Art law USA

Berry-Hill stacks up lawsuits

Interest on debts running at $9,000 a day

Stock being removed from Berry-Hill following a court hearing last March

NEW YORK. Berry-Hill galleries, which emerged from bankruptcy in March 2007, and the affiliated company that owns its exhibition spaces, are battling three lawsuits and facing debts of at least $26m, according to their creditors. Servicing this debt is costing more than $9,000 in daily interest charges—over $3m a year (The Art Newspaper, May 2010, p64).

In January, briefs were filed in the New York federal court on the question of the amount of legal expenses Berry-Hill owes to the lender, American Capital Financial Services (ACFS), as reimbursement: it is seeking $1.15m. This is in addition to the outstanding $9.5m debt due to ACFS on a loan which the gallery defaulted on in March 2008. A court judgement last October ordered the gallery to pay the $9.5m, which includes the past due loan plus interest and other charges, as well as ACFS’s legal fees. Daily interest on the loan—which has been accruing on the $9.5m since March 2010—is $4,436.99. The October decision also ordered Berry-Hill to release works of art, pledged as collateral for the loan to ACFS for sale.

Court papers show that, as of 31 December 2009, Berry-Hill owed customers nearly $2.5m for sales of consigned works. It is unclear whether this has been paid back. In April 2010, the lawyers acting for the gallery asked to withdraw because they had not been paid. New lawyers have now taken over.

As of March 2010, Berry-Hill had not been meeting certain monthly cash expenses, including $140,000 in rent, these court papers also show. This amount is owed to Berry-Hill’s affiliate, 11 East 70th Corp, which then pays $108,000 in mortgage fees on an Upper East Side gallery premisis—now also in default. As of March 2010, Berry-Hill also owed around $28,000 in fees for storing art on which the defaulted ACFS loan was secured, plus insurance premiums for this art, and had not paid its employees for two different pay periods.

In a separate suit brought in New York state court in June 2010, Chinatrust Bank is seeking foreclosure of the gallery’s premises, alleging default in April by 11 East 70th Corp on its $16m mortgage for the two properties on the Upper East Side that house the gallery. That loan is now incurring interest at a default rate of 13.5%, according to Chinatrust, or $5,917 daily. Chinatrust is also asking for repayment of its legal fees.

The third lawsuit, brought by Berry Hill client 624 Art Holdings, was filed in state court in January 2011. The group is seeking damages of more than $2.1m and the return of works that it claims it entrusted to Berry-Hill under an art management agreement. Berry-Hill wrongfully sold three of the paintings without its consent, keeping the proceeds, 624 says. It further alleges that Berry-Hill fraudulently sold it another of the works, a counterfeit George Inness painting, for $190,000.

Berry-Hill’s lawyer, Paul Niehaus, said that “the recent economic downturn” had left the gallery “facing a cash crunch”. He said that “despite holding inventory with a value well in excess” of the defaulted loan from ACFS, Berry-Hill “could not meet the final few loan deadlines with available cash”. The gallery “remains confident of reaching a resolution”, he said.

Sam Israel, the lawyer for 624 Art Holdings, said that “some dealers in the art world would sell the same work to two separate purchasers and keep all of the proceeds for themselves. But their greed always catches up with them—as it undoubtedly will here.” Berry-Hill, meanwhile, “vigorously disputes” 624’s allegations, said Niehaus, who adds that 624 “failed to pay Berry-Hill hundreds of thousands of dollars” which contributed “in no small part” to its current cash-flow crisis. The gallery would be vindicated in court, he said.

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