MAFG Art Fund, LLC v Gagosian

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MAFG Art Fund, LLC v Gagosian 2014 NY Slip Op 30321(U) January 31, 2014 Sup Ct, New York County Docket Number: 653189/12 Judge: Barbara R. Kapnick Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. 1:$: NYSCEF DOC. NO. 80 [*FILED: NEW YORK COUNTY CLERK 02/03/2014 1] I INDEX NO. 653189/2012 RECEIVED NYSCEF: 02/03/2014 J - SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY I I I JI . I I I. PART PRESENT: Index Number: 653189/2012 MAFG ART FUND, LLC ;3!]_ INDEX N O . - - - - MOTION D A T E - - - - vs MOTION SEQ. NO. _ __ GAGOSIAN, LARRY Sequence Number : 003 DISMISS The following papers, numbered 1 to _ _ , were read on this motion t o / f o r - - - - - - - - - - - - - No(s). _ _ _ _ __ Notice of Motion/Order to Show Cause - Affidavits - Exhibits No(s). - - - - - - "' ~ Answering Affidavits - Exhibits----------------~ No(s). - - - - - Replying A f f i d a v i t s - - - - - - - - - - - - - - - - - - - - - I I 1 Upon the foregoing papers, it is ordered that this motion is w u i= MOTION IS DECID!D IN ACCORDANCI! WITH ACCOMPANYING MEMORANDUM DECISION CJ) :::> ..., 0 1Cl w 0:: 0:: w u. w 0:: ¢ ¢ >- .....I~ .....I z ::> 0 u. CJ) ct: u w f- ~ a:: z en <!l 0::: - w en ~ - 0 w .....I en .....I <( 0 u u. z 0 w ::i::: I- ;:: a:: 0 0 :iE u. J.S.C. KM'llCk 1. CHECK ONE: ..................................................................... 2. CHECK AS APPROPRIATE: ........................... MOTION IS: CHECK IF APPROPRIATE: ................................................ ' \ D CASE DISPOSED 0 GRANTED 0 0 SETTLE ORDER ODO NOT POST \ ·N~A~OSITION - DENIED ~ANTED IN PART 0 0 CJ OTHER SUBMIT ORDER FIDUCI .\RY APPOINTMENT 0REFERENCE [* 2] SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: IAS PART 39 ------------------------------------------x MAFG ART FUND, LLC and MACANDREWS & FORBES GROUP LLC, DECISION/ORDER Index No. 653189/12 Motion Seq. No. 003 Plaintiffs, -againstLARRY GAGOSIAN and GAGOSIAN GALLERY, INC., Defendants. ------------------------------------------x BARBARA R. KAPNICK, J.: This action arises from the purchase of various sculptures and paintings by plaintiffs MAFG Art Fund, LLC (the "Art Fund") and MacAndrews & Forbes Group LLC ("MacAndrews") from defendants Larry Gagosian ("Gagosian") and Gagosian Gallery, Inc. (the "Gallery"). The Amended Complaint asserts six causes of action: contract, breach of fiduciary duty, of good faith and fair dealing, fraud, for breach of breach of the covenant unjust enrichment, and deceptive business practices under section 349 of the General Business Law ("GBL"). 1 The Gallery had commenced a separate action against plaintiffs and their principal, Acquisitions, Inc. Ronald Perelman ("Perelman") , and Fortress ("Fortress") under Index number 653181/2012, but that action was voluntarily discontinued on October 17, 2012. The Court dismissed the sixth cause of action alleging deceptive business practices under GBL 349 on the record at the end of oral argument. (Tr. 49:9-26, June 5, 2013.) [* 3] Defendants failure now move to state a to dismiss cause of action. the 2 Amended Complaint for Defendants also move for sanctions under 22 NYCRR § 130-1.1. Factual Allegations I. The Popeye Sculpture Plaintiffs allege that on May 12, 2010, MacAndrews and the Gallery executed a "Purchase Agreement," whereby MacAndrews agreed to a purchase price of $4 million in exchange for the rights to a black granite sculpture entitled "Popeye," created by world renowned artist Jeff Koons (the "MacAndrews Purchase Agreement"). (Amended Complaint, <JI 38.) Defendants submit a copy MacAndrews Purchase Agreement as documentary evidence. of the (Dontzin Aff, Ex. 10.) The $4 million was to be paid in five installments of $800,000, with final payment due upon completion of the sculpture, which was then "estimated" to be on December 15, 2011. Purchase Agreement at 1; Amended Complaint, Under the MacAndrews "irrevocably and without Purchase <JI (MacAndrews 39.) Agreement, the Gallery condition or reservation of any 2 kind, Although not stated in their Notice of Motion, defendants also seek dismissal based upon documentary evidence. The parties all treat defendants' motion as a motion to dismiss for failure to state a cause of action and based upon documentary evidence (CPLR 3211 [a] [7] and [a] [1]), and thus the Court addresses the motion accordingly. 2 [* 4] [sold], transfer [red] MacAndrews, and convey [ ed]" the sculpture Popeye to including "all right to possession and all legal and equitable ownership of the Work, to have and to hold the Work unto [MacAndrews], his successors and assigns, Purchase Agreement delivery at 1.) The Gallery forever." (MacAndrews represented that, "upon . of the Work and after [MacAndrew's] receipt of the Purchase Price, good, valid and marketable title and exclusive and unrestricted right to possession of the Work, free of all Claims . will pass from [the Gallery] to [MacAndrews]." (Id.) The Gallery further represented that as of the "Delivery Date," the Gallery "is able, subject to Artist's reservation of rights in the work as set forth herein, free and claims, clear liens, of to transfer the Work to any and all rights or [MacAndrews], interests of others, security interests or other encumbrances held or claimed by any person and relating to the Work (collectively, 'Claims')," and that neither the Gallery nor Jeff Kpons had "any knowledge of any Claims threatened or pending with respect to the Work." (Id. at 2.) The Agreement defined "Delivery" of the sculpture to be deemed satisfied "only after payment of the Purchase Price ($4 million] is received in full from [MacAndrews] ." (Id.) In addition, MacAndrews agreed that it had "no right to sell the Work or the right to receive the Work before it has been paid for in full and delivered 3 [* 5] . . . and any such sale shall be deemed null and void." (Id.) The Agreement identified Jeff Koons as a third-party beneficiary. (Id.) Plaintiffs claim that, in reality, the Gallery had no rights to the Popeye sculpture at the time the Gallery entered into the MacAndrews Purchase Agreement, as evidenced by a separate but subsequent agreement entered into between the Gallery and Sonnabend Gallery, Inc. ("Sonnabend"), dated June 1, 2010 (the "Sonnabend Purchase Agreement"), a copy of which defendants also submit as documentary evidence. (Amended Complaint, 11.) 'II 45; Under the Sonnabend Purchase Agreement, Dontzin Aff, Ex. Sonnabend sold the Popeye sculpture to the Gallery under the same payment terms as the MacAndrews Purchase Agreement between the Gallery and MacAndrews; namely, a purchase price of $4 million to be paid in five equal payments of $800,000. that the final The Sonnabend Purchase Agreement provided $800,000 payment was due "[u]pon completion ( [e] xpected to be December 2011)," and the Gallery acknowledged that "the estimated completion date for the Work is not firm and may be changed from time to time by [Sonnabend] due to delays in (Sonnabend Purchase Agreement at fabrication or other reasons." 1.) The Sonnabend Purchase Agreement further represented that "Jeff Koons, LLC" was "the sole and legal owner of the Work." (Id. at 2.) 4 [* 6] The Sonnabend Purchase Agreement also provided that, "if [the Gallery] sells the Work to a third party within 2 years after the date of this Agreement for a Profit pay Artist an amount equal to , then [the Gallery] will 70% of such Profit," defining "Profit" as "the amount by which the Work's price in a Secondary Sale exceeds the Purchase Price" of $4 million. (Id. at 2-3.) The Gallery also agreed to pay a 50% resale commission to Jeff Koons, LLC in the event that it sold the Popeye sculpture "to a third party and subsequently . resold [it] within 5 years after its original delivery to such third party." (Id. at 3.) As is apparently well known in the art world, Koons' works of art appreciate immediately after delivery to the first purchaser, often by multiples Complaint, resales claim that dealer, of the original purchase price. (Amended 5.) ~ Plaintiffs exclusive of the were Popeye Gagosian unwilling sculpture and to be as the Gallery involved long as the in as Koons' any future profit-sharing provisions of the Sonnabend Purchase Agreement remained in effect. (Id., ~ 4 9.) Thus, Purchase Agreement the plaintiffs destroyed their contend rights that under the Sonnabend the MacAndrews Purchase Agreement, and prevented them from exchanging or reselling the sculpture for fair market value once delivered. 5 Plaintiffs [* 7] also maintain that in June 2011, defendants informed them that the sculpture would not be completed until July 2012, approximately seven months after the estimated completion date, thereby breaching the MacAndrews Purchase Agreement. II. (Id., ~~ 50, 52-53.) The Exchange Transactions Plaintiffs further claim that in April 2011, they sought to mitigate their damages resulting from defendants' breaches of the MacAndrews Purchase Agreement by entering into two transactions. In each transaction, the Art Fund acquired a work from the Gallery, or from a seller represented by the Gallery, and paid for the work with a combination of cash and a transfer or consignment to the Gallery of certain works of art, including the Popeye sculpture, thereby receiving a credit for the purported value of those works (the "Exchange Transactions") . (Amended Complaint, ~ 54.) In the first Exchange Transaction identified in the Amended Complaint, the Art Fund acquired an unidentified acrylic on canvas painting for $10. 5 million, which plaintiffs claim was an artificially high price work for the defendants painting, identify set by defendants in their moving "Leaving Paphos Ringed With Painting"). (Dontzin Aff, Ex. 1.) (id., papers Waves ~ as ( 1) , 58), the and Cy 2 0 0 9" Twombly ("Twombly Plaintiffs assert that Perelman first viewed the Twombly Painting at the Gallery on or about 28, 2011. (Amended Complaint, ~ 6 which 62.) The parties' April negotiations [* 8] Twombly Painting lasted for several months, until they allegedly reached an oral agreement around the end of September 2011 on a purchase price of $10. 5 million, painting to the Art Plainti~fs and the Gallery delivered the Fund on October 7, 2011. (Id., ':ll':ll 66-68.) claim, however, that this Exchange Transaction did not close until February 2012, after the parties identified and priced the works that plaintiffs would exchange for the Twombly Painting. (Id., ':ll':ll 69-70.) In exchange for the Twombly, Painting, the Art Fund was to pay $250,000 in cash and also exchange four works of art, including the Popeye sculpture. With their moving papers, defendants submit an Invoice from the Gallery to the Art Fund identifying the other three works of art exchanged by the Art Fund as two Willem de Kooning oil paintings, "Untitled, 1974" and "Untitled, 1970," for which plaintiff received credits of $3.6 million and $2 million, respectively; and the Roy Lichtenstein painting, "Brushstrokes in Flight, million. 1983," for which the Art (Dontzin Aff, $4. 25 million credit Ex. for 1.) the Fund received a credit of $2 Plaintiffs allegedly received a Popeye sculpture, minus the $1. 6 million for its failure to make the last two installment payments of $SOO,OOO each. 7 [* 9] The Amended Complaint alleges that in the second Exchange Transaction, the Art Fund acquired an unidentified steel sculpture for $12. 6 million. (Amended Complaint, 'Il 60.) In their moving papers, defendants identify this work as Richard Serra's "Junction, 2011" (the "Serra Sculpture"). (Dontzin Aff, Ex. 2.) In exchange for the Serra Sculpture, plaintiffs allegedly paid $4.75 million in cash and exchanged five identify these aluminum exchanged sculpture, plaintiffs Sculpture"), in unidentified works of art. the works as: ".Brush stroke amount of Roy Lichtenstein's Nude, $4.5 1993," million Marino Marini's "Cavaliere, to painted credited (the which plaintiffs allegedly sent consignment; Defendants to "Lichtenstein the Gallery on 1947" credited to plaintiffs in the amount of $2.3 million; Damien Hirst's "Emperor Maximilian, 2007" and "The Premier Rose, 2006," credited to plaintiffs in the amounts of $300,000 each; and Richard Prince's "Eden Rock, $450,000. 2006," credited (Dontzin Aff, to plaintiffs in the amount of While plaintiffs refer to this Ex. 2.) transaction as an "exchange transaction" (Amended Complaint, 'Il'Il 6061), defendants Richard Serra, submit a "Sale Agreement" and the Art Fund, between the artist, entered into as of January 6, 2012, memorializing the sale of the Serra Sculpture to the Art Fund (the "Serra Sale Agreement") (Dontzin Aff, Ex. 12.) 8 [* 10] Analysis I. Breach of Contract and Breach of the Covenant of Good Faith and Fair Dealing (MacAndrews Purchase Agreement) (First Cause of Action) Defendants seek dismissal of the first cause of action for breach of contract, arguing that the Amended Complaint fails to identify any provisions of the MacAndrews Purchase Agreement that were breached, that plaintiffs agreed to cancel this Agreement, and fa~l that plaintiffs contend that the to allege damages. profit-sharing In opposition, plaintiffs provisions of the Sonnabend Agreement created encumbrances that diminished the value of the Popeye sculpture, c~nflicting thereby with and breaching the terms of the MacAndrews Purchase Agreement. The elements of a cause of action for breach of contract are "the existence of a the contract, plaintiff's performance thereunder, the defendant's breach thereof, and resulting damages." Harris v Seward Park Haus. 79 AD3d 425, 426 (l5t Dept 2010). Corp., Plaintiffs must "allege the breach of [the] particular contractual provision." Kraus v Visa Intl. Serv. Assn., 304 AD2d 408, 408 (1st Dept 2003). Plaintiffs' first cause of action alleges that "[t]he Gallery breached the express and implied terms of the MacAndrews Purchase Agreement." (Amended Complaint, ~ 9 87.) The provisions allegedly [* 11] breached by defendants included defendants' failure to comply with the "estimated" Gallery's completion· date alleged irrevocably and failure to of December convey unconditionally, 15, the free 2011, Popeye and and the sculpture clear of any encumbrances, with valid and marketable title and exclusive rights to possession. (Amended Complaint, ~~ 39-40.) While the Amended Complaint identifies particular provisions of the contract which defendants allegedly breached, plaintiffs fail to explain how those provisions were, in fact, breached. The MacAndrews Purchase Agreement expressly identified the sculpture's completion date as "estimated~, and plaintiffs fail to allege that time was of the essence. See Gupta v 211 St. Realty Corp., 16 AD3d 309, ("mere delay in performance will not be 311 (Pt Dept 2005) considered as grounds for rescission unless time is of the essence"). Therefore, the change in the completion date of Popeye cannot constitute a breach of the MacAndrews Purchase Agreement. Next, the profit-sharing provisions of the Sonnabend Purchase Agreement required the Gallery to pay resale commissions to Jeff Koons upon subsequent sales of Popeye, but this obligation was the Gallery's alone, as it related to the Gallery's potential future commissions. The Sonnabend - Purchase Agreement transferred the I Popeye sculpture to the Gallery "free and clear of any and all 10 [* 12] rights or interests of others, claims, liens, security interests, [and] other encumbrances held or claimed by any person and relating to the Work." (Sonnabend Purchase Agreement at 2.) Plaintiffs' argument - that the profit-sharing provisions diminished the value of Popeye for a significant period of time following its delivery to MacAndrews, exchange or and effectively crippled plaintiffs' subsequently sell Popeye at fair ability to market value presupposes that defendants would be involved in any subsequent sale of the Popeye sculpture, given Gagosian' s role I' representative and the foremost dealer in Koons' work. as Koons' Plaintiffs assert that based on the course of dealings between the parties, Gagosian and the Gallery knew it was plaintiffs' right and expectation that they would be able to sell Popeye or exchange it for other works of art. MacAndrews Purchase defendants' Agreement. 152 (l5t Agreement part, . and interpretation, .may I (Amended Complaint, the not add contains Court, this in no the 44.) <]{ such guise obligation to However, the obligation on of contract the parties' Morpheus Capital Advisors LLC v UBS AG, 105 AD3d 145, Dept 2013) ("'courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for writing'"), Co., 1 NY3d the parties under the guise (quoting Vermont Teddy Bear Co. 470, 475 [2004]). Therefore, of interpreting the v 538 Madison Realty defendants' alleged refusal to be involved in future sales of the Popeye sculpture as 11 [* 13] a result of the profit-sharing provisions of the Sonnabend Purchase Agreement does not constitute an encumbrance, and is not a breach of any express/ or Agreement. implied term of the MacAndrews Purchase In short, plaintiffs fail to identify any conditions ih the Sonnabend Purchase Agreement that constitute a breach of the MacAndrews Purchase Agreement. Moreover, notwithstanding plaintiffs' allegation that "they had no other reasonable option but to sell or exchange Popeye with defendants" (Amended en Complaint1 53), plaintiffs "agreed" to enter into the Exchange Transactions, admittedly although they claim that defendants intentionally and improperly suppressed the value of the exchanged works, and that the true value of the exchanged works and the cash were, together, worth much more than $10.5 million. $2.4 million sculpture, (Id., en 59.) payments and it plaintiffs MacAndrews received a credit for the had already fail to made explain toward how the their Popeye voluntary agreement to enter into the Exchange Transactions infringed upon their contract rights. Nor does plaintiffs' claim make sense chronologically. The Amended Complaint asserts that plaintiffs entered into the Exchange Transactions in April 2011, in an "effort damages" caused by the Sonnabend Agreement. 12 to mitigate (Id., en 54.) their However, [* 14] plaintiffs·claim that "at the time of the Exchange Transactions," the Sonnabend Purchase Agreement was "undisclosed" by defendants. (Id., 55.) <JI Plaintiffs concede that defendants' refusal to be involved in "subsequent sales of Popeye" occurred "[o]ver a year and one-half after the parties entered into the MacAndrews Purchase (Plaintiffs' Brief in Opp at 8; Amended Complaint, Agreement." <JI 49.) Therefore, as the MacAndrews Purchase Agreement was dated May 12, 2010, defendants' alleged refusal did not occur until the end of 2011. The Amended Complaint fails to explain how plaintiffs could have known to mitigate their damages in April 2011, at a time when they had not yet discovered the very Agreement and conduct by defendants that caused the damages plaintiffs allegedly sought to mitigate. Plaintiffs also admittedly did not know delayed delivery date until June 2011 (Amended Complaint, which point they had thereby sculpture, Popeye already relinquished undermining their about <JI 52), at rights to allegation any the the that plaintiffs sought to mitigate damages resulting from the delay. Plaintiffs suppressed improperly (id., <JI 59), plaintiffs' speculate but if defendants value anything, of this the "intentionally exchanged allegation is a and works" subset of fraudulent inducement cause of action concerning the Exchange Transactions allegations, the that (discussed below) plaintiffs also fail 13 Other than conclusory to allege any damages flowing [* 15] from the alleged breach of contract. Media, Fowler 306 AD2d 113, 113 (1st Dept 2003) v American Lawyer (even if other elements of breach of contract were alleged, "the complaint still fails as it lacks allegations showing any damages") . .-' In essence, plaintiffs' breach of contract cause of action alleges that, "'with the benefit of hindsight, it appears to have [entered into] a bad bargain'" (Schultz v 400 Coop. Corp., 292 AD2d 16, 20 [1st Dept 2002]), but plaintiffs fail to plead a cognizable breach of contract claim that would entitle them to damages. Plaintiffs also argue that the profit-sharing provisions of the Sonnabend Purchase Agreement breached the implied covenant of good faith and fair dealing. Specifically, plaintiffs claim that at the time they entered into the MacAndrews Purchase Agreement, MacAndrews reasonably expected that Gagosian and the Gallery would be involved Plaintiffs in also any subsequent claim that sale the of the Sonnabend Popeye Purchase sculpture. Agreement permitted Sonnabend to unilaterally delay the completion date of the Popeye sculpture, further frustrating the parties' reasonable expectations under the MacAndrews Purchase Agreement that it would be delivered by December 15, 2011 thereafter. 14 or within a reasonable time [* 16] As a preliminary matter, plaintiffs' claim for breach of the implied covenant of good faith and fair dealing, with respect to \ the MacAndrews Purchase Agreement, is subject to dismissal "duplicative of the insufficient breach of contract claim." as Jacobs 450 Park LLC, 22 AD3d 347, 347-348 (1st Dept 2005), lv denied 6 NY3d 703 (2006). In any event, plaintiffs fail Private Equity, LLC v to identify any terms of the MacAndrews Purchase Agreement that could be construed to involvement in crea~e future an expectation concerning defendants' sales of obligation can be implied that terms of the contractual Testing Serv., Home Prods. Cablevision Sys. and "no 'would be inconsistent with other 389 (1995) 58 NY2d 293, Corp., sculpture, Popeye relationship.'" 87 NY2d 384, Corp., the 304 418 F3d 187, Dalton v Educational (citing Murphy v [1983]); 199 see also (2d Cir 2005) American Broder v (implied covenant of good faith and fair dealing "does not 'add [ ] to the contract a substantive provision not included by the parties'"). Accordingly, for all of the foregoing reasons, plaintiffs' first cause of action must be dismissed. II. Breach of Fiduciary Duty (Second Cause of Action) Plaintiffs' cause of action for breach of fiduciary duty is based upon defendants' alleged superior knowledge of contemporary art and the value of the artwork at issue herein, the longstanding friendship between Gagosian and Perelman, 15 Gagosian's position of [* 17] trust in advising Perelman and plaintiffs regarding art acquisitions and value, and defendants' various roles as consignee, seller, buyer, broker, plaintiffs' artwork. bidder, and agent (Amended Complaint, ~ with 90.) respect to Plaintiffs claim that defendants breached their fiduciary duties by entering into the Sonnabend Purchase Agreement, and by incorrectly valuing the artworks that were the subject of the Exchange Transactions. 92-93.) Defendants argue, that there was no (Id., fiduciary relationship among the parties, and that plaintiffs fail to allege that defendants engaged in any misconduct that would have constituted a breach of any purported fiduciary duties. "The elements fiduciary duty are of a cause of action for breach of (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant's misconduct." AD3d 814, fiduciary 817 (2d Dept relat~onship Baumann v Hanover Community Bank, 100 2012). are Two "de facto Marmelstein v Kehillat New Hempstead: Synagogue, 11 NY3d 15, citation omitted). 21 "essential (2008) control elements" and of a dominance." The Rav Aron Jofen Community (internal quotation marks and However, "'[a]llegations of superior knowledge or expertise in the art field are per se insufficient to establish the existence of a fiduciary relationship.'" v Wildenstein, 17 Misc 3d 1118(A), 16 *4-5, Mandarin Trading Ltd. (Sup Ct, NY Co 2007), [* 18] aff'd 65 AD3d 448 Dept 2009), aff'd 16 NY3d 173 (2011) (l5t (quoting ,··, Granat v Center Art Galleries-Hawaii, Inc., 1993 WL 403977, *6 [SONY 1993]). In Granat v Center Art Galleries-Hawaii, Inc., the plaintiffs alleged that million in over a two-year artwork representations from that period, they purchased over defendants, "the based purchases upon $5. 3 defendants' represented liquid a investment, that they could be sold with relative ease and that the defendants, their as purchases nationally if recognized art requested to do so." experts, Id. at would resell *1-*2. The plaintiffs alleged that the value of the art was significantly less than what they paid for it, and that the defendants' appraisals of the art were patently false. Nonetheless, the Court dismissed th~ plaintiffs' cause of action for breach of fiduciary duty, holding that a fiduciary relationship could not be established based upon "[a] llegations field," of superior or from "the mere knowledge fact or expertise in the art that plaintiffs bought numerous pieces of art from the defendants over the course of two years." Id. at *6, *17-18. Here, the Amended Complaint expressly states that "[p]laintiffs are art collectors and investors" with 20 years of experience making art investment decisions, 17 having purchased and [* 19] sold "nearly 200 works" of art through defendants alone. Complaint,'' 1, 30.) collectors of art. (Amended Plaintiffs concede that they are not "static Rather, they bought, sold and exchanged pieces frequently" (id., '27), with an express "art investment strategy" (id., ~ 44). In short, plaintiffs are business entities admittedly engaged in the business of art investments, work out the paperwork" and were they had "staffs to represented by counsel, and plaintiffs are owned by the renowned businessman, Ronald Perelman. (Id., '~ The 1, 7, 27, 29.) Amended Complaint further alleges that plaintiffs negotiated the purchase of the Twombly Painting from April 2011 until September or October 2011, before reaching an oral agreement on its price (id. , ' ' 62, 64, 66) , and the Exchange Transact ion involving this Painting did not close until ten months later, February 2012 (id., '70). in Although the Amended Complaint contains scant detail on the negotiations involving plaintiffs' acquisition of the Serra Sculpture in exchange for the Lichtenstein Sculpture and other works, plaintiffs allege that those negotiations began in September 2011 (id., '79), and that this transaction closed "just a short time" before May 2012 (id., months later. 18 ' 82), approximately eight [* 20] Thus, plaintiffs' allegations make clear that they were experienced and sophisticated business investors who entered into negotiated, arm's-length transactions with defendants, which does not give rise to a fiduciary relationship. Sachs· EEC I, Inc. v Goldman Co., 91 AD3d 211, ,215 (l5t Dept 2011) & 'consensual bargaining process (" [n] egotiation is a in which the parties attempt to reach agreement on a disputed or potentially disputed matter' . The word implies an arm's length exchange"); Sebastian Holdings, Inc. v Deutsche Bank AG., fiduciary relationship 78 where AD3d 446, 447 "parties (l5t engaged Dept 2010) in (no arm's-length transactions pursuant to contracts between sophisticated business entities"). Moreover, plaintiffs' reliance on the fact that Perelman and Gagosian were friends "business invested for 20 years, acquaintances," together, had "worked to .establish unpersuasive, as Perelman is~not and, a in any event, years" is even insufficient to "socialized together," were a together" fiduciary previously and relationship is named as a party iri this action, "longstanding establish a relationship fiduciary of fifty relationship "'where parties deal at arms length in a commercial transaction.'" Compania Sud-Americana de Vapores, S.A. v IBJ Schroder Bank & Trust Co., 785 F Supp 411, 425-426 (SONY 1992). At most, plaintiffs assert "'subjective claims of reliance on defendants' expertise,'" 19 [* 21] '· which do "not give rise to a 'requisite high existence prior wrong." degree of to transaction the dominance SNS Bank v Citibank, For the 'confidential foregoing giving reliance' rise 7 AD3d 352, 355-356 reasons, allege the existence of a and relationship' to (Pt was not the alleged in Dept 2004). the Amended Complaint fiduciary relationship. whose fails to Accordingly, plaintiffs' second cause of action for breach of fiduciary duty is dismissed. III. Fraud (Third Cause of Action) Plaintiffs next allege that defendants possessed unique and superior knowledge concerning the value of the artwork included in the Exchange Transactions, and that defendants misrepresented the value of this artwork, fraudulently causing plaintiffs to overpay for the Twombly Painting and the Serra .Sculpture and be undercompensated for the value of some of the exchanged works 3 ¢ Plaintiffs also assert that defendants falsely represented that the values they ascribed to the exchanged works were their true market values (less Gagosian's customary commission) and that those values were supported by market data, including non-public market data 3 The plaintiffs do not base their claims for fraud on any misrepresentations as to the market value of Popeye. (Plaintiffs' Brief in Opp at 15, n.5) \ 20 [* 22] such as recent private sales and information gathered from the artists or their estates. (Amended Complaint, 72, CJICJI 97-102.) Defendants argue that this cause of action should be dismissed, because the alleged representations about the value of artwork are not actionable, were not false or knowingly false, and because plaintiffs fail to allege justifiable reliance. To state a cause of action for fraudulent misrepresentation, plaintiffs must allege "a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury." Mandarin Trading Ltd., 16 NY3d at 178 (internal quotation marks and citations omitted). In addition, CPLR action 3016 (b) requires that in a fraud cause of "the circumstances constituting the wrong shall be stated in detail." However, "neither CPLR 3016(b) nor any other rule of law requires a plaintiff to allege details of the asserted fraud that it may not know or that may be peculiarly within the defendant's knowledge at the pleading stage." Bank N.V., 301 AD2d P.T. 373, Bank Cent. Asia, N.Y. 377 (l5t Dept. Branch v ABN AMRO 2003) "CPLR 3016(b) requires only that the misconduct complained of be set forth in sufficient detail to clearly inform a defendant with respect to the incidents complained of and is not to be interpreted so strictly as 21 [* 23] to prevent an otherwise valid cause of action in situations where it may be impossible constituting a to fraud" state (Id.) in detail (internal the citations circumstances and quotations marks omitted). As a preliminary matter, defendants argue that even assuming that defendants possessed unique and superior knowledge concerning the value of the artwork and expressed their opinion on it, statements "constitute[] nonactionable opinion that provide[] basis for a fraud claim." (citing Jacobs v Lewis, such no Mandarin Trading Ltd., 16 NY3d at 179; 261 AD2d 127, 127-128 (Pt Dept 1999) ("alleged misrepresentations amounted to no more than opinions and puffery or ultimately unfulfilled promises, and in either case were not actionable as fraud"). However, the fraud cause of action was dismissed in the Mandarin Trading case because defendant Wildenstein wrote a letter regarding the painting's value to an unknown individual with no mention of plaintiff Mandarin or the individual's connection to any of the parties in the case. While generally, misrepresentations concerning value are considered matters of opinion which are not actionable, in certain circumstances they can be regarded as a representation of an existing fact, which is sufficient to support a fraud action. See Cristallina v Christie, Manson & Woods Intl., 117 AD2d 284, 294-295 22 [* 24] (1st Dept Sales, 1986); 4 NY2d see also Channel Master Corp. 403, 407 (1958). A person representation must do so truthfully. v Aluminum Ltd. rendering such a Cristallina, supra at 294. Here, plaintiffs allege that Gagosian repeatedly stated that the values ascribed Transactions to the reflected works their implicated true market in values, the Exchange supported by market data which included recent sales and information gathered from customary sources, including artists' knowledge of private market sales. estates and (Amended Complaint, his <j[ 7 2. ) However, according to plaintiffs, Gagosian's statements as to the existing facts were knowingly false. Although plaintiffs concede that these values were based in part on market data, which is not "uniquely" within defendants' knowledge, they also claim that Gagosian's assessments were supported by information gathered from private market sales, which was not peculiarly within defendants' knowledge. (Amended Complaint, <JI<JI 16, 23, 72.) Defendants contend that the fraud claim fails to explain how defendants misrepresented the value of the artwork that was the subject of the Exchange Transactions. plaintiffs' explanation for According to defendants, defendants' Twombly Painting and Serra Sculpture, overvaluation and defendants' of the purported undervaluation of the works exchanged by plaintiffs, is based upon speculation and conclusory allegations. 23 (See Amended Complaint, <j[<j[ [* 25] 75-83, alleging that defendants sought to sell one of the Willem de Kooning paintings and the Lichtenstein Sculpture for more than the exchange values credited to plaintiffs). As discussed supra, plaintiffs were credited $4.5 million for the Lichtenstein Sculpture (Amended Complaint, and 61) ' <JI plaintiffs concede that they "ultimately accepted the value set by defendants of the works being traded in, representation exchanged that were [defendants'] defendants' the "based standard valuation values on ascribed commission). could be false based on defendants' to true their 10% 11 the works value market 11 (Id., only if being (less 32.) Thus, <JI the Lichtenstein Sculpture were sold for more than $5 million (or $4.5 million once the 10% commission was subtracted) . · Defendants submit redacted copies of an Invoice showing that the Gallery sold the Lichtenstein Sculpture to Phillips de Pury & Company for $4. 8 million, $200,000 less than the value ascribed to it by defendants. Aff, Ex. 6.) overvalued the This document suggests that defendants, Lichtenstein Sculpture, giving or (Dontzin in fact, plaintiffs the benefit of a higher trade-in value. Similarly, Gallery itself defendants submit purporting to show a redacted that the Invoice Willem de from the Kooning painting, for which plaintiffs received a $3.6 million credit, was 24 [* 26] actually sold for $3.5 million (Dontzin Aff, Ex. 5), again giving plaintiffs the benefit of a higher trade-in value than anticipated by defendants. However, these conclusive documentary evidence relies a Invoices on 3211 (a) (1) bona-fide pre-answer are upon which motion to not the dismiss the Court type of generally pursuant to CPLR Plaintiffs also question whether these Invoices reflect sales to third-parties, or some other arrangement, something which they have not been able to explore at this stage of the proceeding, prior to discovery. As such, this Court finds that plaintiffs have sufficiently alleged, for purposes of this knowingly motion to dismiss, that defendants made false misrepresentations. Defendants also argue that,plaintiffs' fraud claim is legally defective because plaintiffs have not, and cannot, allege justifiable reliance. If the facts represented are not matters peculiarly within the party's knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations. Centro Empresarial Cempresa S.A. v America M6vil, S.A.B. de C.V., 17 NY3d 269, 278-279 (2011) omitted). (internal quotation marks and citations [* 27] As discussed above, plaintiffs' allegations make clear that they were experienced and sophisticated business investors who entered into negotiated, arm's-length transactions with defendants. "As a matter of law, a sophisticated plaintiff cannot establish that it entered into an arms length transaction in justifiable reliance on alleged misrepresentations if that plaintiff failed to make use of the means of verification that were available to it." i UST Private Equity Invs. Fund v Salomon Smith Barney,. 288 AD2d 87, 8 8 (1st Dept 2001) . Plaintiffs' argument that the existence of a fiduciary relationship among the parties justified plaintiffs' reliance upon defendants' representations is to no avail, as this Court has ' already determined that no fiduciary relationship existed among the parties. However, plaintiffs have alleged throughout their Amended Complaint that defendants had superior and unique knowledge concerning the art market that was not available to plaintiffs. For instance, plaintiffs allege that Gagosian has enormous power to influence, and even represents because of his set, the markets for the artists he impressive roster of artists and his access to and knowledge of the largest private art collections in the world. (Amended Complaint, <JI<JI 16, ··23.) Therefore, even though the plaintiffs are sophisticated art collectors and investors, the Court cannot say_, as a matter. of law, 26 that plaintiffs' alleged [* 28] reliance on defendants' and intrinsic unreasonable L.L.C., 15 value or NY3d representations regarding the art market of particular unjustified. 147, 155 See (2010); works of DDJ Mgt, Carbon American Express Co., 88 AD3d 933, 938 art was LLC v Capital per se Rhone Group Mgt., LLC v (2nd Dept. 2011); Abu Dhabi Commercial Bank v Morgan Stanley & Co., Inc., 651 FSupp2d 155, 18081 (SONY 2009). Accordingly, that portion of defendants' motion seeking to dismiss the third cause of action for fraud is denied. IV. Breach of the Covenant of Good Faith and Fair Dealing (Fourth Cause of Action) Defendants next seek dismissal of plaintiffs' fourth cause of action for breach of the covenant of good faith and fair dealing with respect to the Exchange Transactions. upon defendants' This claim is based alleged fraudulent overvaluation of the Twombly Painting, and their undervaluation'of the works exchanged for the Twombly Painting and the Serra Sculpture. (Amended Complaint, \ <JI 108.) "Implied in every contract is a covenant of good faith and fair dealing, which is breached when a party to a contract acts in a manner that, although not expressly forbidden by any contractual provision, would deprive the other party of the right to receive 27 [* 29] the benefits - under Communications, 222 citation omitted). their AD2d agreement." 17, 22-23 Jaffe (l5t Dept "The duty of good faith v Paramount 1996) (internal and fair dealing, however, is not without limits, and no obligation can be implied that 'would be inconsistent with other terms of the contractual relationship.'" 87 Dalton, NY2d at 389; see also Broder v Cablevision Systems Corp., 418 F3d at 199 (implied covenant of good faith and fair dealing "does not 'add to the contract a substantive provision not included by the parties'"). As discussed above, the parties negotiated the prices for the Twombly Painting, the Serra Sculpture, and the exchanged works that were to be credited toward plaintiffs' purchases of these items, in what plaintiffs arrangements." plaintiffs claim were (Amended improperly "valid Complaint, seek to and 'II alter binding 105-10 6. ) the prices contractual In essence, and exchange credits that formed the basis of the Exchange Transactions, thereby rendering plaintiffs' claim that central the at were 389. to Accordingly, inconsistent parties' plaintiffs' with agreement. fourth cause pricing terms Dalton, 87 NY2d of action is dismissed. V. Unjust Enrichment (Fifth Cause of Action) Plaintiffs' fifth cause of action for unjust enrichment is based upon defendants' alleged improper valuation of the artwork 28 [* 30] that comprised the Exchange Transactions, whereby defendants made millions of dollars (Amended Complaint, of illicit profits at plaintiffs' ~~ expense. 112-114.) Defendants argue that this cause of action should be dismissed, because the Exchange Transactions are governed by contracts, a fact which bars recovery·in quasi- contract for events arising out of the same subject matter, and because an unjust enrichment claim cannot be based on a seller's statements about transaction. the value of artwork . in an arms-length Plaintiffs counter that_ they are entitled to plead their unjust enrichment claim in the alternative, in the event that they are unable to prove the existence of a contract. "Unjust enrichment is a quasi contract theory of recovery, and 'is an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties concerned.'" Georgia Malone 2011), & Co., Inc. aff'd 19 NY3d 511 v Rieder, (,2012). 86 AD3d 406, 408 (l5t Dept "The existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter." Is. R.R. Co., Clark-Fitzpatrick, Inc. v Long 70 NY2d 382, 388 · (1987). Here, ·plaintiffs allege that the Exchange Transactions were governed by "valid and binding contractual arrangements" (Amended Complaint, ~ 105), and defendants do not dispute this allegation. 29 [* 31] (Defendants' Reply Brief at -19, n 14.) Therefore, plaintiffs' unjust enrichment cause of action is precluded by the parties' contracts governing plaintiffs' fifth the cause Exchange of Transactions. action for unjust Accordingly, enrichment is dismissed. VI. Sanctions Defendants claims are defendants' also without seek sanctions, merit and motion is denied, arguing frivolous. that plaintiffs' This portion of in the discretion of. this Court, especially since this Court has sustained one of the causes of action. Accordingly, it is hereby ORDERED that defendants' motion to dismiss the Amended Complaint is granted as to all the causes of action, except for the third cause of action for fraud which is severed and continued. Defendants shall have thirty days from the date of this order to file and serve an Answer to the third cause of action. shall notify the Court when they are ready to Counsel schedule preliminary conference. This constitutes the decision and order of this Court. ·~ 30 a

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