Deconstructing Larry: Defections and Lawsuits Chip Gagosian’s Enamel

‘When somebody’s the king of the world, nobody wants to alienate them, but the minute people start to defect, they all start piling on.’

How one views the case is a matter of perspective. Whereas writer Felix Salmon wrote that the deal smacked of “skulduggery,” Art Market Monitor thought the emails merely “show[ed] a high pressure sales organization working hard to make a deal. Though Gagosian made $1 million on the sale himself, I doubt he rubbed his hands with glee. No one in 2009 was confident they would be able to cover their overhead.” Besides, while Mr. Cowles’s financial situation was in fact dire, that’s hardly an uncommon circumstance for collectors looking to part with works of art.

“Look, Larry’s fine to take a million if he can get away with it,” the art adviser admitted. “But seeing the inner workings of the conversation and the McLeod email casts a very poor light on how business is done. I’ve heard a lot of rumblings from collectors wondering about whether they’ve gotten a fair shake in their deals.”

In the art market there are, broadly speaking, two ways to structure a resale. The first is a consignment. The seller consigns an artwork to a selling agent, who markets it on his behalf, taking a percentage of the sale as commission. The second is a buy/sell, in which the agent buys the work from a seller and sells it on to a buyer. At the time Mr. Gagosian got his offer from Thompson Dean, Girl in Mirror was still on consignment. It subsequently appears to have morphed into a buy/sell.

When the judge denied Mr. Gagosian’s motion to dismiss the Lichtenstein case in September, he noted that “Gagosian, as an agent acting on behalf of its consignor, had a fiduciary duty to act in the utmost good faith and in the interest of Charles, its principal, throughout their relationship.” The standard desk reference on art law—which, as it happens, is co-authored by longtime Gagosian attorney Ralph Lerner—takes the same view: “On accepting works from an artist on consignment,” it reads, “the dealer becomes the artist’s agent, and the law of agency applies.”

Should the case go to trial, it may turn in part on whether Mr. Cowles’s role in the transaction is seen as comparable to that of an artist or consignor, or if he was acting as a fellow dealer instead, and was therefore not owed the same fiduciary duty—as the defense will likely contend.

Nonetheless, in his deposition, Mr. Gagosian indicated that throughout his career he has represented both sides of transactions without disclosure of that fact to either party. “To be honest with you, the question hardly ever gets asked,” he said. “I never get asked the question, ‘Are you representing both sides?’” He said he thought the information was “implicit,” adding that “My objective is to pay the seller and to make a profit for the gallery.”

“Lawyers and past clients of Gagosian’s who are not of good will would definitely find ammunition in that type of testimony,” said longtime art lawyer Thomas Danziger. But Mr. Gagosian, Mr. Danziger added, “is the most important and most successful art dealer out there. If he believes this is correct, it should be no surprise that other dealers feel the same way.”

Fiduciary duty is “not well [enough] understood” in the art trade, Mr. Danziger said. “Larry Gagosian’s view as expressed in the deposition might even be the majority view among art dealers, which is that they are representing ‘the deal.’ In point of fact and under New York agency law, you cannot represent both parties on the same transaction unless there is full and informed consent, and that is clearly what has been missing in a lot of transactions we’ve been reading about.”

Whatever the outcome of the Cowles and Perelman suits, many think change is long overdue. “People are going to have to be regulated,” the art adviser said. “More transparency may just be what everybody needs. Then again, maybe if you regulate the art world, it will fall apart.”

“A lot of people think this is the end of the art world as we know it,” the consultant agreed.

As for Mr. Gagosian, the recent patch of rough ice has exposed him—and the freewheeling industry he has helped to create—to unaccustomed scrutiny.” He puts winning first, and he doesn’t care who he steps on or screws,” the advisor said, “but that’s what it takes. It’s all a snake pit. These people deserve each other. And when you think about it, it’s all quite entertaining and amusing.

“The art world is constant entertainment.”

Deconstructing Larry: Defections and Lawsuits Chip Gagosian’s Enamel