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AL Hirschfeld Foundation v. The Margo Feiden Galleries Ltd.

United States District Court, S.D. New York

November 1, 2017

AL HIRSCHFELD FOUNDATION, Plaintiff,
v.
THE MARGO FEIDEN GALLERIES LTD. and MARGO FEIDEN, Defendants.

          OPINION & ORDER

          PAUL A. ENGELMAYER UNITED STATES DISTRICT JUDGE.

         This case, now on summary judgment, involves claims of a breach of an agreement between the renowned cartoonist Al Hirschfeld and a gallery licensed to represent him. Plaintiff is the Al Hirschfeld Foundation ("the Foundation"), which, upon Hirschfeld's death in 2003, succeeded to Hirschfeld's interests and obligations under a 2000 Settlement Agreement (the "Agreement") with defendants Margo Feiden and the Margo Feiden Galleries, Ltd. (singly, the "Gallery"; and together with Feiden, the "Galleries"). The Galleries had represented Hirschfeld during his lifetime and, governed by the Agreement, continued that relationship with the Foundation after his death. The Foundation, however, claims that the Galleries have materially breached the Agreement in multiple respects, and in 2016, took steps to terminate the Agreement.

         The central question in this action is whether that termination was valid. The Foundation seeks a declaratory judgment to that effect. It brings other claims against the Galleries, including for copyright infringement, violations of the Lanham Act, breach of contract, breach of fiduciary duty, replevin, conversion, and negligence, all arising out the Galleries' supposed disregard of or noncompliance with obligations under the Agreement. The Galleries dispute these claims, and counterclaim for breach of contract, breach of the covenant of good faith, and defamation. This Court has granted the Foundation preliminary relief-including to safeguard original works by Hirschfeld-to protect its interests during the litigation.

         The Foundation now moves for summary judgment on several claims. The Galleries have cross moved. In this decision, the Court limits itself to resolving the issues necessary to decide the parties' central dispute: whether the Foundation's termination of the Agreement was valid. For the reasons that follow, the Court grants the Foundation's summary judgment motion on that question, finding termination warranted for multiple reasons.

         I. Background[1]

         A. Overview of the Hirschfeld/Feiden Business Relationship

         Al Hirschfeld was a renowned cartoonist, famous for his depictions of Broadway stars and other celebrities and for his weekly cartoon in the New York Times. Margo Feiden began selling Hirschfeld's works on consignment in 1969. Def. 56.1 ¶ 2. That relationship was formalized in a 1974 agreement, which governed Hirschfeld's and Feiden's business relationship through the end of the century. Feiden is, and at all relevant times was, the principal and owner of the Gallery. Feiden Decl. ¶ 1.

         In 2000, Hirschfeld and Feiden agreed to settle a dispute, the details of which are not relevant here, and to continue doing business together. The Settlement Agreement they reached that year has since governed Hirschfeld and Feiden's relationship. In 2003, Hirschfeld died. The Al Hirschfeld Foundation succeeded to his rights and obligations under the Agreement.

         B. The Types of Works at Issue

         Hirschfeld's works exist and have been sold or licensed in several forms relevant here, Originals and limited edition lithographs: During his lifetime, Hirschfeld created line drawings and color illustrations that were later printed as limited-edition lithographs. Originals and limited editions of these are still sold today. The Agreement contains provisions governing such works. See Agreement ¶ 2(a)(i).

         Media-Commissioned Works: Some of Hirschfeld's drawings were commissioned from him by third parties, including most notably the New York Times. The Agreement also covers such works, to which it refers as "Media Commissioned Works." See Id. ¶ 2(a)(iii).

         Photostatic Reproductions: The Agreement also addresses photostatic copies of the Works, to which it refers as "Photostatic Reproductions." See Id. ¶ 2(a)(iv).

         Limited purpose licenses: The Agreement contains provisions authorizing the parties to license third parties to use the works for limited purposes, either for a fee or for free. Both Hirschfeld (and later the Foundation) and the Galleries have licensed third parties to do so. See Agreement ¶¶ 2(a)(ii), 6(h)(1), 6(h)(ii), 6(h)(iii); Rao Decl. Ex. 2 ("Eastman Dep.") at 11. When the Galleries facilitate a licensing or reproduction relationship, they retain a percentage of the licensing fee. Agreement ¶ 4(a)(ii).

         Giclees: A central area of dispute involves a form of reproduction known in the art world as a "giclee." A giclee is a "high quality photo-static reproduction of a work of art;" that is, a high-quality reproduction made via an inkjet printer. See Def. 56.1 ¶ 39; Pl. Counterstatement 56.1 ¶ 39; Rao. Decl. Ex. 5 ("Snow Dep.") at 100. The Agreement does not contain any provisions addressing giclees as such. As reviewed below, the parties take different positions as to whether the Galleries have the right to sell giclees of Hirschfeld's works.

         C. Central Terms of the Agreement

         The Agreement's central terms, as relevant here, are as follows.

         Sales and licensing: The Agreement authorizes the Galleries to serve as the Foundation's "exclusive representative, " Agreement ¶ 2(a), for the sale of up to 250 original Hirschfeld works on a consignment basis, id. ¶ 2(a)(i)[2]; for the licensing of reproductions of certain Hirschfeld works, id. ¶ 2(a)(ii); for the sale on consignment of certain "Media Commissioned Works"-that is, works that were previously commissioned by third parties, id.¶ 2(a)(iii); and for the sale of photostatic reproductions of Hirschfeld's work, id. ¶ 2(a)(iv). The Agreement also authorizes the Galleries to produce new, limited-edition prints of Hirschfeld's work, subject to several limitations. Agreement ¶ 3(c). The Galleries are authorized to produce up to 18 series of limited-edition prints per year of 100 to 550 prints per edition. Id.

         Fees: The Agreement entitles the Galleries to certain fees, depending on the type of work sold: for the sale of Consigned Works, the Galleries receive 50% of the sale price, id. 4(a)(i); for the licensing of a reproduction, 20% of the licensing fee, id. ¶ 4(a)(ii); for arranging the creation of new Media Commissioned Works, 15% of the sales price of such works, id. ¶ 4(a)(iii); for the sale of photostatic reproductions, 36.5% of the sale price, id. ¶ 4(a)(iv); and for the sale of limited-edition prints as authorized by ¶ 3(c), 100%, minus certain fees for the Foundation, id. ¶ 4(a)(v).

         The Foundation's retained rights: Although the Galleries are thus authorized to sell and, in certain instances, reproduce, Hirschfeld's work, the Agreement provides that the Foundation "retain[s] all rights in the Works not expressly granted to [the Galleries] in this Settlement Agreement." Id. ¶ 6(h). The Agreement describes the Foundation's retained rights as including, but not limited to, "sole proprietorship of copyright, trademark, privacy, publicity and related rights in the Works and in Hirschfeld's name, likeness and signature, subject to [the Galleries'] right... to use Hirschfeld's name, likeness (including self-portraits), biographical material and to reproduce Works in connection with [the Galleries'] promotion, advertising and marketing in furtherance of [the Galleries'] rights under this Settlement Agreement." Id.

         Termination: The Agreement sets out provisions governing its termination. See Id. ¶ 11. The Agreement "shall terminate" 90 days after "written notice by [the Foundation] to [the Galleries] of termination by [the Foundation] for Cause which remains uncured for a period of thirty (30) days following such notice." Id. ¶ 11 (a). "Cause, " in turn, is defined to include a "material breach" of several of the paragraphs of the Agreement. Id. ¶ 1 l(b)(i). As relevant here, these include Paragraph 5, which imposes requirements governing the Galleries' operations, and Paragraph 6, which governs the relationship of the parties, including the copyright rights retained by the Foundation.

         II. Procedural History of This Litigation

         A. The Foundation's Complaint and Motion for Emergency Relief

         On June 6, 2016, the Foundation initiated this action, filing, initially under seal, both a complaint and a motion for emergency relief. See Dkt. 1, 6.

         In brief, the Complaint alleged a series of escalating breaches by Feiden and the Gallery over the preceding months. Among other things, it alleged that Hirschfeld's works were being mishandled; that the Gallery space itself was poorly maintained and disorganized so as not to comply with the requirements of the Agreement; and that the Gallery staff also did not meet the qualifications required by the Agreement. Id. ¶¶ 34-40. The Complaint also alleged that Feiden and the Galleries had refused to return to the Foundation certain Hirschfeld works consigned to the Galleries. Id. ¶¶ 41-50. Finally, the Complaint alleged that the Galleries had infringed the Foundation's copyright rights by making various unauthorized reproductions, including of two Hirschfeld works, "Carol Burnett" and "Bob Hope, " for use by Time Life without the Foundation's permission. Id. ¶¶ 51-63.

         The Complaint sought declaratory, injunctive, and monetary relief. Id. at 16-19. As to declaratory relief, the Galleries sought declaratory judgments that (1) the Galleries had infringed its copyright rights; and (2) the Foundation had a superior possessory interest over the works that the Galleries refused to return. Id. at 16. As to injunctive relief, the Foundation sought to enjoin the Galleries from reproducing and selling unauthorized works, id. at 16-17; from representing that the unauthorized works had been endorsed or authorized by the Foundation, id. at 17; and from hiding or disposing of any Hirschfeld works in the Galleries' possession, id. The Foundation sought damages for the Galleries' copyright infringement and for violations of the Lanham Act. Id. The Foundation relatedly sought an order compelling an accounting of the Galleries' profits from the sale of infringing works, requiring those profits be held in trust, and authorizing the seizing and impounding of infringing works. Id. at 18.

         The Foundation also sought a temporary restraining order and, ultimately, a permanent injunction, seizing and impounding several works in the Galleries' possession and barring the Galleries from selling, licensing, or reproducing works. Id. at 19.

         B. The Ex Parte Hearing

         On June 7, 2016, the Court held an emergency, ex parte hearing on the Foundation's request for a preliminary injunction. See Dkt. 23 (transcript). At that hearing, counsel for the Foundation elaborated on the Foundation's basis for claiming risk to Hirschfeld works in the custody of the Galleries. Counsel explained that the Galleries had refused to return 35 original works that the Foundation believed were in their possession, see Id. at 4, 29-32, and, based on the observations of an investigator, had been mistreating other Hirschfeld works in their possession, id. at 4-5; see also Id. at 22-24. Counsel explained the Foundation's position that, as to works consigned to the Galleries, the Foundation had an unconditional right to request the return of any work and have the work returned within 10 days. Id. at 32-33. Counsel further explained the basis for the Foundation's claims that the Galleries were selling unauthorized giclee prints of Hirschfeld works entitled "Bob Hope" and "Annie Hall, " id. at 10-12, and were misrepresenting the exclusivity rights granted them under the Agreement, id. at 12-15. Counsel explained that the Foundation planned to issue a termination notice to the Galleries, but had not yet done so out of concern that, absent the protection of a court order, the notice might provoke the Galleries to take action injurious to the artwork and/or the Foundation's rights. See Id. at 2-3, 6-9, 18-20.

         At the close of the ex parte hearing, the Court issued an order to show cause that granted the Foundation temporary relief and scheduled an emergency hearing, Dkt. 14, while unsealing the record, Dkt. 3. The Court's order directed the Galleries to deliver to the Court on Friday, July 10, 2016, 34 works whose return the Foundation had requested, as well as the Bob Hope and Annie Hall giclees. See Dkt. 14 at 3-4. The order further required the Galleries to produce "an accounting identifying, work-by-work, the precise location and whereabouts of each of the Original Works listed" on an attached exhibit. Id. at 4-5. The Court also ordered that the Galleries show cause why a temporary restraining order and preliminary injunction should not issue barring them from (a) producing and selling giclee or photostatic reproductions for which the Agreement does not authorize them; (b) holding themselves out as authorized distributors of such unauthorized works; and (c) selling, hiding, or destroying any Hirschfeld works in the Galleries' possession. Id. at 1-2.

         C. The Foundation's June 2016 Notice of Termination

         Later on June 7, 2016, the Foundation served a notice of termination (dated June 6, 2016) on the Galleries. See Kaplan Deck, Ex. 3 (the "Termination Notice"); Pl. 56.1 ¶ 7; see also Dkt. 44 at 74. The Termination Notice claimed numerous material breaches of the Settlement Agreement. Specifically, the Foundation asserted that:

• The Galleries failed to maintain gallery space similar in quality to the space the Galleries had previously maintained at 699 Madison Avenue, in violation of paragraph 5(b) of the Agreement;
• The Galleries failed to maintain adequate fire and theft insurance for the Hirschfeld works in their possession, in violation of paragraph 5(f) of the Agreement;
• The Galleries failed to employ a person knowledgeable in the arts at the gallery, in violation of paragraph 5(g) of the Agreement;
• The Galleries failed to comply with the Foundation's reasonable requests in furtherance of its rights under the Agreement, in violation of paragraph 5(i) of the Agreement;
• The Galleries failed to return works consigned to them by the Foundation, in violation of paragraphs 6(a) and 6(e) of the Agreement; and
• The Galleries violated the Foundation's copyright rights by making reproductions of Hirschfeld works, in violation of paragraph 6(h)(i).

         Termination Notice at 1-2.

         In more general terms, the Termination Notice also asserted that the Galleries had "prioritized short-term financial gain, disregarding both the Foundation's legal rights and the extensive harm [the Galleries'] unlawful actions have caused, and will continue to cause, to Hirschfeld's name and artistic legacy." Id. at 2. In light of those breaches, the Termination Notice concluded, the Foundations had "no choice but [to] sever its relationship" with the Galleries. Id.

         The Termination Notice gave the Galleries an effective termination date of September 6, 2016, meaning that if the asserted breaches were not were cured within 30 days of the notice, the Agreement would be terminated on September 6, 2016. Id. at 1.

         D. The Show Cause Hearing and the Preliminary Injunction

         On June 10, 2016, the Court held a hearing on the order to show cause. See Dkts. 18, 44. At that hearing, the Galleries produced 33 original works in their possession. See Dkt. 44 at 12. The Galleries also produced to the Court a giclee copy of the Bob Hope drawing. See Id. at 13- 14. After reviewing those works, the Foundation conceded that three of the 33 rightly belonged to the Galleries, id. at 14-15, and one of the works sought was already in the Foundation's possession, id. at 16. The Foundation was allowed to take possession of the works, including the giclee copies of the Bob Hope work, on the condition that it not sell any of the works during the pendency of the litigation. Id. at 17-20. The Court ordered the Galleries not to make further copies of the Bob Hope work. Id. at 24-25. As to the Annie Hall work, the Galleries represented to the Court that they no longer had any copies of that work, in giclee or other form. Id. at 30.

         The Court also considered the parties' arguments as to whether the Agreement authorizes the Galleries to make giclee prints. On a preliminary basis, the Court concluded, based on its assessment of the Agreement and its examination of a photostatic and a giclee reproduction of a Hirschfeld work, that "it is more likely than not that the word 'photostat, ' the word that appears in the agreement, was not intended to embrace a giclee." Id. at 48. The Court found it likely that the Foundation would prevail on the merits on that question. Id.

         Following the hearing, the Court entered a preliminary injunction. Dkt. 18; see Dkt. 44 at 66. Applying the familiar preliminary injunction factors, see, e.g., Harper Collins Publishers, LLC v. Gawker Media, LLC, 721 F.Supp.2d 303, 305-306 (S.D.N.Y. 2010), the Court found that the Foundation had demonstrated a likelihood of success on the merits with respect to both its claim that the printing and sale of the Bob Hope and Annie Hall giclees infringed the Foundation's copyright, id. at 68-70, and its claim to replevin with respect to the 30 works the Galleries had presented in Court, id. at 70-71. Absent an injunction, the Court found, the Foundation was likely to suffer irreparable harm from the Galleries' making of unauthorized giclee reproductions and from the Galleries' refusal to turn over the 30 works as to which the Foundation claimed a superior possessory right. Id. at 72. The Court further found that the balance of hardships tipped decidedly in the Foundation's favor with respect to injunctive relief as the Court fashioned it, and that such relief was consistent with the public interest. Id. at 72-73. The preliminary injunction barred the Galleries from selling unauthorized works, holding themselves out as sellers of unauthorized works, and destroying any Hirschfeld works in their possession. See Dkt. 18.

         E. The Amended Complaint and the Galleries' Answer

         On July 26, 2016, the Foundation filed an amended complaint, the operative complaint today. Dkt. 42. It added allegations regarding the Galleries' mishandling of works and improper gallery space, see Id. at 8-10; failure to maintain adequate insurance on the works, id. at 11-12; unresponsiveness to the Foundation's requests to have works returned, id. at 12-21; unauthorized sale of giclee prints and unauthorized licensing deals, id. at 23-26; failures to comply with the Agreement's recordkeeping requirements, id. at 26-29; and violations of the Lanham Act, id. at 29-30. It also sought additional declaratory relief, including to the effect that (a) the Galleries had violated their fiduciary duties to the Foundation; (b) the Galleries were in material breach of the ...


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