Salander-O’Reilly Galleries: “Passive Investor” Wants Out; Collector Awarded $3.2 Million

by David Hewett

On August 7, one new lawsuit was filed against Salander-O’Reilly Galleries in New York City, joining the six suits already reported in prior issues (see M.A.D. August, p. 28-A; September, p. 11-A; October, p. 12-A).

This filing contained a genuine bombshell, though. This complaint didn’t come solely as the result of alleged nonpayment for art bought by Lawrence “Larry” Salander and his Salander-O’Reilly Galleries. This one came from a previously unknown “member” (an interesting choice of word for what others would have called partner) in Salander-O’Reilly Galleries, a man who owns Curtis Galleries, Inc. and Curtis Squire, Inc. in Minneapolis, Minnesota.

While it is true that the newly filed suit does charge that Salander bought a Georgia O’Keeffe painting from Curtis Galleries on August 1, 2006, for $7 million and then ceased making the agreed upon $500,000 monthly payments in September of 2006, it also details how the Manhattan-based Salander-O’Reilly Galleries (called “best gallery in the world” in the 2003 Robb Report) was quietly funded by one of America’s wealthiest individuals. That individual now has stated in court papers that he was as much a victim of Salander as the owners of the paintings mentioned in the earlier reports.

Minneapolis, Minnesota, native Myron Kunin, who took an inherited hair salon business and built it into the Regis Corporation, a $2.4 billion enterprise with 12,400 salons worldwide, became a “passive investor” and 50% owner in Salander-O’Reilly on February 28, 1995.

Regis Corporation was merged into Regis Acquisition Corp., a subsidiary of Curtis Squire Inc., and owns several radio stations in the upper Midwest. Regis Corporation owns the Hair Club for Men and Women and Regis salons are the largest businesses worldwide renting space in Wal-Marts. Aside from that major endeavor, according to Business Week, Kunin has been the chairman of the board of Nortech Systems Inc., which is a manufacturer of wire harnesses and cable and electromechanical assemblies for commercial and defense industries. And Kunin is on the boards of several private companies including serving as a director of Cerplex Group Inc., where he is a member of that company’s audit and compensation committees.

Kunin is widely known as an intelligent art collector who has assembled an impressive collection of about 400 works. He has focused primarily on American paintings of the first half of the 20th century, according to most reports, and holds key works by Stuart Davis, Charles Demuth, Arthur Dove, Gerald Murphy, Georgia O’Keeffe, Andrew Wyeth, Grant Wood, and Marsden Hartley, among others.

Art collector Joseph Carroll described Kunin as “one of the most important collectors of American Modernism in the U.S.”

A 2005 Minnesota Public Radio (MPR) report called Kunin “a shrewd collector” who can “judge a work of art on its own merit, not on its price tag.” Sue Canterbury, associate curator of the Minneapolis Institute of Arts (MIA), told MPR that Kunin, a lifelong trustee of the museum, has “a great eye and a love of collecting.”

It goes without saying that Myron Kunin is a wealthy man (his total compensation from the Regis Corporation for 2004—the last year available—was only $755,500, but the stock options exercised added $3.28 million to that figure) and a shrewd businessman in related fields. Despite his acknowledged business acumen in other fields, when Myron Kunin slipped into the figurative bed of Larry Salander, he neglected to set up methods to check up on what his partner was doing elsewhere. He failed to maintain the necessary financial oversight that such a business required.

In the “Operating Agreement” drawn up for Salander-O’Reilly Galleries LLC, and signed by Lawrence Salander and Myron Kunin, the latter as president of Curtis Galleries, Inc. and chairman and CEO of Curtis Squire, Inc., on February 28, 1995, the “sole power and authority to execute instruments on behalf and to otherwise bind the Company” was vested in its manager, Larry Salander, who was to be compensated $500,000 annually.

There were only two “members” of Salander-O’Reilly Galleries, Inc.: Lawrence Salander and Curtis Squire, Inc. Chairman Myron Kunin.

Who funded the new business? “The Company shall be obligated to pay principal and interest on the $3,500,000 credit facility as to which Salander-O’Reilly Galleries, Inc., is the obligor.” Profits, after Salander’s salary was paid, were to be shared equally.

Myron Kunin put his trust in Larry Salander, and in return, he claims in the August 7 lawsuit, his “trust and confidence has been betrayed.”

First, there was the matter of the Curtis Galleries Inc.’s Georgia O’Keeffe painting Shelton Hotel, which Salander allegedly agreed to buy on August 1, 2006, for $7 million. Salander has defaulted on the payments, Curtis Galleries alleges, and now owes them approximately $3.5 million.

Second, Kunin is not forgetting about the “the millions of dollars” lent to Salander, in the form of a series of promissory notes, now with a balance of $3.8 million, Curtis alleges, that has not been repaid.

For an astute businessman such as Kunin, though, the figurative slap in the face may have come upon learning about the “enormous tax obligations for millions of dollars that CSI [Curtis Squire, Inc] has never received.” Under the agreement, CSI was to get 50% of the profits of Salander-O’Reilly Galleries (SOR). Curtis alleges it has never received any of those profits, but instead “incurred huge tax payments for notional SOR ‘profits’ with no offsetting distributions to cover them.”

Despite the alleged shortcomings on the part of Lawrence Salander in the membership contract, Myron Kunin appears to have put up with the one-sided arrangement long after the point where a lesser man would sought recourse from the legal system. The breaking point appears to have been reached on April 25, when CSI notified Salander in writing that it was ending the arrangement: “Under Article 4.3 of the Operating Agreement, the withdrawal takes effect six months from the date of the notice, as of October 25, 2007.”

Even then, despite the alleged infringements of the agreement, Myron Kunin might not have been moved to file suit if he hadn’t learned of the story appearing in this magazine.

On page 2 of his August 7 complaint, his attorneys noted: “Plaintiffs were shocked to learn through a national trade publication—and subsequent investigation of court filings around the country—of several lawsuits against SOR and the issuance of injunctions against SOR and its operations, all premised on gross mismanagement and misconduct occurring at Salander’s direction.”

On page 6 of the complaint, they described what followed: “In August 2007, the Maine Antique Digest, a well-known trade publication, published a story entitled ‘Lawsuits and Charges of Unpaid Consignment Sales Trouble Salander-O’Reilly Galleries.’

“On learning of these allegations, Plaintiffs retrieved public files relating to the lawsuits described in the August 2007 Article.” CSI’s attorneys searched the public records and found four more filed suits (see our October 2007 story). “None of these state or federal lawsuits was disclosed to Plaintiffs,” the complaint stated and they allege they had no knowledge of “either the lawsuits or the conduct prompting them.”

From the tone of the complaint, it appears that the shrewd, but trusting, Minnesota businessman was horrified to discover what his fellow “member” from the Big Apple had been up to and went out of the way to deny that he and his businesses had any part in the alleged actions. The complaint states:
“As passive investors, Plaintiffs have had no role in the management or business affairs of SOR or the Gallery. Plaintiffs invested in SOR and reposed their money, their valuable artwork, and their trust and confidence in Salander and SOR. In return, they have been victimized. Millions of dollars owed them have gone unpaid. Lawsuits against SOR for Salander’s misconduct have been hidden from them.”

Curtis Galleries Inc. and Curtis Squire Inc. ask for judgment in a breach of contract action of $3.5 million, plus interest and costs. In a declarative judgment for unpaid promissory notes, the suit asks for $3.8 million, plus interest and costs. For damages under the “Operating Agreement,” it asks for damages to yet be determined. It asks for a full accounting and a trial to determine damages due to gross mismanagement and various breaches of other duties.

No one knows exactly when this complaint will reach the resolution stage, but Myron Kunin will no longer be associated with Salander-O’Reilly Galleries after October 25. That, at the very least, should give him some comfort.

Depending on the day one searches and the search engines used, there were anywhere from ten to 19 lawsuits filed in the New York Supreme Court during 2006-07 against the Galleries and/or Lawrence Salander and wife, Julie. Some were for relatively small amounts, from $35,000-$75,000. Several were in the $1.2 million to $4.2 million range, and one was for $14.6 million.

The suits included claims for art sold but allegedly not paid for, claims for non-payment of advertising bills and other debts, and unpaid promissory notes. One was for $1.2 million due on $1.3 million borrowed from the Utilities & Industries Management Corp. on May 15 of this year. One payment was made and then the June 30 installment was missed, according to the suit. The “Motion for Summary Judgment” claims that $1.2 million is now due.

If you accept the largest number found (19) for
suits and pleas for summary judgment, the total claims come just over $37 million. That figure does not include interest or damages or amounts yet to be determined by judgment. It does not include the $4,322,166.05 awarded to Massachusetts art collector Saundra Lane in a September 24 Order and Judgment signed by Judge F. Dennis Saylor IV. Interest on that amount will accrue until the total is paid off.

These many revelations are disheartening, one prominent New York City art collector said in an off-the-record conversation. “Artists spend their lives creating works of beauty and pleasure, then businessmen treat those works like used cars and default on payments,” she said. “They cheat the artists’ wives and children and all the others who love the art. What a sad commentary on the art business.”