CNet founder Halsey Minor sues Sotheby’s in auction dispute

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The Sotheby’s art auction house has repeatedly inflated prices by failing to make full disclosures when it has an ownership stake in some of the works it sells, according to a federal suit brought Wednesday by Halsey Minor, founder of CNet Networks Inc.

With the suit in U.S. District Court in San Francisco, Minor intensified the legal volleying over an abortive auction in May. First, Sotheby’s sued him in Manhattan federal court last month for failing to pay $16.8 million for three paintings for which he’d been the high bidder. Minor’s attorney said Wednesday that the San Francisco-based technology entrepreneur has answered the suit with a counterclaim saying the price was unfair because Sotheby’s didn’t disclose its ownership in a painting by Edward Hicks. The other works were by Andy Warhol and Child Hassam. (An earlier version of this post incorrectly said that the suit alleged ownership-disclosure problems regarding all three works.)

While focusing on only one of the disputed works, Hicks’ Bible-inspired folk art painting, ‘The Peaceable Kingdom,’ Minor’s latest suit broadens the scope of the battle and raises its stakes by claiming that thousands of other art buyers allegedly have been similarly cheated.

New York-based Sotheby’s had not returned a call seeking comment by late Wednesday afternoon.

According to Minor’s class-action suit, he started to build a collection of American art early this year, relying on advice from Dara Mitchell, head of Sotheby’s American paintings department. Assured by Mitchell that the Hicks was a plum piece, Minor bid $8.6 million at the May 22 auction. He balked at paying, the suit says, after subsequently learning that seller Ralph Esmerian owed money to Sotheby’s, and that ‘The Peaceable Kingdom’ was being used as security for Esmerian’s debt.

Minor’s attorney, Eric M. George, said Wednesday that buyers who know that a painting is being sold to settle a debt may be inclined to keep their bids low because it could be a ‘distressed asset’ -- not because there’s anything wrong with the art, but because the debtor may be under pressure to unload it and may not have the option of refusing all bids and holding onto the piece until the market for it improves. By keeping Minor and others in the dark about ‘The Peaceable Kingdom,’ he said, Sotheby’s avoided a fire-sale mentality that would have kept down the bidding, resulting in a less lucrative sale.

The suit also contends that Sotheby’s, which normally makes money by charging commissions to buyers and sellers, has left thousands of other bidders similarly unaware of its ownership interest in works it has auctioned. It seeks to make any similar cases within the past six years part of a class action. Besides aiming to recoup allegedly inflated payments, the suit asks for a court order requiring Sotheby’s to make fuller disclosures about any ownership stake it has in items it auctions.

-- Mike Boehm