Case Review: Galin v. Kunitake Hamada (2015), or Legal Storm over “Ice Storm”

November 12, 2015

By Elizabeth Weber, Esq.

In early September 2015, a former Tennessee news anchor who invested in Andrew Wyeth’s Ice Storm [the Painting] sued a Japanese art dealer in the Southern District of New York over the proceeds from the Painting’s May 2015 sale at Christie’s. The investor, Reed Galin, purchased a one-third interest in Ice Storm from his childhood friend and college roommate, now-disgraced art dealer David Ramus, in the late 1980’s.

The controversy over Ice Storm began in 1989 when Ramus bought the painting from Christie’s for $319,000 to be financed via an extended payment plan. Under the terms of the plan, Ramus would have to pay Christie’s one-third of the final bid price plus the buyer’s premium by June 23, 1989, another one-third of the final bid price by July 24, 1989, and the remaining one-third by August 23, 1989. About one month later, Galin entered into a written agreement to purchase an interest in Ice Storm from Ramus for just over $106,000. According to the complaint, Ramus “agreed that neither the Painting, nor any interest in it, would be sold or transferred to anyone, without [Galin’s] prior knowledge and consent.” Complaint at 5, Galin v. Hamada, No. 1:15-cv-06992 (S.D.N.Y. 2015). Soon thereafter, Ramus sold another one-third interest in Ice Storm to Don Sentell. Galin had prior knowledge of and consented to the one-third interest sale to Sentell.

Unbeknownst to Galin, Ramus had already sold 100% interest in Ice Storm to the Coe Kerr gallery in New York City later in 1989 in exchange for another painting, Children in the Wood, by Frank Weston Benson. However, Ramus continued to assure Galin that he was actively searching for an Ice Storm buyer throughout the early 1990’s, blaming the years of stagnation on the slow art market.

In a separate proceeding, Ramus was indicted and tried by the U.S. Attorney in the U.S. District Court for the Northern District of Georgia for fraud and conversion arising out of his fraudulent art dealings with a number of individuals, Galin being one of them. The Georgia case culminated in Ramus’s conviction and sentencing to a federal prison in 1996. United States v. David S. Ramus, No. 1:95-CR-199-01 (N.D. Ga. 1996). As it turns out, Ramus had sold a number of paintings in his possession without the knowledge of the piece’s owners, nor did Ramus pay the owners for the sale of their property.  Because Ramus sold Ice Storm without Galin’s knowledge nor did Galin receive any proceeds of the sale, Galin was officially designated a victim of Ramus’s crimes by the U.S. Attorney. Although Ramus’s property interest in Ice Storm was extinguished through bankruptcy proceedings and the other co-owner, Sentell, extinguished his rights as a Settling Creditor, Galin acted as a non-Settling Creditor in the 1990s proceedings. (Note: A non-Settling Creditor does not settle the outstanding debts at issue in a bankruptcy proceeding.) Accordingly, by acting as a non-Settling Creditor, Galin did not waive his rights to pursue a property interest in Ice Storm piece. Unlike other pieces that Ramus fraudulently converted, Ice Storm was never recovered by the authorities.

When Ice Storm appeared on consignment through Christies the identity of the consignor was left out. In his complaint, Galin indicates that he searched for Ice Storm for years, contacting art dealers in an attempt to locate the piece. Finally, in May 2015, Galin learned that the painting was being offered for auction at Christie’s by Tokyo-based art dealer Kunitake Hamada. Hamada purchased Ice Storm in December 2013 from K.K. Shinoda Bijutsu in Tokyo. See Memorandum of Law in Support of Defendant’s Motion to Dismiss, Galin v. Hamada, No. 1:15-cv-06992 (S.D.N.Y. 2015). 

Galin contacted Christie’s, which then reviewed Galin’s claims. As a result, Galin, Christie’s, and Hamada all agreed to allow Christie’s to sell Ice Storm and instead focus any assertion of rights on the proceeds from the sale only, and not the actual painting. The parties agreed to allow the sale of Ice Storm to proceed to preserve the painting’s market value, and determine competing claims later. The business decision aligned with the theory that by withdrawing a piece from sale, followed by litigation over it may damage the value of the work. Ice Storm sold for $820,000 (plus $169,000 as the buyer’s premium.) The net proceeds from the sale total $803,600 after deductions.Currently, the proceeds from the sale are being held by Christie’s pending the outcome of this litigation to be disbursed pursuant to a court order.

This action is before the U.S. District Court for the Southern District of New York because the Southern District has subject matter jurisdiction over all the parties through diversity because the plaintiff is not domiciled in the same state as any of the defendants and the amount in controversy exceeds $75,000. Further, the complaint alleges that the court retains in rem jurisdiction over Ice Storm because Hamada claims an interest in the piece, which is currently located in New York state. In the complaint, Galin asserts his right to an equitable lien on the sale proceeds of Ice Storm. Galin further seeks the imposition of a constructive trust on the proceeds of the sale. A constructive trust is an equitable remedy used by courts to prevent unjust enrichment and, in this case, would result in Hamada paying the proceeds of the sale to Galin.

Hamada subsequently moved to dismiss Galin’s claim for failure to state a claim upon which relief may be granted.  See Motion to Dismiss and Memorandum of Law in Support of Defendant’s Motion to Dismiss, Galin v. Hamada, No. 1:15-cv-06992 (S.D.N.Y. 2015).  In the motion, Hamada asserts that “a dealer in Ramus’s position can pass good title to a third-party with respect to goods entrusted by a seller in Galin’s position, even if the dealer acts with larcenous intent toward the seller.”  Memorandum of Law in Support of Defendant’s Motion to Dismiss at 1, Galin v. Hamada, No. 1:15-cv-06992 (S.D.N.Y. 2015).  Accordingly, argues Hamada, because Galin entrusted Ice Storm to Ramus, Ramus could pass good title to the Coe Kerr Gallery despite of Ramus’s unlawful conduct, and Galin has no claim against Hamada for the proceeds of Ice Storm’s sale.

Attorney for plaintiff is Richard A. Altman. Attorneys with Cahill Partners LLP are representing the defendant.

Sources:

• Galin v. Hamada, No. 1:15-cv-06992 (S.D.N.Y. 2015).
• In re David S. Ramus, No. A94-77777 (Bankr. N.D. Ga. 1997).
• United States v. David S. Ramus, No. 1:95-CR-199-01 (N.D. Ga. 1996).

About the Author: Elizabeth Weber is a lawyer living in Brooklyn, NY.  She graduated from the University of Florida Levin College of Law, where she received her certificate in Intellectual Property Law and served as an active member of the Art Law Society and the Journal of Technology Law and Policy.