United States: Proposed Amendments To Protect New York Art Authenticators Pending While Lawsuits Regarding Authentication Disputes Persist

The lawsuit1 recently filed by the Mayor Gallery against the authors and sponsors of the Agnes Martin catalogue raisonné illustrates the ongoing legal risks faced by scholars and other agents who volunteer to authenticate artworks.

Authenticators play a valuable role in the fine art market by providing assurance to collectors, which promotes the purchase and sale of art.  However, the growing number of lawsuits against authenticators and authentication boards, and the cost of defending such lawsuits (however meritless), has had a chilling effect on art authentication – to the detriment of the fine art market as a whole.  An authenticator's determinations can have a tremendous impact on the value of artwork, and for this reason, these individuals and institutions wield a great deal of power in the art market.  An authenticated work by a well-known artist might have a high retail value, while a work purportedly by the same artist which a recognized authenticator declines to include in a catalogue raisonné, is rendered essentially worthless.  Yet, due to extensive and expensive litigation, authentication boards and foundations such as the Andy Warhol Foundation for the Visual Arts, the Pollock-Krasner Foundation, the Calder Foundation, the Basquiat Authentication Committee, the Dedalus Foundation (founded by Robert Motherwell) and the Roy Liechtenstein Foundation have all stopped providing authentication services, severely affecting important aspects of the market.2

In an effort to make the legal climate more hospitable to individuals and organizations providing art authentication services, since early 2015 the New York State Legislature has been considering legislation3  that would offer a degree of protection for art authentication opinions by limiting the legal liability of authenticators offering those opinions. The high costs of lawsuits coming out of these determinations have been cited by several prominent art authentication boards as the primary reason for their elimination of authentication services.  Given that the authentication of a work plays an integral role of the purchase and sale of fine art, this legislation is aimed at incentivizing art authenticators to continue their work in New York.

The proposed bill attempts to remedy the current situation by (a) heightening the pleading standard for bringing suit against authenticators, (b) precluding a successful plaintiff from receiving an award of legal costs against an authenticator, and (c) incorporating a fee-shifting component, which that a court to grant an authenticator her legal costs if she prevails.  Another feature of this proposed bill comes in the form of an amendment to the existing express warranty provision of the New York Arts and Cultural Affairs Law, which  allows purchasers to rely on a certificate of authenticity "or any similar written instrument" as a guarantee of authenticity. The existing provision has been a basis for collectors' breach-of-warranty claims against authenticators. The proposed amendment to this section makes clear that this warranty is made only by the selling dealer, and "shall not apply to an authenticator's opinion or information concerning a visual art multiple or work of fine art" where the authenticator has no financial interest in the work. Under this proposed revision, the bill makes clear that statements made by an authentication expert (independent of a dealer) regarding the authenticity of a work cannot serve as the basis for a warranty claim against the expert.  The ultimate effect of this amendment, while granting an additional protection for authentication experts, is to take away from private collectors an additional source of recovery in the event they find themselves having a purchased a fake.  However, the private collector still retains a large degree of protection on the basis of the description of the article and other representations made by the dealer.

In a report in support of the proposed legislation, the Art Law Committee of the New York City Bar Association recently stated that art authenticators have been forced to "practice their profession at their own risk.  They have been sued in the course of rending opinions in good faith about the authenticity, attribution or authorship of artworks. . . . Although usually, under the law, experts have prevailed, the costs of vindication have been too great:  thousands of hours and dollars spent on legal defense rather than on the practice of their profession."8

The Mayor Gallery's new lawsuit against the authentication board responsible for compiling the Agnes Martin catalogue raisonné and members of its authentication committee further illustrates the need for passage of the proposed New York legislation. The Mayor Gallery alleges that the Martin catalogue raisonné committee acted wrongfully when it rejected thirteen purported Martin works submitted to it by the Gallery's clients, deeming them "fakes."10  According to the complaint, this exclusion of the thirteen works resulted in a $7 million loss to the Mayor Gallery, as the Gallery's clients returned the rejected works to the Gallery for refunds.

The complaint alleges, inter alia, that "Christie's and Sotheby's are the two dominate [sic] auction houses in the United States and the world"; that "both [Christie's and Sotheby's] recognize the Agnes Martin Catalogue Raisonné as the definitive compilation of authentic artworks of Agnes Martin"; that "[b]oth will not accept for auction or sale any painting or work on paper purported to be [by] Agnes Martin unless it has been or will be included in the Agnes Martin Catalogue Raisonné"; and that "[a] refusal by defendants to include an artwork in the Agnes Martin Catalogue Raisonné is therefore recognized in the worldwide marketplace as a conclusive statement that the artwork is a fake."11  Therefore, "collectors have no choice but to submit their Agnes Martin artworks to defendants for vetting subject to non-negotiable terms dictated by defendants."12

For each of the thirteen works at issue, the Mayor Gallery sued the committee and its authenticators for (i) product disparagement; (ii) tortious interference with contract; (iii) tortious interference with prospective business relations; and (iv) negligent misrepresentation.  Additionally, the Mayor Gallery alleges a fifth alternative cause of action for breach of the implied duty of good faith and fair dealing for the highest-priced of the thirteen rejected works, Day and Night, a painting purchased by investment banker Jack Levy (who also purchased a number of Abstract Impressionist fakes from the Knoedler Gallery).  Solely with respect to this work, the Gallery alleges the committee did not meet the "good faith" standard mandated by the Examination Agreement, which the parties executed when the Gallery submitted the work to the committee for review.13 As of now, Defendants' time to answer the Complaint runs on January 12, 2017.

Had the proposed amendments been incorporated into the New York Arts and Cultural Affairs Law, the Mayor Gallery may not have sued the "Members of the authentication committee of the Agnes Martin Catalog Raisonné."  Under the pending bill, the Gallery would not only have had to consider the heightened pleading standard applied to its allegations, but it would also have to seriously contemplate the implications of the fee-shifting provision, which would allow the authentication board and it members, if successful, to recover their legal fees from the Mayor Gallery.

Perhaps the most prominent case against authenticators in recent years is Simon-Whelan v. Andy Warhol Foundation for the Visual Arts, Inc., which was at the center of the Andy Warhol Foundation's decision to stop authenticating his works.  Simon-Whelan, a collector and friend of Warhol, sued the Foundation after it deemed a silk-screened self-portrait a fake, despite the owner's insistence on its good provenance.14  The case survived a motion to dismiss but ultimately settled; however, the litigation cost the defendants nearly $7,000,000 in legal fees, a likely reason for the decision to cease to authenticate works shortly after the suit.15  Similar cases brought against the Haring Foundation in February 2014 and against the Calder Foundation in March 2014 each also cost those Foundations millions of dollars to defend.16  It is easy to imagine that fee-shifting provision of the proposed New York legislation could have led to a very different course for these litigations – including an outcome that involves either no lawsuit at all, or at the very least an early and inexpensive settlement.

Although some observers argue New York's proposed legislation does not go far enough in protecting authenticators, the bill is undoubtedly a step in the right direction.  Art lawyers have noted that, because the amendment defines the authentication expert as one with no financial interest in the artwork, it is fair to make clear that an authentication decision is not backed by that person's bank account.17  However, these same commentators note that the proposed amendments do not prohibit other, non-warranty-based claims, such as negligence or claims under the Uniform Commercial Code.18  A potential limitation of the legislation is that the proposed amendments do not add any new defenses for experts or the burden of proof for the plaintiffs.

However, others argue that, although protecting authenticators is important to safeguarding the sustainability of the art market, providing sweeping protection for authenticators that would entirely defeat all claims against them – even legitimate claims based on gross negligence, fraud or corruption – would create a perverse situation in which an essential function of the art market rests with these individuals, without any recourse.

If the New York Legislature eventually passes the proposed amendments in their current form, some authenticators may be encouraged to resume their work.  Unfortunately, the threat of litigation will still be an important consideration for those deciding whether to render authentication opinions.

Footnotes

1. See Complaint, Mayor Gallery Ltd. v. Agnes Martin Catalogue Raisonné LLC, et al., Index No. 655489 (New York Co. Sup. Ct. Oct. 2016).
2. ART LAW COMM. OF THE N.Y.C. BAR ASS'N, REPORT ON LEGISLATION BY THE ART LAW COMMITTEE, (N.Y.C. Bar Ass'n Feb. 2016).
3. The bill was delivered to the Assembly in June 2015; it died there in January 2016 and was returned to the Senate. The Senate passed the bill for the second time in April 2016, when it was once again delivered to the Assembly, where it again died. The bill will likely again be delivered to the Senate during its next session in 2017.
4. Assem. B. A1018A; S. B. S1129A, 2016 Leg. Sess. (N.Y. 2016).
5. Judith Wallace, Art Law on Protecting Expert Opinion, Spencer's Art Law Journal, Feb. 14, 2016, at https://news.artnet.com/market/art-law-on-protecting-experts-opinion-419132.
6. UCC § 2-313 also provides a basis for suit by collectors under a breach of warranty claim. See UCC § 2-313 at https://www.law.cornell.edu/ucc/2/2-313.
7. Assem. B. A1018A; S. B. S1129A, 2016 Leg. Sess. (N.Y. 2016). The proposed amendments would add the following text to the express warranty in Section 15.11: "[t]his section shall not apply to an authenticator's opinion or information concerning a visual art multiple or work of fine art, as set forth in subdivision 23 of Section 11.01 of this Chapter, Section 15.12 of this Article, and Subdivision 4 of Section 15.15 of this Article." The proposed amendment also defines "authenticator" as a person or entity that does not have "a financial interest in the work of fine art or visual art multiple for which such opinion is rendered or in any transaction concerning such work of fine art or visual art multiple for which the opinion is rendered, other than to be compensated for services such person or entity engaged in to provide an opinion as to the authenticity, attribution or authorship of such work of fine art or visual art multiple or to provide information on which such an opinion is based on whole or in part."
8. ART LAW COMM. OF THE N.Y.C. BAR ASS'N, REPORT ON LEGISLATION BY THE ART LAW COMMITTEE, (N.Y.C. Bar Ass'n Feb. 2016).
9. The suit also named (1) Arnold Glimcher, managing editor of the AM Catalogue Raisonné LLC and CEO of the Pace Gallery, which represents Martin's estate; (2) Tiffany Bell, editor of the Agnes Martin Catalogue Raisonné; and (3) "Members of the authentication committee of the Agnes Martin Catalog Raisonné, i.e., John Doe or Jane Doe ##1-6." In compiling the Catalogue Raisonné, the authentication board did not reveal the names of the authenticators, which is why they are named as "John Doe or Jane Doe ##1-6" in the complaint.
0. See complaint, pg. 1.
11. See id., pg. 7 ¶17.
12. See id., pg. 7, ¶ 19.
13. Collectors are required to submit an Examination Agreement, which was initially submitted by the purchaser of Day and Night. Because the Mayor Gallery believed that the rejection of Day and Night may have been due to various errors in the Examination Agreement, James Mayor – on becoming the owner of the painting – submitted and prepared his own Examination Agreement and hand-delivered it to defendant Tiffany Bell in connection with the work. See Cmplt., paragraph 28.
14. Simon-Whelan v. Andy Warhol Foundation for the Visual Arts, Inc., No. 07 Civ. 6423 (LTS) (S.D.N.Y. May 26, 2009). This case was the first time that an antitrust claim based on art authentication practices survived a motion to dismiss. Id. In practice, antitrust claims have the practical advantage of superseding contractual commitments not to sue.
15. See Wallace, supra note 5.
16. ART LAW COMM. OF THE N.Y.C. BAR ASS'N, REPORT ON LEGISLATION BY THE ART LAW COMMITTEE (N.Y.C. Bar Ass'n Feb. 2016).
17. See Wallace, supra note 5.
18. Id.

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