The Knoedler Gallery Litigation – Can Art Buyers Rely On Dealer Representations?

The once renowned art gallery - the Knoedler Gallery - is embroiled in lengthy litigation out of the district court for the Southern District of New York involving an alleged forgery conspiracy. The Knoedler litigation places a spot light on the issue of caveat emptor/buyer beware and when there can be reasonable reliance on a dealer's purported expertise and their representations regarding the authentication of a work.

In a recent twist, Ann Freedman, the gallery's former director/president and defendant in the actions, has reached a settlement agreement with two of the plaintiffs, Domenico De Sole (the Chairman of Sotheby's) and his wife, Eleanore, who purchased a fake Mark Rothko painting from Knoedler for $8.3 million in 2004. The De Sole action centers on, among other things, to what extent Freedman and others at Knoedler were aware of the suspicious provenance of the work. As a result of the undisclosed settlement agreement, it is expected that the De Sole action against Freedman will be dismissed. It has been reported that Freedman continues to maintain that she was fooled by the forged paintings.

The Knoedler Gallery (formerly known as Knoedler & Company), which operated in Manhattan from 1846 until its closure in 2011, was one of New York City's most venerable and respected art galleries. A family business, the gallery was purchased by Armand Hammer, the grandfather of Michael Hammer (a defendant noted below) in 1971, and was operated by the Hammer family until it closed. Although a New York institution, Knoedler Gallery LLC, the gallery's current legal entity, was formed in 2001 as a Delaware limited liability company.

Dating back to multiple complaints filed in 2012, the various actions involve a number of defendants associated with Knoedler, including:

Knoedler Gallery, LLC ("Knoedler"); 8-31 Holdings, Inc., Knoedler's sole member; Michael Hammer, Knoedler's managing member and sole owner of 8-31 Holdings, Inc.; Ann Freedman, Knoedler's former president (and director of gallery's predecessor prior to 1994); Jaime Andrade, a former Knoedler employee who introduced Rosales to Knoedler; Glafira Rosales, art dealer and alleged supplier of forged art (default judgment has been entered in civil action)(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...