An arbitration panel on Thursday awarded $860,000 to two former Thomas Kinkade Signature Gallery owners who accused the self-proclaimed "Painter of Light" and his company, Media Arts Group Inc., of fraudulently inducing them to invest in the business -- and then ruining them financially.
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."
Kinkade and Barnett could not be reached for comment.
Before Hazlewood and Spinello became disenchanted dealers of Kinkade's artwork, they were admirers and collectors. They owned more than a dozen of the artist's luminescent, limited-edition prints by the time they moved to Virginia in 1999 to open their first gallery.
But instead of helping them succeed, they alleged, Kinkade and the company he built on the themes of faith and family values drove them out of business.
They and other ex-dealers allege that Kinkade used his religious beliefs -- and manipulated theirs -- to induce them to invest in Thomas Kinkade Signature Galleries, independently owned stores licensed to deal exclusively in his work. They also allege that they were stuck with unsalable inventory, forced to open additional stores in markets that could not sustain them and undercut by discounters that sold Kinkade prints at prices they were forbidden to match. And they accuse the artist of scheming to devalue Media Arts Group before he took the company private for $32.7 million in early 2004, renaming it Thomas Kinkade Co.
Kinkade has denied the allegations.
Levitt, his lawyer, told the arbitration panel in December 2004 that the failure of the Hazlewood-Spinello galleries was part of a broad decline in the limited-edition art business, hastened by the dot-com crash, a shrinking economy and the Sept. 11 attacks. By the time they went out of business, he said, the couple owed the company $27,000 for inventory and had no one to blame but themselves.
"If they had made better business judgments, if they had capitalized on the opportunity to make greater profit, if they had kept their marriage together, perhaps they could have survived," Levitt told the arbitration panel. "But they didn't, and there was no room for error."
In testimony in the arbitration case and in an interview with the Los Angeles Times, Spinello, 38, described his business dealings with Kinkade as devastating, financially and emotionally.
Like legions of Kinkade collectors, he and Hazlewood ignored critics' dismissals of the artist's work as overly sentimental. They bought their first print, "New Day Dawning," in 1996 and say they were drawn not only to his warmly glowing images of cottages and lighthouses, seascapes and street scenes, but to his wholesome values.