NEWS- Kinkade loses: Fraud found in gallery's demise
Arbitrators awarded $860,000 to two former Charlottesville Thomas Kinkade gallery owners who accused the artist and his company of hiding business risks and using Christian themes to win their trust.
Ruling 2-1 on February 23, the arbitration panel found that Kinkade's Media Arts Group and one of its executives, Richard F. Barnett, "failed to disclose material information'' that would have dissuaded Karen Hazlewood and Jeffrey Spinello from investing $122,000 to open the first of their two Thomas Kinkade Signature Galleries in Virginia in 1999.
The panel did not single out Kinkade, known as the "painter of light," in finding fraud.
The American Arbitration Association ruling said Kinkade and other company officials frequently used terms such as "partner,'' "trust,'' "Christian'' and "God'' to convey a sense of "higher calling'' to the couple.
"The Media Arts executives told us their company was different that they did business consistent with the faith-based mission of Thomas Kinkade," says Spinello. "They said they would support us as partners in spreading the light. They said their business was blessed and that everyone who listened to them and followed their recipe made a ton of money. It was such a scam."
The panel's decision was the first major loss for Kinkade and Media Arts Group in litigation brought by former dealers. The Group had prevailed in at least three previous arbitration claims.
Spinello, now a real estate agent, exhales an "extreme sigh of relief." He says the arbitration lasted a year and that his legal costs were close to $2.5 million. "I think it's more expensive than a trial," he says.
Dana Levitt, an attorney for Kinkade, Barnett, and Media Arts Group, said the ruling had "numerous substantial errors'' and they will seek to have it voided.
"The plaintiffs knew what they were getting into. It was a business investment that had certain risks, and it didn't work out for them," Levitt said. "And now they want my clients to pay the price for mistakes they made."
Spinello said Media Arts Group forced him and Hazlewood to buy two or three copies of each new edition of Kinkade's canvas reproductions, but they proved to be slow sellers. Dealers were not allowed to discount the pieces, which sometimes cost thousands of dollars, and could return them only if they bought two or three new prints for each one sent back.
Spinello and Hazlewood closed their galleries in 2003. Media Arts Group went private for $32.7 million in 2004 and has been renamed Thomas Kinkade Co.
Works by Kinkade, who labels himself the nation's most collected living artist, generally depict tranquil scenes, heavy on country churches, lighthouses, trees, and cottages with streams running nearby.
The panel's interim award does not include interest, costs, and attorneys fees, and the amount could reach $3.5 million, said Norman Yatooma, the couple's lawyer. Yatooma said his firm represents 23 Signature Gallery franchisees from seven states in pending arbitration.
"If things continue as I expect," said Yatooma, "Mr. Kinkade may be signing more checks than paintings for the next few years."
Jeff Spinello opened his Kinkade-based gallery on the Downtown Mall in May 1999 and closed it in November 2003. He alleged Kinkade's company undercut the galleries by selling prints that wound up at Tuesday Morning discount stores.
FILE PHOTO BY JEN FARIELLO