Gallery Owners Win Ruling in Kinkade Case

While not singling out Kinkade in its finding of fraud, the panel ruled that the Morgan Hill, Calif.-based company 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 Virginia galleries in 1999.

The arbitrators, in a 2-to-1 ruling, also found that Kinkade and other company officials used the artist's familiar Christian-oriented themes to create "a certain religious environment designed to instill a special relationship of trust" with the couple, who have since divorced.

"Media Arts through its agents Thomas Kinkade, Ken Raasch and Barnett, in particular, held itself out to be acting on a higher plain," the panel said in its written opinion, adding that the men frequently used terms such as "partner," "trust," "Christian" and "God" to convey a sense of "higher calling" to Hazlewood and Spinello.

The panel's decision marks the first major loss for Kinkade and Media Arts Group in litigation brought by former dealers. The artist and the company he took private two years ago have prevailed in at least three previous arbitration claims.

The panel's interim award, issued Thursday, does not include interest, costs and attorney fees that have yet to be calculated and could bring the total to $3.5 million, said Norman Yatooma, the couple's Birmingham, Mich., lawyer, whose firm has five other cases pending, all with similar allegations.

"Being the first case to defeat Kinkade, I think, will open the floodgates," Yatooma said. "It will give Jeff and Karen a new future and the rest of our clients hope."

Dana Levitt, attorney for Kinkade, Barnett and Media Arts Group, said he shared the dissenting panel member's view that the other two arbitrators made "numerous substantial errors" in their finding. He said he would seek "appropriate legal remedies" to void the ruling before it becomes final.

"I think the evidence is very strong that my clients did what they were required to do," Levitt said. "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. And now they want my clients to pay the price for mistakes they made."