Sept. 17 (Bloomberg) -- Gallery owner Larry Gagosian is accused in two lawsuits, including one brought by billionaire Ron Perelman over a $4 million sculpture named “Popeye,” of using his position in the art world to negotiate secret deals, push clients around and manipulate prices for contemporary works.
Gagosian “took advantage of his position of trust” to force his longtime friend Perelman to buy “Popeye,” a granite sculpture of the cartoon character by Jeff Koons for $4 million, Perelman said in his Sept. 12 suit in New York State Supreme Court in Manhattan.
Collector Jan Cowles filed a suit in January in the same court claiming Gagosian sold a 1964 Roy Lichtenstein painting “Girl in Mirror” without her consent. Gagosian is accused in the suits of fraud, breach of fiduciary duty and unjust enrichment. Perelman’s suit includes a breach-of-contract allegation.
Both collectors claim that Gagosian, whom Perelman describes in his suit as “the most powerful dealer in the contemporary art world,” withheld important information about the sales to enrich himself. The suits also spotlight the behind-the-scenes sales negotiations at galleries, particularly Gagosian Gallery Inc., which represents artists including Damien Hirst, John Currin, Takashi Murakami and Pablo Picasso at 11 galleries in Europe, Asia and the U.S. Gagosian will open its 12th location next month in Le Bourget, a northeastern suburb of Paris.
Both Gagosian Gallery and Larry Gagosian declined to comment on the plaintiffs’ accusations. The gallery filed its own case -- its first suit against a client, it said -- against Perelman the same day in the same court, alleging he failed to pay an agreed-upon price after delivery of a sculpture and a painting and refused to meet a payment schedule for an unfinished sculpture.
“There’s a certain level of informality in the art market that is not helpful to any of the parties. It allows confusion and breeds disputes,” said Thomas Kline, an attorney at Andrews Kurth LLP in Washington who specializes in art law and isn’t involved in the cases.
“Dealers have to be very careful about making sure that their clients understand who they represent and what their responsibilities are. All of this should be spelled out in the contract,” Kline said.
In October 2008, Gagosian accepted the Lichtenstein on consignment from Charles Cowles, Cowles’s son and an art dealer whose gallery was located on the same block as Gagosian on Manhattan’s West 24th Street, according to Cowles’s suit.
A contract between Gagosian and Charles Cowles on Oct. 10, 2008, stated that Cowles would receive “not less than $2,500,000 net, if the piece sold,” according to the suit. Lawyers for Jan Cowles contend that she hadn’t given her son permission to sell the painting, which depicts a blond woman laughing as she gazes at her reflection in a handheld mirror.
Gagosian showed the work at Frieze Art Fair in London in October 2008 and at Art Basel in Switzerland in June 2009, according to the complaint.
In January 2009, Deborah McLeod, senior director of Gagosian in Los Angeles, offered the painting for $3.5 million to Thompson Dean, co-chief executive officer of Avista Capital Partners, a New York-based private equity firm, according to court documents, with the asking price pegged to a $4 million auction sale in 2007 of another work in the “Girl in Mirror” edition of eight.
In June 2009, Charles Cowles announced he was closing his gallery. The following month McLeod e-mailed Dean, stating “seller now in terrible straits and needs cash. Are you interested in making a cruel and offensive offer? Come on, want to try?” according to the suit.
When Dean offered $2 million, McLeod responded “that’s approximately half price, so I like it!” according to a transcript of her July deposition as part of Cowles’s lawsuit. The transcripts of the depositions of McLeod and John Good, who left the Gagosian gallery this spring after 13 years, were attached to a letter Cowles’s attorney sent to state Supreme Court Justice Charles Ramos, who is overseeing the case.
McLeod explained in the deposition that she meant the price was fair, considering the weak market of 2009. “I like it, market is off about half, this is about half price, I like it,” she said, according to the transcript.
On another occasion, she e-mailed Dean, “You paid full prices for a number of things, and I would love to see you work a bargain like this into the aggregate!” according to the transcript.
Both Good and McLeod said it was appropriate for the gallery to represent both the seller and the buyer in the same transaction without telling either party, according to transcripts of the depositions.
When asked at her deposition if she worked on behalf of the seller, McLeod responded, “I am representing the seller and the buyer and my gallery and the brand and myself and everybody,” according to the transcript.
When asked if she believed there was anything wrong with acting as an agent for both the buyer and the seller without disclosing it to either side, she responded “No,” according to the transcript.
Gagosian’s “practice of representing buyers and sellers on the same transaction is particularly troublesome as it presents a clear conflict of interest for the gallery which owes a fiduciary duty to the consignor as a selling agent,” David Baum, a partner at SNR Denton LLP who represents Cowles, wrote in the letter to the judge. “Countless sellers are consigning works to Gagosian without any knowledge that the gallery may be secretly acting against their interests.”
Good, who was a director at Gagosian in New York and is now senior vice president, private sales, at Christie’s auction house, said in his deposition that it’s common for dealers to represent both sides of a transaction.
“I think it’s a standard in the industry to do that at any time,” he said, according to the transcript. “That’s what dealers do.”
“I stand by what I said,” Good said in a telephone interview on Sept. 14. McLeod didn’t respond to several telephone messages or e-mails on Sept. 14 seeking comment on her deposition testimony.
Lawyers for Gagosian asked Ramos to strike Baum’s letter and the two depositions from the file.
While Baum “selectively paraphrases from the deposition transcripts he gratuitously attaches to his letter to allege that other witnesses admitted to improper conduct, any full reading of those transcripts clearly demonstrates that they did no such thing,” Brian Dunefsky, a lawyer at Withers Bergman in New York who represents Gagosian, wrote in a letter to the judge.
The gallery convinced Charles Cowles to accept $1 million for the Lichtenstein while earning a $1 million commission on the sale from Dean, who paid the $2 million he offered, according to court papers.
Dean, through a spokeswoman, declined to comment on Cowles’s lawsuit.
In the Perelman case, Gagosian failed to tell the chief executive officer of MacAndrews & Forbes Holdings Inc. 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 fully paid for, according to Perelman’s suit.
“Such information would have materially and substantially altered plaintiffs’ view of the transaction, as these secret contract provisions detrimentally affected Gagosian’s ability and willingness to repurchase or resell Popeye above the price paid by plaintiffs,” Perelman said in his suit. “Given Gagosian’s role as Koons’ representative and the foremost dealer in Koons’ work, such restrictions effectively crippled plaintiffs’ ability to resell Popeye at its fair market value.”
Buying and selling through a dealer has practical advantages because the gallery typically prepares an artwork’s provenance and handles its shipping to art fairs and private viewings around the world, said Wendy Cromwell, a New York-based art adviser.
Well-known dealers have contacts beyond an individual’s list of colleagues and friends; the dealer’s name adds cachet and legitimacy to a sale and offers the client privacy, she said.
“It’s odd for a private collector to resell something and let the world and his contacts know that he’s doing it,” said Cromwell. “When it comes from the dealer, it’s anonymous.”
Christine Taylor, a spokeswoman for Perelman, said in a Sept. 12 statement that “Gagosian has used his dominance of the market for contemporary art to enrich himself at the expense of his customers.” Perelman declined to comment further on the lawsuit, she said.
The gallery said in its complaint against Perelman that on Jan. 6, it entered into a contract with him for a sculpture by an unidentified artist for $12.6 million that was delivered June 8 to Perelman’s home in East Hampton, New York. Perelman offered a “much lower sum” than was agreed upon in addition to pieces of art from his collection, the gallery said in the complaint.
Perelman also refused to pay for a $10.5 million painting by another contemporary artist that he had asked the gallery to acquire and that was delivered to his home, according to the gallery’s complaint. He also refused to return the artwork, again offering pieces from his collection in exchange, according to the complaint.
“The gallery offered to take the painting back and Perelman refused, taunting the gallery to sue him,” Gagosian said in the filing.
Perelman agreed to trade some artworks including the Koons sculpture, the completion of which was delayed and wouldn’t be delivered on the agreed-upon date of Dec. 15, 2011, in exchange for the unspecified painting, according to Perelman’s suit.
Perelman said in his suit that he “had no ability at that time to obtain a better price for “Popeye” from another dealer due to Gagosian’s position as the premier dealer” in Koons’s work. He also said he wasn’t allowed to sell or obtain the title to the work until it was delivered by the gallery.
Gagosian, in turn, said Perelman’s actions have cost the gallery millions of dollars, forced it to pay the artists out of its own capital and forgo commissions, according to its complaint. Gagosian is seeking the original purchase price of the sculpture and the painting, minus the net sales price of any of the bartered pieces from Perelman’s collection that were sold, and to return the works that haven’t been sold.
Larry Gagosian has been a friend and a “constant and trusted art adviser and mentor” for more than 20 years to Perelman, according to Perelman’s complaint.
The two are business partners outside the art world, having invested in the Blue Parrot restaurant in East Hampton, Perelman said in his complaint.
Perelman is ranked 63rd in the Bloomberg Billionaires Index with a net worth of $13.1 billion.
“The gallery prides itself on its relationships and has never sued a client in its over 30 years of business,” Gagosian said in the complaint. “Such suits are damaging to clients, to artists and to the artworks themselves, often causing negative publicity.”
The cases are Gagosian v. Perelman, 653181/2012; MAFG Art Fund LLC v. Gagosian, 653189/2012; Cowles v. Gagosian, 650152/2012, New York State Supreme Court (Manhattan).
To contact the reporter of this story: Katya Kazakina in New York at email@example.com.