Friday, July 03, 2009

Art Buyer's Antitrust Claims Against Art Foundation, Authenticator Survive Dismissal

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

An art buyer's claims that the only two entities authenticating art works by Andy Warhol acted in concert to artificially restrict competition in the market for authentic Warhols sufficiently alleged a conspiracy or an attempt to monopolize, the federal district court in New York City has ruled.

While the buyer was barred from pursuing claims based on his own art purchase, owing to expiration of the statute of limitations and a lack of antitrust injury, he could seek damages arising from his inability to sell a painting because of the defendants' declarations that the work was a forgery. The defendants' motion to dismiss was granted in part and denied in part.

The complaining buyer asserted that the scheme had the effect of raising the prices of Warhol works held by one of the entities—The Andy Warhol Foundation for the Visual Arts, a not-for-profit charitable trust with considerable holdings of Warhol's works—and of ensuring that galleries and museums chose only the works owned by the Foundation so as to limit the risk that their authenticity would later come under attack.

Twombly Standard

The buyer's factual allegations in support of his antitrust claims satisfied the Twombly plausibility standard, the court found. These allegations included charges that the authentication board made unsolicited suggestions to owners of purported works to submit those works for authentication, that its authentication policies were inconsistently applied and allowed it to reverse prior determinations when doing so would further the conspiracy, and that it had denied the authenticity of works that its associates had previously authenticated or which the Foundation had been unable to purchase.

Further, the buyer averred facts indicative of anticompetitive conduct with a specific intent to monopolize and a dangerous probability of achieving monopoly power, the court stated.

Antitrust Injury

The complaining buyer did not suffer antitrust injury arising from the alleged price-inflationary aspects of the defendants' conspiracy, but could have been injured by the denial of authentication of his artwork—and the authentication board's double-stamping of “denied” on the work itself, the court said.

He did not buy the work at issue from the Foundation, and nowhere in his complaint did he claim that the work was ever sold by the Foundation or recognized by the authentication board as authentic. Therefore, his claims had to be dismissed to the extent that they were based on allegations that the defendants' actions artificially raised prices for Warhol works.

However, the buyer's assertions that the defendants' actions prevented him "from competing as a seller in the lucrative market for authentic Warhols" were sufficient to frame an antitrust injury, according to the court.

Statute of Limitations

Even if the complaining buyer had alleged antitrust injury from his inflated purchase price, such a claim was barred by the statute of limitations. The buyer bought the painting 18 years prior to filing suit and alleged no facts warranting a finding of fraudulent concealment that would defeat the limitations bar, the court explained.

He was not, however, precluded from pursuing claims based on the defendants' later denials of authentication—and, thus, the exclusion from the market for authentic Warhol works—even though the original denial occurred five years prior to the lawsuit.

The buyer alleged sufficient facts to invoke the continuing conspiracy exception based on the second denial, which occurred within the limitations period. The second denial was not a mere reaffirmation of the first, in the court's view. The defendants not only permitted, but encouraged, him to resubmit the painting with additional documentation. Thus, he could have suffered additional, distinct injury as a result of the second denial, the court found.

False Advertising

Letters by the defendants that allegedly fraudulently denied the authenticity of the painting could constitute false advertising in violation of Sec. 43(a) of the Lanham Act, the court decided. Although a statement of opinion was not actionable under the Lanham Act if it could not reasonably be seen as stating or implying provable facts about a competitor's goods or services, it was not clear, at this stage of the case, that the authenticators' letters were mere statements of opinion.

The decision is Simon-Whelan v. The Andy Warhol Foundation for the Visual Arts, Inc., 2009-1 Trade Cases ¶76,657.

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