Appelle Brief

13-1099 United States Court of Appeals For the Second Circuit ACA GALLERIES, INCORPORATED, Plaintiff-Appellant,

v.

JOSEPH A. KINNEY,

Defendant-Appellee.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

BRIEF FOR DEFENDANT-APPELLEE

ZARA WATKINS, ESQ. Appellate Attorney for Defendant-Appellee P.O. Box 627 New York, New York 10274 917-689-3180

TABLE OF CONTENTS TABLE OF AUTHORITIES ................................................................................... iii STATEMENT OF ISSUES FOR REVIEW ..............................................................1 STATEMENT OF THE CASE ..................................................................................1 STATEMENT OF FACTS ........................................................................................3 SUMMARY OF ARGUMENT .................................................................................7 ARGUMENT .............................................................................................................8 POINT I THE DISTRICT COURT CORRECTLY HELD THAT ACA WAS PRECLUDED FROM OBTAINING RECSCISSION OF THE SALE OR DAMAGES FOR FRAUD .............................8 A. The District Court Did Not Need to Address Whether the Mutual Mistake Goes to the Foundation of the Agreement..............................................................9 B. The District Court Correctly Concluded that ACA’s Failure to Take Advantage of the Opportunity to Have the Painting Examined by the Avery Foundation Was Negligent and Unreasonable. ....................................................11 i. ACA misunderstands the District Court’s Finding of Negligence. ...............11 ii. ACA’s decision to purchase the Avery without consulting the Avery Foundation was unreasonable. ..........................................................................16 C. This Court Should Affirm the District Court’s Decision For The Additional Reason Raised Below. ..........................................................................................17 i

POINT II ACA’S ARGUMENT REGARDING THE ISSUE OF AGENCY IS NOT RELEVANT ..................................................19 POINT III ACA’S ARGUMENT THAT THE SALE WAS VOIDABLE FOR MUTUAL MISTAKE BECAUSE KINNEY COULD NOT CONVEY TITLE TO THE PAINTING IS IMPROPERLY RAISED FOR THE FIRST TIME ON APPEAL .....................21 A. There is no Valid Reason to Consider ACA’s New Legal Argument. ...........22 B. ACA Cannot Obtain Rescission Based on Mutual Mistake Regarding Kinney’s Authority to Convey Title. ....................................................................24 CONCLUSION ........................................................................................................25 CERTIFICATE OF COMPLIANCE WITH RULE 32(A) .....................................27

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TABLE OF AUTHORITIES CASES Backus v. MacLaury, 278 A.D. 504 (4th Dep’t 1951) ...............................................9 County of Orange v. Grier, 30 A.D.3d 556 (2nd Dep't 2006)..……………………24 Dark Bay Int’l, Ltd. v. Acquavella Galleries, Inc., 12 A.D.3d 211 (1st Dep’t 2004) ..............................................................................................................................25 Diesel v. Town of Lewisboro, 232 F.3d 92 (2nd Cir. 2000) .....................................21 Ebker v. Tan Jay Int’l, Ltd., 739 F.2d 812 (2nd Cir. 1984) ......................................22 Foxley v. Sotheby's, Inc., 893 F. Supp. 1224 (S.D.N.Y.1995)…...……………….16 In re Schenck Tours, Inc., 69 B.R. 906, 914 (Bankr. E.D.N.Y. 1987) ............... 9, 12 Koam Produce, Inc. v. DiMare Homestead, Inc., 329 F.3d 123, 127-28 (2nd Cir. 2003) .....................................................................................................................10 Kountze v. Kennedy, 147 N.Y. 124 (1895) .............................................................18 Leaseco Corp. v. Taussig, 473 F.2d 777, 781 (2nd Cir. 1972)…………………….13 P.K. Dev., Inc. v. Elvem Dev. Corp., 226 A.D.2d 200 (1st Dep’t 1996) .... 10, 12, 13 Vandervort v. Higginbotham, 222 A.D.2d 831 (3rd Dep’t 1995) ..................... 14, 15 MISCELLANEOUS Restatement (Second) of Contracts § 154 (1981)…………………………10, 12, 14

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STATEMENT OF ISSUES FOR REVIEW 1.

Prior to selling a painting to ACA 1, Kinney allowed ACA to inspect

it. ACA’s President and Chief Operating Officer, Jeffrey Bergen, inspected it and concluded it was an authentic painting by Milton Avery. Following its purchase, ACA sought a certificate of authentication from the Milton & Sally Avery Arts Foundation but instead received an opinion that the painting was a fake. Does ACA’s decision to wait until after its purchase to seek authentication preclude it from obtaining rescission of the sale or damages for fraud?

The court below held that it does.

2.

Kinney accepts as stated the third (Point II in ACA’s brief) and fourth

(Point III in ACA’s brief) issues for review.

STATEMENT OF THE CASE Kinney agrees with ACA’s Statement of the Case. However, ACA has omitted several controlling items. In his opposition and cross-motion, Kinney argued that ACA was not entitled to rescission or fraud damages because, in addition to being barred from relief by its own negligent conduct, ACA could not demonstrate that it suffered the monetary harm claimed. (A-55, A-63-64) In its

1

This brief accepts the short form names utilized in ACA’s brief.

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reply affidavit and memorandum of law in opposition to Kinney’s cross-motion, ACA did not respond to any of Kinney’s substantive legal arguments, but instead focused on disputing the veracity and relevance of certain documents submitted by Kinney. (A-151-162) While ACA questioned the nature and extent of the stated agency relationship between Kinney and Hamblin (A-153-154), at no point did ACA argue that Kinney could not convey title to the painting. Kinney, who was not represented by counsel in the court below, did not submit a reply to ACA’s opposition to his cross-motion.

In her opinion and order (A-164-174) the District Court recognized that certain facts were “fiercely disputed” by the parties. (A-169) However, the decision to deny ACA’s motion and grant Kinney’s cross-motion was based upon only those facts that were undisputed, namely, that Kinney offered to sell the painting to ACA, Kinney allowed ACA to inspect it prior to the sale, ACA did inspect it and decided it was authentic, Kinney released the painting to ACA and following the sale ACA brought the painting to the Avery Foundation who determined the painting was not authentic. (A-164-165) In other words, the District Court did not make any factual findings relating to the issue of agency or the allegations of fraud against Kinney; nor did the District Court raise the issue of the parties’ knowledge about the status of the painting’s title.

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The importance of these additional procedural facts will appear in the Argument portion of this brief.

STATEMENT OF FACTS Kinney accepts ACA’s Statement of Facts but would like to emphasize and add the following.

ACA is a family run New York company 2 whose presence in the visual art world goes back more than 80 years. 3 The President and Chief Operating Officer of ACA, Jeffrey Bergen, grew up in an art-conscious family and holds an intimate knowledge of American art. 4 In conversations with Kinney prior to the sale of the painting, Bergen lauded himself as an expert on Milton Avery’s work. (A-55, ¶6; A-59, ¶27) Bergen went on to enthusiastically explain to Kinney that he knew the artist’s style intimately because he had grown up as close friends and neighbors with Avery’s children. (A-59-60, ¶28) Prior to selling the painting to ACA, Kinney had no experience with Avery’s artwork. (A-55, ¶5) In fact, Kinney had very little experience at all brokering sales 2

Although ACA states its corporate name is “ACA Galleries, Inc.” there is no record of any business entity containing “ACA Galleries” in the database of the New York Department of State. Search results retrieved from http://www.dos.ny.gov/corps/bus_entity_search.html. Last accessed on September 25, 2013.

3 ACA’s website states that ACA Gallery was opened in 1932. Retrieved from http://www.acagalleries.com/about-aca on September 25, 2013.

4 Id. 3

of art and was basically a novice. (A-44; A-58, ¶¶19-22) Kinney, who suffers from a debilitating neurological condition caused by exposure to Agent Orange, has stated that he hoped to provide support to his wife and small children through selling “important paintings to buyers across the country.” (A-45-46) Given his limited experience, Kinney was careful to advise potential buyers, including ACA, that he was not an Avery expert. (A-58, ¶20) In order to ensure transparency and permit potential buyers to make their own determinations regarding the Avery, Kinney made the painting available for viewing at a controlled facility (SRI) in New York City. (A-59, ¶24-25) Kinney encouraged all interested buyers to examine the painting at the facility; in addition, Kinney made arrangements to authorize the pre-sale examination of the painting by experts, including the Avery Foundation, which was located a short distance from the facility. (A-59, ¶26) Attempting to make the investigation process as easy as possible, Kinney even contacted the Avery Foundation to verify their availability to examine the painting. (A-132) Bergen was one of the interested buyers that viewed the Avery in the facility. After Bergen’s visit on April 4, 2007, the custodian of the facility, Mr. John Elder (“Elder”) sent an email to Kinney stating his impression that although Bergen liked the painting it seemed he was “fishing” and not going to buy the painting on that day. (A-133) Elder also stated that Bergen “noted the odd particle4

board stretchers—said he’d never seen anything like that.” Bergen did not seek examination by the Avery Foundation—or any other expert—during his visit. Later that day, however, Bergen relayed to Kinney that he was speaking with a “client” about the painting and Kinney forwarded a bill of sale with an agreed upon purchase price of $200,000. (A-123) Apparently based on his own self-assurance regarding his knowledge of Avery’s style, Bergen had decided to purchase the painting after all. (A-55, ¶6) Bergen states that when he received the bill of sale listing Kinney as the seller he “realized for the first time that the actual seller…was to be Mr. Kinney,” which contradicted his understanding that Kinney was brokering the sale of the painting on behalf of a third party. (A-19, ¶¶2, 5) The bill of sale lists ACA as the buyer, but the purchase price was wired to Kinney from Mr. Jack Shaoul (“Shaoul”). 5 (A-27-30) Bergen states he “arranged…to have [Shaoul] advance the sum” to Kinney. (A-19, ¶6) The wire transfer from Shaoul was completed on April 6, 2007—just two days after Bergen viewed the painting. Kinney released the painting several days later on April 10, 2007. (A-19-20, ¶¶6-7)

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Shaoul, President of Universe Antiques, is no stranger to art fraud. (A-121-122) In 1993 Shaoul was convicted of conspiracy and mail fraud in connection with his attempt to defraud insurance companies through misattribution of supposedly authentic artwork he possessed. United States v.

Shaoul, 41 F.3d 811 (2nd Cir. 1994). More recently, Shaoul was sanctioned by the Southern District of New York for repeatedly lying to the court and his adversary regarding the provenance of a stained glass window he represented to be the work of Tiffany Studios. Universe Antiques, Inc. v. Vareika, 826 F. Supp. 2d 595, 608-611 (S.D.N.Y. 2011).

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Approximately two weeks after the purchase, Bergen took the painting to the Avery Foundation to obtain a certificate of authentication that would make the painting “more saleable at a higher price…” (A-20, ¶9) On May 2, 2007 the Avery Foundation issued the opposite: a certificate stating their opinion that the painting is not authentic. (A-20, ¶10; A-34) Bergen informed Kinney about the Avery Foundation’s certificate and demanded he return the purchase price. Kinney—who believed he sold ACA an authentic painting—was alarmed by the Avery Foundation’s opinion and immediately cooperated with the FBI in their covert investigation of Hamblin’s attempt to sell other fake paintings. 6 (A-56, ¶7) Eventually, with extensive assistance provided by Kinney, Hamblin was indicted and pled guilty to mail and wire fraud. (A-107-112) It is unclear where the Avery is now. Bergen asserts that he turned the painting over to the FBI. (A-160, ¶6) Kinney simply does not know. (A-58, ¶18) After the indictment of Hamblin, Kinney was declared a victim of her fraudulent conduct. (A-44-47) Kinney was also verbally abused by Bergen who threatened him and his wife. (A-136-139) When Kinney stated to Bergen “the more I think about this situation, the more I am troubled” (A-41) he was referring to the entire

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ACA states that it initiated the criminal investigation by contacting the FBI. (A-160, ¶6) Kinney disputes ACA’s statement.

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sequence of events—the sophisticated-art-dealer Bergen’s quick decision to buy the Avery without authentication, Shaoul’s payment of the purchase price for ACA, the opinion from the Avery Foundation that the painting was fake and Kinney’s subsequent work with the FBI to investigate Hamblin’s sale of other fake paintings. It was not the outcome Kinney expected when entering the world of selling art.

SUMMARY OF ARGUMENT The District Court correctly decided that ACA was precluded from obtaining rescission or damage for fraud. Although the parties were mutually mistaken about the authenticity of the painting ACA bought from Kinney, the District Court determined that ACA’s failure to fully investigate the painting by seeking an authentication from the Avery Foundation—or any other expert—prior to its purchase was unreasonable conduct for a party engaged in the buying and selling of art. The District Court did not hold that a buyer of art must always have a painting formally authenticated pre-sale in order to obtain relief from purveyors of counterfeit art, but rather must fully investigate a painting’s authenticity utilizing all of the information available to it, in addition a visual inspection.

Allowing the decision below to stand would result in a just outcome of the equities, rather than a road map for more art fraud. To ensure protection from 7

forgers and dishonest dealers, an art dealer must simply investigate all available sources of information prior to making an expensive purchase of art about which it has limited knowledge. Anything less would be a careless way to proceed in the art world.

ARGUMENT ACA attempts to persuade this Court to reverse the District Court’s decision and return this case for further consideration based on three arguments that each must fail: the first is incorrect, the second is irrelevant and the third is improper.

POINT I THE DISTRICT COURT CORRECTLY HELD THAT ACA WAS PRECLUDED FROM OBTAINING RECSCISSION OF THE SALE OR DAMAGES FOR FRAUD The District Court held that ACA’s decision to wait until after it bought the Avery to seek authentication from the Avery Foundation precluded ACA from obtaining rescission of the sale or recovering damages for fraud. Noting that some issues of fact were fiercely disputed (A-169), the District Court’s decision focused on the undisputed facts that Kinney offered the Avery for inspection by potential buyers and their experts, Bergen inspected it on behalf of ACA determining it was authentic and ACA declined to have the Avery Foundation inspect it prior to the 8

purchase. These facts support the District Court’s conclusion that ACA had access to additional, expert knowledge regarding the Avery that would have provided complete facts and avoided the now regrettable mistake of purchasing a fake painting.

ACA chose to wait until after the purchase to further investigate the authenticity of the Avery; the fact that ACA later discovered the Avery was not what it expected was a result of its own choice. The District Court found—as a matter of law—that ACA was responsible for its own mistake because of the unreasonable decision to proceed with the purchase in light of its limited knowledge. As the District Court aptly quoted, avoiding a contract is not permitted “just because one party is disappointed in the hope that the facts accord with his wishes.” In re Schenck Tours, Inc., 69 B.R. 906, 914 (Bankr. E.D.N.Y. 1987) (citing Backus v. MacLaury, 278 A.D. 504 (4th Dep’t 1951)). ACA’s argument to the contrary is based on a misunderstanding of the District Court’s reasoning and a misapplication of relevant law.

A. The District Court Did Not Need to Address Whether the Mutual Mistake Goes to the Foundation of the Agreement.

The District Court did not address whether the mutual mistake regarding the authenticity of the Avery “goes to the foundation of the agreement” because that analysis was unnecessary. ACA concedes that neither party raised a factual dispute 9

about the mutual mistake. (ACA Br. 13) In addition, neither ACA nor Kinney questioned whether the mistake was fundamental to their agreement. However, contrary to ACA’s argument that rescission is the proper remedy for mutual mistake, rescission is merely a possible remedy. The District Court correctly found that, under New York law, the remedy of mutual mistake is unavailable where the party seeking to invoke it was negligent or bears the risk of his own mistake. Koam Produce, Inc. v. DiMare Homestead, Inc., 329 F.3d 123, 127-28 (2nd Cir. 2003) (quoting Restatement (Second) of Contracts § 154 (1981) the court held a party bears the risk of his mistake if he is aware of his limited knowledge but “treats his limited knowledge as sufficient”); P.K. Dev., Inc. v. Elvem Dev. Corp., 226 A.D.2d 200, 201 (1st Dep’t 1996) (holding the doctrine of mutual mistake “may not be invoked by a party to avoid the consequences of its own negligence”).

In this case, the District Court relied on the undisputed facts that Kinney permitted ACA—a company in the business of buying and selling art—the opportunity to fully investigate the authenticity of the Avery prior to its purchase and ACA chose not to do so to conclude that ACA was both negligent and itself responsible for the outcome of a purchase made with limited knowledge about the Avery. (A-168-169) Therefore, ACA’s prima facie showing of entitlement to rescission was quickly overshadowed by its inability to invoke the remedy.

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B. The District Court Correctly Concluded that ACA’s Failure to Take Advantage of the Opportunity to Have the Painting Examined by the Avery Foundation Was Negligent and Unreasonable.

The District Court’s dismissal of ACA’s contract and fraud based claims was based on a simple conclusion from the undisputed facts: ACA had limited knowledge about the authenticity of the Avery, Kinney provided an opportunity for ACA to examine it and ACA chose to purchase the painting before completing a full investigation. ACA asks this Court to read between the lines of the District Court’s decision to find two erroneous implicit conclusions, i.e., that ACA could not rely on Bergen’s opinion and that ACA could only rely on an authentication by the Avery Foundation to complete a satisfactory investigation of the painting’s authenticity. This Court should not permit ACA to complicate the clear reasoning in the District Court’s decision in an attempt to refute the legal conclusion that ACA cannot obtain rescission or damages for fraud because its own conduct was negligent and unreasonable. i. ACA misunderstands the District Court’s Finding of Negligence.

The District Court held that ACA’s failure to investigate the authenticity of the Avery by consulting the Avery Foundation prior to its purchase “constitutes negligence sufficient to bar the application of the mutual mistake doctrine.” (A168-169) ACA’s argument that “the mere fact that Bergen’s opinion proved to be 11

mistaken does not support a conclusion that he was negligent in arriving at it” misunderstands the meaning of “negligence” in this case. (ACA Br. 15-16) Bergen’s mistaken opinion about the Avery’s authenticity was not the result of an accident (such as the medical malpractice occurring in the cases cited by ACA) that would permit an inference of negligence where res ipsa loquitur exists.

Instead, as the District Court noted, Bergen’s opinion was “no mistake at all, but rather ‘conscious ignorance.’” Restatement (Second) of Contracts § 154 (1981).

(A-168) Although Bergen proudly represented himself to Kinney as an Avery expert, Bergen brought the painting to the Avery Foundation because he could not authenticate the painting himself. Bergen also knew that ACA could sell the Avery for a higher value with a certificate of authenticity. (A-20, ¶9) Despite this knowledge, ACA bought the painting at the agreed upon price with the hope that the Avery Foundation would issue a certificate. Thus, the “conscious ignorance” in this case did not derive from ACA’s failure to have the painting formally authenticated by the Avery Foundation prior to the purchase but from ACA’s decision to proceed based upon “the hope that the facts accord with his wishes.”

See In re Schenck Tours, Inc., supra, 69 B.R. at 914.

To support its decision, the District Court correctly relied upon P.K. Dev., Inc. v. Elvem Dev. Corp. where the Appellate Division rejected a corporate 12

defendant’s attempt to rescind the sale of its cooperative unit based on the mutual mistake that the unit was unoccupied (and thus more valuable than previously agreed) at the time of the sale. 226 A.D.2d at 201-202. The P.K. court reasoned the defendant could have discovered the unit was unoccupied if it had exercised the ordinary care of a unit owner by completing an ordinary investigation, such as a phone call or visit inspection. The failure of the defendant to investigate in the manner of an ordinary unit owner constituted negligence. Id. In addition, the District Court intelligently applied the reasoning in Leaseco Corp. v. Taussig, a Second Circuit case holding a defendant could not rescind its purchase of a civil engineering company that turned out to have less earning potential than the buyer expected at the time of purchase because the particular business was too technical and risky for either party to safely assume a projected outcome. 473 F.2d 777, 781 (2nd Cir. 1972).

ACA’s argument that both P.K. and Leaseco are distinguishable because the sale of artwork is in a different category from the sale of real estate or a specialized business is misguided. The District Court applied P.K. and Leaseco because buying and selling art occurs in a highly technical market where the risk of fraud is frequent 7, if not rampant, and buyers must be aware of the constant chance that a

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The exact amount of fraud in the art market is understandably hard to measure. In 1990, the District of Hawaii engaged in an extensive analysis of the methods for detecting art forgery and 13

piece of art could be fake. As ACA recognizes in its discussion of certificates of authentication, obtaining proof or certainty about the authenticity of any work of art is extremely difficult and requires the exercise of great care. (ACA Br. 18) In this case, ACA failed to exercise the ordinary care of an art buyer operating in a complex, specialized market by failing to consult the Avery Foundation—an expert ACA knew had the ability to authenticate the painting— prior to purchasing a piece of art. Affirming the District Court’s decision will not set a precedent requiring art buyers to obtain pre-sale certifications by an artists’ foundation in order to protect themselves from forgers and dishonest dealers as ACA suggests. It will merely uphold the finding in this case that ACA did not act with appropriate care in light of its knowledge—which constitutes negligence sufficient to preclude it from obtaining rescission of the sale.

ACA further argues the District Court’s application of Section 154 of the Restatement (Second) of Contracts to find that ACA should bear the risk of its own mistake is inapposite because “this is not a case of treating ones limited knowledge as sufficient.” (ACA Br. 20-21) According to ACA, the proper application of the Restatement rule is found in Vandervort v. Higginbotham, 222 A.D.2d 831 (3rd Dep’t 1995). In Vandervort, the defendant-buyer sought to rescind a real estate

cited an estimate that forgeries comprise up to 10% of the total art sales. Balog v. Center Art Gallery-Hawaii, 745 F. Supp. 1556, 1560 (D. Haw. 1990).

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contract because of a mutual mistake as to the existence of an underground oil storage tank. The buyer, however, was aware of the existence of floor drains that obviously signaled the presence of the underground storage tank and could have discovered the tank prior to the sale through conducting an inspection or test. Id. at 832. Thus, the Appellate Division held the buyer could not rely on their “limited knowledge of a discoverable condition…as a basis for recovery.”

According to ACA, it should not be barred from relying on its limited knowledge as a basis for rescission because, unlike the buyer in Vandervort, there were no circumstances to put it on notice that further investigation was necessary.

(ACA Br. 21) However, when Bergen viewed the painting in the warehouse, he specifically noted the “odd particle board stretchers 8” and stated to the custodian that he had never seen anything like it. In light of Bergen’s expertise as a buyer of American art, that is a significant statement. Together with the fact that Bergen was knowingly dealing with a novice art seller who clearly disclosed that he was not an expert in the work of Milton Avery, anything out of the ordinary should have triggered Bergen’s awareness that more information was needed. Instead, Bergen arranged with Kinney that very day to buy the Avery. Thus, ACA’s claim

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Stretchers bars are used to display canvas art. New stretcher bars on old canvases sometimes indicate a painting is a forgery. See “Art Forgeries: Ways Art Forgers Fool Collectors” retrieved from http://www.artbusiness.com/forgers.html. Last accessed on September 25, 2013.

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that its purchase of the Avery after Bergen’s brief inspection was not a case of treating its limited knowledge as sufficient is simply wrong. ii. ACA’s decision to purchase the Avery without consulting the Avery Foundation was unreasonable.

The District Court also correctly dismissed ACA’s fraud claims because it cannot establish justifiable reliance, one of the required elements of fraud. (A-170) ACA’s reliance on the authenticity of the Avery was not justifiable because ACA “failed to avail itself of the opportunity to have the painting inspected by the Avery Foundation or another expert prior to purchase…” (A-171) The District Court emphasized that when an art gallery has access to information concerning a painting’s authenticity, such as the Avery Foundation’s opinion in this case, but fails to pursue that information, it cannot be said to justifiably rely on alleged misrepresentations or omissions. (A-173) The application of the holding in Foxley v. Sotheby’s, Inc. to the facts in this case could not be more on point. In Foxley, the plaintiff was a sophisticated art buyer that purchased a painting from Sotheby’s that he later discovered was a fake.

The plaintiff sued for fraud and claimed he justifiably relied on Sotheby’s promise to provide a letter from an expert that discussed the painting but which he never received. The Foxley court decided the plaintiff could, and should, have demanded to see the letter prior to purchasing the painting. 893 F. Supp. 1224, 1229 16

(S.D.N.Y. 1995). The fact the Foxley plaintiff was an experienced art buyer but failed to obtain the expert’s letter, which he claimed would have influenced him not to purchase the painting, until after completing the sale was unreasonable and accordingly his fraud claims were dismissed. Id. Similarly in this case, ACA is a sophisticated art buyer that failed to obtain information that it knew to be available and which, it now claims, would have influenced it to not purchase the painting. The District Court noted it is clear that ACA knew the Avery Foundation could authenticate the painting and it is demonstrated in the record that the Avery Foundation was available to examine the painting on the very day that Bergen viewed it. Bergen’s failure to take advantage of that opportunity was unreasonable. Accordingly, the District Court properly dismissed ACA’s claims for fraud.

C. This Court Should Affirm the District Court’s Decision For The Additional Reason Raised Below.

The reasons for the District Court’s decision are sound, but this Court should also affirm the decision on the additional ground raised by Kinney in his crossmotion: that ACA cannot demonstrate the required element of damages to recover for fraud. Despite the fact the District Court did not consider this argument, it arises from the undisputed facts and offers further support for a finding that all of ACA’s claims were properly dismissed.

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Kinney argued below that ACA’s claims for fraud should be dismissed because it cannot plead the essential element of damages. (A-64 , ¶49) In its complaint, ACA states that it entered into an agreement for sale of the painting and the “buyer agreed to convey and did convey the sum of $200,000.” (A-8-9, ¶5) ACA does not state anywhere in its complaint that it was the buyer. (A-7) In ACA’s affidavit in support of its motion for summary judgment, Bergen states that he “arranged with one Jack Shaoul, President of Universe Antiques, Inc., to have him advance the sum of $200,000…” and it is undisputed that Shaoul indeed paid the sum (A-19, ¶6; A-27) Although Kinney pointed out in his cross-motion that ACA did not actually lose any money because Shaoul paid the purchase price, ACA did not explain when—or whether—ACA paid any amount of money to Shaoul. Instead, ACA simply ignored Kinney’s argument and continued to assert that Kinney should return the money to ACA. It is well known that to recover on a claim for fraud, a party must plead a knowing misrepresentation of a material fact, made with the intent to deceive, reasonable reliance and damages. It also axiomatic that “fraud without damage” does not constitute a cause of action. Kountze v. Kennedy, 147 N.Y. 124 (1895). In this case, ACA claims that it was damaged because it paid Kinney $200,000 for a painting that was later found to be fake. However, ACA did not pay that amount and has not alleged any other basis on which to rest their claim for damages. As 18

such, ACA’s claims for fraud should also have been dismissed because they cannot demonstrate the required element of damages.

POINT II ACA’S ARGUMENT REGARDING THE ISSUE OF AGENCY IS NOT RELEVANT Point II states “there is no triable issue that Kinney acted as a broker rather than a principal in the sale of the fake painting.” (ACA Br. 22) In support, ACA points out that although Kinney argued below that he was acting as a broker for Hamblin “he submitted insufficient evidence on that point to create a triable issue.”

However, the substance of ACA’s argument in Point II seems to be that Kinney cannot avoid contractual liability because he did not disclose the agency relationship with Hamblin prior to the sale of the painting. Thus, ACA argues, it was “entitled to summary judgment on the issue of agency.” (ACA Br. 23) ACA’s argument makes little sense and it is unclear exactly what “issue of agency” ACA is discussing. In his opposition and cross-motion, Kinney disputed ACA’s claim that Kinney was the owner of the Avery prior to the sale (A-56-57); in support he submitted various exhibits, including emails, letters and a “Broker Proposal & Agreement” that indicated Hamblin’s ownership of the painting. (A100-112) Of course, ACA rejects Kinney’s assertion that he was merely acting as 19

Hamblin’s agent and would like this Court to accept that the Broker Proposal & Agreement is actually “an option to purchase” leading to the necessary conclusion “that Kinney purchased the painting from Hamblin and resold it to ACA.” (ACA Br. 23) Apart from the fact that ACA is asking this Court to make a finding of fact based upon the disputed significance of various documents, 9 ACA at no point explains what judgment (on the issue of agency) the District Court should have rendered.

Assuming, for the purposes of this appeal only, ACA’s argument is that Kinney is liable to ACA because he failed to disclose the agency relationship to ACA prior to the sale of the painting, the District Court’s reasoning supports the same conclusion on this issue. As discussed in Point I, ACA is precluded from relief because of its own negligent and unreasonable conduct, which was demonstrated by the application of the undisputed facts to relevant case law. The District Court did not hold that ACA could not invoke rescission or recover damages for fraud because Kinney successfully established the affirmative defense that he was acting as a broker rather than a principal in the sale of the painting. In fact, the District Court did not even address the agency issue—because it was obviated by the determination that ACA was precluded from recovery at all.

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ACA’s argument in Point II also does not appear anywhere in its motion, opposition to Kinney’s cross-motion or reply to Kinney’s opposition. Therefore it should be barred from consideration here. See Point III, infra.

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Therefore, ACA’s argument that the District Court should have granted summary judgment on the issue of agency is not relevant.

POINT III ACA’S ARGUMENT THAT THE SALE WAS VOIDABLE FOR MUTUAL MISTAKE BECAUSE KINNEY COULD NOT CONVEY TITLE TO THE PAINTING IS IMPROPERLY RAISED FOR THE FIRST TIME ON APPEAL ACA’s Point III raises for the first time the issue of whether the sale was voidable based on mutual mistake because Kinney could not legally convey title to the painting under the terms of the Broker Proposal & Agreement. (ACA Br. 24) This issue was not raised by ACA in its reply affidavit and memorandum of law in opposition to Kinney’s cross-motion. (A-150-161) As such it was never submitted to, or considered by, the District Court; ACA’s attempt to raise it now injects unfairness into the appellate process.

It is well established that “an appellate court will not consider an issue raised for the first time on appeal.” Diesel v. Town of Lewisboro, 232 F.3d 92, 107-108 (2nd Cir. 2000) (where appellants did not raise a particular argument in their trial court motion that argument was waived). The reason for this general, universal rule is that appellate courts do not engage in fact finding but only review the findings and legal determinations of the lower court.

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A. There is no Valid Reason to Consider ACA’s New Legal Argument.

In rare circumstances, an appellate court may decide to consider an issue that “does not require new evidence or factual finding when they deem this to be in the interest of justice…” Ebker v. Tan Jay Int’l, Ltd., 739 F.2d 812, 822 (2nd Cir. 1984). ACA’s newly raised mutual mistake argument does not present such a rare circumstance—because none exists—for two reasons. First, ACA’s argument requires this Court to examine the record and the Broker Proposal & Agreement to find that it “does not, by its terms, give [Kinney] authority to convey Hamblin’s title to a third party” and that “no documents passed between Kinney and ACA purporting to convey Hamblin’s title to ACA” (ACA Br. 24) Such a determination, argues ACA, will demonstrate that a triable issue exists “as to whether, at the time of the sale to ACA, [Kinney] had title to the painting…” (ACA Br. 25) However, the District Court did not even consider whether the terms of the Broker Agreement or the existence, or lack, of any other documents demonstrated a triable question regarding title—it certainly did not make a finding of fact in that respect.

ACA improperly asks this Court to do so now in order to raise a legal issue that was not raised in the lower court.

Second, the interest of justice requires this Court to summarily dispose of ACA’s “mutual mistake as to title” argument rather than consider or return it to the lower court. ACA cannot take a second bite at the apple: in a thorough and well22

reasoned decision based on undisputed facts, the District Court considered the mutual mistake legal issue as argued by ACA and rejected it. 10 Although ACA would like this Court to believe that allowing the District Court’s decision to stand would be a grave injustice, the opposite is true. ACA is a sophisticated party that had a full and fair opportunity to present its legal theories to the lower court. The District Court was not unaware of the myriad disputed facts alleged against Kinney regarding his role in the sale of the Avery, or the undisputed facts that ACA (through Shaoul) paid Kinney $200,000 to complete the sale and Kinney has not paid ACA any amount in return. Still, the District Court decided that ACA, who is in the business of buying and selling art, should be “cognizant of forgery of the works of well-known artists like Avery” and the law in New York does not protect ACA’s substandard conduct. 11 (A-171, 174) In light of the District Court’s decision, it would be unjust to grant ACA another chance to present a new legal theory in the hope that this one will prevail.

10

Although Kinney, who represented himself pro se in the court below, did not submit a reply to ACA’s reply affidavit and memorandum, any reply would not have addressed the issue of title because ACA did not yet raise it. Obviously the District Court could not consider a legal argument that was not presented to it by either party.

11 Presumably, Shaoul, who advanced $200,000 for the Avery, should also be cognizant of forgery.

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B. ACA Cannot Obtain Rescission Based on Mutual Mistake Regarding Kinney’s Authority to Convey Title.

In the event this Court decides to grant a second chance, ACA’s argument should still be rejected because any purported mutual mistake as to Kinney’s ability or authority to convey title does not warrant rescission in this case. The District Court’s reasoning would apply equally here: ACA’s failure to complete its investigation of Kinney’s authority to convey title until after its purchase was unreasonable and negligent and therefore it cannot invoke the doctrine of mutual mistake. ACA became aware of the discrepancy between Kinney’s statements that he was acting on behalf of another party and the indication that Kinney was the seller of the painting at the moment ACA received the proposed bill of sale, which was prior to Shaoul’s wiring the purchase price to Kinney. There is nothing in the existing record 12 that indicates Kinney prevented ACA from requesting further information regarding title to the painting.

ACA’s reliance on County of Orange v. Grier does not support its position.

In Grier, the court ordered rescission because both the buyer and seller were mistaken about the seller’s ability to convey title to certain lots of real estate. 30 A.D.3d 556, 557 (2nd Dep’t 2006). However, the mistake in Grier was based on

12

There is nothing in the record because the issue was not raised or addressed by either party or the District Court.

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complete information available to both parties at the time and there was no indication that the error arose from a failure to fill a gap in the buyer’s knowledge.

More applicable to the facts here is Dark Bay Int’l, Ltd. v. Acquavella Galleries, Inc., 12 A.D.3d 211 (1st Dep’t 2004). In that case, the plaintiff sought damages against the defendant-gallery arising from its purchase of a painting sold by the gallery’s alleged agent. The case turned on whether the alleged agent had apparent authority to sell the painting on the gallery’s behalf. The Appellate Division held the plaintiff could not establish apparent authority “because it failed to make any inquiry—let alone a reasonable one—into [the alleged agent’s] authority to sell the painting.” Id. at 212. Similarly here, after noting a discrepancy in Kinney’s statements and the bill of sale, ACA, an experienced art buyer, chose to proceed with its purchase rather than make any further inquiry into Kinney’s authority to convey title to the painting. As such, ACA cannot establish that it is entitled to rescission and this Court should decline the request to return this case to the District Court in order to try.

CONCLUSION ACA bought a painting from an unsophisticated individual new to the art world. Kinney allowed ACA to both examine it and have it authenticated by the Avery Foundation prior to the sale but, based on Bergen’s confidence in the 25

painting’s authenticity, ACA declined and sought authentication after the sale. The District Court ruled that ACA’s decision to wait is not protected under New York law. This Court should affirm the District Court’s judgment.

Dated:

New York, New York September 26, 2013

Respectfully Submitted,

_____/s/ Zara Watkins____ Zara Watkins, Esq. Attorney for Defendant-Appellee PO Box 627 New York, New York 10274 917-689-3180

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Certificate of Compliance with Rule 32(a)

1. This brief complies with the type-volume limitation of Federal Rule of Appellate Procedure 32(a)(7)(B) because it contains 6,066 words, excluding the parts of the brief exempted by Rule 32(a)(7)(B)(iii).

2. This brief complies with the typeface requirements of Federal Rule of Appellate Procedure 32(a)(5) and the type style requirements of Federal Rule of Appellate Procedure 32(a)(6) because it has been prepared in a proportionally spaced typeface, double-spaced, using Microsoft Word in Times New Roman 14-point font.

Dated:

New York, New York September 26, 2013

Respectfully Submitted,

_____/s/ Zara Watkins____ Zara Watkins, Esq. Attorney for Defendant-Appellee PO Box 627 New York, New York 10274 917-689-3180 27