The opinion of the court was delivered by: STERLING JOHNSON, JR.
The city of Amsterdam brought suit against Daniel Goldreyer Ltd. and Daniel Goldreyer ("Defendants") to recover damages for breach of contract. Defendants now seek dismissal of the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of civil procedure for failure to state a cause of action upon which relief can be granted. Defendants also move to strike the punitive damages claim pursuant to Federal Rule of Civil procedure 12(f). In the alternative, Defendants request a stay of the proceedings pending the outcome of a state court action involving the Defendants and employees of Plaintiff. For the foregoing reasons, this Court denies Defendants' motion in its entirety.
On November 5, 1993, the city of Amsterdam (the "City" or "Plaintiff") filed suit against Daniel Goldreyer ("Goldreyer") and Daniel Goldreyer, Ltd. ("Goldreyer, Ltd.") alleging six causes of action. Plaintiff alleges that Goldreyer failed to honor the terms of a written agreement with the City of Amsterdam ("Restoration Agreement") for the restoration of a valuable painting, entitled "Who's Afraid of Red, Yellow and Blue III" by the famous modern artist, Barnett Newman (the "Artwork"). The painting is owned by the City of Amsterdam and hung in the City's Stedelijk Museum (the "Museum"). Plaintiff asserts that Goldreyer engaged in a pattern of fraudulent misrepresentations concerning the method utilized in the restoration. Plaintiff also alleges that the method actually utilized by Goldreyer resulted in substantial damage to the painting.
Defendant Goldreyer, Ltd. is a corporation organized and existing under the laws of New York with its principal place of business in New York City. Goldreyer, Ltd. specializes in the restoration of artwork and has an international reputation in its field. Owned and operated by Goldreyer, this corporation served as the official conservator for the work of Barnett Newman.
On March 8, 1988, Goldreyer was retained to restore the Artwork, which had been slashed by a vandal while hanging in the Museum. The Restoration Agreement called for Goldreyer to restore the painting back to its best possible condition. (Beeren's Aff. Ex. A at P 4). Paragraph 7 of the Restoration Agreement states, "with regard to advising the principal during the conservation, the following shall be the format: a. From the side of the principal a committee will be formed to advise and suggest the conservation proceedings. The final methodology shall be in the discretion of the Conservator." (Beeren's Aff. Ex. A at P 2). Goldreyer was also obligated to make a specification in writing of the work to be carried out and to keep the City informed of all action taken on the Artwork.
The City alleges that Goldreyer made numerous fraudulent misrepresentations to the Museum with respect to the method he was using to restore the Artwork. Goldreyer stated that he was utilizing the "pinpointing" method of restoring the damaged section of the painting when, in fact, he allegedly overpainted the largest portion of the painting. The "pinpointing" restoration technique involves layering many dots over the cracks in the red paint formed by the slash. This technique is considered the most effective method of maintaining the original translucency of the Artwork. The alleged misrepresentations included verbal and written assertions by Defendants and their attorney that the pinpointing method had been used and that the painting had not been overpainted. The Restoration Agreement did not specify which restoration method would be utilized; rather, it called for "in progress" reports from Goldreyer to various Museum representatives. Plaintiff maintained the right to withdraw from the contract if dissatisfied with the restoration progress. Plaintiff alleges that Goldreyer failed to submit these bi-monthly progress reports for a five-month period from September 1990 through February 1991. (Compl. at P 24).
The first misrepresentation was allegedly made when the Museum's Chief Curator, Ms. Dippel, visited Goldreyer at his New York office in September 1990. Dippel observed a small portion of the Artwork that had been restored using the pinpointing method. Goldreyer informed Dippel that he would continue to use the pinpointing method for the remaining restoration.
In March 1991, the Museum's Chief Conservator of Paintings, Ms. Bracht, first raised the issue of whether the painting had been overpainted on her official visit to the Museum. In response to this concern, Wilhelmus A.L. Beeren, the Director of the Museum, contacted Goldreyer and his attorney and asked whether the Artwork had been overpainted. Beeren subsequently received verbal assurances from Goldreyer that the undamaged areas of the painting had not been overpainted. In addition, Beeren received a written response from Goldreyer's attorney, S. Herman Klarsfeld, dated April 15, 1991, stating that the painting had not been overpainted. Goldreyer also represented that the pinpointing method was used in his Complete Conservation Report, submitted upon completion of the restoration on August 5, 1991. The Artwork was returned to the Museum on August 12, 1991. Plaintiff alleges that these representations constitute fraud on the part of Defendants.
Plaintiff further alleges that it detrimentally relied on the fraudulent misrepresentations made by Defendants. Specifically, due to such misrepresentations, the Museum representatives signed two agreements on the fifth and twelfth of August, 1991, respectively, which stated that the Artwork was in "good and satisfactory condition." The first of such agreements is the "Letter Agreement," which addresses the payment arrangement between the parties and obligates Defendants to maintain public silence about the restoration; it was signed by the Museum's attorney, Jan Bless. (Beeren's Aff. Ex. D). The second agreement is the Mutual Receipt, the language of which was altered at Beeren's request, but which still incorporated the "good and satisfactory" language and bound Plaintiff to the terms of the Letter Agreement. (Beeren's Aff. Ex. G). Once the Artwork was returned to the Museum and publicly displayed, the art community in Amsterdam and internationally, including Time Magazine and the Wall Street Journal, claimed that both the damaged and undamaged areas of the painting had been overpainted and described the work as "ruined." (Compl. at P 33).
In response to these concerns, the City submitted the Artwork to the Forensic Laboratory of the Netherlands Ministry of Justice for testing to determine whether the Artwork had been painted over. Defendants declined to participate in the study. The study revealed that the damaged area of the Artwork had been painted over and that an alkyd varnish had been applied as a sealer. These actions have allegedly destroyed the translucency of Newman's original work. The City contends that the overpainting and the application of the sealer were not disclosed by Goldreyer and that such restoration technique is inconsistent with industry restoration standards because the new paint and sealer are not removable without damage to the Artwork.
The Complaint avers that as a result of this "overpainting", Plaintiff has suffered damages in the amount of 3.5 million dollars due to a great reduction in the value of the Artwork. The general public is also deprived of the opportunity to view a valuable work of art by Barnett Newman.
A motion to dismiss for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure should be granted only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Green v. Maraio, 722 F.2d 1013, 1015-16 (2d Cir. 1983) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)). The court must accept as true all material facts well-pleaded in the complaint and must make all reasonable inferences in the light most favorable to the plaintiff. In re Energy Sys. Equip. Leasing Sec. Litig., 642 F. Supp. 718, 723 (E.D.N.Y. 1986).
II. REQUEST FOR JUDICIAL NOTICE
Defendants request that this Court take judicial notice of the pending state court action between themselves and Plaintiff's agents in this case, Beeren and Bracht. Specifically, Defendants seek judicial notice of the amended complaint in the state court action, the notice of motion to dismiss, the Beeren and Bracht Affidavits, and the decision and order of the state court. The stated purpose of Defendants' notice request is to illustrate that "another action between Goldreyer and City employees is pending in which the central issues to be adjudicated are virtually identical to the issues in this case, namely, Goldreyer's efforts to restore the Barnett Newman painting ..." (Defs.' Req. Judicial Notice at 3).
Defendants' request is made pursuant to Federal Rule of Evidence 201(b), which provides, in pertinent part:
A judicially noted fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.
Fed. R. Evid. 201(b). See, e.g., Meredith v. Beech Aircraft Corporation, 18 F.3d 890, 895 (10th Cir. 1994). Defendants also rely on section (d) of Rule 201, which specifies that judicial notice is mandatory if requested and if the party supplies the necessary information. Fed. R. Evid. 201(d).
Thus, while this Court recognizes the pending state court action, the documents filed in connection with the state court action cannot be used substantively for their truth. Defendants attempt to use the substance of the affidavits of Beeren and Bracht to establish facts at several points in their motion. The affidavits are useful to illustrate that certain factual averments were made, but they cannot be used to verify the truth of such statements. F.D.I.C. v. O'Flahaven, 857 F. Supp. 154, 157 (D.N.H. 1994). See also E.I. DuPont de Nemours & Co. v. Cullen, 791 F.2d 5 (1st Cir. 1986). Thus, Defendants cannot use these affidavits to verify or disprove any disputed substantive issues in this action.
For the same reasons, the order of Judge Greenfield in the state action cannot be recognized as a finding of fact in this federal action. In U.S. v. Jones, 29 F.3d 1549, 1553 (11th Cir. 1994), the court conclusively stated, "courts may take judicial notice of another court's order only for the limited purpose of recognizing the judicial act that order represents or subject matter of litigation." See Colonial Leasing Etc. v. Logistics Control G.I., 762 F.2d 454 (5th Cir. 1985) (district court could properly take notice of the judgment for the limited purpose of taking as true the action of the court in entering judgment).
The decision of the state court only addresses the sufficiency of the complaint in that action and that is the only weight that can be properly attributed to it. The findings of the state court concerning disputed questions cannot be taken as true for the purpose of resolving this action. This is especially important on a motion to dismiss where the issues have not been fully litigated. Finally, the doctrines of res judicata and collateral estoppel are inapplicable here. The court in City of Mount Clemens v. U.S. E.P.A., 917 F.2d 908, 915 n.6 (6th Cir. 1990) held that "the denial of a motion to dismiss is not the type of judgment given res judicata effect." See also U.S. v. Seaboard Surety Co., 622 F. Supp. 882, 885 (E.D.N.Y. 1985).
For the foregoing reasons, this Court takes judicial notice of the pending state court action for the limited purpose of recognizing the subject matter of the litigation.
Defendants seek to dismiss Plaintiff's first claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. Defendants do not contest Plaintiff's assertions that Defendants breached the Restoration Agreement; rather, they rely on the two written releases signed by the City's representatives as a bar to the City's right to challenge the Restoration Agreement. Defendants argue that the signed releases constitute an accord and satisfaction of the Restoration Agreement, and thus extinguishes any right on Plaintiff's part to claim a breach of the Agreement. (Defs.' Mot. to Dismiss at 13). This argument is faulty for two reasons.
First, accepting the Plaintiff's allegations as true, the Complaint does set forth facts which would entitle the City to relief. The Complaint avers that Defendants took action which violated the written terms of the Restoration Agreement. Defendants' Answer to the Complaint does not argue that any of the City's allegations are not suitable for recovery of damages, but rather seeks to offer an affirmative defense to the charges. As a motion to dismiss is solely concerned with the sufficiency of the complaint, Defendants' defenses are not a factor in that evaluation. Therefore, under the reasoning of Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957), Plaintiffs's claim must survive judicial scrutiny for purposes of a Rule 12(b)(6) attack.