Charles and Thomas Danziger are the lead partners in the New York firm Danziger, Danziger & Muro, specializing in art law. Visit their website www.danziger.com.

Raoul Dufy Edward Hicks The Pavilion Heats Up Newsmakers: 1999–2009 All That Glitters Where Are We Going? Collector Sues Christie’s Overdue Ode

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Ishmael’s troubles began in the wake of an evening sale that he hadn’t bothered to attend. On the strong advice of an auction house specialist, he had left the winning (and apparently only) bid on a sculpture given as collateral for a loan from the auction house to the consignor. Now the press was calling him "a sucker" who had greatly overpaid for the work. That’s when he phoned us.

"Don’t auction house specialists have to be straight with buyers?" Ishmael carped. "Mine totally filleted me!"

This very issue is currently being tested in a public legal tussle between Sotheby’s and the collector Halsey Minor (who is also legally entangled with Christie’s on an unrelated matter). Last October, the auction house sued Minor for $16.8 million because he allegedly failed to pay for three American paintings, including Edward Hicks’s The Peaceable Kingdom with the Leopard of Serenity, that he had bought in a May 2008 auction. In response, Minor filed a class-action countersuit in U.S. district court in San Francisco claiming that "Sotheby’s actively conceals information concerning its own significant economic interests in property that it places at auction." Minor alleges that by failing to disclose that the Hicks painting secured a loan Sotheby’s had made to its consignor, Ralph Esmerian, the auction house "had disguised itself as a sincere and honest art adviser to plaintiff, while in reality acting as a self-profiteer." At this time, neither the Sotheby’s claim nor the Minor countersuit has been heard by a court.

Until the 19th century an auction house was regarded primarily as the seller’s agent, with a fiduciary duty to act in his interest (see Brothers in Law, June 2003). In fact, it was the apparent breach of this responsibility in the famous case Cristallina, S.A. v. Christie, Manson & Woods that led New York to establish new auction regulations in 1987. In Cristallina, which was settled out of court during the appeal, the consignor accused Christie’s of, among other things, providing unrealistically high estimates for eight Impressionist paintings.

Today courts recognize that once a bidder becomes a buyer, the auctioneer becomes the agent of both purchaser and seller. As a practical matter, the relationship between the auction house and the seller is governed by a consignment agreement. Consequently, we advise our clients to read this agreement carefully and, where possible, negotiate its terms. The relationship between the house and the buyer, by contrast, is governed by the auction catalogue’s Conditions of Sale, which include the house’s warranties and disclaimers. Unfortunately, few bother to read these conditions.

Some commentators have suggested that auctioneers have a greater obligation of fair dealing when a buyer with significantly less expertise than they have relies on their knowledge, but there is scant case law on the issue. Practically speaking, proving this disparity in knowledge is not easy.

For instance, in the 1993 case Kelly v. Brooks, paintings that the lawyer Peter Kelly and his wife purchased from R. M. Brooks’s auction house, State Line Auction, in Enfield, Connecticut, turned out to be fake. Kelly had signed a bill of sale containing a disclaimer that the property was sold "as is." Asserting that they had relied on the auctioneer’s representation that the paintings were authentic, the Kellys sued for breach of warranty, fraud, reckless misrepresentation and breach of duty of honesty and fair dealing. The district court sitting in New York dismissed the complaint, finding the disclaimer "clear and unequivocal" and reasoning that the couple had not relied on the auctioneer’s expertise since they had done independent research before buying the paintings. The court also noted that even if the Kellys had relied on the auctioneer, that reliance would have been unreasonable because they did not know the auction house before making the purchase.