## Facts

- Plaintiffs bought high-value paintings from a prominent New York gallery that were represented as authentic works by Mark Rothko (De Sole plaintiffs) and Willem de Kooning (Howard plaintiff) but were later determined to be forgeries.
- The gallery obtained dozens of paintings from a dealer who claimed they came from a secret private collection; the provenance story shifted over time and relied on an anonymous collector.
- Plaintiffs alleged the gallery and its president made detailed assurances about authenticity, including references to expert approval and expected acceptance by catalogue raisonné authorities.
- Plaintiffs alleged substantial “red flags” existed, including negative or inconclusive feedback from an art-research foundation on a related work, implausible provenance explanations, limited due diligence, and unusually favorable purchase-to-resale economics for the gallery.
- After investigations and forensic analysis, the works were revealed to be forged; the gallery closed amid public scrutiny.
- Plaintiffs sued the gallery, its former president, the dealer source, and others, including the gallery’s owner and holding company, asserting civil RICO and multiple New York state-law claims.

## Issues

1. Whether the complaints plausibly alleged civil RICO claims, including an enterprise, a pattern of racketeering activity, adequately pleaded mail and wire fraud predicates, and proximate causation.
2. Whether fraud-based claims (fraud, concealment, aiding and abetting, and conspiracy) were pleaded with sufficient particularity and a strong inference of scienter under Rule 9(b).
3. Whether plaintiffs plausibly pleaded breach of warranty of authenticity under New York law and the U.C.C., and whether such claims could extend beyond the seller to other defendants.
4. Whether mistake theories (unilateral or mutual) were adequately pleaded or were redundant given fraud and warranty claims.
5. Whether the gallery’s owner and holding company could be liable based on alleged knowledge, control, or participation rather than mere ownership.

## Decision

- The court granted the Rule 12(b)(6) motions in part and denied them in part.
- The court held that plaintiffs plausibly alleged a RICO enterprise and a long-running, continuous pattern of racketeering activity tied to repeated sales of forged works.
- The court held that the pleadings satisfied Rule 9(b) for mail and wire fraud predicates by alleging specific transactions, communications, and misrepresentations about authenticity and provenance.
- The court held that scienter was plausibly alleged as to principal gallery actors based on cumulative allegations of red flags and alleged concealment.
- The court found RICO standing and proximate cause adequately pleaded because plaintiffs alleged direct financial injury from paying millions for works lacking the represented value.
- The court allowed core common-law fraud and certain related claims to proceed against key defendants, while dismissing or narrowing certain aiding-and-abetting/conspiracy theories on a defendant-specific basis.
- The court dismissed some warranty and mistake claims, particularly where defendants lacked a direct seller/contract relationship or where the claim was inadequately pleaded or duplicative.
- As to the gallery’s owner and holding company, some claims were dismissed for insufficient allegations of direct transactional involvement, while other claims survived to the extent the pleadings supported more than passive ownership.

## Legal Principles

- A civil RICO claim may be plausibly pleaded where allegations describe an ongoing scheme with continuity, multiple related transactions, and participation by associated persons/entities constituting an enterprise.
- Mail and wire fraud predicates must satisfy Rule 9(b), typically requiring allegations of the time, place, speaker, and content of misrepresentations and the use of mails or interstate wires in furtherance of the scheme.
- Scienter for fraud may be pleaded by alleging facts supporting a strong inference of knowledge or reckless disregard, including red flags, implausible provenance, adverse expert feedback, and failure to investigate despite reasons to doubt authenticity.
- RICO proximate cause and standing are satisfied where plaintiffs allege direct loss flowing from the same misrepresentations that constitute the racketeering predicates.
- Under New York law, fraud requires material misrepresentation or omission, scienter, justifiable reliance, and damages; reliance can be plausible where a reputable seller gives specific assurances about authenticity in a specialized market.
- Warranty liability generally depends on the seller’s affirmations forming part of the basis of the bargain; extending warranty or related liability to non-sellers requires well-pleaded facts linking them to the contractual warranty or its making.
- Equitable mistake claims may be dismissed when inadequately pleaded or when they substantially overlap with and add no distinct relief beyond surviving fraud or warranty theories.

## Conclusion

On motions to dismiss, the court treated the alleged multi-year forged-art sales as sufficient to plead a RICO enterprise and pattern and allowed central fraud-based claims to proceed based on detailed misrepresentation and red-flag allegations, while narrowing warranty, mistake, and certain owner-related theories that lacked a strong pleaded connection to the sales or contractual undertakings.


De Sole v. Knoedler Gallery, LLC, 974 F. Supp. 2d 274 (S.D.N.Y. 2013)