Perelman vs Gagosian

By Felix Salmon
September 17, 2012
lawsuit against Larry Gagosian to have much real substance to it.

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Ron Perelman might be the single most notoriously litigious billionaire in the world, and so it’s probably a bit much to expect his latest lawsuit against Larry Gagosian to have much real substance to it. But what’s fascinating, reading the vast amount of news and commentary on the suit, is just how many people are taking it at face value. Even when they can’t agree on what that face value is.

What’s undeniable is that Perelman agreed to buy an as-yet-unfabricated Jeff Koons sculpture for $4 million. But was that a fair price? Emma Brockes, in the Guardian, says that $4 million was “an amount it didn’t turn out to be worth”, while Page Six says that Gagosian had “fraudulently undervalued” the sculpture at that price.

It’s easy to see why they’re confused: the Perelman complaint is inherently confusing. For one thing, there’s the torture it goes through trying to persuade itself that Larry Gagosian was acting as a fiduciary on behalf of Perelman:

The potent combination of Gagosian’s unparalleled knowledge and dominant position in the art world, along with the parties’ longstanding friendship, Gagosian’s position of trust in advising Plaintiffs regarding art acquisitions and value, handling consignments of works owned by Plaintiffs, and bidding for works of art on Plaintiffs’ behalf, made Gagosian a fiduciary of Plaintiffs.

This is all very silly: you don’t become a fiduciary because you’re friends, or because you’re knowledgeable, or any of these other reasons. In fact, the whole point of buying work from primary dealers like Gagosian is that they act as middlemen, on behalf of both the artists and the buyers. Gagosian was representing Koons; he had as much of a responsibility to Koons, if not more, than he had to Perelman.

Then there’s the whole question of the value of the sculpture. Perelman wants to have his cake and eat it, here: he’s basically saying that the sculpture was worth millions of dollars more than the $4 million he paid for it, but that at the same time he was somehow forced to sell it for just $4.25 million. By far the funniest part of Perelman’s complaint is where he says that “upon information and belief, the value of works by Koons increase as delivery dates draw close and can sometimes double in value shortly after delivery”.

This, in a nutshell, is Perelman’s case: when he bought the piece in 2010, he bought it at a fair price of $4 million, but when he bartered it back to Gagosian in 2011, it was worth much more than that, and Gagosian should have given him much more than $4.25 million in credit for it.

Of course, no one was forcing Perelman to barter the piece. As Gagosian’s suit lays out, Gagosian would much have preferred to be paid cash for the pieces that Perelman bought, rather than being paid in bits and pieces of other art, including the Koons sculpture. Perelman is rich enough to be able to find a couple of million dollars if he needs it; it was entirely his choice to part with the Koons at this particular valuation.

The reality of what happened here is that Perelman agreed to buy the Koons sculpture, on an installment plan. The sculpture was delayed — as many, if not most, Koons sculptures are. At that point, Perelman had a choice: he could wait for the sculpture to arrive, at which point he would own it, or he could ask for his money back. He chose the latter — and, in fact, Gagosian paid him an extra $250,000 for good measure.

What Perelman wanted to do — and what Gagosian wouldn’t let him do — was flip the sculpture, for much more than he paid for it, before it had even been fabricated. Finding himself unable to do that, he ended up taking Gagosian to court.

Now Gagosian, as Koons’s dealer, can get up to those kind of tricks: he reveals in his own suit (check out paragraph 36, on page 8) that he did indeed sell the as-yet-unfabricated Koons sculpture to someone else as soon as he got it back from Perelman. I wouldn’t be at all surprised if the sale price was significantly more than $4.25 million.

Perelman, here, basically wants to be able to get those extra millions. But he doesn’t know who Gagosian sold the sculpture to, and he doesn’t know how to sell unfabricated sculptures, and so he feels forced to go through Gagosian when he wants to sell his Koons. If he really knew the art market, he could have entered into a contract to sell the sculpture, as soon as it arrived, to any third party he wanted. But instead, he let it go, at more or less the price he paid for it. Because, although he’s a very rich man, he’s no art dealer.

Hidden between the lines of these suits is the invidious idea that contemporary art can and should rise in value extremely sharply, and that the people buying that art can and should make a large cash profit when they sell it. The truth, of course, is that it’s the dealers who make the large cash profits, because it’s the dealers who have all of the priceless information about which buyers are in the market for which works at any given time.

Collectors like Perelman want to free-ride on the work the dealers do, and they get upset when they aren’t able to. They’d be much happier if they just bought art they loved, at a price they were comfortable with, and didn’t try to make money at the same time. But then again, if they were that kind of person, they probably wouldn’t be billionaires.

Larry Gagosian, more than any other individual in the history of the world, has perfected the art of selling to billionaires. A large part of that sales pitch, I reckon, involves explicit or implicit talk about the rate at which the value of the art he’s selling is going to rise in the future. In that sense, the Perelman lawsuit is just Gagosian’s own rhetoric coming back to bite him: Perelman is asking for just recompense when he sells a work which has gone up in value since he bought it.

But this particular suit, I have to say, is utterly ridiculous, and will almost certainly get thrown out of court.

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4 comments so far

“This is all very silly: you don’t become a fiduciary because you’re friends, or because you’re knowledgeable, or any of these other reasons.” (FS)

Ah .. this should be good – yet another thread where non-lawyers tell us all about the fine points of the laws.

** starts popcorn **

Posted by MrRFox | Report as abusive

The previous post is written like a true lawyer unable to recognize intelligence beyond their own profession.

I’ll take button on my popcorn, please!

Posted by Twinkbait | Report as abusive

As you wish, Twinky, but – “button’?? I’m going with extra-butter – hope you’re not on a diet or concerned about heart disease or anything.

OBTW: Posting here kinda reminds me of tossing a bottle with a message into the ocean – you can only wonder.

Posted by MrRFox | Report as abusive

Here – you all can decide for yourselves how ‘open-’n-shut’ this case is –

“In Wolf, this is the California Court of Appeals definition:

A fiduciary relationship is “‘any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter’s knowledge or consent. . . .’” (Herbert v. Lankershim (1937) 9 Cal.2d 409, 483; In re Marriage of Varner (1997) 55 Cal.App.4th 128, 141; see also Rickel v. Schwinn Bicycle Co. (1983) 144 Cal.App.3d 648, 654 [“‘A “fiduciary relation” in law is ordinarily synonymous with a “confidential relation.” It is . . . founded upon the trust or confidence reposed by one person in the integrity and fidelity of another, and likewise precludes the idea of profit or advantage resulting from the dealings of the parties and the person in whom the confidence is reposed.’”].)”

Posted by MrRFox | Report as abusive
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