In a warning shot to gallery owners, a New York federal court has sent to trial two collectors' claims that Michael Hammer and his company 8-31 Holdings, which owned the now defunct Knoedler gallery, are liable for fraud the gallery allegedly committed in selling forgeries.

The court's May 8th ruling found that because 8-31 frequently reimbursed Hammer for personal expenses, and Knoedler transferred funds to 8-31 that were unrelated to work performed, a jury could conclude that Hammer and 8-31, and in turn 8-31 and Knoedler, were one and the same, and therefore just as liable as Knoedler.

Speaking to The Art Newspaper, William Charron, co-chair of Pryor Cashman's Art Law Group and counsel to one of the plaintiff-collectors, the Martin Hilti Family Trust, explained, "the decision is both a guidepost and a warning" for the informal art market.

James Janowitz, also a co-chair of the Group and counsel to Hilti, noted the decision is unusual because "generally, corporations confer on their owners limited liability, so they aren't personally liable."

The ruling also has practical importance for the plaintiffs. If the jury concludes Knoedler committed fraud, will the now-shuttered gallery have enough assets to pay damages? "Knoedler's lawyers say no," said Janowitz. But the plaintiffs may now be able to look to Hammer, the grandson of the oil tycoon Armand Hammer, and 8-31, which owns the Hammer Galleries. "Hammer Galleries was showing millions of dollars of art at [the] Tefaf [art fair]," Janowitz said.

Read the full article in The Art Newspaper.

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