Berry-Hill Shows How Not to Conduct Art Investment (Again)

2014-july-25-james-hill

James Hill.
Photo: © 2014 Patrick McMullan Company, Inc.

It's been nearly a decade since the once prestigious American art dealer Berry-Hill Galleries filed for Chapter 11 bankruptcy, but the gallery's financial woes continue even today. A recent ruling in a complicated dispute with a private investment company, signed by New York State Supreme Court judge Shirley Kornreich late last month, shines additional light onto the murky, unethical business practices the gallery used to attract financing and facilitate deals.

An arbitrator ruled that James Hill and Berry-Hill Galleries must pay roughly $3 million to 624 Art Holdings, the name under which a private investment firm in midtown Manhattan pursued claims against Hill and the gallery for various unfulfilled art deals. According to a 30-page arbitration decision, obtained by artnet News, the convoluted schemes and ensuing disputes played out over the course of the last seven or eight years, and were happening even as the gallery was on the hook for tens of millions of dollars in connection with its bankruptcy filing.

Shady Business on a Charles Sheeler Painting

According to the legal documents, 624 came to Berry-Hill looking for help with an art investment. Instead, the gallery acted to channel funds to its own needs.

On January 18, 2006 Berry-Hill purchased a painting titled Meta-Mold by Charles Sheeler on 624's behalf for $550,000. Two years later, the gallery sold the Sheeler, though they failed to realize much of a profit for their client: the deal was worth $475,000 in cash "and in-kind exchange of another artwork" titled Skating Scene by Regis Gignoux (a French painter who, quite frankly, we have never heard of before), worth $75,000.

The way Berry-Hill maneuvered, however, it gained and 624 lost out big time. According to the report, 624 Art Holdings got the Gignoux. But the nearly half-million dollars in cash proceeds from the Sheeler sale went instead to pay off one of Berry-Hill's creditors, American Capital Strategies.

A Three-Way Fight Over a Bellows

Another even more spectacular dispute with 624 involves Jersey Woods by George Bellows, and shows how one bad deal led to another.

According to the court papers, way back  in 2003—well before the 2005 Berry-Hill bankruptcy filing—collectors John and Toni Bloomberg had filed a complaint in New York Supreme Court against Berry-Hill alleging fraud in the purchase of the Bellows painting. They had bought the work from the gallery for $750,000 and only later learned it was "in damaged, unsellable condition." Sotheby's attempted and failed to sell the painting at auction "due to its extensive damage," the decision states. In September 2004, the Bloombergs and Berry-Hill reached a settlement agreement over the lemon Bellows: The gallery agreed to repurchase one-half interest in the painting for $300,000.

However, the opportunity to make peace with the Bloombergs was at the same time an opportunity to engage in further questionable dealings with 624: According to the ruling, Berry-Hill actually fulfilled their obligation by getting 624 to put up the money, essentially selling the investment group a half share in a painting they already knew was damaged—and had already been sued for.

The arbitrator's statement in his finding is damning: He says that Berry-Hill "failed to disclose to 624 that 1) the Bellows was damaged and unsellable 2) the painting is the subject of a legal dispute and encumbered by the Bloomberg settlement and 3) that [Berry-Hill] used 624's funds in order to partially extinguish legal claims." An executive of 624 Art Holdings is quoted in the decision to the effect that he would not have put up the money if the background had been known: "I am not in the business of financing other people's litigation settlements."

A Storm of Other Complaints

The decision also includes a dispute over a George Inness painting, Approaching Storm, which may have been a fake, as well as a variety of other complex-sounding schemes. All told, the damages total roughly $3 million.

In a call with artnet News, Samuel P. Israel, the attorney for 624 Art Holdings, summed up his client's take on the matter:

“[James] Hill apparently converted our client's property in part to pay off debt that he personally guaranteed. The case had to do with independent acts by which Hill exploited an agency relationship to convert funds and artwork with which he was entrusted. The specifics of the misconduct are ornate and the character at the center of the story—Hill—is a cross between Falstaff and Mrs. Macbeth. He tells fairy tales about the intrinsic beauty of the works even as he purloins and liquidates them to pay off his own debt."