A Look at Art Experts' Liabilities

By John Dratz Jr.
     
A thriving international art market has led to an equally robust industry of art authenticators and appraisers. But as recent court cases illustrate, people holding themselves out as such experts may face liability under an increasing number of theories when their opinions are challenged.
      Authenticating and appraising a work of art are separate but related processes. Authentication, also known as attribution, is the act of establishing or confirming that something is authentic?that the claims made by or about the object are true. In the fine art world, authentication may involve confirmation that a sculpture or painting was indeed made by the stated artist or that the artwork is original, not a copy or an altered version. By contrast, appraising a work of art consists of establishing its value once it has been authenticated.
      There are many situations in which a piece of art should be authenticated. For example, a prudent buyer and seller should have a solid foundation upon which to judge a work of art's legitimacy before selling or exchanging it. And an owner who wants to display artwork in a show needs to be confident that it is genuine. Also, an owner who wants to make a gift of artwork to a museum or charitable foundation may need to establish its value for any possible tax deduction. (See I.R.C. § 170(a).) Or maybe all the owner wants is bragging rights?the ability to say with confidence that he or she owns a particular artist's work.
      The artist also has an interest in having his or her identity established regarding artwork. In addition to the intrinsic value associated with having created the artwork, an artist in California is entitled to compensation every time the work is resold. (Cal. Civ. Code § 986(a)(1).) In addition, an artist whose work is altered or destroyed without his or her permission has the right to be compensated for it, even though the artist no longer owns the work. (Cal. Civ. Code § 987 and following.)
     
      ELEMENTS OF AUTHENTICATION
      Authenticity may be established in a variety of ways. One method is through historical reference to a piece of art in a reputable publication. Section 1341 of the California Evidence Code sets forth a basis for using art books as evidence of "facts of general notoriety and interest" as an exception to the hearsay rule when made by "a person indifferent between the particular parties" in a dispute. Of particular interest is the catalogue raisonné, which is a compilation of all of a particular artist's known work. If a piece is included in the catalogue raisonné, that goes a long way toward establishing its authenticity?and if a work is not included in the catalogue, that is a good indication it is not genuine. (Kirby v. Wildenstein, 784 F. Supp 1112 (1992).) However, most artists, especially recent ones, have no catalogue raisonné published on their work.
      Provenance, or an established chain of custody, is another major factor in establishing artworks' authenticity. ("Getting to the Truth of Authentication," by Theresa Franks, fineartreg istry.com, 12/17/2006.) This concept was dramatically depicted in the recent documentary Who the #$&% Is Jackson Pollock?, in which a retired truck driver from Costa Mesa purchases an unsigned painting in a thrift shop for $5, then attempts to authenticate it as a work by Pollock. If authenticated as an original Pollock, the painting was estimated to be worth more than $50 million. Unfortunately, the purchaser was not able to definitively establish the provenance from the time Pollock allegedly produced it to its appearance at the thrift shop.
      In proving the authenticity of a painting or other artwork in court, factors come into play that are very similar to those used in the art world. For instance, if the painting is signed, the signature could be authenticated under California Evidence Code section 250, which defines a "writing" to include words or symbols recorded on any tangible thing. When there is no signature, physical evidence such as the type of paint used in a painting or the stone used in a sculpture can be subjected to expert analysis and opinion.
      This type of scientific analysis was used by experts to authenticate the kouros ancient marble sculpture that was purchased by the Getty Museum for $7 million in the 1980s and later determined to be a forged copy. According to the three-prong test established by the California Supreme Court in People v. Kelly (17 Cal. 3d 24 (1976)), evidence of a scientific test will not be admitted unless competent authorities recognize its scientific basis and reliability, as established by expert testimony. Furthermore, expert opinion as defined broadly in the Evidence Code applies in the context of a legal dispute regarding the authenticity or value of artwork. (Cal. Evid. Code § 801; Fed. R. of Evid. 702; Weller v. American Broadcasting Cos., Inc., 232 Cal. App. 3d 991 (1991).)
      It is well settled that an object's value can be established by expert testimony and through a variety of writings from different resources, even if the evidence used in establishing the expert's opinion was derived from information offered by others. (See Cal. Evid. Code § 813 and following; Glantz v. Freedman, 100 Cal. App. 611 (1929).)
      Because of rampant unauthorized reproduction of multiples of fine art such as prints, photographs, and cast sculpture, California has a statutory scheme aimed at reducing this type of fraud. One requirement is a "certificate of authenticity," which requires an extensive set of disclosures to the buyer. (Cal. Civil Code §§ 1740(j), 1742, and 1744.) However, such certificates themselves are also susceptible to forgery and alteration. The authorizing statute includes injunctive relief, and civil penalties and civil penalty surcharges of up to $1,000 each for each violation. (Cal. Civil Code § 1745.5.) These penalties are in addition to any criminal liability that a seller may have for fraud or misrepresentation.
     
      TORT LIABILITY
      The relationship between the authenticator or appraiser and the client, whether the buyer or seller of a work of art, gives rise to an affirmative duty of care on the part of the appraiser or authenticator. Potential legal liability is commonly found under varied tort theories.
      Trade libel. An action for trade libel, or disparagement of quality, is available in California against a person who has made false statements about a piece of art that have reduced its market value. (See Rest. 2d, Torts § 626.) To prevail in an action for trade libel, the statement must be false (Leonardini v. Shell Oil Co., 216 Cal. App. 3d 547 (1989)) and the plaintiff must prove special damages in the form of pecuniary loss (Guess, Inc. v. Superior Court, 176 Cal. App. 3d 473 (1986)). If the defendant's statement imputes dishonesty or incompetence, the plaintiff is not limited to a suit for pecuniary damages but may sue for defamation as well. (Rosenberg v. J.C. Penny Co., 30 Cal. App. 2d 609 (1939).)
      Lawsuits based on this theory are not new. In 1920 a prominent art dealer in New York offered an opinion that a work attributed to Leonardo da Vinci, La Belle Ferroniere, was one of hundreds of copies, causing the sale of the painting to the Kansas City Art Museum for approximately $250,000 to fall through. The dealer was sued for disparagement and eventually settled by paying $60,000 and court costs. The dealer arrived at his allegedly disparaging opinion after viewing a photograph of the painting, then professing that it was a copy of a painting hanging in the Louvre.
      Ironically, when the painting was again placed on the market in 1985, it was again determined to be a copy, causing the estimated value of the painting to fall by $75 million. (Hahn v. Duveen, 234 N.Y.S. 185 (1929); "Expert Opinions and Liabilities," by Ralph E. Lerner and Judith Bresler, Art Law, 2d ed. p. 472.)
      In disparagement actions claiming special damages, the amount of loss sustained must be specifically identified, as well as the customer whose business was lost because of the alleged disparagement. (Kirby v. Wildenstein, 784 F. Supp. 1112 (1992).)
      Defamation. Defamation actions protect the aggrieved party's name as opposed to his or her purely economic interests. As with disparagement, the statement must be false and published to a person other than the plaintiff. The defamatory statement must also be of a purported fact that can be objectively verified. Thus, a television news report implying that an art dealer knowingly sold stolen candelabra to the de Young Museum is a defamatory statement capable of being objectively determined to be true or false. (Weller v. American Broadcasting Cos., Inc., 232 Cal. App. 3d 991 (1991).)
      As in other actions based on defamation, the public or private nature of the matter affects the burden of proof. Artists as a rule assume the status of public figures by placing their art in the public eye, and to prevail a plaintiff would be required to prove that the defendant's statement regarding the artist was "substantially false." (Weller, 232 Cal. App. 3d at 1010.) However, if the allegedly defamatory statement centered on a private matter-such as a purely contractual relationship between artists or between artists and dealers-then the defendant would have the burden of proving its truth. (See Polygram Records, Inc. v. Superior Court, 170 Cal. App. 3d 543 (1985).)
      Negligence. The most common theory on which to base a case against an art authenticator or appraiser is negligence. Such claims require proof that the defendant failed to provide a reasonable level of care to a plaintiff to which it was owed. This duty could arise from a contractual relationship between the plaintiff and the authenticator or appraiser in a number of different situations.
      An authenticator's or appraiser's statements may affect the market for the artwork and the potential tax implications of donating it. For example, if a tax deduction is taken for donating a painting based on the assertion that the painting was by an established artist when in fact it was painted by someone less prominent, then the IRS may find the deduction has been overstated, sometimes fraudulently.
      And in valuing an estate, if an authenticator devalues a piece of art based on an erroneous opinion regarding the artist's identity, then the tax basis of the art for estate tax purposes has been underestimated and must be adjusted.
      Fraud. An action based on fraud requires that the expert render a knowingly false opinion of the work of art. A motivation could include the fact that the expert was being paid a commission or fee based on the value of the work?an arrangement the IRS discourages, as it does not recognize a charitable deduction appraisal in which such a fee structure is used. (26 C.F.R. § 1.170A-13(c)(6)(i).)
     
      CASE IN POINT
      A recent Montana case illustrates some of the various tort theories available to plaintiffs attorneys who believe their client has been damaged by an erroneous authentication opinion. (Seltzer v. Morton, 2007 MT 62 (2007).) The case involved the authenticity of a painting originally attributed to the artist Charles M. Russell. Russell was one of the premier western artists of the 20th century, whose individual paintings sell for more than a million dollars, depending on size. The painting at issue was Lassoing a Longhorn, a watercolor measuring 16½ by 22¾ inches, bearing Russell's traditional signature and trademark. As suggested by its title, the painting depicts two cowboys mounted on horseback roping a longhorn steer.
      Steve Morton, the owner of the painting, sued art authenticator, painter, and appraiser Steve Seltzer, who opined that Lassoing a Longhorn was not painted by Russell, but by Seltzer's own grandfather, Olaf C. ("O. C.") Seltzer, Russell's contemporary. Seltzer's opinion and that of another authenticator, Ginger Renner, diminished the painting's projected value at auction by approximately $600,000. Both concluded that the signature was not genuine.
      Seltzer expressed his view that Russell and O. C. Seltzer's differences in style and technique were so apparent from looking at a photograph of the painting that there was no need for him to actually view the work. At trial, Seltzer made the same observations upon viewing the painting. Renner initially examined a transparency reproduction of the painting and rendered her opinion that it was plainly the work of O. C. Seltzer and that the signature had been altered. After seeing the painting, she stood by her opinion.
      After failing in their efforts to get Seltzer and Renner to withdraw their opinions regarding the authenticity of the painting, the owners of Lassoing a Longhorn filed almost identical federal lawsuits in Montana and Arizona against them. The complaint against Seltzer alleged defamation (knowingly publishing false statements with the intent to damage the owners and to defame the painting and the owners' reputations for honesty and fair dealing), intentional interference with business relations and prospective economic advantage (falsely claiming that the painting was not authentic with the intent to damage the ability to sell it), and negligence (recklessly or carelessly challenging the authenticity and provenance of the painting and failure to recant his opinion when presented with evidence that the painting was not forged). The complaint sought declaratory relief that the painting was an authentic Russell, injunctive relief to prevent Seltzer from publicly asserting that the painting was not a Russell, and damages including attorneys fees and punitive damages.
      After extensive discovery, the case against Seltzer was dismissed with prejudice pursuant to the parties' stipulation that the owners could not prevail on the merits. In support of the underlying motion for summary judgment, Seltzer's attorney filed affidavits from ten individuals, including Seltzer and Renner, who had expertise in evaluating works by Russell and O. C. Seltzer. These experts were unanimous in their opinion that the painting was not an authentic Russell. The parallel lawsuit against Renner in Arizona was also dismissed.
      Ultimately, the authenticator, Seltzer, was able to substantially rehabilitate his reputation after suing the owners of the painting, and the lawyer and law firm that filed the suit, based on malicious prosecution and abuse of process. After a jury verdict for Seltzer, the district court awarded him more than $9.9 million dollars. (Seltzer v. Morton, 2007 MT 62 (2007).)
     
      John Dratz Jr. (jdratz@sbcglobal.net), a private practitioner with offices in San Diego and Los Angeles, focuses on white-collar crime, criminal defense in health care, false-claims act litigation, and professional administrative licensing actions.
     
      Certification The Daily Journal Corp., publisher of California Lawyer, has been approved by the State Bar of California as a continuing legal education provider. This self-study activity qualifies for Minimum Continuing Legal Education credit in the amount of one hour of general credit.
     

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