Monday, October 13, 2008

A Minor Update

Lee Rosenbaum had an update on Friday on Halsey Minor's battle with Sotheby's. Minor has filed an answer and counterclaim to Sotheby's breach of contract action in the Southern District of New York, and he's also filed a class action complaint in federal court in San Francisco. (Sotheby's has moved to enjoin the California lawsuit.) In both venues, he makes essentially two arguments:

1. The first is that Sotheby's didn't adequately disclose its economic interest in the work in the auction catalogue. (It had served as collateral for a loan to the consignor, Ralph Esmerian.) Sotheby's takes the position that the relevant New York City regulations do not require that such disclosure be made on a lot-by-lot basis: all that must be disclosed is the general practice of making loans to consignors. They say this interpretation was specifically blessed by the NYC Department of Consumer Affairs.

2. The second argument is that, separate and apart from the specific requirements of the regulations, Sotheby's had in this case "disguised itself as a sincere and honest art adviser to [Minor], while in reality acted as a self-profiter." The argument here is that, over time, Minor had formed a relationship with an employee in Sotheby's American Paintings Department in which she acted as his "art consultant and purchasing agent." Minor says he came to trust her, and "relied on her to provide him with honest advice in his dealings in the art market." Yet she too concealed from him the fact that Sotheby's had an interest in the subject painting.

One odd note, for all the talk of non-disclosure, is that, as Lee points out, Sotheby's interest in the painting had been mentioned in articles in the New York Times and Bloomberg (and perhaps other publications). Carol Vogel's widely-read "Inside Art" column on April 18 began: "The tumultuous saga of the jeweler Ralph O. Esmerian, who owes some $187 million to Merrill Lynch, $11.5 million to Sotheby’s and $7.5 million to Christie’s, continues. He is scheduled to pay down a chunk of his Sotheby’s debt on May 22 when that auction house sells his Edward Hicks painting 'The Peaceable Kingdom With the Leopard of Serenity.'" It continued: "When he took out loans, starting in 2005, to purchase the Fred Leighton retail jewelry business, ... he used his art and jewelry as collateral. He stopped making payments in the fall, and [Sotheby’s] decided to sell the Hicks painting." Esmerian himself was quoted as saying,"We believe that the proceeds will satisfy the loan. But if there is a remaining balance, Sotheby’s will give us over a year and a half to pay them back." If you accept any kind of efficient market hypothesis for art, it's hard to believe that information wasn't fully absorbed into the price of the work.