Auctioneer Doubts Authenticity, Withdraws Cy Twombly Artwork and Seeks Return of $1.5M Advance

Did Owner Have Claim Over Against Third Parties for Triggering the Dispute?

Decisions often address claims by a defendant that the harm alleged by the plaintiff was caused by others—and result in so-called “third-party” claims for indemnification of contribution. As a recent case illustrates, the Court may be called upon to assess the viability of such claims.

In 2016 Pier Franco Grosso consigned to Phillips Auctioneers LLC artwork in exchange for an advance of $1.5 million. Grosso represented that the artwork was by the late artist Cy Twombly. Phillips estimated the work would sell for $2.5 million to $3.5 million. Under Paragraph 10(a) of the consignment agreement, Phillips was permitted to withdraw the work from sale if, in Phillips' "sole judgment,"

(i) there is reasonable doubt as to its authenticity, authorship or attribution; (ii) there is doubt as to your title or your authority to place it for sale; (iii) any representation or warranty that you have made to [Phillips] is materially inaccurate or we reasonably doubt its accuracy; (iv) you have breached, or indicated that you intend to breach, any provision of this Agreement in any material respect; (v) the [Work] is damaged to the extent that it is not in the condition in which it was when [Phillips] agreed to sell it; or (vi) other just cause exists.

Paragraph 10(b) of the agreement stated that, if Phillips withdrew the work from sale under paragraphs 10(a)(iii) or (iv), then Grosso was required to pay Phillips's out-of-pocket costs related to the work, a withdrawal fee of 25% of the latest low pre-sale estimate of the work, and the entire outstanding amount of the advance plus interest. Phillips determined that the provenance of the work was questionable and withdrew it from sale and sued Grosso for return of the advance and related costs.

Grosso counterclaimed for breach of fiduciary duty alleging that Phillips failed to disclose to him communications that Phillips had with nonparty Cy Twombly Foundation, which caused Phillips to conclude that the artwork was a forgery.

Grosso sought leave of Court to assert third-party claims—for tortious interference, prima facie tort, fraud, injurious falsehood, product disparagement, and negligent misrepresentation—against the Foundation, David Baum, the Foundation's outside counsel and secretary, and Nicola Del Roscio, the Foundation's president. This was predicated upon allegedly false statements that Grosso believed harmed his reputation and the value of the work.

The issue before the Court was whether the proposed third parties were liable to Grosso for all or part of Phillips’ claim against him because third-party claims are limited to claims for contribution, indemnity, or subrogation.

The doctrine of impleader has its roots in strict indemnity, but the history and development of impleader and the language of the current statute indicated that the device was no longer wedded to this single theory of recovery. One of the main purposes of third-party practice was the avoidance of multiplicity and circuity of action, and the determination of the primary liability as well as the ultimate liability in one proceeding, whenever convenient. At the least, the third-party claim must be sufficiently related to the main action to raise the question of whether the third-party defendant may be liable to the third-party plaintiff for the damages for which the latter may be liable to the plaintiff.

While certainly related, the third-party claims lacked the claim-over component because the Foundation, Baum, and Del Roscio had nothing to do with Phillips' advance to Grosso. Likewise, Grosso's breach of fiduciary duty for Phillips' failure to inform Grosso of the Foundation's statements did not involve the third-party claims. Moreover, the third-party controversy would delay the determination of the main action.

In exercising its discretion, the court considered whether the controversy between Grosso and the Foundation would unduly delay the determination of the main action. Phillips anticipated brief depositions in a short amount of time, followed by the filing of a note of issue and summary judgment motion. However, the Foundation was entitled to service, time to answer or move, and discovery far beyond the scope of allowable discovery in the action by Phillips against Grosso. The motion was denied.

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