The loan has some unusual provisions -- see below -- but suffice it to say that by the beginning of 2004, the deal had gone bad, and Lehmann filed suit against The Project, Haye and gallery director Jenny Liu seeking at least $1,140,000 in damages. Last week, after a two-day trial before Judge Ira Gammerman in New York State Supreme Court, the judge indicated that Lehmann had proved his case, and scheduled a final hearing in mid-February to set the level of money damages. It doesn't look good for the dashing young art dealer.

What happened?

The original agreement between Lehmann and The Project was deceptively simple. In return for Lehmann's $75,000 loan, made in February 2001, Haye promised the collector first choice of any works by the artists represented by the gallery. In addition, Lehman would be entitled to a 30 percent discount on his art purchases, until the discounts totaled $100,000.

For instance, when Lehman bought three Paul Pfeiffer videos in 2001, he paid 30 percent less than their $60,000 retail price -- $42,000 -- thus using up $18,000 of his $100,000 credit.

Now, that's the kind of investment that most people who sell art would find attractive -- to pay back the $75,000 loan, all the dealer has to do is let the lender purchase art worth over $333,000 from his or her gallery!

According to Lehmann, the loan was primarily designed to buy access. In today's art market, it seems, large discounts are a matter of course. What can be difficult to obtain, however, especially in the case of red-hot contemporary artists like Pfeiffer or Julie Mehretu, is a work that has not already been sold to someone else. Waiting lists for works by these artists can be long, crowded with museums and top collectors, and only the lucky few are actually allowed to take home their prize.

The dispute between Lehmann and The Project arose, in fact, over works by the Ethiopian-born Mehretu, a gifted draftswoman whose large, labor-intensive abstractions are compositionally sophisticated and carry suggestions of third-world political turmoil. Since graduating from the Rhode Island School of Design in 1997, Mehretu has had a remarkable career. After a single exhibition at the Project in November 2001, she was given a show at White Cube in London (July 2002) and a solo show at the Walker Art Center (Apr. 6-Aug. 10, 2003). A large Mehretu painting was featured in the 2004 Whitney Biennial and she is included in the current Carnegie International.

The art market has matched her rise: A five-by-seven-foot painting that the gallery sold in early 2001 for $20,000 would be priced at $87,500 today, an increase of more than 400 percent in four years.

According to Lehmann, he sought to acquire works by Mehretu -- but despite his arrangement with The Project, was unable to do so for almost two years, from the original agreement in February 2001 until the end of 2003.

There was one exception. In February 2003, at the time of the 2003 Armory Show, Lehmann was offered a small (32 x 54 in.) Mehretu painting, which he bought for $17,500, discounted from a list price of $25,000.

Despite his difficulties with the gallery in regards to acquiring works by Mehretu, Lehmann did eventually purchase a total of six works by Pfeiffer. In all, he used up $82,500 of his $100,000 credit in purchases from The Project.

Things came to a head after the Mehretu exhibition at the Walker Art Center in the spring of 2003, when Lehmann saw the exhibition catalogue and realized that the gallery had sold several large paintings to other collectors without offering them to him first, as per their agreement.

In December 2003, Lehmann says he despaired of convincing The Project to honor his right of first refusal, and asked for the balance of his credit to be returned, $17,500, and Haye sent a check for that amount. Lehmann then filed a breach-of-contract lawsuit.

Haye says the Project had tried to honor its contract with Lehmann. The collector was invited to preview Mehretu's show at the Project in November 2001 -- her only show at the gallery -- but he had other plans, and when he finally saw the exhibition, all the works were sold except one, which he declined.

According to the Project's lawyer, Alan Effron, the gallery was under the impression that Lehmann was only interested in a large painting. "He wanted a very large work," Haye told the Artnet News on the courthouse steps. "She's only made three or four of them, and I told him to be patient."

What's more, said Effron, the agreement between Lehmann and The Project expressly provided that four other individuals also have the right of first choice to any work by any artist represented by the gallery. "That's an important ambiguity," said Effron. "The agreement experessly warned that other individuals also had right of first choice." Those other individuals, according to the defendants, included Miami collector Dennis Scholl and New York dealer Jeannie Greenberg Rohatyn. The Project also seems to have considered its deals with museums and other galleries outside of its agreement with Lehmann.

Haye believes that the suit was in reality designed to propel Lehmann to the top of the waiting list -- which numbers about 30 people, according to Jenny Liu's trial testimony.

As part of the lawsuit, the Project was compelled to disclose all the works by Mehretu that it had sold, the date of their sale, the retail price of the works and the actual amount paid by the buyers. In 2001, The Project sold Mehretu paintings to Douglas Fogle, acting for the Walker Art Center ($18,000), Jeanne Greenberg Rohatyn ($21,250), Michael Danoff ($21,726), Jay Jopling ($20,000), Marvin and Alice Kosmin ($40,000), Thomas Dane ($27,000) and Dimitri Daskolopoulos ($51,000). The list also includes smaller drawings on mylar, priced at $2,000-$3,000.

It should be noted that most of the buyers received a discount of at least 10 percent; Jopling received a 20 percent reduction, while the Kosmins paid full price. The Daskolopoulos work, Retropistics: A Renegade Excavation, is quite large, measuring 8.5 feet tall by 18 feet long.

In 2002, The Project sold paintings to Thomas Dane ($35,468), Jenny Liu ($8,147.35, a substantial discount from the $15,000 list price) and Jeanne Greenberg Rohatyn ($43,452). The Project also sold one painting and 10 drawings to London dealer Jay Jopling of White Cube for a 40 percent discount. During 2003, Greenberg Rohatyn also bought four smaller works -- from the same series as the painting sold to Lehmann -- for $12,500, a 50 percent discount from the list price of $50,000

In 2003, buyers of major paintings included the Walker Art Center ($100,000, discounted from $120,000) and Dennis and Debra Scholl ($80,000). The Scholls paid full price. And, according to Lehmann's attorney, Peter R. Stern, The Project probably sold Empirical Construction (2003), the 10 x 17 foot painting that was exhibited in the Istanbul Biennial in 2003 and the Whitney Biennial in 2004, to the Museum of Modern Art in late 2003, though the sale went on the books in early 2004.

It should be noted as well that The Project sent three large paintings and eight works on paper by Mehretu -- all made in 2003 -- to the Berlin gallery Carlier Gebauer for an exhibition in January 2004.

None of these works were offered to Lehmann. According to Stern, the Project sold 40 works by Mehretu during the period of the contract, and only one was offered first to Lehmann. "He promised half of Mehretu's production to Jeannie Greenberg, half to White Cube, a third to Berlin dealer Carlier Gebauer, he sold the right of first refusal to four other parties. . .," said Stern. "To me this was the Producers; I was tempted to ask him if he knew Max Bialystock."

Lehmann's credentials as a collector, by the way, are impressive -- he's no art speculator. At trial, Lehmann testified that he spends $1 million a year on art, and that over 25 years of collecting, he had assembled 1,000 works, and had sold perhaps ten.

Last week's trial, held in a humble courtroom at 60 Center Street, was in part a contest of dueling experts, as the parties battled to put a current value on the Mehretu paintings that Lehmann was not allowed to buy -- thus determining the amount of damages.

Lehmann's expert, art consultant Ann Cook -- who was being paid $500 a hour for her expertise, according to her testimony -- gave Mehretu's paintings a relatively high market value, claiming that Dispersion, a 7.5 x 12 foot painting priced at $50,000 and sold for $43,452 to Jeanne Greenberg Rohatyn in Sept. 2002 is now worth $350,000, or almost $3,800 per square foot.

In her testimony, Cook cited the Artnet Price Database. A single work by Mehretu has sold at auction, a 6 x 7 ft. work from 1999 called Ringside. It sold during an off-season auction at Christie's New York on Sept. 23, 2003, for $74,090 with premium, well above its presale estimate of $20,000-$30,000.

Can art be priced by the square foot, like carpet? On the stand, Haye testified that the gallery currently sets prices for Mehretu's work in just that manner, using a formula based on the size of the painting: $1,000 a square foot for works over 100 square feet, $1,500 a square foot for works from 50 to 100 square feet, and $2,500 per square foot for works smaller than 50 square feet, with a minimum price of $25,000.

By the gallery's accounting, a 7.5 x 12 ft. painting like Dispersion, at 90 square feet, would today be worth $135,000. Haye put the percentage increase in value of Mehretu's work over the last three years at 100 percent.

Also testifying for the defense was Stefania Bortolani, a Gagosian Gallery director who is now opening her own gallery space in Chelsea. Bortolani valued Mehretu's paintings at less than Cook but more than Haye. For instance, she estimated that Dispersion is worth $180,000 today.

The final witness was Mehretu herself, who was joined in the courtroom by her girlfriend, Jessica Rankin, an artist who also shows with The Project. Mehretu testified impassively in a low voice, and was on the stand only briefly. She put the prices of her own work at the lowest level of all, saying that she thought the current value of Dispersion would be about $100,000. When asked by the judge for her reaction to the high prices her paintings have brought, she replied simply -- "I was surprised."

Mehretu also testified that she has no agreement that binds her to the gallery and -- most striking of all -- that she didn't know anything about the arrangement between The Project and Lehmann, or their dispute, until she was subpoenaed to testify at the trial only a few weeks earlier.

At the close of the two-day trial, Judge Gammerman instructed both parties to prepare memos in regard to damages and to return to court in three weeks -- Feb. 16, 2005 -- for his final decision. Stern told the Artnet News that he though a judgment relatively favorable to The Project would come in at around $800,000, while Effron said the amount would be nowhere near that level.

From Haye's point of view, the important issue in the lawsuit is the gallery's ability to put the artist's interests above all else, selling to museums and arranging exhibitions that would be most advantageous to the artist's career. "The lawsuit was a tool to coerce a small, young gallery into giving a collector the object of his desire," said Effron.

Clearly, Haye has vigorously contested Lehmann's claims in his lawsuit, and now it appears that he will have to include any damages assessed in the case as another cost of doing business.