11/13/2012 04:44 pm ET Updated Dec 06, 2017

Larry Gagosian Testifies About His Business Practices -- So What Do We Learn?

Secondary market private sales have long been an important part of the art business. They are also, perhaps, the most opaque. When negotiating between a buyer and a seller, how private should the terms of a sale be? How much about a gallery's closed-door deal-making do clients have a right to know? And at what point does driving a hard bargain begin to break the law?


A woman views Roy Lichtensteins "Girl in Mirror (edition 5/8)" (1964) at Sotheby's, London / Photo by Bethany Clarke/Getty Images

These questions are at the heart of 93-year-old collector Jan Cowles's ongoing case against megadealer Larry Gagosian and his eponymous gallery. They take on added significance now that Gagosian's long-awaited deposition has been made publicly available. The sales dispute has placed the exceedingly private Gagosian Gallery -- and now, its exceedingly private owner -- under a microscope.

In a March article on the suit, the New York Times published an e-mail written by Deborah McLeod, a director of Gagosian's Los Angeles branch, that has since become notorious in art world circles. "Seller now in terrible straits and needs cash," McLeod wrote a potential buyer, attempting to broker a transaction. "Are you interested in making a cruel and offensive offer? Come on, want to try?"

Gagosian's deposition -- which took place on October 4 and lasted a total of 7.5 hours -- touches on various aspects of that "cruel and offensive offer" as well as the dealer's business practices more generally. Alongside the depositions of McLeod and former Gagosian director John Good, a close look at the dealer's testimony confirms what many already knew about the most famous gallery in the world: Sensitive information is held close to the vest, profits are high, and pressure to sell is even higher. Of McLeod's somewhat inelegant e-mail, Gagosian commented, "It's just kind of cruel. It's strange language to use in connection with an art transaction." (Later, he added, "I thought it was kind of a funny way to put it... Maybe she was trying to appeal to his animal instincts.")

The lawsuit, first filed in January, revolves around "Girl in Mirror," a 1964 enamel-on-metal work by Roy Lichtenstein created in an edition of ten. In court papers, Cowles alleges that her son, Charles, a former art dealer and publisher of Artforum, consigned "Girl in Mirror" to Gagosian in 2008 without her knowledge or consent. (At the same time, Charles also offered up Mark Tansey's "The Innocent Eye Test," despite the fact that Cowles had promised it as a gift to the Metropolitan Museum of Art. A lawsuit surrounding the Tansey sale was settled for $4.4 million and the painting has since been returned to the museum.)

After a year of unsuccessful attempts to sell "Girl in Mirror," the gallery finally made a deal. It sold the work to London-based collector and financier Thompson Dean, who agreed to pay a total of $2 million on an installment plan. The problem? According to the original consignment agreement, Gagosian had promised Charles $2.5 million for the work. He received just $1 million instead, while Gagosian took a hefty $1 million commission.

Cowles's lawyers argue that Gagosian's sales techniques -- which allegedly include lying about the work's condition, misrepresenting the level of demand for the work, and skewing the balance of information in favor of the buyer -- amount to conversion, replevin, fraud, breach of fiduciary duty, and unjust enrichment. They're asking for over $4.5 million for the artwork and $10 million in punitive damages. (For context, note that the gallery valued the work at $4.5 million on a customs invoice in 2008. Another edition from the same series sold at Sotheby's in 2007 for just over $4 million; yet another sold at Christie's in the fall of 2010 for $4.9 million.)

In his testimony, Gagosian maintains he is simply a gutsy businessman who was doing all he could to sell a damaged work of art in the depths of a recession. "I felt I was taking a risk given the circumstances because if Dean didn't close, based on my experience trying to market this piece, it really wasn't for most people a matter of price," he said. "They just didn't want a picture that was damaged like that, even at a million dollars or 750."

So far, Cowles's team is winning the fight. Judge Charles E. Ramos of New York State Supreme Court denied Gagosian's motion to dismiss the case in September, ruling that the gallery's actions "sufficiently state a cause of action for fraud" and present a factual question as to whether it "properly discharged its duty of care" to Cowles. The dealer's lawyers have indicated they will appeal that decision and in the meantime hope to minimize the amount of sensitive financial information they must disclose as part of discovery.

Meanwhile, the most interesting question at the center of the case remains unanswered: What exactly is a dealer's duty to his client? In his deposition, Gagosian said, "As a matter of practice, art dealers frequently represent the buyer and the seller." His gallery has often done so, he admitted, without disclosing his relationship to both parties. "That's the way dealers work," he said. But Cowles's lawyers argue that this practice is illegal. "The prohibition against undisclosed dual agency is based upon the common sense principle that 'when an agent acts for adverse interests, he must necessarily be unfaithful to one or the other as the duties which he owes to his respective principles are conflicting,'" they write, citing two earlier cases.

The defense may argue that although Gagosian and his employees frequently use the term "client" or "agent" when describing their relationship to a buyer, their actions prove their fundamental aim has always been to achieve the best price for their true client, the seller -- and, in so doing, the highest commission for themselves. (Still, it's interesting to note that another lawsuit pending against Larry Gagosian, brought by billionaire Ronald Perelman, claims that the dealer owed a "fiduciary duty" to the plaintiff -- in that case, the buyer -- whereas Cowles's suit claims he owes the same loyalty to Charles, the seller.)

"The deposition testimony and documents tell a disturbing story of gross misconduct and substantial punitive damages are warranted," David Baum, Jan Cowles's lawyer, told ARTINFO. Neither Gagosian Gallery nor its lawyer immediately responded to requests for comment.

-Julia Halperin, BLOUIN ARTINFO

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