Hoffman v. Martinez et al
Filing
500
MEMORANDUM OPINION AND ORDER granting 428 L&M's MOTION for Summary Judgment on Fraudulent Inducement, and denying 437 Defendants' MOTION for Summary Judgment on Plaintiff's Auction-Premium Theory of Contractual Damages. (Ordered by Chief Judge Sidney A Fitzwater on 8/26/2013) (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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§ Civil Action No. 3:10-CV-0953-D
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MEMORANDUM OPINION
AND ORDER
In this lawsuit arising from the sale at public auction of the 1961 Mark Rothko oil
painting, Untitled (the “Rothko painting”), defendant L&M Arts (“L&M”) moves for
summary judgment on plaintiff Marguerite Hoffman’s (“Hoffman’s”) fraudulent inducement
claim, and defendants L&M, Studio Capital, Inc. (“Studio Capital”), and David Martinez
(“Martinez”) move for summary judgment on Hoffman’s auction-premium theory of
damages for breach of contract. For the reasons that follow, the court grants L&M’s motion
and dismisses Hoffman’s fraudulent inducement claim with prejudice. The court denies
defendants’ motion addressed to Hoffman’s auction-premium theory of damages for breach
of contract.
I
Because this case is the subject of several prior opinions,1 the court will not recount
the background facts generally, but will instead address specific background facts and
procedural history in the context of the rulings below.
Because at trial Hoffman will have the burden of proof on her fraudulent inducement
and breach of contract claims, L&M can meet its summary judgment obligation by pointing
the court to the absence of admissible evidence to support the claims. See Celotex Corp. v.
Catrett, 477 U.S. 317, 325 (1986). Once it does so, Hoffman must go beyond her 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 evidence is such that a reasonable jury could return a verdict in Hoffman’s
favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Hoffman’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 as to a claim if she fails to meet this burden. See Little,
37 F.3d at 1076.
II
L&M moves for summary judgment on Hoffman’s fraudulent inducement claim,
contending that she cannot raise a genuine issue of material fact on all of the elements of the
1
See, e.g., Hoffman v. L&M Arts, 2013 WL 432771 (N.D. Tex. Feb. 5, 2013)
(Fitzwater, C.J.).
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claim.
A
Under Texas law,2 the elements of fraud are: (1) the defendant made a material
representation, (2) it was false when made, (3) the defendant knew the representation was
false, or made it recklessly, without knowledge of its truth and as a positive assertion, (4) the
defendant made the representation with the intent that the plaintiff should act upon it, and (5)
the plaintiff acted in reliance upon it and suffered injury as a result. Beijing Metals &
Minerals Import/Export Corp. v. Am. Bus. Ctr., Inc., 993 F.2d 1178, 1185 (5th Cir. 1993)
(Texas law). “Fraudulent inducement . . . is a particular species of fraud that arises only in
the context of a contract and requires the existence of a contract as part of its proof.” Haase
v. Glazner, 62 S.W.3d 795, 798 (Tex. 2001). In her response brief, Hoffman states that she
is basing her fraudulent inducement claim on three alleged misrepresentations: first, L&M
misrepresented that it possessed authority to sign the April 2007 letter agreement (the “Letter
Agreement”) on behalf of Studio Capital; second, L&M misrepresented that the buyer of the
Rothko painting was an individual; and, third, L&M misrepresented that the Rothko painting
would “disappear” into the undisclosed buyer’s “very private” “European collection.”
2
In her brief, Hoffman primarily cites Texas law. L&M argues that New York law
applies to Hoffman’s fraudulent inducement claim because any purported representations by
L&M occurred in New York. But it also maintains that the court need not decide at this stage
whether New York or Texas law applies to this claim. Accordingly, the court will assume
that Texas law governs Hoffman’s fraudulent inducement claim and will apply Texas law in
addressing the issues presented in L&M’s motion.
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B
Hoffman’s contention in her response brief that L&M fraudulently induced her to
enter into the Letter Agreement by misrepresenting that it possessed the authority to sign the
Letter Agreement on behalf of the buyer is an unpleaded claim and is therefore insufficient
to avoid summary judgment. In her third amended complaint, Hoffman alleges that
L&M fraudulently induced Plaintiff to enter into the February
Agreement and the [Letter Agreement] by misrepresenting and
concealing material facts, including that L&M had made the
undisclosed buyer aware of her concerns and of the terms of
both contracts, that the undisclosed buyer was an individual and
not an institution, and that the [Rothko painting] would
“disappear” into that individual’s very private European
collection.
3d Am. Compl. ¶ 135. She nowhere alleges that L&M misrepresented that it possessed
authority to sign the Letter Agreement on behalf of Studio Capital. “A claim which is not
raised in the complaint but, rather, is raised only in response to a motion for summary
judgment is not properly before the court.” Cutrera v. Bd. of Supervisors of La. State Univ.,
429 F.3d 108, 113 (5th Cir. 2005) (citation omitted); see also Ellis v. Crawford, 2007 WL
1624773, at *11 (N.D. Tex. June 6, 2007) (Fitzwater, J.) (holding that plaintiffs could not
rely on unpleaded hostile work environment claim raised for the first time in summary
judgment response) (citing Cutrera, 429 F.3d at 113). “A properly pleaded complaint must
give ‘fair notice of what the claim is and the grounds upon which it rests.’” De Franceschi
v. BAC Home Loans Servicing, L.P., 477 Fed. Appx. 200, 204 (5th Cir. 2012) (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 698-99 (2009)). “Accordingly, district courts do not abuse
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their discretion when they disregard claims or theories of liability not present in the
complaint and raised first in a motion opposing summary judgment.” Id.
The court therefore grants L&M’s motion for summary judgment dismissing the first
ground of Hoffman’s fraudulent inducement claim.
C
Hoffman’s second ground for her fraudulent inducement claim is the contention that
L&M misrepresented that the buyer of the Rothko painting was an individual.
1
L&M contends that it is entitled to summary judgment because, inter alia, Hoffman
has failed to produce evidence that this alleged misrepresentation caused her injury.
Hoffman responds that the misrepresentation caused her injury because, instead of selling
the Rothko painting to an individual into whose collection it would disappear, she
unknowingly sold it to Studio Capital, “a company with multiple stakeholders, managers, and
other interested parties, whose interests lay in maximizing profit, rather than respecting
[Hoffman’s] confidentiality.” P. 5/8/13 Br. 30. Hoffman posits that “had L&M not deceived
[Hoffman,] Studio Capital would not have purchased the [Rothko painting] and subsequently
sold it at public auction—to [her] detriment.” Id.
2
Under Texas law, there are two measures of direct damages in a fraud case: out-ofpocket damages and benefit-of-the-bargain damages. Formosa Plastics Corp. USA v.
Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 49 (Tex. 1998) (citing Arthur Andersen
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& Co. v. Perry Equip. Corp., 945 S.W.2d 812, 817 (Tex. 1997)). Out-of-pocket damages
measure the difference between the amount the buyer paid and the value of the property the
buyer received. Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d 369, 373 (Tex. 1984).
Benefit-of-the-bargain damages measure the difference between the value of the property as
represented and the actual value of the property. Id. “Both measures of damages are
determined at the time of sale.” Arthur Andersen, 945 S.W.2d at 817(citing Leyendecker,
683 S.W.2d at 373).
A reasonable jury could not find, however, that Hoffman was injured at the time of
the sale by the fact that the Rothko painting was sold to an entity rather than an individual.
In fact, Hoffman does not allege that the injury from the misrepresentation that the buyer was
an individual occurred at the time of the sale. Her alleged injury is from the public sale of
the Rothko painting. Had Studio Capital not sold the painting publicly, in breach of the
Letter Agreement (assuming arguendo that the public sale did breach the agreement),
Hoffman presumably would not have been injured by the fact that the purchaser was not an
individual. The sale at public auction did not occur until 2010, three years after Hoffman
sold the painting.
Accordingly, because any injury from the alleged misrepresentation that the buyer was
an individual did not occur until after Hoffman sold the Rothko painting, it appears that
Texas law limits her recovery to consequential damages rather than direct damages. See,
e.g., Fazio v. Cypress/GR Hous. I, L.P., ___ S.W.3d ___, 2013 WL 1416558, at *3 (Tex.
App. Apr. 5, 2013, pet. denied) (en banc) (“Losses that arise after the time of sale may be
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recoverable as consequential damages in appropriate cases.” (citing Formosa Plastics, 960
S.W.2d at 49 n.1)).3 “Consequential damages must be foreseeable and directly traceable to
the misrepresentation and result from it.” Id. (citing Arthur Andersen, 945 S.W.2d at 816);
see also Formosa Plastics, 960 S.W.2d at 49 n.1 (“When properly pleaded and proved,
consequential damages that are foreseeable and directly traceable to the fraud and result from
it might be recoverable.” (citing Arthur Andersen, 945 S.W.2d at 817)). “Without this
limitation, an investor could shift the entire risk of an investment to a defendant who made
a misrepresentation, even if the loss were unrelated to the misrepresentation.” Arthur
Andersen, 945 S.W.2d at 817; Fazio, 2013 WL 1416558, at *3 (“An investor may not ‘shift
3
In this diversity case, absent a binding decision of the Supreme Court of Texas on an
issue of Texas substantive law, this court must make an “Erie-guess,” i.e., a prediction under
Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), of how that court would resolve the issue if
presented with the same case. See, e.g., Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 229
(5th Cir. 2010) (citing Six Flags, Inc. v. Westchester Surplus Lines Ins. Co., 565 F.3d 948,
954 (5th Cir. 2009)). In doing so, this court is not required to be prescient. Instead, “[w]hen
confronted with an unsettled issue of state law, a federal court sitting in diversity must make
its best effort to predict how the state courts would decide the issue.” Batts v. Tow-Motor
Forklift Co., 66 F.3d 743, 750 (5th Cir. 1995) (citing DeWeerth v. Baldinger, 38 F.3d 1266,
1273 (2d Cir. 1994)). Erie and its progeny require no more of a federal court than that it
conscientiously satisfy its duty to predict how the state court will decide a question. Id.
The Supreme Court of Texas has clearly held that direct damages for
misrepresentation are measured at the time of sale. Arthur Andersen, 945 S.W.2d at 817.
The parties do not cite, and the court has not found, any authority from the Supreme Court
of Texas that addresses whether damages of the type Hoffman seeks are recoverable for
fraudulent inducement when the injury occurs as a result of an event that takes place after the
contract is entered into. Accordingly, making an Erie-guess, the court relies on Fazio, an en
banc decision of a Texas Court of Appeals, to conclude that the Supreme Court of Texas
would hold that only consequential damages are recoverable, and only when such damages
are reasonably foreseeable and directly traceable to a misrepresentation that fraudulently
induced the plaintiff to enter into the contract.
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the entire risk of an investment to a defendant who made a misrepresentation’ if the loss is
unrelated to the misrepresentation and due to market fluctuations or the chances of business.”
(quoting Arthur Andersen, 945 S.W.2d at 817)). “Jury instructions on consequential damages
must be explicitly premised on findings that the losses were foreseeable and directly
traceable to the misrepresentation.” Fazio, 2013 WL 1416558, at *3 (citing Turner v. PV
Int’l Corp., 765 S.W.2d 455, 464 (Tex. App. 1988, writ denied); El Paso Dev. Co. v. Ravel,
339 S.W.2d 360, 366-67 (Tex. App. 1960, writ ref’d n.r.e.)).
3
A reasonable jury could only find that any injury that Hoffman suffered from the
public sale of the Rothko painting in 2010 is directly traceable to the buyer’s failure to
comply with the requirement of the Letter Agreement that it 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 v. L&M Arts, 774 F.Supp.2d 826, 834 (N.D. Tex. 2011)
(Fitzwater, C.J.), not to the misrepresentation that the buyer was an individual. And a
reasonable jury could not find from the summary judgment evidence that the ability or
inclination of an entity to comply with this contractual standard was materially different from
that of an individual. In particular, a reasonable jury could not find that there is anything
about the confidentiality provision that makes compliance more difficult, or less likely, for
an entity, even one interested in maximizing profits. Nor has Hoffman adduced sufficient
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evidence for a reasonable jury to find that the alleged breach was attributable to Studio
Capital’s status as an entity. In sum, a reasonable jury could not find that Hoffman’s “injury”
(i.e., the breach of the confidentiality provision and resulting public auction in 2010) was
foreseeable and directly traceable to the alleged misrepresentation that the buyer was an
individual.
Accordingly, because Hoffman cannot satisfy the essential injury element of this
ground of her fraudulent inducement claim, and because her failure to raise a fact issue on
this essential element renders all other facts immaterial, the court grants L&M’s motion for
summary judgment dismissing the fraudulent inducement claim on this basis.4
4
Although Hoffman seeks other remedies in connection with her fraudulent
inducement claim—specifically, mental anguish damages, restitution, and
disgorgement—and responds to L&M’s factual challenges to her ability to obtain these
remedies, she does not argue that the availability of these remedies enables her to establish
that she was injured by the misrepresentation that the buyer was an individual. Instead,
except for distinguishing Blue Gordon, C.V. v. Quicksilver Jet Sales, Inc., 444 Fed. Appx.
1 (5th Cir. 2011), a case on which L&M relies, Hoffman’s response to L&M’s argument that
she cannot prove that she was injured by the alleged misrepresentation that the buyer was a
“very private individual” is this:
And, contrary to L&M’s claim that the misrepresentation
did not cause Plaintiff’s damages, those misrepresentations
directly led to Plaintiff’s injuries. Instead of selling the [Rothko
painting] to an individual into whose collection the [Rothko
painting] would disappear, Plaintiff unknowingly sold it to
Studio Capital—a company with multiple stakeholders,
managers, and other interested parties, whose interests lay in
maximizing profit, rather than respecting Plaintiff’s
confidentiality. Had L&M not deceived Plaintiff, Studio Capital
would not have purchased the [Rothko painting] and
subsequently sold it at public auction—to the detriment of
Plaintiff.
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D
Hoffman’s third basis for her fraudulent inducement claim is the contention that
L&M misrepresented that the Rothko painting would “disappear” into the undisclosed
buyer’s “very private” “European collection.”
1
L&M moves for summary judgment on this ground, contending, inter alia, that a
reasonable jury could not find that Hoffman justifiably relied on the representation that the
Rothko painting would “disappear” forever because Hoffman admitted that she did not
actually believe that the painting would “disappear” forever, and because Hoffman always
intended to eventually disclose the sale of the painting to the Dallas Museum of Art.
2
A reasonable jury could not find that Hoffman justifiably relied on the statement that
the Rothko painting would “disappear” into the undisclosed buyer’s “very private”
“European collection.” In fact, Hoffman does not even address the element of justifiable
*
*
*
Had L&M not deceived Plaintiff, Plaintiff would not have sold
the work to an art fund, which subsequently sacrificed Plaintiff’s
confidentiality to the highest bidder.
P. 5/8/13 Br. 30-31 (citations omitted).
Moreover, even had Hoffman advanced such an argument, it would fail because she
has not presented any evidence (nor does she argue) that she suffered mental anguish or any
other type of damages because of the misrepresentation itself, as opposed to the alleged
breach of the Letter Agreement in connection with the public auction in 2010.
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reliance in her opposition brief. Because her failure to raise a fact issue on this essential
element of her fraudulent inducement claim renders all other facts immaterial, the court
grants L&M’s motion for summary judgment on this basis as well.
For the reasons stated, Hoffman’s fraudulent inducement claim is dismissed with
prejudice.
III
L&M, Studio Capital, and Martinez move for summary judgment on Hoffman’s
auction-premium theory of contractual damages.5
A
In Hoffman v. L&M Arts, 2013 WL 432771 (N.D. Tex. Feb. 5, 2013) (Fitzwater, C.J.)
(“Hoffman IV”),6 the court addressed defendants’ factual challenge to Hoffman’s theory of
damages. Defendants argued that Hoffman’s breach of contract claim failed because there
was no “triable fact issue on damages.” Id. at *10. They maintained that she could not prove
that the $17.6 million sale price was discounted or that the actual value of the painting was
any higher than the agreed-upon price. Id. The court concluded that “[t]he 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
5
Because Studio Capital and Martinez have joined L&M’s motion and briefing, the
court will refer to L&M’s contentions as if made collectively by all three defendants.
6
Hoffman IV was filed under seal on January 28, 2013. The publicly-available version
was filed on February 5, 2013.
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been offered at public auction in April 2007.” Id. at *10. It rejected defendants’ argument
that Hoffman’s evidence failed to raise a genuine issue of material fact, holding that “[a]
reasonable jury could find . . . 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.” Id. at *14. In a footnote, the court observed that “[d]efendants 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.” Id. at *10 n.7. Defendants now bring a legal challenge,
contending that Hoffman’s “auction-premium” theory of contract damages is deficient as a
matter of law and that they are entitled to summary judgment holding that Hoffman cannot
recover under this measure of damages.
B
Defendants maintain that Hoffman cannot recover under an “auction-premium” theory
of damages because consequential damages are the only available measure of damages. But
the federal and Texas cases7 that defendants cite do not stand for the proposition that the
damages Hoffman seeks are categorically unavailable as a matter of law. Instead, in each
case, the party seeking lost profits or other damages failed to prove damages that were not
entirely speculative or that were the foreseeable result of the defendant’s breach. See, e.g.,
7
Concerning Hoffman’s breach of contract claim, defendants maintain that New York
law controls, although they acknowledge that the elements of the claim are the same under
Texas or New York law. Hoffman posits that Texas law governs, although she agrees that
the court need not resolve this conflict-of-law issue.
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CQ, Inc. v. TXU Mining Co., 565 F.3d 268, 278 (5th Cir. 2009) (affirming exclusion of
evidence of hypothetical royalties that plaintiff would have earned had defendant not
breached confidentiality agreement); Alliantgroup, L.P. v. Feingold, 803 F.Supp.2d 610, 62223 (S.D. Tex. 2011) (granting summary judgment on breach of nondisclosure agreement
claim because there was no evidence that breach of agreement caused the plaintiff to lose
business with a certain customer); Medinol Ltd. v. Bos. Scientific Corp., 346 F.Supp.2d 575,
619 (S.D.N.Y. 2004) (granting summary judgment on breach of contract claim where
plaintiff failed to show any damages stemming from defendant’s misuse of plaintiff’s
confidential information); Clearview Props., L.P. v. Prop. Tex. SC One Corp., 287 S.W.3d
132, 139-40 (Tex. App. 2009, pet. denied) (affirming summary judgment on claim for breach
of nondisclosure agreement because there was no evidence that defendant’s disclosure of
information caused plaintiff to lose deal with another defendant); John Wood Grp. USA, Inc.
v. ICO, Inc., 26 S.W.3d 12, 22-23 (Tex. App. 2000, pet. denied) (holding that lost profits
could not be recovered as benefit-of-the-bargain damages where there was no evidence that
breach of confidentiality provision caused these damages).8 The court therefore holds that
defendants have failed to demonstrate that Hoffman’s theory of damages for breach of
contract is legally deficient.
8
The New York case that defendants cite is distinguishable for the same reason. See
Pure Power Boot Camp, Inc. v. Warrior Fitness Boot Camp, LLC, 813 F.Supp.2d 489, 51920 (S.D.N.Y. 2011) (finding, after bench trial, that plaintiff was not entitled to recover lost
profits because it failed to prove that lost profits were caused by defendant’s breach of nondisclosure provision).
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Additionally, so far as the court can determine, Hoffman’s damages theory is legally
viable.9 Under Texas law, “[t]he goal in measuring damages for a breach-of-contract claim
is to provide just compensation for any loss or damage actually sustained as a result of the
breach.” Parkway Dental Assocs., P.A. v. Ho & Huang Props., L.P., 391 S.W.3d 596, 607
(Tex. App. 2012, no pet.) (citations omitted). “The normal measure of damages in a breach
of contract case is the benefit-of-the-bargain measure” which “seeks to restore the injured
party to the economic position it would have been in had the contract been performed.”
SAVA gumarska in kemijska industria d.d. v. Advanced Polymer Scis., Inc., 128 S.W.3d 304,
317 n.6 (Tex. App. 2004, no pet.). The benefit-of-the-bargain measure of damages “is not
based upon the facts as they actually occurred but instead is focused on what the injured
party’s economic position would have been if the contract had been fully performed.”
Parkway Dental Assocs., 391 S.W.3d at 608. Benefit-of-the-bargain damages are calculated
by subtracting the value received by the non-breaching party from the value the party
expected to receive when the contract was made. Arthur Andersen, 945 S.W.2d at 817; see
also DaimlerChrysler Motors Co. v. Manuel, 362 S.W.3d 160, 180 (Tex. App. 2012, no pet.)
(“the ‘benefit of the bargain’ measure . . . utilizes an expectancy theory and evaluates the
difference between the value as represented and the value received.” (citations omitted)).
9
As explained supra at note 3, this court is attempting to conscientiously satisfy its
duty under Erie to predict how the Supreme Court of Texas would decide this question. The
court has not found any case that suggests that what Hoffman seeks to recover is unavailable
under Texas law as a matter of law. If necessary, the court can revisit this issue after the
verdict.
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In Hoffman IV the court stated:
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 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.
Hoffman IV, 2013 WL 432771, at *14. This analysis was written in the context of a factual
challenge to Hoffman’s theory of damages. In the more precise context of a legal challenge,
the court refines its explanation and holds as a matter of law that the benefit of the bargain
under the terms of the Letter Agreement can be measured by the reduction in monetary
consideration that Hoffman was willing to accept when combined with other, non-monetary
consideration10—here, the promise of strict confidentiality—in exchange for the Rothko
painting. In other words, Hoffman can attempt to persuade the jury that she accepted lower
monetary compensation in connection with her requirement of privacy, and to prove what
10
L&M recognizes in its motion for summary judgment addressed to Hoffman’s
fraudulent inducement claim that the agreement to keep “all aspects” of the transaction
confidential indefinitely constituted “other valuable consideration under the [Letter]
Agreement.” L&M 4/15/13 Br. 34 (emphasis omitted); see also id. (“Nor is there any dispute
that [L&M’s and the buyer’s maximum efforts to keep ‘all aspects’ of the transaction
confidential indefinitely] had value—in fact, the evidence conclusively establishes that [it]
did.”).
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the monetary compensation would have been had she sold the Rothko painting publicly or
without the same or a comparable requirement of confidentiality. Whether this amount is
equal to the so-called “auction-premium” is a question of fact for the jury to decide.
Although Hoffman does not cite, and the court has not found, a case that is factually
similar to this one,11 the court has located Texas authority that appears to support the premise
that the damages Hoffman seeks are legally available. In Fortune Production Co. v. Conoco,
Inc., 52 S.W.3d 671 (Tex. 2000), one of the issues the Supreme Court of Texas addressed
was whether the plaintiffs, who were producers of natural gas, could recover as benefit-ofthe-bargain damages the price they could have obtained under a contract with the defendant
for their residue gas had they known that most of the gas was going to be resold under a
preexisting contract between the defendant and Lone Star Gas Company (“Lone Star”), as
opposed to being sold on the spot market at a much lower rate.12 Fortune Production, 52
S.W.3d at 673-75. The court concluded that, because there was evidence that the defendant
11
The law on the recovery of benefit-of-the-bargain damages involving non-monetary
consideration is scant. Hoffman cites Texas A&M University-Kingsville v. Lawson, 28
S.W.3d 211, 215-16 (Tex. App. 2000, no pet.), for the proposition that a party can recover
benefit-of-the-bargain damages when there is a failure of a non-monetary form of
consideration. But although the Texas A&M court characterized a university’s promise to
represent that a former employee had been an assistant professor as “what [the employee]
bargained for,” the court did not reach the merits of the damages question; instead, it
remanded the case after affirming the district court’s ruling that the defendant waived its
immunity from suit. Id. at 215-16.
12
Although the court was considering a claim for fraud in the inducement, it is
instructive nevertheless, because “the benefit of the bargain measure of damages is available
for both fraudulent inducement and breach of contract claims.” Sterling Chems., Inc. v.
Texaco Inc., 259 S.W.3d 793, 798 (Tex. App. 2007, pet. denied).
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had agreed to pay at least one producer the Lone Star contract rate for a fraction of its residue
gas, there was some evidence of benefit-of-the-bargain damages, i.e., the difference between
the contract price to which the plaintiffs agreed and the price they would otherwise have
accepted had they known the truth. Id. at 681. The court explained that, “if there is evidence
of the bargain that would have been struck had the defrauded party known the truth, there can
be a recovery for benefit-of-the-bargain damages.” Id. at 682. Although not precisely on
point factually, Fortune Production suggests that it is permissible to measure benefit-of-thebargain damages by considering what Hoffman could have sold the Rothko painting for had
she not agreed to a reduced price in exchange for non-monetary consideration in the form of
the strict confidentiality provision.
Accordingly, the court denies defendants’ motion to the extent based on the argument
that the “auction-premium” theory of contractual damages is legally defective.
C
Defendants argue that they are entitled to summary judgment on Hoffman’s breach
of contract claim because her only consequential damages are legally-defective “mental
anguish” damages. To the extent defendants challenge the viability of mental anguish
damages as an available remedy for the alleged breach of contract, this challenge is beyond
the scope of the motion that the court permitted defendants to file. Moreover, “[i]t is enough
that a jury could return a damages verdict for Hoffman on at least one of her damages
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theories.” Hoffman IV, 2013 WL 432771, at *14.13
To the extent defendants argue that the auction-premium is a “proxy” for the value of
Hoffman’s claimed embarrassment, they have mischaracterized what she seeks. Hoffman
does not argue that the auction-premium should be used to measure her mental anguish
damages. Rather, in seeking the so-called auction-premium, she is attempting to recover
benefit-of-the-bargain damages.
Defendants also maintain that Hoffman’s auction-premium theory is not a reasonably
foreseeable measure of actual, consequential loss. Unlike consequential damages, however,
benefit-of-the-bargain damages “compensate a plaintiff for a loss that is conclusively
presumed to have been foreseen by the defendant as a usual and necessary consequence of
the defendant’s act.” DaimlerChrysler Motors, 362 S.W.3d at 179 (citation omitted).
Accordingly, Hoffman is not required to prove that her benefit-of-the-bargain damages
(measured by the so-called auction-premium) were reasonably foreseeable.
*
*
*
For the reasons explained, the court grants L&M’s April 15, 2013 motion for partial
summary judgment on fraudulent inducement, and it denies defendants’ May 2, 2013 motion
13
Defendants contend that Hoffman cannot obtain the remedy of rescission. The court
need not address their arguments because, regardless whether rescission damages are
available, Hoffman can recover benefit-of-the-bargain damages.
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for partial summary judgment on plaintiff’s legally deficient auction-premium theory of
contractual damages.
SO ORDERED.
August 26, 2013.
_________________________________
SIDNEY A. FITZWATER
CHIEF JUDGE
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