MANHATTAN (CN) - The Stephan Stoyanov Gallery in Manhattan bounced a check for $585,000 to a collector in a "like kind exchange" featuring chewing gum art valued at half a million bucks, the collector claims in court.
Jane B. Holzer sued the Stephan Stoyanov Gallery, of 29 Orchard St., and Stephan Stoyanov, in New York County Supreme Court.
Holzer claims that she and Stoyanov agreed to exchange four artworks, two on each side, in a "like kind exchange" under Section 1031 of the Tax Code.
According to the complaint, Holzer's pieces were Mike Kelley's 1985 acrylic "Rainbow Coalition," valued at $240,000, and Dan Colen's 2010 "Cardboard Cutout," created with chewing gum on an unprimed canvas and valued at $500,000.
[The typo-strewn complaint misspells Kelley's surname throughout as "Kelly." It also describes Colen's material as "chewing gun" {sic}, though his medium actually is candy, not soft, chewable weapons.]
In exchange, Stoyanov was to give Holzer two Richard Prince works from 2012, both called "Untitled (Cowboy)," in different dimensions. These were said to be worth $405,000 and $585,000, according to the complaint.
Section 1031 exchanges are common transactions and may involve all manner of property, with strict time limits within which the trade must be done. Section 1031 exchanges may include "boot" - commonly, the money paid in one direction to even out the exchange.
The complaint describes how this 1301 exchange was conducted.
"To accomplish this 'like kind exchange,' plaintiff was required to convey title and possession of the sale works to a third party who would then sell the Colen and the Kelly [sic] for fair market value in 'arms' length' transactions. The third party was then required to retain sole possession of the proceeds of sale from the sale works and use the funds to purchase other items of fine art, as directed by plaintiff's written instructions, and upon completion of these purchases to transfer possession, right, title and interest in the exchange works to plaintiff."
That third party was the nonparty Gagosian Gallery, according to the complaint.
For the boot, Holzer says, she paid Stoyanov $253,000, in checks of $166,500 and $86,500, plus a transaction fee of $1,500 for each.
Stoyanov agreed to buy her works from the Gagosian at the stated price, Holzer says.
She claims that Stoyanov wrote a check to Gagosian for $405,000 for the smaller of the "Untitled (Cowboy)" works, then a $585,000 check to same gallery for the larger one about two weeks later, on May 8 this year.
"On May 14, 2013, Stoyanov, who by then was in Europe, emailed his advice to Gagosian Gallery that, even though he had issued the check and delivered it, the Gallery's account on which the check was written sufficient funds to cover this payment," the complaint states.
Stoyanov assured the gallery that he would "arrange to cover the check from his current location in Belgium but, failing that, he would make the check good upon his return to the United States by the end of the week," according to the complaint.
But Holzer says Stoyanov's check for the larger "Untitled (Cowboy)" work was dishonored and returned, and Stoyanov did not make it back to the United States because, he claimed, he had to travel back to Bulgaria for a family matter.
Though Stoyanov insisted the development was a "mix-up," Holzer claims that "Stoyanov has been diverting and expending proceeds from plaintiff's escrowed funds for his own benefit on his current travel to Europe."
Stoyanov sent Courthouse News this statement today by email: "I am currently in Bulgaria where my brother passed away and dealing with family tragedy. Everything will be resolved as soon as I return to normal life within the next week. Thank you very much and please respect the privacy of my family and the tragedy."
In her lawsuit, Holzer claims that due to time limits on 1031 exchanges, the bounced check will have ripple effects on her.
"In addition, by 'bouncing' the check in payment of the second exchange work, defendants have rendered essentially impossible the likelihood that they will deliver this piece pursuant to the Bill of Sale," the complaint states.
"Stated otherwise, as a result of the defendants' failure to safeguard plaintiff's funds in escrow and deliver good funds to the Gagosian Gallery to complete the purchase of the Exchange Art, plaintiff will be caused to pay for the second piece of exchange art twice and possibly incur taxes that would otherwise be avoided."
Holzer demands $585,000, with interest, and punitive damages for breach of contract, breach of fiduciary duty and unjust enrichment.
She is represented by Roger Olson.
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