Clark v. Hemphill Artworks, LLC

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DOGWOOD BLOSSOM ALONG SKYLINE 1

DRIVE, 1973, OIL ON CANVAS, 60X54 IN, BY 2

ALMA THOMAS, 3

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Defendant-in-rem-Appellee.*5 ------------------------------------------------------------------ 6

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Appeal from a judgment of the United States District Court for the Southern 8 District of New York (Paul G. Gardephe, Judge). 9

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, 10

AND DECREED that the judgment of the District Court is AFFIRMED in part and 11

VACATED in part, and the matter is REMANDED for further proceedings consistent 12 with this order. 13

Plaintiff Gwendolyn Clark appeals from that part of a March 18, 2024 judgment 14 * The Clerk is directed to amend the caption as shown above. FOR PLAINTIFF-APPELLANT:

CARTER REICH, Carter Reich,

P.C., New York, NY

FOR HEMPHILL APPELLEES:

L. EDEN BURGESS (Thomas R. Kline, on the brief), Schindler Cohen & Hochman LLP, New York, NY

FOR APPELLEE MNUCHIN:

ERIC W. MORAN, Greenberg Traurig, LLP, Florham Park, NJ (Ronald M. Green, Shruti Panchavati, Epstein Becker & Green, P.C., New York, NY, on the brief)

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dismissing on laches grounds her complaint against Hemphill Artworks, LLC, George 1 Hemphill, Mnuchin Gallery LLC (collectively, "Defendants"), and other unnamed 2 defendants. We assume the parties' familiarity with the underlying facts, procedural 3 history, and issues on appeal, to which we refer only as necessary to explain our decision. 4 Clark's complaint concerns the rightful ownership of a painting by famed 5 Washington, D.C.-based artist Alma Thomas, called "Dogwood Blossom Along Skyline 6 Drive" (the "Artwork"). Clark purchased the Artwork with her late husband Wallace 7 Clark ("Wallace") in 1976 from the Franz Bader Gallery in Washington, D.C. Clark 8 alleges that, before their permanent separation in 1981, Wallace removed the Artwork 9 from their marital home. Although Clark secured a court order in 1982 requiring 10 Wallace to return the Artwork, he never did so. Between 1982 and Wallace's death in 11 2008, Clark never sought to recover the Artwork from Wallace himself, allegedly because 12 Wallace had physically and psychologically abused Clark during the marriage. Instead, 13 Clark "spent over 25 years visiting art galleries in Washington D.C. and making inquiries 14 about the Artwork to no avail." Compl. ¶¶ 15-18, 23. Upon Wallace's death, Clark 15 discovered that he no longer possessed the Artwork and widened her search. 16 In 2016, she told an employee of Hemphill Fine Arts—a Washington, D.C. art 17 gallery owned by George Hemphill—that she was searching for the Artwork, and the 18 employee agreed to help her. Thereafter, in January 2019, a representative of the 19

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Mnuchin Gallery contacted Clark's daughter to ask whether the Artwork was still "in 1 [Wallace's] collection"; Clark's daughter explained that the Artwork was lost but that 2 Clark was still searching for it. Id. ¶ 31. In September 2019, Clark discovered that the 3 Mnuchin Gallery in fact possessed the Artwork and planned to exhibit it in New York 4 City. George Hemphill then informed Clark that he had purchased the Artwork from 5 an unnamed client in June 2019, re-sold it, and facilitated its consignment to the Mnuchin 6 Gallery. 7

Clark commenced this lawsuit in September 2022, alleging various New York 8 common law claims for replevin, conversion, fraud and fraudulent concealment, and 9 unjust enrichment. Defendants moved to dismiss for failure to state a claim, see Fed. R. 10 Civ. P. 12(b)(6), and on the affirmative equitable defense of laches. As relevant here, the 11 District Court concluded that Clark failed to state a claim as to each cause of action except 12 conversion to the extent that claim was based on Defendants' bad faith,¹and that laches 13 warranted dismissal of the entire complaint in any event. The District Court also denied 14 Clark's cross-motion for leave to amend "because the Court's laches finding is not subject 15 to cure." Clark v. Hemphill Artworks, LLC, No. 22-cv-07537, 2024 WL 1157170, at *15 16

1 To the extent the complaint alleged conversion by good faith purchasers for value, the District Court concluded Clark had failed to allege that she demanded the Artwork's return as required under New York Law. See Mut. Benefits Offshore Fund, Ltd. v. Zeltser,

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(S.D.N.Y. Mar. 16, 2024). Clark appeals the judgment only insofar as the District Court 1 dismissed her conversion claim on laches grounds. Thus, we affirm the judgment of 2 dismissal in all other respects and here consider only the dismissal of Clark's conversion 3 claim based on laches. 4

Laches is an affirmative defense that may be raised "in a pre-answer Rule 12(b)(6) 5 motion," Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 425 (2d Cir. 2008), and 6

"decided 'as a matter of law' when 'the original owner's lack of due diligence and 7 prejudice to the party currently in possession are apparent'" on the face of the complaint, 8 Zuckerman v. Metro. Museum of Art, 928 F.3d 186, 193 (2d Cir. 2019) (quoting Peters v. 9 Sotheby's Inc., 34 A.D.3d 29, 39, 821 N.Y.S.2d 61, 69 (1st Dep't 2006)). We review de novo 10 the dismissal of a complaint based on laches, accepting the complaint's factual allegations 11 as true and drawing all reasonable inferences in the plaintiff's favor. See Zuckerman, 928 12 F.3d at 192-93. 13

"The doctrine of laches protects defendants against unreasonable, prejudicial delay 14 in commencing suit." Id. at 193 (alteration adopted and quotation marks omitted). The 15 District Court concluded that Clark unreasonably delayed 26 years in asserting her rights 16 to the Artwork against Defendants because "she made no effort to recover the [Artwork]" 17 from Wallace despite the court order requiring him to return it to her possession and "first 18 took steps to recover the [Artwork]" only after his death in 2008. Clark, 2024 WL 1157170, 19 at *9. The District Court concluded this delay was prejudicial to Defendants as to all of 20

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Clark's claims, including her conversion claim against Defendants, because Wallace is now 1 dead and "thus unavailable to testify regarding the circumstances in which the [Artwork] 2 was purchased; whether and when he removed the [Artwork] from the marital home; his 3 understanding of the 1982 [court order]; whether he ever returned the [Artwork] to the 4 marital home; whether he ever discussed the [Artwork] with Plaintiff during their marriage 5 and after their separation; and the circumstances under which he sold the [Artwork] in 6 1983." Id. at *10. Clark argues that the District Court erred with respect to her conversion 7 claim because, inter alia, Defendants "were aware that [Clark] was searching for the 8 [Artwork] and asserting an ownership claim before they converted [it] for their benefit." 9 Appellant Br. at 30-31. We agree. 10

Even assuming unreasonable delay by Clark in attempting to recover the Artwork 11 from her late husband—a point we need not decide—under New York law, Defendants 12 cannot prevail on a laches defense at the motion to dismiss stage if Clark plausibly alleged 13 that they had "knowledge or notice . . . that the complainant would assert his or her claim 14 for relief." Kverel v. Silverman, 172 A.D.3d 1345, 1348, 102 N.Y.S.3d 641, 644 (2d Dep't 2019) 15 (citation omitted), leave to appeal denied, 34 N.Y.3d 904, 114 N.Y.S.3d 280 (2019).²Clark's 16

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complaint alleges that both the Hemphill and Mnuchin Defendants knew of Clark's claim 1 to the Artwork before they converted it. Defendants therefore cannot establish a laches 2 defense as a matter of law at this stage of the litigation. See In re Flamenbaum, 22 N.Y.3d 3 at 966, 978 N.Y.S.2d at 710; Cohen v. Krantz, 227 A.D.2d 581, 583, 643 N.Y.S.2d 612, 614 (2d 4 Dep't 1996) (holding laches inapplicable where "defendants were on notice" of plaintiff's 5 claim). Accordingly, Clark's conversion claim should not have been dismissed based on 6 laches. 7

CONCLUSION 8

For the foregoing reasons, the judgment of the district court is AFFIRMED in 9 part and VACATED in part, and the matter is REMANDED to the District Court for 10 further proceedings consistent with this order. 11

FOR THE COURT: 12

Catherine O'Hagan Wolfe, Clerk of Court 13

"unreasonable delay" and "prejudice," Weiss v. Mayflower Doughnut Corp., 1 N.Y.2d 310, 318, 152 N.Y.S.2d 471, 476 (1956), in which a defendant's knowledge of the plaintiff's claim is a nondispositive factor in the prejudice determination, see In re Flamenbaum, 22 N.Y.3d 962, 966, 978 N.Y.S.2d 708, 710 (2013) (holding that "Estate failed to demonstrate the essential element of laches, namely prejudice" given "evidence that at least one family member (decedent's son) was aware that the tablet belonged to the Museum." (internal quotation marks and citation omitted)). Thus, regardless of the number of prongs to New York's laches test, a defendant cannot prevail on a laches defense at the motion to dismiss stage, where, as here, the complaint pleads that the defendant had knowledge of the plaintiff's claim before acquiring the disputed chattel. That conclusion alone requires vacatur of the district court's judgment in this case.