Paintings, artifacts, antiquities and other “collectibles” have become almost everyday financial “commodities” in the investment world.  And, as such, those purchases, sales and investments have generated a predictably-broad array of disputes, ending in litigation, that are commonplace with respect to other “commercial” transactions.

Schulhof v. Jacobs, 2018 NY Slip Op 00528, App. Div. 1^st Dept. (January 30, 2018)

Supreme Court entered judgment against defendant in the amount of $1,555,185.21, stating as an alleged oral agreement that:

[The Dead Man’s Statute] does not preclude, on summary judgment, defendant’s testimony about her conversations with decedent Hannelore Schulhof…However, the parol evidence rule, coupled with the October 25, 2011 written agreement between the parties, bars defendant’s testimony that she reached an oral agreement with decedent that precedes and varies from the written agreement[.]

As to a fiduciary relationship that:

The motion court correctly found, as a matter of law, that defendant had a fiduciary relationship with decedent. The contract between defendant and the eventual purchaser of the artwork at issue states that defendant is acting as agent for an undisclosed principal — i.e., for decedent. The relationship between principal and agent is a fiduciary one[.]

Concluding that:

The motion court also correctly granted summary judgment to plaintiff on his fraud claim. The issue of reasonable reliance can be resolved on a summary judgment motion…Further, plaintiff’s success as a businessman does not preclude a finding of reliance…Defendant told plaintiff that the buyer of the art wished to remain anonymous, which prevented plaintiff from conducting due diligence by, for example, contacting the buyer…Since defendant had a fiduciary relationship with decedent, plaintiff was not required to obtain the kinds of representations and warranties that defendant suggests in her reply brief[.]

Given the existence of a fiduciary relationship, the faithless servant doctrine applies, and the motion court correctly granted plaintiff summary judgment on that claim[.]

Maestracci v. Helly Nahmad Gallery, Inc., 2017 NY Slip Op 07676, App. Div. 1^st Dept. (November 2, 2017)

Supreme granted defendant’s motion to dismiss the complaint on the grounds of lack of personal jurisdiction, as to one defendant, and as to plaintiff’s lack of standing, as to another.

The Court summarized the facts:

Plaintiff Philippe Maestracci, a resident and citizen of France, is the grandson and sole heir to Oscar Stettiner, who, Maestracci alleges, was the rightful owner of a painting by Amedeo Modigliani entitled “Seated Man with a Cane”…Stettiner resided in Paris until 1939, when he fled the Nazi occupation. According to Maestracci’s extensive research, the painting was confiscated by the Nazis shortly before the Allied liberation of Paris, and sold in July 1944 without Stettiner’s consent. In 1946, after the war’s end, Stettiner brought a proceeding in Paris against both the official appointed by the Nazi-controlled government to sell Stettiner’s painting, and the buyer of the painting, pursuant to French legislation voiding sales of property looted by the Nazis during the war. Stettiner was awarded an emergency summons invalidating the sale and directing that the painting be returned to him. However, French court records dated March 29, 1947, indicate that the buyer alleged he had entrusted the painting to another man who declared that he had sold it in 1944 to an unknown American officer. Stettiner died in 1948.

In 1996, the painting was put up for auction in London, by Christie’s, on behalf of sellers who were reputedly the descendants of the buyer of the painting in 1944. The auction catalogue’s description of the painting’s provenance indicated that it had been sold between 1940-1945 to “Anon.” According to Christie’s records, defendant International Art Center, S.A.…bought the painting. The painting was exhibited in New York City in 2005, at defendant Helly Nahmad Gallery, Inc.…It was also shown at the Helly Nahmad Gallery London in 1998; at the Musée d’Art Moderne in Paris in 1999; and the Royal Academy of Arts in London in 2006.

In November 2008, the painting was included in an auction conducted by Sotheby’s New York. The auction catalog described the owner as “Private Collection,” and indicated that the painting had “possibly” been owned by Stettiner as of 1930. The painting was not sold at the 2008 auction. In April 2010, Maestracci’s representative first contacted Sotheby’s Restitution Department to ask for the name of the consignor and that Sotheby’s inform the consignor of the claim by Stettiner’s heirs. In early 2011, plaintiff’s attorney twice contacted HNGallery and demanded return of the painting. HNGallery did not respond. Maestracci states that, as of August 2011, he believed that the HNGallery was refusing to return the painting and was not aware of defendants’ contention that IAC was the sole buyer and owner of the painting.

The action in the Southern District:

In 2012, Maestracci filed suit against HNGallery in the United States District Court for the Southern District of New York. That suit was discontinued without prejudice within the same year. Thereafter, Maestracci learned of defendants’ claim of IAC’s ownership, as well as IAC’s contention that Maestracci himself had no standing to bring the action, because, under EPTL 13-3.5, he had not established, as a foreigner, that he was a duly appointed representative of the nondomiciliary Stettiner estate. Maestracci then petitioned the Surrogate’s Court, New York County, to issue letters of administration to George W. Gowen, Esq., a New York attorney, on behalf of the estate, for the limited purpose of recovering the painting. Limited ancillary letters of administration were granted to Gowen in June 2013.

The action in Supreme Court:

In February 2014, Maestracci commenced this suit, solely in his name, by filing a summons with notice against all defendants. Because of several stipulated adjournments, the complaint was not filed and served until February 2015, in the name of both Maestracci and Gowen. In the interim, several precomplaint motions were decided or withdrawn. Before us are the appeals from the orders rendered on three motions.

The dismissal for lack of jurisdiction:

The motion court correctly granted defendants’ motion to dismiss the complaint as against defendants IAC and David Nahmad, on the ground of lack of personal jurisdiction, as plaintiff does not dispute on appeal that they were improperly served. However, the motion court erred when it determined that Maestracci lacked standing to bring this action. Although defendants correctly state that merely asserting that one is a beneficiary of a foreign decedent does not confer standing to bring suit on behalf of the estate, this Court has construed EPTL 13-3.5 to permit certain representatives of estates in foreign countries to bring suit in New York without first obtaining New York letters of administration by the alternative procedure of filing an affidavit and supporting documents establishing their right to pursue claims on behalf of the estate under the foreign law…Here, Maestracci relies on precisely the forms of proof we endorsed in [in a prior case] namely, “an affidavit from an expert in the law of the foreign jurisdiction concerning inheritance rights” and “the foreign jurisdiction’s equivalent of an acte de notariete’ formally certifying the party’s right to pursue claims on behalf of the estate”…Further, lack of compliance with the requirements set forth in EPTL 13-3.5(a)(1) and (2) merely operates to stay the action pending such compliance[.]

The dismissal for lack of standing:

The motion court properly granted Maestracci leave to add Gowen as a coplaintiff…Although Maestracci sought leave only after serving a complaint naming Gowen as a coplaintiff, CPLR 1003 gives a court “wide latitude and [is] to be liberally construed”…Moreover, due to the enactment of the Holocaust Expropriated Art Recovery Act of 2016…there is no prejudice to defendants in allowing Gowen to join the action…HEAR supplants the statute of limitations provisions otherwise applicable to civil claims such as these…Under HEAR, the applicable statute of limitations is six years from the date of “actual discovery” of “the identity and location of the artwork” and “a possessory interest of the claimant in the artwork”…We reject defendants’ argument that HEAR can be displaced by a choice-of-law analysis.

The statute of limitations:

Under section 5(c) of HEAR, for purposes of starting the running of the six-year statute of limitations provided by section 5(a), a preexisting claim covered by HEAR is “deemed to have been actually discovered on the date of enactment of [HEAR].” However, section 5(c) is made subject to the exception provided in section 5(e), which, as here relevant, provides that HEAR does not save a preexisting claim that was “barred on the day before the date of enactment of [HEAR] by a Federal or State statute of limitations” where “not less than 6 years have passed from the date [the] claimant . . . acquired such knowledge and during which time the civil claim or cause of action was not barred by a Federal or State statute of limitations.” Accordingly, to establish that HEAR does not save the subject claim, defendants were required to show that Maestracci discovered the claim on or before December 15, 2010 (six years before the day before the date of HEAR’s enactment). This they have failed to do. Indeed, defendants have failed to establish that Maestracci had actual knowledge of the identity and location of the artwork before December 22, 2011, when as part of motion papers related to a previous federal action commenced by Maestracci, HNGallery disclosed to Maestracci that IAC has owned the painting since purchasing it from Christie’s London in 1996. Defendants therefore have not established that this claim is barred by the statute of limitations.

Estate of Lorette Jolles Shefner v. Galerie Jacques de la Beraudier, 2017 NY Slip Op 02949, App. Div. 1^st Dept. (April 18, 2017)

The First Department, as follows, summarily affirmed the Order of Supreme Court that denied defendants’ motion for summary judgment dismissing the complaint:

Defendants failed to demonstrate that there were no triable issues of fact concerning ownership of the de Kooning painting and concerning successor liability. Defendants failed to provide a consignment agreement listing the painting at issue, and the documents produced do not show which entity purchased the painting. Moreover, plaintiffs provided evidence sufficient to raise a triable issue of fact concerning whether the painting was properly subject to attachment in connection with a default judgment they obtained in a federal action, based on statements allegedly made by an employee with authority to speak and contradictory statements by defendants[.]

The record also reflected triable issues of fact concerning whether Galerie Jacques de la Beraudiere was the successor to Galerie Cazeau-Beraudiere[.]

Reif v. Nagy, 2017 NY Slip Op 02920, App. Div. 1^st Dept. (April 18, 2017)

Supreme Court denied the motion of defendants Richard Nagy and Richard Nagy Ltd. to dismiss the complaint pursuant to General Business Law § 349.

The First Department summarized the facts:

This action arises from two pieces by the artist Egon Schiele alleged to have been looted by the Nazis during World War II from cabaret artist Fritz Grunbaum, who, along with his wife Elisabeth, was executed during the Holocaust. The pieces came into the possession of art dealer Nagy sometime after 2013.

Explicating and concluding that:

In 2005, David Bakalar…Massachusetts industrialist turned sculptor, brought suit against the heirs of Grunbaum seeking, inter alia, a declaration that he was the rightful owner of the Schiele work “Seated Woman,” a piece he had owned for over 40 years…Nagy’s contention that the dismissal in Bakalar, which was based upon application of the doctrine of laches, collaterally estops plaintiffs from pursuing their claims to two other Schiele pieces, “Woman in a Black Pinafore” and “Woman Hiding Her Face,” is misplaced. Collateral estoppel requires the issue to be identical to that determined in the prior proceeding, and requires that the litigant had a full and fair opportunity to litigate the issue…Neither of those requirements has been shown here where the purchaser, the pieces, and the time over which the pieces were held differ significantly. The three works are not part of a collection unified in legal interest such to impute the status of one to another[.]

Plaintiffs’ General Business Law § 349 claim, however, should be dismissed for failure to state a cause of action. The transaction at issue here, a single attempted transaction, to which plaintiffs were not a party but an alleged “competitor,” is not the type of consumer-oriented harm contemplated by the statute.

The court correctly denied ARIS intervenor status. While intervention is liberally granted, ARIS’s interest as the title insurer to “Woman Hiding Her Face” is purely derivative, no different from that of any insurer. And since it is entitled to approve of counsel selected by Nagy, with whom its interests are aligned, its position is well protected[.]

Lastly, plaintiffs’ motion to dismiss the appeals based upon the Holocaust Expropriated Art Recovery Act (HEAR) is moot in light of this Court’s finding that the motion court’s order denying collateral estoppel should be affirmed. The issue of whether HEAR would apply to bar Nagy’s defense of laches in its entirety is not before this Court, having not been decided by the motion court.

Anonymous v. Anonymous, 2017 NY Slip Op 02613, App. Div. 1^st Dept. (April 4, 2017)

Supreme Court declared that art purchased in either party’s sole name during the marriage was the party’s separate property pursuant to a prenuptial agreement.

The Appellate Division summarized the facts:

The parties were married on May 5, 1992. Plaintiff husband commenced the instant matrimonial action on May 6, 2014, claiming separate ownership of tens of millions of dollars’ worth of art, while defendant wife claims the art was jointly owned. The wife also claims to separately own four specified works of art purportedly worth a total of approximately $22 million.

The parties executed a prenuptial agreement on April 21, 1992. The prenuptial agreement does not specifically address how the parties should divide their art collection upon dissolution of the marriage. It provides that any property owned on the date of execution of the prenuptial agreement, April 21, 1992, or “hereafter . . . acquired” by one party remains that party’s separate property. It provides that “[n]o contribution of either party to the care, maintenance, improvement, custody or repair of… [the other’s party]…shall in any way alter or convert any of such property…to marital property.”

The prenuptial agreement further provides that “any property acquired after the date of the marriage that is jointly held in the names of both parties” shall, upon dissolution of the marriage — which occurred on March 25, 2014 — be divided equally between the parties. Under the heading, Non-Marital Property, the agreement provides:

No property hereafter acquired by the parties or by either of them…shall constitute marital property…unless (a) pursuant to a subscribed and acknowledged written agreement, the parties expressly designate said property as marital property…or (b) title to said property is jointly held in the names of both parties.

During the marriage, the parties agreed to acquire certain art as a joint collection, including pieces acquired through Art Advisory Services, Luhring Augustine, and The Kitchen. The wife claims that all art acquired through those vendors was jointly held. The husband claims that there was no blanket agreement that all pieces from those vendors would be considered marital property. Rather, he states that he relied on the prenuptial agreement and purchased certain works solely in his name when he wanted them to remain his separate property.

The relief sought by the husband:

The husband moved, inter alia, for a declaratory judgment that, “consistent with the Prenuptial Agreement, the title to the art purchased during the marriage determines whether it is marital or separate property, regardless of the source of funds used to acquire it or the alleged intent behind the purchase.” He argued that title should be determined based solely on the invoice or bill of sale.

The decision of Supreme Court:

The motion court construed the prenuptial agreement to provide that any art purchased solely in one party’s name remained that party’s separate property…and relied on the invoices as proof of whether the art was jointly or individually held. We conclude, to the contrary, that invoices, standing alone, may not be regarded as evidence of title or ownership of the art.

An invoice is defined as “[a] list of goods sent or services provided, with a statement of the sum due for these”[.]

“An invoice . . . is not a bill of sale, nor is it evidence of a sale. It is a mere detailed statement of the nature, quantity, or cost of the goods, or price of the things invoiced, and it is as appropriate to a bailment as a sale. Hence, standing alone, it is never regarded as evidence of title”[.]

Concluding that:

An invoice cannot be said to be dispositive of ownership. The purpose of the invoice is not to identify the titled owner. Moreover, there is always the potential unreliability of the information contained on the invoice. For example, for one reason or another, the price of the item(s) purchased may be inflated or deflated or the description of the merchandise or services rendered may be inaccurate or distorted.

The unreliability of an invoice as sole proof of title is evidenced by various invoices in the record before us. The parties concede that some of the invoices are inconsistent on their face, in that the name of the only party listed is not consistent with the name of that party’s account with the auction house of purchase or conflicts with the party to whom the item purchased should have been shipped. For example, the wife points to a jointly acquired and owned Jeff Koons painting, “the Empire State of Scotch, Dewars,” the invoice for which lists only the husband’s name.

With the admonition that:

We conclude that title to personalty cannot be determined by relying solely upon an invoice.  In determining title to the artwork in question, all the facts and circumstances of the acquisition and indicia of ownership must also be considered.

Dae Assoc., LLC v. AXA Art Ins. Corp., 2018 NY Slip Op 01026, App. Div. 1^st Dept. (February 13, 2018)

Supreme Court granted defendants’ motion to dismiss the complaint against insurance brokers.

The Appellate Division, as follows, summarily affirmed:

The all-risk policy at issue, which covered insured property for “all loss or damage to insured property,” did not apply to plaintiff art gallery’s contractual liability to purchasers of stolen artwork that was returned to its rightful owner…”[D]efective title is clearly not a physical loss or damage…from any external cause”…Despite the fact that the phrase “loss or damage” in the policy was not qualified by terms such as “direct” or “physical,” “[w]e may not, under the guise of strict construction, rewrite a policy to bind the insurer to a risk that it did not contemplate and for which it has not been paid”…”Title insurance has been regarded as a separate type of contract not falling within any of the three basic classes of insurance…It is not reasonable to interpret a policy so broadly that it becomes another type of policy altogether”…Even if a possessory interest in stolen artwork that was returned to its rightful owner was sufficient to establish an insurance interest…plaintiff did not possess the artwork at the time the purchasers demanded a refund that was guaranteed under their contract with plaintiff’s representative.

The fifth and sixth causes of action, against the insurance broker defendants, were properly dismissed, with leave to replead the sixth cause of action for a “special relationship” with the broker defendants in a second amended complaint. “Although the parties’ relationship lasted a considerable period of time and defendant [broker] assured plaintiff that his insurance needs were being met, these circumstances are not so exceptional as to support imposition of a fiduciary duty upon defendant”…A longstanding relationship alone is insufficient to establish a special relationship between plaintiff and the broker defendants. The amended complaint contains no specific allegations that plaintiff would meet with its broker every year to discuss the types of policies purchased, the limits to purchase, or what optional coverages should be purchased.

Art Capital Group, LLC v. Carlyle Inv. Mgt. LLC, 2017 NY Slip Op 05055, App. Div. 1^st Dept. (June 20, 2017)

The Appellate Division summarily affirmed, as follows, the Order of Supreme Court that granted defendant’s motion to dismiss the complaint alleging breach of a confidentiality agreement with respect to the secured art loan business:

Plaintiff does not adequately plead a claim for breach of a confidentiality agreement. Plaintiff makes vague and conclusory statements that defendant must have used the confidential information it provided regarding the secured art loan business because defendant’s principal did not know much about the business prior to speaking with plaintiff and, within the two-year period, defendant set up a competitor. Such allegations are insufficient because plaintiff does not identify what confidential information was allegedly misused by defendant during the two year confidentiality period…Moreover, the confidentiality agreement expressly provided that defendant could do business with a competitor “now (i.e. at the time of the entry of the confidentiality agreement) or in the future,” and acknowledged that execution of the confidentiality agreement and receipt of the confidential information would not restrict or preclude such activities[.]

Plaintiff also failed to adequately allege that there was any violation of the non-solicitation provision of the confidentiality agreement. Plaintiff did not identify any party that it introduced to defendant who then was solicited by defendant following termination of the transaction causing damages to plaintiff.

The court also properly dismissed the implied covenant of good faith and fair dealing claim as duplicative. The allegations in the complaint were premised on the same conduct as the breach of contract claim and were “intrinsically tied to the damages allegedly resulting from a breach of the contract”[.]

Markov v. Katt, 2018 NY Slip Op 30558(U), Sup. Ct. NY Co. (March 29, 2018)

The Court, entertaining cross-motions for summary judgment, summarized the facts:

This case arises out of a consignment of twenty Russian Republic Orders and ten badges form the early Soviet era…by Katt to Markov for sale under a consignment agreement on August 1, 2007, Markov’s purchase of the Collection and his sale of the Collection a few days later, and the resolution of the dispute between the parties by an agreement…in January 2008, under which Markov agreed to pay Katt the sum of $100,000, at the rate of $10,000 per month, and Katt agreed not to sue Markov. Markov paid Katt the $100,000, but on or about May 16, 2012, Katt commenced an action in Supreme Court, New York County under Index Number 651699/2012[.]

The prior action:

On April 9, 2013…Justice O. Peter Sherwood granted summary judgment to Katt on the breach of fiduciary duty claim and dismissed Markov’s affirmative defense of accord and satisfaction. After a non-jury trial, on June 21, 2013…Justice Sherwood dismissed Katt’s complaint and directed entry of judgment in favor of Markov. The basis of the decision was “settlement and release as a result of the [A]greement”…The Appellate Division, First Department, affirmed the judgment, finding that the Agreement was “an arm’s length” transaction[.]

The pending action:

On June 29, 2015, Markov commenced this action by filing a summons with notice and a motion for summary judgment in lieu of complaint. By order dated February 22, 2016, this Court denied Markov’s motion and Katt’s cross-motion and directed Markov to file a complaint within 30 days and Katt to file an answer within 30 days thereafter.

On March 4, 2016, Markov filed his complaint alleging breach of contract and unjust enrichment, seeking the $100,000 he had paid pursuant to the Agreement and alleging that Katt had violated the Agreement by commencing the Prior Action…On April 21, 2016, Katt filed his answer including affirmative defenses of res judicata and collateral estoppel and a counterclaim seeking rescission of the Agreement and damages in the amount he sought in the Prior Action[.]

On November 25, 2016, Katt moved for summary judgment, seeking dismissal of Markov’s complaint and summary judgment on his counterclaim for rescission. On December 23, 2016, Markov cross-moved for summary judgment on his claim for $100,000, for attorneys’ fees in the amount of $94,000 and for dismissal of Katt’s rescission counterclaim.

Concluding that:

At the [hearing on the motions], this Court granted the portion of defendant’s motion that sought dismissal of plaintiff’s claim for attorneys’ fees, since the Agreement did not include a provision for attorneys’ fees, and absent such agreement, parties must bear their own legal fees…This Court also granted the portion of defendant’s motion that sought dismissal of plaintiff’s cause of action for unjust enrichment, since a claim does not lie where, as in this case, there is an Agreement between the parties on the same subject matter[.]

Defendant has contended that, by commencing this action, plaintiff has sought to rescind the Agreement. [I]n order to prove a claim for rescission, a party must show mutual mistake or a unilateral mistake that is material and willful…Since this has not been shown, this Court grants the portion of plaintiff’s motion that seeks dismissal of defendant’s counterclaim for rescission.

The terms of the Agreement are set forth in the June Order, which was affirmed by the Appellate Division…The Agreement does not have a provision for damages in the event that Katt breached the Agreement by commencing the Prior Action. “[T]he time to [insert such a provision was] at the bargaining table”…Therefore, plaintiff cannot rewrite the Agreement now to insert such a damage clause.

Moreover, claims regarding the Agreement and its breach were capable of being raised and were raised in the Prior Action. Consequently, all such claims are barred by res judicata…Accordingly, the portion of defendant’s motion that seeks dismissal of plaintiff’s breach of contract cause of action must be granted.

Koller v. Paul Stamati Galleries, 2018 NY Slip Op 30135(U), Sup. Ct. N.Y. Co. (January 24, 2018)

Supreme Court addressed a motion by defendants to dismiss the complaint:

This case is about a piece of art sold by the moving defendants to plaintiff in November 2007. Plaintiff alleges that he was told the artwork was completed by well-known artist Edgar Brandt. Plaintiff paid $80,000 for the piece.

Plaintiff alleges that he later discovered that the value of the artwork was artificially inflated by his interior designer, Alexander Fradkoff, who received a commission for facilitating the purchase. Plaintiff contends that the actual value of the Brandt piece was about $40,000 and that Fradkoff increased the price so that his commission would be higher.

In September 2009, plaintiff’s counsel contacted defendant Darmanian (an attorney for the moving defendants) to help facilitate a potential settlement regarding the purportedly overvalued art. This dispute eventually settled when moving defendants paid $15,000 to plaintiff and the parties exchanged general releases. Plaintiff maintains that he relied on a letter from Darmanian in which she stated that a leading authority on works by Brandt, Joan Kahr, was going to include a photo of the piece in an upcoming edition about Brandt’s life.

In 2015, plaintiff decided to sell the art, and after having trouble with an auction house accepting it, plaintiff contacted Joan Kahr and asked her to look at the subject artwork. Kahr responded in April 2015 and allegedly denied that she had ever looked at the piece before and said that she could not authenticate it because it did not have Brandt’s signature.

Plaintiff’s claim:

Plaintiff claims that he would not have settled his dispute for $15,000 if Darmanian had not falsely represented that Kahr had inspected the piece and was going to include it in her treatise about Brandt. Plaintiff claims that the value of the art is significantly less because Kahr could not authenticate it as a Brandt piece.

*     *     *

[P]laintiff argues that the dispute in 2009 was about the value of the piece relating to a purported fraudulent scheme to increase Fradkoff’s commission. Plaintiff insists that the dispute here is about the authenticity of the art (whether it is a Brandt) rather than its value. Plaintiff acknowledges that both claims deal with fraud, but that the instant complaint focuses on a different fraud claim—that the moving defendants represented the art was authentic when they knew the art was not a Brandt.

Plaintiff emphasizes that to the extent that the moving defendants insist that the art is an authentic Brandt piece, then there was a mutual mistake regarding the general release—both parties thought they were reaching a settlement about an authentic Brandt.

Defendant’s opposition:

[T]he moving defendants claim that authenticity and value are interrelated; therefore, the general release applies to the instant complaint. The moving defendants also claim that there was no mutual mistake and that plaintiff was put on notice of material facts prior to signing the release. The moving defendants insist that plaintiff did not conduct the proper due diligence prior to signing the general release and did not seek to include conditional language in the general lease that might have permitted the instant claims.

The legal template with respect to releases:

“A release may [not] be treated lightly. It is a jural act of high significance without which the settlement of disputes would be rendered all but impossible. It should never be converted into a starting point for renewed litigation except under circumstances and under rules which would render any other result a grave injustice. It is for this reason that the traditional bases for setting aside written agreements, namely duress, illegality, fraud or mutual mistake, must be established or else the release stands. In the instance of mutual mistake, the burden of persuasion is on the one who would set the release aside”[.]

“A party cannot overturn the settlement of a dispute as to a particular matter . . . on the ground that it reasonably relied upon a representation by its adversary in the settlement negotiations, as to that exact point. In other words, when a party releases a claim for fraud, it can later challenge that release for fraudulent inducement only by identifying a separate and distinct fraud from that contemplated by the agreement”[.]

The subject release:

The instant release states that:

Edward R. Koller as Releasor, in consideration of the sum of one dollar and other good and valuable consideration received from Paul Stamati and Paul Stamati Gallery, as Releasees, receipt whereof is hereby acknowledged, releases and discharges Releasees, Releasees’ heirs . . . assigns, affiliates, officers and directors from all actions, causes of action, suits debts, dues, sums of money, accounts, reckonings, bonds, bills specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses . . . claims, and demands whatsoever, in law, admiralty or equity, which against the Releasees, the Releasor, Releasor’s heirs, executors, administrators, successors and assigns ever had, now have or hereafter can, shall or may, have for, upon, or by reason of any matter, cause or thing whatsoever from the beginning of the world to the day of the date of this Release. . . . This Release may not be changed orally[.]

Concluding that:

The Court finds that this general release bars the instant complaint. Plaintiff executed a release that discharged any claims he had or might have in the future with the moving defendants. Although plaintiff tries to characterize his instant causes of action as somehow separate and distinct from the claims discharged in the release, the language included in the release does not contemplate specific disputes. It releases all claims.

Plaintiff should have included conditional language in the release if he wanted to narrow its scope. As the First Department held…”if plaintiffs did not wish to forego suing on a fraud claim they might discover in the future, these sophisticated and well-counseled entities should have insisted that the release be conditioned on the truth of the financial information provided by defendants…on which plaintiffs were relying”…Here, plaintiff could have, for example, insisted that language be included stating that the release did not apply to claims which plaintiff did not know about or suspect to exist at the time he signed the release…Plaintiff could also have included language stating that the piece was an authentic Brandt. And plaintiff could have tried to limit the release to all claims regarding excess commissions, but he did not.

Plaintiff may not avoid his obligations under the general release because he failed to exercise proper due diligence. “But where, as here, a party has been put on notice of the existence of material facts which have not been documented and he nevertheless proceeds with a transaction without securing the available documentation or inserting appropriate language in the agreement for his protection, he may truly be said to have willingly assumed the business risk that the facts may not be as represented. Succinctly put, a party will not be heard to complain that he has been defrauded when it is his own evident lack of due care which is responsible for his predicament”[.]

Here, plaintiff alleges that he relied upon Darmanian’s purportedly false assurance that Kahr (the Brandt expert) would include the piece in her upcoming book. According to plaintiff, this letter was dated July 23, 2009 and the dispute settled on November 25, 2009. For some reason, plaintiff did not make any effort to contact Kahr (or anyone else) to confirm that representation or ascertain the value of the art. The fact is that in 2009 plaintiff complained that he overpaid for the artwork — in order to know how much he overpaid, due diligence would require getting the artwork appraised. Instead, plaintiff waited until 6 years after signing the general release to contact Kahr even though he knew that Kahr was an expert and available before he signed the release. If plaintiff had reached out to an expert prior to signing the agreement, that person would have inevitably considered the authenticity of the piece—undoubtedly the most crucial aspect in determining artwork’s value.

Moreover, the basis for plaintiff’s doubts about the authenticity of the piece—the absence of Brandt’s signature—was a fact in existence when plaintiff bought the art and signed the release. Again, plaintiff did not conduct the necessary due diligence before signing the subject release. Plaintiff cannot now avoid the release because he neglected to have the artwork valued before he agreed to release defendants in exchange for a refund.

And summarizing that:

In 2009, plaintiff claimed he overpaid for the artwork because of an inflated commission. He claims he paid $80,000 for artwork that was worth $40,000 — how did he come up with the $40,000 figure? Whoever gave him that $40,000 assessment led him to negotiate a refund from defendants. Certainly, he could not have relied upon the representations of the moving defendants or their attorneys — he must have had some investigation to give him that value, but now he claims that it was not even worth $40,000; that assertion is not based on representations from the moving defendants or their attorneys. If plaintiff relied on someone who told him it was worth $40,000, and it was not, then he may have a claim against that person, but not against the released parties.

If no one told him it was worth $40,000 and he made that figure up, then it was plaintiff’s obligation, before settling that claim and executing a general release, to find out how much the artwork was actually worth. Even though he knew of an expert on the artist, he neglected to seek her opinion, or anyone else’s opinion (such as an auction house’s opinion), as to the value of the art.

Besides, it makes no sense that, after accusing defendants of cheating him by making him pay too much in the first place, he decided to believe them that an expert was going to put the piece in her book — without hearing from the expert or trying to contact the expert in the months after being told of her book and before signing the release.

Moreover, plaintiff now complains that the artwork is not signed — but it has never been signed, and that information was not concealed by the moving defendants.

General releases cannot be ignored simply because a releasor later regrets foregoing all claims (past, present or future) relating to a dispute. Releases must have finality if they are to have any meaning or effectiveness in settling cases. Plaintiff’s efforts to draw a distinction between the dispute over the value of the painting in 2009 and its authenticity does not provide a ground to permit the instant action to proceed. To embrace plaintiff’s contention would require this Court to insert a provision into the subject release conditioning it on the fact that the art was authentic, or limiting it to the commissions. The Court cannot add additional language to an agreement negotiated by parties represented by counsel.

Plaintiff had a chance to investigate the value of the art, including the authenticity, before purchasing it in 2007 or at any time until the general release was signed in November 2009. Plaintiff cannot seek to renegotiate the terms of his settlement with the moving defendants because he finally got around to speaking with an expert.

Rubin v. Sabharwal, 2018 NY Slip Op 30293(U), Sup. Ct. NY Co. (January 11, 2018)

Supreme Court, in addressing a motion to dismiss the complaint, described the action:

Plaintiff, Shelley Rubin, is the co-founder and co-chair of a museum specializing in Himalayan and Indian art. She brings this action asserting seven causes of action: (1) fraud in the inducement; (2) fraud and conspiracy to commit fraud; (3) breach of contract; (4) unilateral mistake/recession; (5) unjust enrichment; (6) alter ego; and (7) fraudulent conveyance. These claims arise out of a series of transactions occurring over a five-year period during which Rubin and Nisha Sabharwal conducted approximately eighty transactions and Rubin purchased hundreds of pieces of jewelry amounting to approximately $18,136,150. Rubin alleges that she was fraudulently induced in these transactions and was the victim of a “long con[.]”

The allegations of the complaint:

In her complaint, plaintiff alleges the following: “Nisha made numerous, repeated, material and knowing misrepresentations of fact concerning the merchandise that she sold to Rubin.”…After she bought hundreds of items from defendants, plaintiff had several of the items appraised. Plaintiff provides about ten instances where the appraised value of the items she purchased differs (in some instances substantially) from the original purchase price.

Rubin’s complaint does not describe the alleged fraudulent conduct in each alleged fraudulent transaction. Viewing the facts most favorable to the plaintiff, the court cannot reasonably infer there was fraudulent conduct in 80 transactions from a complaint containing conclusory allegations regarding ten transactions. The complaint contains only conclusory allegations relating to approximately ten transactions. And even in the alleged ten transactions, plaintiff does not provide sufficient facts.

The deficiencies of the supplementary affidavit:

Plaintiff’s supplementary affidavit does not cure the deficiencies in her complaint. In Rubin’s affidavit, she alleges that the “allegations that are attributable to Nisha…are false and were known to Nisha to have been false when made.”…The affidavit, like the complaint, fails to provide facts relating to the purchase of hundreds of pieces of jewelry. Plaintiff concludes that “all of the allegations [by defendants] are false.” In her affidavit, plaintiff mentions approximately twelve invoices that cover a five-year period; plaintiff concludes that she was defrauded. Plaintiff’s supplemental affidavit is insufficient: It fails to establish facts which would allow a “reasonable inference” that plaintiff was defrauded in each of these 80 transactions.

Plaintiff does not sufficiently make out a fraud claim. In her complaint and affidavit, plaintiff alleges the defendants’ material misrepresentations were that pieces of jewelry were from the “same set” as ones in a magazine, that the jewelry has “significance,” that the jewelry came from a “friend or family’s” collection, and that the pieces were “museum quality” or “generational.”…Plaintiff’s allegations do not satisfy the heightened pleading standard because complaints of a general nature are insufficiently specific to state a claim of fraud and fraudulent inducement…Although her statements — that the jewelry was represented as “generational” — may be fact-specific, these general statements alleged without referring to when, where, or how defendants made the statements is insufficient to satisfy the heightened pleading requirement[.]

The complaint fails to plead with the required specificity a cognizable claim for fraud. Considering the complaint and the affidavit together, plaintiff fails to plead facts and specific misrepresentations in each transaction. Thus, the motion to dismiss the fraud claim is granted.

Plaintiff also alleges fraud in the inducement and conspiracy to commit fraud. These causes of action are subject to the same heightened pleading standard as fraud…Thus, the fraud in the inducement and conspiracy to commit fraud claims are dismissed.

And dismissed the remaining claims based on alter ego, fraudulent conveyance, breach of contract, rescission and unjust enrichment:

Plaintiff’s cause of action for “alter ego” is dismissed for failure to state a cause of action. Plaintiff concedes that there is no separate cause of action for “alter ego”; thus this cause of action is dismissed.

*     *     *

Plaintiff alleges a cause of action for fraudulent conveyance under DCL § 276 which provides, in relevant part that every conveyance “made and every obligation incurred with actual intent . . . to hinder, delay, or defraud either present or future creditors, is fraudulent.” To adequately plead a claim of fraudulent conveyance, plaintiffs must allege that the conveyance was made without fair consideration and that it will render the conveying party insolvent, or that the property remaining after the conveyance is insufficient to pay conveying party’s probable liabilities on existing debts…Plaintiffs fail to plead that the conveyance rendered defendant insolvent. Therefore, the fraudulent conveyance cause of action is dismissed.

*     *     *

Plaintiff alleges a cause of action for breach of contract. To set forth a breach of contract claim, plaintiff must allege the existence of a contract, performance by plaintiff, failure to perform by defendant, and damages…Plaintiff alleges that each transaction between her and defendant constitutes a separate contract. These contracts are memorialized in invoices and referred to by invoice number. Although plaintiff fails to allege details of each transaction, plaintiff alleges that all these contracts were breached. Plaintiff has sufficiently pleaded a cause of action for breach of contract. Therefore, the motion to dismiss the breach of contract claims is denied.

*     *     *

Defendant moves to dismiss plaintiff’s cause of action for rescission on the same ground as plaintiff’s breach of contract claim. In opposition, plaintiff argues that defendant’s moving papers failed to make any substantive arguments regarding the rescission cause of action.

Rescission, however, is an equitable remedy for a breach of contract claim and as such is interrelated to the breach of contract cause of action. In their moving papers, defendants sufficiently assert substantive arguments addressing both the breach of contract and the rescission claim. Defendants’ arguments, however, are insufficient to warrant dismissal of the rescission claim at this preliminary phase. Because the motion to dismiss the breach of contract claims is denied, the rescission cause of action is denied as well.

*     *     *

Plaintiff alleges a cause of action for unjust enrichment. To set forth a cause of action for unjust enrichment, plaintiff must demonstrate an enrichment, that was made at plaintiff’s expense, and that good conscience and equity warrant the return of the money…Defendants do not explain how plaintiff has failed to state a cause of action under 3211 (a)(7)[.]

Estate of Kainer v. UBS AG, a Swiss Corp., 2017 NY Slip Op 323169U), Sup. Ct. N.Y. Co. (October 30, 2017)

Supreme Court addressed various motions to dismiss in “a dispute over ownership rights to an asset of the estate of Margaret Kainer…a Degas painting entitled Danseuses…The Painting was part of an art collection that was looted in 1935 by the Nazi regime.  Plaintiffs claim that defendants wrongfully agreed to the sale of the Painting after it resurfaced in 2008 or 2009, in derogation of plaintiffs’ rights as heirs.”

The Court introduced the parties:

Plaintiffs allege that they are heirs pursuant to a French certificate of inheritance, issued in or about May 2012…Defendant [Foundation] claims rights as an heir pursuant to a German “certificate of partial inheritance,” issued in or about 1972…Defendant Edgar Kircher is a member and president of the board of trustees of the Foundation, and is also a director of defendant UBS AG in Switzerland…Defendants UBS AG and UBS Global Asset Management (Americas), Inc. (UBS Global)…allegedly control the Foundation[.]

Defendant Christie’s Inc. (Christie’s), a New York corporation engaged in private sales and public auctions of artworks, was involved in two sales of the Painting in 2009…In connection with a private sale of the Painting held by a client of Christie’s, the Foundation entered into a “Restitution Settlement Agreement” in which it renounced its rights as heir to the Kainer estate, in exchange for a percentage of the proceeds of the sale…The complaint alleges that the Foundation falsely claimed that it was Kainer’s heir, and that the Foundation defendants engaged in a conspiracy with Christie’s to deprive plaintiffs, the lawful heirs, of their ownership interests in the Painting[.]

Summarized the pending motions:

In [UBS] moves to dismiss the complaint…on the ground of forum non conveniens. In the alternative, UBS seeks dismissal of the complaint against UBS AG for lack of personal jurisdiction, and against UBS Global for failure to state a claim. [T]he Foundation and Kircher move to dismiss the complaint on the grounds of forum non conveniens and lack of personal jurisdiction. [C]hristie’s moves to dismiss the complaint on the ground of forum non conveniens. In the alternative, Christie’s seeks dismissal of the second cause of action (aiding and abetting breach of fiduciary duty) and fourth cause of action (conversion) based on the statute of limitations. Christie’s also seeks dismissal of the sixth cause of action (unjust enrichment) and seventh cause of action (“conspiracy to obtain unjust enrichment”) for failure to state a claim[.]

Extensively detailed the background of the case:

As alleged in the complaint, prior to 1932, Kainer and her husband, Ludwig Kainer, lived in Germany, where Kainer owned an art collection comprised of over 400 works of art, of which the Painting was a part…During the Holocaust, the Nazis confiscated the collection and sold it at a “Judenversteigerung,” an auction of assets belonging to Jewish victims of the Nazi regime…After Kainer left Germany in 1932, she never returned…According to the complaint, Kainer lived in Switzerland from 1943 to 1946, and then relocated to France, where she remained until her death in 1968[.]

The parties’ claims as to their status as Kainer’s heirs are sharply disputed. As noted above, plaintiffs assert that they are heirs pursuant to a French certificate of inheritance, issued in 2012.  Plaintiffs state that they “were unaware of the activities of the defendants, the Restitution Settlement Agreement, or the sales of the Paintings until 2011 and 2012.”…The complaint does not allege, and the record does not contain evidence as to, when plaintiffs first became aware of their status as heirs.

As also noted above, the Foundation claims status as an heir pursuant to a German “certificate of partial inheritance,” issued in or about 1972…This certificate by its terms states that the Foundation “has, since December 18, 1968, been a co-heir entitled to 3/4 of the estate of Councillor of Commerce Norbert Levy.”…The certificate does not identify the assets of the estate…The complaint pleads that in his 1927 will, Norbert Levy, Margaret Kainer’s father, named her as his “sole heir.”…As quoted in the complaint, the will provided: “If my daughter dies alone, without leaving ‘Leibeserben’ [heirs by blood], with the exception of a fourth of her estate which she may freely dispose of, the estate left by her shall be used to set up” a Norbert Levy Foundation for the support of his family…As further pleaded in the complaint, Norbert Levy died in 1928, but in November 1927 had himself set up a foundation in Switzerland, called “Norbert Stiftung,” for the purpose of supporting family members…According to the complaint, UBS, acting through a UBS director (Dr. Albert Genner) who was also a member of the board of trustees of the Norbert Stiftung, purported in 1971 to convert that foundation to a Swiss public foundation, “to own and control the assets of Margaret’s estate.”…The Swiss public foundation is the defendant Foundation in this action.

The complaint pleads at length grounds on which plaintiffs challenge the legitimacy of the defendant Foundation and its alleged rights as an heir. Plaintiffs claim that “no ‘conversion’ [of the Norbert Stiftung] was possible” for the reasons, among others, that the Norbert Stiftung had ceased to exist, and that the new Foundation did not provide for the benefit of Kainer’s heirs…Alternatively, the complaint pleads, on information and belief, that the Norbert Levy Foundation referred to in Kainer’s father’s will “was to be founded in Berlin,” and that the will provision regarding that foundation was, for specified reasons, invalid under German law from its inception…Plaintiffs assert that, “[a]ccordingly, Margaret’s entire estate, including the assets she had inherited from Norbert, passed on the basis of intestacy to her next of kin.”…The complaint further alleges that the new foundation that was established in 1971—i.e., defendant Foundation here—was devised by UBS as a means to appropriate assets that would otherwise go to Margaret’s heirs[.]

The complaint also pleads that non-party Swiss localities, the Canton of Vaud and the City of Pully, claim status as heirs pursuant to a Swiss certificate of inheritance, issued in May 2003 by a Swiss court, which designated these two localities as Kainer’s “sole legal heirs in equal halves as ‘common owners.'”[.]

There has been extensive litigation in Europe between and among the heirs regarding their ownership rights in the estate. In 2002, the Foundation asserted claims in Germany and Switzerland for Kainer’s entire estate…At that point, the Canton of Vaud and City of Pully had asserted “jurisdiction” over the entire estate based on the claim, disputed by plaintiffs in the instant action, that Kainer had been domiciled in Pully, Switzerland…”Notwithstanding this certificate” (i.e., the Swiss certificate that had been issued to the Swiss localities), the litigation between the Foundation and those localities continued in Germany until 2005, when a settlement was reached to divide the Kainer estate among the Foundation, the Canton of Vaud, and the City of Pully, and “to join efforts to find and obtain compensation for paintings” looted from Kainer or her husband[.]

In addition, two related actions are active in Switzerland, and a third has been litigated in Germany…All of the plaintiffs in the instant action are plaintiffs in two Swiss proceedings, which plaintiffs commenced contemporaneously with this action.  In the first, the “Swiss Inheritance Claim,” plaintiffs “(i) seek to recover property and/or assets belonging to the estate of Margaret Kainer held by Swiss defendants Canton de Vaud, Commune de Pully and the Norbert Foundation [i.e., the Foundation that is the defendant here], and (ii) seek a determination as to the validity or the inapplicability of reversionary heirship mentioned in Norbert Levy’s last will.”…The second, the “Swiss CoI [Certificate of Inheritance] Claim,” “addresses the validity of the Swiss Certificate of Inheritance that was issued to the Canton de Vaud and Commune de Pully.”…According to plaintiffs’ Swiss counsel, plaintiffs in the Swiss Inheritance Claim are seeking payments from the Swiss localities and the Foundation “based on the unjust enrichment law.”…The court has not been apprised of any final resolution of the issues in the Swiss proceedings.

In Germany, Warner Max Corden, a plaintiff in the instant action, brought a proceeding “to recall” and, alternatively, to “invalidate” the certificate of partial inheritance issued to the Foundation in 1972…On November 26, 2014, the German court “disallowed the recall and/or the cancellation” of the certificate…Corden’s German counsel filed an appeal of this decision on December 23, 2014…By letter dated February 1, 2017…plaintiffs’ counsel in the instant action informed the court that the November 26, 2014 decision had been annulled by a German Appellate Court and that the certificate of partial inheritance had been declared “void.” As discussed further below, the court has not been apprised as to whether further proceedings are pending in Germany, and plaintiff has not claimed that the appellate decision forecloses the Foundation’s claims as an heir.

In the instant action, plaintiffs challenge the Foundation’s assertion of rights as Kainer’s heir to the proceeds of the sale of the Degas Painting. According to the complaint, in 2000, the Foundation “caused all of the known paintings from the 1935 forced sale of the Kainer art collection to be registered” in lost art databases for looted art, including the Art Loss Register and a database run by a German entity…In May 2009, Christie’s contacted the Foundation’s attorney regarding Christie’s client, a Japanese gallery “holding” the Painting in Japan. Christie’s sought to facilitate an agreement between the client and the Foundation in connection with a private sale of the Painting…As further alleged by plaintiffs, because the Painting was listed on the Art Loss Register as art stolen from Kainer, “a release of any claim by her heirs was necessary to render the Painting saleable.”…The Foundation entered into a Restitution Settlement Agreement in which it renounced its rights to the Painting in exchange for thirty percent of the proceeds of the sale…Christie’s arranged the private sale of the Painting in Japan for $6 million and the Foundation received $1.8 million…On November 3, 2009, “just days” following that sale, Christie’s offered the work for sale at a public auction in New York, with an estimated price of $7 to 9 million…The notice of the sale of the Painting stated: “This work is offered pursuant to a restitution settlement agreement with the heirs of Ludwig and Margaret Kainer in 2009.”…The Painting sold for $10,722,500[.]

Although it is not alleged that the Foundation received any compensation from this sale, plaintiffs assert that a “serious question” exists in this regard based, among other things, on the “extraordinarily short time period between [the] private sale and the public auction,” and the facts that both the private sale and the public auction “were made pursuant to the Restitution Settlement Agreement,” and the private sale price was well below the price realized at auction a few days later[.]

Plaintiffs claim that the Foundation “falsely held itself out as the legitimate heir of [Kainer] for the settlement of any claims regarding the paintings” that had been looted from the Kainer estate…According to the complaint, the Foundation defendants engaged in a conspiracy with Christie’s “to falsely legitimize [the Painting’s] title so that they could all profit therefrom to the detriment of Plaintiffs,” “the lawful heirs [who] have received nothing” from the sale of the Painting…This conspiracy involved two acts: the Foundation’s entry into the Restitution Settlement Agreement, which Christie’s “solicit[ed]” and “facilitat[ed]”; and Christie”s offer of the Painting at a public auction a few days later, pursuant to the Restitution Settlement Agreement…Plaintiffs also claim that Christie’s recognition of the Foundation as Kainer’s heir has fostered the Foundation defendants’ ability to continue to sell other paintings from the Kainer collection as they are discovered, by legitimizing the Foundation’s claim as heir of the Kainer estate[.]

Addressed the issue of personal jurisdiction:

As a threshold matter, the parties dispute whether this court must determine the claims of lack of personal jurisdiction, asserted by defendants UBS AG, the Foundation, and Kircher, before the court entertains these defendants’ motion to dismiss on the ground of forum non conveniens…[T]he Supreme Court [has] held that a court is not required to determine whether it has personal jurisdiction over the defendant before dismissing an action based on the common law forum non conveniens doctrine. The Court reasoned that because a forum non conveniens dismissal is not a dismissal on the merits, a court may “choose among threshold” non-merits grounds for dismissal…The Court further held, however, that “judicial economy and the consideration ordinarily accorded the plaintiff’s choice of forum” favor the court’s determination of the jurisdictional issue first, if the determination can “readily” be made and “will involve no arduous inquiry.”…In contrast, where personal jurisdiction “is difficult to determine, and forum non conveniens considerations weigh heavily in favor of dismissal, the court properly takes the less burdensome course” and may dismiss the action without a prior jurisdictional determination[.]

In New York, there are two long-standing, conflicting lines of authority on this threshold issue. The first holds that the court must address the jurisdictional issue before deciding whether dismissal is warranted based on the forum non conveniens doctrine “`because, if a court lacks jurisdiction over a defendant, it is without power to issue a binding forum non conveniens ruling as to that defendant.'”  The second holds that a court “presuming, without deciding jurisdiction,” may address the issue of whether the action should be dismissed on the forum non conveniens ground[.]

Although the weight of appellate authority in this Department requires a court to address jurisdictional issues before undertaking a forum non conveniens analysis, the Appellate Division decisions do not discuss the reasoning of [the Supreme Court case] and do not discuss the conflicting lines of authority.  Based on a close reading of the cases, this court finds that the lines of authority do not appear to be reconcilable based on factual differences. The Court of Appeals has not addressed the issue, although dictum in [an early] decision stated that the doctrine of forum non conveniens is inapplicable unless personal jurisdiction has been obtained…Absent binding authority to the contrary, the court follows the second line of cases[.]

Here, it is undisputed that the Foundation was founded under Swiss law and is domiciled in Switzerland…Mr. Kircher is a Swiss citizen and resident…UBS AG is a Swiss corporation…Plaintiffs acknowledge that the record does not demonstrate personal jurisdiction over the Foundation, Kircher, and UBS AG and, as to these defendants, claims that a determination of jurisdiction cannot be made without first affording plaintiffs jurisdictional discovery and/or a hearing on the jurisdictional issue[.]

Plaintiffs assert jurisdiction over the Foundation, Kircher, and UBS AG…The complaint pleads the following: a first cause of action against UBS, the Foundation, and Kircher for breach of fiduciary duty; a second cause of action against Christie’s for aiding and abetting the breach of fiduciary duty; a third cause of action against UBS, the Foundation, and Kircher for an accounting; a fourth cause of action against all defendants for conversion; a fifth cause of action against UBS, the Foundation, and Kircher for unjust enrichment; a sixth cause of action against Christie’s for unjust enrichment; a seventh cause of action against all defendants for “conspiracy to obtain unjust enrichment”; and an eighth cause of action against the “John Doe” possessors of the Painting, for replevin.

These causes of action are all premised on the same allegedly wrongful acts taken by defendants in derogation of plaintiffs’ rights as heirs—the Foundation’s assertion of an allegedly false claim that it was Margaret Kainer’s heir or sole heir, and its entry into the Restitution Settlement Agreement with Christie’s by which the Foundation purported to renounce its rights as heir in exchange for payment.

As to jurisdictional discovery stating that:

In seeking jurisdictional discovery, plaintiffs claim that the above transactions were all “effectuated through acts that took place in New York, including the negotiation and facilitation of the Restitution Settlement Agreement by Christie’s on behalf of the . . . Foundation, and then the brokering of two sales” — i.e. the private sale and the subsequent auction…The Foundation defendants deny that they engaged in any acts in New York to effectuate the sale of the Painting…Mr. Kircher states that in May 2009, Christie’s contacted Dr. Von Trott, the Foundation’s attorney in Berlin, on behalf of a client in Japan, seeking to conclude an agreement with the Foundation regarding a sale of the Painting…He claims that “[f]rom the Foundation’s side, all of those discussions took place via phone, email and/or mail in Europe (i.e., Switzerland where the Foundation was located and Germany where the Foundation’s counsel was located, and in London where the Art Law [sic] Register is located and Japan, where the Painting and its Japanese owner were.”…Mr. Kircher acknowledges that the Foundation agreed to renounce any claim of ownership to the Painting, and received approximately $1.8 million of the net proceeds of the private sale…He denies that he or “the Foundation knew of the auction until after it had taken place,” and states that neither he nor the Foundation was “involved in or benefited by the auction sale of the Painting.”…He also acknowledges that, while in New York for personal reasons, he visited Christie’s one week after the auction “to find out what had happened.”…Plaintiffs argue that the timing and circumstances of the public auction in relation to the first sale, and Kircher’s visit to New York, are “extremely suspicious,” and raise a question as to whether the Foundation was in fact benefited by the auction.

For purposes of this motion, the court assumes that plaintiffs have made a “sufficient start” to warrant jurisdictional discovery…The court finds, however, that jurisdictional discovery would be unduly burdensome.

Plaintiffs seek extensive document discovery that would overlap to a significant extent with discovery on the merits of plaintiffs’ claims that defendants and Christie’s wrongfully interfered with plaintiffs’ rights as heirs to the Painting. At oral argument, plaintiffs’ counsel gave, as examples of documents they would seek, “Christie’s file on the painting,” including the Restitution Settlement Agreement and any drafts of the Agreement, as well as “any communications that [Christie’s] had with . . . the Foundation relating to this painting or . . . whatever other dealings they may have had in New York.”…In addition, plaintiffs requested documents that reveal “the identity of who the painting was sold to, who the consignors were, [and] who the dealer that’s mentioned in the [November 24, 2009] letter are,” as well as where the painting is currently located…Plaintiffs also sought to reserve the right to take the deposition of Christie’s in connection with the jurisdictional discovery[.]

As review of the complaint and these requests shows, the jurisdictional discovery would seek all communications between the Foundation and Christie’s regarding the Restitution Settlement Agreement and the sale of the Painting. These communications would include communications regarding the Foundation’s status and rights as heir, which are at the core of the parties’ dispute in this action. Given the compelling case…that is presented for dismissal of this action against the Foundation defendants on the forum non conveniens ground, this court declines to order this extensive discovery, and will presume personal jurisdiction over these defendants[.]

Addressed the claim of forum non conveniens:

It is well settled that “[t]he doctrine of forum non conveniens permits a court to dismiss an action when, although it may have jurisdiction over a claim, the court determines that ‘in the interest of substantial justice the action should be heard in another forum’…The party seeking dismissal bears the “heavy burden of establishing that New York is an inconvenient forum and that a substantial nexus between New York and the action is lacking”[.]

It is further settled that in applying the forum non conveniens doctrine, the court, “after considering and balancing the various competing factors,”

must determine in the exercise of its sound discretion whether to retain jurisdiction or not. Among the factors to be considered are the burden on the New York courts, the potential hardship to the defendant, and the unavailability of an alternative forum in which plaintiff may bring suit. The court may also consider that both parties to the action are nonresidents and that the transaction out of which the cause of action arose occurred primarily in a foreign jurisdiction.

“No one factor is controlling”…

A New York resident plaintiff’s choice of forum “is presumptively favored,” although not dispositive”…Here, however, none of the plaintiffs is a New York resident. Although the complaint does not set forth the residences of plaintiffs, review of the French certificate of inheritance…under which plaintiffs claim rights as heirs, shows that with one exception, plaintiffs reside outside the United States—in Australia, Great Britain, and Chile. The sole U.S. resident plaintiff resides in Connecticut.

Significantly, the central issue in this action is whether, or to what extent, plaintiffs and the Foundation have rights as heirs to property in Kainer’s estate and, in particular, to the Painting. Plaintiffs do not dispute that foreign law governs the parties’ rights as heirs. Nor do plaintiffs dispute that they have brought proceedings in Switzerland against the Foundation and Swiss localities, both of which claim rights as heirs of the Kainer estate under certificates of inheritance issued long before plaintiffs obtained their certificate of inheritance recognizing them as heirs.

In the pending Swiss proceedings, plaintiffs seek determination of claims regarding their status and rights as heirs, which overlap with the claims that must be determined in this action [P]laintiffs’ Swiss counsel, Philippe Dal Col, explains that in the Swiss Certificate of Inheritance proceeding, the plaintiffs, who are all of the plaintiffs here, seek a determination that the certificate of inheritance issued to the Swiss localities is invalid. In the Swiss Inheritance Claim proceeding, these same plaintiffs seek to recover property belonging to the Kainer estate that is held by the Swiss localities, as well as a determination that Kainer’s father’s will was ineffective to create a “reversionary heirship” in the Foundation defendant…The Application for Conciliation filed in these proceedings by plaintiffs’ Swiss counsel seeks, among other things, a determination that plaintiffs are the “sole heirs” of Margaret Kainer, a determination that the remainder contained in the testamentary disposition of Norbert Levy is null and void, and an order that the Swiss localities and the Foundation immediately return to plaintiffs “all of the property and/or assets originating from the estate of the deceased Margaret Kainer”[.]

In contending that it is not necessary for this court to determine the parties’ rights as heirs, plaintiffs characterize the “focus” of the action as the conspiracy among the defendants with respect to the 2009 Restitution Settlement Agreement and sales of the Painting…Plaintiffs assert that they “are not asking the Court here to determine any of the controversies that may exist between the parties or for any relief with respect to the events that predated 2009 and are the subject of the Swiss and German proceedings. The only purpose the allegations regarding events prior to 2009 in the [complaint] serve is to set forth what was known by the UBS Foundation Defendants and readily discoverable by Christie’s as of 2009 when the Restitution Settlement Agreement was finalized and thereafter indicating that the claims and representations made with respect to the painting were false, or at a minimum, subject to serious question”[.]

Plaintiffs’ contention ignores that in order to determine whether the Foundation defendants and/or Christie’s committed any wrongful acts in connection with the May 2009 Restitution Settlement Agreement and the sales of the Painting, and whether plaintiffs were injured, the court would first have to determine the parties’ status and rights as heirs. Put another way, plaintiffs’ claims require an initial determination that plaintiffs are Kainer’s lawful heirs with rights to the Painting, and that the Foundation was not also a legitimate heir or, if it was, that it did not have the authority to enter into the Restitution Settlement Agreement.

Determination of this issue, in turn, would potentially require application of the laws of France, Switzerland, and Germany.

It is well settled that “‘[t]he applicability of foreign law is an important consideration in determining a forum non conveniens motion and weighs in favor of dismissal.'”…The pendency of a foreign proceeding involving the same or similar issues is also properly considered in determining whether a forum non conveniens dismissal is warranted…Although the applicability of foreign law is not dispositive…here, the need to apply the laws of three foreign jurisdictions, together with the pendency of foreign proceedings involving plaintiffs’ and the Foundation’s status and rights as heirs, weigh heavily in favor of a forum non conveniens dismissal.

The parties’ discussion of the laws applicable in the Swiss proceedings points up the extremely difficult task this court would face in ascertaining and applying foreign law. Plaintiffs’ Swiss counsel appears to opine that, in the Swiss Inheritance Claim proceeding, the Swiss court would apply the Swiss Private International law in initially determining the substantive law applicable to the parties’ claims…In that proceeding, “[t]he Swiss plaintiffs are arguing that (i) French inheritance law applies to the estate of Margaret Kainer on the grounds that the last domicile of Margaret Kainer was in Paris, and that (ii) German inheritance law applies to the Reversionary Claim.”…Plaintiffs’ Swiss counsel further appears to state that in the proceeding to invalidate the certificate of inheritance issued to the Swiss localities, the Swiss court would apply Swiss law, but only if the deceased was domiciled in Switzerland at the time of death or if there was “immovable property” located in Switzerland…In a statement submitted on behalf of the Foundation, Christian Girod, its counsel in the Swiss proceedings, represented that the Foundation intended to challenge the application of French law to the Kainer estate and to argue in favor of the application of Swiss law[.]

The parties not only dispute the applicable foreign law, but discuss the substance of the law they claim is applicable in a manner that is, at best, opaque. The opinions of the experts in foreign law that the parties offer on this motion thus further illustrate the difficult challenges this court would face in applying foreign law.

In holding that a forum non conveniens dismissal is strongly supported by the need to apply the laws of three foreign jurisdictions to determine the parties’ rights as heirs, the court notes plaintiffs’ contention that the French certificate of inheritance evidences plaintiffs’ status as heirs and is a sufficient basis on which to permit plaintiffs to proceed in the instant action. In support of this contention, plaintiffs’ Swiss counsel states that the French certificate of inheritance is not at issue in the Swiss proceedings, and that a Swiss judge “is not authorized to cancel, modify or declare null and void a foreign certificate of inheritance.”…Swiss counsel concludes: “Thus, even under the worst-case result in the Swiss Proceedings for Plaintiffs, Plaintiffs would still have valid French certificates of Inheritance”[.]

Plaintiffs’ assertion that the French certificate of inheritance is not at issue, and could not be challenged, in the Swiss proceedings, does not appear to be disputed. Plaintiffs’ reliance on the French certificate, however, ignores that the heirs assert competing claims to an ownership interest in the Painting, and that these claims must be determined, under the applicable foreign laws, in order to determine whether the Foundation wrongfully entered into the Restitution Settlement Agreement and wrongfully received the proceeds from the sale of the Painting. At most, the French certificate of inheritance may establish plaintiffs’ standing for pleading purposes on this motion to dismiss. It does not eliminate the need to determine the parties’ competing claims as heirs with rights to the Painting.

Although it appears from the foreign law experts’ statements submitted on these motions that European certificates of inheritance may constitute prima facie evidence of a party’s status as an heir, it also appears to be undisputed that these certificates are not conclusive evidence of such status, and may be invalidated in the jurisdictions that issued them. Thus, the Swiss certificates of inheritance issued to the Swiss localities are being challenged in the Swiss proceedings, and the German certificate of partial inheritance was challenged in the German proceeding. As plaintiffs’ own counsel in the German proceeding represented to this court:

The German right of succession is characterized by universal succession. The heir becomes the legal successor, without having to formally accept and without any other recognizable external sign. The certificate of inheritance is proof of the line of succession that makes it possible for an heir to legitimate himself/herself against third parties and authorities. In Germany, one does not become an heir only because one is in possession of a certificate of inheritance.  [T]he certificate of inheritance can be recalled at any time, even after decades and also has to be recalled officially [if] it is subsequently discovered that the preconditions for the issuance did not exist. The question of which of two people has indeed become heir has to be dealt with in litigious proceedings and not in the certificate of inheritance proceeding.

Plaintiffs have not claimed that the French certificate of inheritance is not similarly subject to challenge, under French law, in a formal litigation in France. On the contrary, Jerome Richardot, plaintiffs’ counsel in the French proceeding to obtain the certificate of inheritance, states that “faith must be given to such `acte de notoriété [i.e., certificate of inheritance] until contrary evidence which generally may only be recognized using a complex procedure (equivalent to challenging a legal ruling)”[.]

Notably, also, notwithstanding their possession of the French certificate of inheritance, plaintiffs themselves initiated the Swiss proceedings for a determination of their rights as heirs. Thus, in the Swiss Inheritance Claim proceeding, they contend that they have rights as heirs which entitle them to recover property held by both the Swiss localities and the Foundation. Plaintiffs have not shown, or claimed, that the determination of their rights as heirs in the Swiss proceeding will not include a determination as to whether, and to what extent, they have an ownership interest in the Painting. Nor have they shown that there is not an available alternative forum for determination of these rights, in the event the pending Swiss proceedings prove inadequate for resolution of all of these issues[.]

“Although the existence of a suitable alternative forum is a most important factor to be considered in applying the forum non conveniens doctrine, its alleged absence does not require the court to retain jurisdiction.”…Here, however, a strong showing is made that a suitable alternative forum exists. The Foundation, which was founded under Swiss law and is domiciled in Switzerland…is already a party to the Swiss proceedings. Mr. Kircher is a Swiss resident, and it is not claimed that he is not amenable to jurisdiction in those proceedings…UBS AG, a Swiss corporation, and its subsidiary UBS Global, are not currently parties to the Swiss proceedings but have consented to jurisdiction in Switzerland…It is not disputed that the courts of Switzerland will afford plaintiffs a fair forum and “adequate process,” as will the courts of France and Germany, if additional resort to those courts proves necessary to resolve the parties’ claims to rights as heirs[.]

After consideration of the forum non conveniens factors, the court concludes that the competing claims between the asserted heirs of Kainer’s estate as to ownership rights in the Painting and other assets of the estate, and as to the proper distribution of proceeds from the sale of the Painting (or other damages as a result of its sale), should be determined in the foreign jurisdiction(s) whose laws will apply to the determination, and in which proceedings initiated by plaintiffs themselves are pending[.]

The claims between the heirs as to their ownership rights arise under European estate law and have a “substantial nexus” to Europe, but not to New York. Justice will best be served if the plaintiffs continue to litigate their status as heirs in the European courts to which they have already resorted, and which are fully conversant with the myriad of foreign laws that govern the plaintiffs’ claims. Under these circumstances, the court exercises its discretion to dismiss the action as against the Foundation defendants on the foreign non conveniens ground[.]

And, as to the claim against Christie’s, concluding that:

Christie’s joins in UBS’s motion to dismiss the complaint on the forum non conveniens ground…[C]hristie’s correctly argues that “the dispute as to Plaintiffs’ alleged rights to the Painting must be conclusively determined in proceedings abroad before any alleged liability on Christie’s part in connection with the Painting can be litigated”[.]

Christie’s has not, however, consented to submit to jurisdiction in the European courts and there is, in any event, a dispute as to whether the courts would accept jurisdiction over Christie’s…The European proceedings also do not involve claims regarding Christie’s acts. In contrast, the complaint alleges acts specific to Christie’s that establish a sufficient nexus to New York. As pleaded in the complaint, Christie’s holds itself out as an expert in restitution issues, with a “responsibility to ensure that [it] do[es] not knowingly sell spoliator but restituted art works.”…Christie’s solicitation of the Restitution Settlement Agreement and sale of the Painting are alleged to have been wrongful because Christie’s “knew, should have known, or consciously avoided knowing that the UBS Foundation was not the legitimate heir to Margaret Kainer.”…Christie’s sale of restituted art in New York furnishes the nexus with New York that militates against a forum non conveniens dismissal of the claims against it.

Plaintiffs’ claims against Christie’s in this action may thus proceed if plaintiffs obtain a favorable final determination in the European court(s) that they have rights as heirs to an ownership interest in the Painting. Christie’s motion to dismiss on forum non conveniens grounds will accordingly be granted only to the extent of staying the action until plaintiffs receive such a determination[.]

In holding that the action as against Christie’s should be stayed, the court, on this motion, rejects Christie’s alternative contention that the complaint does not plead any viable cause of action against it. The court accordingly turns to the branch of Christie’s motion seeking dismissal of the complaint[.]

Christie’s argues that the sixth cause of action against it for unjust enrichment, and the seventh cause of action against it and the Foundation defendants for “conspiracy to obtain unjust enrichment,” must be dismissed for failure to state a cause of action…”The theory of unjust enrichment lies as a quasi-contract claim and contemplates an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties.”…The complaint pleads that Christie’s knew, should have known, or consciously avoided knowing that the Foundation was not the legitimate heir, not that Christie’s knew of or had any relationship with plaintiffs. Plaintiffs’ unjust enrichment cause of action must be dismissed, as it does not allege any “facts showing that plaintiffs had any relationship or connection to [defendant], let alone the ‘sufficiently close relationship’ necessary to sustain this claim.”[.]

[T]he conspiracy claim, to the extent based on alleged unjust enrichment, must be dismissed for failure to state a cause of action. Although the conspiracy claim is denominated one to “to obtain unjust enrichment,” it is also based on the wrongdoing pleaded in the conversion cause of action, which alleges in terms that Christie’s engaged in a “conspiracy” to misappropriate or convert the Painting by soliciting and facilitating the Restitution Settlement Agreement and by selling the Painting in violation of plaintiffs’ rights as heirs…Affording the complaint the benefit of “every possible favorable inference,” as the court must do on a motion to dismiss, the court holds that the seventh cause of action pleads a claim to the extent premised on alleged conversion[.]

Christie’s argues that the fourth cause of action for conversion is time barred, as is the second cause of action for aiding and abetting breach of fiduciary duty.  The court holds that these claims and the conspiracy claim, to the extent based on conversion, are time barred under the New York statute of limitations. The conversion claim is subject to CPLR 214 (3), which requires the action to be commenced within three years of the date of accrual.  Where, as here, the action is brought against an alleged “bad faith possessor,” the statute “begins to run immediately from the time of wrongful possession, and does not require a demand and refusal.”…The fiduciary duty claim seeks monetary damages, and is therefore subject to the three-year statute of limitations[.]

As this action was brought in 2013, more than three years after the alleged wrongful acts, the aiding and abetting cause of action, and the causes of action based on conversion, are time barred under New York law. Since this action was commenced, Congress has enacted the Holocaust Expropriated Art Recovery Act of 2016…The enactment was based on a Congressional finding that victims of Nazi persecution and their heirs have faced significant procedural obstacles, due in part to State statutes of limitation, to lawsuits brought in the United States to recover misappropriated artworks and other property, and that relief is necessary due to the unique and horrific circumstances of the Holocaust and the difficulty of documenting claims.

In supplemental briefing requested by the court after the submission of the motions, the parties dispute whether the Act is applicable and, in particular, whether a claim for damages against parties not in possession of the artwork is an action to “recover” artwork within the meaning of the Act. On the record as briefed, the court cannot find that the HEAR Act may not revive plaintiffs’ causes of action against Christie’s for aiding and abetting breach of fiduciary duty and conversion.  Final resolution of this important issue as to the scope of the Act would, however, be premature at this juncture. As held above, the causes of action against Christie’s cannot proceed unless and until plaintiffs prevail in the European proceedings and obtain a final determination that plaintiffs are Kainer’s lawful heirs with rights to the Painting, and that the Foundation was not also a legitimate heir or, if it was, that it did not have the authority to enter into the Restitution Settlement Agreement. In the event this action proceeds against Christie’s, the court will undertake the interpretation of the Act on a more comprehensively briefed record than provided on the instant motions.

Berkowitz v. Christie’s Inc., 2017 NY Slip Op 32246(U), Sup. Ct. N.Y. Co. (October 23, 2017)

Supreme Court was called upon to address a motion to dismiss the complaint.

The Court summarized the facts:

This action arises out of the contract terms in a consignment agreement between Christie’s and The Sothern Trust…which represents the estate of the late actress Elizabeth Taylor. Plaintiffs are co-trustees of the Trust. Defendants sued herein as Does 1 through 10 are alleged to be high-level executives, managers, or officers of Defendant Christie’s that were involved with the consignment and sale of the Trust’s property at issue in this action. The Agreement memorializes the terms of Christie’s sale of Ms. Taylor’s personal possessions at auction in December 2011 and February 2012…Among the many valuable items at auction was a piece of jewelry referred to as the “Taj Mahal Diamond”…a diamond necklace with an inscription in Persian. The Auction catalogue…described the Diamond as dating to the early 17th century and indicates it had once belonged to Mughal Emperor Shah Jahan, who commissioned the building of the Taj Mahal. The Diamond sold for approximately $8.8 million at the Auction, $7.8 million of which went to the Trust.

The pending motions:

Defendants move…to dismiss the complaint’s first cause of action for a declaratory judgment, third cause of action for breach of fiduciary duty, fourth cause of action for conversion, and fifth cause of action for accounting, leaving the breach of contract claim unopposed in this motion. Defendants also move for a counter declaration that, inter alia, Christie’s decision to rescind the sale at issue was within its rights under a consignment agreement…The motion to dismiss is granted as to the causes of action for breach of fiduciary duty, conversion, and accounting. The motion to dismiss Plaintiffs’ claim for declaratory judgment is denied. Finally, the motion for a counter declaration — essentially stating that Christie’s is not in breach of the Agreement — is denied.

The undisputed facts:

It is undisputed that shortly after the sale of the Diamond, the successful bidder demanded that Christie’s rescind the sale and return the purchase price. Christie’s rescinded the sale of the Diamond and demanded that the Trust return to Christie’s all proceeds paid to it for the sale of the Diamond. The Trust declined to refund the money to Christie’s — asserting that cancellation of the sale was unreasonable and unwarranted under the Agreement.

Plaintiffs’ allegations:

[C]hristie’s cancelled the sale of the Diamond to appease the buyer — a frequent bidder at Christie’s auctions — who had concerns about the authenticity of the Diamond’s provenance, and not because Christie’s reasonably believed that the buyer’s claims would subject Christie’s or the Trust to legal liability.

The agreement:

The Agreement states, in pertinent part, that Christie’s may rescind a sale “at any time if Christie’s in [its] reasonable judgment determines that the offering for sale of any Property has subjected or may subject Christie’s and/or Seller to any liability, including liability under warranty of authenticity or title[.]”

Defendants’ argument:

[S]o long as Christie’s, in its own reasonable judgment, determined that the Diamond’s sale had subjected Christie’s — or might subject Christie’s — to any liability, it had the unilateral right to rescind the sale. Defendant attaches as exhibits to its motion several emails between Christie’s executives and Christie’s general counsel evidencing concern that the buyer could bring a meritorious action against Christie’s based on alleged misrepresentations it had made about the Diamond at the Auction…Indeed, it appears based on Defendants’ moving papers that the buyer had explicitly threatened Christie’s with legal action if the sale was not rescinded[.]

Concluding that:

[T]he Plaintiffs have alleged in their complaint facts that fit squarely within a cognizable legal theory for breach of the Agreement upon which relief can be afforded. Plaintiffs have alleged that Christie’s rescinded the sale to the Diamond’s buyer, not out of a reasonable fear of future litigation, but because the buyer was a VIP customer of Christie’s who refused to bid in other upcoming auctions until the Diamond purchase was cancelled…It is further alleged that it was not reasonable for Christie’s to fear liability from the Diamond sale — despite the buyer’s explicit threat of legal action — based on the protective language of Christie’s auction warranties. Specifically, Christie’s provides a warranty to its buyers that is limited to particular representations made in its auction catalogues. Christie’s provides a warranty for language in the Catalogue that is specifically published in capitalized lettering, and not for those representations made elsewhere in the Catalogue. Essentially, Plaintiffs assert that Christie’s was protected from any suit brought by the buyer because the buyer’s claims regarding authenticity were beyond the scope of the representations made in capitalized lettering, and, therefore, it was unreasonable for Christie’s to fear liability based on the sale of the Diamond.

Therefore, as to Defendants’ motion to dismiss Plaintiffs’ claim for declaratory judgment, it is immaterial, for purposes of this pre-answer motion, that Christie’s may very well have had a defense to an action brought by the Diamond’s buyer. The issue at this stage of this case is whether, as a matter of law, it was reasonable for Christie’s to believe it could be subjected to any liability…And while Christie’s submits strong evidence with its moving papers tending to show that its fear of liability was not entirely unfounded, “the question of whether the belief was reasonable, [is] ordinarily [a] question[] of fact for the fact finder.”[.]

Further, the documentary evidence Defendants submit consists largely of selective email chains which are not dispositive. This Court will grant a [motion to dismiss] “only where the documentary evidence utterly refutes plaintiff’s factual allegations, conclusively establishing a defense as a matter of law.”…The documentary evidence — while powerful — is not without some ambiguity, and fails to conclusively rebut Plaintiffs’ claims. Indeed, according to emails between Christie’s executives, there appears to be have been at least some concern regarding “client relations” and some equivocation as to the strength of Christie’s legal position in a potential dispute with the Diamond’s buyer…Further fact discovery is necessary to determine whether Christie’s fear of liability was, in fact, reasonable, or whether such alleged fear was merely a pretext upon which to cancel the sale in hopes of appeasing a valued customer. Until then, however, it would be premature to dismiss Plaintiffs’ claim for declaratory judgment.

Notably, Defendants are not moving to dismiss Plaintiffs’ breach of contract claim, but rather the other related claims for declaratory judgment, breach of fiduciary duty, conversion, and accounting. It is, however, no mystery as to why Plaintiffs’ opposition papers focus so much attention on the language of the Agreement and give shorter thrift to the merits of the other related claims. These other claims, that Defendants seek dismissal of, are duplicative of the breach of contract claim.

“It is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated.”…”[A] breach of fiduciary duty claim [is] properly dismissed [where] the agreement covers the precise subject matter of the alleged fiduciary duty,”…Here, Plaintiffs’ allegations are “merely a restatement, albeit in slightly different language, of the `implied’ contractual obligations asserted in the cause of action for breach of contract.”…The Trust alleges that Christie’s breached its fiduciary duty by, inter alia, failing to report sales and failing to remit certain payments. The Agreement, however, comprehensively defines Christie’s duties and obligations regarding such transactions. Nothing Plaintiffs allege can reasonably be characterized as distinct and independent from Christie’s alleged breach of the Agreement. The breach of fiduciary duty claim is but a restatement of the parties’ express contractual obligations. Plaintiffs have failed to allege a legal duty imposed upon the defendants not already contained within the Agreement…There appears to be no such duty springing from circumstances extraneous to, and not constituting elements of, the contract…And no amount of linguistic acrobatics will distract the Court from seeing that these claims are but one in the same.

The same analysis holds true for Plaintiffs’ claims for conversion and accounting. “[P]laintiffs’ conversion claims allege no facts independent of the fact supporting their breach of contract claim.”…The Trust’s allegations that Christie’s failed to remit to the Trust proceeds from the sale of various items, or that Christie’s has wrongfully failed to return certain items, are governed by the clear terms of the Agreement. Plaintiffs’ conclusory statements asserting an independent duty beyond the scope of the Agreement are unavailing.

As to the accounting claim, since “Plaintiff[s] [have] sought money damages in [their] breach of contract claim, and because discovery as to the measure of damages would be available to [them] if [they] were to prevail on that claim, [they] can obtain all the information [they] seek in [their] existing claim at law.”…Simply put, all of the alleged issues presented to this Court are comprehensively governed by the terms of the Agreement.

Art Fin. Partners LLC v. Sammons, 2017 NY Slip Op 31779(U), Sup. Ct. N.Y. Co. (August 22, 2017)

Supreme Court addressed a motion for a default judgment on breach of contract and fraud causes of action.

The Court summarized the relief sought:

Specifically, plaintiffs request: (1) judgment for Knickerbocker in the amount of $1,971,096.57 with interest continuing to accrue at the rate of 22% compounded daily from May 1, 2017 on a loan collateralized by a painting of the Nativity by Baldessare Peruzzi…(2) a declaration against Sammons and TSI for Knickerbocker’s legal fees and expenses incurred in attempting to collect under loan agreement; (3) a declaration for indemnification against Sammons and TSI for expenses incurred in resolving the claims to the Peruzzi Artwork by the estate of Marie Henriette Adele Pouncey…for which defendant John Sommerville is trustee; (4) a declaration that TSI and Sammons must pay Advisors 20% of the sales price for the Peruzzi Artwork; (5) judgment for Knickerbocker in the amount of $938,371.56 with interest continuing to accrue at the rate of 22% compounded daily from May 1, 2017 on a second loan collateralized by a painting titled Caritas by Joachim Wtewael…(6) a declaration against Sammons and TSI for Knickerbocker’s legal fees and expenses incurred in attempting to collect under loan agreement; (7) a declaration for indemnification against Sammons and TSI for expenses incurred in prosecuting the instant action and in defending against the claims of the Emmersons to the Wtewael Artwork; (8) judgment for Knickerbocker in the amount of $800,684.60 with interest continuing to accrue at the rate of 22% compounded daily from May 1, 2017 on a third loan, which was collateralized by a standing ivory figure (Ivory Artwork, with Peruzzi Artwork and Wtewael Artwork); (9) a declaration that Knickerbocker and Rose are entitled to indemnification from Sammons and TSI for their legal fees and expenses as a result of claims to the Ivory Artwork brought in federal court and those of John Cookson; and (10) a declaration that Sammons and TSI must indemnify Knickerbocker for all its legal costs and expenses in connection with collecting on the third loan[.]

This case arises from loans made by plaintiffs to TSI and Sammons, which were secured by certain artwork purportedly belonging to TSI and Sammons. Knickerbocker and Advisors are Delaware limited liability companies…TSI is a New York corporation, dissolved by proclamation on April 27, 2011… Sammons is a resident of Great Britain…In support of their motion for a default judgment, the moving plaintiffs submitted affidavits from Rose, an individual member and an officer of both Knickerbocker and Advisors…The moving plaintiffs also submitted a declaration from Knickerbocker’s consultant, Christopher D. Krecke, who computed the amounts owed on the loans[.]

The background:

In May 2014, Knickerbocker (represented by member/officer Rose), Sammons (individually), and TSI (represented by Sammons) entered into a loan agreement and a promissory note, designating the Peruzzi Artwork as collateral…The Peruzzi Artwork was designated as collateral by both instruments…Advisors, TSI, and Sammons entered into an origination agreement under which, inter alia, Advisors was to receive of 20% of the gross proceeds from the sale of the Peruzzi Artwork should TSI and Sammons default under the Peruzzi Loan…The Peruzzi Loan and Note were twice amended, in July and September 2014, to increase the maximum loan amount and to add additional collateral…By September 2014, Knickerbocker had loaned a total of $1.2 million to Sammons and TSI under the Peruzzi Loan[.]

Meantime, in June 2014, the parties to the Peruzzi Loan had entered into a second, $600,000 loan agreement…and promissory note…secured by the Wtewael Artwork [and] Advisors, TSI, and Sammons entered into an origination agreement for the Wtewael Artwork similar to the Peruzzi Origination[.]

In August 2014, the parties executed a third loan agreement…and promissory note…secured by the Ivory Artwork…In December 2014 and January 2015, the Ivory Loan and Note were twice amended to increase the maximum loan amount…Knickerbocker loaned a total of $1,075,000 to Sammons and TSI under the Ivory Loan between August 2014 and January 2015…In February 2015, Knickerbocker received payments that reduced the principal balance to $525,000[.]

The Loans included the following representation as to ownership of the Artworks:

(c) Ownership. The Borrowers own the Property free and clear of any lien, security interest, charge or encumbrance or interest of any other person (including, without limitation, any interest as consignor) except for the security interest created by this Agreement or as may be created pursuant to any Other Agreement to which Lender is a party…

The Loans additionally specified that a false representation or warranty would result in an Event of Default[.]

All of the Loans dictate a default interest rate of 22% per annum, compounded daily…Further, the Loans provide for service of process by certified mail to a New York address…The Loans are governed by New York law[.]

Beginning on February 1, 2015, Sammons and TSI failed to make the required payments under the Peruzzi and Wtewael Loans, resulting in a default on the Loans…Sammons’s representations that he and TSI owned the Artworks were false, as asserted by the rightful owners of the Artworks in claims against Rose and Knickerbocker beginning in 2015[.]

The prior proceedings:

On March 8, 2016, plaintiffs filed the instant action by summons with notice…Neither TSI nor Sammons appeared in this case.

The applicable law:

To succeed on a motion for a default judgment, plaintiffs must submit proof of service of process and affidavits attesting to the default and the facts constituting the claim…A defaulting defendant “admits all traversable allegations in the complaint, including the basic allegation of liability…Nonetheless, a defendant’s default does not “give rise to a `mandatory ministerial duty’ to enter a default judgment against it. Rather, the [plaintiff is] required to demonstrate that [it] at least [has] a viable cause of action.”…”The standard of proof is not stringent, amounting only to some firsthand confirmation of the facts[.]”

Concluding that:

The elements of a breach of contact are a valid contract, plaintiff’s performance, defendant’s breach, and damages therefrom…Plaintiffs attached the loan documents to their motion papers and aver facts sufficient to show prima facie validity of the loan documents, plaintiffs’ performance thereunder, TSI and Sammons’s breach, and resultant damages. Based on plaintiffs’ affirmations and the effective admissions of TSI and Sammons on default, the court finds that TSI and Sammons breached the Loans by failing to make payments when due and by falsely representing that they had ownership of the collateral. Accordingly, a default judgment for breach of the loan agreements and judgment for the principal and interest due under the Loans …are granted.

However, Advisors’ request for a declaratory judgment on a 20% sales commission on the Peruzzi and Wtaewael Artworks…is denied as premature. Such a declaration is contingent on a future event (the sale of those artworks) that is beyond the control of the parties and may never occur…Advisors does not aver that the Peruzzi or Wtaewael Artworks have been sold or that any party to this motion has the right or ability to sell them.

Turning to the fraud claims, “[t]he elements of fraudulent inducement are: a false representation of a material fact with scienter; [and] reliance thereon by defendant to its detriment.”…Fraudulent inducement of a contract requires the false representation to be collateral or extraneous to the contract…Moreover, to recover in tort, plaintiffs must allege damages distinct from the breach of contract[.]

While Sammons’s misrepresentations of present fact regarding ownership of the Artworks were collateral to the Loans, plaintiffs fail to allege fraud damages different from those for breach of contract[.]

Arnon Ltd (IOM) v. Beierwaites, 2017 NY Slip Op 31605(U), Sup. Ct. N.Y. Co. (August 1, 2017)

Supreme Court entertained cross-motions in a breach of contract action based upon defendants’ alleged wrongful refusal to sell an ancient Green statute – a Kore – to plaintiff.

The Court summarized the background of the dispute:

Plaintiff Arnon is “a corporation duly organized and existing under the laws of the Isle of Man and resident in the Isle of Man.”…Arnon is “owned by Arnon River Trust…a trust organized and existing under the laws of the Isle of Man and resident in the Isle of Man, which was settled by, and for the benefit of, David Sofer.”…The alleged “sole purpose” of Arnon “is to own the artwork collection of David Sofer.”…As attested by Mr. Sofer, and not disputed by defendants, Mr. Sofer is not an employee, officer, or director of Arnon; rather, Arnon is controlled by “independent directors who act in their discretion.”…These directors are Marion Louis de Carte and Gordon Mundy…Ms. de Carte is an employee, and Mr. Mundy is a director, of Trident Trust Company…another Isle of Man corporation, which serves as the trustee to Arnon Trust as well as the secretary of Arnon[.]

The Beierwaltes are residents of Colorado and owners of the Kore…”At all relevant times, Phoenix was the agent of the Beierwaltes with full and exclusive power to enter into a contract for, and conclude a sale of, the Kore.”…Phoenix is a Swiss corporation and resident in the Canton of Geneva…At the time of the disputed sale, Phoenix’s agent in New York was Petrarch LLC, d/b/a Electrum…Mr. Hicham Aboutaam and Mr. Gherardi “were employees of Electrum”[.]

The undisputed facts:

It is undisputed that on or about January 4 or 5, 2013, Mr. Sofer visited Phoenix’s New York gallery and offered to purchase the Kore…No agreement was reached that day; but both Mr. Sofer and Mr. Aboutaam testified that by the end of the weekend, they settled on a purchase price of $650,000[.]

The disputed facts:

The parties sharply dispute the details of the conversations that took place between Mr. Sofer and Mr. Aboutaam regarding the terms of the sale. Their dispute centers on whether Mr. Aboutaam “stress[ed] that time would be of the essence,” and whether Mr. Sofer agreed to pay within four days…the parties engaged in extensive communications by email as to the time for payment, the identity of the party to which payment would be made, wiring instructions, and the need for written documentation including a formal agreement and invoice. These emails commenced with a January 10 email from Ms. Beierwaltes to Mr. Sofer at his personal email address, stating that “I’m so pleased you are buying our wonderful kore,” and that “Hicham [Aboutaam] has [told] me you will be wiring funds within four days of receipt of invoice…”  This email was followed by an email from Mr. Sofer to Ms. Beierwaltes, dated January 12, 2013, which was copied to Mr. Hicham Aboutaam and Ms. de Carte, and which stated in full:

Hi Lynda,Arnon Ltd.…is part of my trust and is managed by independent directors.It will be easier and faster if all the logistics of the sale (formal short agreement, invoice with photos etc.) be done by Phoenix Ancient Art and Hicham Aboutaam. I will send Hicham a copy of this email, and ask him to take care of it.  It is Arnon Ltd. [‘s] intention that your wonderful Kore will be exhibited for a long term at the Metropolitan Museum in New York.  Thank you for your email. I hope that when you and bill come to London I will have the opportunity to meet you and to show you my collections.  Best wishes, David[.]

[T]hese emails were followed by emails further discussing the terms…By email dated January 25, 2013, from Hicham Aboutaam to Mr. Sofer, entitled “Sale Cancellation,” Mr. Aboutaam informed Mr. Sofer “that the sale is cancelled because the conditions have not been met.”…The unsatisfied conditions were not specified. This action was commenced shortly afterward, on or about February 4, 2013.

The contentions of the parties:

In moving for summary judgment dismissing plaintiff’s breach of contract cause of action, defendants contend, as a threshold matter, that Mr. Sofer did not have authority to enter into a contract for the Kore, and that Arnon never ratified the contract…In the alternative, defendants contend that plaintiff and defendants never reached a meeting of the minds on “the time and method of payment” or that, if a contract was made, it was cancelled for breach of the payment terms[.]

In opposition to defendants’ motion and in support of its own motion for summary judgment on its breach of contract cause of action, Arnon does not dispute that “Sofer did not have formal agency powers for Arnon generally.”…Rather, Arnon contends that “in this one instance, Sofer had authority to bind Arnon.”…Arnon claims that “questions of implied actual and apparent authority are relevant in cases such as this one when there is no express appointment of the agent.”…In addition, Arnon contends that the parties reached an agreement on material terms, that Mr. Sofer never agreed to a four day deadline and, alternatively, that any such deadline was waived[.]

The applicable law:

“[A] principal-agent relationship may be established by evidence of the consent of one person to allow another to act on his or her behalf and subject to his or her control, and consent by the other so to act, even where the agent is acting as a volunteer.”…Agency may be based on actual or apparent authority of the agent to act on behalf of the principal. Actual authority, in turn, may be based on an express or direct grant of authority to the agent or may be implied based on the principal’s “manifestations which, though indirect, would support a reasonable inference of an intent to confer such authority.”…Implied actual authority must be based on a showing that the principal “performed verbal or other acts that gave [the agent] the reasonable impression that he had authority to enter into the [contract].”…Apparent authority must be based on “words or conduct of the principal, communicated to a third party, that give rise to the appearance and belief that the agent possesses authority to enter into a transaction. The agent cannot by his own acts imbue himself with apparent authority.”…”Moreover, a third party with whom the agent deals may rely on an appearance of authority only to the extent that such reliance is reasonable[.]”

As the Court of Appeals has explained:

As with implied actual authority, apparent authority is dependent on verbal or other acts by a principal which reasonably give an appearance of authority to conduct the transaction, except that, in the case of implied actual authority, these must be brought home to the agent while, in the apparent authority situation, it is the third party who must be aware of them.

As to Sofer’s authority to bind Arnon to the contract:

Arnon and defendants agree that the issue of whether Mr. Sofer had authority to enter into a contract for the Kore on behalf of Arnon is one of law for the court[.]

In claiming that Mr. Sofer lacked authority to enter into the contract, defendants cite extensive deposition testimony from both Mr. Sofer and Ms. de Carte in which they repeatedly confirmed that Mr. Sofer recommended purchases but that only Arnon had the authority to contract for the purchases.

Specifically regarding the purchase of the Kore, Mr. Sofer testified: “Q. Who made the decision that Arnon would buy the Kore? A. The trustees. Q. What was your role in that decision? A. Recommending them to buy it.”…This testimony was consistent with Mr. Sofer’s testimony about past purchases of antiquities, in which he repeatedly stated that he made recommendations to Ms. de Carte, but that Arnon or the Arnon directors did the buying.

Mr. Sofer was also asked several general questions about his authority and testified consistently as follows: “Q. Can you tell the trustees what to do? A. No. Q. Is it correct to say that the only thing you can do with respect to these trusts is put things in them? A. I can recommend or express my wish. Q. Do the trustees listen? A. Sometimes.”…In an affidavit, Mr. Sofer similarly stated: “I provide the assets that the Trust uses to acquire artwork through Arnon, but the trustees who oversee Arnon are independent.”…He also averred that “Arnon is owned by a trust of which my family and I are beneficiaries. Arnon has independent directors who act in their discretion. But, because my recommended acquisition of antiquities reflects my tastes and interests, they have never refused to purchase any items I have recommended[.]”

Ms. de Carte’s testimony supports Mr. Sofer’s testimony that he recommended but could not direct purchases. She testified that her position at Arnon as director “entails entering into agreements, [and] writing up Minutes, making payments, general administration.”…She also testified that she signs contracts on behalf of Arnon…and, with respect to the terms, is “guided by David Sofer”…or “take[s] some guidance from David Sofer from time to time.”…She insisted, however, that she “would never just sign something if something’s placed in front of me…I would always read it and apply my mind to it.”[.]

Ms. de Carte acknowledged that her position as trust and company administrator at Trident (the trustee of Arnon Trust and the secretary of Arnon), is “clerical” in nature…that Mr. Sofer, not she, has the expertise in antiquities…and that he would advise Arnon regarding which antiquities to acquire…Like Mr. Sofer, Ms. de Carte testified that she could not recall an instance when Arnon had turned down one of Mr. Sofer’s recommendations…She denied, however, that Mr. Sofer had the power to contract on behalf of Arnon…and further explained that for a payment for a purchase to be authorized, the request must first be checked by “Compliance” and must then be approved by two of ten authorized signatories and, if the purchase is over £ 50,000, by the compliance manager…When explicitly asked by defendants’ counsel whether the signatories’ decision to sign or not was “discretionary with these ten people,” she initially nodded in agreement. To the follow-up question “So nobody can instruct them to sign?,” she responded “Correct.” To the further question “All right. So the answer is, yes, it’s within their discretion, they do hold fiduciary positions and they have to act responsibly,” she answered “Correct.”[.]

As to the purchase of the Kore in particular, Ms. de Carte was asked the following question: “But there hadn’t been, if I understand your testimony correctly…any decision on the part of Arnon to actually acquire this piece?”…She responded: “Arnon would have acquired the piece had we had an invoice and documents to back it up. We knew that the intention was there to buy it.”…She then gave the following testimony: “Q. But was there a contract to buy it? Did Arnon agree that it was going to pay this money?” “A. I didn’t see a contract. . . . The answer is no, I didn’t see a contract[.]”

In claiming that Mr. Sofer was authorized to enter into the contract for the Kore on Arnon’s behalf, Arnon does not dispute this testimony. Nor does Arnon contend that express authority to acquire the Kore was conferred by Arnon upon Mr. Sofer. Rather, as noted above, Arnon argues that “in this one instance, Sofer had authority to bind Arnon.”…In support of this contention, Arnon relies on the January 12, 2013 email and on prior dealings between the parties.

The January 12 email…from Mr. Sofer to Ms. Beierwaltes was copied to Mr. Hicham Aboutaam and Ms. de Carte at mdecarte@tridenttrust.com. In this email, which responds to Ms. Beierwaltes’ prior email congratulating Mr. Sofer on buying the Kore, Mr. Sofer advises her that Arnon is part of his trust and is managed by independent directors, and that the sale should be made by Phoenix to Arnon. Arnon contends that Ms. de Carte’s “non-response” to the email “was sufficient to cloak Sofer with authority for this transaction[.]”

Applied the facts to the law:

In discussing the effect of Ms. de Carte’s silence in response to the email, Arnon does not distinguish between implied actual authority and apparent authority, and does not cite legal authority on the effect of such silence on these separate bases for authority. There is case law that silence may, under appropriate circumstances, manifest authority, although New York law on this issue does not appear to be extensive[.]

Here, however, the silence of Ms. de Carte in response to the January 12 email is insufficient as a matter of law to manifest either implied actual or apparent authority. Ms. de Carte is neither directly addressed in the email, nor identified as a representative of Arnon. The email address used for Ms. de Carte is a Trident, not Arnon, address, and there is no indication in the email that Trident and Arnon are interrelated entities. As defendants correctly point out, “there is nothing on the face of the email to connect Ms. de Carte with Arnon.”…Further, the email does not detail the terms of the sale of the Kore, and it affirmatively states that Arnon is part of Mr. Sofer’s trust and is managed by independent directors. Ms. de Carte’s failure to respond, within a very short time frame, to such an email could not have led a reasonable person in defendants’ position to conclude that Ms. de Carte, and through her, Arnon, bestowed on Mr. Sofer the authority to bind Arnon to a $650,000 contract.  Ms. de Carte’s silence in response to the January 12 email thus fails to raise a triable issue of fact as to apparent authority.

Ms. de Carte’s silence in response to this email similarly fails to raise a triable issue of fact as to Arnon’s claim that Arnon bestowed implied actual authority on Mr. Sofer for the one Kore transaction…Mr. Sofer and Ms. de Carte repeatedly testified that Mr. Sofer recommended purchases but that only Arnon had the power to contract for them, and that formal approval was required. In the face of this testimony, Ms. de Carte’s non-response to the January 12 email could not have given Mr. Sofer “the reasonable impression” that he had authority to enter into this one contract…At most, Ms. de Carte’s silence could be interpreted as manifesting agreement that Mr. Sofer was authorized to engage in intermediary discussions or negotiations, but that the independent directors referred to in the January 12, 2013 email must still make the final decision as to whether to bind Arnon to the purchase and must approve a formal written contract.

Arnon’s reliance on prior dealings is also insufficient to raise a triable issue of fact as to Mr. Sofer’s apparent authority to bind Arnon to the one Kore transaction. As a general rule, “[t]he mere creation of an agency for some purpose does not automatically invest the agent with ‘apparent authority’ to bind the principal without limitation. An agent’s power to bind his principal is coextensive with the principal’s grant of authority.”…Further, “the existence of ‘apparent authority’ depends upon a factual showing that the third party relied upon the misrepresentations of the agent because of some misleading conduct on the part of the principal — not the agent[.]”

Arnon asserts that defendants “knew from previous experience that Sofer conducted business through Arnon.”…This vague assertion is not supported by any evidence that Arnon at any time made a representation or otherwise engaged in misleading conduct that gave any of the defendants the impression that Mr. Sofer had the authority not merely to negotiate transactions but also to bind Arnon to purchases.

To the extent that Arnon further contends that defendants are bound because they failed to ask Mr. Sofer or Arnon for confirmation that Arnon had formally approved the contract for the Kore…this contention is unavailing. Arnon cites no authority that a defendant has an obligation to “make the necessary effort to discover the actual scope of [the agent’s] authority” absent a factual showing—which is lacking here—”that the third party relied upon the misrepresentations of the agent because of some misleading conduct on the part of the principal…”[.]

Nor does Arnon cite prior dealings with Mr. Sofer sufficient to raise a triable issue of fact as to whether he had implied actual authority to bind Arnon to the purchase of the Kore. There is legal authority that prior dealings between a principal and an agent may be relied upon to establish an agent’s authority to perform similar acts in the future[.]

In claiming implied actual authority based on prior dealings, Arnon relies merely on the following conclusory assertion: “It is clear that Sofer acted for and bound Arnon in connection with numerous loan agreements to museums he entered into for antiquities owned by Arnon. Sofer also committed to purchases at auctions he attended.”…Arnon makes no factual showing as to the process by which Mr. Sofer was authorized to make contracts for loans to museums or to bid at auctions. Nor does Arnon make any showing that Mr. Sofer’s acts in connection with either the museum loans or the auctions were comparable in any respect to entry into contracts with third parties for purchases. These acts therefore fail to support Arnon’s claim of implied actual authority.

Concluding that:

In sum, the court finds on this record that Arnon fails to demonstrate that, or to raise a triable issue of fact as to whether, Mr. Sofer had apparent or implied actual authority to purchase the Kore on Arnon’s behalf.  At most, the evidence supports a finding that Arnon bestowed on Mr. Sofer authority to recommend artworks to Arnon, but not to bind Arnon to the purchases.

In so holding, the court notes the testimony of both Mr. Sofer and Ms. de Carte that there was no occasion on which Mr. Sofer recommended a purchase that Arnon declined to approve. The court also notes that Arnon would likely have approved his recommendation on this occasion as well, as indicated by Ms. de Carte’s testimony that “Arnon would have acquired the piece had we had an invoice and documents to back it up. We knew that the intention was there to buy it.”…The court, however, rejects Arnon’s contention that this evidence demonstrates Arnon’s intention to authorize Mr. Sofer to contract for the Kore on Arnon’s behalf. Relying on this evidence and the general precept that it is the court’s role in interpreting a contract to ascertain the parties’ intentions at the time of contracting, Arnon concludes: “That Sofer had authority for Arnon in this situation is consistent with the intentions of the parties.”[.]

Arnon’s argument ignores the overwhelming testimony of Mr. Sofer and Ms. de Carte that only Arnon had authority to enter into a contract for purchases of antiquities (even if Arnon may have effectively acted as a rubber stamp for Mr. Sofer’s recommendations). Significantly, neither Mr. Sofer nor Ms. de Carte ever testified that Mr. Sofer was authorized, or that they even believed him to be authorized, to contract on Arnon’s behalf in this situation involving the Kore. Arnon’s self-serving declaration in its brief that it was Arnon’s intention to bestow authority on Mr. Sofer’s authority for this one transaction cannot excuse Arnon from demonstrating that, under the doctrines of apparent and implied actual authority, Arnon manifested assent to Mr. Sofer’s authority to enter into the contract for this transaction at the time it was made.

Finally, this court notes that evidence in the record suggests that defendants may have cancelled the contract due to the potential for a more desirable offer of $750,000 from another buyer during the time plaintiff was making arrangements to pay the $650,000 that Mr. Sofer had offered…[stating that on January 20, 2013 Baron Thyssen was shown the Kore and agreed to recommend purchase for his daughter’s trust for $750,000].) The court cannot ignore, however, that Mr. Sofer created a trust under which he was required to obtain Arnon’s approval of contracts for purchases in order to avail himself of the benefits (undiscussed on these motions) of the trust structure, and that he failed to do so before defendants cancelled the contract for the Kore.

Zoullas v. Zoullas, 2017 NY Slip Op 31574(U), Sup. Ct. N.Y. Co. (July 25, 2017)

Supreme Court addressed defendant’s motion for summary judgment dismissing the complaint.

The Court summarized the facts and prior proceedings:

The Amended Complaint contains a single cause of action for conversion in this dispute between a son, plaintiff Sophocles Zoullas…and his father, defendant Nicholas Zoullas…involving a Claude Monet painting, the Sainte Adresse…which was sold by the auction house Christie’s to a third-party in 2013 for $3.9 million.  The thrust of plaintiff’s claim is that the Painting was gifted to him by his grandfather, Sophocles Senior, in 1995 and that the defendant “stole” the Painting when defendant sold it to Naxos Art, Inc.…for $900,000 in 2004.  Notably, plaintiff testified at his deposition that he “first discovered” the theft when he was casually perusing Christie’s online catalog one evening in June 2013, and he saw the Painting in the catalog.  Plaintiff alleges that he subsequently learned that his father “had sold it several years before.”  Defendant, who claims to be unavailable to be deposed during discovery for medical reasons, asserts that he is the rightful owner of the Painting and that he therefore did not covert the Painting by selling it to Naxos in 2004.

The pending motion:

Presently before the Court is a…motion for summary judgment by the defendant to dismiss the action in its entirety…arguing, in the first instance that the conversion claim is time-barred, and, in the second instance, that plaintiff’s claim of a gift fails as a matter of law.  Significantly, because the defendant has never appeared for a deposition, despite several Court Orders directing defense counsel to produce a medical affidavit attesting to the fact that the defendant is incapable of either sitting for a deposition or appearing at trial, the plaintiff has been denied the opportunity to either depose the defendant or call him as an adverse witness at trial.  Therefore, regardless of whether the conversion claim is time-barred as a matter of law, summary judgment is denied because there are potentially credibility issues relating to whether the defendant should be equitably estopped from asserting a statute of limitations claim.

[T]here are significant hurdles to the establishment of an equitable estoppel claim with or without the testimony of the defendant, but without the production of the requisite affidavit by the defendant, which the defendant was ordered to produce at least three times over a period of the last six months, summary judgment cannot be granted to the defendant.  The case shall proceed to a trial by jury…and in the absence of the previously ordered affidavit, the jury will be given an adverse inference charge regarding the defendant’s failure to appear at trial given that defendant’s counsel has represented that the defendant will not be a trial witness.  In the event the defendant produces the previously ordered medical affidavit, the plaintiff will be entitled to test the accuracy of the affidavit by appropriate means.

The competing narratives:

There are two competing narratives pertaining to the rightful ownership of the Painting.  It is undisputed that defendant successfully bid on the Painting on November 27, 1995 and that the Painting was transported from Sotheby’s in London to a family storage facility in Geneva, Switzerland…where it remained until the 2013 consignment to Christie’s, notwithstanding the intervening 2004 sale of the Painting by defendant to Naxos.  It is also undisputed that Sotheby’s revised the billing invoice for the Painting in plaintiff’s name and address but plaintiff, then a college student, took no steps to pay for the Painting, insure the Painting, or arrange for the transport of the Painting.  Plaintiff stated at his deposition that both plaintiff and defendant (and plaintiff’s brother) had “unfettered access” to the Geneva Facility, and that between 1995 and 2013, plaintiff periodically visited the facility to inspect and admire the Painting.  Moreover, plaintiff stated that for several years he had worked with his father in the family’s shipping business, but in early 200’s the plaintiff and defendant had a “falling out”, and by 2005, they started speaking “with less and less frequency”.

Plaintiff claims that the 2004 sale of the Painting by defendant to Naxos was not an “arm’s length” transaction because Naxos is a company that is affiliated with other family-owned entities.  Non-party Anthony Cashen, Director of Naxos, explains in an affidavit that Naxos, a British Virgin Islands corporation, was created for the purpose of holding art, primarily as a long-term investment.  Moore Stephens Trust Co. Ltd.…an independent advisory and consulting firm, holds Naxos shares as a Trustee “to the order of a trustee for a trust that is the ultimate beneficial owner” and which funds Naxos.  Cashen also explains that defendant was appointed as Naxos’ agent and, over 10 or more years, defendant purchased artwork for Naxos from various galleries and auction houses.  Purchasing decisions were made at the recommendation of the defendant, and “there were occasions where Naxos bought art directly from [defendant].

At his deposition, plaintiff explained that Moore Stephens is an “accounting and advisory firm for families” which served as an advisor to plaintiff’s grandfather, Sophocles Senior, and various family businesses and trust for at least 25 years.  In addition, over this 25-year period, plaintiff admitted to having contact with two Moore Stephens “lead contacts” who supervised Naxos, Geoff Woodhouse and Richard Moore, but plaintiff did not speak to them about the Painting until June 2013 when plaintiff claims he discovered the alleged theft of the Painting by the defendant.  Plaintiff explains in his deposition that Naxos and his father had a “cozy” or “close” relationship but could not articulate the precise nature of that relationship.  Also, plaintiff could not recall who paid for the Painting in 1995, but believes that one of his grandfather’s companies paid for it.

In June 2013, after plaintiff purportedly spotted the Painting in Christie’s online catalog, plaintiff approached Christie’s and claimed ownership of the Painting pursuant to a deed of gift from his grandfather.  A tri-partite letter Agreement dated June 17, 2013, on Christie’s letterhead states that plaintiff and Naxos, who each asserted a claim over the Painting, reached an agreement whereby Christie’s was permitted to sell the Painting at auction and hold the “net proceeds” from the sale in an interest-bearing account until plaintiff and Naxos “jointly notify Christie’s that the competing claims to title in the [Painting] have been investigated and determined (whether by written agreement between the parties or final order of a court of competent jurisdiction).

Subsequently, on June 18, 2013 Christie’s sold the Painting to a third-party purchaser for $3.9 million.  And, on August 13, 2013, plaintiff filed the original complaint in this action.  The dispute between plaintiff and Naxos ultimately settled pursuant to a deed of Compromise, Indemnity, Waiver, Release, Non-Encouragement and Covenant Not to Sue…dated October 27, 2015.  Pursuant to the Settlement Agreement, plaintiff received approximately $2 million from the net proceeds of the Painting, and agreed to purchase from Naxos another painting by Juan Gris for $387,500.  Plaintiff and Naxos jointly advised Christie’s in writing of their settlement, as was required by Christie’s June 17, 2013 Letter Agreement, and directed distribution of the proceeds.  Thereafter, on or about May 20, 2016 plaintiff amended his complaint to reflect the offset of his damages by the $2 million settlement.  In its Amended Complaint, plaintiff seeks to recover only $1.9 million for the alleged conversion as opposed to the $3.9 million that plaintiff sought in the original complaint.  The defendant asserts that the Gris painting was sold to plaintiff for a sum far less than its actual value.

Finding as to the conversion claim that:

Conversion is the unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner’s rights.  [A]n action for conversion is subject to a three-year Statute of Limitations period, and accrual of the cause of action runs from the date the conversion takes place and not from the date of its discovery.  Plaintiff stated at his deposition that he discovered the alleged 2004 theft of the Painting in 2013.  Therefore, as defendant correctly argues, the claim accrued in August 2004 and the three-year statute of limitations expired in August 2007, irrespective of the date of discovery.

In opposition, plaintiff argues that the defendant is equitably estopped from asserting the statute of limitations defense.  Specifically, plaintiff argues in its brief that:

Because the purported sale to Naxos was kept secret, and because neither [Nicholas] nor Naxos (itself controlled by [Nicholas]) ever moved the Painting, [Nicholas] concealed his wrongful possession from [plaintiff], and as such [Nicholas] is equitably estopped from relying upon the statute of limitations as an affirmative defense.

Finding as estoppel to assert the statute of limitations that:

A Court may estop a defendant from asserting the statute of limitations defense when the defendant:  (1) intentionally conceals from the plaintiff a cause of action until after the statute of limitations has expired; or (2) induces a plaintiff who knows of the existence of a cause of action to refrain from commencing the action within the statute of limitations period   Mere silence or failure to disclose the wrongdoing is ordinarily insufficient, unless the defendant is in a fiduciary relationship with plaintiff and the defendant’s silence under the circumstances creates an inference of intentional concealment.  The plaintiff bears the burden of proof to invoke this “uncommon” remedy by showing that the defendant’s conduct justifies the imposition of estoppel to bar a statute of limitations defense[.]

*     *     *

As the defendant correctly argues…plaintiff failed to meet the high burden required to invoke the exceptional remedy of equitable estoppel.  Plaintiff has not alleged or otherwise established that defendant intentionally concealed the sale of the Painting to Naxos in 2004, or induced plaintiff to refrain from commencing a timely action.  Plaintiff stated that he had “unfettered access” to the Painting at the Geneva Facility for a period of 18 years, and inspected the Painting on occasion until 2013.  Further, plaintiff testified that he and his father had a rancorous relationship and seldom spoke since the early 2000’s.  Moreover, plaintiff has not alleged nor attempted to prove in his opposition papers any type of fiduciary relationship between plaintiff and defendant to render the “concealment” exception inapplicable.  In addition, plaintiff acknowledged that he had continuous contact with Naxos’ two “lead contacts” employed by Moore Stephens over the last 25 years but never asked about the Painting or who was paying for the Painting’s insurance and storage costs, even though Sophocles Senior passed away in 1996 or 1997 and the plaintiff and defendant had a “falling out” in the early 2000’s.

Additionally, defendant asserts…that defendant “openly discussed” the 2004 sale of the Painting with at least three individuals:  Adrian Biddell, the head of 19^th Century European Paintings at Sotheby’s, the defendant’s assistant, and the defendant’s accountant who received instructions from the defendant to report capital gains from the sale of the Painting and other artwork on defendant’s 2004 tax return.  Also, Cashen stated that Naxos purchased some 300 works of art from galleries, auction house, dealers, and from the defendant over the three years, and retained out 60 artworks in the Geneva Facility after the 2004 sale to Naxos was consistent with Naxos’ general business practices.

Admonishing that:

In sum, but for the fact that plaintiff has been deprived of the opportunity to either conduct the deposition of the defendant or call the defendant as an adverse witness at trial, defendant has a meritorious motion for summary judgment.  But, absent compelling proof that the defendant is unavailable to participate in these proceedings, there is no basis for granting the defendant summary judgment, particularly where, as here, the defendant has been repeatedly ordered to produce competent medical proof that the defendant cannot participate in these proceedings.

Beard v. Chase, 2017 NY Slip Op 50824(U), Sup. Ct. N.Y. Co. (June 19, 2017)

Supreme Court described the action:

This is an action to recover possession of three pieces of artwork entitled 765 Elephants, Under the Snows of Kilimanjaro, and Charging Bull Elephant (the “Works”) by plaintiff Peter Beard…a highly acclaimed American photographer and artist, which were allegedly taken and offered for sale without Mr. Beard’s knowledge or consent.

Two receipts, one in the fall of 2013 and another in the summer of 2014, referenced the artwork in dispute.

The facts:

Mr. Beard is a highly-regarded photographer and artist, and resides in New York, New York.

The Studio is a Delaware limited-liability company located in New York, New York.  In 2001, Mr. Beard and his wife, Nejma Beard…created the Studio to protect and provide a market for Mr. Beard’s artwork.

Mr. Beard is the sole owner of the Studio, and Mrs. Beard serves as the Studio’s President. As President, Mrs. Beard was authorized to act as Mr. Beard’s agent with respect to his business affairs.

Defendant Philippe Hoerle-Guggenheim is a resident of New York, New York, and does business as defendant Hoerle-Guggenheim Gallery[.]

The prior proceedings:

On May 5, 2015, Plaintiffs commenced this action, seeking a declaratory judgment and asserting claims for conversion, replevin, and tortious interference with economic advantage.

On May 6, 2015, this Court entered an order to show cause preventing Defendants from selling, assigning or otherwise disposing of the Works[.]

The burden of proof:

Summary judgment shall be granted “if upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court, as a matter of law, in directing judgment in favor of any party”[.]

“The party seeking to enforce a contract bears the burden of establishing that a binding agreement was made, and to prove the terms of the contract[.]

The conflicting arguments:

Plaintiffs argue that summary judgment should be granted due to the absence of a written agreement, identifying the parties, the purchase price, and other material terms, signed by Mr. Beard or an authorized agent. Plaintiffs maintain that the purported Agreements do not fall within any of the exceptions to the statute of frauds, as they cannot be reasonably considered a contract for services. Similarly, Plaintiffs allege that Defendants have failed to provide credible evidence of full performance as the payments made by Mr. Chase were not “unequivocally referable” to the Agreements.

In contrast, Defendants argue that Mr. Beard’s testimony raises issues of fact exist regarding the material terms of the purported Agreements. Defendants further argue that the affidavits of Mr. Beard and Mrs. Beard lack value because Mrs. Beard only learned of the Works through the London gallery owner in April or May of 2015 and Mr. Beard’s lack any recollection of the Agreements. Lastly, Defendants also maintain that the statute of frauds is inapplicable because the transaction was fully performed by both parties and was not for the sale of goods.

Concluding that:

Undoubtedly, Plaintiffs have established that Defendants’ ownership claims to the Works fail as a matter of law, and therefore, summary judgment is warranted. Likewise, Defendants have not established that a binding contract existed between Mr. Beard and Mr. Chase, executed by Mr. Beard and setting out material terms[.]

Pursuant to the statute of frauds, contracts for the sale of goods for over $500 must be memorialized in a writing, indicating that a contract for sale has been made between the parties, and signed by the party against whom enforcement is sought…Furthermore, the writing must “designate the parties, identify and describe the subject matter and state all the essential or material terms of the contract”[.]

An exception to the statute of frauds exists if the goods are specially manufactured for the buyer and partial performance has already occurred, or the alleged contract is one for services[.]

Here, the First Receipt and the Second Receipt are insufficient in that they fail to establish material terms of the purported agreements. First, the Receipts are not signed by Mr. Beard, the party to be charged. They merely reference him to the extent that he authored the Works[.]

Second, it is undisputed that the First Receipt references 965 Elephants, which is not at issue in this litigation, and references “Large Elephant on Mount Kilimanjaro,” when in fact the work’s actual name is Under the Snows of Kilimanjaro…Similarly, the Second Receipt references the Works as: “1 elephant kilo, 1 elephant herd, 1 elephant”. This statement is clearly ambiguous and is insufficient to identify particular pieces of artwork[.]

The First Receipt and Second Receipt do not clearly identify the parties to the transaction, the specific artworks to be sold, or the time frame for compensation in order to create an enforceable contract[.]

The fact that the First Receipt and Second Receipt contain references to the purchase prices of “Large Elephant on Mount Kilamanjaro,” is insufficient to create a binding contract between the parties. As previously mentioned, Mr. Beard’s work entitled 965 Elephants is not at issue in this litigation.  Although the First Receipt states that the paintings 965 Elephants and “Large Elephant on Mount Kilamanjaro,” (which is not a known piece of Mr. Beard’s artwork), were to be sold for $80,000, made in $10,000 installments, the Second Receipt states that Mr. Chase should pay $100,000 for the Works[.] In addition, Mr. Chase admitted that he was to pay $40,000 for the Paradise Lost photograph, bringing the total purchase price to $120,000, which is not reflected in either receipt[.]

Explicating that:

Defendants’ argument that Ms. White acted as Mr. Beard’s agent in negotiating the sale of the Works fails as a matter of law. It is undisputed that Ms. White was serving as an intermediary between him and Mr. Chase…Ms. White cannot be considered an agent of Mr. Beard absent evidence of control…As Plaintiffs correctly assert, the fact that Ms. White was not even in the room when the first Agreement was allegedly negotiated and was plainly unaware of the second Agreement negates any element of control[.]

This Court finds Defendants’ argument that the purported Agreements fall within the specially manufactured goods exception unpersuasive…Specially manufactured goods are not suitable for sale to others in the ordinary course of business…Here, it is undisputed that the Defendants were offering the Works for sale, and even sold one of the Works, prior to the entry of the temporary restraining order by this Court.

Regardless, Defendants failed to establish that the payments made to Mr. Beard or Mrs. White were “unequivocally referable” to the sale of the Works, and, therefore, this exception is inapplicable[.]

In order to be considered “unequivocally referable,” the conduct must be inconsistent with any other explanation…Defendants have failed to point to any course of conduct that is “unequivocally referable” to the Agreements. While Defendants presented evidence that Mr. Chase made five wire transfers to Ms. White from September 23 to November 15, 2013, they failed to establish that these payments were in connection to the Agreements, particularly because these payments were for over three times the alleged purchase price[.]

In addition, the wire transfers, hotel bills, medical bills, and periodic cash withdrawals purportedly made as payments for the Works could be explained by a variety of reasons. Therefore, the purported sale of the Works does not fall within the specially manufactured goods exception to the statute of frauds.

Further, the Court is unpersuaded by Defendants’ assertion that the Agreements are services contracts, exempt from the statute of frauds. Defendants’ own witness, Ms. White, testified at her deposition that Mr. Beard and Mr. Chase “negotiated the purchase of the two Beard works”…The service of creating the Works was incidental or collateral to their sale[.]

As Defendants allege, photographic evidence demonstrates that Beard created the Works mostly prior to the [photo] shoots, which occurred around the time that the Agreements were entered into…This contradicts Defendants’ argument that the Agreements were a contract for services, as it is illogical for parties to contract for services after the services are already significantly complete.

Since Defendants’ defenses fail as a matter of law, Plaintiffs have adequately established their conversion and replevin causes of action. Plaintiffs have a possessory right or interest in the Works, and there is sufficient evidence that Defendants interfered with that right by taking the Works without Plaintiffs’ consent, without paying him and subsequently displaying them at the Gallery and offering them for sale[.]

As to Plaintiffs’ replevin claim, Plaintiff has successfully established Defendants’ unlawful possession of the Works, to which Plaintiffs have a superior possessory right[.]

Here, Plaintiffs met their initial burden of demonstrating their entitlement to judgment as a matter of law on their conversion and replevin claims by establishing that Mr. Beard created and held an ownership interest in the Works, which were taken and sold without his knowledge or consent. In opposition, Defendants failed to raise a triable issue of fact as to Plaintiffs’ ownership rights to the Works.

In addition, Plaintiffs have established a justiciable controversy involving a present prejudice to Plaintiffs as a result of Defendants’ unauthorized possession of the Works in addition to Defendants’ alleged ownership of the Works, entitling them to a declaratory judgment[.]

And declaring that:

[P]eter Beard is the sole owner of the works and that he has indefeasible title to and interest in the Works, free and clear of any liens, claims, or encumbrances of any kind[.]

Matter of Toren v. Villa Grisebach Auctions, Inc., 2017 NY Slip Op 30963(U), Sup. Ct. N.Y. Co. (May 9, 2017)

In a proceeding for pre-action disclosure, Supreme Court summarized the facts:

This case concerns two works of art — Basket Weavers a painting by Max Liebermann; and Nach Hause, a painting by Franz Skarbina…that were stolen by the Nazis from Toren’s great uncle, David Friedmann, during the Holocaust. The art was later auctioned by Grisebach. Nach Hause was sold in 1995, and Basket Weavers was sold in 2000. Grisebach, a German corporation, and its New York subsidiary corporation, Villa, know the identity of the purchasers. Toren does not.  The sole purpose of this petition is to compel Villa to disclose the identity of the purchasers so that Toren may commence an action for replevin of the Art.

The petition tells the story of how Friedmann’s art was stolen, which is set against the horrifying backdrop of the Holocaust. It contains extensive detail of how art stolen by the Nazis came to be auctioned half a century later by Grisebach. In addition to the tragedy that befell Toren’s family, and the extraordinary story of how Toren escaped the Holocaust on a “kinder transport” and eventually emigrated to the United States, the petition also recounts the efforts of the “Monuments Men”, who sought to recover art stolen by the Nazis during World War II.

The allegations in the Petition:

The Gestapo looted approximately 54 works of museum quality art, including Basket Weavers and Nach Hause from [Friedmann] in or around 1940. In turn, [the Art was] sold to Hildebrand Gurlitt, who was one of Adolph Hitler’s principal art dealers. Upon his death in 1956 in an automobile accident, his entire collection passed to his family, including to his son, Cornelius Gurlitt, and to his daughter, Renate Gurlitt. In November of 2013, the prosecutor’s office in Munich, Germany, held a press conference, at which they announced the seizure of approximately 1,200 works of art from the apartment of Cornelius Gurlitt. The press conference was widely reported throughout the world, including on the front page of The New York Times, which featured a photograph of a painting, Two Riders on the Beach…also by Max Liebermann, and also stolen by the Nazis from [Friedmann]. Despite overwhelming evidence that the painting belonged to Petitioner and to his brother’s family, the painting was returned to the heirs of [Friendmann], including Petitioner, only after Petitioner had brought suit against the government of Germany and Bavaria in the Federal District Court in and for the District of Columbia. During the process of investigating the provenance of Two Riders that ultimately led to its recovery, Petitioner obtained for the first time a list of paintings owned by [Friedmann], and compiled at or near the time the Nazis took the paintings from him. Prior to obtaining this information, Petitioner did not know and had no way of knowing that [the Art] belonged to [Friedmann] and w[as] stolen from him by the Nazis. Subsequently, Petitioner also learned that Grisebach had previously arranged for the sale of Basket Weavers and Nach House.

*     *     *

[T]oren claims that, “[a]t the time of the sale of Basket Weavers, Grisebach knew, among other things, that the painting had been owned by Hildebrand Gurlitt, the infamous Nazi art dealer, and was being sold on behalf of his daughter. Despite this, Grisebach conducted no further investigation into the true owner of the painting.”

Summarized the applicable law:

CPLR 3102(c) provides that “[b]efore an action is commenced, disclosure to aid in bringing an action . . . may be obtained, but only by court order.” It is well settled that pre-action discovery under CPLR 3102(c) may be obtained to “identify potential defendants.”…However, pre-action discovery “may not be used to ascertain whether a prospective plaintiff has a cause of action worth pursuing.”…Consequently, “[a] petition for pre-action discovery should only be granted when the petitioner demonstrates that he has a meritorious cause of action and that the information sought is material and necessary to the actionable wrong.”…To satisfy its burden, the petitioner must allege “facts fairly indicating that he or she has some cause of action.”…In other words, “the applicant must show the existence of a prima facie cause of action.”…”In determining whether the petitioner has demonstrated a prima facie case, the evidence presented must be considered in a light most favorable to the petitioner.”…The requirement that a petitioner demonstrate the existence of a viable claim “is designed to prevent the initiation of troublesome and expensive procedures, based upon a mere suspicion, which may annoy and intrude upon an innocent party.”…”Where, however, the facts alleged state a cause of action, the protection of a party’s affairs is no longer the primary consideration and an examination to determine the identities of the parties and what form or forms the action should take is appropriate.”… Ultimately, “the determination of whether a party has demonstrated merit lies in the sound discretion of the trial court.”[.]

Initially concluding that:

On the merits, the court finds that Toren has failed to demonstrate a prima facie case for replevin. To be sure, if the Art were located in New York, the relevant inquiry would be whether Toren stated a non-time-barred claim for replevin under New York law…A cause of action for replevin or conversion requires a demand for the property and refusal.”). Under New York law, “a cause of action for replevin against the good-faith purchaser of a stolen chattel accrues when the true owner makes demand for return of the chattel and the person in possession of the chattel refuses to return it.”…”Until demand is made and refused, possession of the stolen property by the good-faith purchaser for value is not considered wrongful.”…In this case, Toren has not demanded return of the Art from the purchasers because he does not know who they are. New York’s statute of limitations for replevin has not run because the claim has not yet accrued.

And finally concluding that:

New York law, however, does not apply. A claim to recover property is generally governed by the law of the jurisdiction in which the property is located…This rule is consistent with how New York courts make choice of law determinations…While Toren’s plight is highly sympathetic, New York, as a jurisdiction, simply has no nexus to or interest in his claims. New York law should not be applied where, as here, the prospective defendants “could hardly have expected to be [hailed] before a New York court.”…Neither the auction house nor the purchasers could have been expected to be subject to New York law merely because one of Friedmann’s heirs of happens to now live in New York (which they could not have known at the time of purchase, especially if they did not know the identity of the person, Friedmann, from whom the art was stolen).

And cautioning that:

The location of Nach Hause and the applicable law are not known.  While New York has a generous statute of limitations for replevin claims, New York law is not determinative of whether Toren has a cause of action against the purchasers. The appropriate jurisdictions’ statutes of limitations may be different. Without briefing the applicable foreign law, an impossibility at this point, Toren has not demonstrated a prima facie case. As a result, Toren’s petition is denied without prejudice and with leave to replead. He may file an amended petition for disclosure of the identity of the purchaser of Nach Hause if he can demonstrate, under the substantive law applicable in his prospective lawsuit, that he can state a valid cause of action. To state a claim for replevin of Nach Hause, Toren has to know the location of the purchaser. Villa must provide him with that information, and it is ordered to do so below.

Starnet Ins. Co. v. Christie’s Fine Art Stor. Servs., Inc., 2016 NY Slip Op 30147, Sup. Ct. NY Co. (January 21, 2016)

Supreme Court, in addressing a motion to dismiss the complaint, summarized the background:

[P]laintiffs include LeRoy Neiman Foundation, Inc. and LeRoy Neiman, Inc., both New York not-for-profit corporations, and The Estate of LeRoy Neiman, and StarNet, as subrogee and assignee of Neiman. Defendant CFASS represented itself to be the “world’s premier storage provider for fine art, antiques and collectibles.”

CFASS offered its clients a variety of storage options “[f]rom self-managed units, to units overseen by our accomplished staff, to our vault where a variety of property is kept for multiple clients — clients have several distinctive choices. Regardless of selection, all clients receive the same exceptional service that has been Christie’s hallmark since 1766.” CFASS represented that its “Fine Art Storage Services team is a group of carefully hand-picked experts. CFASS staff receive the same training as Christie’s team and understand the unique handling requirements of any property from paintings and sculpture to furniture and fashion.”

CFASS owned and managed a fine art storage facility “within a gated, high security compound” located at 100 Imlay Street, Brooklyn, New York, which is located in the Red Hook section of Brooklyn adjacent to the East River…The Warehouse was located in a high risk flood zone along the waterfront in Red Hook. The neighborhood of Red Hook is in an area known as Zone A, a low-lying coastal area with the highest risk of flooding during a storm related surge.

Neiman was the owner of numerous fine works of art by the artist Leroy Neiman…In reliance upon CFASS’s representations that the Artwork would be stored in a secure unit on the Warehouse’s second floor, on September 17, 2012, Neiman entered into a Managed Unit Storage Agreement with CFASS…for storage of the Artwork in Unit 2B-09 of the Warehouse. The Artwork was delivered to the Warehouse on September 20, 2012 (277 pieces) and again on October 4, 2012 (199 pieces). Neiman paid $6,286.50 for storage of the Artwork in Unit 2B-09 for the period, October 17, 2012 to November 16, 2012. The 277 pieces of Artwork remained unsecured on the first floor of the Warehouse for more than 39 days, were never placed into Unit 2B-09, a secure, storage unit on the Warehouse’s second floor, and were commingled with other artwork on the ground floor. The 199 pieces of Artwork (the second shipment to the Warehouse) remained on the first floor of the Warehouse for more than 25 days, were never placed into Unit 2B-09.

Hurricane Sandy began as a low pressure system, south of Kingston Jamaica, and on October 22, 2012, the “National Hurricane Center” named the system “Tropical Storm Sandy.” During the next several days, there were reports that a massive storm would be hitting New York City on or about October 29, 2012, with high winds and tides, severe storm surges, and widespread coastal flooding.

On October 26, 2012, Mayor Bloomberg warned residents that the “Coastal Storm Plan designates as ‘Zone A’ the low-lying coastal areas of our city most at risk for flooding and other damage,” which includes the Red Hook area of Brooklyn, where the Warehouse is located. On October 26, 2012, Governor Cuomo declared a statewide state of emergency. When it became evident that a major storm would be imminently hitting the City, on October 26, 2012 CFASS represented to Neiman in an email with the reference “CFASS’s Hurricane Preparations” as follows: CFASS Fine Art Storage Services provides non-stop, best-in-class environmental controls and security for your property every day. And when significant inclement weather approaches, rest assured we take extra precautions. These precautions may include, but are not limited, to the following as necessary:

• Temporary and permanent generators properly filled
• Extra security staff on-site
• All property on the first floor on the West side of the building checked to ensure all items are raised off the floor
• Roof of the facility checked for loose materials
• Absorbent socks placed along the base of all exterior doors
• All property in managed storage raised so that they are off the ground
• Empty rooms on upper floors have been identified and can house property if property movement is required
• All security personnel updated on the emergency procedures

Notwithstanding the foregoing, CFASS never moved or otherwise elevated the Artwork from the first floor to Unit 2B-09 on the Warehouse’s second floor, relocated or elevated the Artwork to any other space, or otherwise took any precautions to protect the Artwork. On October 29, 2012 the Artwork sustained severe damage from flooding.

The complaint:

The complaint contains seven causes of action for gross negligence, breach of bailment, negligence, rescission, negligent misrepresentation, fraudulent misrepresentation, and breach of fiduciary duty. Specifically, Plaintiffs allege that CFASS acted with gross negligence, or negligence with respect to its care, custody, and storage of the Artwork; CFASS breached an express or implied bailment by failing to return the Artwork without damage; the Storage Agreement is void and rescinded based on CFASS’ material misrepresentations concerning how it would protect the Artwork; CFASS negligently or fraudulently represented that the Artwork was safely stored in unit 2B-09 on the Warehouse’s second floor; and CFASS breached its fiduciary duty to Neiman by making material misrepresentations concerning how the Artwork would be stored and protected.

The relief sought by plaintiff:

Plaintiffs seeks to recover $10,125,506 in damages, plus interest from October 29, 2012, punitive damages, attorney’s fees, and rescission of the Storage Agreement. Pursuant to an insurance policy, StarNet partially reimbursed Neiman for its losses, and thereby became subrogated to the extent of its payment ($8,348,660) and Neiman assigned the uninsured portion of the loss ($1,776,846) to Starnet.

Defendants’ motion to dismiss:

CFASS moves to dismiss the complaint on the grounds that: (1) the alleged loss was due to an act of God; (2) Neiman agreed to procure insurance and waive subrogation against CFASS for any loss of or damage to the property, and (3) Neiman agreed that CFASS’ liability would be limited to $100,000 for any loss or damage to the Property. CFASS further argues that the complaint fails to state a cause of action.

Plaintiff’s opposition:

In opposition, Plaintiffs argue that: (1) CFASS is a warehouse, as defined in U.C.C. § 7-102 (13), not a self-storage facility; (2) CFASS failed to appropriately limit its liability pursuant to U.C.C. § 7-204; (3) CFASS’ attempt to exonerate itself from liability violates U.C.C. § 7-204; (4) CFASS’ material breach of the Storage Agreement negates any purported effort to exculpate itself or waive subrogation; (5) Neiman may recover the uninsured portion of its loss; (6) CFASS’ act of God defense fails; and (7) the causes of action in the complaint are adequately stated.

The storage agreement and LDL waiver:

The parties submit copies of the Storage Agreement and the LDL waiver. The Storage Agreement states, at paragraph 7(c), that in the event that CFASS does not accept liability as described in paragraph 7(a), “the Goods will remain at the Depositor’s risk at all times, and Depositor will sign a loss/damage waiver letter in the form attached hereto.” It further states that “[e]ven if, despite the terms of this clause, CFASS is found to be liable for any loss of, or damage to, the Goods, that liability shall not exceed $100,000 or the market value of the Goods, if lower.”

The LDL waiver signed by the president of the LeRoy Neiman Foundation, Inc. states “we are responsible for arranging insurance cover for the property (“Goods”) I/we deposit to Christie’s Fine Art Storage Service Inc. (“CFASS”). I/we understand that this insurance coverage needs to be against All Risks of physical loss or damage.” It further states “I/We agree that CFASS will not be responsible for, and I hereby release CFASS, its officers, directors, employees, agents and contractors, from and against all liability for physical loss of or damage to my Goods. I also agree to notify my insurance carrier/company of this agreement and arrange for them to waive any rights of subrogation against CFASS . . . with respect to any loss of or damage to the Property while it remains in CFASS care, custody and control.”

The law as to equitable segregation:

“Subrogation, an equitable doctrine, allows an insurer to stand in the shoes of its insured and seek indemnification from third parties whose wrongdoing has caused a loss for which the insurer is bound to reimburse.”…”While parties to an agreement may waive their insurer’s right of subrogation, a waiver of subrogation clause cannot be enforced beyond the scope of the specific context in which it appears.”…”Waiver of subrogation provisions reflect the parties’ allocation of the risk of liability whereby liability is shifted to the insurance carriers of the parties to the agreement.”…”[A] waiver of subrogation is `viewed as a device by which the parties merely allocate the risk of liability between themselves to third parties through insurance.'”[.]

The Specialty decision:

The circumstances presented in this subrogation action are similar to an action previously before me,…In that action, the plaintiff XL Specialty Ins. Co.…subrogee to Chowaiki & Co., Fine Art Ltd.…a fine art gallery, sought to recover losses arising from artworks damaged at CFASS’ warehouse during Hurricane Sandy.

In my decision on CFASS’ motion to dismiss XL Specialty’s complaint, I first determined that: (1) a bailor-bailee relationship existed between CFASS and Chowaiki under U.C.C. Article 7, not a lessor-lessee relationship under Lien Law § 182; and (2) that although a warehouse may limit its liability for negligence under U.C.C. § 7-204(2), the limitation of liability provision in the storage agreement between Chowaiki and CFASS was unenforceable. However, I ultimately granted CFASS’ motion to dismiss the complaint based on the existence of a waiver of subrogation contained in the loss damage waiver signed by Chowaiki.

Concluding that:

The LDL waiver at issue here is identical to the loss damage waiver in XL Specialty. In the LDL waiver, Neiman expressly agreed to obtain insurance coverage “against All Risks of physical-loss or damage” to the Artwork, and Neiman accordingly released CFASS from “all liability for physical loss or damage to my Goods.” Neiman further agreed to notify its insurer regarding the LDL waiver, and arrange for its insurer to waive any rights of subrogation against CFASS regarding any loss or damage to the property while it remained in CFASS’ care, custody, and control.  Upon my examination of the LDL waiver, I find that it constitutes a broad waiver of subrogation that bars Plaintiffs’ complaint…Moreover, plaintiffs fail to allege any tortious conduct independent of the Storage Agreement that would’ give rise to separate liability in tort[.]

Plaintiffs contends that the waiver of subrogation is void because it permits CFASS to excuse itself from all liability in violation of U.C.C. 7-204. However, it is well-settled that a waiver of subrogation is not a contractual provision which seeks “to exempt a party from liability” but instead simply requires “one of the parties to the contract to provide insurance for all the parties.”…As parties to a commercial transaction, CFASS and Neiman were “free to allocate the risk of liability to third parties through insurance and deployment of a waiver of subrogation clause.”[.]

Plaintiffs argue that the waiver of subrogation is unenforceable because CFASS materially breached the Storage Agreement by failing to properly store the Artwork on the second floor. However, a waiver of subrogation is enforceable in spite of any contract breaches where — as alleged here — the breached provisions are independent from those provisions relating to the allocation of risk between the parties[.]

In the fourth cause of action, Plaintiffs seek rescission of the Storage Agreement based on CFASS’ fraudulent misrepresentations that it would properly store the Artwork on the second floor, and that it would take extra precautions to protect the Artwork during Hurricane Sandy. These allegations fail to state a claim for rescission based on fraud. Contrary to Plaintiffs’ assertion, the Storage Agreement, an integrated contract, did not contain any provision requiring CFASS to store the Artwork on the second floor. Further, Plaintiffs fail to allege that CFASS made a knowing misrepresentation of fact at the time they entered into the Storage Agreement; they only allege that CFASS made a misrepresentation of fact after the contract was signed…Lastly, Plaintiffs do not state a claim for rescission because they fail to allege that the status quo may be substantially restored upon rescission of the contract[.]

Lessons learned:  Purchases, sales and financing of paintings, artifacts, antiquities and other collectibles must follow the same rules of the road as apply to other sophisticated and complicated commercial transactions.  The failure to do so often leads to protracted and expensive litigation.