ARTnewsletter ARTnewsletter Archive Market

‘Conversion’ Presents Thorny Issues for Art Owners

NEW YORK—An art collector who placed most of his collection in storage with a Manhattan dealer has brought a lawsuit against the dealer for selling his artwork, valued at more than $5 million, and failing to remit the proceeds to the collector.

The case is the latest such artwork-related suit to test the limits of protection—whether with legal recourse or insurance policy coverage—in instances where consigned artwork is sold without the seller’s knowledge or permission and a dealer fails to pay the consigner.

The lawsuit was filed in Manhattan District Court on August 23 against R. Scott Cook, who, with his wife Soussan, operated a Madison Avenue art gallery known as Cook Fine Art, and a fine art storage company. According to the complaint, Cook was asked by Pennsylvania collector George Ball in late 2010 to arrange for eleven Modernist works by such artists as Paul Klee, Henri Matisse and Pablo Picasso to be consigned to Christie’s. Cook assured Ball that they were included in a sale at the auction house’s London saleroom in June of this year.

However, the artworks were never consigned to Christie’s and have disappeared, the claim states. Currently, the Cooks’ whereabouts are unknown, according to the complaint.

The eleven artworks in question include three drawings each by Matisse and Picasso, a watercolor by Vassily Kandinsky, an ink drawing by Egon Schiele, and works on paper by Paul Delvaux, Klee and Fernand Khnopff.

According to the complaint, Ball’s confidence in his relationship with the Cooks was such that he did not ask to see the Christie’s catalogue for the sale, or look for his consignments on the auction house’s website. Ball accepted Cook’s assurances that 10 of the 11 works sold at the auction for $5.3 million, according to the suit.

On August 9, Cook sent an email to Ball, stating that the proceeds of the “funds have not cleared” but would be available soon, perhaps as soon as the following week, the complaint states.

On August 15, Cook’s Philadelphia-based lawyer James Eisenhower contacted Ball to inform him that Cook and his wife had left the United States. According to the complaint, Eisenhower stated that Ball’s money “would not be forthcoming because ‘it has been spent.’ Mr. Eisenhower said that Cook hoped to work something out with Plaintiff, that Cook might be able to raise $1 million if he could sell some artwork, and that Cook hoped to avoid being prosecuted.”

Ball’s lawyer Mel Barkan emailed Eisenhower “demanding the immediate return of all Plaintiff’s property,” according to the complaint, which elicited neither a response from Cook’s attorney nor the “return of any of Plaintiff’s property in the possession of Defendants.” Ball also filed a temporary restraining order, granted on August 24, to prevent Cook from removing any of the collector’s artworks from storage. Barkan told ARTnewsletter that “several hundred” artworks belonging to Ball remained in the Cooks’ storage facility, “virtually all of them were either purchased from the Cooks or with the help of the Cooks.”

The complaint alleges breach of contract, breach of fiduciary duty, fraud, unjust enrichment and depriving Ball of his personal property without his consent.

“Shortly after Plaintiff was introduced to Cook, Cook and Soussan became Plaintiff’s exclusive art advisors and dealers,” according to the complaint. Over a period of several years, starting in 1997, the Cooks sold Ball artworks from the 19th and 20th centuries worth more than $15 million, including works by Edouard Manet and Auguste Rodin, as well as others by Picasso, Matisse, Klee and others.

Between 1999 and 2006, the gallery sold several artworks from Ball’s collection to private collectors and museums with the owner’s consent, and “Plaintiff was promptly paid the net amounts he was informed by Cook were due to him,” according to the lawsuit.

In other cases involving artwork conversion claims, collectors have turned to their insurers for compensation, especially where recovering proceeds from the dealer or agent involved seems unlikely.

Collector Sam Zell, a Chicago-based real estate entrepreneur and chairman of the Tribune Company, and his wife Helen, obtained a $5.8 million payout from their insurer Chubb after Los Angeles dealer David Tunkl sold consigned artworks without remitting the proceeds to the Zells.

The works in question—Balthus’ The Cat with Mirror III, 1989-94, as well as Fernand Leger’s Study for the Tugboat, 1923, and Mona Lisa with Keys (First State), 1930—were consigned to Tunkl in 2007-2008 with the understanding that the dealer would solicit offers, which the Zells would consider, according to court documents. Tunkl sold the artworks but did not inform the Zells that he had done so until 2009, according to the court records. Tunkl claimed that he had spent the money from the sales and could not pay the Zells.

The Zells, however, had their artworks covered by an insurance policy from New Jersey-based Chubb and received a payout of $5,775,000. In early June of this year, the insurer brought a lawsuit in California State Superior Court against Tunkl for conversion (treating someone else’s property as one’s own, a form of theft) and breach of contract. (As ARTnewsletter was published, no response had been filed.)

On the other hand, on July 5, a Maryland federal district judge dismissed a lawsuit by the Philadelphia Museum of Art that was filed against AXA Art Insurance after the insurer denied a $1.5 million claim. District court judge Roger W. Titus ruled in favor of AXA’s motion to dismiss, rejecting the museum’s plea for summary judgment and ordering the museum to pay the insurer’s defense costs. The judge found that the museum had not filed its lawsuit within its one-year allowance outlined in the insurance contract.

The dispute stemmed from the museum’s consignment of two paintings—Maurice Prendergast’s oil The Harbor, 1919-23, and Arthur B. Davies’ undated watercolor Mountain Landscape—to New York’s Salander-O’Reilly Galleries in 2006. Gallery owner Lawrence Salander sold the two paintings within weeks of the consigment to Davis & Langdale Company, Inc., a gallery in Manhattan, for $1.5 million. However, Salander never informed the museum of the sale and museum officials only learned that the paintings had been sold in 2009, after Salander-O’Reilly Galleries declared bankruptcy.

Salander is currently serving a six-to-eighteen year sentence in state prison, having pled guilty in March 2010 to 29 counts of grand larceny and one count of scheming to defraud. The gallery collapsed in late 2007 amid a flood of lawsuits, bankruptcy proceedings and a shutdown by the Manhattan district attorney (ANL, 7/26/11).

The museum made its claim with AXA, but the insurance company refused to reimburse the institution for its loss, since “the paintings weren’t stolen or damaged,” which was the nature of the coverage, John Cahill, the lawyer representing AXA, said. He went on to say the museum “should sue the dealer, not the insurance company, which didn’t cover this eventuality in its policy.”

More than a year after discovering the loss, in March 2010, the museum brought its legal action. AXA contested the lawsuit on the basis that the museum failed to file within one year of the claimed loss. Such is a provision in insurance contracts “specifically authorized by the laws of Pennsylvania (where the museum is located) and New York (where AXA is located),” while the state of Maryland, where the lawsuit was filed, permits filings up to three years after a property theft has been discovered, notes Cahill.

In a written statement, AXA Art’s chief executive officer for North American operations, Christiane Fischer, conveyed AXA’s regrets that legal action had been brought, but noted that throughout the lawsuit proceedings the insurance company “continued at the museum’s request to provide coverage for the museum’s important collection. We sympathize with the Philadelphia Museum of Art and others who have been entwined in this unfortunate incident.”

A spokesman for the Philadelphia Museum of Art said that although “the museum does not agree with the ruling by the federal court in Maryland, no appeal has been filed.”