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THE CASK OF AMONTICELLO: The Tale of an Investor Lured By The Promise of Thomas Jefferson's Wine


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"He had a weak point ─ this Fortunato ─ although in other regards he was a man to be respected and even feared. He prided himself on his connoisseurship in wine. . . . In painting and gemmary, Fortunato, like his countrymen, was a quack, but in the matter of old wines he was sincere. In this respect I did not differ from him materially; --I was skilful in the Italian vintages myself, and bought largely whenever I could.

It was about dusk, one evening during the supreme madness of the carnival season, that I encountered my friend. He accosted me with excessive warmth, for he had been drinking much. The man wore motley. He had on a tight-fitting parti-striped dress, and his head was surmounted by the conical cap and bells. . . . Let us go, nevertheless. The cold is merely nothing. Amontillado! You have been imposed upon. And as for Luchresi, he cannot distinguish Sherry from Amontillado."

The Cask of Amontillado, by Edgar Allan Poe (1846)

* * * *

In the spirit of Halloween, we have an intriguing tale from the Second Circuit, not from the crypt, but from the wine cellar. This tale involves Thomas Jefferson and could have been penned by Edgar Allen Poe himself. In Poe's The Cask of Amontillado, the ill-named Fortunado, dressed as a court jester, or fool, is lured into a trap with the promise of a rare and valuable old wine by the sinister Montresor. In our tale, Koch v. Christie's International, PLC, --- F.3d ----, 2012 WL 4677700 (2d Cir. October 4, 2012), an investor claims that he was duped by Christie's Auction House into buying rare and valuable old wine supposedly once belonging to none other than Thomas Jefferson.

The case is fascinating both factually and legally. The legal questions involve the trigging of the doctrine of "inquiry notice," for purposes of operation of the applicable statues of limitation, and whether there are any distinctions to be drawn for civil claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c), as well as for New York common law claims of civil conspiracy to defraud, and aiding and abetting fraud. Also at issue is under what circumstances a court may invoke equitable principles to toll a statute of limitations. Critical to this analysis are the factual circumstances which would have, or should have, led a reasonable person to suspect foul play.

* * * *

First, by way of backdrop, it is interesting to note that Jefferson and Poe actually shared a brief moment in temporal and geographic proximity. For nestled on the campus of the University of Virginia is a dorm room frozen in time. Perched in perpetuity in the window of that room is a raven, black as midnight. The room, "13 West Range," once belonged to a young Edgar Allan Poe, father of the literary macabre. Here a young, brooding Poe began to stir the dark cauldron of his imagination. Legend has it that he etched a stanza of a mysterious poem, referencing a "ghost of an awful crime," by moonlight into the glass of a window of this room.

The University of Virginia, which surrounds Poe's old room, however, sprung from Jefferson's imagination. He was its visionary, benefactor, and founder. The University opened it's doors in 1825. Poe enrolled less than a year later, on February 14, 1826 (Valentine's Day). Poe was one of only 177 students. During his time there, he was elected to the Jefferson Literary and Debating Society and served as its Secretary pro tem.

Within view of the University, itself perched upon a "little mountain", sits Monticello, Jefferson's home and refuge. We can imagine Jefferson sitting at Monticello high above the University, sipping a glass of wine and looking down proudly at his newly formed academic institution and its eager young students. Jefferson often invited students of the University to Monticello for dinner. Believe it or not, it is possible that Jefferson and Poe may have shared a glass of wine over dinner.

Sadly, Jefferson died that very summer at Monticello. It was July 4, 1826, the 50th anniversary (exactly) of the signing of the Declaration of Independence. His funeral was a simple and somber affair. He was buried in the graveyard at Monticello at 5:00 pm on July 5, 1826. It was a dark and rainy day. According to one account, Poe was present at Jefferson's funeral. Poe left the University only five months later, on December 15, 1826, due to a lack of funds. He was never to return.

Jefferson's gravestone, a stocky obelisk, was built and placed according to his direct specifications. So proud was he of the University that he insisted that, along side his authorship of the Declaration of Independence, his founding of the University of Virginia be listed on his gravestone. His Presidency was not mentioned.

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Jefferson was a well-known connoisseur of wine, having spent a great deal of time in France and Italy. In February to June of 1787, he toured southern France and northern Italy while serving as minister to France. Jefferson acquired a vast collection of wines and once remarked that by making a particular wine vine known to the public, he had "rendered [his] country as great a service as if [he] had enabled it to pay back the national debt."

Wines from all over Europe and elsewhere were served at Monticello. Orders for casks and bottles of wine were made on at least on an annual basis. For instance, in February 1820 Jefferson recorded receiving 382 bottles of various wines and "1. cask . . . of Muscat of Rivesalte." The following January he noted that the Muscat "is out, to wit 62 galls in 11 months." So fond was he of wine that he once remarked, "I have lived temperately . . . . I double the doctor's recommendation of a glass and a half of wine each day and even treble it with a friend."

* * * *

Fast forward about two-hundred years. Enter William I. Koch and Hardy Rodenstock ─ the Fortunado and Montresor of our tale. Rodenstock is a "well-known wine connoisseur" and German national. Koch is a wealthy American businessman and investor with a fondness for rare, and historic, wine vintages. He is the son of Fred Koch, who founded Koch Industries, and ran his own highly profitable energy company.

In the mid-1980s, Rodenstock claimed to have discovered a cache of wine in Paris bricked-up in a wine cellar, like the Cask of Amontillado itself. The bottles bore the initials "Th.J.," as well as various late eighteenth century vintages and the names of wineries from the period. Rodenstock allegedly had a longstanding and symbiotic relationship with Christie's Auction House. Christie's allegedly promoted as authentic the cache of wine as bottled in 1787 and connected to Jefferson. See, Koch, 2012 WL 4677700 at *2.

In December 1985, Christie's sold the "1787 Th.J. Lafitte" at auction for approximately $156,000. Id. This was the highest price ever paid for a bottle of wine. The winning bidder was Christopher Forbes, the son of Malcolm Forbes and a vice-president of the Forbes magazine.

In the run up to the first sale of "Th.J". wine by Christie's, however, it had allegedly contacted the Thomas Jefferson Foundation at Monticello. In the course its correspondence with a Monticello historian in November 1985, it was allegedly noted that there was "no actual proof" of the "Th.J" wine's connection to Jefferson. The Monticello historian said she was skeptical, but would reserve final judgment. See, Koch, 2012 WL 4677700 at *2.

Despite this, the 1985 Christie's Catalogue, in text allegedly written by an agent of Christie's, discussed in detail Jefferson's interest in wine in connection with the "Th.J Lafitte." Christie's publicized and marketed the bottle of "Th.J. Lafitte" in its 1985 Catalogue, and publicly released a Sale Memorandum dating the wine from the late eighteenth century and connecting the wine to Jefferson . Id.

Shortly after the December 1985 sale, Rodenstock began corresponding with Monticello about the status of the Jefferson wine and suggested holding a wine tasting from the "Th.J." cache at Monticello. Monticello's director declined, citing "doubts about the Jefferson connection." The correspondence culminated in an April 1986 letter to Rodenstock that included a research report (the "Monticello Report") prepared by a Monticello historian on December 12, 1985. Id.

The Monticello Report examined Jefferson's financial records, including records of his wine purchases, correspondence, initialed personal property, and existing wine collection, and concluded that "no solid connecting evidence could be found" between Jefferson and the "Th.J." wine. The Report did not become public at that time. Id.

However, in October 1985, The New York Times published an article discussing the "Th.J." wine and airing the doubts from Jefferson scholars. Another Times article that ran the day after the auction noted the "scholarly doubt" as to the authenticity of the "Th.J." wine. Id.

In 1986, Christie's placed another bottle from the "Th.J." cache up for auction. Again, the "Th.J." bottle was featured in the 1986 Christie's Catalogue. The description of the bottle in the Catalogue noted that "it is assumed that the wine . . . . was once the property of Thomas Jefferson," and that "there is a very strong case to be made for the authenticity of the engraving and provenance." The bottle ultimately sold on December 4, 1986, for approximately $56,000. In 1987, Christie's sold another half-bottle from the "Th.J." cache at an annual trade show in Bordeaux, France. Id.

* * * *

Koch had to get his hands on the wine. In November 1988, Koch purchased a bottle marked "1787 Branne Mouton Th.J." for $100,000. He allegedly purchased the bottle from Rodenstock who used the Chicago Wine Company and Farr Vintners as intermediaries. Koch alleges that he purchased the bottle in reliance on "glowing endorsements of the wines and Rodenstock," made by Christie's "with the intent to influence wine collectors like [Koch] to purchase Rodenstock's wines" and that "reasonably led [Koch] to believe that the wine offered by Rodenstock was authentic." See, Koch, 2012 WL 4677700 at *3.

The next month, Koch purchased three more bottles of "Th.J." wine for $211,804.40. Koch purchased these bottles from Farr Vintners acting as Rodenstock's agent. The bottles were marked, respectively, as: "1787 Lafite Th.J.," "1784 Lafite Th.J.," and "1784 Branne Mouton Th.J." In total, Koch purchased four bottles of the Jefferson wines from third-party dealers in November and December of 1988, allegedly relying on promotional representations made by Christie's. Koch spent over a quarter of a million dollars on the bottles. Id. He installed them in his vast climate-controlled wine cellar. They were the centerpiece of his collection.

In the 1990s, however, Koch's enthusiasm for the wine began to sour. In the early 1990s he had read several articles detailing the "real doubts" that existed with respect to the authenticity of the "Th.J." wine. One news report from the period described the "Th.J." wine issue as "the wine world's biggest scandal." Id.

During this period, Koch also learned of a lawsuit by a German wine collector against Rodenstock. The lawsuit alleged that the "Th.J." wine was counterfeit. Koch hired attorneys in 1993 to investigate and assess the provenance of the "Th.J." wine. These attorneys sent him several of the articles relating to testing of the "Th.J." wine that had been conducted for the purpose of the German lawsuit. Some of these article purported to confirm that the wine as authentic, and some of them indicated that it was counterfeit. Koch received legal advice concerning a potential action against Rodenstock in 1993 and sought the advice of counsel again in 1995. However, Koch took no legal action over the course of the 1990s, as the debate over the authenticity of the "Th.J." wine continued. Id.

In October 2000, Koch sent samples of the "Th.J." wine to the Woods Hole Oceanographic Institution ("Woods Hole") for radiocarbon testing to determine their age. In his deposition, he testified that he sent the samples for testing to see if he had been "hoaxed." The October 16, 2000 Report from Woods Hole (the "Woods Hole Report") indicated that there was a 26.5% probability that the wine was from the time period between the year 1680 and 1740 and a 68.9% probability that the wine was from between 1800 and 1960. The Report appears to indicate only a 4.6% probability that the wine was from the period between 1740 and 1800, the only period that would have been consistent with the engraving on each of the bottles that Koch bought. Id.

Woods Hole estimated the wine's radiocarbon age as 90 years, with a standard deviation of 35 years, although the Woods Hole Report notes that this age "does not convert directly to a calendar, or chronological, age," and that, more broadly, "the past 350-400 year period is a very difficult one for determining calendar ages." Koch 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. Id.

In 2005, Koch was asked to include a photograph of his bottles of "Th.J." wine in a museum catalog. Koch alleges that, as part of the preparation of the catalog materials, his staff contacted Monticello "to confirm the provenance of the Th.J. wine." This communication ultimately led to his obtaining a copy of the 1985 Monticello Report, which became public shortly thereafter. Koch alleges that, in response to the "credible and serious questions" concerning the wine's authenticity raised by the Monticello Report, he then conducted an investigation that allegedly revealed that the "Th.J." wine was in fact counterfeit. By 2009, Koch had allegedly tracked down German engravers who claimed to have engraved the bottles with the "Th.J." initials. See, Koch, 2012 WL 4677700 at *4.

* * * *

On August 31, 2006, less than 18 months after he had obtained a copy of the Monticello Report, Koch sued Rodenstock in the Southern District of New York for fraud in connection with the "Th.J." wine. Rodenstock never appeared and the District Court entered a default judgment against him in 2010. See, Koch v. Rodenstock, No. 06 Civ. 6586 (S.D.N.Y. Aug. 31, 2006); Koch v. Rodenstock, No. 06 Civ. 6586, 2010 WL 2010900 (S.D.N.Y. May 18, 2010).

In January of 2008, Koch and Christie's agreed to toll the statute of limitations with respect to any claims against Christie's arising out of the Jefferson wine sales. See, Koch, 2012 WL 4677700 at *4.

On March 30, 2010, Koch filed a lawsuit against Christie's for civil violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c), civil conspiracy to defraud, and aiding and abetting fraud in violation of New York Law. Koch alleged that Christie's conducted an enterprise and participated in the conduct of an enterprise through a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c). Koch sought treble damages under 18 U.S.C. § 1964(c) and an injunction under 18 U.S.C. § 1964(a). Koch also asserted a claim for violation of New York's General Business Law § 349. Koch alleged that these "Jefferson wines" were in fact counterfeit, and that Christie's knew or was reckless in not knowing of the wines' dubious authenticity. Id.

On March 18, 2011, the District Court dismissed all claims against Christie's as time-barred. The District Court held that Koch was on "inquiry notice" of his injuries no later than October 16, 2000, when he submitted the 'Th.J' bottle for testing," and that the four-year statute of limitations for a RICO cause of action and the two-year statute of limitations, which applies to Koch's state law claims, began to run on that date. Koch, 785 F.Supp.2d at 115-16, 118. The District Court also held that the doctrine of equitable tolling did not apply to Koch's causes of action. Id. at 116-19. The District Court also dismissed the claim under New York's General Business Law § 349. Id.. Koch appealed to the Second Circuit with respect to all of his claims, except for his claim under New York's General Business Law § 349.

* * * *

On October 4, 2012, the Second Circuit issued its decision. Koch argued on appeal that the District Court erred in applying the doctrine of "inquiry notice" to his RICO claim, under which, in some circumstances, a court imputes to a plaintiff knowledge of facts sufficient to trigger the running of the statute of limitations where the plaintiff could have discovered those facts by a reasonably diligent investigation. See, Koch, 2012 WL 4677700 at *1.

Specifically, Koch argued the District Court incorrectly applied the law with respect to what facts must be discovered for a RICO claim to accrue. Koch argued that the District Court misinterpreted the Supreme Court's decision in Rotella v. Wood, 528 U.S. 549, 552, 120 S.Ct. 1075, 145 L.Ed.2d 1047 (2000) as supporting a "discovery of the injury standard," and that, in any event, the Supreme Court's recent decision in Merck & Co. v. Reynolds, --- U.S. ----, 130 S.Ct. 1784, 176 L.Ed.2d 582 (2010), changed the law with respect to what knowledge is required to trigger accrual in cases arising under RICO; that a plaintiff is required to have knowledge of a defendant's scienter, as well as the alleged injury, for the plaintiff's claim to accrue. See, Koch, 2012 WL 4677700 at *5.

In a case of first impression, the Second Circuit rejected Koch's argument and held that, "[i]t remains the law in this Circuit that a RICO claim accrues upon the discovery of the injury alone." Id. at *7. The Second Circuit stated that Merck did not overrule Rotella because Merck involved the Securities Exchange Act, not RICO, and that nothing in that decision "purports to alter this well-established rule or even to apply it outside the context of the statute at issue in that case." See, Koch, 2012 WL 4677700 at *5. At bottom, the Court stated, "Merck merely involved a statutory exception to the common law rule discussed in Rotella. Id.

Applying that law, the Court looked to determine when Koch "discovered or should have discovered the injury." Id. at *7. The Court affirmed the District Court's determination that by at least by October 16, 2000, when the Woods Hole Report was issued, inquiry notice had been triggered: "All of these facts, but particularly the Woods Hole testing, which related directly to the authenticity of the age of the wine and not merely to its relationship to Thomas Jefferson, would suggest to a reasonably intelligent person that the wine was not authentic. The circumstances suggested far more than the 'mere possibility' that Koch had bought counterfeit wine." Id. at *9. Because Koch did not begin any such investigation until 2005, the Court held that his RICO claim was time-barred. Id. at *10.

* * * *

Koch also argued on appeal that that the standard for inquiry notice under for his New York law claims (fraudulent conspiracy and aiding and abetting fraud) is different from the standard under RICO. Under New York law, the time within which an action based upon fraud must be commenced is "the greater of six years from the date the cause of action accrued or two years from the time the plaintiff ... discovered the fraud, or could with reasonable diligence have discovered it." C.P.L.R. § 213(8). The Court stated that because the alleged fraud was completed in 1988, when Koch purchased the Th.J. wine, his common law claims are timely only if they were brought within two years of the date the fraud was discovered or could have been discovered with reasonable diligence, similar to the "inquiry notice" standard under RICO. Because Koch came into possession of the Monticello Report report in 2005, the Court held that the two-year period began to run at that point and expired in 2007. As Koch's claims were not filed until 2010, his common law claims under New York law were also time-barred.

* * * *

Finally, Koch argued that the District Court erred in refusing to toll the statute of limitations in this case due to alleged fraudulent concealment by Christie's. "Under federal common law, a statute of limitations may be tolled due to the defendant's fraudulent concealment if the plaintiff establishes that: (1) the defendant wrongfully concealed material facts relating to defendant's wrongdoing; (2) the concealment prevented plaintiff's 'discovery of the na-ture of the claim within the limitations period'; and (3) plaintiff exercised due diligence in pursuing the discovery of the claim during the period plaintiff seeks to have tolled." See, Koch, 2012 WL 4677700 at *12. The Court rejected this argument because it found that Koch did not exercise "due diligence" and because the claimed "concealment" took place after the limitations period had already ran: the "tolling period cannot delay the expiration of a deadline when that deadline has already expired."Id.

* * * *

In sum, the Second Circuit held that: (1) Koch's RICO claim was untimely; (2) his civil conspiracy to defraud, and aiding and abetting fraud, claims were also untimely; and (3) that the District Court did not abuse its discretion in declining to equitably toll statute of limitations. It therefore affirmed the decision of the District Court.

The ruling is reminiscent of Montresor's closing words in The Cask of Amontillado: "It was now midnight, and my task was drawing to a close. I had completed the eighth, the ninth and the tenth tier. I had finished a portion of the last and the eleventh; there remained but a single stone to be fitted and plastered in. I struggled with its weight; I placed it partially in its destined position . . . . I forced the last stone into its position; I plastered it up. Against the new masonry I re-erected the old rampart of bones. . . . In pace requiescat!"

So here, the Second Circuit, as it struggled with the weight of its analysis, placed the last stone in the legal wall encasing the dry bones of Koch's claims. Quoth the Second Circuit, "Nevermore."


By Heath J. Szymczak, Esq.

Mr. Szymczak is a Partner and Chair of the Litigation Department at Jaeckle, Fleischmann & Mugel, LLP in Buffalo, New York. He also serves as Chair of the NYSBA Business Torts and Employment Litigation Committee (TICL Section) and as Co-Chair of the ABA Tortious Interference Sub-Committee (Business Torts Committee).

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This page contains a single entry from the blog posted on October 21, 2012 10:49 PM.

The previous post in this blog was SECOND CIRCUIT USES "PHONE-A-FRIEND" TO DECIDE FURNITURE PROTECTION PLAN CASE.

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