The opinion of the court was delivered by: Cedarbaum, District Judge.
The Agreement's purpose in conferring upon Wildenstein the
purchase option and the exclusive right of consignment is
stated in paragraph 5:
Thus, the Agreement provides that the Wallis defendants must
give Wildenstein at least thirty days notice prior to any
proposed sale of a painting in the Wallis Collection and that
Wildenstein shall have the option to purchase such painting
upon the same terms and conditions as those of the proposed
sale. The Agreement further provides that if the Wallis
defendants determine to sell any painting at auction, such
painting shall first be consigned exclusively to Wildenstein
for six months.
Wildenstein's rights of first refusal and exclusive
consignment are not limited to the lifetime of Mr. and Mrs.
Wallis, but are also binding upon the Wallises' executors,
successors and assigns, and can be asserted by Wildenstein's
successors and assigns. Finally, the Agreement extinguishes
the parties' rights and obligations with respect to any
paintings in the estate of Mr. or Mrs. Wallis that are
distributed to any charitable organization organized and
described in Section 501(c)(3) of the Internal Revenue Code.
At the time of Mr. Wallis' death in 1986, Mr. Epstein was
advised that the paintings in the Wallis Collection were being
distributed to the Wallis Foundation, a charitable
organization under Section 501(c)(3) of the Internal Revenue
Code. Mr. Epstein confirmed his understanding of the
distribution to the Foundation in a letter to Mr. Glassman
dated October 21, 1986, while at the same time reminding Mr.
Glassman of the obligations imposed by the Agreement.
Wildenstein asserted no claim in the probate proceeding at
the time of Mr. Wallis' death, and took no action until 1989
when it learned that the Wallis Collection was to be sold at
auction. On May 9, 1989, Wildenstein filed its complaint and
brought an order to show cause seeking to enjoin that auction
which was scheduled to take place on May 10, 1990. I denied a
temporary restraining order because there was no showing of
irreparable harm. Since Wildenstein is an art dealer, any harm
to it is compensable in money.
Wildenstein's complaint contains six counts, all of which
allege violations of Wildenstein's rights under the Agreement.
The first count against the Wallis Estate and Brent Wallis as
executor alleges that Hal Wallis fraudulently induced
Wildenstein to enter into the Agreement. The second count
alleges that all defendants conspired to defraud Wildenstein
by fraudulently inducing it to enter into the Agreement and by
willfully violating the Agreement. The third and fourth counts
allege breach of contract and fraud and are asserted against
Brent Wallis individually for willfully violating the terms of
the Agreement in connection with the sale of Renoir's "Jeune
Fille au Chapeau a Coquelicots," which had been given to him
by Hal Wallis, his father. The fifth and sixth counts for
breach of contract and fraud allege that the Wallis
Foundation, and Brent Wallis in his capacity as its president,
revoked the permanent loan of certain paintings to the Los
Angeles County Museum of Art in violation of Hal Wallis'
instructions, and that they intended to sell those paintings
at auction in violation of Wildenstein's rights under the
Agreement. In addition to injunctive relief, Wildenstein seeks
rescission of the Agreement or, in the alternative, monetary
damages on each count, as well as costs and attorneys' fees.
I. Choice of Law
A threshold question is whether New York or California
substantive law governs the issues in this case. In a
diversity action, a federal court must apply the choice of law
rules of the forum state. Klaxon Co. v. Stentor Electric
Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477
(1941). New York courts apply a "paramount interest" test to
choice of law issues in contract disputes. See Hunter v.
Greene, 734 F.2d 896, 899 (2d Cir. 1984). Under that test, "the
law of the jurisdiction having the greatest interest in the
litigation will be applied and . . . the facts or contacts
which obtain significance in defining State interests are those
which relate to the purpose of the particular law in conflict."
Intercontinental Planning, Ltd. v. Daystrom, Inc., 24 N.Y.2d
372, 382, 300 N.Y.S.2d 817, 825, 248 N.E.2d 576 (1969). See
also Damin Aviation Corp. v. Sikorsky Aircraft, 705 F. Supp. 170,
174 (S.D.N.Y.), aff'd, 880 F.2d 1318 (1989). This
"paramount interest" test governs matters bearing on the
validity of the Agreement.
Whether the Agreement should be construed under New York or
California law is a close question. Negotiations took place in
both New York and California. At the time, two of the
paintings in the Wallis Collection were in Wildenstein's
in New York and the remainder of the Collection was in
California. The Agreement was executed in New York by
Wildenstein, and by the Wallises in California. Both parties
appear to agree that reliance on New York law is appropriate
in this case. Plaintiff argues that New York law governs
because New York has a greater interest than California.
Defendants contend that although California has a greater
interest, there is no difference between the New York and
California Rule Against Perpetuities. I conclude that New York
has sufficient contacts with the transaction to justify the
application of New York law.
II. The Rule Against Perpetuities
Defendants have moved to amend their answer to include the
defense of the Rule Against Perpetuities and then ask for
summary judgment based on that defense. A motion for summary
judgment shall be granted if the court "determines 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. See also Celotex Corp. v. Catrett,
477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Brady v.
Town of Colchester, 863 F.2d 205, 210 (2d Cir. 1988).
New York's Rule Against Perpetuities provides in pertinent
(a)(1) The absolute power of alienation is
suspended when there are no persons in being by
whom an absolute fee or estate in possession can
be conveyed or transferred.
(2) Every present or future estate shall be void
in its creation which shall suspend the absolute
power of alienation by any limitation or
condition for a longer period than lives in being
at the creation of the estate and a term of not
more than twenty-one years. Lives in being shall
include a child conceived before the creation of
the estate but not born thereafter. In no case
shall the lives measuring the permissible period
be so designated or so numerous as to make proof
of their end unreasonably difficult.
(b) No estate in property shall be valid unless
it must vest, if at all, not later than
twenty-one years after one or more lives in being
at the creation of the estate and any period of
gestation involved. In no case shall lives
measuring the permissible period of vesting be so
designated or so numerous as to make proof of
their end unreasonably difficult.
N Y Est. Powers & Trusts Law § 9-1.1 (McKinney 1967).
Under this Rule, a provision which creates a contingent
future interest which might vest beyond the statutorily
permissible period, i.e. "later than twenty-one years after
one or more lives in being at the creation of the estate," is
void. All parties recognize that the Agreement violates the
Rule Against Perpetuities, if the Rule applies. The Agreement
restricts not only the right of Mr. and Mrs. Wallis, as
individuals, to dispose of the paintings in the Wallis
Collection in any manner they choose, but also binds "the
executors of their respective estates" and their "successors
and assigns." Similarly, the Agreement not only grants rights
to Wildenstein, but also to its "successors and assigns"
without any limitations on the potential duration of the
rights. The critical question is whether the Rule Against
Perpetuities applies to the Agreement.
The controlling New York case is Metropolitan Transportation
Authority v. Bruken, 67 N.Y.2d 156, 501 N.Y.S.2d 306,
492 N.E.2d 379 (1986). In Bruken, the New York Court of Appeals
addressed the question of whether the Rule Against Perpetuities
applies to preemptive rights, i.e. rights of first refusal. In
that case, the Metropolitan Commuter Transportation Authority,
later known as the Metropolitan Transportation Authority
("MTA"), purchased all the capital stock of the Long Island
Railroad from the Pennsylvania Railroad. Among the assets
acquired were 65 acres of land in Queens which had been used by
the Long Island Railroad as a freight yard. Id. at 159, 501
N YS.2d at 307, 492 N.E.2d at 380. As part of the
consideration, MTA conveyed to Delbay Corporation, a subsidiary
of the Pennsylvania
Railroad, air rights above this property and easements to
develop those air rights. In an additional agreement, Delbay
was granted the right to purchase twelve lots in the Queens
freight yard at market value if the MTA later determined that
it no longer needed the property for its transportation
operations. Id. at 160, 501 N.Y.S.2d at 307, 492 N.E.2d at 380.
The assignable "option" agreement was to last for 99 years, and
the holder of the "option" was given 90 days after notice by
MTA to purchase the property. The issue presented to the New
York Court of Appeals was whether that agreement violated the
Rule Against Perpetuities. Id.
In Bruken the court held that the rigid statutory Rule
against Perpetuities does not govern preemptive rights in
commercial and governmental transactions, and that instead, the
common law rule against unreasonable restraints on alienation
should be applied to such transactions. The court reasoned from
earlier cases that:
Implicit in these decisions is a recognition that
although preemptive rights unlimited in duration
violate the rule against remote vesting they do
so only marginally and that application of the
rule, because of its inflexibility, may operate
to invalidate legitimate transactions. This is so
particularly in commercial and governmental
activities because neither "lives in being" nor
"twenty one years" are periods which are relevant
to business or governmental affairs. In such
cases the need to insure free alienability is
served more effectively if the validity of the
preemptive right is assessed by applying the
common law rule prohibiting unreasonable
Id. at 165-166, 501 N.Y.S.2d at 311, 492 N.E.2d at 384
(citations omitted). After applying the common law rule, the
court found that the right of first refusal in the freight yard
lots was a reasonable restraint on alienation.
Defendants argue that the Bruken exception to the Rule
Against Perpetuities has no application to preemptive rights in
privately owned works of fine art. Wildenstein responds that
the Agreement was a commercial transaction which Bruken exempts
from the Rule Against Perpetuities.
Clearly, the preemptive rights of purchase and sale sought
by Wildenstein have none of the beneficial effects described
by the Court of Appeals in Bruken. On the contrary, under the
Agreement, a family is forever restricted in the free
disposition of fine art, the development of the property is not
facilitated, and public and general commercial interests are
not promoted. Whether the Bruken case rests on the Court's
analysis of the utility of that particular transaction in
promoting real estate development or on the Court's more
generalized summary that the Rule Against Perpetuities does not
apply to preemptive rights in commercial and governmental
transactions is difficult to discern.
An equally difficult question is whether the Agreement was
a commercial transaction within the meaning of
Bruken. This was not an arrangement between members of a
family, but rather an arms length transaction between avid art
collectors and a major art dealer. Nevertheless, from Mr.
Wallis' perspective, the Agreement was for the purpose of
restoring two beautiful paintings to his and his family's
possession. For Wildenstein, it was an opportunity to acquire
the right to sell all of the works in the Wallis Collection, a
valuable commercial opportunity for a corporation in the
business of buying and selling works of art.
In any event, I need not decide whether the transaction
between Wildenstein and the Wallises was the type of
commercial transaction contemplated by the Bruken court as an
exception to the Rule Against Perpetuities. As discussed above,
after holding that the Rule did not apply in Bruken, the court
determined the validity of the preemptive right under the
common law rule against unreasonable restraints on alienation.
Even if the Rule Against Perpetuities does not apply to the
facts of this case, I find that the combined exclusive
consignment right and right of first refusal provisions of the
Agreement are unreasonable restraints on alienation, and are
therefore invalid. In view of the New York
Court of Appeals' treatment of the common law rule against
unreasonable restraints on alienation as a part of its
analysis of the statutory Rule Against Perpetuities,
defendant's motion requires consideration of the common law
rule as well as the Rule Against Perpetuities. Both parties
have addressed this issue in their supplemental briefs.
III. Rule Against Unreasonable Restraints on Alienation
All rights of first refusal restrain alienation. Whether the
restraints imposed by such rights are reasonable must be
determined on a case-by-case basis. In Bruken, the court
balanced the utility of the restriction against its marginal
effect on alienability. The fundamental purpose of both the
Rule Against Perpetuities and the common law rule against
unreasonable restraints on alienation is to promote the free
transferability of property. The Bruken court recognized this
and sought to preserve contractual restrictions which actually
promote the transferability of property even though they
violate the letter of the statutory rule.
The Bruken court found that the preemptive right in that case
clearly served a beneficial purpose which outweighed its
minimal effect on alienation. The transaction in Bruken
"promoted the use and development of property, while at the
same time, imposing only a minor impediment to free
transferability." Id. at 166, 501 N.Y.S.2d at 311, 492 N.E.2d
at 384. It allowed the State to obtain a lower purchase price
and preserve the transportation facility while giving the
Pennsylvania Railroad air rights, the necessary easements to
develop those air rights, and a preemptive right for future
acquisition of the land so that its interests in the air and
ground property could eventually be reunited. Id. "The transfer
permitted the parties to put both properties, the railroad and
the freight yard, to their maximum productive use, a benefit
which far outweighed any public interest served by . . .
invalidation of the preemptive rights to the lots solely
because of remote vesting of Delbay's interest." Id. at
166-167, 501 N.Y.S.2d at 311-12, 492 N.E.2d at 384-85. In
addition, the transaction in Bruken between a state authority
and a national transportation company was highly publicized and
did not impose hidden limitations on the title which could
inhibit future transactions. Id. at 167, 501 N.Y.S.2d at 312,
492 N.E.2d at 385.
There is no comparable public benefit in this case.
Wildenstein argues that the beneficial purpose of the
Agreement was the settlement of differences between the
parties. If accepted, that argument would exempt all private
settlements from the rule against unreasonable restraints on
alienation. There is no evidence that the Agreement generally
facilitated the business of art dealing. Nor is there evidence
that it advanced any interest in privately owned paintings
which is similar to the public interest in the maximum use and
development of real estate.
Moreover, the alienability of the fifteen paintings in the
Wallis Collection is significantly restricted by the
preemptive rights in the Agreement. Very few potential bidders
would be interested in negotiating a purchase if they knew
that Wildenstein could simply match the bid and reap the
benefit of their efforts. This discouragement of potential
purchasers actually diminishes the alienability of the works.
In addition, the rights granted to Wildenstein in perpetuity
are not simply rights of first refusal to purchase. If Mr. or
Mrs. Wallis or their successors or assigns wished to sell the
paintings at auction, as the Foundation ultimately did,
Wildenstein retained a six month exclusive consignment right,
including the right to sell at a price over which Wildenstein
could exercise some control. This arrangement effectively
eliminates public auction as a means of sale. It is undisputed
that auction is an important method of selling major works of
In sum, while it is true that Wildenstein did not acquire
the power to compel the paintings to be sold or to purchase or
sell the paintings at a fixed price, the Agreement gave it
perpetual control over who purchases fifteen paintings, and
how they are sold. Because these private restrictions on the
transferability of the Wallis
paintings did not further any countervailing public interest
in the purchase and sale of works of fine art or otherwise
facilitate such transactions, they unreasonably restrain
alienation and are therefore invalid.
For the foregoing reasons and because all of plaintiff's
claims depend upon the validity of the provisions of the
Agreement discussed above, defendants' motion for summary
judgment is granted and the complaint is dismissed. With
respect to defendants' permissive counterclaim, leave is
denied to join an additional party, and plaintiff's motion for
summary judgment on the counterclaim is denied because there
are genuine issues of material fact.