Opinion
05 Civ. 8728 (NRB).
July 18, 2006
Michael E. Salzman, Esq., Hughes Hubbard Reed LLP, New York, NY, Counsel for Plaintiff.
Victor Muskin, Esq., Scheichet Davis, P.C., New York, NY, Counsel for Defendants.
MEMORANDUM AND ORDER
Christie's Inc. ("Christie's" or "plaintiff"), a fine art auction house, brings this diversity action against Dominica Holding Corporation d/b/a Mihalarias Art ("Dominica") and its president and owner, Stavros Mihalarias ("Mihalarias"), (collectively, "defendants"), for failure to pay the purchase price and buyer's commission for art works purchased at auction. Christie's now moves for partial summary judgment as to liability and to dismiss defendants' counterclaims. For the reasons set forth below, plaintiff's partial motion for summary judgment as to liability is denied, and its motion to dismiss defendants' counterclaims is denied.
BACKGROUND
Except where indicated, there are no genuine issues regarding the following facts.
Mihalarias registered to bid at the auction on behalf of Dominica, and subsequently was the winning bidder on a series of ten screenprints in Lot 658 created by Andy Warhol which contain images of Marilyn Monroe, entitled "Marilyn" (the "Marilyn Prints" or the "Prints"), as well as eleven additional lots (the "Additional Print Lots"). Pl. 56.1 Stmt. ¶¶ 6, 8, 9; Def. Resp. ¶¶ 6, 8, 9. Prior to placing his winning bid, Mihalarias did not fully inspect the Marilyn Prints. Instead, he relied primarily on the descriptions contained in the auction catalogue entitled "Christie's New York Prints and Multiples" (the "catalogue"), which stated in part that each of the Marilyn Prints was "taped to the support" and that three of them had been "examined out of the frames." Mihalarias Decl. ¶ 15; Pl. Ex. A.
Mihalarias bid $710,400 (representing a hammer price of $620,000 plus a buyer's premium of $90,400) for the Marilyn Prints and a total of $207,840 for the Additional Print Lots. Complaint ("Compl.") ¶¶ 11, 12.
Though in his affidavit Mihalarias states that the descriptions were "confirmed by my viewing of one of the [Marilyn Prints] before the auction," Mihalarias Decl. ¶ 15, apparently, he viewed this print only shortly before the auction began. Id. at ¶ 34.
The catalogue contains reproductions of selections from the Marilyn Prints and has an entry which reads in part:
658
ANDY WARHOL
Marilyn (F. S. 22-31)
[T]he complete set of ten screenprints in colors, 1967, on wove paper, eight signed with initials and dated in pencil on the reverse, two signed and dated in pencil on the reverse, all stamp numbered 27/250 (there were also 26 artist's proofs lettered A-Z), published by Factory Additions, New York, all the full sheets, taped to the support at the reverse of the sheet edges and in the center, soft creasing with associated minor ink loss and slight paper separation at the sheet corners, pale staining on the reverse, (F. S. 22) with an area of pale blue staining in the upper right corner, otherwise all apparently in good condition, three examined out of the frames, all framed[.]
Pl. Ex. A (emphases added).
The next day, Mihalarias returned to Christie's in order to arrange for payment and shipment of the works he had purchased. Mihalarias Decl. ¶ 16. Believing the Marilyn Prints simply were taped to their supports, Mihalarias requested that the Prints be removed from their frames and shipped in cylindrical tubes, which he states is the normal method by which such prints are shipped. Id. However, Jonathan Rendell ("Rendell"), the head of Christie's print department, informed Mihalarias that the Marilyn Prints were permanently glued to their supports and therefore could not be detached from their frames and sent in the manner he had requested. Id. at ¶ 17. Specifically, each of the Marilyn Prints was affixed with both glue and tape to a plexiglass support within their respective frames. Id. at ¶ 18; Def. 56.1 Stmt. ¶ 4.
Based on the catalogue entry, Mihalarias assumed the Marilyn Prints easily could be removed from their frames. According to defendants, this was a reasonable assumption given that within the print business, it is customary that tape used to secure prints to frame supports is easily removed without damaging the prints. Def. 56.1 Stmt. ¶¶ 1, 2.
Mihalarias asserts that he was entirely surprised by these disclosures and that he had never before seen such conditions in his prior experience in the print business. Mihalarias Decl. ¶¶ 18, 22; Def. 56.1 Stmt. ¶ 9. Mihalarias states that such highly unusual conditions would lead to a material decrease in the value of the Marilyn Prints and that he would not have bid as high a price if he had known that they could not be removed from their frames. Mihalarias Decl. ¶ 31; Def. 56.1 Stmt. ¶¶ 10, 11. Upon learning of these conditions, Mihalarias refused to pay for the Marilyn Prints but offered to pay for the Additional Print Lots, though Christie's allegedly refused this offer. Compl. ¶ 26; Answer ¶ 26.
Indeed, this statement seems to have been borne out by the price of the subsequent resale of the Marilyn Prints. See infra p. 5.
In a subsequent exchange of letters, Mihalarias confirmed his refusal to pay for the Marilyn Prints, and reiterated his willingness to proceed with the purchase of the Additional Print Lots. Pl. Exs. C, D. Christie's responded by informing him that he was in breach of contract and confirmed that the Marilyn Prints had been resold for $575,000, which was $135,400 less than defendants' winning bid. Pl. Ex. E. Christie's also reserved its right to apply any payments made by defendants first against their obligations with respect to the Marilyn Prints. Id.
If the buyer fails to make payment by the seventh calendar day following the sale, the Conditions state that Christie's is entitled in its "absolute discretion" to exercise a number of rights or remedies including: "where several amounts are owed by the buyer to [Christie's] . . . in respect of different transactions, to apply any amount paid to discharge any amount owed in respect of any particular transaction, whether or not the buyer so directs." Pl. Ex. A. ¶ 4(f).
Procedural History
Christie's filed its complaint on October 14, 2005. The complaint contains three counts. Count One alleges that Dominica breached the contract for sale of the Marilyn Prints. Count Two asserts that Dominica breached the contract for sale of the Additional Print Lots. Count Three is asserted against Mihalarias in his individual capacity and alleges that he is personally liable if Dominica is not the true buyer or is not a distinct legal entity.
At oral argument, plaintiff's counsel disclosed that the Additional Print Lots have since been individually resold for a net amount greater than the amount of Mihalarias' bid. As such, plaintiff no longer seeks damages as to this count.
On January 26, 2006 defendants answered the complaint, asserting affirmative defenses and counterclaims for fraudulent inducement, breach of contract, and lost profits. First, defendants assert that plaintiff's catalogue was intentionally false and misleading. Second, defendants allege that their bids to purchase the Additional Print Lots gave rise to separate and distinct contracts for each lot. Defendants claim that these contracts were breached by Christie's when it refused to complete the sales of the Additional Print Lots unless defendants waived the rescission of their purchase of the Marilyn Prints. Third, defendants allege damages of over $225,000 due to the loss of the opportunity to sell the Additional Print Lots at a subsequent exhibition.
Christie's made the instant motion for partial summary judgment as to liability and to dismiss the counterclaims on March 10, 2006.
DISCUSSION
I. Motion for Partial Summary JudgmentA motion for summary judgment must be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In deciding a motion for summary judgment, the evidence submitted must be viewed in the light most favorable to the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Even if parties dispute material facts, summary judgment must be granted "unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Golden Pacific Bancorp. v. F.D.I.C., 375 F.3d 196, 200 (2d Cir. 2004) (internal citations and quotation marks omitted). In addition, once the moving party has made a sufficient showing, "[t]he non-moving party may not rely on mere conclusory allegations nor speculation, but instead must offer some hard evidence showing that its version of the events is not wholly fanciful." Id. (quoting D'Amico v. City of New York, 132 F.3d 145, 149 (2d Cir. 1998)). "At this prediscovery stage, summary judgment is to be assessed only with great caution." Serendip LLC v. Franchise Pictures LLC, No. 00 Civ. 210 (HB), 2000 WL 1277370, at *8 (S.D.N.Y. Sept. 7, 2000). In addition, "[t]he nonmoving party must have `had the opportunity to discover information that is essential to his opposition' to the motion for summary judgment." Trebor Sportswear Co., Inc. v. The Limited Stores, Inc., 865 F.2d 506, 511 (2d Cir. 1989) (quoting Anderson, 477 U.S. at 250 n. 5).
This action essentially hinges on whether Christie's can enforce the terms of the contract of sale for the Marilyn Prints. Defendants argue that any such obligation was vitiated by the misrepresentations contained in the catalogue entry. Specifically, defendants argue that there were four misrepresentations. First, they assert that the statement "taped to the support" was inaccurate because the Marilyn Prints were actually glued to their supports. Second, defendants argue that the statement that three of the Marilyn Prints were "examined out of the frames," created the false impression that the Prints could be removed from their frames and detached from their supports. Third, defendants argue that it was misleading for the catalogue to state that eight of the Marilyn Prints were "signed with initials and dated in pencil on the reverse." Though not untrue, defendants allege that this statement implied that the Prints had been detached from the opaque supports which are customarily used. Fourth, defendants assert that the second and third statements also created the false impression that the more customary opaque, acid-free paper backings had been used, rather than the plexiglass supports actually utilized for the Marilyn Prints. Def. Mem. at 4-7.
Defendants assert that an examination of a print out of its frame would normally involve an examination of both sides of the print.
Christie's does not concede that there were any misrepresentations at all and in any case asserts that because defendants agreed to be bound by the Conditions, their refusal to pay for the art works they purchased at auction is unjustified. Specifically, the Conditions contain the admonition that "[p]rospective buyers are strongly advised to examine personally any property in which they are interested, before the auction takes place. . . . Neither Christie's nor the seller provides any guarantee in relation to the nature of the property apart from the Limited Warranty. . . . The property is otherwise sold `as is.'" Id. at ¶ 2(a). The Limited Warranty in turn provides that "[o]nly UPPER CASE TYPE headings of lots in this catalogue indicate what is being warranted by Christie's. Christie's warranty does not apply to supplemental material which appears below the UPPER CASE TYPE headings of each lot and Christie's is not responsible for any errors or omissions in such material." Id. at ¶ 6. Christie's points out that the only text in the catalogue entry for the Marilyn Prints which contains uppercase letters is "ANDY WARHOL," Pl. Ex. A, and therefore none of the descriptions which defendants dispute is subject to the Limited Warranty.
The Conditions state in part that they "contain all the terms on which Christie's and the seller contract with the buyer. . . . By bidding at auction you agree to be bound by these terms." Pl. Ex. A at 313.
In addition, the Conditions provide that "[e]xcept as stated in the Limited Warranty . . . all property is sold `as is' without any representation or warranty of any kind by Christie's or the seller. Buyers are responsible for satisfying themselves concerning the condition of the property and the matters referred to in the catalogue entry." Pl. Ex. A at ¶ 2(c).
As an initial matter, we note that it is undisputed that a sale was completed when defendants successfully bid on the Marilyn Prints at auction, see N.Y.U.C.C. § 2-328(2) (McKinney 2005), and that defendants have failed to make any payments for the purchased works. The next inquiry, then, is whether the misrepresentations at issue would excuse defendants' breach of the sale agreements. We note that at the very least with regard to how the Prints were attached to their supports, the catalogue entry differed from the actual conditions. Construing the evidence in the light most favorable to defendants, it is clear that the Marilyn Prints were affixed to their supports using a qualitatively different means than that which had been described in the catalogue. Indeed, the Marilyn Prints were permanently affixed to the frames, thus significantly reducing their value. The issue, before us then, is whether these misstatements would constitute fraudulent inducement such as to render unenforceable the contract for sale.
In addition, defendants agreed to be bound by the terms in the catalogue when they placed a bid at auction. See Csaky v. Meyer, No. 94 Civ. 8117 (JSM), 1995 WL 494574, at *1 (S.D.N.Y. Aug. 18, 1995); Finnish Fur Sales Co., Ltd. v. Juliette Shulof Furs, Inc., 770 F. Supp. 139, 145 (S.D.N.Y. 1991); Pl. Ex. A at 313.
Christie's attempt to trivialize the difference between the alleged conditions and the catalogue entry is disingenuous, at best. Christie's argument that this essentially is a dispute about "very sticky tape" versus "tape" rings hollow in light of the allegations that both glue and tape were used to attach the Marilyn Prints to their supports.
Under New York law, in order to succeed on a claim for fraudulent inducement, defendants must prove: "(1) misrepresentation of a material fact; (2) falsity of the representation; (3) scienter; (4) reasonable reliance; and (5) damages." Creative Waste Mgmt., Inc. v. Capitol Environmental Servs., Inc., No. 04 Civ. 9581 (WCC), 2006 WL 1072018, at *19 (S.D.N.Y. April 21, 2006) (citing May Dep't Stores Co. v. Int'l Leasing Corp., Inc., 1 F.3d 138, 141 (2d Cir. 1993)). "A key element of a fraudulent inducement claim is reasonable reliance." Brady v. Calyon Sec. (USA), 406 F. Supp. 2d 307, 316 (S.D.N.Y. 2005) (citing Eternity Global Master Fund, Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 186-87 (2d Cir. 2004)).
The Conditions state, see Pl. Ex. A. ¶ 9, and neither party contests, that New York law governs this dispute.
Plaintiff does not appear to contest that defendants satisfy the requirements of scienter and damages. Indeed, it is clear that at least at this stage of the litigation, defendants have alleged facts sufficient to establish scienter.
Under New York law, a specific disclaimer normally bars a defense of fraudulent inducement. See Dannan Realty Corp. v. Harris, 5 N.Y.2d 317, 320-21, 184 N.Y.S.2d 599, 602 (finding that specific disclaimer as to reliance on representations defeated subsequent allegations of fraud involving those representations); Grumman Allied Industries, Inc. v. Rohr Industries, Inc., 748 F.2d 729, 730 (2d Cir. 1984) (granting summary judgment against buyer where it had "contractually disclaimed reliance upon the representations at issue and enjoyed absolute access to all relevant information necessary to confirm the validity of those representations"); see also T.T. Exclusive Cars, Inc. v. Christie's Inc., No. 96 Civ. 1650 (LMM), 1996 WL 737204, at *6 (S.D.N.Y. Dec. 24, 1996) ("[U]nder New York law a party's specific disclaimer will preclude it from maintaining a claim for fraudulent misrepresentation."); Foxley v. Sotheby's Inc., 893 F. Supp. 1224, 1230 (S.D.N.Y. 1995) ("[E]ven if provenance were misrepresented, a fraud claim is precluded because the auction catalog stated that Sotheby's made no representations or warranties of provenance.").
However, an exception to this rule exists where the misrepresented facts are peculiarly within the knowledge of the seller. See Dannan Realty Corp., 5 N.Y.2d at 322, 184 N.Y.S.2d at 603; Tahini Investments, Ltd. v. Bobrowsky, 99 A.D.2d 489, 490, 470 N.Y.S.2d 431, 433 (2d Dep't 1984) ("[E]ven where the parties have executed a specific disclaimer of reliance on a seller's representations, a purchaser may not be precluded from claiming reliance on any oral misrepresentations if the facts allegedly misrepresented are peculiarly within the seller's knowledge.").
Defendants do not dispute that the Conditions contain a sufficiently specific waiver. See Grumman, 748 F.2d at 735 ("The Danann rule operates where the substance of the disclaimer provisions tracks the substance of the alleged misrepresentations, notwithstanding semantical discrepancies.");Warner Theatre Assocs. Ltd. P'ship v. Metropolitan Life Ins. Co., No. 97 Civ. 4914 (SS), 1997 WL 685334, at *3 n. 2 (S.D.N.Y. Nov. 4, 1997) (collecting cases). They do contend, however, that the misrepresentations at issue involved information peculiarly within Christie's knowledge and that the defects at issue were not apparent "upon a viewing of the prints." Def. Mem. at 15.
As recounted above, see supra pp. 8-9, the catalogue explicitly stated that property was sold "as is" and that buyers should inspect works for themselves.
Mihalarias affirms that in reliance on the catalogue entry and his trust in Christie's based on prior dealings with it, he bid on the Marilyn Prints without undertaking a detailed inspection. He states only that he "view[ed] one of the prints before the auction." Id. at ¶ 15. In addition, he asserts that "[t]he defects were discoverable only if one attempted to remove the prints from their frames, detach them from their supports and examine them loose." Id. at ¶ 34. However, this apparently "was not practical to attempt in the crowded time before the auction was to begin." Id. Mihalarias further states that he felt there was no reason to even request that this be done, in view of the content of the catalogue entry.Id.
At oral argument, counsel for defendants asserted that only one Marilyn Print was on display for public viewing in the time before the auction began.
Mihalarias, though a sophisticated buyer, simply viewed one of the Marilyn Prints in the hectic time immediately preceding the auction rather than examining it closely during the days preceding the auction. This cursory viewing does not constitute the kind of careful examination typically required by courts before a buyer can claim that defects were peculiarly within the seller's knowledge. See Lazard Freres Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1543 (2d Cir. 1997) (noting that sophisticated party "was under a further duty to protect itself from misrepresentation"), cert. denied, 522 U.S. 864, 118 S. Ct. 169, 139 (1997). In short, defendants failed thoroughly to examine the Marilyn Prints, as they were exhorted to do by the catalogue, during the ample time allowed for public viewing.
As defendants themselves highlight, Mihalarias possesses expertise in the print business. Mihalarias has been an art dealer for over thirty-five years and is a fellow of both the British Restorer's Association and the International Institute of Conservation. Pl. 56.1 Stmt. ¶ 4; Def. Resp. ¶ 4; Mihalarias Decl. ¶ 3. Indeed, Mihalarias once served as the Greek representative of Christie's Contemporary Art ("CCA") and has in the past purchased many other prints from Christie's. Mihalarias Decl. ¶ 5.
However, on the record before us, we cannot conclude as a matter of law that Mihalarias could have undertaken a sufficiently thorough inspection of the Marilyn Prints without extraordinary difficulty, or that even if he had, he necessarily would have detected the flaws at issue. Under these circumstances, Mihalarias' failure to conduct a more detailed inspection is excused. See Lazard Freres, 108 F.3d at 1542 ("When matters are . . . peculiarly within defendant's knowledge, . . . plaintiff may rely without prosecuting an investigation, as he has no independent means of ascertaining the truth." (quoting Mallis v. Bankers Trust Co., 615 F. 2d 68, 80 (2d Cir. 1980)); Dimon Inc. v. Folium, Inc., 48 F. Supp. 2d 359, 368 (S.D.N.Y. 1999) ("[T]he peculiar knowledge exception applies not only where the facts allegedly misrepresented literally were within the exclusive knowledge of the defendant, but also where the truth theoretically might have been discovered, though only with extraordinary effort or great difficulty.") (collecting cases). Accordingly, plaintiff's prediscovery motion for summary judgment as to liability is denied.
For instance, it is not evident in the record how extensively potential buyers can inspect works prior to the start of auctions.
At oral argument, counsel for plaintiff argued that Mihalarias' own declaration provided such support when he stated that Rendell had showed him the condition of the Marilyn Prints.See Mihalarias Decl. ¶ 18. However, it is not clear from this statement that Mihalarias would have been able to detect such flaws on his own had he viewed the back of the prints through their frames.
II. Motion to Dismiss Counterclaims
Plaintiff also moves to dismiss defendants' counterclaims. Granting of such a motion is appropriate where "it appears beyond doubt that the [non-moving party] can prove no set of facts in support of his claim which would entitle him to relief."Interested Underwriters at Lloyd's of London Subscribing to Policy # 991361018 v. Church Loans and Investments Trust, No. 05 Civ. 9522 (VM), 2006 WL 1378990, at *1 (S.D.N.Y. May 16, 2006) (quoting Harris v. City of New York, 186 F.3d 243, 247 (2d Cir. 1999)). Applying this standard, plaintiff's motion to dismiss defendants' counterclaims is denied.
First, in light of the preceding discussion regarding defendants' defense of fraudulent inducement, plaintiff's motion to dismiss defendants' claim of fraud is denied. Similarly, plaintiff's motion to dismiss defendants' claim for breach of the contracts of sale for the Additional Print Lots fails because it is not clear whether Christie's was entitled to apply the proceeds from the Additional Prints to the purchase price of the Marilyn Prints. Finally, the factual record and legal context are not yet sufficiently developed to determine the legal effect of the provision of the Conditions which states that "[n]either Christie's nor the seller will be liable for any special, incidental or consequential damages including, without limitation, loss of profits nor for interest." Pl. Ex. A. ¶ 6(iv).
CONCLUSION
For the reasons set forth above, plaintiff's partial motion for summary judgment as to liability is denied, and its motion to dismiss defendants' counterclaims is denied.
IT IS SO ORDERED.