Court Clears Gagosian of Fraud

New York Turner -- Art gallery owner Larry Gagosian won dismissal of a lawsuit accusing him of tricking longtime friend and billionaire Ronald Perelman into buying a $4 million Jeff Koons sculpture called “Popeye.”

Art collectors of ArtKabinett can drink up a juicy tiff between these two titans of the art world.

Perelman, ranked 54th in the Bloomberg Billionaires Index with a net worth of $15.2 billion, alleged that Gagosian “took advantage of his position of trust” as a longtime friend to induce him to buy the granite sculpture of the cartoon character, according to court filings.

Perelman sued Gagosian and his gallery in September 2012, accusing them of concealing material information and manipulating art prices.

Gagosian then sued Perelman the same day, accusing him of reneging on an agreement to buy two pieces of art for more than $23 million and offering less money and other works in exchange.

The gallery dropped its case the following month and asked a judge to throw out Perelman’s complaint last year. New York State Supreme Court Justice Barbara Kapnick in February dismissed most of the suit while allowing a single fraud claim to go forward.

A five-judge appeals court panel yesterday dismissed the fraud claim, saying that the parties negotiated at arm’s length, and didn’t owe fiduciary duties to each other. While Perelman accused Gagosian of misrepresenting the value of certain works of art, market data was available to determine their worth, the court said.

Market Data

“As a matter of law, these sophisticated plaintiffs cannot demonstrate reasonable reliance because they conducted no due diligence,” Associate Justice David Friedman wrote in today’s opinion. “They did not ask defendants, ‘Show us your market data.’”

The litigation, along with another suit filed in the same court earlier in 2012 alleging Gagosian sold a 1964 Roy Lichtenstein painting without a collector’s consent, spotlighted behind-the-scene sales negotiations at galleries such as Gagosian’s, which represents artists or their heirs including those of Pablo Picasso.

“While we are reviewing our appellate remedies and other options, it is obvious that this is no vindication for Mr. Gagosian,” Perelman’s MacAndrews & Forbes Holdings Inc. said in a statement. “When it comes to the art market apparently it’s buyer beware and when it comes to Larry Gagosian it’s buyer be damned.”

Adviser, Mentor

Gagosian was an art adviser and mentor to Perelman for more than 20 years, and the two had been friends and business partners outside the art world, according to Perelman’s complaint.

Perelman said they visited each other’s homes, attended the same social events and invested in the Blue Parrot restaurant in East Hampton, New York.

Perelman said in his suit that Gagosian failed to tell him that the dealer’s contract with Koons entitled the artist to 70 percent of any amount over the original sale price of $4 million if the gallery resold the work -- and 80 percent of any sale if Gagosian bought the sculpture back before it was finished, delivered and paid for.

Perelman said Gagosian bought the sculpture from the Sonnabend Gallery for $4 million about 2 1/2 weeks after executing its sales contract with MacAndrews & Forbes, thereby restricting Perelman’s ability to sell or trade the sculpture at fair market value.

Superior Knowledge

Kapnick, now an appellate judge, said in her February ruling said that while the plaintiffs, Perelman’s MAFG Art Fund and MacAndrews & Forbes Group LLC, were “experienced and sophisticated” business investors, the allegation that Gagosian and his gallery had “superior and unique” knowledge of the art world was enough for the fraud claim to survive.

The appeals court, overturning that finding, said the suit failed to establish that Gagosian exercised control or dominance over Perelman’s MAFG Art Fund LLC and MacAndrews & Forbes Group LLC, limited liability companies that “frequently purchased, sold and exchanged works of art as investments.”

“We are gratified that the court unanimously dismissed this case,” Gagosian’s attorney, Matthew Dontzin of Dontzin Nagy & Fleissig LLP, said. “It supports our view that in keeping with Perelman’s lengthy history of unsuccessfully trying to use the courts to bully his business associates this lawsuit was filed as a shameless pretext for Perelman’s refusal to pay what he owed the gallery.”

The lower-court case is MAFG Art Fund LLC v. Gagosian, 653189/2012, New York State Supreme Court, New York County (Manhattan).