Martin Hilti Family Trust v. Knoedler Gallery, LLC

Citations: 137 F. Supp. 3d 430; 2015 WL 5773895Docket: Nos. 13 Civ. 0657(PGG), 13 Civ. 1193(PGG), 13 Civ. 3011(PGG)

Court: District Court, S.D. New York; September 30, 2015; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Plaintiffs allege that they purchased forged paintings from Knoedler Gallery, LLC, and have named multiple defendants, including 8-31 Holdings Inc., Michael Hammer, Ann Freedman, Glafira Rosales, and Jose Carlos Bergantinos Diaz. The Martin Hilti Family Trust and Frances White have added Jaime Andrade, Jesus Angel Bergantinos Diaz, and artist Pei-Shen Qian as defendants. Plaintiffs claim that Knoedler sold nearly forty forgeries attributed to renowned Abstract Expressionist artists and assert that the defendants were aware of the forgeries as early as October 2003 but continued selling them. Legal claims include violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), fraud, fraudulent concealment, aiding and abetting fraud, fraud conspiracy, deceptive trade practices, false advertising, breach of warranty, and mutual and unilateral mistake. Defendants Knoedler, Freedman, Hammer, 8-31, and Hammer Galleries LLC have filed a motion to dismiss these claims under Federal Rule of Civil Procedure 12(b)(6). Historical context shows that prior to its closure, Knoedler was a prominent art gallery, with significant purchases made by plaintiffs, all of which are now alleged to be forgeries. The paintings were sourced from Rosales, who was introduced to Knoedler by Andrade, despite previous associations with forged artwork.

Rosales presented a series of purported Richard Diebenkorn paintings to Knoedler, claiming they were acquired from the Vijande Gallery in Madrid. However, these works were actually created by Qian, with Rosales and the Diaz brothers involved in their fabrication. Shortly after their arrival at Knoedler, experts from Diebenkorn’s family expressed doubts about their authenticity. Despite this, Knoedler and Freedman sold the paintings between 1994 and 1998 without verifying Rosales's provenance or disclosing these concerns.

In 1996, Rosales claimed to have access to a collection of works by renowned Abstract Expressionist artists, allegedly owned by a Mexican man whose identity she kept secret. She described this collector, referred to as “Mr. X,” as having acquired the artworks directly from the artists during business trips to the U.S. in the mid-20th century. After Mr. X and his wife passed away, their uninterested children sought to sell the paintings anonymously. Rosales lacked any documentation to support her claims, stating that all related paperwork was destroyed by Mr. X's daughter. 

In truth, the paintings were purchased by Rosales and Jose Carlos Bergantinos Diaz from Qian, who had been living in Queens. Diaz met Qian in the late 1980s, and from the early 1990s through the 2000s, Diaz and his brother compensated Qian to produce artworks mimicking the styles of famous artists.

Jose Carlos Bergantinos Diaz supplied Qian with paints, canvasses, and materials to create forged artworks, adding aging techniques to enhance authenticity. The Knoedler Gallery began trading in Abstract Expressionist paintings claimed to be from Mr. X’s collection, known as the Rosales Paintings, starting with a purported Rothko bought for $225,000 in December 1996. Freedman subsequently acquired this Rothko in an even trade. In 1997, Knoedler purchased another Rothko for $150,000 and resold it for $360,000 within a month. A prospective buyer canceled a purchase of two Rosales Paintings after being informed that Knoedler would not disclose the original collector's identity. The provenance for these works was listed as a private collection in Mexico. 

On June 18, 1998, Rosales informed Freedman about five Abstract Expressionist works available for sale, later acquiring more than five additional works from Rosales, including pieces by notable artists. During the meeting, Rosales provided background on Mr. X and claimed that his collection had been acquired directly from the artists, with no intermediaries mentioned. Knoedler sold the previously canceled Rothko to another client with a revised provenance stating it was acquired directly from the artist. Following further discussions, Knoedler acquired at least twenty-three Rosales Paintings, purchasing them at significantly lower prices than later market sales, while using parts of Rosales' provenance story supplemented with fabricated details. Freedman referred to Mr. X as the “Secret Santa.”

Rosales exclusively presented the Rosales Paintings to Knoedler and another gallery owned by Julian Weissman, a former Knoedler employee. In 1999 or early 2000, Freedman inquired if Mr. X had acquired the Rosales Paintings through Alfonso Ossorio, a deceased Abstract Expressionist artist. Rosales later confirmed to Freedman that Mr. X, Jr. stated his father relied on Ossorio’s advice during the purchase. Knoedler staff sought to validate this claim but found no supporting evidence. Despite this, starting in December 2001, Knoedler began to reference Ossorio in discussions of the paintings' provenance, which the Taubman Plaintiffs argue is unusual for art dealers regarding provenance documentation.

In March 2001, Knoedler bought a painting claimed to be a Jackson Pollock from Rosales for $750,000 and sold it to Jack Levy for $2 million later that year. The invoice attributed the painting’s provenance to Ossorio and a Swiss private collection. The sale was contingent upon a favorable review by the International Foundation for Art Research (IFAR). However, on October 9, 2003, IFAR rejected the painting’s authenticity and raised significant doubts about its provenance, noting that the artist's signature was questionable and that the painting's style did not align with Pollock’s techniques. IFAR also remarked that it was implausible the work had been owned by Ossorio without being included in Pollock's catalogue raisonné. Consequently, the sale to Levy was rescinded, and Knoedler refunded him. Freedman subsequently informed Hammer about the IFAR report and the cancellation of the sale.

Hammer thoroughly reviewed the IFAR report, which raised concerns about the authenticity and authorship of the Green Pollock painting, noting its high regard in the art world. He advised against selling the Green Pollock until further clarification was obtained. Despite the negative findings of the IFAR report, David Mirvish decided to co-invest in the artwork, with Hammer insisting that he receive a copy of the report prior to his investment. However, Hammer, Knoedler, and Freedman failed to provide the IFAR report to potential buyers of Rosales Paintings, nor did they disclose that the report questioned the authenticity and provenance of a painting brought to the gallery by Rosales.

Following the issuance of the report, Hammer, Knoedler, and Freedman altered their narrative regarding the provenance of the Rosales Paintings, introducing David Herbert as the adviser for Mr. X instead of Ossorio. Freedman instructed Rosales to update the provenance information for other dealers. Buyers of Rosales Paintings were not informed of the repeated changes to the provenance story. Freedman maintained a "Rosales File" containing internal memos that documented these changes, attempted to refute suspicious facts, and strategized on how to handle threats to the narrative. After adopting the new provenance story involving Herbert, Freedman created a document attempting to connect Herbert to the artists of the Rosales Paintings, though no evidence was found to substantiate Herbert's involvement in their acquisition.

Freedman sought confirmation from the de Kooning Foundation regarding a connection to Herbert but found no supporting information. In April 2000, Plaintiff White purchased a purported Jackson Pollock painting, "Untitled 1949," from Knoedler Gallery for $3.1 million, after being assured by Freedman of its authenticity and provenance. Knoedler had acquired the painting for $670,000 just months earlier, yielding a nearly 400% profit. An appraisal from Knoedler valued the painting at $3.5 million shortly after the sale. However, when White attempted to sell the painting through Christie’s in 2011, the auction house declined, noting its absence in the Pollock catalogue raisonné, a fact that Knoedler and Freedman allegedly concealed. After repeated inquiries, Knoedler’s Director informed White they were not interested in acquiring the painting and refused to disclose provenance details, citing confidentiality. A forensic examination later revealed that the paint used in the artwork was commercially unavailable until 1973, contradicting its claimed creation date.

In a separate transaction, Rosales consigned a Rothko painting to Knoedler in May 2001, which Knoedler later purchased for $750,000 in January 2002. The painting was exhibited in Switzerland before Michael Hilti of the Martin Hilti Family Trust purchased it for $5.5 million in November 2002, marking a more than sevenfold increase from Knoedler's purchase price. Freedman provided differing provenance accounts to Hilti, with the final invoice stating it was acquired directly from the artist, maintaining the narrative of legitimacy.

In May 2012, Michael Hilti contacted Freedman regarding allegations of Knoedler's involvement in a scam. Freedman assured Hilti that his Rothko painting was genuine and attributed Knoedler's sudden closure to a "divorce issue." Hilti later had the Rothko analyzed, revealing that it contained paint from the 1960s, inconsistent with its claimed 1956 creation date. 

On December 22, 2004, Knoedler bought a purported Clyfford Still painting for $600,000 from Rosales, later exhibiting it at a New York art show in February 2005. Eugenia Taubman, trustee of the Arthur Taubman Trust, engaged with Freedman at the show, who provided a detailed provenance for the painting, including its alleged history and a claim of its creation in 1949. 

Taubman negotiated a purchase price of $4.3 million, which was finalized in October 2005. Freedman signed a letter of agreement on November 7, 2005, asserting the painting's authenticity and promising to provide full provenance documentation. However, Taubman later claimed that Knoedler and Freedman failed to disclose critical information about the painting, including Knoedler's ownership, the lack of evidence supporting the provenance, and concerns about the authenticity of other works associated with Rosales. Additionally, it was revealed that funds from the sale had been sent to Diaz’s brother in Spain.

On November 15, 2005, Taubman transferred $4.3 million from a Trust account to Knoedler's account, leading to the delivery of a painting to Taubman in Bucharest in December 2005. Knoedler realized a gross profit of $3.7 million, reflecting an 86% profit margin. In summer 2011, following allegations of forged art involving Freedman, Nicholas Taubman began investigating the purchased painting. By December 2012, he engaged forensic conservator James Martin, whose analysis revealed artificial discoloration and pigments not available until after 1949, raising concerns about the painting's authenticity.

Separately, in December 2007, the Dedalus Foundation, tasked with creating a Robert Motherwell catalogue raisonné, examined several paintings sold by Rosales to Knoedler and Weissman. The Foundation identified significant anomalies, concluding it was highly unlikely these works were authentic Motherwells and decided not to include them in the catalogue. The Foundation notified Freedman and Knoedler of its findings, asserting that the “Elegy” works were likely forgeries. Subsequently, Freedman requested an urgent meeting regarding these concerns, but it did not occur, and Knoedler failed to inform buyers of the Foundation's conclusions. Following this, Knoedler commissioned Orion Analytical to conduct forensic testing on two of the questioned paintings. Orion's preliminary report indicated discrepancies in materials suggesting the paintings could not have been created in the 1950s, as claimed by Rosales.

On October 24, 2008, Freedman informed Rosales about issues raised by the Orion report concerning the dating of certain artworks and requested Rosales to obtain further information from Mr. X, Jr. regarding tangible evidence of the transactions. By November 7, 2008, Rosales clarified that the original owner had acquired artworks off the record between the late 1940s and 1964, directly from artists’ studios during business trips to New York.

In September 2009, the U.S. Attorney’s Office began investigating the defendants' activities, leading to grand jury subpoenas for Freedman and Knoedler about the sale of Rosales paintings. On October 16, 2009, Freedman was fired by Hammer, although public statements characterized it as a resignation. Hammer subsequently informed Knoedler customers, including Taubman’s art adviser, that Freedman had resigned, without disclosing the connection to authenticity issues regarding Rosales paintings. Hammer ordered that all remaining Rosales paintings be marked as “not for sale” and instructed employees to refrain from discussing them with outsiders. Knoedler's records indicated that the sale of Rosales paintings had been crucial to the gallery's profitability, with profits of approximately $30 million from 1994 to 2011, and a potential loss of over $3 million without those sales. Following the halt in selling Rosales paintings, the gallery became unprofitable.

In November 2007, Freedman and Knoedler sold a purported Jackson Pollock for $17 million to Pierre Lagrange, claiming it was from a private Swiss collection and had been directly acquired from the artist. Freedman asserted that David Herbert acted as an intermediary and that the painting would be included in an updated catalogue raisonné. However, a 2011 forensic analysis revealed the painting was a forgery, containing a red pigment that became available only after the alleged creation date, which also appeared in other disputed works purchased by Hilti and White.

On November 29, 2011, Lagrange submitted a forensics report to the Knoedler Gallery and requested a refund of the purchase price. The following day, the gallery announced its permanent closure despite recent renovations and an ongoing exhibition. On May 20, 2013, Rosales was arrested and charged with tax fraud and related crimes, accused of selling over 60 forged paintings to prominent Manhattan galleries, including Knoedler. Rosales pled guilty on September 16, 2013, to multiple charges including mail and wire fraud and money laundering, admitting to collaborating with others to sell falsely represented artworks and acknowledging that certain forged paintings were created by Pei-Shen Qian with assistance from the Diaz brothers. On March 31, 2014, Qian and the Diaz brothers were indicted for their involvement in the forgery scheme.

Procedurally, on May 1, 2014, the Martin Hilti Family Trust filed an amended complaint against multiple defendants including Knoedler Gallery and individuals associated with it, alleging various claims such as substantive RICO violations, deceptive trade practices, fraud, aiding and abetting fraud, and unjust enrichment. Defendants subsequently moved to dismiss these claims. Similarly, on April 29, 2014, White filed an amended complaint against several parties, including Knoedler Gallery and Rosales, asserting similar causes of action.

Fraud and fraudulent concealment claims have been filed against Knoedler, Freedman, Hammer, and 8-31. Additionally, aiding and abetting fraud and conspiracy claims target Hammer and 8-31. Substantive RICO and RICO conspiracy claims apply to all defendants. Breach of express and implied warranty claims and violations of Section 13.01 of the New York Arts and Cultural Affairs Law are also asserted against Knoedler, Freedman, Hammer, and 8-31. Claims of unilateral and mutual mistake are directed at Knoedler, Hammer, and 8-31. Furthermore, deceptive trade practices and false advertising claims under New York General Business Law Sections 349 and 350 are raised against Knoedler, Freedman, Hammer, and 8-31. Defendants Knoedler, Freedman, Hammer, and 8-31 Holdings have moved to dismiss these claims under Federal Rule of Civil Procedure 12(b)(6).

The Taubman amended complaint includes these causes of action and must meet the plausibility standard for claims to survive a motion to dismiss, as established by Ashcroft v. Iqbal and Bell Atlantic Corp. v. Twombly. The court is to accept all facts alleged in the complaint as true and draw reasonable inferences in favor of the plaintiff. A complaint may be deemed inadequately pled if it includes bare assertions without factual enhancement. The court can consider the complaint’s allegations, attached documents, and documents incorporated by reference when evaluating the motion to dismiss. If documents are not incorporated by reference but are integral to the complaint, the court may still consider them.

A district court may utilize public records to decide a motion to dismiss under Rule 12(b)(6), focusing on the statements contained within those documents rather than their truth (Mangiafico v. Blumenthal, 471 F.3d 391, 398; Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 75). Under Rule 9(b), which governs fraud claims, a plaintiff must detail the fraudulent statements, identify the speaker, and explain the circumstances surrounding the fraud with specificity (Kottler v. Deutsche Bank AG, 607 F.Supp.2d 447, 462). 

In the case at hand, White purchased a forged Pollock in April 2000. However, Knoedler Gallery, LLC and 8-31 Holdings, Inc. were not formed until 2001. Both entities seek dismissal of claims against them for insufficient allegations of successor liability. The court agrees with 8-31's motion, as White has not provided sufficient facts to establish it as a successor to any entity from 2000. Conversely, the court finds that White has adequately alleged that Knoedler is a successor to the entity that sold the forged artwork, asserting that Knoedler operates as a mere continuation of earlier entities. White claims that Knoedler Gallery, LLC is the successor-in-interest of M. Knoedler & Co. and/or Knoedler-Modareo, Inc. Further allegations indicate that Hammer, as the sole member of Knoedler, has been the beneficial owner since 1990, while Freedman managed Knoedler from 1994 to 2009. Knoedler is registered as a Delaware LLC with its principal business in New York.

In federal question cases, federal courts utilize a federal-law choice of law analysis to determine the applicable substantive law, guided by the principle of applying the law of the jurisdiction with the greatest interest in the litigation. When exercising supplemental jurisdiction over state claims, federal courts adopt the choice-of-law rules of the forum state. For New York, the initial step is to identify any conflicts between the laws of involved jurisdictions. If a conflict exists, courts apply the law of the jurisdiction with the most significant relationship to the dispute.

In this context, both New York and Delaware law are generally aligned regarding successor liability, which states that a business acquiring another's assets typically does not inherit the seller's liabilities unless specific exceptions apply. The exceptions include: (1) express assumption of the debt, (2) fraud in the transaction, (3) a de facto merger, and (4) the successor being a mere continuation of the predecessor. This case focuses on the last two exceptions.

Under New York law, a de facto merger entails factors such as continuity of ownership, cessation of the acquired business, assumption of necessary liabilities, and continuity of management and operations. Notably, not all elements are required to establish a de facto merger. Delaware law similarly requires that one corporation transfers all its assets to another to qualify as a de facto merger.

Payment must be made in stock directly issued by the transferee to the shareholders of the transferring corporation, with the transferee assuming all debts and liabilities of the transferor, as established in *SungChang Interfashion Co. v. Stone Mountain Accessories, Inc.*. Under both New York and Delaware law, continuity of ownership is essential for proving a de facto merger, but the interpretation differs. New York requires only that shareholders of the selling corporation hold an indirect interest in the assets, while Delaware mandates a direct ownership interest in the successor corporation. In the case at hand, it is unclear whether the shareholders of M. Knoedler and Knoedler-Modarco, Inc. acquired a direct interest in Knoedler Gallery, LLC, as White's complaint suggests Hammer controls these entities but does not clarify the ownership structure of Knoedler Gallery, LLC. If shareholders only gained an indirect interest, this would not fulfill Delaware's continuity of ownership requirement. However, the court finds that White has sufficiently alleged successor liability under the mere continuation exception, which applies when the corporate entity itself continues, not just the business. This exception requires a common identity of directors and stockholders, with only one corporation existing post-transfer. New York law will be applied, as there is no conflict regarding the mere continuation exception.

A legal exception for successor liability applies when there is a shared identity of directors and stockholders between a predecessor and successor entity, and when the predecessor transfers its assets, business location, employees, management, and goodwill. The rationale is that if a corporation undergoes a mere change in form without a substantial change in substance, it should remain liable for its obligations. In this case, it is alleged that Knoedler Gallery, LLC is a continuation of its predecessor, with Hammer maintaining control over operations and Freedman retaining her leadership roles. The facts presented support a claim of successor liability under the "mere continuation" theory, as the predecessor and successor shared office space, employees, and management, suggesting the successor was created to evade liability.

Additionally, defendants Hammer, Hammer Galleries, and Freedman contend that the statute of limitations has expired on all claims against them, including fraud and breach of warranty claims. The statute of limitations for civil RICO claims is established as four years.

The "injury discovery" rule in RICO cases establishes that a plaintiff's cause of action accrues when they discover or should have discovered their injury, as articulated in *Agency Holding Corp. v. Malley-Duff*. The limitations period for RICO claims does not commence until the plaintiff has actual or inquiry notice of the injury, with inquiry notice defined as the point at which a reasonable investor would find it probable that fraud occurred. Under New York law, fraud claims, including aiding and abetting fraud and conspiracy, must be brought within either six years from the cause of action's accrual or two years from discovery of the fraud. A person is on inquiry notice when circumstances indicate the likelihood of fraud, which imposes a duty of reasonable diligence. If a plaintiff fails to make inquiries once this duty arises, knowledge of the fraud will be imputed from that date. The determination of whether a plaintiff had sufficient facts for inquiry notice is generally not suitable for dismissal motions unless the necessary facts are evident from the complaint or judicially noticeable materials.

Inquiry notice under New York law applies when uncontroverted evidence indicates when a plaintiff should have discovered fraudulent conduct. A fraud claim can be dismissed under the two-year discovery rule if there is evidence of a duty to inquire that was not fulfilled. If facts suggest fraud to a reasonable person, failure to investigate can bar the claim if it is not filed within the statutory period from the point of inquiry notice. The determination of inquiry notice is made using an objective standard.

Defendants argue that the statute of limitations for Hilti’s RICO and fraud claims began when Hilti purchased the disputed Rothko in 2002, citing visible problems with the artwork and a 2002 New York Times article indicating inaccuracies in the documentation provided by the seller, Freedman. They further reference a 2005 article that raised questions about the artwork's provenance, suggesting that Hilti should have sought an independent authenticity opinion or contacted experts mentioned by Freedman. 

Under New York law, the statute of limitations for fraud claims is either six years from the fraud's occurrence or two years from when the plaintiff discovered or could have discovered it, whichever is longer. Since more than six years had passed since the alleged fraud prior to Hilti's complaint, the case hinges on whether Hilti discovered or should have discovered the fraud. Hilti asserts it was not aware of the alleged fraud until May 2012, when reports suggested Knoedler's involvement in fraudulent activities.

Michael Hilti engaged a forensic art analyst to assess a purported Rothko painting, which was determined to be a forgery. Hilti subsequently filed a lawsuit on January 29, 2013. The legal discussion highlights the principle that if circumstances suggest to a reasonable person the likelihood of fraud, a duty to investigate arises. If a plaintiff fails to inquire, knowledge of the fraud may be imputed to them. Defendants argue Hilti should have been on inquiry notice due to the obvious forgery, a 2002 New York Times article revealing discrepancies in Freedman’s representations, and a 2005 article mentioning the original owner's acquisition through David Herbert. The court, however, found no legal basis to conclude that the painting's appearance suggested fraud, noting that Hilti purchased the artwork from Knoedler, a reputable gallery, which provided assurances of authenticity. Freedman supported this with written materials claiming the painting’s legitimacy, including a letter indicating its potential inclusion in a Rothko catalogue and a favorable New York Times article. An inspection also confirmed the painting's fine condition. Thus, the court concluded there was insufficient evidence in the Amended Complaint to suggest the forgery was apparent, and dismissed the defendants’ arguments regarding the New York Times article as frivolous, as it actually supported the painting's authenticity. Additionally, the court found that Oliver Wick's 2005 essay referenced a different forged Rothko, not the one purchased by Hilti.

Hilti had no reason to suspect the authenticity of a painting at the time of purchase and thus was not on inquiry notice, despite the availability of other experts. The court denied the defendants' motions to dismiss Hilti's RICO and fraud claims based on the statute of limitations, concluding that a reasonable plaintiff would not have been aware of fraud. In the case of the Taubman Plaintiffs, who filed suit on May 3, 2013, the alleged fraud occurred in November 2005 when they purchased a purported Clyfford Still painting. Their claims are timely only if filed within two years of discovering the fraud. The Taubmans claimed they only learned of the fraud in summer 2011, while defendants argue they were aware of potential fraud as early as 2007, linked to discussions about another painting with the same provenance. Defendants contended that the Taubmans received actual notice of fraud then, but the related documents were not included in the Amended Complaint and thus not admissible for the motions to dismiss. Additionally, defendants argued that the Taubmans’ knowledge of the lack of provenance and certification required an independent inquiry into authenticity, but they had provided extensive provenance information and represented that experts recognized the work as authentic.

Freedman, representing Knoedler, signed an agreement affirming the artwork's creation by Clyfford Still in 1949 and provided a favorable condition report from Cranmer Art Conservation. The defendants failed to show that the Taubmans had any reason to suspect the authenticity of their painting at the time of purchase. New York courts generally do not impose a duty to investigate fraud on a plaintiff who lacks suspicion. In a separate case, White filed a lawsuit on February 21, 2013, regarding a fraudulent Jackson Pollock purchase made on April 6, 2000. Her claims are only timely if filed within two years of discovering the fraud. White claims she became aware of the fraud on December 1, 2011, when another buyer's lawsuit revealed the forgery. The defendants argue that the statute of limitations should start from the 2000 purchase date, as a material omission regarding the artwork's absence from the Pollock catalogue raisonné was publicly available then. They contend that this omission put White on inquiry notice. However, the absence from the catalogue did not sufficiently indicate fraud, as White received extensive provenance information and relied on Knoedler's reputation. Defendants also assert White had actual knowledge of the catalogue issue by February 17, 2011, when Christie’s rejected the work for auction, but she did not file her claim until over two years later.

Defendants argue that the internal email from Christie’s is critical to establishing a February 17, 2011 date regarding White's allegations but failed to properly introduce this evidence in court. The email is neither attached to nor incorporated into White’s Amended Complaint, which is essential for consideration per case law. The court notes that merely having notice of the email does not suffice; it must be integral to the complaint. Therefore, it will not dismiss White's RICO and fraud claims based on the statute of limitations, as the complaint does not show she was aware of the relevant facts more than two years prior to filing.

Regarding claims of breach of warranty, mistake, and violations of New York General Business Law, various parties—including Knoedler, Freedman, and Hammer—contend these claims are time-barred. Specifically, under New York’s Uniform Commercial Code, claims for breach of warranty must be initiated within four years from the date of accrual, which occurs at the tender of delivery, or when a warranty extends to future performance, at the time of discovery of the breach. Thus, the limitations period typically begins upon delivery, irrespective of the claimant's knowledge of the breach.

Lack of knowledge regarding a defect does not affect the limitations period for claims. The statute of limitations for mistake claims under New York C.P.L.R. 213(6) is six years, beginning when the alleged mistake occurs. Claims under New York General Business Law §§ 349 and 350 have a three-year statute of limitations, accruing when the plaintiff suffers injury from a deceptive act. Unjust enrichment claims seeking monetary damages are also subject to a three-year limitations period under C.P.L.R. 214(3), while those seeking equitable relief have a six-year period. The limitations period for unjust enrichment begins with the wrongful act leading to restitution. 

Equitable tolling applies when a defendant's fraudulent conduct prevents a plaintiff from discovering a cause of action. For equitable tolling to be applicable, the plaintiff must demonstrate that the defendant concealed material facts that hindered discovery and that the plaintiff exercised due diligence in pursuing the claim during the relevant period.

Equitable estoppel may be invoked when a plaintiff is misled by fraud or misrepresentations, leading to a delay in filing a lawsuit, provided the plaintiff reasonably relied on those misrepresentations. The determination for tolling the statute of limitations hinges on whether the plaintiff had sufficient information to initiate a lawsuit, not necessarily all information required to win the case. Tolling is only applicable if the plaintiff demonstrates reasonable diligence and extraordinary circumstances.

In the case of Hilti, which purchased a painting from Knoedler and Freedman in 2002, the statute of limitations for various claims (breach of warranty, mistake, General Business Law, and unjust enrichment) expired between 2005 and 2008. Hilti filed its action in 2013, making the claims untimely unless equitable tolling applies. Hilti contends that such tolling is warranted due to Freedman's efforts to mislead them into believing they made a wise purchase by repeatedly describing the painting as a "fantastic Rothko." 

Additionally, Hilti argues that Freedman concealed critical information until May 2012, which included reasons for Knoedler’s closure, and that Knoedler intentionally misrepresented the painting's value. However, the court noted that Hilti's allegations of fraud and concealment were too general and lacked the specificity required to toll the statute of limitations. Mere silence or failure to disclose is insufficient for tolling. Furthermore, Hilti's claim regarding a subsequent attempt by Freedman to convince them to purchase another painting did not substantiate their request for tolling.

Freedman allegedly attempted to convince the Plaintiff to purchase the Lagrange Pollock by referencing a previous sale of a "fantastic Rothko," which Hilti argues constitutes new acts of misrepresentation related to the fraudulent scheme aimed at selling forged paintings. However, Hilti asserts that these misrepresentations do not warrant equitable tolling because they were made with the intent to sell additional forgeries, not to conceal prior fraud. For equitable tolling to apply, later fraudulent acts must be aimed at hiding earlier torts, as established in New York law. Hilti also claims that Defendants tried to mislead by laundering the “David Herbert” narrative through Oliver Wick, but it failed to demonstrate that any Hilti representative relied on Wick's article, which is necessary for asserting reliance on misrepresentations. New York law requires plaintiffs to show reasonable reliance on fraudulent statements and due diligence in filing claims to invoke equitable estoppel. Hilti's failure to demonstrate such reliance or due diligence means that the statute of limitations cannot be tolled under this doctrine.

To establish equitable estoppel, a plaintiff must show reasonable reliance on the defendant's misrepresentations and due diligence in pursuing a claim once reliance on the misleading conduct ends. Equitable estoppel is applicable when a plaintiff is unable to file a claim within the statute of limitations due to reliance on the defendant's fraud or deception. The court granted motions to dismiss claims related to breach of warranty, mistake, General Business Law, and unjust enrichment filed by Hilti due to the expiration of the statute of limitations for these claims.

White's claims, which include breach of warranty and General Business Law, are time-barred unless equitable tolling applies. White contends that the defendants concealed wrongdoing by not disclosing an IFAR report and continuing to sell forged paintings. However, mere silence or non-disclosure does not suffice for equitable tolling; affirmative actions by the defendant post-wrongdoing are needed. The court ruled that the defendants' continued sales do not constitute concealment of prior fraud, leading to the dismissal of White's claims.

Similarly, the Taubmans, who purchased a purported artwork in 2005, face the same statute of limitations issues with their breach of warranty, mistake, and General Business Law claims, which also expired before they filed their action in 2013. They assert that equitable tolling should apply, but the court's precedents suggest that without sufficient post-wrongdoing conduct by the defendants, their claims will likely be dismissed as well.

The Taubmans assert that Knoedler and Freedman failed to disclose two critical pieces of information: (1) evidence indicating that the Diebenkorns provided to Knoedler were not authentic, and (2) the Dedalus Foundation's assessment that Rosales’s “Motherwells” were “highly suspect” and unsuitable for inclusion in the Motherwell catalogue raisonné. However, their allegations do not meet the requirements for equitable tolling, which necessitates some conduct by the defendant following the initial wrongdoing; mere silence or failure to disclose is inadequate. The Taubmans also claim that Knoedler attempted to conceal its fraudulent sale by continuing business as usual with them, including negotiations over the Green Pollock from March to June 2007, during which Knoedler and Freedman did not inform the Taubmans of the IFAR report or changes in the painting's provenance. Despite these claims, the statements made were deemed insufficient for equitable tolling, as they were aimed at selling more works rather than hiding prior fraud.

Additionally, they allege that Hammer, as Chairman of Knoedler, sent a letter on October 27, 2009, to customers, including the Taubmans’ art adviser, announcing Freedman's resignation, which the Taubmans argue was intended to obscure any connection between the resignation and issues with the Rosales Collection. Nevertheless, the Taubmans did not demonstrate that they saw or relied on this letter, which is essential for establishing reasonable reliance necessary for equitable tolling. The requirement for reasonable reliance on misrepresentations is reinforced by legal precedents, indicating that without such reliance, the doctrine of equitable estoppel cannot be invoked. Consequently, the Taubmans have not substantiated a basis for tolling the statute of limitations under New York law, as they failed to show that their timely filing was impeded by reliance on Knoedler's alleged misrepresentations.

Due diligence by the plaintiff is vital for invoking the equitable estoppel doctrine, and the Taubmans' failure to assert knowledge of or reliance on Hammer’s October 27, 2009 letter precludes its application. Consequently, the motions to dismiss the Taubmans’ claims under General Business Law and their claims for mistake and breach of warranty by Knoedler and 8-31 are granted.

For a private cause of action under RICO, a plaintiff must demonstrate: 1) a violation of 18 U.S.C. § 1962 by the defendant; 2) injury to the plaintiff's business or property; and 3) causation linking the injury to the violation. An underlying RICO violation entails participation in an enterprise's affairs through a pattern of racketeering activity, defined under 18 U.S.C. § 1962(c). The plaintiff must allege that the defendant engaged in two or more acts constituting a "pattern" of racketeering and that these acts are connected to an enterprise affecting interstate or foreign commerce. 

Plaintiffs claim the defendants committed multiple acts of mail and/or wire fraud, which qualify as racketeering activity. To prove RICO claims based on these frauds, the complaint must detail a fraudulent scheme, establish that the defendant caused the mailing or use of wires, and demonstrate that these actions were integral to executing the scheme. Additionally, a RICO plaintiff must show that their injury was both a "but for" and proximate result of the defendant's racketeering, ensuring a direct link between the alleged conduct and the injury, avoiding claims that are too remote or indirect.

The case LLC v. City of New York establishes that a causation requirement is essential in RICO claims, as it becomes increasingly difficult to determine damages directly attributable to a violation when injuries are less direct. Hammer argues for the dismissal of RICO claims against him and Hilti due to inadequate allegations that he committed a predicate act, participated in the operation or management of the RICO enterprise, or caused injuries to the plaintiffs. The analysis of a RICO claim necessitates a clear understanding of the alleged enterprise, which can include any legal entity or a group of individuals associated together for a common purpose. The definition of an enterprise is broad, allowing for a wide reach under RICO. Importantly, the individuals involved in the enterprise, who commit predicate acts, are considered distinct from the enterprise itself, which possesses a separate existence. This distinction is crucial for determining liability under RICO, as the enterprise's existence is separate from its individual members.

An association in fact that qualifies as a RICO enterprise is defined as a separate entity rather than just a group of individuals. Plaintiffs allege that Knoedler and several defendants, including Freedman, Rosales, Hammer, 8-31, and the Diazes, collaborated to sell forged artworks. Specifically, Rosales and the Diazes produced the forgeries, Knoedler and Freedman marketed them, and Hammer, through 8-31, managed Knoedler and incentivized Freedman’s sales. All defendants reportedly profited from these fraudulent activities, with the enterprise allegedly selling nearly forty forged artworks worth approximately $60 million over more than a decade. The complaints claim sufficient duration, illegal purpose, and interrelationships among defendants to establish a RICO enterprise, as supported by relevant case law.

Furthermore, for RICO liability, a defendant must be shown to have participated in the enterprise's affairs, as noted in Supreme Court precedent. Hammer contends that the plaintiffs have failed to adequately allege his involvement in the RICO enterprise. The legal standard requires that a participant must engage in the operation or management of the enterprise, with courts generally applying a lenient standard at the pleading stage.

Hammer is identified as the president and sole beneficial owner of 8-31 Holdings, Inc., which owns Knoedler. He is directly responsible for the operations of Knoedler and has detailed knowledge of its financial status and compensation decisions for officer-level personnel. Hammer was aware that art dealer Glafira Rosales was delivering allegedly significant paintings to Knoedler, with no documentation of their provenance and that these works were claimed to be "newly discovered." He appointed Freedman as president of Knoedler, receiving updates on each sale of Rosales’s paintings. The mark-ups on these paintings were exceptionally high, with examples showing Knoedler purchasing a purported Rothko for $750,000 and selling it for $5.5 million, among other similar transactions. Such mark-ups, averaging 275%, are noted to be unusually high compared to typical gallery commissions of 10% to 20%.

Knoedler's repeated purchases of previously unknown artworks from art dealer Rosales, including pieces attributed to masters like Pollock, Rothko, and Still, at prices significantly lower than their market value, raised serious doubts about the authenticity of these paintings. Hammer, who was aware of Knoedler's profits from these sales, carefully read a critical report from the International Foundation for Art Research (IFAR) regarding a purported Jackson Pollock painting sold to Knoedler, which was later sold for $2 million. The IFAR report discredited Rosales's claim of provenance and deemed the painting's signature "suspect," questioning its authenticity. Following this, Knoedler agreed to refund the buyer after returning the painting. Despite recognizing the report's importance, Hammer did not ensure that other potential buyers of Rosales Paintings received the same information. He reviewed internal memos highlighting concerns about the authenticity of another Pollock and was aware that profits from Rosales's works constituted the majority of Knoedler's earnings from 1994 until its closure in 2011. Hammer himself benefitted personally from the sale of these paintings and managed Freedman's employment and compensation.

Freedman's compensation significantly increased from 2002 to 2008, primarily due to Knoedler's profits from selling Rosales Paintings, with her profit share rising from 10% in 1998 to 30% by 2008. Plaintiffs argue that Hammer increased Freedman's share to motivate her to bring more Rosales Paintings to the gallery. After Knoedler received a grand jury subpoena, Hammer terminated Freedman, falsely announcing her resignation to customers. These facts suggest Hammer and the controlling entity of Knoedler were involved in managing a RICO enterprise with a fraudulent intent. 

To establish a RICO claim, plaintiffs must demonstrate a "pattern of racketeering activity," which requires at least two predicate acts within ten years, involving related activities that pose a threat of continued criminal activity. Plaintiffs allege that mail and/or wire fraud, violating 18 U.S.C. §§ 1341 and 1343, constitute the predicate acts. It is not necessary for defendants to have personally mailed or wired anything; causing such actions is sufficient. The use of mail or wires must facilitate the fraudulent scheme, even if the communications themselves are not misleading. Hammer claims there are no allegations linking him directly to the mail or wire fraud, asserting that the RICO claims should be dismissed. However, the Second Circuit clarifies that involvement in a scheme to defraud, with the use of mail in furtherance of that scheme, suffices to satisfy the requirements under 18 U.S.C. § 1341.

The elements required to establish mail fraud include: (1) a scheme to defraud, (2) the defendant’s knowing participation in that scheme, and (3) the use of mail communications in interstate commerce to further the scheme. RICO liability does not necessitate that each defendant commit two predicate acts; it suffices that they were involved in two related and continuous acts that establish a pattern of racketeering. A violation of 18 U.S.C. § 1343 requires proof that the defendant participated in a fraudulent scheme using interstate transmission facilities.

In this case, Plaintiffs allege that Hammer knowingly participated in a fraudulent scheme involving the sale of forged artwork at his gallery, with foreseeable use of mail and wires contributing to the scheme. Regarding injury and causation in a civil RICO claim, a plaintiff must demonstrate that the RICO predicate offense was both a "but for" cause and the proximate cause of their injury, necessitating a direct relationship between the injury and the alleged conduct.

Hammer contends that the Plaintiffs have not adequately shown that he caused their injuries, arguing that relevant actions occurred after the sales of the forged artworks. However, the amended complaints assert that Hammer was aware of and participated in the fraudulent scheme from its inception. Additionally, it is claimed that Hammer and his associates facilitated the use of a reputable gallery, Knoedler, to sell forged art, which misled Plaintiffs into purchasing these forgeries for substantial amounts.

The Hilti Amended Complaint accuses Hammer of creating an "aura of authenticity" around a Rothko painting by showcasing it at credible venues, preparing a viewing sheet of Rothko experts, and hiding its ownership history from Hilti. The complaint sufficiently establishes a substantive RICO claim against Hammer and 8-31, leading to the denial of their motions to dismiss this claim. 

Under 18 U.S.C. § 1962(d), a RICO conspiracy requires demonstrating that a defendant agreed to participate in the affairs of a RICO enterprise through a pattern of racketeering. The "operation or management" test does not apply to RICO conspiracy claims. A defendant must only be aware of the conspiracy's general nature and that it extends beyond their individual involvement. Liability for RICO conspiracy can exist even if a defendant cannot commit the substantive offense, provided they agree to the overall criminal objective.

Hammer and 8-31 contend that the RICO conspiracy claims should be dismissed for failing to state a substantive RICO violation, but the court clarifies that the sufficiency of a RICO conspiracy claim is distinct from a substantive RICO claim. The court has already determined that the plaintiffs have adequately pled a substantive RICO claim against Hammer and 8-31. Additionally, Hammer's argument that plaintiffs failed to show he agreed to commit a predicate act is dismissed; plaintiffs need only show that Hammer agreed to join the RICO enterprise with knowledge of potential predicate acts. Hammer and 8-31's assertion that there was no agreement to join a conspiracy for selling forged artworks is rejected, aligning with the court's earlier findings regarding the substantive RICO claims.

Plaintiffs have sufficiently alleged that Hammer and 8-31 knowingly participated in a scheme to sell forged artworks, leading to the denial of their motions to dismiss RICO conspiracy claims from Hilti, White, and Taubman. In regards to the fraud claims brought by Freedman, Knoedler, and 8-31, the defendants argued that the plaintiffs failed to show justifiable reliance. Under New York law, fraud requires a misrepresentation of a material fact, its falsity, intent to defraud (scienter), reasonable reliance, and damages. Rule 9(b) mandates that claims of fraud must be stated with particularity, necessitating the identification of fraudulent statements, the speaker, the context of the statements, and the reasons for their fraudulent nature.

Hilti, White, and the Taubmans have asserted fraud claims against Knoedler, Freedman, Hammer, and 8-31, specifying the fraudulent statements made by Freedman regarding the artworks' origin and provenance. They have identified crucial information that Freedman failed to disclose and provided details of when and where these statements occurred, including specific discussions at the Knoedler Gallery and other events. The plaintiffs have also articulated why these statements were fraudulent, which has been discussed in their RICO analysis. Ultimately, the court determined that the plaintiffs met the heightened pleading requirements of Rule 9(b) and sufficiently established the elements necessary for fraud claims, with defendants acknowledging that plaintiffs identified Freedman’s misrepresentations related to the artworks they purchased.

Defendants contest Plaintiffs' claims of fraudulent intent, arguing that Plaintiffs, as sophisticated art collectors, failed to demonstrate reliance on any misrepresentations due to their use of art consultants and lack of investigation prior to purchases. The standard for reasonable reliance is complex and fact-intensive, considering factors like transaction complexity, party sophistication, and existing agreements. Courts assert that if a plaintiff has the means to know the truth of a representation through ordinary intelligence, they must utilize that ability; failure to do so may negate claims of reasonable reliance. The issue of whether Plaintiffs' reliance was reasonable cannot be adjudicated as a matter of law at this stage. Plaintiffs have adequately alleged that their damages resulted from reliance on the defendants' misrepresentations, leading to the denial of motions to dismiss their fraud claims.

Regarding fraudulent concealment claims under New York law, the elements include a duty to disclose material facts, knowledge of those facts by the disclosing party, failure to disclose, intent (scienter), reliance, and damages. The court references relevant case law, reinforcing that these elements must be established for a successful claim.

New York law imposes a duty to disclose in business transactions under three circumstances: (1) when a party has made a partial or ambiguous statement, (2) when a fiduciary or confidential relationship exists between the parties, and (3) when one party has superior knowledge not readily available to the other, knowing that the other is acting on mistaken knowledge. A cause of action for fraud based on concealment can arise if one party's superior knowledge renders a transaction inherently unfair. Failure to disclose such information can be legally equivalent to making false representations. 

Defendants Freedman, Knoedler, and 8-31 argue for dismissal of the fraudulent concealment claims, asserting that they lacked a confidential or fiduciary relationship with the plaintiffs, thus not owing a duty to disclose. In contrast, the plaintiffs allege sufficient facts supporting claims of fraudulent concealment based on either ambiguous statements or superior knowledge. Specifically, Hammer moves to dismiss claims against him, asserting he did not have a duty to disclose due to the absence of a direct relationship with the plaintiff and contending that the relevant information was publicly accessible. However, the plaintiffs maintain that Hammer was aware Freedman was promoting a painting as an authentic Pollock, which creates a potential duty to disclose despite the lack of direct communication.

White alleges that Hammer was aware that the artwork in question was undocumented, excluded from the Pollock catalogue raisonné, and had been consigned for $670,000—far below its market value if legitimate. It is suggested that Freedman informed Hammer of each Rosales painting sale, implying Hammer knew White was misinformed when purchasing the alleged Pollock. Consequently, Hammer's motion to dismiss White's fraudulent concealment claim is denied.

Regarding aiding and abetting fraud, Hammer seeks dismissal of the claims from Hilti and others, arguing they have not shown he had knowledge of the fraudulent scheme or provided substantial assistance. Aiding and abetting fraud requires establishing three elements: (1) the existence of an independent wrong, (2) the aider's knowledge of that wrong, and (3) substantial assistance in effecting the wrong. To meet the heightened pleading requirements of Rule 9(b), plaintiffs must detail the fraud's existence, the defendant's knowledge, and substantial assistance provided. Actual knowledge, as opposed to constructive knowledge, must be demonstrated, derived from the circumstances surrounding the fraud. Substantial assistance is defined as any affirmative actions taken, concealment efforts, or failures to act that enable the fraud to continue. Additionally, plaintiffs must show that their injuries were a direct or reasonably foreseeable result of the aider's conduct.

Hilti's claim against Hammer and 8-31 for aiding and abetting fraud is supported by allegations that Hammer had knowledge of an art fraud scheme and provided substantial assistance. Hammer authorized the use of the Knoedler Gallery, a prestigious art venue, to sell potentially inauthentic paintings, including Hilti's Rothko. The legitimacy of the Rothko was questionable due to its consignment price by Rosales, an art dealer. Additionally, Hammer increased Freedman's profit-sharing percentage, incentivizing her to sell more fraudulent paintings. Hammer allegedly helped create a perception of authenticity for the Rothko by showcasing it at reputable venues, preparing documentation that falsely included Rothko experts, and concealing its ownership history. The court finds these allegations sufficient to deny Hammer and 8-31's motion to dismiss Hilti's aiding and abetting claim.

In a separate claim, White alleges that Hammer aided and abetted fraud regarding her purchase of a purported Pollock painting, asserting that Hammer had actual knowledge of its inauthenticity. This is supported by claims that Hammer was aware of the low purchase price relative to authentic Pollocks, the lack of documentation for the painting, the questionable background of the individuals involved in the sale, and the painting's omission from the Pollock catalogue. White also notes that Hammer knew of the unusually high profits from the Rosales Collection paintings, reinforcing the suggestion of fraudulent activity. The court finds White's allegations adequate to support her claim against Hammer.

Profits from the sale of Rosales Paintings were deemed highly unusual by industry standards, particularly for consigned works sold quickly. White alleges that Hammer was aware of each sale made by Freedman and had reviewed Knoedler’s financials, indicating he knew of the gallery’s unsuccessful attempts to confirm the paintings' provenance. This collection of allegations suggests Hammer had actual knowledge that the "Pollock" sold to White was fraudulent. Hammer contends that White failed to show he provided “substantial assistance” to the fraud, arguing that mere inaction does not equate to substantial assistance without a confidential relationship. However, White claims Hammer's actions—such as promoting Freedman’s role within the gallery, rewarding him for fraudulent sales, and actively engaging in sales discussions—constitute more than passive acquiescence. Consequently, Hammer's motion to dismiss White's aiding and abetting fraud claim is denied.

In a separate claim, the Taubmans allege that Hammer had actual knowledge of the fraud based on his review of the IFAR report questioning the authenticity of the Rosales Paintings, as well as documents showing Knoedler's inability to substantiate their provenance. They assert that Hammer was fully aware of Knoedler's operations, sales, and profit margins, which were significantly inflated compared to industry norms. The court finds that the Taubmans have presented sufficient facts to support their claims of Hammer's knowledge and involvement in the fraud scheme.

Rosales's willingness to sell Abstract Expressionist paintings to Knoedler at significantly reduced prices supports a strong inference that Hammer was aware the Rosales Paintings, including the Still sold to the Taubmans, were inauthentic. Hammer contends that the Taubmans failed to prove he provided "substantial assistance" to the fraud, claiming no specific actions by him directly led to the Taubmans' purchase of the Still. However, the Taubmans allege that Hammer condoned Freedman's fraudulent use of Knoedler's name, incentivized her sales through increased profit shares, failed to disclose the IFAR report to buyers, and attempted to conceal the fraud when it was investigated. Hammer argues that mere inaction does not constitute substantial assistance without a fiduciary relationship, but the Taubmans assert that Hammer's supervisory role, knowledge of the paintings' backgrounds, and direct interactions with Freedman indicate more than passive acquiescence. Consequently, their aiding and abetting fraud claim against Hammer is upheld. 

Regarding the conspiracy to commit fraud, Hammer argues that the plaintiffs must provide evidence demonstrating his actual knowledge of any false information, an agreement to defraud, an overt act in furtherance of the fraud, or awareness of the fraud at the time of sale. Similarly, 8-31 contends that Hilti has not alleged sufficient facts to connect it to the conspiracy or demonstrate its involvement. Both Hammer and 8-31's motions to dismiss the respective conspiracy claims are challenged on these grounds.

A plaintiff must establish a prima facie case for conspiracy by alleging the primary tort, in this case, fraud, and four key elements: (a) a corrupt agreement between two or more parties, (b) an overt act in furtherance of that agreement, (c) intentional participation by the parties in the scheme, and (d) resulting damage or injury. The court found that the complaints from Hilti and Taubman sufficiently allege that Hammer and 8-31 were aware that the Rosales Paintings were forgeries and that their sale was fraudulent. The allegations indicate that Hammer, 8-31, and Knoedler entered into a corrupt agreement with Freedman, supported by evidence of their intimate business relationship and knowledge of unlawful activities. While Hammer did not need to personally commit an overt act, the involvement of other conspirators in numerous overt acts, such as incentivizing Freedman to sell the forgeries, meets the requirement. Additionally, it was established that Hammer and 8-31 knowingly participated in the fraudulent scheme before the paintings were sold to Hilti and Taubman, causing them injury. Consequently, the motions to dismiss these claims were denied. Regarding White’s claims, similar findings were made, supporting the inference of Hammer and 8-31’s knowledge of the forged "Pollock" and their corrupt agreement with Freedman, leading to the denial of their motions to dismiss. White also brought claims under an alter ego theory against Hammer and 8-31, which they sought to dismiss.

Hilti has raised claims of fraud and fraudulent concealment against Hammer and 8-31 based on an alter ego theory, with only Hammer moving to dismiss these claims. Under Delaware law, limited liability companies (LLCs) offer limited liability protection similar to corporations, meaning their shareholders or members are generally not liable for the entity's debts. However, courts can pierce the corporate veil to hold individuals liable if fraud is present or if the corporation acts merely as an instrumentality of its owner. 

To establish an alter ego claim, a plaintiff must show complete domination and control by the individual or parent corporation over the entity, indicating it lacks independent significance. This involves two prongs: (1) the dominant shareholder and the corporation must operate as a single economic entity, and (2) there must be an overall element of injustice or unfairness. Factors influencing this determination include the corporation’s capitalization, solvency, adherence to corporate formalities, and whether the dominant shareholder has improperly siphoned funds. 

Additionally, the plaintiff must demonstrate that the corporation serves as a sham through which the parent company perpetrates injustice, extending beyond the mere tort or breach of contract that underlies the lawsuit. Courts apply the same analysis regardless of whether the dominant shareholder is an individual or another corporation. To establish personal liability for Huggins, plaintiffs must first show that he and the Defendant Entities operated as a single economic unit.

An alter-ego claim was asserted by White against Hammer, 8-31, Knoedler, and Hammer Galleries, alleging that Hammer and 8-31 disregarded the corporate separateness of these entities. White contends that they exercised complete control over Knoedler, treated it as an instrumentality, and ignored corporate formalities, such as sharing employees and resources without proper documentation. Key allegations include that 8-31 paid no rent for shared office space, that Knoedler lacked its own board and independent financial records, and did not manage its own tax obligations. Additionally, the Management Agreement from 2001 was allegedly disregarded, as 8-31 did not invoice the agreed service fee.

White highlights the commingling of funds among the entities, with Knoedler transferring money to a shared bank account without proper loan documentation or repayment. The debts of 8-31 and Hammer to Knoedler reportedly exceeded $23 million by 2012. Notably, in 2010, following a government investigation into Knoedler, 8-31 reclassified over $20 million in receivables owed to Knoedler as a dividend, effectively forgiving the debt to shield Knoedler’s profits from scrutiny. White argues that Hammer treated funds from both 8-31 and Knoedler as personal resources and neglected corporate formalities during Knoedler's closure in November 2011.

White alleges that Hammer and 8-31 failed to adhere to a provision in Knoedler’s liquidation plan that required the reservation of funds for potential liabilities arising from legal actions. Instead, they extracted over $20 million in assets from Knoedler. These actions suggest that Knoedler, 8-31, and Hammer functioned as a single economic entity. Additionally, the claim that Hammer and 8-31 distributed over $20 million as a "dividend" after a federal investigation commenced indicates potential injustice stemming from an abuse of the corporate structure. White provides a basis for piercing the corporate veil, seeking to impose alter ego liability on 8-31 and Hammer for fraud and related offenses.

In Hilti’s alter ego claim against Hammer, it must be shown that Hammer exercised total control over Knoedler, rendering it legally insignificant. While the Hilti Amended Complaint presents evidence of 8-31's dominance over Knoedler, it lacks sufficient allegations regarding Hammer's control. Hilti states that Hammer is the sole owner of 8-31 and directed its decision-making concerning Knoedler, but does not allege any abuse of the corporate form by Hammer regarding 8-31. Even if 8-31 is deemed Knoedler's alter ego, Hilti fails to establish Hammer as the alter ego of 8-31, which is necessary for imposing liability.

Hilti claims Hammer was responsible for Knoedler’s operations and made key decisions, but these actions fall within his role as Chairman, not as the ultimate beneficial owner. The only serious allegation of Hammer abusing the corporate form is that he reclassified Knoedler’s profits as dividends to transfer them to 8-31 and himself. Overall, Hilti has not sufficiently demonstrated that Hammer abused the corporate structure to hold him personally liable for Knoedler’s actions.

Allegations of corporate abuse associated with 8-31 include unauthorized money transfers from Knoedler to cover expenses, lack of proper loan agreements, and asset commingling. The claim that 8-31 and Hammer reclassified interdivisional receivables as dividends does not sufficiently support piercing the corporate veil, as no single factor is enough—rather, a combination of factors is necessary. Hilti's allegations fail to show that Hammer dominated Knoedler to a degree that would establish him as Knoedler’s alter ego. Consequently, Hammer's motion to dismiss these claims is granted. The court grants and denies various motions to dismiss from Knoedler, Hammer, 8-31, and Freedman, while noting that certain defendants have not appeared in the cases. The court presumes the truth of the factual allegations in the amended complaints for the purposes of these motions. Additionally, the text explains relevant definitions, including "provenance" related to ownership history and "catalogue raisonné," which authenticates an artist's works. White claims unusual profits on consigned works, as commissions typically range from 10% to 20%.

White asserts that it is atypical for a gallery owner to acquire artwork significantly below current market value, enabling substantial profits from resale within a short timeframe. From 1996 to 2000, Knoedler Gallery's average profit on Rosales Collection paintings exceeded 150%, with some instances reaching higher margins. An executive from Hammer Galleries expressed concern over this profit margin, prompting inquiries that revealed Hammer was aware of the situation. Hammer oversaw Knoedler’s operations, including financial reviews and board meetings. White contends that Freedman, President of Knoedler, was aware that a piece was not from a "private collection in Switzerland" and highlights that Polcari never authored a book on Jackson Pollock. A Christie’s representative advised White that the absence of the painting in the catalogue raisonné would likely lead to market rejection and suggested seeking a refund from Freedman and Knoedler. The Taubmans noted the invoice for their purchase lacked any provenance, raising doubts about the painting’s authenticity, especially given its "extremely low price." At the time of sale, a “Contingent and Conditional Opinion Letter” from a foundation indicated the painting appeared to be by Robert Motherwell but was retracted in 2009 after forensic evidence showed the works attributed to Rosales were forgeries. Following this, Lagrange filed a lawsuit against Knoedler and Freedman for selling a forged Jackson Pollock, which settled in October 2012. Defendants claim the forgery is evident from the work itself, referencing a 2012 letter to the De Soles, which is not part of the current claims and cannot be considered in motions to dismiss. A cited case, Brown v. Kay, involved a separate fraud claim concerning allegedly fake paintings, which was dismissed due to factors including res judicata and statute of limitations issues.

Knoedler is accused of making express warranties regarding the authenticity and provenance of artworks, claiming they were created by renowned artists such as Rothko and Pollock. Specifically, Hilti asserts that Knoedler warranted a Rothko painting's authenticity and provenance, while White claims similar representations were made for a Pollock artwork. Both parties also allege that Knoedler impliedly warranted the paintings would be merchantable. The Taubmans make analogous claims regarding a painting attributed to Still. Under New York law, doctrines of equitable tolling and equitable estoppel may apply to counter a statute of limitations defense if fraud or misrepresentation has caused the plaintiff to delay filing a claim. New York courts differentiate between these doctrines: equitable estoppel applies when a plaintiff is aware of a cause of action but delays due to the defendant's conduct, while equitable tolling is applicable when the defendant deceives the plaintiff about the existence of a cause of action. The court will refer to these circumstances as equitable tolling, as the plaintiffs do not claim prior knowledge of their cause of action. Hilti argues that the fraudulent scheme was concealed until press coverage in 2012 highlighted Knoedler's closure in 2011, indicating the start of awareness regarding the alleged fraud.

Hilti's argument that the forgery's self-concealing nature prevented its discovery was rejected by the Second Circuit in Rosen v. Spanierman, where it was determined that the forgery of a painting was discoverable at delivery without extraordinary measures. Although the court acknowledged that detecting the alleged defect in Hilti's case may be more challenging, it found that Hilti failed to provide sufficient facts to prove it could not verify the accuracy of Knoedler's warranties. White's claims of mistake were deemed to accrue at the time of the alleged mistake, not upon discovery of fraud, as established in Johnson v. Broder. White also raised claims for breach of express and implied warranty under Hawaiian law, asserting that a warranty of authenticity for art constitutes an express warranty of future performance, with the statute of limitations starting when the breach is discovered. The defendants contested the application of Hawaiian law, citing New York as the proper jurisdiction under the "center of gravity" test, while White argued that further facts were needed for this analysis. White's Amended Complaint details her initial engagement with the Pollock painting at the Knoedler Gallery in New York, where she was informed of its authenticity and the subsequent transaction was documented in an invoice sent to her in Hawaii. New York's choice-of-law rules apply in this federal question action with supplemental state claims, as acknowledged by all parties involved.

In New York, the initial step in a choice of law analysis is identifying any actual conflict between the applicable jurisdictions' laws. If a conflict exists, New York courts apply the law of the jurisdiction with the most significant interest in the dispute. In contract cases, this involves a "center of gravity" or "grouping of contacts" analysis, considering factors such as where the contract was made, negotiated, and performed, as well as the locations of the parties involved. The court determined that New York law applies due to the significant connections with the state, including a face-to-face meeting at the Knoedler Gallery in New York, where alleged misrepresentations occurred, the sale of the painting, and the payment processed in New York.

The court rejected White's argument for equitable tolling based on the deception being self-concealing, as it was previously addressed in the context of another equitable tolling claim. The argument pertaining to a "self-concealing scheme" was similarly dismissed for the same reasons. Aiding and abetting liability requires a confidential or fiduciary relationship, which was not adequately pleaded in this case. Without such a relationship, mere inaction by an affiliated entity does not constitute substantial assistance for fraud claims. The discussion referenced cases involving financial industry entities but noted they provided limited guidance on aiding and abetting law relevant to the current circumstances. White's motion to dismiss the fraud claims was based on her failure to adequately allege justifiable reliance on the material omissions related to her fraud claim.

8-31 adopts arguments from Freedman's brief regarding the failure to plead justifiable reliance but does not assert a fraud conspiracy claim against Freedman. Consequently, 8-31 has not provided reasons for dismissing White's fraud conspiracy claims. The Taubman Amended Complaint alleges that Hammer committed several overt acts that facilitated Freedman's fraudulent activities, including condoning Freedman's actions, incentivizing her sales, selectively sharing information, and concealing the scheme post-fraud. White claims that 8-31 is the sole owner and alter ego of Knoedler, while Hammer is the sole owner and alter ego of 8-31. Although White pleads alter ego liability concerning breach of warranty and New York General Business Law claims, these claims are set to be dismissed as untimely. The Taubmans have made alter ego claims against 8-31, which remain unchallenged by 8-31. New York law holds that the state of incorporation's law governs when the corporate form can be disregarded, applicable to both corporations and LLCs. Knoedler is a Delaware LLC, and 8-31 is a Delaware corporation. 8-31 argues that since neither Knoedler nor 8-31 existed at the time of White's alleged injury, alter ego liability does not apply, but this argument is rejected as White has sufficiently alleged both successor and alter ego liability. 8-31's claims regarding the inadequacy of pleadings for respondeat superior liability will be addressed at summary judgment if necessary. 8-31 has not contested Hilti’s alter ego claims, while the White Amended Complaint alleges Hammer's direct involvement in actions as the beneficial owner of Knoedler.