What Art World Players Can Learn from the Knoedler Fraud Scandal
Whether you’re already a successful artist or gallery owner or doing your best to get there, understanding the legal issues of warranty and due diligence are essential to shielding yourself from devastating lawsuits that could dramatically affect your career or business. When it comes to appreciating just how grave these tricky legal doctrines can be, no greater cautionary tale exists than the currently pending case against one of New York’s most prominent galleries, Knoedler.
Dominating international headlines and causing quite a stir in the art world, Knoedler is currently facing several multi-million dollar lawsuits for their alleged role in the sale of a collection of forged artworks. The case is especially alarming considering Knoedler’s reputation in the community: As one of New York’s oldest galleries, founded in the mid-1800s, Knoedler enjoyed a reputation as a prominent blue chip gallery peddling certified master works. But something went terribly wrong in the early 2000s, when Knoedler came across an obscure collection of works by celebrated contemporary Abstract Expressionist painters like Jackson Pollack and Mark Rothko. According to the complaint filed by plaintiffs Domenico and Eleanor De Soles, Knoedler vís a vís its gallery director Ann Freedman, knowingly sold over $60 million worth of fraudulent artwork.
Whether Knoedler was actually aware that the paintings were fraudulent remains to be decided. But its important for artists and gallery owners that Knoedler’s fatal errors center around warranty claims and a lack of due diligence regarding the provenance and authenticity of the work. According to the facts alleged in the complaint, Knoedler and Freedman were offered the works on consignment by Gladifir Rosales, a relatively unknown art dealer who claimed that the paintings owner wished to remain anonymous. Rather than conduct an extensive investigation into whether or not these paintings were authentic and had sufficient documentation and a trail of ownership to prove it, Knoedler and Freedman accepted the works, paying far less for the paintings then they knew they could sell them for.
Rosales needed the backing of a reputable art gallery if she was going to sell these paintings, and Knoedler put its name on the line to help her do so. Even if Knoedler had no idea that the paintings were forged, they’re still on the line for the millions of dollars lost by collectors who purchased the fakes. Why? Because Knoedler breached its express warranty to its customers in failing to perform their due diligence regarding the provenance of the paintings.
Artists and Gallery Owners Alike Are Held to Warranty on Artworks
What is an express warranty? According to the Uniform Commercial Code, an express warranty is “any affirmation or promise of fact made by the seller to the buyer that relates to the goods and becomes part of the basis of the bargain.” Those affirmations or promises can include a description of the goods, a sample of the goods, or anything that contributes to the seller’s willingness and desire to purchase the item. It’s not necessary for the seller to use formal language such as “warrant” or “guarantee” – merely making factual statements about the goods creates an express warranty.
What does that mean for artists and gallery owners? In the Knoedler case, the plaintiffs allege that Freedman made express statements concerning the authenticity of the work, and the plaintiffs, as buyers, wholly trusted Knoedler’s statements. That Freedman and Knoedler had no idea that the paintings were forged is irrelevant, because once a seller expressly states a fact concerning a good, the burden of due diligence – of being positive that what you’re saying is true – falls on the merchant.
As artists, a warranty claim in your work usually involves guaranteeing that the product you produce will be in accordance with best practices in industry standards and that the work will be free from defects and third party intellectual claims. So a photographer hired to shoot a wedding warrants that he will deliver photos that are typical of “industry standards” according to his size, experience, and location. For example, an amateur photographer who charges $2,000 to shoot a wedding in Kansas with mid-range equipment won’t be held to the same standards as one who charges $10,000 in New York using a top-of-the-line camera. The best way artists can warrant their work is to show potential clients their past work, so they can have an idea of the quality and caliber of the work. Documenting your process is also critical if you’re to avoid any warranty claims in the future. Always list out in contracts exactly what you intend to deliver to the client, and exactly what rights they have to such photos. And if a client demands any kind of changes mid-production, if you decide to use different equipment, or if you change direction, its important to leave a paper trail to dispel later any warranty claims against you.
All gallery owners need to understand that express warranty claims exist whenever they made factual representations concerning a work. If you tell a potential buyer that a painting is authentic, and make certain statements regarding the provenance of the work, then you need to be completely sure that this information is correct. When it comes to provenance for selling artworks, this means that you can produce a complete list of owners (together, where possible, with the supporting documentary proof) from when the painting was commissioned or in the artist’s studio through to the present time. In some instances, galleries may opt to include warranty clauses that relieve them of any guarantees about the work, asserting that the work is sold in “as is” conditions and as such, all sales are final. But such a clause would only free the gallery from a warranty claim if the gallery properly conducted its due diligence in the sale of the work.
Due Diligence Standards for Gallery Owners
Like artists, gallery owners are held to express warranty of the artwork they sell, and this can vary from gallery to gallery. Obviously, a smaller gallery may have an easier time ensuring the authenticity of a still-living, relatively unknown artist. In those instances, performing your due diligence is fairly easy – visit the artist’s studio, understand his process, notarize certificates of authenticity, and hold the artist himself to a warranty that the work is free of any third-party claims of copyright infringement. But larger galleries dealing major works of art, especially those peddling works by deceased artists, need to walk a very thin line when it comes to thoroughly conducting their due diligence. A huge aspect of ascertaining the authenticity of artwork, and the damning component for the Knoedler gallery – is the artwork’s provenance.
According to the International Foundation for Art Research, the provenance of a work of art is “a historical record of its ownership, and an indicator of economic and market conditions influencing the sale or transfer of the work of art.” An ideal provenance history would provide a documentary record of owners’ names; dates of ownership, and means of transference, i.e. inheritance, or sale through a dealer or auction; and locations where the work was kept, from the time of its creation by the artist until the present day. Unfortunately, such complete, unbroken records of ownership are rare, and most works of art contain gaps in provenance. Bu the more information you have on an artwork, the better the chances are that you’ve conducted your due diligence.
It’s important to note that the crucial aspect of overcoming a claim of warranty is being able to prove that you’ve done your due diligence. As long as you’re taking (and documenting) tedious steps towards finding the origin and authenticity of a work, then you will likely be free from any kinds of claims regarding a breach of your warranty as a gallerist.