The Big Apple Bites Back

After only three weeks of evidence in the U.S. District Court, Southern District of New York for the ongoing Accent Delight International Ltd. et al v. Sotheby’s et al civil fraud trial, lawyers for both sides delivered their closing arguments on January 29, 2024. At mid-afternoon the next day, and a short five hours of deliberation, a New York jury returned a verdict for Sotheby’s on all causes of action, siding with the art giant in this dramatic legal dispute. Though Rybolovlev sought close to $190 million in damages from the art house, he will see none of it and neither will Sotheby’s. In what Tim Schneider from The Art Newspaper calls a “silver lining” for Rybolovlev, the judge ruled that “Sotheby’s remains responsible for its own (undoubtedly significant) legal bills for defending itself in court.” 

Last spring, New York Southern District Judge Jesse Furman ruled that Sotheby’s must “face fraud-related claims on private sales made on four works.” At the time, though the judge ended up dismissing a large part of the plaintiff’s (Rybolovlev’s) complaint, he opened up the door to jury trial, about which both plaintiff and defendant were optimistic as a means to finally settle the score. Now that the trial has concluded, however, it seems that the plaintiff is not as excited as he was a year ago. In his statement, Daniel Kornstein, the lawyer for the Rybolovlev family trust, echoed similar assertions that his client made during cross-examination, that there should be “greater transparency in the art market.” Kornstein said that “this case achieved our goal of shining a light on the lack of transparency that plagues the art market. That secrecy made it difficult to prove a complex aiding and abetting fraud case. This verdict only highlights the need for reforms, which must be made outside the courtroom.”

Sotheby’s statement, on the other hand, expressed their joy for the decisive verdict and emphasizes their pride in the ways in which they conduct their business: “Today’s ruling reaffirms Sotheby’s long-standing commitment to upholding the highest standards of integrity, ethics and professionalism in all aspects of the art market. We are grateful to the jury for its verdict, which totally vindicates Sotheby’s of any alleged misconduct…Throughout the trial, there was a glaring lack of evidence presented by the plaintiff and, as has been clear from the beginning, Sotheby’s strictly adhered to all legal requirements, financial obligations and industry best practices during the transactions of these artworks. The plaintiff’s misrepresentations about Sotheby’s and the art market were resoundingly rejected, and Sotheby’s will continue to serve as a trusted market leader and source of expertise.”

Now that the case is over, let’s review the main claims. 

Between 2003 and 2014, Rybolovlev paid Yves Bouvier, a Swiss art dealer, close to $2 billion for 38 art works, including 13 that were purchased through private transactions with Sotheby’s. Rybolovlev’s legal team claimed that, in that time period, “Bouvier pocketed the sum by buying famous artworks from Sotheby’s before selling them to Rybolovlev at marked up prices.” Originally, Rybolovlev sued for damages for over 15 pieces of art, but many of his claims were dismissed by a judge last spring. Only four artworks were the subject of this trial, which was the result of a civil lawsuit filed in 2015, including da Vinci’s Salvator Mundi, Magritte’s Le Domaine d’Arnheim, Klimt’s Wasserschlangen II, and Modigliani’s Tête.

Rybolovlev filed legal actions against Sotheby’s and Bouvier in various countries across the world, including Singapore, Hong Kong, Geneva (for gang fraud and money laundering), Monaco, and, most recently, New York, but the Russian oligarch and Bouvier settled their 9-year legal feud in December 2023.

During this trial, in which Bouvier is not a party, Sotheby’s sustained that they had, and continue to have, no knowledge of Rybolovlev’s dealings, saying that they are not liable for anything Bouvier may or may not have done, or may or may not have said during the exchange. Sotheby’s lawyer, Sara Shudofsky, told the 10 person jury that Rybolovlev was “trying to make an innocent party pay for what somebody else did to him” and that the auction house “had no knowledge of and didn’t participate in any misconduct.” 

Emails between Samuel Valette, the current head of private sales at Sotheby’s, and Bouvier were presented as evidence to the court by the plaintiff’s lawyers, as they focused on Valette’s “mind-set” in the exchanges during the trial. Zoe Salzman, who gave the closing argument for the plaintiff, made it clear that Valette was “in on the con” and that Sotheby’s did nothing to enforce their ‘so-called’ strict “appraisal criteria.” Sotheby’s lead counsel for the closing argument, Marcus Asner, focused on the fact that Bouvier “lied to Mr. Rybolovlev repeatedly,” but confidently asserted that “Bouvier is not here,” alleging instead that Rybolovlev launched his campaign against the art house to “make somebody else pay.”

According to Larry Neumeister from AP News, in his testimony, Rybolovlev “blamed murky practices in the blue-chip art world for leaving him damaged financially.” This begs the question, can murkiness even be considered a plausible argument for civil, or even art, fraud?

Fraud is almost impossible to prove in a court of law. In the State of New York, there are specific criteria one’s actions must meet in order to even be considered fraud. According to the Pitcoff Law Group, in order to prove fraud, the following legal requirements must be met: material misrepresentation, knowledge of falsity, intent to deceive, justifiable reliance, and damages. Let’s break these categories down. 

‘Material misrepresentation’ is a form of lying on a substantive matter. This means that the party—typically the defendant—promised, made a false statement, or omitted facts that would have changed the plaintiff’s actions had he or she known the whole truth. In short, “the party accused of fraud made a false statement or concealed a material fact.”

‘Knowledge of falsity’ is self-explanatory: the plaintiff must prove that the defendant knew that the statement they made was false or that they consciously made it to avoid the truth. 

‘Intent to deceive’ is another self-explanatory requirement. The United States Department of Justice defines intent to deceive as a statement made “knowingly and willfully” with “an intent to deceive, a design to induce belief in the falsity or to mislead.”

‘Justifiable reliance’ means that the plaintiff “relied on the false statement or concealment of material fact [of the defendant] in making a decision that resulted in harm.”

Finally, ‘damages’ includes any harm that the plaintiff suffered as a result of the defendant’s concealed statements and omitted truths.

So, which of the above requirements of civil fraud did Sotheby’s conduct fulfill? According to the main elements of a civil fraud case, none! Remember, Rybolovlev did his business dealings with Bouvier, not Sotheby’s, so the claim that Sotheby’s aided and abetted the dealings falls short. Sotheby’s just happened to be the party that employed Valette to sell the paintings to Bouvier, or rather Blancaflor Investments, who later sold them to Rybolovlev. Thus, it wasn’t Sotheby’s that made the false statement about the just prices of the works, it was Bouvier. (Interestingly enough, during his own testimony, Valette said that he was disappointed by the amount that Bovier paid for the works, noting that he had no knowledge of the sale to the Russian.) Sotheby’s had no knowledge of the falsity—Valette testified that he issued his “valuation after it had been agreed upon by other Sotheby’s specialists.” The defendant’s lawyer also proved that Sotheby’s had no intent to deceive. There was no justifiable reliance on Rybolovlev’s statement, since he was only working with Bouvier, not Valette or Sotheby’s. Finally, the ‘damages’ that the plaintiff suffered, which he claimed were $190 million, could have been made up for by the whopping $450 million that he sold Salvator Mundi for at a Christie’s auction in 2017.

Furthermore, the center of interest in Asner’s closing argument was “reasonable reliance,” which The Art Newspaper defines as “whether it was reasonable for a party alleging fraud (in this case, Rybolovlev) to have trusted the accused fraudster (Bouvier) in light of the available evidence.” He argued that as it was not reasonable for the Russian to have trusted his dealer, no fraud occurred. Asner also called out Rybolovlev and the head of his trust, Mikhail Sazonov, saying that even though they “surrounded themselves with lawyers and accountants at every turn,” it was interesting that they did not do the same for his interactions with Bouvier. During testimony, it turns out that Rybolovlev and Sazonov “never asked to see any sales contracts with the sellers of the works acquired by Accent Delight and Xitrans, and Rybolovlev never checked to see if Sazonov had indeed executed a contract with Bouvier to act as his agent,” until after he had spent $2 billion. Asner also pointed out that “it was unreasonable for a businessman of Rybolovlev’s stature to have forgone any due diligence during the 12 years he acquired works from Bouvier, to never formalize the alleged agent/principal relationship, or to confirm where his money was going and to whom he was buying from.” 

Thus, in order for the jury to have decided that Sotheby’s was guilty of civil fraud, there were three things that opening statements, testimony, and closing arguments needed to prove: 1) that Bouvier committed fraud; 2) that Sotheby’s aided and abetted Bouvier in committing the fraud, and 3) that Rybolovlev suffered damages as a result. If all three were true, then Sotheby’s could have been found liable for aiding and abetting. But as the jury delivered their verdict, Sotheby’s was cleared of all charges.

Even though Sotheby’s received a “favorable outcome” in this trial, the auction house suffered a different kind of loss, since “much of their internal workings and business practices were laid bare during the trial,” as Daniel Cassady from ArtNews writes. The question of how auction houses work behind the scenes, especially the ways in which they make their private sales, has been a hot topic of inquiry for years. This case has opened the door for this much needed transparency, but it’s unclear if Sotheby’s and other auction houses will continue, or even put policies in place, to be transparent in their dealing. 

Thanks to Sotheby’s definitive win in this case, the trial did not have “a tumultuous effect on the art market, potentially opening the floodgates for other claims against intermediaries.” Nevertheless, the ways in which they handled their private art sales and object appraisals—such as marking up art prices, secretive negotiations between the art house and their clientele, and taking advantage of slippery market prices, among others—were laid bare, which is not ideal in such a high-profile case. In a statement given to the Art Law Center by Arnold & Porter LLP, lawyers for Sotheby’s wrote that “we are pleased with the jury’s verdict, which validates our client Sotheby’s deep commitment to integrity in the fine art market. The verdict fully absolves Sotheby’s of any alleged misconduct.” In what could have been a catastrophic ending to this case, it seems that the jury found more credence in Sotheby’s arguments in claims. As Asner said of Bouvier and Rybolovlev in his closing, “they’re playing with a con man, they know they’re playing with a con man and they got conned.”

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(Cover Image: Dmitry Rybolovlev, the Russian oligarch and plaintiff in Rybolovlev v. Bouvier, CNBC)