What do four bottles of wine, Thomas Jefferson, and Christie’s auction house have in common? Plenty, if you ask billionaire William Koch. Approximately, twenty-five years ago, Koch paid over $300,000 for four bottles of wine purportedly coming from the wine cellars of Thomas Jefferson. He later discovered that the wine bottles were not from the Founding Father’s wine cellar, and he is trying to persuade a federal appeals court to let him pursue an action against Christie’s, the auction house involved in the sale of similar bottles of wine. District Court Judge Barbara Jones had previously dismissed his suit for racketeering and civil fraud, concluding that the statute of limitations had already expired. See Koch v. Christie’s International, 11-1522-cv (U.S. Dist. Ct, S.D.N.Y. 2011)
Koch bought the wine over twenty years ago from a dealer. That dealer had acquired it from a wine expert in Germany who claimed that he had discovered a cache of wine belonging to Thomas Jefferson in Paris. Koch already prevailed on a default judgment against the dealer. He is now pursuing Christie’s because it had auctioned off part of the supposed “find” in the mid-1980’s, and Koch claims that he relied on Christie’s representations when he bought the four bottles of wine. Koch alleged that Christie’s engaged in a long-running scam to promote, authenticate and sell allegedly rare wines that it knew were counterfeit.
Koch claims that the four year statute of limitations for such suits had not started to run until 2007 which is when he learned of the incriminating evidence against Christie’s. Koch argues that Christie’s fraud was not easily discoverable, notwithstanding articles in wine magazines raising doubts about the “Jefferson wine” and the Thomas Jefferson Memorial Foundation at Monticello’s reluctance to offer a public opinion on the authenticity of wines allegedly going back to the late 1770s.
According to the defendant, these news articles put Koch on notice as early as 2000 and that the statute of limitations, therefore expired in 2004. Defendant claims that Koch could have known about the alleged fraud a lot earlier if he had just bothered to look. Koch had indeed done some testing on the wine in 2000, but according to his attorney, the tests were inconclusive. According to Koch it was not until 2005 that he had enough information to start to determine if he had in fact been defrauded.
The court was skeptical of Koch’s claims. One of the judge’s sitting on the Second Circuit panel pointed out that as early as the 1990’s, the Thomas Jefferson Foundation, which is the main source of information about anything to do with Jefferson was unwilling to authenticate the wines. The test, according to the court was whether a reasonably prudent person would have had probable cause to believe a fraud had been perpetrated.
Koch’s attorney argued that Christie’s engaged in actions that gave rise to a reasonable belief that the wine was genuine, including citing the authenticity of the engravings on the bottles, the fact that the cork on the bottles was appropriate for that time period and including supporting statements from its wine expert in the catalogue.
According to Koch, it was only after he received a revealing report from the Thomas Jefferson Foundation that he had the information he needed to start investigating the bottles’ authenticity and that it was only after he received information from former Christie’s employees about the house’s wine practices in 2007 that the statute of limitations started running.
In response, defendant pointed out that Koch began investigating the wine bottles in 1993 when he started to follow litigation concerning the wine dealer in Germany involved in the sale of the bottles. Koch decided to wait until he had definitive proof of the alleged fraud, which is not the standard for tolling the fraud statute of limitations, according to Christie’s attorney. The proper standard for being on notice is whether there are facts to suggest that there is a probability of fraud.
It will be interesting to see whether the Court buys Koch’s arguments or not. If it does, the litigation could lead to, for Christie’s, very uncomfortable revelations over its past auction practices.