Hoffman v. Martinez et al
Filing
410
MEMORANDUM OPINION AND ORDER. Public, redacted version of 402 MEMORANDUM OPINION AND ORDER denying 288 MOTION for Summary Judgment filed by David Martinez, Studio Capital, Inc.; denying 295 Defendants Studio Capital, Inc.'s and David Mar tinez's Sealed Motion to Exclude the Expert Report and Proposed Testimony of Victor Wiener; denying 298 Defendant L&M Arts's Motion for Summary Judgment; and denying 304 Motion For Partial Summary Judgment filed by Marguerite Hoffman. (Ordered by Chief Judge Sidney A Fitzwater on 1/28/2013) (Chief Judge Sidney A Fitzwater)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
MARGUERITE HOFFMAN,
Plaintiff,
VS.
L&M ARTS, et al.,
Defendants.
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§
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§ Civil Action No. 3:10-CV-0953-D
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*This is the publicly-available version of a
§
sealed memorandum opinion and contains
§
redactions in accordance with the protective
§
order filed in this case.
§
MEMORANDUM OPINION
AND ORDER
In this lawsuit arising from the sale at public auction of the 1961Mark Rothko oil
painting, Untitled (the “Rothko painting”), plaintiff Marguerite Hoffman (“Hoffman”) moves
for partial summary judgment, and defendants L&M Arts (“L&M”), Studio Capital, Inc.
(“Studio Capital”), and David Martinez (“Martinez”) move for summary judgment and to
exclude the testimony of Victor Wiener (“Wiener”), Hoffman’s damages expert. For the
reasons that follow, the court denies the motions.
I
The court’s prior memorandum opinions and orders in this case set forth many of the
relevant background facts.1 The court will add to the background facts and procedural
1
See Hoffman v. L&M Arts, 2012 WL 4321739 (N.D. Tex. Sept. 21, 2012) (Fitzwater,
C.J.) (“Hoffman III”); Hoffman v. L&M Arts, 2011 WL 3567419 (N.D. Tex. Aug. 15, 2011)
(Fitzwater, C.J.); Hoffman v. L&M Arts, 774 F.Supp.2d 826 (N.D. Tex. 2011) (Fitzwater,
C.J.).
history pertinent to this decision.2
A
Hoffman, a Dallas resident and patroness of the arts, once owned the Rothko painting.
Prior to the events leading up to this lawsuit, Hoffman and her late husband, and two other
Dallas couples, bequeathed their entire art collections to the Dallas Museum of Art (“DMA”).
At that time, the Hoffmans’ collection included the Rothko painting. In recognition of the
three couples’ gifts, the DMA held a highly publicized exhibition entitled, Flash Forward:
Contemporary Collections for the Dallas Museum of Art (“Flash Forward Exhibit”). The
Rothko painting was included among the works of art exhibited in the first phase of the Flash
Forward Exhibit, which ran from November 2006 through April 2007. The catalogue and
online description of the exhibit highlighted the Rothko painting, describing it as “a stunning
masterpiece in orange and red,” P. 7-13-12 Br. 8, and featuring a widely-reproduced
2
Both sides have moved for summary judgment. As the court has stated in cases like
AMX Corp. v. Pilote Films,
[b]ecause both parties have filed motions for summary
judgment, the court will principally recount only the evidence
that is undisputed. If it is necessary to set out evidence that is
contested, the court will do so favorably to the party who is the
summary judgment nonmovant in the context of that evidence.
In this way it will comply with the standard that governs
resolution of summary judgment motions.
AMX Corp. v. Pilote Films, 2007 WL 1695120, at *1 n.2 (N.D. Tex. June 5, 2007)
(Fitzwater, J.) (citing U.S. Bank Nat’l Ass’n v. Safeguard Ins. Co., 422 F. Supp.2d 698, 701
n.2 (N.D. Tex. 2006) (Fitzwater, J.)), modified in part on other grounds, 2007 WL 2254943
(N.D. Tex. Aug. 7, 2007) (Fitzwater, J .).
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photograph of Hoffman and her husband standing in front of the painting. P. 7-13-12 App.
266. Hoffman maintains that as a result, her ownership of the Rothko painting in 2007 was
well known.
In 2006, while the Flash Forward Exhibit was in preparation, Hoffman’s husband
died. Following her husband’s untimely death, Hoffman found herself in need of liquidity
to manage the family business and fulfill various commitments, and she decided to sell the
Rothko painting. Although the sale was permitted under the terms of the DMA bequest,
Hoffman decided to sell the painting privately, and only on the condition of complete and
guaranteed confidentiality among any parties involved, because she did not want to generate
speculation about her financial condition, and she wanted to safeguard her privacy and that
of her daughters during a time of grief.
To arrange a private sale, Hoffman, through her agent, John Van Doren (“Van
Doren”), contacted L&M. L&M’s principal, Robert Mnuchin (“Mnuchin”), was the agent
from whom Hoffman and her husband had originally purchased the Rothko painting.
Hoffman, through Van Doren, made clear to L&M that preservation of confidentiality would
be a critical component of any sale. Mnuchin expressed an understanding of Hoffman’s
reasons for maintaining confidentiality.
Mnuchin and his partner at L&M, Dominique Lévy, identified Studio Capital as a
potential buyer. [Redacted]
Although L&M did not disclose the buyer’s identity, Mnuchin
assured Van Doren that the buyer was “very private.” Id. at 74.
-3-
The parties negotiated a sale price of $19 million, with $17.6 million net to Hoffman
and $700,000 commission to each agent. In February 2007 Van Doren, on behalf of
Hoffman, and L&M, on behalf of the buyer, entered into a Letter Agreement to sell the
Rothko painting to L&M’s undisclosed principal (the “February Agreement”). The February
Agreement stated: “[i]t is the specified wish of the seller that the sale and terms of the sale
remain confidential. Any breach in confidentiality prior to payment in full will be considered
by the seller grounds for terminating this agreement. It is requested that confidentiality be
maintained indefinitely.” Id. at 272.
To obtain advice regarding the purchase of the Rothko painting, Martinez discussed
the possible acquisition with Brett Gorvy, Head of Christie’s Contemporary Art Department,
and Tobias Meyer (“Meyer”), Worldwide Head of Sotheby’s Contemporary Art Department.
Before the sale was finalized, however, an art professional from Christie’s contacted
Hoffman to discuss the fact that she was selling the Rothko painting. Hoffman was alarmed
that a third party had discovered that the painting was for sale. When she learned from
Mnuchin that his undisclosed buyer had revealed the imminent purchase of the Rothko
painting to the head of contemporary art at Christie’s, Hoffman decided not to go forward
with the transaction.
Martinez and Studio Capital remained interested, however, in negotiating with
Hoffman, and, according to Hoffman, L&M (through Mnuchin) expressly promised that the
Rothko painting would “‘disappear’ into the ‘very private’ European collection of the
individual collector L&M represented.” P. 7-13-12 Br. 16. In April 2007 Hoffman and the
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undisclosed buyer, through their agents, entered into a letter agreement (the “Letter
Agreement”) that specified the terms of the sale of the Rothko painting. One provision of
the Letter Agreement specified that “[a]ll parties agree to make maximum effort to keep all
aspects of this transaction confidential indefinitely. In addition, the buyer agrees not to hang
or display the work for six months following receipt of the painting.” P. 7-13-12 App. 278.
The Letter Agreement also provided, among other requirements, that the buyer would pay
the seller the net price of $17.6 million and make a confidential cash contribution to the
DMA. Id. Before finalizing the Letter Agreement, L&M sent Studio Capital and Martinez
an invoice, dated April 18, 2007 (the “April 18 Invoice”), that provided that “[a]ll parties are
committed to keeping the terms of this transaction strictly confidential.” L&M 8-3-12 App.
281.
Hoffman maintains that she performed her obligation to make maximum effort to keep
all aspects of the transaction confidential indefinitely. When people asked why the Rothko
painting was not on display in her home, she replied that she “did a new installation,” a
phrase she uses to explain why a particular picture is not hanging at any given time. P. 7-1312 App. 52. Apart from her confidential business advisors, attorney, and accountant,
Hoffman informed only two people of the sale of the Rothko painting: Howard Rachofsky
(“Rachofsky”) and Deedie Rose (“Rose”). She disclosed the sale to them because they had
joined in the Hoffmans’ bequest to the DMA, and she “felt like [she] had a moral, ethical
obligation, to let them know that [she] sold the picture.” Id. at 50. Rachofsky and Rose
agreed to hold the information in confidence.
-5-
After purchasing the painting, Studio Capital kept it in storage . [Redacted]
By
2009, L&M had become aware that another, more expensive painting by Mark Rothko (the
“Korean Rothko”) might be available, and it offered the painting to Martinez. Martinez
believed the Korean Rothko might be a suitable addition to Studio Capital’s collection, but
the purchase would necessitate the sale of another painting.
Accordingly, Martinez
authorized L&M to sell the Rothko painting privately, but L&M was unsuccessful.
In early 2010, Meyer raised with Martinez the subject of the Rothko painting, and he
suggested that Martinez auction the painting at Sotheby’s. Thereafter, both the Rothko
painting and the Korean Rothko were transported to L&M’s New York gallery where,
according to Hoffman, Meyer and Mnuchin discussed the best strategy for presenting the
Rothko painting at auction, including what estimate of value should be given in the
catalogue. Hoffman maintains that, during this meeting, none of the defendants informed
Meyer of the Letter Agreement or its confidentiality provision. The following week, Studio
Capital consigned the Rothko painting to Sotheby’s for public auction.
In March 2010, after Studio Capital signed the consignment agreement, Mnuchin
contacted Van Doren to explain that he was the bearer of “difficult” news. Id. at 76.
According to Mnuchin, Meyer had “seduced” the undisclosed owner into selling the Rothko
painting at Sotheby’s May auction. Id. at 77. In a letter to Hoffman, Mnuchin expressed his
sympathy, stating, “even in retrospect I see no way that I could have changed the course of
events when informed that [Studio Capital] was selling at Sotheby’s. The decision had been
made, including a contract.” Id. at 285. Mnuchin promised, however, to “do everything in
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[his] power to make sure that the Robert & Marguerite Hoffman Collection not be listed in
the provenance and that the picture will be for sale from, ‘a distinguished European
collection.’” Id. Mnuchin then called Meyer to make this request.
Hoffman maintains that, to promote the auction of the Rothko painting, Sotheby’s
“embarked on a major marketing blitz” between March and May 2010. P. 7-13-12 Br. 27.
Sotheby’s issued a press release announcing the planned public auction of the Rothko
painting, and, following the initial press release, numerous media sources published stories
about the auction, many of which were accompanied by a large color photograph of the
Rothko painting. In addition, Sotheby’s website and catalogue posted a large color
photograph of the Rothko painting and stated that it had been exhibited in the Flash Forward
Exhibit in 2007, directing readers to the specific pages in the Fast Forward Exhibit catalogue
that showed the Hoffmans standing in front of the Rothko painting. The publicity attracted
the attention of numerous media sources, including one Internet blogger, who speculated that
“[i]f Martinez, or a related holding company, is the owner, it has been a hasty marriage,”
since the Rothko painting had been exhibited in the Flash Forward Exhibit in 2007 as part
of an exhibition that included works owned by three major area collectors, including the
Hoffmans. P. 7-13-12 App. 404-05.
The Rothko painting was auctioned by Sotheby’s on May 12, 2010. It sold for
$31,442,500, a price more than $13 million in excess of what Hoffman had received for the
painting when she sold it privately in 2007.
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B
Hoffman filed the instant lawsuit in Texas state court against Martinez and Studio
Capital for breach of contract. She amended her petition to add a claim against L&M for
breach of contract and to add claims against Sotheby’s and Meyer. After the case was
removed to this court, the court dismissed the action against Meyer for lack of personal
jurisdiction and dismissed the claims against Sotheby’s and L&M under Fed. R. Civ. P.
12(b)(6). Hoffman v. L&M Arts, 774 F.Supp.2d 826, 845, 848-49 (N.D. Tex. 2011)
(Fitzwater, C.J.) (“Hoffman I” ). The court declined to dismiss Hoffman’s breach of contract
action against Martinez and Studio Capital. The court concluded, in pertinent part, that
the facts alleged plausibly establish that Martinez and/or Studio
Capital did not make every reasonable effort to keep all aspects
of the 2007 transaction confidential, measured according to what
an average, prudent, and comparable person (i.e., peers in the
professional art buying community) would or would not have
done, under the same or similar circumstances, to make every
reasonable effort when exercising due diligence and in the
absence of neglect.
Id. at 836. The court also permitted Hoffman to file an amended complaint. Id. at 849.
Hoffman then filed a second amended complaint asserting breach of contract claims
against Martinez, Studio Capital, and L&M. L&M moved to dismiss under Rule 12(b)(6),
and Martinez moved for judgment on the pleadings. The court denied the motions. See
Hoffman v. L&M Arts, 2011 WL 3567419, at *3 (N.D. Tex. Aug. 15, 2011) (Fitzwater, C.J.)
(“Hoffman II”). The court held that Hoffman had plausibly pleaded a breach of contract
claim against L&M for breaching the “maximum effort” confidentiality provision of the
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Letter Agreement. Id. at *7. In response to L&M’s argument that it was not bound by the
terms of the Letter Agreement, the court concluded that, “[i]f L&M had not disclosed the
identity of its principal by the time Martinez and/or Studio Capital decided to dispose of the
Rothko painting at public auction, L&M can still be held liable for violating the Letter
Agreement.” Id. at *8.
Hoffman now moves for partial summary judgment establishing that L&M, Studio
Capital, and Martinez each breached the Letter Agreement. L&M, Studio Capital, and
Martinez move for summary judgment, contending that Hoffman cannot establish a genuine
issue of material fact on the question of breach or of damages.3 They also move to exclude
the expert report and proposed testimony of Hoffman’s damages expert.
II
When a party moves for summary judgment on a claim on which the opposing party
will bear the burden of proof at trial, the moving party can meet her or its summary judgment
obligation by pointing the court to the absence of admissible evidence to support the
opposing party’s claim. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the
moving party does so, the opposing party must go beyond her or its pleadings and designate
specific facts showing there is a genuine issue for trial. See id. at 324; Little v. Liquid Air
Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam). An issue is genuine if the
3
After defendants filed their summary judgment motions, the court granted Hoffman’s
June 7, 2012 motion for leave to file a third amended complaint. In that pleading, Hoffman
asserts a new claim against L&M for fraudulent inducement. Hoffman III, 2012 WL
4321739, at *5. The fraudulent inducement claim is not at issue in the present motions.
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evidence is such that a reasonable jury could return a verdict in the opposing party’s favor.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The opposing party’s failure to
produce proof as to any essential element of a claim renders all other facts immaterial. See
Trugreen Landcare, L.L.C. v. Scott, 512 F.Supp.2d 613, 623 (N.D. Tex. 2007) (Fitzwater,
J.). Summary judgment is mandatory if the opposing party fails to meet this burden. Little,
37 F.3d at 1076.
When a party moves for summary judgment on a claim on which she or it will have
the burden of proof at trial, the party “must establish ‘beyond peradventure all of the essential
elements of the claim[.]’” Bank One, Tex., N.A. v. Prudential Ins. Co. of Am., 878 F. Supp.
943, 962 (N.D. Tex. 1995) (Fitzwater, J.) (quoting Fontenot v. Upjohn Co., 780 F.2d 1190,
1194 (5th Cir. 1986)). This means that the moving party must demonstrate that there are no
genuine and material fact disputes and that the party is entitled to summary judgment as a
matter of law. See Martin v. Alamo Cmty. Coll. Dist., 353 F.3d 409, 412 (5th Cir. 2003).
“The court has noted that the ‘beyond peradventure’ standard is ‘heavy.’” Carolina Cas. Ins.
Co. v. Sowell, 603 F.Supp.2d 914, 923-24 (N.D. Tex. 2009) (Fitzwater, C.J.) (quoting Cont’l
Cas. Co. v. St. Paul Fire & Marine Ins. Co., 2007 WL 2403656, at *10 (N.D. Tex. Aug. 23,
2007) (Fitzwater, J.)).
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III
The court begins by addressing the parties’ arguments concerning whether Hoffman
can or has established the “breach” element of her breach of contract claim.4
A
Defendants contend they are entitled to summary judgment because there is no
evidence that they breached the Letter Agreement. They maintain that there is no proof that
L&M affirmatively misrepresented to Sotheby’s or to anyone else that there was no
obligation to keep all aspects of the transaction confidential indefinitely; that L&M’s failure
to share the full contents of the Letter Agreement with its principals (Martinez and Studio
Capital) cannot establish a breach of contract because, as a matter of law, L&M’s
communications with its principals cannot form the basis of a cause of action by Hoffman,
a third-party; and that, even if Studio Capital had been informed of the verbatim wording of
the Letter Agreement, the evidence is undisputed that Studio Capital received the April 18
Invoice, and Martinez testified that he saw no difference between the language of the April
18 Invoice and that of the Letter Agreement.
4
“Hoffman’s breach of contract claim requires proof of four elements: (1) the
existence of a valid contract, (2) that Hoffman performed her duties under the contract, (3)
that the party she is suing breached the contract, and (4) that Hoffman suffered damages as
a result of the breach.” Hoffman I, 774 F.Supp.2d at 832 (citing Lewis v. Bank of Am. NA,
343 F.3d 540, 544-45 (5th Cir. 2003) (Texas law)). Defendants maintain that New York law
controls, but they acknowledge that the elements are the same under Texas or New York law.
See, e.g., Studio Capital 7-13-12 Br. 22-23 & 22 n.17. Hoffman agrees that the court need
not resolve this conflict-of-law issue, but she posits that Texas law governs. See P. 8-17-12
Br. 6 n.1.
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Defendants also posit that they could not have breached the Letter Agreement by
selling the Rothko painting at public auction because there is no evidence of any intent in the
Letter Agreement to restrict the buyer’s ability to resell the painting through a public auction.
They cite the opinions of their experts, Ben Heller (“Heller”) and David Nash, who opine
that a confidentiality provision such as the one at issue here would not be understood within
the art industry to prohibit resale or to limit the buyer to a private resale, but would instead
be commonly understood only to restrict the parties from revealing the details of the
transaction. Defendants maintain that, because the Letter Agreement cannot be interpreted
to prohibit the parties from reselling the Rothko painting by public auction, their actions in
doing so could not have breached the Letter Agreement.
Hoffman opposes defendants’ motion, contending that there is at least a genuine fact
issue whether defendants “‘made every reasonable effort to reach the identified end,
measured according to what an average, prudent, and comparable person would or would not
have done, under the same or similar circumstances, to make every reasonable effort when
exercising due diligence and in the absence of neglect.’” P. 8-17-12 Br. 8 (quoting Hoffman
I, 774 F.Supp.2d at 834). She contends that L&M breached the Letter Agreement by sending
Studio Capital and Martinez an invoice that mischaracterized the Letter Agreement’s
confidentiality provision, and (once Martinez disclosed to Meyer that Studio Capital owned
the Rothko painting) by failing to inform Sotheby’s and Meyer about the confidentiality
provision. Hoffman posits that L&M breached the Letter Agreement by facilitating the
public auction of the Rothko painting by, inter alia, arranging for the Rothko painting and
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the Korean Rothko to be displayed side-by-side in one of its exhibit rooms, and by engaging
in strategy discussions with Meyer and Martinez regarding the public auction of the Rothko
painting.
Hoffman also points to specific acts or failures to act by Studio Capital and Martinez
that she contends breached the confidentiality provision of the Letter Agreement: telling
Sotheby’s that Studio Capital owned the Rothko painting, and failing to inform Sotheby’s
that they were bound to keep “all aspects” of the transaction confidential indefinitely,
including the fact of the sale; and failing to affirmatively impose “restrictions” on Sotheby’s,
such as the requirement that Sotheby’s “use the words private collection, but essentially
eliminate all reference to the activity in Fast Forward, text photograph, you name it,” as
defendants’ expert, Heller, suggested he would have done had he been the seller in Studio
Capital’s situation. Id. at 17 (quoting P. 8-3-12 App. 148-49).
In response to the contention that the public auction could not have breached the
Letter Agreement because the agreement did not restrict resale, Hoffman points to Hoffman
I, arguing that the court has already held that, even if the Letter Agreement did not preclude
resale, the public auction could constitute a breach. She also posits that the Letter Agreement
restricts resale because the confidentiality provision continues “indefinitely,” not merely
“until resale.” Id. at 18. Hoffman contends “there is an issue of fact a[s] to whether an
average, prudent person who had obliged himself to specific confidentiality terms would
have auctioned the painting at one of the world’s most high profile auctions in order to
maximize profit.” Id. at 19. While conceding that each and every disclosure of the fact of
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the sale would not necessarily breach the Letter Agreement, Hoffman contends that “the
manner in which Defendants resold the [Rothko painting] in this case is less than what an
average, prudent person who had obligated [himself] to specific confidentiality terms would
have done.” Id. at 20.
B
In Hoffman I the court interpreted the unambiguous terms of the confidentiality
provision of the Letter Agreement as a matter of law. As interpreted in Hoffman I, this
provision obligated the parties to
make every reasonable effort to keep all aspects of the 2007
transaction confidential, measured according to what an average,
prudent, and comparable person would or would not have done,
under the same or similar circumstances, to make every
reasonable effort when exercising due diligence and in the
absence of neglect.
Hoffman I, 774 F.Supp.2d at 834. The court also concluded that, although the Letter
Agreement did not prohibit defendants from reselling the Rothko painting, it did impose
restrictions on how they could do so.
Regardless of the fact that the Letter Agreement does not
preclude reselling or displaying the Rothko painting, the
contract obligates the parties “to make maximum effort to keep
all aspects of this transaction confidential indefinitely.” Under
the terms of the Letter Agreement, the painting could have been
displayed and resold in a way that did not disclose any aspect of
the 2007 transaction.
Id. at 838. And the court has already held that a breach of the Letter Agreement would occur
if defendants did not “tak[e] adequate precautions to keep the changed ownership of the
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Rothko painting private.” Id. at 836. The court declines to revisit questions of contract
interpretation that it resolved in Hoffman I.
C
The court now turns to defendants’ summary judgment motions. Defendants point to
the absence of evidence that they breached the Letter Agreement. The court must therefore
decide whether Hoffman has adduced sufficient evidence to permit a reasonable jury to find
that defendants failed to
make every reasonable effort to keep all aspects of the 2007
transaction confidential, measured according to what an average,
prudent, and comparable person would or would not have done,
under the same or similar circumstances, to make every
reasonable effort when exercising due diligence and in the
absence of neglect.
Id. at 834. “When this court denies rather than grants summary judgment, it typically does
not set out in detail the evidence that creates a genuine issue of material fact.” Valcho v.
Dall. Cnty. Hosp. Dist., 658 F.Supp.2d 802, 812 n.8 (N.D. Tex. 2009) (Fitzwater, C.J.)
(citing Swicegood v. Med. Protective Co., 2003 WL 22234928, at * 17 n.25 (N.D. Tex. Sept.
19, 2003) (Fitzwater, J.)). The court will therefore focus on pertinent examples.
Hoffman has adduced evidence that, although L&M provided Martinez and Studio
Capital the April 18 Invoice, which stated that “[a]ll parties are committed to keeping the
terms of this transaction strictly confidential,” L&M 8-3-12 App. 281 (emphasis added),
L&M did not provide Martinez or Studio Capital a copy of the Letter Agreement’s
confidentiality provision, which requires that the parties make “maximum effort to keep all
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aspects of this transaction confidential indefinitely,” P. 7-13-12 App. 278 (emphasis added).
A reasonable jury could find that, by informing Martinez and Studio Capital that they were
required to keep “the terms” of the transaction confidential, but failing to inform them that
they were required to keep “all aspects” of the transaction confidential, L&M did not “make
every reasonable effort to keep all aspects of the 2007 transaction confidential.” Hoffman
I, 774 F.Supp.2d at 834 (emphasis added). This is because “an average, prudent, and
comparable art agent, faced with the same negotiating history, Letter Agreement, and
obligation to exert ‘maximum effort’ to preserve confidentiality,” might reasonably have
“ensured that it represented to its principal and to others in a position to compromise this
confidentiality that the parties’ confidentiality obligations applied to the existence of the
transaction [itself,] as well as to its terms.” Hoffman II, 2011 WL 3567419, at *6. Indeed,
the court has already held that “if L&M engaged in acts or omissions after April 24, 2007
that advised others of their obligations using the paraphrase found in the [April 18 Invoice],
it can be plausibly inferred that L&M breached the ‘maximum effort’ clause of the Letter
Agreement.” Id. Hoffman has produced sufficient evidence to enable a reasonable jury to
find that L&M did not completely disclose the confidentiality obligations of the Letter
Agreement. Accordingly, a fact issue exists as to whether the actions of L&M were
consistent with what an average, prudent, and comparable person would or would not have
done, under the same or similar circumstances, when exercising due diligence and in the
absence of neglect.
Hoffman has also presented evidence that, at the very least, L&M knew that Sotheby’s
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and Meyer were aware that Hoffman no longer owned the Rothko painting, and that
Sotheby’s and Meyer were planning to attempt to sell the painting through a public auction,
yet said nothing to Meyer or anyone else at Sotheby’s about the confidentiality provision of
the Letter Agreement. Defendants argue that L&M was not obligated to make any such
disclosure because the terms of the Letter Agreement were themselves confidential. The
court disagrees. A reasonable jury could find that L&M’s failure to inform Sotheby’s and
Meyer about the existence and terms of the confidentiality provision of the Letter Agreement
was inconsistent with what an average, prudent, and comparable person would have done,
under the same or similar circumstances, to make every reasonable effort when exercising
due diligence and in the absence of neglect to keep all aspects of the 2007 transaction
confidential.
Finally, it is undisputed that Studio Capital sold the Rothko painting through a public
auction. The court has already held that the Letter Agreement did not prohibit the resale of
the painting. But, even if the painting were resold, the parties were obligated to “make every
reasonable effort to keep all aspects of the 2007 transaction confidential.” Hoffman I, 774
F.Supp.2d at 834 (emphasis added). A reasonable jury could find that selling the painting
at a public auction at a well known and highly respected auction house was inconsistent with
what an average, prudent, and comparable person would have done, when exercising due
diligence and in the absence of neglect, to keep confidential all aspects of the 2007
transaction. A reasonable jury could also find that an average, prudent, and comparable
person, when exercising due diligence and in the absence of neglect, would have ensured that
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a sale at public auction was conducted only under certain restrictions—including, for
example, requiring that the promotional materials not include pictures of the Rothko painting
or references to the Flash Forward Exhibit at the DMA—to ensure that all aspects of the
2007 transaction, including the fact of the sale itself, were kept confidential.
In sum, Hoffman has met her burden of producing evidence that raises a genuine issue
of material fact on the question whether defendants breached the confidentiality provision
of the Letter Agreement. Accordingly, the court denies defendants’ motions for summary
judgment to the extent based on Hoffman’s alleged failure to introduce sufficient evidence
of a breach of contract.
D
The court turns next to Hoffman’s motion for partial summary judgment, in which she
contends she has established defendants’ liability for breach of the Letter Agreement.
Although the court has determined that Hoffman has created a genuine issue of material fact
on the question of breach, she has not met her burden under the “heavy” beyond
peradventure standard. She has failed to show that a reasonable jury could not find that
defendants’ actions were those of what an “average, prudent, and comparable person would
or would not have done, under the same or similar circumstances, to make every reasonable
effort when exercising due diligence and in the absence of neglect.”
5
Id. at 834.5
Because the court is denying summary judgment, it will “not set out in detail the
evidence that creates a genuine issue of material fact.” Valcho, 658 F.Supp.2d at 812 n.8.
Hoffman cannot meet her “heavy” burden under the beyond peradventure standard, so the
court finds it unnecessary even to cite examples of disputed fact issues.
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Accordingly, the court denies Hoffman’s motion for partial summary judgment.
IV
Defendants also move for summary judgment based on the contention that Hoffman
first breached the confidentiality provision of the Letter Agreement.
A
Defendants rely on evidence that Hoffman disclosed the fact of the sale of the Rothko
painting to two prominent members of the Dallas art community: Rachofsky and Rose. They
argue that Hoffman cannot maintain a claim for breach of a contract that she herself breached
long before defendants allegedly did so.
Hoffman responds that she performed her confidentiality obligations under the Letter
Agreement. She points to evidence that she withheld the fact of the sale even from her
daughters; that when others asked her why the Rothko painting was not on display in her
home, she replied that she had “done a new installation,” a phrase she uses to explain why
a particular picture is not hanging at any given time, P. 8-3-12 App. 15-18; that, apart from
her confidential business advisors, attorney, and accountant, she told two individuals
(Rachofsky and Rose) that she had sold the Rothko painting; that “[t]he reason she told them
was because they were close friends who had joined the Hoffmans in bequeathing their
collections to the [DMA]—at [her] request—and she felt ‘a moral, ethical obligation, to let
them know that [she had] sold the picture,’” P. 8-17-12 Br. 5 (quoting P. 8-3-12 App. 13-14);
that Rachofsky and Rose agreed to hold the information in confidence, and there is no
evidence they did not; that her “conduct i[n] sharing this information with her close collector
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confidants is not inconsistent with making maximum effort to keep all aspects of the
Transaction confidential indefinitely,” id. at 6; and that her disclosure did not excuse
defendants’ breach because, to the extent the disclosure might constitute a breach, it was at
most an immaterial one and made in good faith.
B
The Letter Agreement provides, in relevant part, that “[a]ll parties agree to make
maximum effort to keep all aspects of this transaction confidential indefinitely.” P. 7-13-12
App. 278. Hoffman and defendants therefore shouldered the same obligation. But although,
as a general matter, “‘a party to a contract who is himself in default cannot maintain a suit
for its breach,’” Dobbins v. Redden, 785 S.W.2d 377, 378 (Tex. 1990) (per curiam) (citations
omitted), the court cannot say at the summary judgment stage, as a matter of law, that
Hoffman breached the Letter Agreement. As with defendants’ conduct, Hoffman’s acts or
omissions are measured according to what an average, prudent, and comparable person
would or would not have done, under the same or similar circumstances, to make every
reasonable effort when exercising due diligence and in the absence of neglect. A reasonable
jury could find that such a person would have disclosed the fact of the sale to two close
friends, in confidence, where the close friends had jointly bequeathed their own art
collections to a museum at the person’s request, and the person felt a moral and ethical
obligation to disclose that she had sold a painting that had been included in her bequest. The
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court therefore denies defendants’ motion for summary judgment on this basis.6
V
Defendants maintain that they are entitled to summary judgment dismissing
Hoffman’s breach of contract claim on the ground that there is no triable fact issue on
damages.
A
In her third amended complaint, Hoffman alleges that defendants’ “material breach
of the Contract has deprived Plaintiff of the benefit of the bargain she entered into in April
2007.” 3d Am. Compl. ¶ 127. Defendants maintain that Hoffman’s breach of contract claim
fails because there is no evidence of economic damages. They point to evidence that, before
the 2007 sale, Hoffman never received an appraisal of more than $12 million for the Rothko
painting. They argue that there is no proof that the sale price of $17.6 million was discounted
or that the actual value of the painting in April 2007 was any higher than the agreed-upon
purchase price of $17.6 million. Defendants also contend that there is no such concept as an
“auction premium” that Hoffman would allegedly have forfeited in order to sell the Rothko
painting privately. Finally, defendants posit that because Hoffman testified that she never
6
Because the court concludes that a genuine issue of material fact exists as to whether
Hoffman breached the Letter Agreement, it does not reach the questions whether, if Hoffman
breached the Letter Agreement by informing Rachofsky and Rose about the sale of the
Rothko painting, the breach would be “immaterial” and therefore would not excuse
defendants from further performance, or whether Hoffman’s alleged breach would instead
prevent her from establishing her own performance under the Letter Agreement, thus
discharging defendants from further performance.
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would have sold the Rothko painting at public auction in 2007, “[s]he cannot claim damages
because she did not do something which the evidence shows she never would have done in
the first place.” Studio Capital 7-13-12 Br. 43. In sum, defendants maintain there is “utterly
no evidence that the inclusion of the confidentiality provision had any effect at all on the
price Plaintiff received for the [Rothko painting], and she therefore has no evidence of any
economic damages.” Id. at 43-44.7
Hoffman responds that she is not limited to “benefit-of-the-bargain” damages on her
breach of contract claim but can also recover restitution damages (both legal and equitable)
as well as rescission damages. She contends there is substantial evidence that, had she sold
7
Defendants do not argue that Hoffman’s damages theory is legally defective, i.e., that
this measure of damages is unavailable as a matter of law in an action for breach of contract.
They maintain instead that the theory is factually deficient. See, e.g., Studio Capital 7-13-12
Br. 37 (“Discovery has demonstrated without contradiction that the confidentiality provision
had no effect on the price [of] the 2007 Sale. Plaintiff therefore has no evidence supporting
economic damages.”), 42 (“Discovery has shown conclusively that there is no such thing as
an ‘auction premium,’ and Plaintiff has provided no evidence suggesting there is.”), & 43-44
(“Thus, there is utterly no evidence that the inclusion of the confidentiality provision had any
effect at all on the price Plaintiff received for the Painting, and she therefore has no evidence
of any economic damages. Her seller’s remorse at the fact that the market moved up after
her sale does not permit her to appropriate that appreciation for herself, when there is no
evidence that she did not get the full value of the Painting when she sold it.”); L&M 7-13-12
Br. 18-19 (“But, because Hoffman testified unequivocally (and consistently with her own
allegations) that she would never have sold the Painting at public auction, Wiener’s expert
opinion is counterfactual and based on speculation and conjecture contrary to the summary
judgment evidence.”), 19 (“As Hoffman’s damages are based on the counterfactual
speculation that Hoffman would have sold the Painting at auction, her damages are pure
speculation or conjecture.”), & 20 (“Setting aside the fact that Wiener’s opinion is entirely
based on the false premise that Hoffman would have sold the Painting at public auction in
2007, Wiener in fact makes clear that there is no such concept as an ‘auction premium’ that
Hoffman would have allegedly forfeited in order to sell the Painting privately.”).
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the Rothko painting at public auction in 2007, she would have gotten more for the painting
than she did by selling it through a private sale, regardless whether there is an “auction
premium.” Hoffman cites the opinion of her expert, Wiener, that the value of the Rothko
painting, if it sold at public auction on or around April 24, 2007, would have been in the
range of $30 to $40 million. She also relies on Meyer’s estimate that the Rothko painting
would have “fetched between $30 and $40 million in 2007,” and his testimony that, after the
May 15, 2007 sale of another Rothko painting (the “Rockefeller Rothko”), the Rothko market
was “‘at its hottest.’” P. 8-17-12 Br. 29 (citation omitted). Hoffman contends that this
evidence would enable a reasonable jury to find that she would have received more for the
painting at public auction in 2007 than she did via the private sale to defendants.
B
The question whether Hoffman can raise a genuine issue of material fact on damages
depends largely on whether she can prove that the Rothko painting would have sold for more
than $17.6 million had it been offered at public auction in April 2007. The court must
therefore decide whether Wiener’s expert opinion about the value of the Rothko painting, if
sold at public auction on or around April 24, 2007, is admissible. Defendants challenge
Wiener’s expert report and proposed testimony.
1
In formulating his opinion, Wiener notes the painting’s size, color, and “remarkable
condition.” P. 8-3-12 App. 322. He then quotes Meyer’s statement in 2010 that “‘[t]hree
years ago [the Rothko painting] would have been proposed at between 30 and 40 million[ ].’”
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Id. at 323 (quoting Paola Messana, Cautious Optimism Marks New York’s Latest Slate of Art
Auctions, The Daily Star, May 3, 2010). He then “concur[s]” with Meyer’s estimate,
substantiating his opinion by considering 2007 and 2008 auction sale prices for similar works
by the same artist. Id. Wiener notes that, on May 15, 2007, just three weeks after Hoffman
sold the Rothko painting,
a Sotheby’s auction fetched $72,840,000 for a Rothko painting
that is smaller than the Subject Property. Six months later, on
November 13, 2007, a Christie’s auction fetched $34,201,000
for a Rothko painting that is smaller than the Subject Property;
this sale price was approximately $6.7 million above the median
estimate. And the following year, on May 13, 2008, a Rothko
painting of approximately the same size as the Subject Property
sold for $50,441,000 . . . . Although five public auctions of
comparable Rothko paintings fetched less than $34 million in
2007 . . . [t]he average public auction price for comparable
Rothkos in 2007 and 2008 was approximately $31.3 million.
Id.
Defendants move to exclude Wiener’s expert report and proposed testimony. They
argue, inter alia, that his valuation methodology is unreliable because his reliance on auction
sales subsequent to the valuation date is misleading. Defendants challenge Wiener’s failure
to consider sales prices for Rothko paintings sold before April 24, 2007 or to explain why
he did not take such sales into consideration. They argue that the sale of the Rockefeller
Rothko after April 24, 2007 “completely recalibrated the market for Rothko paintings sold
thereafter, greatly increasing the prices collectors were willing to pay for Rothko paintings.”
Ds. 7-13-12 Mot. to Exclude 7. Accordingly, defendants posit that selective reliance only
on Rothko sales that took place after the valuation date is misleading. Defendants also
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maintain that Wiener’s failure to account for two appraisals of the Rothko painting before
April 24, 2007, and his failure to provide an explanation for his decision to not consider these
appraisals, renders his opinion unreliable and inadmissible. Finally, defendants argue that
Wiener’s purported methodology does not meet his own standards or those of an expert in
the field. They cite the Uniform Standards of Professional Appraisal Practice (“USPAP”)
and contend that, although data subsequent to the effective date (here, April 24, 2007) may
be considered as a confirmation of trends, Wiener impermissibly bases his entire valuation
on this type of data.
Hoffman responds that defendants’ arguments relate more to the weight to be given
to Wiener’s testimony than to its admissibility. She maintains that defendants’ challenges
to the most appropriate comparable transactions—pre-2007 transactions or post-2007
transactions—should be resolved by the jury and not through a Daubert motion. Hoffman
also posits that Wiener did consider pre-April 2007 sale prices and took that information into
account when formulating his opinions. Defendants apparently did not question Wiener
regarding that information at his deposition, but had they done so, Hoffman argues, he would
have explained that he does not believe these pre-April 2007 works are comparable because,
in 2006 and 2007, the post-war and contemporary art markets were experiencing dramatic
strength that would not be reflected in almost all earlier sales. Moreover, when David
Rockefeller announced in March 2007 that he would be consigning his Rothko to auction,
this had a dramatic effect on the Rothko market even before the Rockefeller Rothko was sold
in May of that year. In sum, Hoffman argues, “this is simply a dispute over what the ‘more
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appropriate’ set of comparables is for the purposes of valuing the [Rothko painting] . . . not
a question of whether Wiener’s methodology was ‘reliable’ within the meaning of Daubert.”
P. 8-3-12 Resp. to Mot. to Exclude 10.
Hoffman next argues that Wiener did review the other appraisals of the Rothko
painting, but “he did not put much stock in these valuations because, in part, they contained
no analysis supporting the stated conclusions and provided no way to test the assumptions
on which they rested.” Id. at 13. Hoffman argues that although it is not required that an
expert on valuation follow either the USPAP or AAA guidelines, Wiener’s methodology is
consistent with recognized appraisal techniques. Specifically, she contends that it is clear
on the face of Wiener’s report that he used the “fair market value” as the type of valuation
and “market data comparison” as his valuation approach. Finally, Hoffman posits that
Wiener’s use of auction sale data subsequent to the valuation date was appropriate under the
USPAP because, given the evidence that the modern art market was experiencing robust
growth in 2006 and 2007 and that the value of Rothko paintings was following that growth
trend, Wiener was fully justified under the USPAP in relying on post-valuation date
comparables in valuing the Rothko painting as of April 2007.
2
The court decides defendants’ motion to exclude in its role as a gatekeeper regulating
the admissibility of expert testimony. See, e.g., Pipitone v. Biomatrix, Inc., 288 F.3d 239,
244 (5th Cir. 2002) (“Rule 702 charges trial courts to act as ‘gate-keepers’”). To be
admissible under Fed. R. Evid. 702, expert testimony must be both relevant and reliable. See,
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e.g., id. (“In short, expert testimony is admissible only if it is both relevant and reliable.”).
“Reliability is determined by assessing ‘whether the reasoning or methodology underlying
the testimony is scientifically valid.’” Knight v. Kirby Inland Marine Inc., 482 F.3d 347, 352
(5th Cir. 2007) (quoting Daubert v. Merrell Dow Pharm., 509 U.S. 579, 592-93 (1993)). An
expert must also be qualified. “Before a district court may allow a witness to testify as an
expert, it must be assured that the proffered witness is qualified to testify by virtue of his
‘knowledge, skill, experience, training, or education.’” United States v. Cooks, 589 F.3d 173,
179 (5th Cir. 2009) (quoting Rule 702). “A district court should refuse to allow an expert
witness to testify if it finds that the witness is not qualified to testify in a particular field or
on a given subject.” Id. (citing Wilson v. Woods, 163 F.3d 935, 937 (5th Cir. 1999)).
“Relevance depends upon ‘whether [the expert’s] reasoning or methodology properly
can be applied to the facts in issue.’” Knight, 482 F.3d at 352 (quoting Daubert, 509 U.S.
at 593). To be relevant, “expert testimony [must] ‘assist the trier of fact to understand the
evidence or to determine a fact in issue.’” Pipitone, 288 F.3d at 245 (quoting Daubert, 509
U.S. at 591). The burden is on the proponent of the expert testimony to establish its
admissibility by a preponderance of the evidence. Daubert, 509 U.S. at 592 & 592 n.10.
Defendants do not contest Wiener’s qualifications to testify as an expert. They instead
challenge both the reliability and relevance of his conclusions based on Wiener’s decision
to rely on post-April 2007 sales transactions in forming his valuation opinion. “As a general
rule, questions relating to the bases and sources of an expert’s opinion affect the weight to
be assigned that opinion rather than its admissibility and should be left for the [trier of fact’s]
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consideration.” Viterbo v. Dow Chem. Co., 826 F.2d 420, 422 (5th Cir. 1987). “Vigorous
cross-examination, presentation of contrary evidence, and careful instruction on the burden
of proof are the traditional and appropriate means of attacking shaky but admissible
evidence.” Daubert, 509 U.S. at 596. Wiener’s methodology—in which he used the “fair
market value” as the type of valuation and “market data comparison” as his valuation
approach—is neither unreliable nor irrelevant. Because Hoffman has established that
Wiener’s testimony is reliable and relevant, the court denies defendants’ motion to exclude.
C
Hoffman has presented sufficient evidence to permit a reasonable jury to find that the
Rothko painting would have sold for a price greater than $17.6 million had it been offered
at public auction. Hoffman relies on the expert report of Wiener, in which he opines that the
value of the Rothko painting, if it sold at public auction on or around April 24, 2007, would
have been in the range of $30 to $40 million. She also relies on deposition testimony from
Meyer that, after the May 15, 2007 sale of the Rockefeller Rothko, the Rothko market was
“‘at its hottest.’” P. 8-17-12 Br. 29 (citation omitted). Hoffman also cites the fact that the
Rockefeller Rothko, which sold for a record-breaking $86.9 million only weeks after her
private April 2007 sale, and “[t]he two pictures share the same pulsating red color; the same
medium; the same scale.” Id. at 30. Finally, she points to evidence that, on May 16, 2007,
Mnuchin received $26.92 million for a Rothko at public auction, which was above the $20
to $25 million estimate.
As alleged in her third amended complaint, Hoffman’s damages theory is that, by
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limiting herself to a private sale, she forewent the higher price she could have obtained for
the Rothko painting had she sold it at public auction. According to Hoffman, in April 2007
the Rothko painting would have sold at public auction for a price higher than $17.6 million.
Instead of selling the painting for this price, she opted to limit herself to a private sale at a
lower price—$17.6 million—with the promise of maximum efforts to maintain
confidentiality. Hoffman therefore maintains that the “value” of the confidentiality provision
in the Letter Agreement can be quantified based on the difference between the price for
which she could have sold the Rothko painting at public auction and the allegedly discounted
amount for which she actually sold the Rothko painting privately. See, e.g., P. 8-17-12 Br.
28 (“The price at which she could have sold the painting at auction is a quantification of the
monetary consideration that she sacrificed to obtain other forms of consideration—namely,
the extremely stringent confidentiality provision.”). Under this reasoning, to restore
Hoffman to the same economic position she would have been in had the contract been
performed as promised (assuming, arguendo, that the contract was breached), Hoffman
would be entitled to the difference between $17.6 million and what the painting would have
sold for at public auction on or around April 24, 2007.
Defendants argue that Hoffman’s evidence fails to raise a genuine issue of material
fact that, on April 24, 2007, the Rothko painting was worth more than the $17.6 million
purchase price. The court disagrees. A reasonable jury could find, based on the evidence
discussed above, that if Hoffman had sold the Rothko painting at a public auction on April
24, 2007, she would have obtained more than $17.6 million for the painting. That she had
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no actual intention to sell the Rothko painting at public auction is immaterial. This method
is simply a way of quantifying what she paid for strict confidentiality, i.e., the benefit of the
bargain under the terms of the Letter Agreement. If Hoffman establishes at trial that she
could have sold the Rothko painting at auction and received a higher price than at a private
sale, a reasonable jury could find that this proves the value of the confidentiality provision
of the Letter Agreement, and it supports an award of damages for breach of contract.
D
Because the court concludes Hoffman has raised a genuine issue of material fact on
the question of her entitlement to traditional breach-of-contract damages, it need not address
defendants’ argument that, under Texas law, Hoffman cannot recover damages for
“embarrassment” or other mental anguish that she allegedly suffered as a result of
defendants’ breach of contract, or that, even if she were entitled to these damages, there is
no evidence that she in fact suffered reputational harm. It is enough that a jury could return
a damages verdict for Hoffman on at least one of her damages theories. To prevail on
defendants’ summary judgment motions on her breach of contract claim, she is not required
to prove her entitlement to damages under all asserted damages theories.
- 30 -
*
*
*
For the foregoing reasons, the court denies Hoffman’s July 13, 2012 motion for partial
summary judgment, denies Studio and Martinez’s July 13, 2012 motion for summary
judgment, denies L&M’s July 13, 2012 motion for summary judgment, and denies
defendants’ July 13, 2012 motion to exclude the expert testimony of Wiener.
SO ORDERED.
January 28, 2013.
_________________________________
SIDNEY A. FITZWATER
CHIEF JUDGE
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