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GREENWOOD v. KOVEN

March 20, 1995

GEORGE ALBERT GREENWOOD, on his own behalf and on behalf of certain UNDERWRITERS AT LLOYD'S OF LONDON, et al., Plaintiffs against JANE C. KOVEN, Defendant. JANE C. KOVEN, Third-Party Plaintiff -against- CHRISTIE, MANSON & WOODS INTERNATIONAL, INC., and BARBARA LEE DIAMONSTEIN, Third-Party Defendants.


The opinion of the court was delivered by: CHARLES S. HAIGHT, JR.

 HAIGHT, District Judge:

 This case is before the Court on the motion of third party defendant Christie's for reconsideration of this Court's opinion of December 29, 1993 (the "December Opinion"), denying Christie's motion for summary judgment. While familiarity with that opinion is presumed, the sequence of events leading up to the present motion are sufficiently complicated that it is useful to review them now.

 Statement of Facts

 Defendant and third-party plaintiff Jane Koven owned a pastel purportedly created by Georges Braque, a prominent twentieth century French painter (the "Braque pastel" or "pastel"). On May 16, 1990, third-party defendant Christie, Manson & Woods International, Inc. ("Christie's") sold the Braque pastel by auction for $ 600,000 to co-third-party defendant Barbaralee Diamonstein. Christie's remitted the sale proceeds to Koven. On January 10, 1991, Christie's, purportedly concerned about the authenticity of the pastel and the potential liability those concerns portended, rescinded the sale, returned the purchase price to Diamonstein, and sought return of the $ 600,000 sale proceeds from Koven.

 Koven refused to remit the sale proceeds, believing that Christie's acted improperly in rescinding the sale. Christie's made a claim against its errors and omissions insurers for reimbursement of the funds Koven refused to repay. Plaintiffs, certain underwriters at Lloyd's of London (the "Underwriters"), who insured Christie's and have reimbursed Christie's for the latter's payment to Koven, commenced this action against Koven, as subrogees of Christie's claim against Koven. Koven then initiated a third party action against Christie's and Diamonstein.

 The pastel at issue was purchased by Koven and her husband from A.P. Rosenberg & Co. (the "Rosenberg Gallery"), in 1948 for $ 1,400. In December of 1989, Koven decided to sell the pastel through Christie's. On December 6, 1989, Koven entered into a written Consignment Agreement with Christie's. The Consignment Agreement was a standard form contract with a number of provisions deleted.

 Franck Giraud, the Christie's specialist in charge of impressionist and modern drawings, brought the pastel to Christie's, and an internal inspection process was begun. Christie's followed its standard procedure for reviewing, cataloguing and exhibiting the pastel prior to the May 1990 sale. Because Christie's guarantees the authenticity of the art it sells, it has developed procedures for assuring itself of the authenticity of that artwork. Pursuant to such procedures, Giraud and Michael Findlay, a senior vice-president in charge of the impressionist and modern painting department, examined the pastel. Both are considered "specialists" on Braque, and after examination, both concluded that the pastel was an authentic Braque work.

 The pastel was then examined in a departmental review, where it was physically examined by a number of members of the department. The departmental review supported Giraud and Findlay's initial conclusion, that based on the work's visual qualities and its provenance *fn1" , the authenticity and ownership of the pastel were unquestionable. Christie's thus did not believe it necessary to consult an outside expert opinion.

 Christie's promoted the pastel quite extensively, exhibiting it at Christie's showrooms in New York and Paris during the spring of 1990. Diamonstein, a person active in the art and cultural world of New York City, saw the pastel on exhibit in New York. After discussing her interest in the pastel with Giraud, she left instructions with Christie's to bid up to $ 600,000 for the pastel on her behalf. The auction was held on May 16, 1990, and Diamonstein was the highest bidder.

 Christie's claims that Diamonstein raised questions about the pastel's authenticity shortly after the sale. *fn2" In order to provide Diamonstein with some assurances, Christie's sought documentation of the pastel's provenance from Koven and Elaine Rosenberg, the widow of Alexandre Rosenberg who owned the Rosenberg Gallery. Rosenberg confirmed that the Braque pastel had been purchased from the Rosenberg Gallery. Christie's then wrote several letters to Diamonstein, confirming the pastel's provenance, and assuring her that Christie's had no doubts about the pastel's authenticity. In addition, Christie's informed Diamonstein that Christie's guaranteed the authenticity of everything that it auctioned.

 Diamonstein, however, remained unsatisfied, and she demanded that Christie's provide her with written verification of the work's authenticity by a scholar. Christie's does not dispute that it honestly believed the pastel to be authentic; however, given the importance of the work and the clients, Christie's itself contacted an independent expert to have the pastel authenticated as a work by Braque.

 That expert was Claude Laurens. Under French law, after the death of an artist, an heir or designee by will is given authority to assert the artist's "moral rights", including the right to authenticate which works are done by the artist. That person is said to hold the droit moral for that artist, and Claude Laurens holds the droit moral for Braque. Christie's contacted Laurens through his son Quentin, and in November, 1990, Christie's had the pastel flown to France where it could be examined by Quentin Laurens. *fn3" On January 10, 1991, Quentin Laurens informed Christie's that he did not believe the pastel to be the work of Braque, and that a certificate of authenticity would not be issued.

 After receiving this news, Christie's decided to rescind the sale. It refunded the purchase price to Diamonstein, and sought return of the sale proceeds from Koven. Koven, however, refused the request.

 Underwriters, Christie's and Diamonstein all moved for summary judgment. Underwriters argued that Koven breached the Consignment Agreement in refusing to remit the proceeds paid upon Christie's rescission of the sale. Christie's maintained that it acted in accordance with the Consignment Agreement, and breached no duties owed to Koven. Diamonstein claimed that Koven had no claim against her. Koven opposed these motions for summary judgment, arguing that such relief was precluded by the existence of disputed issues of material fact.

 The December Opinion

 In its December Opinion, this Court effected a partial, but not complete, resolution of the matters raised by the moving parties. Finding that Koven had failed to articulate both a clear legal basis and a factual predicate for relief against Diamonstein, the Court granted Diamonstein's motion for summary judgment. That holding is not the subject of the present motion for reconsideration.

 Rather, the present dispute surrounds the Court's treatment of the summary judgment motions made by Christie's and the Underwriters. *fn4" In the December Opinion, the Court denied Christie's and the Underwriters' motions for summary judgment, finding that a dispute as to a legal issue, as well as disputed material facts, precluded such relief.

 The legal issue involved whether Christie's breached a duty to Koven by investigating the authenticity of the pastel following the sale. As will be described in greater detail below, Christie's was a party to two contracts covering this transaction: a Consignment Agreement with Koven, delineating the terms of Christie's sale of the pastel on her behalf; and a Limited Warranty agreement with Diamonstein, in which Christie's made certain representations regarding the authenticity of the pastel. Koven argued in her opposition papers that these contracts notwithstanding, Christie's had a duty to Koven as her agent to refrain from activities that would impair Koven's interests, such as investigating Diamonstein's claims that the pastel was unauthentic. Since neither party had briefed this issue of whether such a duty existed, the Court directed the parties to submit letter briefs on this matter within 45 days of the date of the December Opinion.

 As to the factual disputes, the Court found that Christie's actions in investigating the authenticity of the pastel were to be measured by a standard of objective reasonableness, and that Koven had raised material factual issues precluding a finding that that standard had been met. Numerous other factual allegations made by Koven were held to be irrelevant to that standard.

 The present dispute has been generated by the submissions made in response to the December Opinion's order that the parties brief the above-mentioned issue (the "supplemental memoranda"). Both Underwriters and Christie's argue that no legal authority can be found for the proposition that Christie's breached a duty owed to Koven when it undertook to investigate Diamonstein's claims of lack of authenticity. Rather, both parties maintain that Christie's actions were governed by the Consignment and Limited Warranty Agreements, and that so viewed, were entirely proper. On their view, this issue should not have precluded summary judgment.

 Christie's makes one additional argument in its supplemental memoranda. It argues that the Court also erred in finding that Christie's decision to rescind the sale because of fears of liability was to be judged by an objective reasonableness standard. Rather, argues Christie's, its actions were governed primarily by the Consignment and Limited Warranty Agreements, which, as will be discussed in greater detail below, allowed it to pursue authenticity disputes as it saw fit based on its own judgment. This broad discretion was modified only by an implied obligation to act in good faith, an obligation which it claims it fully satisfied in this case. Therefore, Christie's is not arguing that there are not factual disputes; rather, it maintains that under the appropriate legal standard, these factual disputes are immaterial, and thus do not preclude summary judgment on its behalf.

 Koven argues that Christie's did breach a duty to Koven when it undertook to investigate the authenticity of the pastel. In addition, she maintains that Christie's exceeded the scope of the Court's directive to brief one narrow issue by rearguing the denial of its summary judgment motion, particularly by contending that the Court erred in applying an objective reasonableness standard to Christie's conduct. According to Koven, if Christie's sought to make a motion for reconsideration, it was required under Southern District of New York Local Rule 3(j) to make such motion within ten days of the docketing of the December Opinion. Because the request for reargument was made by letter far beyond 10 days after the December Opinion, argues Koven, Christie's motion is untimely, and should not be considered on the merits.

 As a preliminary matter, therefore, I must decide whether to consider Christie's motion for reargument on the merits. I find that it is proper to do so, for a number of reasons.

 First, though the Court did direct the parties to brief a narrow issue of law, a party is entitled in its responsive submission to request consideration of related issues. That policy facilitates full consideration of the merits in a case involving important principles.

 In any event, Koven can show no prejudice from this Court's consideration of Christie's motion for reconsideration on the merits. While Christie's arguments in its supplemental memoranda are certainly more heated than in its original summary judgment papers, they do not raise any substantive points which were not raised in their original summary judgment motion papers. Therefore, Koven was accorded a full opportunity to respond to the arguments forming the basis of the motion for reconsideration in its opposition to the summary judgment motions.

 In addition, Koven was afforded an opportunity to respond further to these arguments in the supplemental memoranda she submitted to the Court, although she chose instead to stress that Christie's attempt to reargue the denial of the summary judgment motion was improper and untimely.

 Finally, I find it proper to address the substance of the motion for reconsideration because I believe that motion to be meritorious. For the reasons set forth below, I am persuaded that both Christie's and the Underwriters are entitled to summary judgment, and that the Court's own statement of the law in its December Opinion was in some respects not entirely accurate. A failure to consider the motion to reconsider on the merits would be inefficient and wasteful. If this case went to trial, as it would were I not to consider this motion, Christie's and the Underwriters could move for a directed verdict, arguing that under the proper legal standards, Koven had presented no facts which might entitle her to judgment, nor did there appear a probability that further discovery would yield such facts. Based on what I now find to be the appropriate legal standards, I would be inclined to grant that motion. The effect of not considering this motion on its merits, therefore, would be to make the parties engage in a lengthy and costly trial when the proper disposition of the case is now readily apparent. I decline to take that wasteful step.

 Turning to the merits of Christie's motion, there are two issues to consider: (1) Did Christie's breach a fiduciary duty owed to Koven simply by undertaking an investigation of Diamonstein's complaints about authenticity? and (2) Did Christie's actions in response to Diamonstein's complaints, and its subsequent rescission of the sale, violate Christie's obligations to Koven under the Consignment Agreement?

 While both of these issues turn on the propriety of Christie's actions in investigating Diamonstein's complaints and rescinding the sale, Koven relies on two different legal theories to vindicate her claim. The first theory is that in taking action to investigate Diamonstein's complaints, Christie's breached a duty of undivided loyalty to Koven, since the decision to conduct that investigation ultimately led to the discovery of information that prompted Christie's to rescind the sale. This theory, then, does not depend on the merits of the actual actions that were taken, but on the fact that Christie's chose to engage in investigative activities at all.

 The second theory is based on breach of contract. Under this theory, Koven maintains that the Consignment Agreement itself held Christie's to a particular standard of care in investigating the complaints about authenticity and in deciding to rescind the sale, and that there are material facts in dispute as to whether this standard was met. I will examine each of these theories in turn.

 1. Did Christie's Breach a Duty of Undivided Loyalty Owed to Koven When It Investigated Diamonstein's Claims of Lack of Authenticity?

 Christie's relies on the language of the Consignment and Limited Warranty Agreement as a justification for its investigation into Diamonstein's complaints. The Consignment Agreement provides, in pertinent part:

 
1. CONSIGNMENT: Seller hereby consigns to Christie's the property... which Christie's, as the Seller's agent, will offer for sale at public auction. subject to the provisions set forth below and Christie's standard CONDITIONS OF SALE and LIMITED WARRANTY...
 
9. DISCRETIONARY MATTERS: Christie's shall have complete discretion as to seeking the views of any experts...Christie's makes no representations or warranties to Seller with respect to the Property, its authenticity, condition or otherwise.
 
15. RESCISSION OF SALE: Christie's, as Seller's agent, is authorized to accept the return and rescind the sale of any property at any time if Christie's in its sole 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. In such event, Christie's is further authorized to refund or credit to the buyer the purchase price of such returned property. If Christie's has already remitted to Seller any proceeds of the rescinded sale, Seller forthwith shall pay Christie's upon request an amount equal to the remitted proceeds.

 The Limited Warranty referred to in Paragraph 1 provides, in pertinent part:

 
These Conditions of Sale, and the Limited Warranty and Absence of Other Warranties...constitute the complete and exclusive statement of the terms and conditions on ...

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