The statute of limitations bars billionaire wine aficionado William Koch from collecting damages from Christie’s auction house for allegedly touting bottles of wine as coming from the cellars of Thomas Jefferson, the U.S. Court of Appeals for the Second Circuit ruled yesterday.
A three-judge panel upheld the dismissal of Koch’s case by a lower court, finding that Koch, who paid $311,804 for four bottles purportedly stocked by the Sage of Monticello, was on “inquiry notice” that the wine might not be genuine.
“For wine, timing is critical,” said Southern District Judge John Koeltl (See Profile), sitting by designation on the circuit. “The same is true of causes of action.”
Koch, who has brought several actions against alleged sellers of bogus wines, sued Christie’s in 2010 charging a racketeering conspiracy and common law fraud, claiming the auction house had engaged in a “decades-long scam of promoting, authenticating, and selling supposedly rare wines that it knew to be counterfeit.”
Koch bought the wine in 1988 from a dealer who acquired it from Hardy Rodenstock, a German wine connoisseur who claimed to have found the Jefferson wine in a bricked-up wine cellar in Paris.
Koch won a default judgment against Rodenstock in the Southern District in 2010, but he also sued Christie’s because it had auctioned off, and thus vouchsafed for, the credentials of the Rodenstock “find” in the mid-1980s. Koch alleged that Rodenstock had a longstanding relationship with Christie’s wine consultant J. Michael Broadbent, who was head of the wine department when Christie’s sold the first bottle of “Th.J.” wine in 1985, a bottle of “1787 Th.J. Lafitte.”
But Southern District Judge Barbara Jones (See Profile) dismissed the case in 2011, finding that the four-year statute of limitations had run on Koch’s racketeering claim. Jones said that several articles about the Jefferson wine put Koch on inquiry notice as early as 2000. One article, in Wine Spectator in 1991, was headlined “Authentic Old Bottles, but Were They Jefferson’s?”
Jones also said that the RICO statute of limitations “runs even where the full extent of the RICO scheme is not discovered until a later date, so long as there are ‘storm warnings’ that should have prompted an inquiry.”
During that argument, Jonathan Lerner of Skadden, Arps, Slate, Meagher & Flom claimed in defense of Christie’s that Koch showed “a lack of diligence,” while Koch’s attorney Edward Spiro of Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, told the court that “Christie’s role in the fraud was not easily discoverable” (NYLJ, May 3).
Yesterday, Koeltl said that, in depositions in a related case in Illinois, Koch admitted that he had read several articles expressing doubts about the Jefferson wine in the 1990s, including one report describing the Th.J. wine as “the wine world’s biggest scandal.”
Koch also admitted learning of a lawsuit against Rodenstock alleging the Jefferson wine was counterfeit.
“We agree that the statute of limitations began to run at least by October 2000, by which time Koch was on inquiry notice with respect to his RICO injury,” Koeltl said.
Koch had argued that inquiry notice doesn’t trigger the running of the statute of limitations. Instead, he said the statute doesn’t begin to run until a reasonably diligent plaintiff “should” have discovered the injury.
Koeltl said, “The existence of ‘storm warnings’ sufficient to trigger inquiry notice does not begin the clock when the plaintiff actually pursues an investigation.”
But when “a RICO plaintiff ‘makes no inquiry once the duty arises, knowledge will be imputed as of the date the duty arose,’” he said, citing Lentell v. Merrill Lynch, 396 F.3d 161 (2d. Cir. 2005).
By October 2000, he said, attorneys retained by Koch to investigate the authenticity of the wine had brought articles questioning the Jefferson bottles to Koch’s attention.
And Koch, in October 2000, sent samples of the Jefferson wine to the Woods Hole Oceanographic Institution for radiocarbon testing.
The resulting “Woods Hole Report” indicated there was only a small possibility that the wine was from the period between 1740 and 1800, the only period that would have been consistent with the engraving on the bottles.
Koch, Koeltl said, “apparently viewed these results as ‘neutral,’ and he took no further action to investigate the authenticity of the Th.J. wine in response to the Woods Hole testing.”
“The circumstances suggested far more than the ‘mere possibility’ that Koch had bought counterfeit wine,” he said. “Thus, by October 16, 2000, Koch had a duty to conduct a reasonably diligent investigation into the Th.J. wine.”
And it is not disputed, he said, “that Koch did not begin any such investigation until 2005.”
Lerner said yesterday, “We are delighted with the Second Circuit’s well reasoned and manifestly correct decision, which finally puts to rest a case that never should have been filed.”
Spiro said his client was disappointed in the court’s ruling and is considering his options.
@|Mark Hamblett can be contacted at email@example.com.