Open Houses

Auctioneers are regulated but the business is not always transparent.

     SHHHH.  DON’T TELL ANYBODY…We first spied our prospective new client in a dark corner of a midtown restaurant.  “The name is Bond,” he lied.  “Seymour Bond.”  Seymour claimed to be a hosiery importer-though he looked more like an aging Navy SEAL-interested in trading in the contemporary art market, where he had dabbled for some time.  Our mission: to enlighten him on the often secret ins and outs of the auction room and other hidden crevices of the art world.

     Seymour sneaked a glance at the menu and, without consulting us, ordered for the table.  We wouldn’t have ordered an ’02 Bollinger with burgers, but we didn’t object.  “Can I consign art to a New York auction  house without disclosing my identity to the successful bidder?”  he murmured.  Seymour had heard that, in a radical departure from age-old auction world practice, a 2012 New York State Supreme Court case suggested that auctioneers here must now disclose the names of consignors to make a sale contract binding.

     He was referring to Jenack v. Rabizadeh, in which Albert Rabizadeh, the winning bidder on a Russian enamel box at auction, refused to pay for the box and argued that the contract with the auctioneer was unenforceable because it omitted the consignor’s name.  Although some legal commentators see the case as portending the end of the auction world as we know it, we view the holding as quite narrow, applying only to evidence that is needed if a purchaser is sued by the auctioneer after failing to pay.  The case is currently on appeal.

     We told Seymour that, for now, we thought his identity would be safe if he consigned works in New York State.  Lunch arrived, and Seymour fired his next question:  “Must the auctioneer disclose the fact that they may make fictional bids on behalf of the seller up to the reserve price?”  The answer was yes.  Disclosure of so-called chandelier bids must be made in the auction catalogue, on signs posted in the auction room, and through a salesroom announcement.

     “Don’t false bids deceive unwitting bidders and artificially raise prices?”  Seymour shot back.  Good question.  Some astute observers have said that the theatrical element of chandelier bids has no place in the auction room and leads to a skewed marketplace.  Auction houses counter that, unlike dealers, they are already tightly regulated by law-and, anyway, when was the last time a gallery publicly announced the lowest price it would accept for a work?  We don’t have a problem with chandelier bids, but we understand that unsophisticated bidders who don’t read the disclaimers might be disadvantaged (though it has been a while since we’ve seen unsophisticated bidders at a Sotheby’s or Christie’s sale).

     “The auction house doesn’t need to publicly disclose the amount of the reserve, right?” asked Seymour, sipping his champagne (the reserve is the price below which an item will not be sold).  “Right,” we replied,  “but the auction catalogue must state if a reserve price exists.”

     “Must the auction house tell me if it believes the work I am consigning will not have auction appeal?”  The answer is yes, according to the famous 1986 New York State appeals court case Cristallina S.A. v. Christie, Manson & Woods International.  There, after seven out of eight Impressionist paintings did not sell, the consignor, art investment firm Cristallina, sued Christie’s for not disclosing that its experts had disagreed about the appeal of the paintings selected for sale at a May 1981 auction.  Christie’s told Cristallina that the works could fetch a total of up to $12.6 million.  The only work to sell-Dega’s Portrait of Eugene Manet-brought in $2.2 million.

Cristallina claimed that, had it known about the disagreement, it could have withdrawn the works before the auction, thus avoiding the disastrous sale.  The Supreme Court of New York held that auction houses must disclose the fact that a piece lacks auction appeal.  The case was settled out of court, with Christie’s paying an undisclosed amount.

     “If the auction house loans me money, can it keep the arrangement secret?” whispered Seymour, as he stole our fries.  We explained that the Rules of the City of New York do not require this disclosure on a lot-by-lot basis.  The auctioneer must include a general statement in the catalogue that it offers loans and/or advances to consignors.

     We notice that the Bollinger bottle was almost empty.  “What if the auction house makes loans or rebates to certain prospective purchasers?,” he asked.  That fact needs to be disclosed in the auctioneer’s catalogue or printed material, and if there is no such printed material, disclosure must be made by posting a sign or in another conspicuous manner.

     Seymour’s next question: Must the auctioneer reveal that it has guaranteed the consignor a minimum price for a work?  We said that in New York, the auctioneer must disclose this information as well as any other financial interest it has in a work (other than the selling commission), but if need not reveal the exact amount of the guarantee.  Often, auctioneers will use a symbol or letter in the catalogue that refers readers to a fuller explanation of the nature of its interest.

     Seymour eyed us suspiciously.  “Isn’t there a conflict of interest when an auctioneer offers goods in which it has a financial stake by way of a guarantee while at the same time offering similar goods from other consignors?”  We replied that we didn’t see a problem with guarantees so long as they are properly disclosed.

     “Are auction houses required to state which works were actually sold?”  Seymour continued, casually ordering a second bottle of champagne.  “I understand that in the past auction houses may have reported ‘bought in’ (unsold) lots as having been sold and post-auction private sales as if they were actual auction results.  “We reassured him that New York auction houses must state sales accurately.  For instance, after withdrawing a lot from sale for failing to meet the reserve and before bidding on another lot begins, the auctioneer is required to announce that the lot has been “passed,” “withdrawn,” “returned to owner,” or “bought in.”  In the Cristallina case, Christie’s was fined $80,000 for falsely reporting that three, instead of one of the Impressionist paintings had been sold in the room at the time of the auction.

     “At least auction houses post estimates, which is more than dealers do,” Seymour said.  “And judging by the lawsuit filed last year against Larry Gagosian, I don’t suppose dealers are particularly fond of full disclosure.”  He was referring to a lawsuit brought in New York State Court against Gagosian and his gallery on behalf of collector Jan Cowles, who claims, in part, that Gagosian improperly represented both sides in a transaction-Cowles, the seller of the 1964 Roy Lichtenstein painting Girl in Mirror, and Thompson Dean, the buyer-and did not disclose to Cowles that he was trying to get a favorable price for the buyer.  According to court documents, a Gagosian rep e-mailed Dean: “Seller now in terrible straits and needs cash….Are you interested in making a cruel and offensive offer?  Come on, want to try?”  The case was quietly settled.

     Seymour gave us an enigmatic smile and observed that the art world seemed to be a dangerous place for a sock salesman.  Before we could reply, we had to take a call in private from another client.  When we got back to Seymour’s table, he was gone.  All that was left was a faint air of mystery-and the bill.

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