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Al Hirschfeld Foundation v. The Margo Feiden Galleries Ltd.

United States District Court, S.D. New York

July 25, 2018

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

          OPINION & ORDER

          PAUL A. ENGELMAYER, DISTRICT JUDGE.

         This decision sets out the Court's findings as to damages owed by defendants Margo Feiden ("Feiden") and the Margo Feiden Galleries, Ltd. (singly, the "Gallery," and together with Ms. Feiden, the "defendants" or "Galleries") as to two areas of contract breach with respect to which the Court has already found defendants liable. In a November 1, 2017 Opinion & Order (the "Summary Judgment Opinion"), the Court held that the Galleries had breached the settlement agreement (the "Agreement") that had long governed the relationship between the Galleries and plaintiff, the Al Hirschfeld Foundation (the "Foundation"). Specifically, the Court granted summary judgment as to liability on the Foundation's claims that the Galleries had breached the agreement by (1) failing to maintain custody over, and records for, 20 works consigned to them by the Foundation; and (2) selling giclee reproductions beyond the scope of the license afforded by the Agreement.

         The parties then waived their rights to have a jury determine the damages owed for these breaches. See Dkt. 200. The Court then held an evidentiary hearing limited to those issues. The Court heard live testimony from four witnesses. For each, direct testimony was received in the form of a sworn affirmation and each was subject to live cross and redirect examination. Two were called by the Foundation: Harry L. Katz, an expert witness, see Pl. Br. Ex. 1 ("Katz Decl."); Dkt. 217 ("Rebuttal Katz Decl."), and David Leopold, the Foundation's Creative Director, see Pl. Br. Ex. 5 ("Leopold Decl."); Dkt. 216 ("Rebuttal Leopold Decl."). The Galleries called two witnesses: John Yavel, an employee of the Galleries, see Dkt. 209 ("Yavel Decl."), and Margo Feiden, see Dkt. 212 ("Feiden Decl.").[1] The Court also received certain documentary evidence via the declarations of counsel. See Pl. Br. Ex. 8 ("Kaplan-Peterson Decl."); Dkt. 215 ("Lackman Decl.").[2] Finally, the Court has also benefitted from the parties' helpful post-hearing letter briefs, in which the parties set out their respective calculations of the damages owed for unauthorized giclees. Dkt. 226 ("Pl. Post-Hr. Br."); Dkt 227 ("Def. Post-Hr. Br.").

         I. Missing Works

         As the Court found at summary judgment, the Galleries breached the Agreement by failing to maintain custody of 20 original Hirschfeld works, whose whereabouts the Galleries is unable to account for today. The parties have subsequently reduced the list of missing works to 19.[3] These works-to which the Court and the parties refer as the "Missing Works"-are:

• "Famous Feuds: Zanuck and Greco,"
• "S.J. Perelman: Readying Myself for My Debut,"
• "Dick Shawn in the World of Sholom Aleichem, "
• "Curtis and Leigh in Houdini,"
• "Outdoor Life,"
• "Artists and Models: 300 Girls Paraded Before Monte Prosser and Wally Wanger,"
• "Hit Plays in England,"
• "Swiss Family Perelman p.6, 'Go Ahead' I shouted, 'Milk Me, Drain Me Dry,' Mr. and Mrs. S. I. Perelman,"
• "Carmen,"
• "Every Barn's a Stage: Life with Father,"
• "Checkmates,"
• "Westward Ha: Lazy Days on the Poop's Mortician, Missionary, Perelman Boy Meets Gull,"
• "Directing Minds of Russian Cinema and Theatre,"
• "The Filming of Stolen Hours a/k/a Summer Flight,"
• "Walking Happy,"
• "Duke Ellington,"
• "Dizzy Gillespie,"
• "Lorabid Doctor Waiting for a Phone Call for Eli Lilly," and
• "The Cast of 45 Seconds from Broadway."
The parties dispute the proper valuation of these works.

         A. The Measure of Damages For the Works

         The parties agree that the Galleries' failure to account for the Missing Works, as found by the Court, is an act of conversion under New York law. See Pl. Br. at 1; Def. Br. at 3; see also, e.g., Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400 (2d Cir. 2006).[4] The parties dispute, however, how damages for such a conversion ought to be measured. The Foundation seeks to recover the market value of the works; the Galleries, on the other hand, argue that damages should be limited to the Foundation's lost profits. Because the Agreement provided that the Foundation would receive 50% of any profits from the Galleries' sales of the Missing Works, the Galleries argue that the Foundation's damages for the Missing Works should be 50% of their market value, not 100%.

         The Court agrees with the Foundation that the market value of the works-without any discount for the Galleries' right to retain 50% of the profits-is the proper measure of damages. Under New York law, "[t]he usual measure of damages for conversion is the value of the property at the time and place of conversion, plus interest." Fantis Foods, Inc. v. Standard Importing Co., 49 N.Y.2d 317, 326 (1980). "However, lost profits are allowed where either from the nature of the article or peculiar circumstances of the case they might reasonably be supposed to follow from the conversion." Rajeev Sindhwani, M.D., PLLC v. Coe Bus. Serv., Inc., 861 N.Y.S.2d 705, 708 (2d Dep't 2008) (internal quotations omitted). But New York law allows for the recovery of lost profits above and beyond the market value of the lost or stolen property (in certain circumstances) not as an alternative, lesser measure of damages. See id.

         In any event, whether the Galleries might have sold the Missing Works, and thereby earned a commission, is of no moment here because the Agreement, which provided the Galleries their only authority to make such sales, has been terminated, for multiple reasons. And upon termination of the Agreement, all rights in consigned works-that is, 100% of their value- reverted to the Foundation. The proper measure of damages, therefore, is the fair market value of the works at the time and place of the conversion-that is, New York City on December 14, 2017, the date on which the Foundation demanded the Missing Works' return and on which the Galleries, having been unable to account for them, were unable to produce them. See Leopold Decl.¶4.

         On that basis, the Court proceeds to consider the proper value of the Missing Works.

         B. The Parties' Valuation

         Based on the work-by-work valuation of their expert, Harry Katz, the Foundation values the Missing Works at $328, 000. Pl. Br. at 2; Katz Decl. ¶ 54.

         The Galleries do not advance or substantiate an alternative valuation. Instead, they argue that the value of the works should be limited to approximately $10, 000 per work, see Def. Br. at 4, a calculation which would yield a total valuation of approximately $190, 000.

         C. The Court's Findings

         The Court finds Katz's valuations, anchored in sales prices for Hirschfeld works that Katz contends to be comparable, to be thoughtful and helpful. Katz's valuations provide an appropriate starting point for valuing the missing works. As explained further below, however, depending on the missing work, the sales of Hirschfeld works to which Katz likens a missing works are more apposite-and his valuations more persuasive-than others. Katz's approach is also fairly critiqued for examining only certain for a in which Hirschfeld works have been offered for sale. Accordingly, while the Court begins with Katz's valuation, it does not end there.

         Below, the Court addresses Katz's qualifications, reviews the Galleries' critiques of Katz's approach to valuation, and sets out its overall assessment. The Court then explains, work by work, its valuation of the 19 works, 1. Katz's Qualifications

         The Court finds Katz clearly qualified to appraise the works. He served for 13 years as Curator of Popular & Applied Graphic Art and Head Curator in the Prints and Photographs Division of the Library of Congress. Katz Decl. ¶ 2. Since then, he has served as Curator of the Herb Block Foundation and has worked as an independent curator of fine and graphic art. Id. ¶¶ 1, 4; see also Id. Ex. 1 (Katz CV). Katz has particular expertise in the work of Al Hirschfeld. He has written about Hirschfeld and his work and has collected Hirschfeld's work for the Library of Congress. Katz. Decl. ¶ 6. He also put on a Hirschfeld exhibition at the Library of Congress. Tr. at 24. In his work as a curator and acquirer for the Library of Congress, Katz was repeatedly called on to appraise the value of Hirschfeld works. See Katz Decl. ¶ 9; Tr. at 26-29. He has been appraising works for one client or another since 1991. Tr. At 23.

         And Katz's valuation is, for the most part, credible and convincing. Katz's valuation involved comparing each Missing Work to Hirschfeld works which he deemed comparable. For example, Katz appraised the drawing "Dick Shawn in the World of Shalom Aleichem" (inventory no. 704), a drawing that first appeared in The New York Times's Friday Theater column. Id. ¶¶ 20-21. Katz compared this "Friday Drawing" to other "Friday Drawings" the Foundation has recently sold, including one depicting Maurice Hines, sold for $12, 000, and another depicting Robert Reed, also sold for $12, 000. Id. ¶ 21. Based on those sales, Katz opined that the missing "Dick Shawn" drawing is worth $12, 000. Id. ¶ 20.

         As Katz testified, this method of appraisal is typical, and the materials on which he relied are "the type of documentation [he] would typically review and rely on in conducting an appraisal of a particular work." Id. ¶ 14.

         2. The Galleries' Critiques

         The Galleries challenge Katz's valuation on several global grounds.

         First, the Galleries note, because the Missing Works are missing, Katz was unable to assess the condition of the missing drawings. The Galleries argue that Katz's valuations are based on the "extraordinary assumption" that the works are in good condition. See Tr. at 35. The Galleries dispute that assumption as to all missing works. See Def. Br. at 6; Tr. at 31-38, The Galleries' critique is overbroad. As for works created prior to 1970, when Hirschfeld's practice was not consistently to use archival paper, there is a colorable reason-separate from any possible mishandling by the Galleries-to surmise that the condition of a work could have deteriorated over time. See Tr. at 31 (Katz); id. at 388-89 (Feiden). As to the post-1970 works, however, there is no basis to assume such deterioration. Of the 19 missing works, this critique applies only to six, because, as Ms. Feiden testified, only six date from the period in which Hirschfeld tended to use non-archival paper. See Tr. at 388 (Feiden) (testifying that low inventory numbers correspond to pre-1970 drawings). Also problematic for the Galleries, the testimony was not that deterioration of works on non-archival paper was inevitable, only that it was possible. The works were last held in the custody of the Galleries, and they have not come forward with affirmative evidence, e.g., testimony by a percipient witness, that when observed most recently, their condition was compromised. Under these circumstances, given the nature of Katz's task, his assumption that the missing works were in good condition is justified. There was simply not any concrete evidence that any of the earlier drawings had, in fact, deteriorated before the Galleries disposed of (or lost) them.

         Second, the Galleries challenge the fact that Katz took as truthful the data he was given by the Foundation as its own prior sales, a number of which he used as comparables. See Def. Br. at 5. In addition to relying on auction records, Katz relied on the Foundation's reports of its sales prices for particular works. Id.; Tr. at 51-52 (Katz). While the better practice undoubtedly would have been for Katz to verify the Foundation's representations, that is ultimately not a basis to discount his opinions as having a "flimsy basis," as the Galleries urge. See Def. Br. at 5. The Galleries do not offer any concrete basis to treat as inaccurate the Foundation's sales figure. And the Galleries, which had the opportunity to conduct full discovery of the Foundation, has not come forward with any evidence impeaching any of these sales records. Katz's consideration of the Foundation's reported sales figures, therefore, was justified.

         3. Other Considerations

         Nevertheless, the evidence elicited at the damages hearing by the Galleries brought to light certain methodological limitations to Katz's approach to valuation. The Court has taken account of these limitations, as relevant, in assigning values to missing works.

         First, the Foundation's own website lists several original Hirschfeld drawings for sale. Those works are offered from between $4, 000 and $15, 000, but never more. See Def. Br. at 4; Tr. at 146; The Official Al Hirschfeld Store, Al Hirschfeld Foundation, https://alhirschfeldfoundationshop.org/product-category/drawings/?orderby=price. Katz testified that he ignored these asking prices altogether because they do not represent actual, realized sales. See Tr. at 147, 154-56. The Court's view, however, is that these offering prices are a relevant data point. Notably, the Foundation's website does not provide for an auction in which the listed price functions as a floor, not a ceiling. Rather, the website allows a customer to purchase a work at the listed price. Therefore, there is no persuasive reason for Katz to discount these listings on the ground that the works listed on the Foundation's website might sell for above the listed price. That a work has not sold at the listed price might suggest, if anything, that a lower price might be necessary to achieve a sale. In all events, the Foundation's own asking price for a Hirschfeld work, where fairly comparable, is germane, in the Court's view, to the valuation inquiry.

         Second, Katz's valuation did not take into account the prices at which several original Hirschfeld drawings have sold in recent years on alternative art-sales fora. Katz testified that the Foundation provided him with records of auction sales in the form of printouts from the website ArtNet, which aggregates auction results from a range of auction houses. See Tr. at 149-50 (Katz) (describing ArtNet). The prices realized at these auctions for original Hirschfeld works range from $200 to $15, 000. See Katz Decl. Ex. 3. Katz did not, however, take those sales into account in his appraisal, apparently skeptical that sales in such fora yield maximal prices. Tr. at 140-46. But the works sold did not differ significantly in kind from the Missing Works or the works sold by the Foundation which Katz was prepared to treat as comparables. Tr. at 144 (Katz). And some of these sales were more recent than those on which he relied. And while Katz relied on certain sales by the Galleries, he did not account for more recent sales, despite being aware of them. See Katz Decl. ¶ 33; id, Ex. 3 at 83-84; Tr. at 105, 168-69 (Katz). In the Court's view, a complete appraisal would have considered sales prices for Hirschfeld works yielded on these other fora, while taking into account any well-founded bases to conclude that auctions in these venues tend to produce lower prices.

         Third, to some degree, Katz can be faulted for assigning significance to particular features of missing artworks only when they supported a higher valuation. In certain instances, Katz's report noted that a particular missing work depicts a celebrity-or a backstage scene, or an opera-as evidence of the drawing's significance and, therefore, presumably a heightened valuation. But Katz's report never makes the contrary point-that the contents of particular missing works are, by nature, more quotidian, e.g., depicting persons whose modern cachet is limited. See, e.g., Tr. at 70 (Katz). In the end, the decisive factor in the Court's valuation analysis is the guidance offered by fairly comparable sales, but the Galleries' critique of Katz for seeming to treat the subjects of artwork as a one-way ratchet-favoring upward, but no downward, adjustments in valuation-has some traction.

         Fourth, for certain missing works, Katz was unable to identify comparable sales. These include "Directing Minds of Russian Cinema and Theatre" ("Directing Minds"), "Duke Ellington," and "Dizzy Gillespie." See Katz Decl. ¶¶ 4G-41 ("Directing Minds"); 46-47 ("Duke Ellington"); 48-49 ("Dizzy Gillespie"). For "Dizzy Gillespie" and "Duke Ellington," Katz testified that relevant comparable sales exist but are in his head, not on paper. Tr. at 137 (Katz). As finder of fact, however, the Court is unable to test any such claim, as Katz did not elucidate the particular sales of works in his head that he believes are comparable. As to "Directing Minds," Katz testified that no comparable sales exist because few, if any, comparable works exist. Tr. at 78-79. That may be: The "Directing Minds" work is indeed extraordinary, and Katz's testimony as to the significance-both political and art-historical-of this work was persuasive. See Id. In the end, however, Katz's numerical valuation of this landmark work is limited by the lack of evidence of comparable sales.

         Finally, as to several missing works, Katz's valuation is limited because no images of those works were available for Katz to consult. See Id. ¶ 25 (no images or measurements available of "Outdoor Life");[5] id. ¶ 28 (no images or measurements available of "Hit Plays in England").

         4. Works for Which Comparable Sales Support Katz's Valuations

         Notwithstanding these considerations, the Court finds Katz's valuations persuasive as to those works for which a sale that the Court finds fairly comparable has recently occurred and for which the Galleries have not provided any competing comparable sales. As to these works, the Court finds that Katz's valuation is proper. Accordingly, the Court assigns the following valuations to the following 13 missing works:

• "S.J. Perelman: Readying Myself for My Debut": $8, 000.
• "Dick Shawn in the World of Sholom Aleichem": $12, ...

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