© 2014 The Texas Lawbook.
By Jeff Bounds
Staff Writer for The Texas Lawbook
(April 9) – A federal jury has nixed an attempt by a Los Angeles art gallery to do an end-run around the Robert Allen Stanford receivership claims process and recover nearly $3 million that it provided the imprisoned Houston billionaire’s empire for the purchase of 100 gold bars.
The ruling by the seven-person Dallas panel means Pre-War Art, Inc., which does business as Gagosian Gallery Inc., will likely have to stand in line with thousands of other creditors to try to recover its money from the empire of Stanford, who is serving a 110-year prison sentence in the operation of a Ponzi scheme.
Total claims on certificates of deposit issued by the Stanford International Bank have exceeded $5 billion. The receiver in the case, Ralph Janvey, has received court approvals to date to distribute roughly $55 million to creditors.
“The receiver is pleased with the jury’s decision. He believes it is consistent with the evidence at trial,” said David Arlington, special counsel at Baker Botts representing Janvey. The verdict “ultimately allows him to do what the court appointed him to do: collect receivership assets, and make appropriate and fair distributions, approved by the court, to all of the Stanford victims.”
The jury’s decision also appears to free the Dallas-based precious metals dealer Dillon Gage of liability to the gallery.
The Gagosian gallery sued both Dillon Gage and a unit of Stanford’s financial empire, Stanford Coins & Bullion Inc., back in 2009. In January of that year, the gallery had retained Stanford Coins to act as a broker in the purchase of a total of 101 gold bars, each 32.15 oz., according to Gagosian’s complaint.
Of those 101 bars, 100 were for an art exhibit Gagosian was doing in Beverly Hills in March of that year, with the other single bar to be delivered to a Gagosian location in New York., according to the gallery’s complaint.
By Feb. 2 of that year, the gallery had wired $3.02 million to Stanford Coins as part of its contract with Stanford Coins.
Dillon Gage, in turn, sent an invoice to Stanford Coins for 100 gold bars, and Stanford Coins paid a little more than $2.9 million to Dillon Gage for the bars.
The difference between the $3.02 million that Stanford received from the gallery and the more than $2.9 million that Stanford paid for the gold reflected a roughly $25,000 profit that Stanford made between the two transactions.
Dillon Gage bought the 101 gold bars, but only sent one of them to the gallery, retaining the other 100 following a temporary restraining order that a Dallas federal judge issued around Feb. 16, 2009, according to the complaint.
For reasons that haven’t been disclosed publicly, Dillon Gage “secretly began selling the gold” bars in July 2009, according to the Gallery’s complaint. Dillon Gage “finally disposed of it all no later than November 2009, when the price of gold had increased dramatically,” the complaint says.
“Dillon Gage has refused to tell the gallery how much it obtained from the sale of the gold,” Gagosian’s complaint says. The document notes that the gallery “got neither the gold nor its money back.”
Attorneys for Dillon Gage at Kane Russell Coleman & Logan PC declined to comment.
What the fight was about
The dispute centered on whether the money that Stanford Coins paid to Dillon Gage belonged to either the Stanford estate or the gallery.
However, what the jury decided related to two specific claims against Dillon Gage:
• A breach of contract claim, based on the theory that Stanford Coins had entered into that contract on behalf of the gallery as the gallery’s agent.
• That the gallery was a third party beneficiary of the sale contract between Dillon Gage and Stanford Coins.
In court filings, the gallery made several arguments:
• Gagosian said it had a legitimate claim to the proceeds of the gold sale, since they originated with Gagosian and were subject to a contract with the gallery.
• In addition, the gallery’s court filings argued, the money in question was not ill-gotten gains from the Ponzi scheme, and thus shouldn’t be subject to the receivership.
The receiver, in turn, argued in court papers that the two transactions were totally separate.
That, in turn, meant the funds that Stanford Coins paid to Dillon Gage belonged to the receivership, court papers argued.
In the alternative, the gallery argued, Stanford Coins had a contract to purchase 100 gold bars from Dillon Gage. That, the gallery argued, gave it the right to enforce the contract with Dillon Gage.
The defense countered that the so-called “four corners” of Stanford Coins’ contract with Dillon Gage made no mention of the gallery, and that the court shouldn’t consider external communications such as emails and phone calls related to the contract.
But even if those communications were considered, there was no evidence that the gallery was intended to be a third-party beneficiary of the contract, the defense argued.
Ultimately, the jury appeared to buy defense arguments and reject those of Gagosian. The panel rejected the gallery’s legal claims against Dillon Gage.
The receiver does not dispute that the gallery has a breach of contract claim against Stanford Coins, court papers show. But that means the gallery must go through the receivership claims process, along with everybody else who wants a piece of the Stanford estate, to get some of its money back.
Meanwhile, the legal maelstrom that has engulfed Dillon Gage in the Stanford case hasn’t quite receded.
In a separate lawsuit, the receiver claims that Dillon Gage received over $5 million in fraudulent transfers from Stanford Coins between Jan. 22, 2009 and the date the receiver was appointed, Feb. 16 of that year. That case is pending in federal district court in Dallas.
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