Insolvency, caused in part by millions of dollars owed on arbitration judgments involving fraud, brought one of painter Thomas Kinkade's businesses into Chapter 11 bankruptcy on June 2. The company, Pacific Metro of Morgan Hill, California, (previously known as Media Arts Group Inc.) had been responsible for licensing independent Thomas Kinkade Signature Gallery stores nationwide.

Pacific Metro's bankruptcy was filed one day after a $1 million payment was due on an arbitration judgment owed to former Signature Gallery owners, among several who had successfully sued the company for fraud, and were still trying to collect after four years.

In one 2003 lawsuit, former Signature Gallery owners Karen Hazlewood and Jeff Spinello sued Thomas Kinkade and Media Arts Group, claiming that he had used his Christian faith to fraudulently induce them to invest. In a 2006 arbitration by other gallery owners, the arbitration panel found that the company had "failed to disclose material information" that might have kept them from investing.

At one time there were 350 independently-owned Thomas Kinkade Signature Galleries nationwide, which were licensed to deal exclusively in Kinkade's art. The Hazlewood/Spinello lawsuit alleged that Media Arts had forced them to open stores in markets that were unable to sustain the stores, and that the company allowed discounters to sell prints of Kinkade's work at prices they were prohibited in their licensing agreements from matching.

They claim to have been left with unsaleable merchandise while Kinkade earned more than $50 million from prints and other licensed product lines. Ultimately, Hazlewood and Spinello won a judgment of $3 million.

By 2005, fewer than half of the Signature Galleries had survived. The bankruptcy, which was filed in San Jose, places an automatic stay on the collection of judgments against the company now called Pacific Metro, including the $3 million owed to Hazlewood and Spinello and the $1 million payment on the arbitration judgment that was due on June 1. Chapter 11 is intended to allow companies faced with insolvency to reorganize.

Related Resource

"Thomas Kinkade firm seeks bankruptcy protection" Thomas Kinkade firm seeks bankruptcy protection (Los Angeles Times, June 3, 2010)