Edelman Arts, Inc. v. Spoelstra et al
Filing
101
MEMORANDUM OPINION & ORDER : Pursuant to Federal Rule of Civil Procedure 72(b) (3), the case is recommitted to the Magistrate Judge for further proceedings. SO ORDERED. (Signed by Judge John G. Koeltl on 5/5/2020) (ks)
Case 1:17-cv-04789-JGK-SN Document 101 Filed 05/05/20 Page 1 of 16
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
────────────────────────────────────
EDELMAN ARTS, INC.,
Plaintiff,
- against -
17-cv-4789 (JGK)
MEMORANDUM OPINION &
ORDER
REMKO SPOELSTRA et al.,
Defendants.
────────────────────────────────────
JOHN G. KOELTL, District Judge:
Following the entry of a default judgment against all
defendants on the plaintiff’s claim for breach of contract, the
case was referred to Magistrate Judge Sarah Netburn for an
inquest on damages. After receiving submissions from the
plaintiff, Edelman Arts, Inc., the only party that appeared at
the inquest, the Magistrate Judge issued a Report and
Recommendation concluding that this Court should award no
damages to the plaintiff. The plaintiff timely objected to the
Report and Recommendation. For the reasons that follow, the
Court declines to adopt the Report and Recommendation at this
time. The case is recommitted to the Magistrate Judge pursuant
to Federal Rule of Civil Procedure 72(b)(3) for further
proceedings consistent with this opinion.
I.
The allegations in the Complaint, which are accepted as
true for purposes of liability, are as follows. The plaintiff,
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Edelman Arts, Inc., is a New York-based business that finds and
brokers works of art for sale around the world. Second Amended
Complaint (“SAC”) ¶ 1. At some point, the plaintiff was
introduced to Remko Spoelstra, a contractor who purchases art on
behalf of a member of the Abu Dhabi royal family. Id. at ¶¶ 3,
9. Around the time of the introduction, Spoelstra, at the
instruction of the defendant Jason Holloway, an employee of a
member of the Abu Dhabi Royal Family, viewed and agreed to
purchase from the plaintiff a number of works of art on behalf
of the defendant Swiss Business Council. Id. at ¶¶ 4, 10, 14,
20, 21. Specifically, Spoelstra agreed to purchase from the
plaintiff a Keith Haring acrylic on canvas for $6 million, an
untitled Keith Haring acrylic on tarp (“Haring Tarp 1”) for $4.8
million, another Keith Haring untitled acrylic on tarp (“Haring
Tarp 2”) for $6 million, an untitled Keith Haring enamel on wood
totem for $3 million, and an Edvard Munch painting for $7
million. Dkt. No. 25-1, at 1-4; SAC ¶ 14. The plaintiff invoiced
Spoelstra on November 18, 2016 for each of the works. Dkt. No.
25-1. Spoelstra then billed Swiss Business Council for the
works. SAC ¶ 21; Dkt. No. 25-2. Following billing, Holloway
traveled to New York City to take possession of the works
following payment. SAC ¶ 22. The plaintiff never received
payment and did not proceed to deliver any of the works to
Holloway. Id. at ¶ 25. The plaintiff then commenced this action
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for breach of contract against the defendants for their failure
to complete the transactions.
Following the inception of the lawsuit, the plaintiff
allegedly mitigated damages arising from the defendants’ breach
of contract by selling Haring Tarp 1 for $3,125,000.00 and
Haring Tarp 2 for $3,500,000.00. Id. at ¶¶ 15-17. In the SAC,
the plaintiff initially requested damages principally of
$20,175,000.00, calculated by totaling up $6 million for the
unsold Haring canvas, $3 million for the unsold Haring totem,
$4,175,000.00, the invoiced prices for Haring Tarp 1 and Haring
Tarp 2 less the amount recouped for those pieces by subsequent
sales to third parties, and $7 million for the Munch painting.
Id. at ¶¶ 29-32.
Judge Katherine B. Forrest, to whom this case was
previously assigned, found, when entering a default liability
judgment against all defendants except Spoelstra, that the SAC
“appropriately addresses all legal elements of a breach of
contract claim, if all the allegations in the complaint are
taken as true.” Dkt. No. 56. On April 22, 2019, this Court found
that the plaintiff was entitled to a default judgment against
all defendants, including Spoelstra, on the plaintiff’s claim
for breach of contract. Dkt. No. 84. The Court then referred the
case to the Magistrate Judge for an inquest on damages. Dkt. No.
85.
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In the plaintiff’s proposed findings of fact and
conclusions of law, the plaintiff did not renew its request for
damages in the principal amount of $20,175,000.00, but instead
requested damages of $7,585,000.00 plus $2,199.441.87 in
interest, calculated using the New York State statutory interest
rate of nine percent per annum, for a total of $9,784,441.87.
Dkt. No. 90 ¶ 21. The reduction in the plaintiff’s damages
request from the SAC to the inquest appeared to be due to the
fact that the plaintiff’s damages request at the inquest was
based primarily on estimated commissions that the plaintiff
would have received for brokering the sale of the five works of
art to the defendants had the defendants not breached the
contract. The plaintiff indicated that its commission for the
sale of the $7 million Munch painting to the defendants would
have been $1.4 million (Dkt. No. 90 ¶ 23); the plaintiff’s
commission for the sale of the $6 million Haring canvas to the
defendants would have been $1.2 million (id. at ¶ 24); and the
plaintiff’s commission for the sale of the $3 million Haring
totem to the defendants would have been $600,000 (id. at ¶ 25).1
1
Although the plaintiff did not specify before the Magistrate Judge the basis
for the commissions, all three of these commissions clearly constitute 20% of
the total invoice price. In the Edelman Declaration submitted in support of
the plaintiff’s objection to the Report and Recommendation, the plaintiff
states that the 20% commission was “agreed to with Spoelstra prior to issuing
the invoices.” Edelman Decl. (Dkt. No. 97-1) ¶ 7. In support of this
calculation, the plaintiff submitted exhibits relating to the standard
commissions used by auction houses such as Christie’s and Sotheby’s. Id.,
Exs. E-G. Upon this matter being recommitted to the Magistrate Judge, these
exhibits may be considered.
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The remaining damages request appeared to be the difference
between what the plaintiff would have collected for Haring Tarp
1 and Haring Tarp 2, had the defendants purchased those two
works, and what the plaintiff allegedly did collect after the
two works were sold to third parties to mitigate damages,
although the plaintiff’s proposed findings of fact and
conclusions of law did not refer to Haring Tarp 2 but only to
Haring Tarp 1, which originally carried an invoice price of $4.8
million.2 Id. at ¶ 22.
Following the submission of the plaintiff’s findings of
fact and conclusions of law, the Magistrate Judge requested that
the plaintiff “set forth in greater detail the factual and legal
basis for calculating damages based on a combination of
potential commissions and the difference between the asking
price and the sale price of one ‘Haring work’ [Haring Tarp 1]
(the invoice for which is included in Plaintiff’s Proposed
Findings of Fact and Conclusions of Law as ‘Exhibit D’).” Dkt.
No. 92. The plaintiff then supplemented its proposed findings of
fact and conclusions of law with an affidavit of Spoelstra and a
declaration of Asher Edelman, the president of the plaintiff
Edelman Arts, Inc. Dkt. No. 93. These submissions attested to
2
In its proposed findings of fact and conclusions of law, the plaintiff
stated that Haring Tarp 1 “was subsequently sold by Artemus USA, LLC, its
owner, to mitigate its damages, for $2,815,000.” SAC ¶ 22. Artemus USA, LLC
is not a party to this action.
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the sales history and commission structure with respect to
Haring Tarp 1. The submissions sought to provide further support
that the damages suffered by the plaintiff with respect to
Haring Tarp 1 were $1,985,000.00 based on the difference between
the original invoice price of $4,800,000.00 and $2,815,000.00,
the amount allegedly received for the sale of Haring Tarp 1
after commissions were deducted. Edelman Decl. (Dkt. No. 93)
¶¶ 6-16 & Exs. A, B.
On January 14, 2020, the Magistrate Judge issued a Report
and Recommendation recommending that this Court award no
contract damages to the plaintiff because, although the
defendants were liable for breach of contract, “[t]he Court
cannot determine with reasonable certainty based on the evidence
provided by Plaintiff that the commissions on the invoiced sales
equal the amounts listed in Plaintiff’s damages calculations.”
Dkt. No. 94, at 6. In particular, the Magistrate Judge found
that “[n]owhere in Plaintiff’s submissions does Plaintiff
provide evidence of the percentage of the alleged commission,
how that commission is calculated, that Plaintiff has received
any similarly calculated commissions in the past, or that such
commission amounts are routine or industry standard.” Id. at 7.
Additionally, the Magistrate Judge found that the “Plaintiff
does not adequately account for the remaining discrepancy
between the principal amount sought ($7,585,000.00) and the
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Court’s calculation of the alleged three lost commissions plus
the one resale difference ($5,185,000.00).” Id. Consequently,
the Magistrate Judge stated that she could not “conclude that
Plaintiff is entitled to any of the $7,585,000.00 it seeks.” Id.
at 8.
The plaintiff timely filed objections to the Report and
Recommendation pursuant to 28 U.S.C. § 636(b)(1) and Federal
Rule of Civil Procedure 72(b) on the grounds that 1) the
Magistrate Judge did not ask for supplemental filings on the
issue of calculating commissions, broadly, but only asked for
supplemental filings concerning Haring Tarp 1, and that the
Magistrate Judge nevertheless recommended an award of no damages
in large part because no evidence was submitted about how
commissions were calculated; 2) the Magistrate Judge failed to
award damages totaling $1,985,000 for Haring Tarp 1, which was
sold to mitigate damages; and 3) the Magistrate Judge failed to
award damages totaling $3 million for the Haring totem. Dkt. No.
97.3
3
The plaintiff also moved pursuant to Federal Rule of Civil Procedure 52(b)
to alter or amend the Magistrate Judge’s Report and Recommendation. Dkt. No.
98. On March 13, 2020, the Magistrate Judge denied the plaintiff’s motion
because Rule 52(b) is not a proper vehicle for challenging a Magistrate
Judge’s Report and Recommendation, and in any event that the plaintiff had
not met the standard for amending or reconsidering the conclusions in the
Report and Recommendation. Dkt. No. 100.
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II.
A.
The district court must “make a de novo determination of
those portions of the report . . . to which objection is made”
and “may accept, reject, or modify, in whole or in part, the
findings or recommendations made by the magistrate judge.” 28
U.S.C. § 636(b)(1); see also Fed. R. Civ. P. 72(b)(3). “The
judge may also receive further evidence or recommit the matter
to the magistrate judge with instructions.” 28 U.S.C.
§ 636(b)(1); see also Fed. R. Civ. P. 72(b)(3). When reviewing
the Report and Recommendation of a magistrate judge, “[t]he
court need not conduct a de novo hearing on the matter. Instead,
it is sufficient that the court ‘arrive at its own independent
conclusion’ regarding those portions of the report to which
objections are made.” In re Hulley Enters. Ltd., 400 F. Supp. 3d
62, 69 (S.D.N.Y. 2019) (internal citation omitted) (quoting
Nelson v. Smith, 618 F. Supp. 1186, 1189-90 (S.D.N.Y. 1985)).
B.
“The general rule for measuring damages for breach of
contract has long been settled. It is the amount necessary to
put the plaintiff in the same economic position he would have
been in had the defendant fulfilled his contract.” Indu Craft,
Inc. v. Bank of Baroda, 47 F.3d 490, 495 (2d Cir. 1995)
(alteration and internal quotation marks omitted). “In a breach
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of contract action, a plaintiff ordinarily has a duty to
mitigate the damages that he incurs. If the plaintiff fails to
mitigate his damages, the defendant cannot be charged with them.
This duty applies to those damages that the plaintiff could have
avoided with reasonable effort and without undue risk, burden or
expense.” U.S. Bank Nat’l Ass’n v. Ables & Hall Builders, 696 F.
Supp. 2d 428, 440-41 (S.D.N.Y. 2010). Further, “under New York
law, where the breach of contract is a failure to pay money, the
plaintiff is entitled to recover the unpaid amount due under the
contract plus interest.” Gulf Coast Bank & Trust Co. v. ASESD,
LLC, No. 11-cv-5023 (RMB) (RLE), 2014 WL 6850970, at *4
(S.D.N.Y. Aug. 29, 2014).
In order to recover contract damages, the plaintiff has the
burden of proving that the “damages were actually caused by the
breach, that the particular damages were fairly within the
contemplation of the parties to the contract at the time it was
made and that the alleged loss is capable of proof with
reasonable certainty.” Fitzpatrick v. Animal Care Hosp., PLLC,
962 N.Y.S.2d 474, 479 (App. Div. 2013) (internal quotation marks
omitted).
It is well established that “the rule of certainty as
applied to the recovery of damages does not require mathematical
accuracy or absolute certainty or exactness, but only that the
loss or damage be capable of ascertainment with reasonable
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certainty.” Reichman v. Warehouse One, Inc., 569 N.Y.S.2d 452,
453 (App. Div. 1991). “In most contexts, [the rule of reasonable
certainty] is akin to the ordinary preponderance of the evidence
standard, which requires only that damages are ‘capable of
measurement based upon known reliable factors without undue
speculation.’” In re Methyl Tertiary Butyl Ether Products
Liability Litig., 643 F. Supp. 2d 446, 456-57 (S.D.N.Y. 2009)
(quoting Ashland Mgmt. Inc. v. Janien, 624 N.E.2d 1007, 1010
(N.Y. 1993)). “Although [the plaintiff] bears the burden of
proving damages with reasonable certainty, ‘the need for
specificity in proving damages is mitigated by the principle
that when there has been a clear showing of some injury, and
damages are not susceptible of precise measurement because of
defendant’s conduct, a fact finder ‘has some latitude to make a
just and reasonable estimate of damages based on relevant
data.’” Raishevich v. Foster, 9 F. Supp. 2d 415, 417 (S.D.N.Y.
1998) (alterations and citation omitted); see also Freund v.
Washington Sq. Press, Inc., 314 N.E.2d 419, 420-21 (N.Y. 1974)
(“[S]o far as possible, the law attempts to secure to the
injured party the benefit of his bargain, subject to the
limitations that the injury . . . was foreseeable, and that the
amount of damages claimed be measurable with a reasonable degree
of certainty and, of course, adequately proven.”); Restatement
(Second) of Contracts, § 352 (“Damages are not recoverable for
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loss beyond an amount that the evidence permits to be
established with reasonable certainty.”); Story Parchment Co. v.
Paterson Parchment Paper Co., 282 U.S. 555, 562 (1931) (“The
rule which precludes the recovery of uncertain damages applies
to such as are not the certain result of the wrong, not to those
damages which are definitely attributable to the wrong and only
uncertain in respect of their amount.”).
Following a default judgment, the court “should take the
necessary steps to establish damages with reasonable certainty,”
Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp.,
109 F.3d 105, 111 (2d Cir. 1997), which may include conducting
an evidentiary hearing to “determine the amount of damages,”
“establish the truth of any allegation by evidence,” or
“investigate any other matter,” Fed. R. Civ. P. 55(b)(2).
However, in some circumstances, an inquest on damages may be
conducted without an evidentiary hearing, and may instead be
determined based solely on documentary submissions. See Tamarin
v. Adam Caterers, Inc., 13 F.3d 51, 53-54 (2d Cir. 1993);
Maldonado v. La Nueva Rampa Inc., No. 10-cv-8195, 2012 WL
1669341, at *2 (S.D.N.Y. May 14, 2012) (“[A] hearing is not
required where a sufficient basis on which to make a calculation
exists.”).
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C.
In this case, the plaintiff admittedly submitted evidence
to the Magistrate Judge at the inquest that was not the model of
clarity and was incomplete. The plaintiff submitted exhibits to
this Court in support of its objections to the Report and
Recommendation that the commission rates that the plaintiff and
Spoelstra allegedly agreed upon were standard in the industry,
but the plaintiff did not submit that evidence to the Magistrate
Judge and did not submit other evidence that would have been
helpful to the Magistrate Judge at the inquest on damages.4
Nevertheless, the Magistrate Judge’s recommendation that no
contract damages be awarded to the plaintiff cannot be adopted
because the Magistrate Judge did not “take the necessary steps
to establish damages with reasonable certainty.” Transatlantic
Marine Claims, 109 F.3d at 111.
There was clearly a breach of contract in this case and the
parties plainly did not intend for the plaintiff to work as a
broker of multi-million dollar works of art for free without
receiving commissions. This is not a case in which an award of
no damages is warranted because the plaintiff seeks damages
based on “‘a multitude of assumptions’ that require[]
4
Additionally, although the plaintiff stated in the SAC that both Haring Tarp
1 and Haring Tarp 2 had been sold to mitigate damages in this case, only
Haring Tarp 1 was referred to during the inquest as a work of art that was
sold to mitigate damages. This inconsistency would need to be clarified when
the matter is recommitted to the Magistrate Judge.
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‘speculation and conjecture’ and few known factors[.]”
Schoenfeld v. Hilliard, 218 F.3d 164, 172 (2d Cir. 2000)
(quoting Kenford Co., Inc. v. Erie County, 493 N.E.2d 234, 236
(N.Y. 1986); see, e.g., Lenard v. Design Studio, 889 F. Supp. 2d
518, 536 (S.D.N.Y. 2012) (denying lost profits from anticipated
rental income because the plaintiff had not demonstrated a
history of subletting the apartment, a right to sublet, a ready
tenant, or anything about market rates for rentals of comparable
apartments). The theory of damages in this case is
straightforward and does not rely on “a multitude of
assumptions”: But for the defendants’ breach, the plaintiff
would have collected commissions for finding and brokering
multi-million works of art. All that is left, it would seem,
would be to calculate the commissions that the plaintiff would
have collected for the five works of art and to determine the
amount by which the damages should be reduced because of
mitigation efforts that either were taken or could reasonably
have been taken to sell off the works of art, and to what extent
those efforts reduced the amount of unpaid commissions owed to
the plaintiff.
Although the Magistrate Judge requested that the plaintiff
make a supplemental submission with respect to Haring Tarp 1
alone following the submission of the plaintiff’s initial
proposed findings of fact and conclusions of law, the Magistrate
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Judge recommended to this Court that no damages be awarded with
respect to all five of the works of art in question because
[w]hile Plaintiff provides invoices for each of the
pieces stating the purchase price, Plaintiff offers no
evidence of its anticipated commissions beyond
conclusory allegations. Nowhere in Plaintiff’s
submissions does Plaintiff provide evidence of the
percentage of the alleged commission, how that
commission is calculated, that Plaintiff has received
any similarly calculated commissions in the past, or
that such commission amounts are routine or industry
standard. There is similarly no evidence that the
Defendants agreed to any commission rate.
Dkt. No. 94, at 6-7. Presumably, the plaintiff would have, had
the Magistrate Judge specifically requested, submitted to the
Magistrate Judge at least the evidence it submitted to this
Court in connection with its objections to the Report and
Recommendation. Moreover, to the extent that the documentary
submissions were insufficient, the Magistrate Judge could have
held an evidentiary hearing rather than denying all damages in a
case where it is plain that the plaintiff did in fact suffer
substantial damages that could be calculated with reasonable
certainty.
The plaintiff should now have the opportunity to present
any evidence that would allow the Magistrate Judge to award
damages to the plaintiff in this case with “reasonable
certainty.” See Pineda v. Masonry Constr. Inc., 831 F. Supp. 2d
666, 672 (S.D.N.Y. 2011) (allowing plaintiffs following a
default judgment and inquest on damages in which the Magistrate
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Judge recommended that the plaintiffs be awarded no damages on
their claim for dishonored checks “to present evidence . . . to
demonstrate that they are able to provide documentary evidence
that establishes, with sufficient clarity, the number of hours
worked for each of the pay periods at issue.”); Perico, Ltd. v.
Ice Cream Indus., Inc., No. 87-cv-4211, 1990 WL 11539, at *3
(S.D.N.Y. Feb. 9, 1990) (recommitting a case to the magistrate
judge following default judgment and an inquest on damages “for
a determination – based on evidence already submitted and
further evidence which plaintiff may submit” to determine an
attorneys’ fees award that was to be treated as reliance
damages).
The Court expresses no view about the total amount of
damages that the plaintiff will ultimately be able to
demonstrate with “reasonable certainty” after submitting the
evidence that would be helpful to the Magistrate Judge to decide
that question. Upon this case being recommitted, the Magistrate
Judge should take all “necessary steps” to determine the amount
of damages suffered by the plaintiff consistent with this
opinion and with the law governing contract damages in arriving
at a new Report and Recommendation.
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CONCLUSION
Pursuant to Federal Rule of Civil Procedure 72(b)(3), the
case is recommitted to the Magistrate Judge for further
proceedings.
SO ORDERED.
Dated:
New York, New York
May 5, 2020
__
16
/s/ John G. Koeltl ______
John G. Koeltl
United States District Judge
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