LEWIS A. KAPLAN, District Judge.
In 2007 and 2008, Oleksandr Savchuk, acting through plaintiff Arthur Properties, S.A. ("AP"), bought eighteen paintings from defendant ABA Gallery, Inc. ("ABA"), the principal of which is defendant Anatol Bekkerman, for a total of $9,580,000. AP brings this action to recover damages, essentially on the theories that ABA and Bekkerman misrepresented the "fair market value" of the paintings and that four of them, contrary to representations by ABA and Bekkerman, were not authentic. Defendants move to dismiss AP's first amended complaint. AP cross-moves for leave to amend, essentially to add Savchuk as a plaintiff and thus to moot defendants' contention that AP lacks standing to sue.
The Court assumes the truth of the well-pleaded factual allegations of the second amended complaint for purposes of the motion.
Savchuk is a citizen and resident of Ukraine who owns and controls AP.
ABA is incorporated and has its principal place of business in New York. It operates an art gallery specializing in 19th and 20th century Russian art and trades under the name ABA Gallery.
During the fall of 2006 and the first half of 2007, Bekkerman sought to persuade Savchuk, who claims to possess no expertise with respect to art, to purchase artworks located in the New York gallery which he allegedly represented were valuable. In fact, according to plaintiffs, several of the artworks actually were forgeries and others were worth less than Bekkerman allegedly represented.
In the course of "numerous" but entirely unspecified communications, phone calls and personal visits, Bekkerman sought to persuade Savchuk that he was a reputable and honest dealer and an expert on Russian art and to convince Savchuk that he was "offering genuine, authentic paintings at a price that reflected, according to Bekkerman, their fair present market value."
After several months, Savchuk claims, he decided to trust Bekkerman and — acting sight unseen, but with the benefit of photographs — purchased the paintings for $9,580,000.
After taking delivery, Savchuk claims that he discovered that four of the paintings, for which he paid a total of $2,400,000, were not authentic. He allegedly discovered also that the prices he paid for the other paintings were significantly higher than their market values.
The second amended complaint purports to assert eight claims for relief: breach of contract, unjust enrichment, fraudulent inducement, conspiracy to defraud, negligent misrepresentation, breach of express warranty, rescission based on fraudulent inducement, and rescission based on mutual mistake. Defendants maintain that the pleading fails to state any claim upon which relief may be granted.
Three of plaintiffs' claims rest on suggestions of fraud by Bekkerman, viz. suggestions that he misrepresented the fair value of the paintings and the authenticity of the four paintings that plaintiffs claim are forgeries. It therefore is appropriate to begin with the standards governing the legal sufficiency of averments of fraud.
To begin with, the complaint must allege the essential elements of fraud, viz. "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."
Fed. R. Civ. P. 9(b) requires that the circumstances of any fraud be pled with particularity. The complaint therefore must "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent."
The problems with the fraud allegations in this pleading are manifold.
The gravamen of the fraud-based claims is two-fold. Bekkerman allegedly misrepresented that (1) four of the paintings were authentic and (2) the selling price of each was its fair market value. Remarkable though it is, however, the second amended complaint nowhere alleges that Bekkerman knew that the four paintings whose authenticity plaintiffs question were forgeries or even that he knew and recklessly disregarded the existence of facts giving substantial reason to question their bona fides. Similarly, it nowhere alleges that Bekkerman knew that the prices he allegedly represented as the artworks' fair market values in fact were not accurate or that he recklessly disregarded facts suggestive of such a conclusion, even assuming arguendo that there is any knowable "fair market value" for a painting different from what a willing seller will pay to a willing buyer, assuming that neither acts under duress.
First, plaintiffs speak of statements "at all times"
Second, the complaint alleges no facts as to the basis for the claim that the four alleged forgeries in fact are not paintings executed by the artists whom Bekkerman allegedly said painted them.
Third, no facts — as opposed to airy conclusions — are alleged that suggest that Bekkerman knew that any of the paintings was a forgery or that any was overpriced.
Fourth, the pleading fails utterly to allege facts that give rise to a strong inference of scienter.
More could be said. But the foregoing suffices. The fraud-based claims all are insufficient as a matter of law.
The breach of contract and breach of express warranty claims overlap. Both allege that the seller breached by delivering four paintings that were not in fact painted by the artists represented.
Insofar as the breach of warranty claim rests on the assertion that the seller warranted that the paintings were sold at fair market value when, in fact, they were sold at prices higher than fair market value, the claim is without merit. As noted previously, there is no objective, discernable fair market value except perhaps for fungible assets traded on an efficient market. By definition, the fair market value of an asset such as a work of art, a used car, a piece of real estate, and many other assets is "the price that a willing buyer and a willing seller would agree to in an arm's length transaction."
The alleged warranty as to authenticity is another matter. If in fact Bekkerman warranted that each of the paintings had been executed by a specified artist and if in fact plaintiffs can establish that four of them had been executed by others, then there would have been a breach of warranty. Defendants indeed do not contend otherwise. But they argue that the warranty claim must be dismissed as untimely.
The statute of limitations on contract claims involving the sale of goods, which applies to authenticity challenges in connection with the sale of art,
Accordingly, the motion to dismiss the claim for breach of an express warranty of authenticity with respect to the four allegedly forged paintings must be denied.
"To prevail on a claim for unjust enrichment in New York, a plaintiff must establish (1) that the defendant benefitted; (2) at the plaintiff's expense; and (3) that equity and good conscience require restitution."
Defendants, relying upon these principles, seek dismissal of the unjust enrichment claim on the theory that the complaint alleges a purchase and sale agreement for the paintings. Plaintiffs respond by asserting that they may plead the express contract and the quasi-contract claims in the alternative. But this latter assertion is unpersuasive. Where an express contract is conceded, as it is here, a plaintiff may not proceed also on a quasi-contract theory because it is foreclosed by the very existence of the express contract.
Under New York law, a claim for negligent misrepresentation requires (1) carelessness in imparting words, (2) upon which others were expected to rely, (3) and upon which they did act or failed to act, (4) to their damage.
Defendants argue that plaintiffs have not alleged the type of "special relationship" necessary for a negligent misrepresentation claim because plaintiffs were ordinary buyers and defendants were ordinary sellers. Plaintiffs, in contrast, argue that a special relationship existed here because of defendants' expertise and superior knowledge about Russian art.
Although plaintiffs allege that defendants had superior knowledge about the paintings, courts in this district have stated that "[a]llegations of superior knowledge or expertise in the art field are per se insufficient to establish the existence of a fiduciary relationship."
Beyond the fact that the negligent representation claim fails because plaintiffs have not alleged that a special relationship existed between the parties, the claim cannot survive because it is not pled with the specificity required by Rule 9(b). When a negligent representation claim, like this one, is based on the same facts as a fraud claim, it is subject to the heightened pleading standard of Rule 9(b).
Accordingly, plaintiffs' negligent misrepresentation claim fails as a matter of law.
A claim for rescission based on mutual mistake requires, inter alia, that "both parties. . . shared the same erroneous belief as to a material fact, and their acts did not in fact accomplish their mutual intent."
Defendants argue that plaintiffs cannot plead that both parties shared the same erroneous belief while, at the same time, asserting that defendants fraudulently induced them into purchasing paintings that allegedly were not authentic and overpriced. In response, plaintiffs contend that they are allowed to plead claims in the alternative pursuant to Rule 8(d)(2), which states that "[a] party may state as many separate claims or defenses as it has, regardless of consistency."
Although the presence of fraud and mutual mistake claims in the same complaint may be inconsistent because it "impl[ies] that the mistake was not mutual . . . [p]laintiffs are certainly not prevented from pleading in the alternative that . . . they also entered into . . . agreements under [a] mistaken impression . . . ."
For the foregoing reasons, AP's cross-motion for leave to amend [DI 16] is granted, the proposed second amended complaint is deemed served this day, and the defendants' motion to dismiss the first amended complaint is deemed applicable to the second amended complaint. Defendants' motion to dismiss [DI 11] is granted as to the second, third, fourth, fifth, sixth, and seventh claims for relief and so much of the first claim for relief as seeks recovery for alleged breach of an express warranty with respect to the fair market value of the paintings, all as set forth in the second amended complaint. The motion is denied in all other respects.
As it is not clear that plaintiffs are incapable of alleging fraud with regard to the claims about the authenticity of the four allegedly forged paintings, the dismissal of the third, fourth, and seventh claims is without prejudice to the filing, on or before December 12, 2011, of an amended complaint alleging fraud claims with respect to the authenticity of those four paintings.
SO ORDERED.