Athena, a specialty lender engaged in the business of providing loans secured by high-value fine art, extended a loan to a borrower, using the 1982 painting by Jean-Michel Basquiat titled “Humidity” (the “Basquiat”) as collateral. Subsequently, on March 2, 2020, the New York County Supreme Court entered a judgment for Athena in the amount of $14,306,800.47 after the borrower defaulted on the loan. Based on this judgment and with the loan and security agreement terms in mind, Athena asserts its entitlement to sell the Basquiat without regard to outstanding claims from any third parties asserting ownership interests in the painting.
On July 31, 2020, Interested Party and Intervenor-Plaintiff Satfinance intervened, filing a complaint against Athena based on its claimed interest in the Basquiat.
In this in rem action to foreclose a lien and to obtain an order permitting the sale of a painting by Jean-Michel Basquiat, Athena Art Finance Corporation, acting as both Plaintiff and Intervenor-Defendant, submitted a motion to strike the expert opinions of Satfinance’s expert Michael Plummer, set forth in his February 23, 2023 report, pursuant to Federal Rule of Civil Procedure 26 and Federal Rule of Evidence 702.
Satfinance engaged Plummer to provide insights into: (1) the general nature and conditions of business and credit in the art market; (2) standards of reasonable business practice and due diligence in the art market relative to the operative loans made by Athena; and (3) specifics of the diligence conducted by Athena on such loans.
Finance Expert Witness
Michael Plummer is a leading authority on art finance. Plummer worked as an advisor in the art market for 13 years, providing guidance on a range of
issues, including the general landscape of the art market, art-based lending, and best business practices. Plummer has advised on, articles in the New York Times, the Wall Street Journal, the Financial Times, and the Art Newspaper on the subjects of art market performance, trends, economic factors, investment practices and structures, and liquidity and valuation in an “opaque” market. Plummer also has lectured on panels for continuing education courses and graduatedegree programs on the same subjects discussed in the articles at the Wharton School, New York University, the Appraisers Association of America, Sotheby’s Institute and Christie’s Education.
Discussion by the Court
First, Athena argued that finance expert witness Plummer failed to disclose, under Federal Rule of Civil Procedure 26, a prior expert report that served as the “starting point” for his opinions in this case and also failed to disclose a prior client relationship he had with Athena. And second, Athena contended that Plummer was not qualified to serve as an expert “on secured finance and asset-backed lending” and had not followed an appropriate methodology to form his opinions.
Plummer is qualified to serve as an expert in this case
Athena objected to Plummer’s lack of formal training and education in secured lending, asserting that Plummer lacked the relevant licensing or credentials common in the field of secured lending and never received formal training in that field.
Satfinance retained Plummer to opine on the adequacy of Athena’s due diligence when extending a loan secured by a piece of art, given the conditions, norms, and practices of the art market and the art finance industry. The Court found Plummer unquestionably qualified to testify as an
expert in this case, with his extensive experience in the field of analyzing art
market economics, valuations, art purchases and sales, and art lending practices.
Plummer’s lack of formal education and professional licenses in the field of secured lending did not suffice to render him unqualified in this case.
Satfinance was not attempting to have Plummer opine on subject matters unrelated to his area of expertise, such as general asset-backed lending. The opinions in the Plummer Report were limited to the art market, the art finance industry, and the best business practices therein.
The Court deemed Plummer qualified to serve as an expert on art industry standards for underwriting asset-back loans secured by pieces of art.
Plummer followed an appropriate methodology
According to the Court, Plummer sufficiently explained how his experience led to the conclusions reached, why that experience was a sufficient basis for his opinion, and how that experience was reliably applied to the facts.
Plummer described the art market in general and outlined the standards and conditions of the art market to provide context for evaluating the loans made by Athena. Plummer provided background on private art sales, art advising versus art dealing, and pricing in the art market, all based on his experience advising and working in that market.
He also opined on the standards for Athena’s diligence on artwork collateral and the “macro business issues” impacting Athena’s due diligence. In concluding that Athena’s due diligence was inadequate, Plummer based his conclusion on his former experience working in Sotheby’s treasury department, where he approved dealer credit arrangements and managed Sotheby’s first long-term, asset-backed dealer loan.
The Court held that Plummer’s testimony on these points provided relevant context of the market in which Athena made the operative transactions—a landscape which lay individuals may have possessed little or no knowledge about. Plummer’s testimony also outlined what he opined to be best practices in that market and what red flags should have been apparent when performing diligence on a transaction like the ones at issue here.
Plummer failed to disclose a prior expert report
Plummer served as an expert in another case, Overton v. Art Finance Partners LLC, Case No. 15-CV-3927, and issued a report in that case upon which he relied here.
The Court noted Plummer’s reliance on the Overton Report to prepare his own report. A comparison of the two reports also revealed substantial similarities in the sections regarding the general nature and conditions of business in the art market, confirming Plummer’s reliance on specific information from the Overton Report in creating his Report here.
The Court held that Athena, however, did not suffer any prejudice from the failure to disclose the Overton Report, such that exclusion of the Plummer Report was required. First, Athena knew about the Overton Report before Plummer’s deposition. Indeed, it questioned Plummer about that report at the deposition. Athena thus had an opportunity to question Plummer about the Overton report and to have its own expert challenge the conclusions reached by Plummer in that report. Rule 26’s disclosure obligation intends to prevent “surprise” or “trial by ambush,” but this was not the case here.
Athena also contended that Plummer failed to disclose that he relied upon “personal interactions” he had with Athena personnel that formed the basis of his opinions in his Report. The Court held that though Plummer had to disclose any facts or data that informed the opinions he reached in his Report, Athena knew of these interactions and conversations before Plummer’s deposition and thus had a chance to question Plummer about the interactions, and in fact did so.
Plummer failed to disclose a prior relationship with Athena
Lastly, Athena cited Plummer’s prior relationship with Athena, that Athena claims did not end well. Athena asserted that it affected Plummer’s ability to be an impartial expert in this case.
Plummer testified that he disagreed with Athena’s characterization of how the relationship ended, and he further testified that when the “disagreement” arose between him and Athena, Plummer “immediately turned the art fair matter over to another member of his team.” In short, the deposition testimony Athena relied on was too thin a basis from which to conclude that Plummer felt that his relationship with Athena ended so acrimoniously that it rendered Plummer biased.
Held
The Court denied Athena’s motion to strike the opinions of Finance Expert Witness Michael Plummer.
The Court, subsequently, terminated the motion. It has not arrived on an outcome for this case since the remaining issues involved in this case still await resolution.
Key Takeaways:
- Plummer’s Qualifications: Despite Athena’s objections regarding Plummer’s lack of formal training and education in secured lending, the Court found Plummer unquestionably qualified to testify as an expert in the case due to his extensive experience in analyzing art market economics, valuations, art purchases and sales, and art lending practices.
- Scope of Expert Opinion: Plummer’s expertise was limited to the art market and the art finance industry, and he was not expected to opine on subject matters unrelated to his area of expertise.
- Methodology: Plummer followed an appropriate methodology in forming his opinions, explaining how his experience led to his conclusions and how this experience was reliably applied to the facts. He provided relevant context and outlined best practices in the art market, based on his extensive experience.
Case Details:
| Case Caption: | Athena Art Finance Corp. V. Humidity |
| Docket Number: | 1:20cv4669 |
| Court: | United States District Court, New York Southern |
| Citation: | 2024 U.S. Dist. LEXIS 45342 |
| Order Date: | March 14, 2024 |
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