 Add. has found evidence of siphoning where – as here – a Stmt. (Hilti Dkt. No. 220) ¶¶ 1234, 1278-79; Feb. 2010 Stmt. dominant shareholder and officer causes a company to pay (Hilti Dkt. No. 219-174) at 6; March 2010 Stmt. (Hilti Dkt. for his personal expenses. 37 NetJets Aviation, 537 F.3d at No. 219-175) at 2) Dru Hammer testified that several charges designated as business-related were in fact personal in nature. 181-82. In NetJets Aviation, the Second *362 Circuit's (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1221-22, siphoning analysis emphasized that the defendant shareholder 1236, 1238-39, 1245-46, 1259-62; Def. R. 56.1 Cntrstmt. was the sole decision-maker when it came to determining (Hilti Dkt. No. 232-1) ¶ 1236; Dru Hammer Dep. (Hilti Dkt. what would be an appropriate use of corporate funds, and No. 219-10) at 175:10-178:25) The Court concludes that a that “[t]here was no procedure” in place to monitor these reasonable jury could find that a significant portion of the decisions. 38 Id. at 182. “business expenses” Hammer charged to his corporate credit card – charges paid by 8-31 – were personal in nature. 36 Hammer argues that “siphoning does not exist where ‘payments were only made [to a shareholder] while the *361 Between 2005 and 2010, 8-31 reimbursed Hammer [corporation] was profitable and did not jeopardize the nearly $ 2 million for seven luxury vehicles. (Def. R. 56.1 [corporation's] ability to run or grow its business.’ ” (Def. Stmt. (Hilti Dkt. No. 218) ¶¶ 714, 723, 736, 758, 772, 787,

the note would be due “on demand.” (Id. ¶¶ 1342, 1344) Hammer Br. (Hilti Dkt. No. 213) at 13 (quoting In re Once again, Hammer signed for both 8-31 and himself, and Opus East, LLC, 528 B.R. 30, 64 (Bankr. D. Del. 2015))) Blankschen had no involvement. (Id. ¶ 1345) Hammer only This is not an accurate characterization of the case law, repaid the note shortly before his deposition in these actions. however. Opus East – the case upon which Hammer (Id. ¶ 1348) relies – merely holds that the regular payment of dividends does not constitute siphoning where the corporation is in *363 In 2011, Hammer adopted and approved a liquidation good financial health. Opus East, 528 B.R. at 64. While plan for Knoedler LLC. (Id. ¶ 1188; Knoedler Resolution insolvency may be relevant to the issue of siphoning – see, & Liquidation Plan (Hilti Dkt. No. 219-101) at 3) Once e.g., In re Autobacs Strauss, Inc., 473 B.R. at 557 (“[T]he again, Hammer signed for both 8-31 and Knoedler LLC. insider was siphoning cash by requiring payments to be (Knoedler Resolution & Liquidation Plan (Hilti Dkt. No. made under his loan at a time when the company was 219-101) at 3) Blankschen did not know that the liquidation plan existed. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) insolvent.”); Trustees of Nat. Elevator Indus. Pension v. ¶ 1192) The liquidation plan called for Knoedler LLC to Lutyk, 140 F. Supp. 2d 447, 459 (E.D. Pa. 2001) (“The use “make reasonable provision for the satisfaction” of all claims of corporate funds for personal benefits – [ ] particularly against it, including contingent and unmatured claims. (Id. at a time of financial distress – also supports piercing the ¶ 1189; Knoedler Resolution & Liquidation Plan (Hilti Dkt. corporate veil.”), aff'd sub nom. Trustees of Nat. Elevator No. 219-101) at 4) Blankschen was not informed about this Indus. Pension, Health Benefit & Educ. Funds v. Lutyk, 332 requirement, either. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. F.3d 188 (3d Cir. 2003) – insolvency is not a prerequisite 220) ¶ 1192) Although Hammer had approved and signed the for a finding of siphoning. Indeed, insolvency and siphoning liquidation plan, he testified that he did not know who was are two separate factors in assessing whether alter ego implementing the liquidation plan. (Id. ¶ 1195) liability should be imposed. See Fletcher, 68 F.3d at 1459 As discussed above, Hammer regularly purchased “company” (analyzing alleged siphoning with no mention of insolvency); cars without informing anyone else at 8-31. (Id. ¶ 1353) TradeWinds Airlines, Inc. v. Soros, 101 F. Supp. 3d 270, And during the period between 2001 and 2010, 8-31 paid 282-83 (S.D.N.Y. 2015), aff'd , 637 F. App'x 53 (2d Cir. all charges on Hammer's corporate credit card, without 2016) (same); Cohen v. Schroeder, 248 F. Supp. 3d 511, 520 maintaining any records or requiring any documentation of (S.D.N.Y. 2017), aff'd, 724 F. App'x 45 (2d Cir. 2018) (same); the expenses Hammer designated as business expenses. (Id. ¶ 1215; Hammer Decl. (Hilti Dkt. No. 218-3) ¶ 52) NetJets Aviation, 537 F.3d at 181-82 (same).

Based on the evidence discussed above, a reasonable jury could conclude that “corporate records [were not] kept, b. Observance of Corporate Formalities officers and directors [did not] function properly, and

There is evidence that Hammer and 8-31 did not observe other corporate formalities [were not] observed.” NetJets corporate formalities. For example, Hammer entered into Aviation, 537 F.3d at 177. agreements on 8-31's behalf without informing any other 8-31 director or officer. For example, in 2009, Hammer sold a corporate vehicle without informing 8-31, and kept the c. Issuance of Dividends proceeds. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 791, 793) After this transaction came to the attention of 8-31 personnel, It is undisputed that 8-31 did not pay dividends to Hammer, its Hammer executed a promissory note in favor of 8-31 in the sole shareholder. (Pltf. Jt. Br. (Hilti Dkt. No. 222) at 104-05; amount of the proceeds – $ 160,000. (Id. ¶ 794, Pltf. R. 56.1 Def. Hammer Reply (Hilti Dkt. No. 229) at 17) The “failure to Add. Stmt. (Hilti Dkt. No. 220) ¶ 1342) He signed the note pay dividends (while instead siphoning funds ... through other for both 8-31 and himself. (Pltf. R. 56.1 Add. Stmt. (Hilti means) ... evidences” alter ego status. In re Opus East, 528 Dkt. No. 220) ¶ 1342) Blankschen, 8-31's chief financial officer at the time, had no role in negotiating or preparing the B.R. at 63 (citing In re Moll Indus., Inc., 454 B.R. 574, promissory note. (Id. ¶ 1345) When the promissory note came 588 (D. Del. 2011)) due, Hammer executed an amended note which provided that

single entity; and (2) the observance of corporate distinctions 2. Fundamental Unfairness between them would result in a fundamental injustice. At There is evidence that Hammer initiated the reclassification best, the evidence offered by Hammer raises issues of fact. of Knoedler's interdivisional receivables due from 8-31. At Accordingly, Hammer is not entitled to summary judgment his deposition, Hammer testified that he asked Blankschen on Plaintiffs' claims to the extent those claims rely on a theory about the receivables, that he “wanted to make sure that of alter ego liability. 39 there wasn't money that was owed anywhere,” and that the “terminology” regarding the receivables was subsequently “corrected.” (Hammer Dep. (Hilti Dkt. No. 219-28) at CONCLUSION 402:6-12) For reasons already discussed, a reasonable jury could find an “overall element of injustice or unfairness,” For the reasons stated above, Defendants' motions for NetJets Aviation, 537 F.3d at 177, in the reclassification of summary judgment *364 were denied in part and granted in the receivables. part as set forth in this Court's March 31, 2019 Order. 40

SO ORDERED. * * * *

Plaintiffs have proffered sufficient evidence for a reasonable All Citations jury to conclude that (1) 8-31 and Hammer operated as a 386 F.Supp.3d 319, RICO Bus.Disp.Guide 13,195

Footnotes 1 With the exception of deposition and hearing transcripts, all references to page numbers in this Memorandum Opinion & Order are as reflected in this District's Electronic Case Filing system. Citations to deposition and hearing transcripts reflect the page numbers assigned by the court reporter. 2 Familiarity with this Court's prior orders in Hilti and White (Hilti Dkt. No. 132; White Dkt. No. 108) is assumed. The Court likewise assumes familiarity with its decision at summary judgment in a related case, De Sole v. Knoedler Gallery, LLC, 139 F. Supp. 3d 618 (S.D.N.Y. 2015). 3 Ann Freedman joined the Gallery in 1977 as the director of contemporary art. (Freedman Dep. (Hilti Dkt. No. 219-5) at 42:9-15) In or about January 1995, she “assume[d] leadership of the gallery,” and began reporting directly to “the owner of the gallery, Michael Hammer.” (Id. at 42:18-43:9) Between 2001 and October 2009, Freedman was the president and sole manager of Knoedler LLC and a director of 8-31. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 198; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1408) 4 The Court may take judicial notice of adjudicative facts pursuant to Fed. R. Civ. P. 201. 5 The Merriam-Webster dictionary defines “provenance” as “the history of ownership of a valued object or work of art or literature.” Merriam Webster, http://www.merriam-webster.com/dictionary/provenance (last visited March 15, 2019). 6 The IFAR Report is discussed in greater detail below. 7 The record does not disclose how much of the $ 5 million is attributable to the purported Pollock. 8 At this time, the Gallery's files contained at least two iterations of the purported Rothko's provenance. The first presents the provenance as follows: “The Artist. Private Collection, Switzerland (acquired directly from the artist through Alfonso Ossorio). By descent to current owner.” (Rothko Provenance No. 1 (Hilti Dkt. No. 219-67) at 3) In the second, the provenance is presented as: “The Artist. Private Collection, Switzerland (acquired directly from the artist). By descent to current owner.” (Rothko Provenance No. 2 (Hilti Dkt. No. 219-77) at 4) The record does not disclose whether the Trust was given one of these descriptions of the painting's provenance, or a third version. 9 In addition to issues regarding the materials used in the “Green Pollock,” certain Pollock experts challenged the authenticity of Pollock's signature on the painting: “serious enough disagreements [among the experts] arose concerning [the signature's] authenticity to make it suspect.” (IFAR Rpt. (Hilti Dkt. No. 219-95) at 11) The IFAR Report also states that the painting's “technique and style provoked the most negative comments by IFAR's team of specialists[,] ... and those who were negative were strongly so. The fact that the same concerns were voiced by so many of the experts even, in certain cases, by those who accepted the painting, was troubling.” (Id. at 11-12)

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 32 Martin Hilti Family Trust v. Knoedler Gallery, LLC, 386 F.Supp.3d 319 (2019) RICO Bus.Disp.Guide 13,195 10 The parties' Rule 56.1 statements do not discuss the facts and circumstances leading to formation of the special committee. 11 The grand jury subpoena is not part of the record. 12 The parties' Rule 56.1 statements do not discuss the facts and circumstances surrounding Hammer's decision to close the 165-year-old Gallery. 13 The Gallery's profit on the purported Pollock sold to Lagrange was $ 14.35 million. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1075) 14 Rosales was charged with conspiracy to commit wire fraud, wire fraud, conspiracy to commit money laundering, money laundering, subscribing to false tax returns, and failing to file reports of foreign bank and financial accounts. United States v. Rosales, No. 13 Cr. 518 (KPF) (S.D.N.Y.), Dkt. No. 14 (Aug. 14, 2013 Superseding Indictment). On September 16, 2013, Rosales pled guilty to these charges. At the plea hearing, Rosales allocuted as follows: From in or around the 1990s through 2009, I was engaged in the business of dealing fine arts personally and through Glafira Rosales Fine Arts, LLC. This entity was formed under the laws of the State of New York and conducted business within the Southern District of New York. During that period, I agreed with others to sell works of art claimed to be created by various expressionist artists, including Mark Rothko, Jackson Pollock, and Robert Motherwell, and to make false representations as to the authenticity and provenance of those works. These works of art were actually fakes created by an individual residing in Queens. United States v. Rosales, No. 13 Crim. 518 (KPF) (S.D.N.Y.), Dkt. No. 23 (Sept. 16, 2013 Plea Tr.) at 26:11-21. 15 The Knoedler LLC asset purchase agreement is the only LLC transaction that is relevant here. 16 Dru Hammer joined 8-31's board in 2003. (Id. ¶ 1409) 17 Defendants initially asserted that Hammer was 8-31's only employee. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 463) In Defendants' response to Plaintiffs' Rule 56.1 Statement, however, they admit that 8-31 had additional employees. (Def. R. 56.1 Cntrstmt. (Hilti Dkt. No. 232-1) ¶¶ 1101-02, 1107) In addition to the 8-31 employees discussed above, Dru Hammer and Richard Lynch were both vice presidents and directors of 8-31. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1107) 18 Defendants admit that “[c]ertain ... Knoedler [LLC] and Hammer Galleries employees performed accounting and bookkeeping services for 8-31 and its subsidiaries,” but maintain that these individuals were not employees of 8-31. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 471-72) 19 “When asked how he determined which of the LLCs to transfer funds out of, Sansone, the former CFO of 8-31[ ] and the LLCs, said, ‘I just decided.’ ” (Id. ¶ 1130) 20 8-31 was the “common paymaster” for the employees of Knoedler LLC, Hammer Galleries LLC, and Knoedler Publishing LLC. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 518) 21 In an email to an outside accountant, however, Blankschen referred to 8-31's payables to Knoedler LLC as “liabilities.” (Pltf. R. 56.1 Cntrstmt. (Hilti Dkt. No. 219) ¶ 545) 22 In 2005, 8-31 reimbursed Hammer $ 95,000 for a Jaguar. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 714) Eight months later, he donated the car to Tinerino Ministries, and 8-31 took a charitable deduction for the donation. (Id. ¶¶ 717-18; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1312) In 2007, 8-31 reimbursed Hammer $ 143,000 for a Mercedes Benz S550, including $ 38,000 in customizations. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 723; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1355) Once the car was fully depreciated, Hammer gave the car to Mark Alfano. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 730) Defendants contend that Alfano was a consultant for 8-31 (id. ¶ 730), while Plaintiffs assert that Alfano was an auto shop employee who worked on Hammer's cars (Pltf. R. 56.1 Cntrstmt. (Hilti Dkt. No. 219) ¶ 730). Also in 2007, 8-31 reimbursed Hammer $ 482,000 for a Rolls Royce. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 736) Hammer sold the car five months later and kept the proceeds. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1314) After 8-31 personnel became aware of this transaction, the proceeds were reported to the IRS as 2008 income to Hammer. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 746; Pltf. R. 56.1 Cntrstmt. (Hilti Dkt. No. 219) ¶ 746) The IRS disallowed 8-31's claimed losses and deductions for the Rolls Royce, because of [t]he type of Automobile, the nature of the Taxpayer's business, along with the handwritten notes document[ing] the fact the transaction was executed in the name of the Taxpayer's one hundred (100%) owner, Mr. Michael Hammer. There was no evidence that the property was ever titled in the name of the Taxpayer, nor to indicate that title was transferred to the company or that the automobile was used in Taxpayer's business.” (Pltf. R. 56.1 Cntrstmt. (Hilti Dkt. No. 219) ¶ 712) In 2008, 8-31 reimbursed Hammer $ 226,000 for a Porsche Turbo, including $ 41,000 in customizations. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 758; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1327) Eleven months later, Hammer traded in the car at a loss. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 762; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1313)

Hammer used the proceeds from the Porsche to purchase a Ford Woody for $ 140,725. (Pltf. R. 56.1 Cntrstmt. (Hilti Dkt. No. 219) ¶ 787) Hammer had the car customized to read “Hammer Galleries” on the door. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 791) Hammer later sold the car for $ 160,000, and kept the proceeds. (Id. ¶¶ 791, 793) After 8-31's chief financial officer learned about this transaction (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1339), Hammer issued a promissory note to 8-31 for $ 160,000, plus 0.83% interest. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 794; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1342) When the note matured on August 29, 2012, Hammer executed an amended note that was due “on demand.” (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1342, 1344) Hammer signed the amended note on behalf of both 8-31 and himself. (Id. ¶ 1344) 8-31's chief financial officer had no role in negotiating or preparing the note or the amended note. (Id. ¶ 1345) Hammer repaid the note one month before his deposition in the instant action. (Id. ¶¶ 1348-49) In 2009, 8-31 purchased a Mercedes Benz SLR for $ 553,000. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 772) 8-31 took depreciation on this vehicle and reported a loss to the IRS when it was sold. (Id. ¶¶ 782-83) In 2010, 8-31 purchased a Mercedes SL65 for $ 279,135. (Id. ¶ 803) 23 Hammer also personally owned many cars. In 2008, for example, he owned twenty-seven cars, twelve of which were each worth more than $ 600,000. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 818-19) 24 8-31's outside auditors determined that the car purchases were reasonable. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 705-06) Each year, 8-31 “reported a portion of Mr. Hammer's use of the cars owned by 8-31 to the IRS as income to Mr. Hammer.” (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 809) These reports may not have been accurate, however, because Hammer did not keep records of his business use of these vehicles. (Pltf. R. 56.1 Cntrstmt. (Hilti Dkt. No. 219) ¶ 809) 25 The Trust's SAC adds new allegations concerning alter ego liability, but also re-alleges five state law claims that this Court dismissed in its September 30, 2015 Order. Because the Trust was not given leave to re-plead the dismissed state law causes of action, those claims – for deceptive trade practices and false advertising, breach of warranty, unilateral mistake of fact, mutual mistake of fact, and unjust enrichment – will be dismissed.

26 “The fact that the property at issue [is] money, rather than real property or chattels, is of no moment.” Id. at 822.

27 It is not obvious to this Court that RJR Nabisco's “domestic injury” requirement was intended to apply to a case such as this, where RICO's substantive prohibitions are not being applied extraterritorially in the first place.

In RJR Nabisco, the Court found that two of the five predicate statutory violations underlying plaintiffs' RICO claims involved an extraterritorial application. The Court then went on to state that “the presumption against extraterritoriality must be applied separately to both RICO's substantive prohibitions and its private right of action. It is not enough to say that a private right of action must reach abroad because the underlying law governs conduct in foreign countries.”

RJR Nabisco, 136 S. Ct. at 2108 (emphasis added). This language suggests that a “domestic injury” is required where RICO's substantive provisions are being applied to “conduct in foreign countries.” Similarly, the Court states that it must “separately apply the presumption against extraterritoriality to RICO's cause of action despite [its] conclusion that the presumption has been overcome with respect to RICO's substantive prohibitions” – suggesting that the “domestic

injury” analysis is necessary where RICO's substantive prohibitions are being applied to extraterritorial conduct. Id. at 2106. Later, the Court notes that “providing a private civil remedy for foreign conduct creates a potential for international friction,” again suggesting that a “domestic injury” is necessary where plaintiff requests a “remedy for foreign conduct.”

Id. (emphasis added). The Court goes on to express concern about potential forum shopping where courts apply U.S.

“remedies to ... conduct taking place abroad.” Id. (emphasis added). This language suggests that the Court may not have envisioned the “domestic injury” requirement being applied to a case such as this, where Defendants' alleged fraudulent conduct took place in the United States. Indeed, it is undisputed here that RICO's substantive provisions are not being applied extraterritorially. (Def. Knoedler Br. (Hilti Dkt. No. 217) at 25-30)

Moreover, Bascuñán appears to leave some room for application of RICO where the injured property was at one point in the United States and where there was a “preexisting connection” between a foreign plaintiff and the United States: ... [i]mportantly, the only domestic connections alleged here were acts of the defendant. Bascuñán and his relevant property always remained abroad, and these injuries did not arise from any preexisting connection between Bascuñán and the United States. To allow such a plaintiff to recover treble damages would thus “unjustifiably permit [foreign] citizens to bypass their own [nation's] less generous remedial scheme.”

Bascuñán, 874 F.3d at 819 (quoting RJR Nabisco, 136 S.Ct. at 2106-07).

RJR Nabisco will not brook flexibility on this point, however, because – as discussed above – the Court instructs that

foreign injury will not suffice. RJR Nabisco, 136 S.Ct. at 2111 (“ Section 1964(c) requires a civil RICO plaintiff to allege and prove a domestic injury to business or property and does not allow recovery for foreign injuries”).

28 Akishev v. Kapustin, No. CV 13-7152(NLH)(AMD), 2016 WL 7165714 (D.N.J. Dec. 8, 2016), cited by the Trust (Pltf. Hilti Br. (Hilti Dkt. No. 221) at 10-12), is not persuasive. In that case, plaintiffs in Europe purchased cars from a website

operated by defendants in the United States. Id. at *1. The website sold cars that either did not exist or were in worse

condition than advertised. Id. Plaintiffs wired money from Europe to the United States, and either did not receive a

car, or received a car that they had not ordered. Id. Plaintiffs brought a RICO claim against the defendants, and the court concluded that they had suffered a “domestic injury”: “The key to this case is that plaintiffs suffered their injuries the moment they clicked the computer mouse – on a United States-based website representing United States-based car dealerships – and ordered and paid for a car whose condition was materially misrepresented or did not even exist

at all.” Id. at *7. Because this analysis does not consider the location where the plaintiffs' property was harmed, it is not persuasive here. 29 The Trust argues that it is “unjust and illogical ... to peel away [its] civil RICO claim simply because [it] wired its payment from abroad, whereas numerous other civil RICO plaintiffs who were duped by the exact same U.S.-based scheme paid from accounts in the U.S.” (Pltf. Hilti Br. (Hilti Dkt. No. 221) at 13 (emphasis in original)) As a matter of fairness, this

argument has appeal. But it is, of course, the same argument Justice Ginsberg made in her dissent in RJR Nabisco: The Court hems in RICO out of concern about establishing a “double standard.” But today's decision does just that. U.S. defendants commercially engaged here and abroad [will] be answerable civilly to U.S. victims of their criminal activities, but foreign parties similarly injured [will] have no RICO remedy.

RJR Nabisco, 136 S. Ct. at 2115-16 (Ginsberg, J., dissenting). That argument did not prevail. 30 Knoedler LLC contends – incorrectly – that “[t]he decisional law ... holds without exception that absent ... an intentional effort to shield assets from the creditors of the predecessor[,] the continued existence of the seller is fatal to a claim of successor liability based upon mere continuation.” (Def. Knoedler Reply (Hilti Dkt. No. 231) at 20; Def. Knoedler Br. (Hilti Dkt. No. 217) at 16) While an intentional effort to shield assets is a factor that courts consider, see Societe Anonyme,

2007 WL 3253592, at *6-7; McDarren, 1995 WL 214482, at *8, it is not required. See In re General Motors LLC Ignition

Switch Litig., 2017 WL 6509256, at *8 (no discussion of intent to avoid liability); Kidz Cloz, Inc., 2002 WL 1586877 (same); Time Warner Cable, Inc., 2010 WL 3563111 (same). 31 Knoedler argues that White “does not allege that 8-31 is the successor to Knoedler-Modarco[, and therefore] [a]ny identity of directors or officers between Knoedler-Modarco and 8-31[ ]is not relevant to whether or not Knoedler is a successor of Knoedler-Modarco.” (Def. Knoedler Reply (Hilti Dkt. No. 231) at 16-17) As discussed below, however, there is a genuine issue of material fact as to whether Knoedler LLC is 8-31's alter ego. 32 As discussed above, a not-for-profit entity – the Maccabee Group – owned the remaining 75.1% of Knoedler-Modarco. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1384) According to Hammer, neither he nor any member of his family ever owned an equity interest in the Maccabee Group. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶ 915) According to Plaintiffs, however, Hammer is an indirect owner or beneficiary of the Maccabee Group. (Pltf. R. 56.1 Cntrstmt. (Hilti Dkt. No. 219) ¶ 913; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1362) In support of this assertion, Plaintiffs cite to the following evidence: (1) Dru Hammer was a director – and possibly the sole director – of the Maccabee Group, (2) the Maccabee Group is a Cayman Islands entity, and Hammer lived in the Cayman Islands when the Maccabee Group acquired its interest in Knoedler-Modarco, and (3) Hammer used the name “Maccabee” on multiple occasions, including for a company named Maccabee Productions LLC that he formed in 1999. (Pltf. R. 56.1 Cntrstmt. (Hilti Dkt. No. 219) ¶ 913; Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶¶ 1362, 1386-92) In any event, as discussed above, the Maccabee Group's interest in Knoedler-Modarco has presented no obstacle to Hammer's control over the company. Hammer testified that – from 1992 on – he has been the sole decision-maker for Knoedler- Modarco, and that the Maccabee Group has not participated in making decisions for the company. (Pltf. R. 56.1 Add. Stmt. (Hilti Dkt. No. 220) ¶ 1393; Hammer Dep. (Hilti Dkt. No. 219-28) at 478-79) Accordingly, a reasonable jury could conclude that Hammer effectively controls the Maccabee Group.

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 35 Martin Hilti Family Trust v. Knoedler Gallery, LLC, 386 F.Supp.3d 319 (2019) RICO Bus.Disp.Guide 13,195 33 “It is well-settled that New York's choice-of-law rules dictate that ‘the law of the state of incorporation determines when the corporate form will be disregarded.’ ” Jonas v. Estate of Leven, 116 F.Supp.3d 314, 330 (S.D.N.Y. 2015) (quoting

Fletcher, 68 F.3d at 1456). “This principle applies to LLCs as well as corporations.” Allison v. Clos-ette Too, LLC, No. 14 Civ. 1618 (LAK) (JCF), 2014 WL 4996358, at *4 (S.D.N.Y. Sept. 15, 2014) report and recommendation adopted sub nom. Ellison v. Clos-ette Too, LLC, No. 14 Civ. 1618 (LAK), 2014 WL 5002099 (S.D.N.Y. Oct. 7, 2014). Here, Knoedler LLC is a Delaware limited liability corporation, and 8-31 is a Delaware corporation. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 858, 862) 34 8-31 also argues that it cannot be held liable for Freedman's conduct under the doctrine of respondeat superior. (Def. 8-31 Br. (Hilti Dkt. No. 215) at 43-44) As this Court held in De Sole, however, [g]iven the Court's findings as to the alter ego theory of liability against 8-31, a reasonable jury could also conclude that Freedman was an employee of 8-31 and was acting within the scope of her employment during the course of the alleged fraud scheme. Therefore, 8-31 is not entitled to summary judgment on Plaintiffs' claims to the extent they rely on Freedman's conduct and a respondeat superior theory of liability.

De Sole, 139 F. Supp. 3d at 669 n.51. 35 Defendants have offered credit card statements with handwritten notations. (See American Express Statements (Hilti Dkt. Nos. 218-196-99, 218-201-02, 218-204-15)) Hammer explains the notations as follows: My standard practice was to review the American Express statements within days of the closing date. Both my personal assistants and I reviewed the charges and then one of us would designate each charge with the letter “P” for personal or “B” for business. We identified all charges in a manner that made clear which charges were personal and would be reimbursed by me. (Hammer Decl. (Hilti Dkt. No. 218-3) ¶ 52) To the extent that Defendants offer these notations for the truth of the matter asserted – that is, charges marked “B” were actually business expenses – their admissibility is not clear. Assuming that the elements for the business records hearsay exception could be established, see Fed. R. Evid. 803(6), there is – as discussed below – evidence that “the source of information or the method or circumstances of preparation indicate a lack of trustworthiness.” Id. 36 There is a broader issue concerning Hammer's business expenses. Hammer asserts that his role at 8-31 was to “support and expand the brand recognition” of Knoedler LLC, Hammer Gallery LLC, and Knoedler Publishing LLC by meeting with art collectors and representatives of galleries and museums. (Hammer Decl. (Hilti Dkt. No. 218-3) ¶ 8) Hammer could not recall the name of anyone who had purchased something from one of the LLCs after meeting with him, however. (Hammer Dep. (Hilti Dkt. No. 219-28) at 837:14-840:19) Moreover, Hammer claims that he had no involvement in the sale or acquisition of art; the marketing of art; the pricing of art; or the decision to exhibit works of art, and that he never communicated with purchasers of art. (Def. R. 56.1 Stmt. (Hilti Dkt. No. 218) ¶¶ 205, 245, 247, 250; Hammer Decl. (Hilti Dkt. No. 218-3) ¶ 17) Accepting Hammer's testimony on these points, it is not clear how he could have been engaged in activities that “support[ed] and expand[ed] the brand recognition” of Knoedler LLC, Hammer Gallery LLC, or Knoedler Publishing LLC.

37 Hammer cites United States v. Funds Held in the Name or for the Benefit of Wetterer, 210 F.3d 96 (2d Cir. 2000)

( Wetterer), for the proposition that where charges purportedly siphoned to an individual director “were small relative to the income, expenditures and operations” of the company and were not detrimental to the company's ability to function, then “(at worst) they represent a misappropriation of the [company's] funds rather than an identity between its director and the corporation,” and do not constitute a basis for alter ego liability.

(Def. Hammer Br. (Hilti Dkt. No. 213) at 21 (quoting Wetterer, 210 F.3d at 107-08)) Wetterer was an appeal from a bench trial involving an alter ego question under New York and Guatemalan law, and therefore has no bearing here. In

any event, the alleged personal expenses at issue in Wetterer amounted to only three charges, all of which the court

found to be legitimate business expenses. Wetterer, 210 F.3d at 107.

38 The defendant in NetJets Aviation argued that his personal use of corporate resources was “ ‘part of [his compensation]

package’ ... and ‘[o]ne of the perks of being the chairman[.’]” Id. at 182. The Second Circuit responded: “That may be; but for purposes of determining whether [the defendant] and [the company] were alter egos, it is pertinent that [the

defendant] made all of [the company]'s financial decisions ...; [the defendant] alone decided what his perks and package

would be.” Id. 39 Because the evidence discussed above is sufficient to create a material issue of fact as to whether Hammer and 8-31 operated as a single economic entity, the Court does not reach the parties' arguments concerning 8-31's capitalization and solvency. 40 Defendants moved to exclude the opinions offered by Plaintiffs' forensic accounting expert, Linda MacDonald (Hilti Dkt. No. 235, White Dkt. No. 185), and Plaintiffs moved to exclude the opinions offered by Defendants' forensic accounting expert, John Salomon. (Hilti Dkt. No. 226, White Dkt. No. 176). The Court has not relied on the opinions of either expert in deciding Defendants' motions for summary judgment, and the Court's decision does not depend on the admissibility of the experts' opinions. Accordingly, the parties' motions to exclude expert testimony are denied as moot and without prejudice to renewal in the form of motions in limine.

Procedural Posture(s): Forfeiture Proceeding; Motion to Dismiss for Lack of Standing; Motion to Dismiss for Failure 369 F.Supp.3d 565 to State a Claim; Motion for Summary Judgment. United States District Court, S.D. New York.

UNITED STATES of America West Headnotes (23) v. Ezra CHOWAIKI, Defendant. [1] Forfeitures 18-cr-323 (JSR) Mail and wire fraud | Forfeitures Signed March 29, 2019 Tainted or untainted determinations; commingled funds Synopsis Background: After defendant, the former operator of an Any property which constitutes, or is derived art gallery, pleaded guilty to wire fraud in connection with from, proceeds traceable to wire fraud is fraudulent scheme relating to works of art held by his gallery forfeitable to the government. 18 U.S.C.A. §§ on consignment, and was preliminarily ordered to forfeit his 981(a)(1)(C), 1956(c)(7), 1961(1). interest in various works that he acquired as result of, or that were used to perpetrate, his fraud, third-party petitioners filed claims asserting interests in particular painting. The government, joined by alleged consignors of painting, filed [2] Forfeitures motion to dismiss three of the petitions, that is, those filed by Time of taking effect; relation back two separate purported buyers of painting and the bankruptcy Title to property subject to civil forfeiture vests trustee for gallery's Chapter 7 estate, or, alternatively, for in the United States upon commission of the act summary judgment. giving rise to forfeiture. 18 U.S.C.A. § 981(f).

Holdings: The District Court, Jed S. Rakoff, J., held that: [3] Forfeitures Time of taking effect; relation back [1] bankruptcy trustee lacked a cognizable interest in the Forfeitures painting, for purposes of forfeiture; Purchasers Government's forfeiture interest in proceeds of [2] under New York law, taking all facts alleged in its petition fraud vests as soon as those proceeds come into as true, first purported buyer of painting, which sold it back existence, and is therefore superior to that of any to the gallery, had, at most, an unperfected security interest in subsequent third-party recipient of those funds, the painting that post-dated the vesting of the government's unless the third party is a bona fide purchaser for interest, which was not enforceable against the government; and value. 18 U.S.C.A. § 981(a)(1)(C).

[3] it was plausible that second purported buyer, a lender that allegedly accepted the painting in satisfaction of gallery's [4] Forfeitures debt, acquired a legal interest in the painting as a bona fide Right to or necessity of hearing; waiver purchaser for value. Third parties claiming an interest in forfeited property may file petitions requesting a hearing. Motion granted in part and denied in part. Comprehensive Drug Abuse Prevention and Control Act of 1970 § 413, 21 U.S.C.A. § 853(n)(2).

property, namely, either that he (1) had superior [5] Forfeitures title to the defendant at the time of the act giving Pleadings and claims rise to forfeiture, or (2) was a bona fide purchaser Petitions filed by third parties claiming an for value of the property and was, at the time interest in forfeited property cannot challenge of purchase, reasonably without cause to believe the predicate finding that the government's that the property was subject to forfeiture. interest in the property is superior to that of Comprehensive Drug Abuse Prevention and the defendant; they are limited to arguing that Control Act of 1970 § 413, 21 U.S.C.A. §§ the third party's interest trumps the government's interest. Comprehensive Drug Abuse Prevention 853, 853(n)(6).

and Control Act of 1970 § 413, 21 U.S.C.A. 1 Cases that cite this headnote § 853(n)(2).

1 Cases that cite this headnote [9] Forfeitures Rights of Third Persons

[6] Forfeitures Forfeitures Standing; Parties Purchasers To carry its burden, third party claiming an Third party who had an interest in forfeited interest in forfeited property must first establish property before the subject crime was its standing to challenge the forfeiture order committed, and so before the government's by demonstrating a “legal interest” in the interest vested, may prevail on the merits by forfeited property. Comprehensive Drug Abuse establishing that he had superior title to the defendant at the time of the act giving rise Prevention and Control Act of 1970 § 413, 21 to forfeiture, while third party who innocently U.S.C.A. § 853. acquired property after the crime may prevail on the merits by establishing that he was a bona fide purchaser for value of the property [7] Forfeitures and was, at the time of purchase, reasonably Standing; Parties without cause to believe that the property Where third party claiming an interest in was subject to forfeiture. Comprehensive Drug forfeited property has no valid interest in the Abuse Prevention and Control Act of 1970 § 413, property under state law, the inquiry ends, 21 U.S.C.A. §§ 853, 853(n)(6). and the claim fails for lack of standing. Comprehensive Drug Abuse Prevention and 1 Cases that cite this headnote Control Act of 1970 § 413, 21 U.S.C.A. § 853. [10] Forfeitures Pleadings and claims [8] Forfeitures Motion to dismiss a third-party petition in a Rights of Third Persons forfeiture proceeding prior to discovery or a Forfeitures hearing should be treated like a motion to dismiss Standard of proof in general a civil complaint under the Federal Rules of Civil After third party claiming an interest in Procedure. Fed. R. Civ. P. 12(b); Fed. R. Crim. forfeited property has established his standing to P. 32.2. challenge the forfeiture order by demonstrating a “legal interest” in the property, he must then prove his entitlement to relief on the merits [11] Forfeitures by establishing, through a preponderance of the Pleadings and claims evidence, one of two superior claims to the

To survive a motion to dismiss, petition filed by third party claiming an interest in forfeited property must contain sufficient factual matter, [16] Bankruptcy accepted as true, to state a claim for relief that is Property held by debtor as trustee, agent, or plausible on its face. Fed. R. Civ. P. 12(b); Fed. bailee R. Crim. P. 32.2. Bankruptcy trustee for the Chapter 7 estate of debtor-art gallery lacked a cognizable interest in particular painting, for purposes [12] Forfeitures of ancillary forfeiture proceeding held after Pleadings and claims gallery's operator, who had been convicted On motion to dismiss, factual allegations set of wire fraud, was preliminarily ordered to forth in petition filed by third party claiming an forfeit his interest in various works of art; interest in forfeited property are assumed to be although trustee's interest was related to the true; legal conclusions are not. Fed. R. Civ. P. painting, it was an entitlement to money arising 12(b); Fed. R. Crim. P. 32.2. from art gallery's consignment agreement with consignors of painting, not an ownership or other interest in the forfeited property. Comprehensive [13] Federal Courts Drug Abuse Prevention and Control Act of 1970 Property § 413, 21 U.S.C.A. § 853; Fed. R. Crim. P. When third party claims an interest in forfeited 32.2. property, state law determines the party's legal interest in the property at issue. [17] Forfeitures Creditors, lienholders, and mortgagees [14] Sales Forfeitures What Law Governs Purchasers Sales of artwork are governed by New York's Under New York law, purported buyer of version of the Uniform Commercial Code forfeited painting, which allegedly acquired (UCC). painting from art gallery whose operator was convicted of wire fraud and later sold it back to gallery, had, at most, an unperfected security [15] Forfeitures interest in the painting that post-dated the vesting Summary judgment of the government's interest, which was not In ancillary forfeiture proceeding, to the enforceable against the government; even if extent the government moved for summary buyer sufficiently pleaded that it was a bona judgment, that motion would be denied in all fide purchaser for value, and even if gallery had respects, without prejudice to such a motion power to transfer title to painting to a buyer in being properly brought following the close the ordinary course under UCC's “entrustment” of discovery, where the government did not provision regardless of any agreement with ask the court to consider any matters outside painting's consignors, invoice from when buyer the pleadings, did not otherwise explain why sold painting back to gallery was not sufficiently summary judgment would be appropriate, did not “explicit” about when title would pass, instead support any part of its argument by reference to specifying when title would “not” pass, such admissible evidence, and did not comply with that, when gallery retook possession of painting, local rule governing summary judgment. Fed. it also took title, while buyer retained only R. Civ. P. 56(c)(1), (2); U.S.Dist.Ct.Rules S.& a security interest, and buyer did not allege E.D.N.Y., Civil Rule 56.1. that it perfected or recorded that interest. Comprehensive Drug Abuse Prevention and

satisfaction of art gallery's debt, stated a Control Act of 1970 § 413, 21 U.S.C.A. § plausible claim that it acquired legal interest 853(n)(6)(B); N.Y. Uniform Commercial Code in painting as bona fide purchaser for value, §§ 2-401(1), 2-401(2), 2-403(2). for purposes of determining whether lender had standing to contest forfeiture of painting after gallery's operator, who was convicted of wire [18] Forfeitures fraud, was preliminarily ordered to forfeit his Creditors, lienholders, and mortgagees interest in various works of art; though UCC Under New York law, an unperfected security entrustment provision applies only to buyers interest cannot trump the government's interest in the ordinary course, which does not include in previously-forfeited goods; the government's those who acquire goods in satisfaction of interest in forfeited property is something like money debt, lender alleged that any consignment that of a secured creditor with a lien on the relationship between consignors and gallery was defendant's tainted assets superior to that of extinguished when gallery validly transferred most any other party, and a secured creditor painting to third party, and that, when third party takes priority over subsequent unperfected sold painting back to gallery, it transferred clear security interests. Comprehensive Drug Abuse title, such that gallery took possession not as Prevention and Control Act of 1970 § 413, 21 consignee, but as full owner, free to transfer the U.S.C.A. § 853; N.Y. Uniform Commercial Code work to lender to satisfy its debt. Comprehensive § 9-322(a)(3). Drug Abuse Prevention and Control Act of 1970 § 413, 21 U.S.C.A. § 853; N.Y. Uniform Commercial Code §§ 1-201(9), 2-403(2). [19] Forfeitures Creditors, lienholders, and mortgagees Forfeitures [21] Factors Particular cases Title to goods Under New York law, at the time lender provided Under New York law, a consignee cannot obtain a loan to art gallery, which pledged several title to the object of a consignment that is works of art, including a particular painting superior to the consignor's interest simply by which it had already sold to a third party, losing the object and then acquiring it again. as collateral, no security interest attached to the painting because the gallery neither had rights in nor was in possession of the painting; [22] Federal Civil Procedure accordingly, lender did not have a cognizable Matters considered in general interest in the property at that time, and so lacked Motions to dismiss for lack of standing and for standing to contest forfeiture of painting after failure to state a claim must be resolved upon the gallery's operator, who was convicted of wire pleadings. fraud, was preliminarily ordered to forfeit his interest in various works of art. Comprehensive Drug Abuse Prevention and Control Act of 1970 [23] Bankruptcy § 413, 21 U.S.C.A. § 853; N.Y. Uniform Pleading; dismissal Commercial Code § 9-203(a), (b) (2). For purposes of a motion to dismiss, the sufficiency of a petition is determined by the allegations in the petition itself, not allegations [20] Forfeitures in subsequent legal memoranda. Particular cases Under New York law, lender, which purportedly agreed to accept particular painting in

At the time of the guilty plea, and on consent of the parties, the Attorneys and Law Firms Court entered a preliminary order of forfeiture. See Consent Preliminary Order of Forfeiture, ECF No. 16No. 16. That *569 Daniel Marc Tracer, DOJ, United States Attorney's Order provided for the forfeiture of various works of art Office, SDNY, New York, NY, for United States of America. and also provided that a money judgment in the amount of $ 16,635,370 would be entered against the defendant, less the value of any of the forfeited works that were actually OPINION AND ORDER recovered. Id. at 1-5. The Government published notice of the JED S. RAKOFF, U.S.D.J. proposed forfeiture as required by Fed. R. Crim. P. 32.2(b) (6), see Service by Publication, ECF No. 80No. 80, and several Ezra Chowaiki, the former operator of an art gallery, pleaded third-party claimants filed petitions asserting interests in one guilty before this Court to a fraudulent scheme relating to or more of the paintings. The Government represents that it works of art held by his gallery on consignment. During seeks to determine the rightful owner of the various works, the plea proceedings, the Court entered a preliminary order not to keep the paintings for itself. The Court's understanding forfeiting Chowaiki's interest in various works of art that he is that the painting at issue in this motion is the only remaining acquired as the result of, or that were used to perpetrate, work that is the subject of contested proceedings. Claims his fraud. A number of third-party petitioners filed claims as to the other works have either been settled or are in the asserting interests in the works of art. The disposition of most process of settling, and the preliminary forfeiture order has of the contested works has been resolved by settlement. been amended several times to vacate references to those works. Before the Court is the Government's motion to dismiss several petitions insofar as they assert any interest in one The instant motion concerns one painting, Le Clown by specific painting, Picasso's Le Clown. For the reasons that Picasso (“the Work”). Four parties filed petitions asserting follow, the Government's motion to dismiss is granted insofar interests in the Work: Andrew and Kirsten Neuman (“the as it seeks to dismiss the petitions of the Bankruptcy Trustee Neumans”), ECF No. 31No. 31; KS Enterprise LLC (“KS and KS Enterprise LLC. The motion is denied insofar as it Enterprise” or “KS”), ECF No. 47No. 47; Piedmont Capital seeks to dismiss the petition of Piedmont Capital LLC. LLC (“Piedmont Capital” or “Piedmont”), ECF No. 57No. 57; and Albert Togut, the Bankruptcy Trustee for the Gallery's estate (“the Trustee”), ECF No. 59No. 59. I. Factual Background

A. The Conviction and Forfeiture Allegations B. The Third-Party Petitions For several years, Ezra Chowaiki operated Chowaiki & Co. Fine Art Ltd. (“the Gallery”). In 2015, Chowaiki began to use the Gallery to defraud investors and consignors. Specifically, 1. The Neumans Chowaiki would invite investors to send money to the Gallery According to their petition, the Neumans entered into a that would purportedly be used to purchase artwork for resale. consignment agreement with the Gallery on March 31, 2017. In fact, however, Chowaiki used that money to pay off the Neuman Pet. ¶ 8. The agreement provided that the Neumans Gallery's mounting debts. Similarly, Chowaiki would use would put up the money to purchase Le Clown, while artwork held by the Gallery on consignment as collateral to the Gallery would act as their agent in buying and then secure new loans, or in satisfaction of existing, defaulted reselling the Work. Neuman Pet. Exh. A ¶¶ 3, 6, ECF No. loans. In November of 2017, the Gallery filed for bankruptcy. 31-1 (“Agreement”)No. 31-1 (“Agreement”). The Agreement The next month, a criminal complaint was filed, accusing further provided that while the Gallery would have physical *570 Chowaiki of the above-described fraudulent conduct. custody, the Work would be the property of the Neumans, who See ECF No. 1No. 1. He ultimately pleaded guilty to one would also retain “sole discretion” to approve any sale or sale count of wire fraud on May 3, 2018, and was sentenced on price. Id. ¶¶ 8, 10. The Gallery would be entitled to 15% of any September 27, 2018 to eighteen months' imprisonment and sale price. Id. ¶ 12(a). On April 3, 2017, the Neumans wired three years of supervised release. See Judgment, ECF No. the money necessary to purchase the Work to the Gallery. 76No. 76.

Neuman Pet. ¶ 12. The Neumans subsequently demanded, and its petition, the Trustee claims an interest in Le Clown that is regained, custody of the Work in November of 2017. Id. ¶ 14. superior to all other claimants on the ground that the various The Neumans argue in their petition that they held an interest transfers of the work constituted avoidable preferences under superior to Chowaiki's at all times following the purchase of the Bankruptcy Code. Id. ¶ 28(v). Alternatively, the petition the Work in April 2017. Id. ¶¶ 22-23, 26. claims that the Gallery retains a 15% interest in the Work pursuant to the consignment agreement. Id.

2. KS Enterprise C. The Motion to Dismiss On January 3, 2019, the Government filed the instant motion KS Enterprise claims in its petition that it agreed to buy Le to dismiss the petitions of KS, Piedmont, and the Trustee. Clown (and another work, Jellyfish Eyes, not at issue here) Gov't Mem. Supp. Mot. Dismiss (“Gov't Mem.”), ECF Nos. from the Gallery on September 8, 2017. KS Enterprise Pet. ¶ 86, 87. The Government argues that all these petitions should 6. KS wired the purchase price to the Gallery on September be dismissed for lack of standing and failure to state a claim. 11 and took possession of the Work on September 16. Id. ¶¶ Gov't Mem. 7-8. In the alternative, the Government asks 8, 12. On September 25, the Gallery offered KS Enterprise that summary judgment be granted in its favor. Id. at 8. The $ 350,000 to buy back Le Clown and Jellyfish Eyes. Id. ¶ Neumans joined the Government's motion, ECF No. 99No. 13. KS agreed, and the Gallery took possession the same day 99, and Piedmont and KS opposed, Piedmont Mem. Opp. on the representation that payment would be forthcoming. Mot. Dismiss (“Piedmont Opp.”), ECF No. 98No. 98; KS Id. ¶ 15. The invoice from KS provided *571 that “title Mem. Opp. Mot. Dismiss (“KS Opp.”), ECF No. 101No. to the Artwork shall not pass to the purchaser until full 101. The Trustee does not oppose the Government's motion, payment has been acknowledged to have been received by KS with certain caveats. Trustee Resp. Mot. Dismiss (“Trustee Enterprise LLC.” Id. ¶ 16; KS Enterprise Pet. Exh. C, ECF Resp.”), ECF No. 96. No. 47-3No. 47-3. The Gallery never paid. KS Enterprise Pet. ¶ 20. KS Enterprise claims that it acquired title to the Work on September 11, 2017, which it retained through the subsequent II. Discussion repossession because the Gallery never transmitted payment. Id. ¶¶ 11, 22. A. Legal Standards

1. Forfeiture 3. Piedmont Capital [1] [2] [3] Any property “which constitutes or is derived According to its petition, on September 19, 2017, Piedmont from proceeds traceable to” wire fraud is forfeitable to the Capital lent $ 300,000 to the Gallery. Piedmont Pet. ¶ 15; Government. See 18 U.S.C. § 981(a)(1)(C) (incorporating Piedmont Pet. Exh. A, ECF No. 57-1No. 57-1. Certain works of art were pledged as collateral, including Le Clown, which the definition of “specified unlawful activity” in 18 U.S.C. the Gallery claimed to own. Piedmont Pet. ¶ 16(b); Piedmont § 1956(c)(7), which incorporates offenses listed in 18 Pet. Exh. B, ECF No. 57-2No. 57-2. The Gallery defaulted U.S.C. § 1961(1), which lists wire fraud); see also 28 U.S.C. on the loan, and on October 19, 2017, the parties executed § 2461(c) (providing for forfeiture of property subject to a release agreement whereby Piedmont would discharge the civil forfeiture upon criminal conviction, using the procedures debt in exchange for ownership of the collateral. Piedmont Pet. ¶ 20-21; Piedmont Pet. Exh. G ¶¶ 1, 3, ECF No. 57-7No. specified in 21 U.S.C. § 853). Title to such property vests 57-7. Piedmont claimed to have superior title to the Work as in the United States “upon commission of the act giving a bona fide purchaser for value. Piedmont Pet. ¶ 28. rise to forfeiture.” 18 U.S.C. § 981(f). Accordingly, “the government's interest in the proceeds of a fraud vests as soon as those proceeds come into existence, and is therefore 4. The Bankruptcy Trustee superior to that of any subsequent third-party recipient of those funds (unless the third party is a bona fide purchaser According to the petition by the Trustee, the Gallery filed for *572 for value).” United States v. Daugerdas, 892 F.3d 545, bankruptcy on November 13, 2017. Trustee Pet. ¶¶ 1, 2. In 548 (2d Cir. 2018). 1

[4] [5] Third parties claiming an interest in forfeited [11] [12] “To survive a motion to dismiss, a [petition] must contain sufficient factual matter, accepted as true, to state a property may file petitions requesting a hearing. 21 U.S.C. § 853(n)(2). Such third-party petitions cannot challenge claim for relief that is plausible on its face.” Ashcroft v. the predicate finding that the Government's interest in Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 the property is superior to the defendant's; they are (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. limited to arguing that the third party's interest trumps the 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). The Government's. See DSI Assocs. LLC v. United States, 496 factual allegations set forth in the petition are assumed to F.3d 175, 185 (2d Cir. 2007). be true; the legal conclusions are not. Willis Management (Vermont), Ltd. v. United States, 652 F.3d 236, 242 (2d Cir. [6] [7] [8] [9] To carry its burden, a petitioner “must 2011). first establish his standing to challenge the forfeiture order by demonstrating a ‘legal interest’ in the forfeited property.” United States v. Watts, 786 F.3d 152, 160 (2d Cir. 2015). 3. New York Property Law “Where the petitioner has no valid interest in the property under state law, the inquiry ends, and the claim fails for [13] [14] “State law determines a petitioner's legal interest lack of standing.” Id. at 161 (quoting United States v. in the property at issue.” Willis Management, 652 F.3d at Timley, 507 F.3d 1125, 1130 (8th Cir. 2007). “The petitioner 242. Here, the parties agree that the laws of New York State must then prove his entitlement to relief on the merits by apply. “Sales of artwork are governed by New York's version establishing, through a preponderance of the evidence, one of the Uniform Commercial Code (‘UCC’) ....” Overton v. of two superior claims to the property under § 853(n)(6).” Art Finance Partners LLC, 166 F.Supp.3d 388, 399 (S.D.N.Y. Id. at 160. The petitioner can prevail by showing either 2016) (quoting *573 Dorothy G. Bender Foundation, that he (1) had superior title to the defendant at the time of the Inc. v. Carroll, 40 Misc.3d 1231A, 975 N.Y.S.2d 708, 2013 act giving rise to forfeiture or (2) was a bona fide purchaser WL 4487458, at *6 (Sup. Ct. N.Y. Cty. Aug. 20, 2013). for value of the property and “was at the time of purchase reasonably without cause to believe that the property was Under the New York UCC, an entrustment of goods “to a merchant who deals in goods of that kind gives him power to subject to forfeiture.” 21 U.S.C. § 853(n)(6)(A), (B). The transfer all rights of the entruster to a buyer in the ordinary former provision applies to third parties who had an interest course of business.” UCC § 2-403(2). “ ‘Entrusting’ includes in property before the subject crime was committed (and so any delivery and any acquiescence in retention of possession before the government's interest vested); the latter applies to regardless of any condition expressed between the parties to third parties who innocently acquire property after the crime. the delivery or acquiescence and regardless of whether ... See Watts, 786 F.3d at 166. the possessor's disposition of the goods” is larcenous. UCC § 2-403(3); see Galin v. Hamada, 283 F.Supp.3d 189, 195 (S.D.N.Y. 2017), aff'd 753 Fed. Appx. 3 (2d Cir. 2018) (holding that painting was “entrusted” to art dealer within 2. Motions to Dismiss meaning of UCC, even though sale violated contract with [10] A court faced with a third-party petition “may, on owner). motion, dismiss the petition for lack of standing, for failure to state a claim, or for any other lawful reason.” Fed. R. A buyer in the ordinary course is one who “buys goods in Crim. P. 32.2(c)(1)(A). “[U]nder Rule 32.2, a motion to good faith, without knowledge that the sale violates the rights dismiss a third-party petition in a forfeiture proceeding prior of another person in the goods, and in the ordinary course to discovery or a hearing should be treated like a motion from a person ... in the business of selling goods of that kind.” to dismiss a civil complaint under Federal Rule of Civil UCC § 1-201(9). A person who “acquires goods ... as security for or in total or partial satisfaction of a money debt” does not Procedure 12(b).” Pacheco v. Serendensky, 393 F.3d 348, qualify as a buyer in the ordinary course. Id. 352 (2d Cir. 2004).

Unless otherwise specified by the contract of sale, title other interest in the forfeited property itself. See United to goods sold passes upon delivery to the buyer. UCC § States v. Ribadeneira, 105 F.3d 833, 836 (2d Cir. 1997) 2-401(2). “Any retention or reservation by the seller of the (per curiam) (holding that general creditors lack standing title (property) in goods shipped or delivered to the buyer to contest forfeiture). Accordingly, the Trustee's petition is is limited in effect to a reservation of a security interest.” dismissed for lack of standing and for failure to state a claim. UCC § 2-401(1). The security interest “attaches” when it This dismissal, obviously, does not affect the Trustee's ability becomes enforceable against the debtor. UCC § 9-203 (a). to assert contractual or other rights against the Neumans or However, a security interest cannot be enforced against the anyone else in other proceedings. debtor or against third parties unless “the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party.” UCC § 9-203(b)(2). 2. KS Enterprise's Petition

B. Application to the Petitions As noted above, KS Enterprise claims to have purchased the [15] As an initial matter, the Government has moved to Work from the Gallery on September 11, 2017, and then sold dismiss or, in the alternative, for summary judgment. Gov't it back to the Gallery on September 25, 2017. The invoices Mem. 1. The Government has not, however, asked the Court for both transactions included a provision stating that title to to consider any “matters outside the pleadings,” cf. Fed. R. the Artwork would not pass to the buyer until payment was Civ. P. 12(d), or otherwise explained why summary judgment received by the seller. KS claims that it acquired title when it would be appropriate. Nor has the Government supported any bought the Work (for which it transmitted payment). It further part of its argument by reference to admissible evidence, see claims that it retained that title, even after it agreed to sell the Fed. R. Civ. P. 56(c)(1), (2), or complied with Local Civil Work back to the Gallery and even though the Gallery took Rule 56.1. Therefore, to the extent the Government moves possession, because KS was never paid. for summary judgment, that motion is denied in all respects, without prejudice to such a motion being properly brought The Government alleges - and KS does not contest - that the Government's interest in the Work arose, at the latest, on following the close of discovery. See Pacheco, 393 F.3d at September 8, 2017, when Chowaiki fraudulently agreed to 352 (stating that, in ancillary forfeiture proceedings, “[o]nly sell Le Clown to KS notwithstanding his agreement with the after some discovery has taken place may a party move for Neumans. Gov't Mem. 19; Tr. Feb. 7, 2019, at 5:14-15. Since summary judgment”). the “act giving rise to forfeiture,” 18 U.S.C. § 981(f), was Chowaiki fraudulently selling the work to KS, KS's interest was clearly not superior to that of Chowaiki at the time of that 1. The Trustee's Petition sale. See United States v. Emor, 785 F.3d 671, 681 (D.C. The Government argues that the Trustee lacks a cognizable Cir. 2015) (“Core could not have taken a cognizable interest in interest in the Work itself. Rather, according to the the property because its interest vested at the same time as the Government, the Trustee has at most a contractual claim for government's interest.”) (emphasis added). Accordingly, KS's money damages (in the amount of 15% of any sale price of Le petition does not state a claim for relief under 21 U.S.C. Clown) against the Neumans. Gov't Mem. 20. The Trustee, in its response and at oral argument, conceded this point. § 853(n)(6)(A). See Watts, 786 F.3d at 166 (noting that, Trustee Resp. 2-3; Tr. Feb. 7, 2019, at 7:6-11. The Trustee to prevail under subsection (A), third party must “establish[ ] further represents that it has reached a settlement with the that he had a legal interest in the forfeited property before the Neumans and asks only that the Court's order not “extinguish underlying crime was committed”) (quoting Timley, 507 or otherwise prejudice” that agreement. Trustee Resp. 3. F.3d at 1130).

[16] The Court agrees with the parties that the Trustee [17] The Government concedes that – taking, as the Court lacks a cognizable interest in the Work for the purposes of must, all facts alleged in KS's petition to be true – KS has forfeiture. Although the Trustee's interest is *574 related to sufficiently pleaded that it was a “bona fide purchaser for Le Clown, it is an entitlement to money, not an ownership or value” within the meaning of 21 U.S.C. § 853(n)(6)(B)

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 8 United States v. Chowaiki, 369 F.Supp.3d 565 (2019) 98 UCC Rep.Serv.2d 552 when it bought the Work on September 11, 2017. Gov't Mem. before delivery, for example, would the buyer take title upon 21 n.7. The parties also agree that the Gallery had the power payment, or upon delivery? The invoice is silent on this to transfer title to the Work to a buyer in the ordinary course, question. Accordingly, the UCC requires that it be treated only regardless of any agreement with the Neumans, under the as creating a security interest. UCC's “entrustment” provision. See UCC § 2-403(2); Gov't Mem. 21; KS Opp. 4-5. For the purposes of this motion, then, Therefore, when the Gallery took possession of the Work on KS is assumed to have held title to the Work as of September September 25, 2017, it also took title, while KS retained only 11, 2017. a security interest. See UCC § 2-401(2) (unless otherwise agreed, title passes to the buyer upon physical delivery of However, the Government argues that KS lost title when goods, despite reservation of security interest). This security it sold the Work back to the Gallery. Gov't Mem. 21-22. interest constitutes a “legal interest” in the Work, and The Government relies on UCC § 2-401(1), which provides therefore KS's petition sufficiently alleges standing to contest that “[a]ny retention or reservation by the seller of the title the forfeiture. See Ribadeneira, 105 F.3d at 836. Whether it (property) in goods shipped or delivered to the buyer is adequately states a claim for relief, however, is another matter. limited in effect to a reservation of a security interest,” unless the parties “explicitly agree[ ]” otherwise. Since the Gallery [18] Nowhere in its petition does KS allege that it perfected took possession of the Work, the Government argues that the or recorded its security interest. Thus, the dispositive question provision of the invoice that purported to withhold title in fact is whether an unperfected security interest can trump the only gave KS a security interest in the Work. The question Government's interest in previously-forfeited goods. The is therefore whether the invoice from KS to the Gallery was Court concludes that it cannot. The Government's interest sufficiently “explicit” about when title to the Work would in forfeited property is “something like [that of] a secured pass. creditor with a lien on the defendant's tainted assets superior

*575 The Court finds instructive the case of Subaru to that of most any other party.” Luis v. United States, ––– Distributors Corp. v. Subaru of America, Inc., No. 98- U.S. ––––, 136 S.Ct. 1083, 1092, 194 L.Ed.2d 256 (2016). cv-5566, 2002 WL 188473 (S.D.N.Y. Feb. 5, 2002). There, A secured creditor takes priority over subsequent unperfected the Court construed two versions of the same contract term security interests. UCC § 9-322 (a) (3); see also United relating to reservation of title. The first version of the term States v. One 1987 Cadillac DeVille, 774 F.Supp. 221, 223-24 provided that title remained with the importer until the (D. Del. 1991) (concluding that unperfected security interest importer invoiced the distributor, “at which time title shall in car was insufficient to defeat forfeiture). pass.” Id. at *44. “That provision,” the Court observed, “explicitly identified the exact moment when title passed,” Taking all facts alleged in its petition as true, KS has at most and therefore overrode § 2-401(1)'s default rule. Id. at *44-45. an unperfected security interest in the Work that post-dates Later, however, the phrase “at which time title shall pass” was the vesting of the Government's interest. Such an interest is struck from the agreement. Id. at *45. Without that phrase, not enforceable against the Government. Accordingly, KS's the remainder - which spoke of title “remain[ing]” with the petition is hereby dismissed for failure to state a claim upon importer - could “only be interpreted as retention of title which relief can be granted. language.” Id. Thus, the provision as amended operated only to create a security interest, not to keep title with the importer.

The contract term here is materially indistinguishable from 3. Piedmont's Petition that in Subaru Distributors Corp., and the same reasoning [19] As recounted above, on September 19, 2017, Piedmont applies. To escape § 2-401(1)'s default rule, a contract must provided the Gallery with a loan, and the Gallery pledged explicitly identify when title passes. But KS's invoice does several works (including Le Clown) as collateral. At this time, not do that; it only says when title shall not pass (i.e. not if the Gallery had already sold the work to KS. The Government payment hasn't yet been received and acknowledged). That argues that, because the Gallery *576 neither had rights in leaves open the question of when title actually does pass – nor was in possession of the Work, it could not convey a is payment a sufficient condition for the passage of title, or security interest in the Work. See UCC § 9-203 (a), (b) (2). merely a necessary condition? If payment were to be made Piedmont does not contest this point, see Piedmont Opp. 7-8,

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 9 United States v. Chowaiki, 369 F.Supp.3d 565 (2019) 98 UCC Rep.Serv.2d 552 and the Court agrees with the Government. At the time of the “Joint Venture [would] be terminated” “[u]pon the Sale of loan, no security interest attached to the Work, and therefore the Artwork and the Sale Price being paid to the Owner.” Piedmont did not have a cognizable interest in the property Agreement ¶ 12 (emphasis added). Piedmont's argument that at that time. the consignment relationship was extinguished by the sale alone is contradicted by the plain language of the agreement. [20] A more difficult question is whether Piedmont acquired And if the consignment relationship survived, it is clear that an interest in the Work on October 19, 2017, when it agreed the Gallery could only take possession of the Work subject to accept the Work in satisfaction of the Gallery's debt. The to that preexisting contractual obligation. A consignee cannot Government argues that it did not. The Government notes that obtain title to the object of a consignment that is superior to the UCC entrustment provision, UCC § 2-403(2), applies only the consignor's interest simply by losing the object and then to a “buyer in the ordinary course,” which does not include acquiring it again. those who “acquire[ ] goods ... in total or partial satisfaction of a money debt,” UCC § 1-201(9), as Piedmont did here. [22] [23] But the Court is not permitted to consult the Neumans' agreement at this time. The Government has moved Piedmont does not dispute this part of the Government's to dismiss for lack of standing and failure to state a claim, and analysis. Piedmont Resp. 7. Piedmont argues, however, that such motions must be resolved upon the pleadings. So while it need not rely on the entrustment provision, because the this Court may “look to the agreement itself” *577 “[i]nsofar Gallery had title to the Work at the time it transferred the Work as the [petition] relies on [it],” Broder v. Cablevision to Piedmont. Piedmont reaches this result by noting that the Systems Corp., 418 F.3d 187, 196 (2d Cir. 2005), Piedmont's Government concedes, for the purpose of this motion, that KS petition does not even mention the Neumans' agreement with Enterprise acquired title when it purchased the Work from the the Gallery. True, Piedmont's legal briefing in opposition to Gallery. Piedmont Resp. 5-6. Any consignment relationship this motion does reference the Agreement. But the sufficiency between the Gallery and the Neumans was extinguished, of a petition is determined by the allegations in the petition because the Work was validly transferred pursuant to the UCC itself - not allegations in subsequent legal memoranda. Cf. entrustment provision. The Neumans, on this interpretation, retained no interest in the Work - just a cause of action for Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d breach of contract. Since KS took clear title to the Work, Cir. 2002) (holding that only where plaintiff “reli[ed] on the Piedmont reasons that KS was empowered to transfer clear terms and effect of a document in drafting the complaint” may title to any subsequent purchaser - including the Gallery. So that document be considered in disposing of Rule 12(b)(6) when KS sold Le Clown back to the Gallery, the Gallery took motion). possession not as a consignee for the Neumans, but as a full owner of the Work, just as any other buyer would have. And At this early stage, taking all the facts alleged in Piedmont's as a full owner, the Gallery was free to transfer the Work to petition to be true and drawing all reasonable inferences in Piedmont to satisfy its debt. Piedmont's favor, it is plausible that Piedmont acquired a legal interest in Le Clown as a bona fide purchaser for value. The The Government responds that Piedmont's argument amounts Government's motion to dismiss Piedmont's petition for lack to “title-laundering,” Gov't Reply 4, allowing the Gallery to of standing and failure to state a claim is therefore denied. benefit from its fraud by simply passing the Work through an intermediary. The Government notes that the UCC is to III. Conclusion be “liberally construed” to “promote its underlying purposes The Government's motion is granted insofar as it asks and policies,” UCC § 1-103(a), and argues that the purpose of this Court to dismiss the petitions of the Trustee and KS the entrustment provision is to protect innocent downstream Enterprise. The Government's motion to dismiss is denied buyers, not perpetrators of fraud. Gov't Reply 4-5. insofar as it asks this Court to dismiss Piedmont's petition. The remaining parties are instructed to convene a joint telephone [21] The resolution of this issue depends on the nature of call to the Court, no later than two weeks from the date of the agreement between the Neumans and the Gallery. If the this Opinion and Order, to propose a discovery schedule for Court were permitted to consider the consignment agreement resolution of the remaining claims. in deciding this motion, it is clear the Government would have the better argument. The agreement clearly provides that the

The Clerk of the Court is respectfully directed to close documents number 86 and 99 on the docket of this case. All Citations

SO ORDERED. 369 F.Supp.3d 565, 98 UCC Rep.Serv.2d 552

Footnotes 1 Unless otherwise indicated, case quotations omit all internal quotation marks, alterations, footnotes, and citations.

[2] Postal Service 95 F.3d 135 Knowledge and Intent in General United States Court of Appeals, Scheme to defraud required for mail fraud Second Circuit. conviction requires proof that defendant UNITED STATES of America, Appellee, possessed fraudulent intent. 18 U.S.C.A. § v. 1341. Hilda AMIEL, Defendant, Kathryn Amiel, Joanne Amiel and 1 Cases that cite this headnote Sarina Amiel, Defendants-Appellants. [3] Postal Service Nos. 1021, 1022 and 751, Dockets Use of Mails to Defraud 95-1286, 95-1287 and 95-1288. Fraudulent intent required to convict three art | distributors of mail fraud for sale of fakes was Argued March 28, 1996. supported by evidence that one distributor forged | artists' signatures with another's knowledge and Decided Sept. 5, 1996. encouragement, dealer's unsigned pieces were Synopsis returned two days later bearing signatures, third Art distributors were convicted of mail fraud and conspiring distributor was present at meetings while dealer to commit mail fraud, following jury trial, by the United was promised certificates of authenticity and States District Court for the Eastern District of New York, assured of protection from placement of too Thomas C. Platt, Jr., J. Distributors appealed. The Court of many prints, and third distributor told dealer Appeals, Parker, Circuit Judge, held that: (1) distributors' that documentation for fakes would be obtained sales of fake artwork to art dealers and government agents following police raid. 18 U.S.C.A. § 1341. supported mail fraud convictions; (2) tacit agreement with art dealers to distribute fake artwork for sale to public as genuine supported convictions for conspiring to commit mail [4] Postal Service fraud; (3) fact that one government witness was questioned Use of Mails to Defraud in unrelated organized crime murder investigation was not Posting of certificate of authenticity, for fake Brady material; (4) prosecuting distributors following civil artwork sold to government agents posing forfeiture of artwork did not violate double jeopardy; and (5) as investors interested in original works, trial court did not violate defendant's right to fair trial by established scheme to defraud required convict denigrating defense counsel in jury's presence. art distributors of mail fraud; agents purchased numerous works of purportedly authentic art Affirmed. deemed fake by expert, raided warehouse contained stacks of prints sold to undercover agents, distributors customarily signed artists' West Headnotes (17) names to print, and forged signatures were not added to prints until shortly before sale so that distributors could claim intent to sell forgeries as [1] Postal Service Nature and Elements of Offense in General unsigned prints if raided. 18 U.S.C.A. § 1341. Elements of mail fraud are: scheme to defraud; money or property; and use of mails to further [5] Conspiracy scheme. 18 U.S.C.A. § 1341. Combination or Agreement 2 Cases that cite this headnote Conspiracy Object

Conspiracy conviction requires proof of Forging artists' signatures on artwork provided agreement between two or more participants to to dealers for sale to public as genuine achieve particular illegal end. supported convictions of art distributors for mail fraud and conspiring to commit mail fraud, 4 Cases that cite this headnote notwithstanding difficulties in determining whether some art was genuine. 18 U.S.C.A. §§ [6] Conspiracy 371, 1341. Combination or Agreement Tacit understanding will suffice to show agreement for purposes of conspiracy [11] Criminal Law conviction; there need not be any written Materiality and Probable Effect of statement or even speaking of words which Information in General expressly communicate agreement. New trial is warranted based on government's 4 Cases that cite this headnote suppression of evidence favorable to defendant when government fails to disclose favorable evidence and undisclosed evidence is material, [7] Conspiracy that is, there is reasonable probability that had Knowledge and Intent evidence been disclosed to defense, result of Participants in conspiracy need not be fully proceeding would have been different. aware of details of venture so long as they agree on essential nature of plan. 26 Cases that cite this headnote

1 Cases that cite this headnote [12] Criminal Law Materiality and Probable Effect of [8] Conspiracy Information in General Weight and Sufficiency Materiality of favorable evidence which Conspiracy government suppressed, required for new trial Circumstantial Evidence under Brady, is established when government's Evidence linking defendant to conspiracy may be evidentiary suppression undermines confidence circumstantial and need not be overwhelming. in outcome of trial.

2 Cases that cite this headnote 11 Cases that cite this headnote

[9] Conspiracy [13] Criminal Law Conspiracy to Defraud in General Impeaching Evidence Tacit agreement between art distributors and Prosecution had no duty to disclose to mail dealers, for distributors to provide fake artwork fraud defendants that one government witness that dealers would pass off to public as was questioned during investigation of unrelated genuine, supported conviction of distributors for organized crime murders given that witness was conspiracy to commit mail fraud. 18 U.S.C.A. § not suspect in investigation and was not arrested 371. for any organized crime activity and, thus, no Brady violation resulted from prosecution's suppression of possible impeachment evidence.

[10] Conspiracy 27 Cases that cite this headnote Conspiracy to Defraud in General Postal Service [14] Criminal Law Value or Character of Goods

Impeaching Evidence 7 Cases that cite this headnote Suppressed evidence that may have been used to impeach government witnesses was immaterial in mail fraud prosecution of artwork distributors, precluding finding of Brady violation, where impeachment evidence was cumulative of Attorneys and Law Firms information disclosed during cross-examination *137 Stanley A. Teitler, New York City (Stanley A. Teitler, and independent evidence tied each defendant to P.C., New York City), for Defendants-Appellants Kathryn criminal conduct. 18 U.S.C.A. § 1341. Amiel and Joanne Amiel.

8 Cases that cite this headnote Bennett M. Epstein, New York City, for Defendant-Appellant Sarina Amiel.

[15] Double Jeopardy Edgardo Ramos, Assistant United States Attorney, Brooklyn, Fines, Penalties, and Forfeitures NY (Zachary W. Carter, United States Attorney, Eastern Civil forfeiture of fake artwork recovered District of New York, Peter A. Norling, Shari D. Leventhal during criminal investigation of art distributors and Gary Brown, Assistant United States Attorneys, was neither punishment nor criminal and, Brooklyn, NY, of counsel), for Appellee. thus, subsequent mail fraud prosecution of distributors did not violate double jeopardy. Before: NEWMAN, Chief Judge, and OAKES and PARKER, Circuit Judges. U.S.C.A. Const.Amend. 5; 18 U.S.C.A. §§ 981, 1341. Opinion

2 Cases that cite this headnote PARKER, Circuit Judge: Kathryn, Joanne, and Sarina Amiel appeal from a judgment [16] Criminal Law of conviction entered in the Eastern District of New York on Remarks and Conduct as to Argument and May 12, 1995 (Thomas C. Platt, Judge ) following a jury Conduct of Counsel trial. The Amiels were convicted of conspiracy to commit Test for determining whether trial court's mail fraud in violation of 18 U.S.C. § 371, and various denigration of defense attorney denied defendant counts of mail fraud, in violation of 18 U.S.C. § 1341. fair trial is whether jury was so impressed These charges stem from the Amiels' alleged distribution with judge's partiality to prosecution that it of fraudulent artwork attributed to Chagall, Dali, Miro and became factor in determining defendant's guilt Picasso, and falsely represented to be pencil signed by those or whether it appeared clear to jury that artists. court believed accused was guilty. U.S.C.A. Const.Amend. 6. On appeal, the defendants argue that (1) the evidence upon which their convictions were based was legally insufficient; 34 Cases that cite this headnote (2) the district court erred in denying their Rule 33 motion for a new trial based on newly discovered evidence; and (3) their [17] Criminal Law convictions and sentences were barred by double jeopardy, as Remarks and Conduct as to Argument and they had already been subject to civil forfeiture proceedings. Conduct of Counsel Sarina Amiel additionally argues that the judge's derogatory Trial judge's unfavorable comments toward comments to defense counsel in front of the jury deprived her defense counsel, prompted by counsel's of a fair trial. For the reasons stated below, we reject these misleading tactics, did not deny defendant fair arguments, and affirm the defendants' convictions. trial. U.S.C.A. Const.Amend. 6.

B. The Criminal Proceedings I. BACKGROUND On March 2, 1992, the government filed a 30-count criminal indictment against Kathryn, Joanne, and Sarina Amiel Leon Amiel, father to Kathryn and Joanne, and grandfather charging them with mail fraud and conspiracy to commit mail to Sarina, was a major force in the art world before his death fraud. Counts 1-3 of the indictment charged the Amiels with in 1988. One of the most prominent American publishers of mail fraud in connection with their sale of allegedly fake modern art, Leon enjoyed personal friendships with Chagall, prints to two undercover government investigators, Leung 1 Dali, Miro and Picasso. and Hang, who posed as art dealers interested in purchasing authentic works of art. Counts 4-29 also alleged mail fraud, in Leon was President and owner of Amiel Book Distributors connection with the Amiels' sales to three art dealers, Coffaro, Corporation and Leon Amiel Publishing, Incorporated. Wallace, and Groeger. Count 30 of the indictment charged the Through these companies, he possessed and marketed Amiels with conspiring with Coffaro, Wallace, and Groeger a substantial inventory of print and lithograph art. The to commit mail fraud. government has revealed that it was investigating Leon before his death for circulating fraudulent prints. The Amiels moved to dismiss the indictment on the grounds that the forfeiture judgment created former jeopardy in After Leon's death in October 1988, his brother Sam briefly violation of the double jeopardy clause of the Constitution. ran his companies. However, Leon's wife, Hilda, fired Sam The district court denied this motion, and this court affirmed, after she discovered that he was stealing paintings. Hilda took without prejudice to renewal of the motion by the defendants over the company's operation with the help of her daughters, at the conclusion of trial. United States v. Amiel, 995 F.2d Kathryn and Joanne. 2 Hilda, Kathryn and Joanne became 367, 371-72 (2d Cir.1993). officers of Leon Amiel Book Distributors Corporation, and of a new company that they founded called Original Artworks, Ltd. Hilda and Kathryn ran both companies full-time, while C. Evidence Presented at Trial Joanne worked part-time on sales, bookkeeping, and day- to-day activities. Sarina, Kathryn's daughter and a full-time 1. The Art Distributors college student at Boston University, was a periodic employee Philip Coffaro, an art dealer, testified pursuant to a and account representative for Original Artworks, responsible cooperation agreement with the government. Coffaro began for sales and customer service. purchasing artwork from Leon Amiel on a regular basis in 1979. Initially, Coffaro believed that the works he purchased from Leon Amiel were authentic. However, within A. The Civil Proceedings Against the Amiels approximately two years Coffaro concluded that the artwork In July 1991, following an undercover investigation of he obtained from Leon was “no good,” based on criteria such the Amiels' sales practices, the government instituted civil as the quantity of the material available, its color, and the forfeiture proceedings against several million dollars worth paper. Nevertheless, Coffaro continued to purchase artwork of the Amiels' real and personal property, alleging that the from the Amiels. property was subject to forfeiture under 18 U.S.C. § 981. The Amiels failed to serve any responsive pleadings Coffaro told the jury that he had seen works of art being *138 to the Verified Complaint or any response to the first printed at the Amiels' Secaucus facility, and had later set of interrogatories, prompting the government to move purchased these prints as limited edition lithographs. Leon for a default judgment. After the Amiels failed to file any once told Coffaro that he purchased some of his counterfeits in declarations, affidavits, memoranda of law or other written Europe. On one occasion, Coffaro had seen Leon fraudulently responses to the government's motion, the district court sign and number pieces of artwork created at his Secaucus entered a default judgment, on October 30, 1991. The court facility. Leon also instructed Coffaro on how to place fake rejected the Amiels' motion for an order vacating this decree edition numbers on the fake prints so as to avoid detection. on the ground of excusable neglect, and the Amiels failed to appeal this decision in a timely fashion. The jury also heard replayed a consensually-recorded telephone conversation between Coffaro and another of the

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 4 U.S. v. Amiel, 95 F.3d 135 (1996) defendants' distributors, Zabrin. 3 During that conversation, agreement with the government. Like Coffaro, Wallace Coffaro explained to Zabrin that Leon Amiel purposefully purchased purportedly limited-edition, hand-signed prints kept his inventory of fake prints in an unsigned state, forging from Leon that he knew to be counterfeit. Like Coffaro, the signatures of the artist only when orders were placed. This he also provided numerous details about Leon Amiel's way, in the event he was discovered, he could explain that he fraudulent practices. was simply selling the prints as unsigned posters. Some time after Leon's death, Wallace met with Hilda, Coffaro presented evidence indicating that the defendants Kathryn, Joanne, and Sarina to discuss his future business continued to fraudulently distribute fake prints following dealings with the Amiels. The defendants told Wallace that Leon's death. Coffaro described a meeting, after Leon's they would continue selling to him, but Joanne told him that death, with Hilda, Joanne, and Kathryn, to discuss Coffaro's there wouldn't be any certificates of authenticity-that “the prerequisites for doing business with them. He complained product would be sold as is, the way her father sold it.” to the Amiels that the quality of their artwork was Wallace said that this arrangement would be unacceptable, “downgrading.” He wanted a guarantee that the material he and the matter was left unresolved. got from them would be “clear. No ink stains. Dimensions ... correct, etcetera, etcetera.” Hilda told Coffaro that they had Around this time, Wallace also helped the Amiels conduct an already “taken care of most of that in Secaucus, and the inventory of their facility in Secaucus, New Jersey. During material was looked at and everything that looked bad was the course of the inventory, Wallace saw large quantities of thrown out.” She also promised him a letter verifying the prints, some signed, some unsigned. There were stacks of as authenticity of prints he purchased. many as 100 of a particular print, but only the first one or two had pencil signatures. Coffaro continued to purchase purportedly limited edition, hand-signed prints from the defendants. He placed orders, On one occasion, Wallace purchased 20 pieces from the often over the telephone, with Hilda, Kathryn, or, on *139 Amiels, and two of them arrived unsigned. After placing occasion, Joanne. In keeping with the course of dealing a notation on the back of each print, he returned the two he established with Leon, the prints Coffaro purchased unsigned pieces to Sarina, who told him that she would take were usually pencil-signed by the purported artist, but not care of it. A couple of days later, he picked up the same prints, numbered. and they had been signed.

However, Coffaro continued to be dissatisfied with the quality Wallace also testified that he represented to the public that of the work he received from the Amiels. In particular, he the counterfeit artwork he purchased from the Amiels was was having problems with the signatures, which Zabrin told genuine. him “looked child like and were horrible.” On one occasion, when Coffaro complained to Kathryn about the poor signature A third art dealer, Lawrence Groeger, testified against the quality, she assured him that the signatures would be better Amiels pursuant to a cooperation agreement. Groeger had when Sarina returned from college. On another occasion, begun purchasing purportedly limited-edition prints directly Coffaro received a group of prints purportedly by Calder that from Leon Amiel in early 1988. He knew these works were “were so bad that [he] didn't even want to show them to fraudulent because of the large quantity available. people.” When he confronted Hilda and Kathryn with this problem, Kathryn told him “look, I know the Calders are Groeger continued to do business with the Amiels after Leon's terrible, my mother had my uncle signing them, but Sarina death. He met with Kathryn, Joanne, Hilda and Sarina in New will be coming home soon and they will be better.” York in early 1989. According to his testimony:

I was told at that meeting I should do all my ordering Coffaro testified that he falsely represented the works he through Sarina, and she was in charge of the warehouse, purchased from the Amiels as genuine when he sold them, and she knew where the material was, and how to locate it. thereby defrauding the public. If I had questions about what was available or not, that I should ask her about that. Thomas Wallace, an art dealer and a retired New York City police officer, also testified pursuant to a cooperation

facility and to tell the defendants how much each piece was Also, I was told that Joanne Amiel would be doing the worth. He told them that if the prints were fake, they were not bookkeeping and I was to talk to her about any questions worth anything, and would not be included in the inventory. regarding bookkeeping matters. After this meeting, Kniebihler discovered that the Amiels Also at this meeting, Groeger mentioned a problem he had sold a set of his Miro reproductions as original, pencil- was having with the California galleries with which he did signed prints to Flemming Hall, a European dealer and business. “[A] lot of the galleries were aware of the fact that major customer to the Amiels. Kniebihler met with Hilda there were multiple copies of Miro prints available for sale.” and Kathryn and told them that all of the prints created in He explained that “this created a lot of suspicion ... regarding Secaucus were fake, and that they “have to clean up the act, the authenticity of the prints.” The Amiels assured Groeger either clean it up right away or forget about the whole thing.” that they would protect him in the California market. “[T]hey After that, Kniebihler was denied access to the inventory also thought it was a good idea not to put any-many prints on at the Island Park location. In addition, Kniebihler once the west coast.” warned Kathryn and Hilda that Coffaro was a “crook” who specialized in fake prints. Nevertheless, the Amiels continued *140 Groeger's largest customer, the Upstairs Gallery, was to do business with him. raided by the Los Angeles Police Department in September. Many of the prints that were confiscated had been originally Susan St. Marie was a secretary receptionist for Original purchased through the Amiels by Groeger. Following the raid, Artworks from October 1989 to November 1990. Part of her Groeger met with Joanne, Hilda, Kathryn, and Sarina to ask job was to open incoming mail. However, she testified that for their assistance. Joanne promised to help Groeger obtain she was not allowed to open mail from Flemming Hall or Phil some documentation for the paintings, but never followed Coffaro, the companies' two major customers. The mail from through. That October, Groeger was raided by the police, who these individuals was put aside for Joanne and Hilda Amiel. seized 60 pieces of inventory, as well as a package of prints St. Marie also testified that Hilda once cautioned her to be that Groeger had planned to send back to the Amiels. All of careful to charge customers the proper tax because she did not this artwork was determined to be fake. want to attract any attention to the business. Hilda specifically told St. Marie that she was concerned about “what is going on 2. Additional Evidence in the back with my granddaughter,” and then made a writing Marc Kniebihler, a chromist who worked for Leon from 1983 gesture. until 1988, testified pursuant to an immunity agreement with the government. As a chromist, Kniebihler actually created St. Marie also testified that Sarina returned to New York from the fraudulent artwork marketed by the Amiels. He testified college whenever there was a big order to be filled, even once extensively about the procedures used by Leon to create and during a big snow storm. sell fraudulent artwork. Kniebihler also testified about his relationship with the defendants following Leon's death. Several well-qualified art experts testified to the fact that the bulk of Leon's print and lithograph inventory consisted of In a meeting with Kniebihler, Kathryn, Joanne and Sarina, fakes. Hilda advised Kniebihler that the Amiels wanted to continue the business following Leon's death. Kniebihler agreed to stay 3. The Undercover Investigation on, on the condition that he not “be paid with the prints that On account of the government's suspicions about the were created at the workshop. I wanted to be paid with prints Amiels' business practices, Postal Inspector Waiman Leung preferably made by the artist and signed by the artist.” He approached members of the Amiel family under the guise advised them that if they ran a “good workshop ... [without] of an art dealer from Asia interested in purchasing genuine legal problems ... a clean business[,] they could become works of art. He purported to be especially interested in works profitable over the long run.” by Dali, Miro, Chagall and Picasso. After their first meeting, Leung purchased 22 prints purportedly created by these Sometime in 1989 or 1990, Hilda and Kathryn told Kniebihler artists and bearing pencil signatures. However, he received no that they were experiencing some financial difficulty. documentation as to the prints' authenticity. Kathryn Amiel Kniebihler agreed to catalog the inventory in their Island Park clearly told him that she did not have any documentation

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 6 U.S. v. Amiel, 95 F.3d 135 (1996) for some of the *141 pieces and did not know of their provenance. She told Leung that the only documentation she had was her father's, and that she could not make any D. The Post-Trial Proceedings guarantees on art she didn't purchase herself. She insisted on Following their convictions, the defendants renewed their selling the pieces “as is.” double jeopardy motion. However, the district court once again denied it. See infra section IIC. With the assistance of another undercover agent, Raymond Hang, Leung continued to press Kathryn and Sarina, who The Amiels also moved the court for a new trial based was home from college, for documentation as to the pieces' on newly discovered evidence pursuant to Fed.R.Crim.P. authenticity. Finally, after much coaxing, the Amiels agreed 33, and for an evidentiary hearing pursuant to the motion. to rewrite, on their letterhead, the information that had been The motion was based on the government's alleged contained in Leon Amiel's documents. They mailed this suppression of information concerning Thomas Wallace and information to the investigators. Lawrence Groeger, two of the cooperating witnesses who testified at trial. According to the Amiels, the government In July 1991, following the undercover investigation, the had concealed evidence pertaining to Wallace's “deep government executed a search warrant for the Amiels' Island involvement” in organized crime, permitted him to commit Park facility and seized approximately 70,000 prints. During perjury on the witness stand, and contributed to Wallace's this search, the government found and seized stacks of misrepresentations by bolstering his credibility before the particular prints, the first few signed, the remainder unsigned, jury. As for Groeger, the Amiels claim that the government consistent with the practice of maintaining an inventory in failed to disclose evidence that Groeger participated in the unsigned condition. sale of two fraudulent Chagalls after he signed a cooperation agreement with the government. The district court denied the Also seized from the Amiels' facility during the raid was a motion without conducting a hearing. copy of a fax sent by Sarina to Flemming Hall, the defendants' European distributor. The fax consisted of a “Quote of the Day” from Leon, in which he stated, “I don't know how these II. DISCUSSION people sell to the public, what they claim and how they sell it is something I don't get involved with.” Sarina had hand A. Sufficiency of the Evidence written a note on the top of the page: “I was rummaging The Amiels bear a very heavy burden in challenging the through a drawer and I came across this quote! I hope you sufficiency of the evidence. United States v. Puzzo, 928 F.2d enjoy it as much as we did!!!” Copies of the fax were found 1356, 1361 (2d Cir.1991); United States v. Nusraty, 867 posted on the wall of the defendants' Island Park facility on F.2d 759, 762 (2d Cir.1989). In reviewing this claim, the the day of the raid, under the heading “words to live by ...” court must “view the evidence in the light most favorable and the notation “S.” to the government and construe all possible inferences in

Kathryn and Sarina were convicted on counts 1-3, pertaining its favor.” United States v. Badalamenti, 794 F.2d 821, to the sales to Leung. Joanne was acquitted of these three 828 (2d Cir.1986). “If ‘any rational trier of fact could have counts. Kathryn and Joanne, but not Sarina, were convicted found the essential elements of the crime,’ the conviction of mail fraud in connection with sales to Coffaro. Kathryn must *142 stand.” Id. (quoting Jackson v. Virginia, 443 and Sarina, but not Joanne, were convicted in connection with U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979)). sales to Wallace. The jury convicted all three defendants on a number of the counts pertaining to sales to Groeger, and on the The government presented evidence that, if believed by the single conspiracy count. Kathryn was sentenced to 78 months jury, more than sufficed to support guilty verdicts against the in prison, to be followed by three years of supervised release Amiels. and a special assessment of $1,200. Joanne was sentenced to 46 months, to be followed by three years of supervised release and a special assessment of $800. Sarina was sentenced to 33 1. Counts 4-29: Substantive Mail Fraud Convictions for months in prison, to be followed by three years of supervised Sales to Coffaro, Wallace and Groeger release and a special assessment of $950.

Each of the defendants was convicted of some but not all of told Kathryn that all of the pieces created in Secaucus were the mail fraud counts pertaining to the sale of art to Coffaro, fake, but later discovered that the Amiels were selling these Wallace and Groeger. We conclude that the evidence suffices pieces to Flemming Hall as genuine limited-editions. to support these convictions. Likewise, the evidence more than suffices to support the [1] An individual may be convicted under the federal mail conclusion that Kathryn and Sarina knew that their dealers fraud statute for “devis[ing] or intending to devise any scheme were defrauding the public. Kniebihler warned Kathryn that or artifice to defraud, or for obtaining money or property by Coffaro was a “crook” who specialized in fake prints. Coffaro means of false or fraudulent pretenses, representations, or complained at length to all three defendants about the poor quality of the forged signatures-this supports an inference promises.” 18 U.S.C. § 1341. As relevant to this case, the that the defendants knew that he was representing the works elements of a mail fraud violation are: (1) a scheme to defraud as genuine. Groeger told all three defendants that he was (2) money or property, and (3) the use of the mails to further having trouble with California galleries-they were becoming the scheme. United States v. Wallach, 935 F.2d 445, 461 suspicious about the authenticity of prints originating from (2d Cir.1991); see United States v. Altman, 48 F.3d 96, 101 the Amiels. And, in a meeting with all three defendants, (2d Cir.1995). Wallace insisted on receiving certificates of authenticity with his purchases, which had to indicate that he was planning on The Amiels do not contest that the evidence sufficed to prove representing the works as genuine. Finally, the quote Sarina the second or third prong of the mail fraud statute-they used *143 posted on the wall of the Island Park facility implies the mails in furtherance of property sales. They do, however, that she, and anyone who saw it, at least suspected that the contest the sufficiency of the evidence pertaining to the first dealers were making fraudulent claims to the public. 5 prong-the existence of a scheme to defraud. Although the evidence presented against Joanne was weaker [2] To establish the existence of a scheme to defraud, than against Kathryn and Sarina, it was sufficient to support the government must prove that the defendants possessed her conviction on the counts pertaining to Coffaro and 6 fraudulent intent. United States v. Schwartz, 924 F.2d 410, Groeger. Joanne was present at the meeting in which 420 (2d Cir.1991). The jury could convict the Amiels on the Coffaro complained to the Amiels that the quality of their charges pertaining to the dealers, at least on an aiding and artwork was deteriorating, and in which Kathryn promised abetting theory, which was charged in the indictment, if it him certificates of authenticity for all of the works he concluded that the Amiels acted with knowledge that their purchased. Having heard that she was privy to Coffaro's products would be sold through the misrepresentations of complaints and demands, the jury could have inferred Joanne's guilty knowledge. This inference is also supported the dealers. U.S. v. Zambrano, 776 F.2d 1091, 1097 (2d by Groeger's testimony. Joanne attended a meeting in which 4 Cir.1985). The evidence summarized above supports this Groeger told the defendants that his California galleries were conclusion, because it supports two inferences about each becoming suspicious of the number of Miro prints placed defendants' state of mind: she knew the works were fake, and on the market through the Amiels. The Amiels assured him she knew the dealers would pass them off as genuine. that they would “protect him” on the California market and avoid placing too many prints on the west coast. Additionally, [3] We readily reach this conclusion as to Kathryn and when Upstairs Gallery was raided, Joanne told Groeger that Sarina Amiel. The jury was presented with extensive evidence she would help him obtain some documentation to back up that Sarina was forging artists' signatures with her mother artwork that proved to be fraudulent. These facts support an Kathryn's knowledge and encouragement. On two separate inference of guilty knowledge. occasions Coffaro complained to Kathryn about the poor quality of signatures, and she replied that the signatures would be better when Sarina returned from college. Wallace returned 2. Counts 1-3: Substantive Mail Fraud Convictions for two unsigned pieces to Sarina, only to retrieve the same pieces Sales to the Government Agents two days later bearing signatures. Hilda warned Susan St. Kathryn and Sarina were also convicted of mail fraud Marie not to attract attention to the business because of “what in connection with their transactions with the government is going on in the back with my granddaughter.” Kniebihler agents, Leung and Hang. 7 Although the evidence on these

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 8 U.S. v. Amiel, 95 F.3d 135 (1996) counts is more tenuous, it also suffices to support their of a certificate of authenticity for such a work could properly convictions. be found to constitute mail fraud.

Again, the Amiels do not contest the second or third prong of the mail fraud statute-they used the mails in furtherance of 3. Count 30: Conspiracy to Commit Mail Fraud sales to Leung and Hang. They claim that the evidence does [5] [6] [7] [8] Finally, the evidence was sufficient to not suffice to prove the existence of a scheme to defraud. We support the Amiels' convictions for conspiring with Coffaro, disagree. Wallace, and Groeger to commit mail fraud. (Count 30). To obtain a conspiracy conviction, the government must prove [4] Under the guise of an investor interested in purchasing that there was an agreement between two or more participants authentic works of art, Leung met with Kathryn or Sarina on to achieve a particular illegal end. United States v. four occasions and purchased numerous works of purportedly Stavroulakis, 952 F.2d 686, 690 (2d Cir.), cert. denied, 504 authentic art. The vast majority of these works were deemed U.S. 926, 112 S.Ct. 1982, 118 L.Ed.2d 580 (1992). “The fake by the experts called at trial. agreement need not be shown to have been explicit. It can instead be inferred from the facts and circumstances of the When the Amiels' Island Park Warehouse was raided, it case.” Iannelli v. United States, 420 U.S. 770, 777 n. 10, contained stacks of the very prints the Amiels had sold 95 S.Ct. 1284, 1289 n. 10, 43 L.Ed.2d 616 (1975). A tacit to the undercover agents, some signed, some unsigned. understanding will suffice to show agreement for purposes For example, the warehouse contained fifty copies of of a conspiracy conviction. There need not be any written Chagall's “Monumental Works,” four of which were signed statement or even a speaking of words which expressly and numbered, forty-six of which were unsigned and communicates agreement. 2 Wayne R. LaFave & Austin W. unnumbered. The Amiels had sold Leung a signed copy Scott, Jr., Substantive Criminal Law § 6.4, at 71 (1986). and provided a certificate of authenticity. The warehouse Furthermore, the participants in a conspiracy need not be fully contained 221 copies of Dali's “Jaust”, five of which aware of the details of the venture so long as they agree on were signed and unnumbered, 216 of which were unsigned and unnumbered. Leung had also received a certificate of the “essential nature of the plan.” Stavroulakis, 952 F.2d at authenticity in connection with this signed work. And the 690. Finally, evidence sufficient to link a particular defendant warehouse contained 252 copies of Miro's “Symphony-Sala to a conspiracy “ ‘need not be overwhelming.’ ” United Pelaires”, one of which was signed and numbered, sixteen States v. Atehortva, 17 F.3d 546, 550 (2d Cir.1994) (quoting of which were signed and unnumbered, and 235 of which were unsigned and unnumbered. The Amiels sold this work to United States v. Rivera, 971 F.2d 876, 891 (2d Cir.1992)), Leung in signed form, and provided Leung with a certificate and may be demonstrated by circumstantial evidence. Id. of authenticity. [9] The above discussion demonstrates that there was When considered in conjunction with other evidence sufficient evidence from which the jury could infer that there provided at trial, this information suffices to support an was at least a tacit agreement between the Amiels and their inference that the Amiels knowingly and fraudulently sold dealers that the Amiels would provide fake artwork, and that unauthentic art to Leung. First, according to the experts at the dealers would pass it off to the public as genuine. This trial, most of the art sold to Leung was, in fact, fake. There suffices for a conviction for conspiracy to commit mail fraud. was extensive testimony that the Amiels' customarily signed artists' names to prints. And, there was testimony indicating [10] Finally, the Amiels make several arguments based on that the Amiels waited *144 to sign forged prints until just the abstract nature and value of art. Most of these arguments before selling them so that, if they were raided, they could get at the same point: authenticity is a matter of wide claim that they planned on selling the stacks of forgeries interpretation, and it is therefore impossible to say that the as unsigned prints. Given the plentiful unsigned warehouse art at issue was fake. We find this argument to be completely supply of many of the prints the Amiels sold to Leung, the jury meritless. It might be difficult to determine whether some could have inferred that someone in the Amiel family (likely art is genuine, but not when Sarina Amiel is forging artists' Sarina) signed the prints that were sold to Leung. The posting signatures.

In conclusion, the government presented sufficient evidence 78 F.3d 73, 79 (2d Cir.1996) (internal quotation marks and for a reasonable jury to find all of the elements of mail fraud citations omitted). Suppressed evidence is not material when and conspiracy beyond a reasonable doubt. it “merely furnishes an additional basis on which to impeach a witness whose credibility has already been shown to be questionable.” Id. (internal quotations omitted). B. The Brady Material The second question raised by the Amiels is whether the [13] The Amiels claim that the government suppressed district court erred in denying their motion for a new trial impeachment evidence pertaining to Groeger and Wallace. based on alleged non-compliance by the government with the First, they argue that the government knew, yet failed to disclosure requirements of Brady v. Maryland, 373 U.S. disclose, that Wallace had participated in multiple murders, 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963). We hold that it did and was connected to organized crime. Next, they accuse not. the government of deliberately suppressing information in its possession that Groeger had breached his cooperation [11] [12] In Brady v. Maryland, the Supreme Court held agreement by selling two Chagalls with fraudulent certificates that: of authenticity. The district court denied this motion on the ground that, even assuming arguendo that the government had a duty to disclose this information, it was not material. the suppression by the prosecution of [T]he prosecution produced an overwhelming amount of evidence favorable to an accused upon evidence against the Defendants in addition to, and by no request violates due process where the means dependent upon, Mr. Wallace and/or Mr. Groeger's evidence is material either to guilt or testimony.... to punishment, irrespective of the good faith or bad faith of the prosecution. [T]here was no piece of evidence or testimony in the Amiel trial that this Court regards as singularly critical to the verdict. Rather, the evidence against the Defendants was both overwhelming and evenly balanced.... As a result, Id. at 87, 83 S.Ct. at 1196-97. A new trial is warranted even if this Court assumes that Defendants' allegations under Brady where (1) the government failed to disclose regarding Wallace and Groeger are true, they are not favorable evidence, and (2) the undisclosed evidence was reasonably likely to have affected the jury's judgment or material. United States v. Payne, 63 F.3d 1200, 1208 changed the jury's verdict. (2d Cir.1995) (citing Brady, 373 U.S. at 87, 83 S.Ct. at 1196-97), cert. denied, 516 U.S. 1165, 116 S.Ct. 1056, 134 We reach the same conclusion as the district court, but L.Ed.2d 201 (1996). Evidence is material when “there is a for slightly different reasons. If the government withheld reasonable probability that, had the evidence been disclosed information that Wallace was deeply involved in organized to the defense, the result of the proceeding would have crime and had committed several murders, we would have difficulty deeming the resulting error harmless. However, been different.” *145 United States v. Bagley, 473 U.S. the Amiels support these allegations with the testimony of 667, 682, 105 S.Ct. 3375, 3383, 87 L.Ed.2d 481 (1985). a discredited government witness in another proceeding, “A ‘reasonable probability’ of a different result is ... shown Dominic Mongelli. Following Mongelli's revelations, the when the Government's evidentiary suppression ‘undermines government confirmed that Suffolk County authorities had confidence in the outcome of the trial.’ ” Kyles v. Whitley, questioned Wallace, and that he was not a suspect in any 514 U.S. 419, 115 S.Ct. 1555, 131 L.Ed.2d 490 (1995) investigation and was not arrested in connection with any organized crime activity. The government has no Brady (quoting Bagley, 473 U.S. at 678, 105 S.Ct. at 3381). obligation to “ ‘communicate preliminary, challenged, or Evidence of impeachment is material if “the witness whose testimony is attacked supplied the only evidence linking speculative information.’ ” United States v. Diaz, 922 F.2d the defendants to the crime, or where the likely impact on 998, 1006 (2d Cir.1990) (quoting United States v. Agurs, the witness's credibility would have undermined a critical 427 U.S. 97, 109 n. 16, 96 S.Ct. 2392, 2400 n. 16, 49 L.Ed.2d element of the prosecution's case.” United States v. Wong, 342 (1976) (citations omitted)). After investigating possible

© 2019 Thomson Reuters. No claim to original U.S. Government Works. 10 U.S. v. Amiel, 95 F.3d 135 (1996) wrongdoing by Wallace, the Amiel prosecution found no punishment in violation of the double jeopardy clause of the evidence to support Mongelli's accusations. Pursuant to Diaz, Fifth Amendment. it had no obligation to inform the defense. The Supreme Court has recently resolved this issue in favor [14] In addition, we agree with the district court that any of the government. In United States v. Ursery, 518 U.S. evidence of dishonesty stemming from the disclosures about 267, 116 S.Ct. 2135, 135 L.Ed.2d 549 (1996) the Court held Wallace and Groeger was not reasonably probable to lead to that in rem civil forfeitures (such as those brought under a different result. First of all, the impeachment evidence was cumulative. Wallace underwent extensive cross-examination 18 U.S.C. § 981) are neither “punishment” nor criminal into his past criminal record, his use of illegal drugs, his for purposes of the Double Jeopardy Clause. Id. at ----, guilty plea, his cooperation agreement with the government, lies he had previously told while under oath, and the fact 116 S.Ct. at 2149. In light of this decision, the Amiels' have that he caused an employee to submit a false affidavit in not been subjected to former jeopardy. Therefore, their double a legal proceeding. Groeger was also questioned about his jeopardy claims are meritless. past criminal record, and his agreement to cooperate with the government. See United States v. Diaz, 922 F.2d 998, 1007 D. Judge's Comments to Defense Counsel (2d Cir.1990), cert. denied, 500 U.S. 925, 111 S.Ct. 2035, 114 [16] Sarina Amiel claims that she was denied a fair trial L.Ed.2d 119 (1991) (finding evidence that an informant had because the court repeatedly denigrated her attorney in the stolen $18,000 from the government to be cumulative because presence of the jury. This court should only reverse Sarina's defendants had impeached the witness at trial by pointing conviction based on Judge Platt's conduct if “the judge's out that he had an expectation of financial gain *146 for behavior was so prejudicial that it denied [Sarina Amiel] a testifying, and that he had attempted to withhold $15,000 in fair, as opposed to a perfect, trail.” United States v. Robinson, the case). 635 F.2d 981, 984 (2d Cir.1980), cert. denied, 451 U.S. 992, 101 S.Ct. 2333, 68 L.Ed.2d 852 (1981). The court's role is not Moreover, independent evidence tied each defendant to the to determine “whether the trial judge's conduct left something criminal conduct, see supra section IA, such that cumulative to be desired, or even whether some comments would have impeachment evidence against Coffaro and Groeger does not been better left unsaid.” United States v. Pisani, 773 F.2d undermine our confidence in the outcome of the trial. 397, 402 (2d Cir.1985). The test is whether the jury was so impressed with the judge's partiality to the prosecution Finally, we reject the Amiels' contention that the government that it became a factor in determining the defendant's guilt, “permitted” Wallace to perjure himself on the stand. id., or whether “it appear[ed] clear to the jury that the court Defendants claim that the government “allowed Wallace to convey to the jury, with impunity, that his criminal activity believe[d] the accused is guilty.” United States v. Nazzaro, was limited to that which he discussed on direct examination 472 F.2d 302, 303 (2d Cir.1973). and that he had, in effect, ‘come clean.’ ” However, the Amiels' references to the trial transcript do not support this [17] We have reviewed the record, and have concluded contention. Wallace explained to the jury that he had pleaded that many of the instances reported in Sarina Amiel's brief guilty to mail fraud, but nowhere did he state that he had reveal only that Judge Platt became justifiably frustrated with never committed another crime. Insofar as the Amiels claim the misleading tactics of her mother's and aunt's defense that the government knowingly permitted the introduction of attorneys. 8 These comments hardly provide ground for false testimony, we reject their claim as unsupported by the reversal. See Pisani, 773 F.2d at 403-04 (“At least some evidence. of [the trial judge's] comments were provoked by counsel's continuing to do things that the court had specifically C. Double Jeopardy cautioned him to avoid, a factor that properly may be [15] The next issue in this case is whether, in light of taken into account to determine whether defendant was the earlier civil forfeiture action brought against the Amiels' prejudiced.”). Thus, this final claim for relief is also rejected. property, their criminal prosecution constituted a second

III. CONCLUSION

We have considered all of appellants' arguments, and find All Citations them to be without merit. The judgment of the district court 95 F.3d 135 is affirmed.

Footnotes 1 In order to distinguish between members of the Amiel family, we will refer to them by their first names. 2 Hilda was a defendant in this case until her death prior to trial. 3 This conversation was recorded prior to Coffaro's arrest. 4 To convict a defendant of aiding and abetting, the government must prove “(1) commission of the underlying crime, (2) by someone other than the defendant, (3) a voluntary act or omission by the person charged as an aider and abettor,

with (4) the specific intent that his act or omission bring about the underlying crime.” United States v. Zambrano, 776 F.2d 1091, 1097 (2d Cir.1985). 5 As evidence of their lack of guilty knowledge, the Amiels point out that Kathryn refused to do business with Groeger “as soon as she learned he was altering prints.” Kathryn did cut off business with Groeger following a government raid on his facility. However, the jury may have believed that Kathryn was simply trying to distance herself from Groeger because he had been caught. Regardless of what the jury thought of this one piece of evidence, it fails to rebut the many other pieces of evidence that were sufficient to allow the jury to infer guilty knowledge. 6 The jury acquitted Joanne on the counts pertaining to Wallace. 7 Joanne was acquitted of these three counts. 8 Not one of the improper comments Sarina complains about was directed at her attorney. Rather, they were directed at her mother's attorney and her aunt's attorney.