Privacy Law Suit Brought After Private Sale

The Wall Street Journal has an interesting article on the private sale of a Rothko painting and a subsequent sale and ownership disclosure at auction. What is also interesting is the lawsuit shows some of the backroom dealings going on in order to complete these private sales.  Rarely do we get such a look into private sales, as they are supposedly private, or at least the plaintiff in this case thought.

The Wall Street Journal reports

When Marguerite Hoffman, a wealthy Dallas widow, decided to sell a major painting by Mark Rothko in 2007, she insisted the transaction be kept hush-hush. Mrs. Hoffman's husband, soft-drinks bottling magnate Robert K. Hoffman, had died the year before, and she needed to quietly raise some cash from a discreet buyer.

But according to a lawsuit set to go to trial in Dallas next week, the private transaction came to light three years later when the Rothko's buyer turned around and sold the painting in a highly publicized auction at Sotheby's—where it fetched $31.4 million and indirectly revealed the Hoffmans' prior ownership in marketing materials.

In court papers, Mrs. Hoffman is alleging two major New York art dealers and a Mexican-born billionaire art collector named David Martinez broke an agreement to keep her 2007 transaction private. Tobias Meyer, the high-profile former head of contemporary art and principal auctioneer of Sotheby's, is scheduled to testify via videotaped deposition about his role in the sale. A judge has ruled that Mrs. Hoffman's claims against Mr. Meyer and Sotheby's in the case weren't justified and have been dismissed.

The defendants in the case, in U.S. District Court in Dallas, deny the allegations, saying they didn't breach any agreements.

Major transactions in the art world often involve secrecy, and confidentiality clauses of differing stripes have become common in recent years. As prices of artworks soar into the tens of millions, many wealthy buyers want to protect their privacy. If the defendants are found liable, some legal experts say, it could have broad implications for the art world by threatening to turn such confidentiality agreements into restrictions or even prohibitions of resales.

The Rothko case also reveals some of the behind-the-scenes jockeying that goes into preparing major works of art for auction and the commissions taken by various parties.

The painting at issue, a 1961 untitled work known as the "Red Rothko," had been part of an extensive contemporary art collection owned by Mrs. Hoffman and her late husband, who had earlier co-founded National Lampoon. The Hoffmans had pledged the Red Rothko to the Dallas Museum of Art as part of a broader gift. But Mrs. Hoffman decided to sell the painting after his death, according to the complaint.

The 2007 sale, which fetched Mrs. Hoffman $17.6 million, was arranged through Robert Mnuchin, a former Goldman Sachs GS +1.00%  executive who has become one of New York's foremost art dealers, and Dominique Lévy, then his business partner. According to her court complaint, Mrs. Hoffman stressed that she wanted the sale to the unknown buyer kept quiet to avoid speculation about her financial situation and embarrassment to the Dallas museum over the work, which at the time of the negotiations was hanging in the museum as part of a show.

In a deposition, Mrs. Hoffman said she was assured that the buyer was an individual and "this picture would disappear into his private collection in Europe." The sale involved a letter agreement that "all parties agree to make maximum effort to keep all aspects of this transaction confidential indefinitely," and that the buyer wouldn't display the work for six months, according to court records.

Mr. Martinez, who splits his time between New York and London, made his fortune investing in distressed debt through a firm named Fintech Advisory Inc. He is a major art collector, but in the case of the Red Rothko he bought the painting on behalf of a Belize-registered company named Studio Capital, according to court documents. Details about the company and the extent of Mr. Martinez's control of it remain obscured by court-ordered confidentiality strictures, but the documents suggest Mr. Martinez is the major party behind the company.

Three years after buying the Red Rothko, Mr. Martinez and Studio Capital decided to sell it at a Sotheby's auction. According to court documents, the Sotheby's catalog and website didn't name Mrs. Hoffman as a prior owner but noted that the painting had featured in the 2007 Dallas museum show. It pointed readers to the Dallas show's catalog page with a photo of the Hoffmans standing in front of the work. That and other publicity surrounding the auction, Mrs. Hoffman claims, outed her as a previous seller and breached the confidentiality agreement.

Source: The Wall Street Journal if that link does not work because of the WSJ paywall, try this link through Google News.