Joseph Nahmad, the youngest member of the art-dealing Nahmad family dynasty, is suing Phillips auction house after a $5 million guarantee deal fell apart against the backdrop of the global pandemic and a sharp downturn in the market for the artist in question, Rudolf Stingel.

The lawsuit offers a window into the many backroom negotiations that take place before an auction in which clients commit to placing a bid on a work in advance, and may receive a favorable deal on their own consignment in return.

The lawsuit, which was first reported by Bloomberg, was filed in New York on June 9 by an entity called JN Contemporary Art LLC, which shares a Madison Avenue address where Nahmad Contemporary, Joseph’s gallery, operates. JN is suing Phillips for at least $7 million for allegedly improperly reneging on a deal to guarantee a work by the Italian-born artist Stingel.

While the house suggested the dissolution was due to the unforeseen impact of the pandemic, JN Contemporary contends Phillips “disingenuously” used the health crisis as a “pretext” to back out “based on its belief that the current commercial market for works of art by Rudolf Stingel is not strong.”

Nahmad declined to comment on the suit. A spokesperson for the auction house told Artnet News: “Phillips does not comment on ongoing litigations.”

The facade of Phillips auction house in New York City. Photo Credit: Rommel Demano/BFA.com; Courtesy of Phillips.

According to the complaint, the drama began with an auction-house tit for tat. JN Contemporary struck a deal with Phillips to place an irrevocable bid for £3 million on a painting by Jean-Michel Basquiat, Untitled (1981), ahead of its June 2019 evening sale in London.

In exchange, JN Contemporary secured a $5 million guarantee on a large black-and-white mountainscape by Stingel, Untitled (2009), for Phillips’s spring 2020 sale in New York. (A similar work sold at Sotheby’s in 2018 for $6.5 million.) The sale was initially scheduled for May, but was pushed back and eventually held online last week.

JN Contemporary asserts that it fulfilled its end of the bargain by acting as the irrevocable bidder at the London sale, even though it was outbid and did not end up going home with the painting. The Stingel and Basquiat deals were made “in consideration of each other,” and one would not have happened without the other, the complaint argues.

But by the time spring 2020 rolled around, both the world and the art market looked very different than they had a year prior. On May 30, according to the complaint, Joseph Nahmad received a WhatsApp message from Russian magnate Leonid Friedland, the CEO of Phillips’s parent company, noting that the guarantee could be cancelled in the case of “natural disaster, fire, flood, general strike, war, terrorist attack… or chemical contamination.”

L’ Officiel Russia magazine editor-in-chief Evelina Khromchenko, Leonid Friedland, Dasha Zhukova (right) and her father Alexander (second from right) in the front row during Russian Fashion Week on April 6, 2007 in Moscow, Russia. (Photo by Pascal Le Segretain/Getty Images for RFW)

The next day, Friedland sent another message to Nahmad with a letter indicating that the guarantee agreement would be terminated due to the postponement of the May auction. (The complaint says that Phillips did offer to include the painting in the July sale, but with a “stripped down” agreement that eliminated the guarantee. It also asserts that the WhatsApp message is “not a legally valid service.”)

But Nahmad thinks that the deal fell apart for another reason: the state of the market for Stingel. The artist’s photorealist paintings and gilded patterned compositions were once must-have trophies for the hedge-fund crowd. The artist was even feted with a high-profile Art Basel-timed retrospective at the Beyeler Foundation last June when the JN Contemporary deal was made.

But since then, his market has tumbled following a flood of speculative deals. The most flagrant is linked to disgraced art dealer Inigo Philbrick, who sold more than 100 percent of a Stingel painting to various investors. Of 44 paintings by the artist that have been offered at auction since the start of 2018, nine failed to sell and only four sold above the high estimate.

Installation view, “Rudolf Stingel” at Fondation Beyeler. © Rudolf Stingel Photo: Stefan Altenburger. Courtesy Foundation Beyeler and Gagosian.

Nahmad’s claim points out that, since one of Phillips’s owners, Leonid Friedland, was the consignor of the Basquiat, “Friedland received the entire [sic] sum of GBP3,802,000 without paying anything to a consignor. If Plaintiff had not bid at the auction, upon information and belief, no other bidder would have participated in the auction… and it would not have sold.”

The suit does not explain the assertion that the painting would not have sold without JN Contemporary’s bid since someone else did, in fact, bid above that level.

UPDATE: An earlier version of this article pointed out confusion over the true owner of the Basquiat at the time of the sale, given that the complaint said the painting was owned by either “plaintiff” or Leonid Friedland. An attorney for JN Contemporary Art has since clarified the lawsuit contained an error, and this should have read “defendant,” meaning Friedland.