Hoffman v. Martinez et al
Filing
685
MEMORANDUM OPINION AND ORDER granting 635 Motion to Set Aside Judgment filed by David Martinez, Studio Capital, Inc., and granting in part and denying in part 636 Motion for Judgment filed by L&M Arts. (Ordered by Chief Judge Sidney A Fitzwater on 9/4/2014) (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
Plaintiff Marguerite Hoffman (“Hoffman”) brought this lawsuit against defendants
L&M Arts (“L&M”), David Martinez (“Martinez”), and Studio Capital, Inc. (“Studio
Capital”), arising from the sale at public auction of the 1961 Mark Rothko oil painting,
Untitled (the “Rothko painting”), which she alleged breached the confidentiality clause of
the letter agreement under which she had sold the painting several years earlier. The parties
tried Hoffman’s breach of contract claim and defendants’ waiver defenses to a jury, which
found in Hoffman’s favor. The jury awarded compensatory damages under two measures
of damages, one of which Hoffman elected to recover under the court’s directive. After the
court entered the judgment, defendants filed the instant renewed Fed. R. Civ. P. 50(b)
motions for judgment as a matter of law. Because the court concludes that a reasonable jury
could not have found that L&M had actual or apparent authority to enter into a binding
contract on behalf of Martinez and Studio Capital, the court grants their motion and dismisses
this action against them with prejudice. Because the court concludes that a reasonable jury
could have found in Hoffman’s favor against L&M on her breach of contract claim, but that
she is not entitled to recover under the measure of damages that she elected, the court grants
L&M’s motion in part and denies it in part. For procedural reasons, the court concludes that
it must dismiss Hoffman’s action against L&M so that she can file a timely successive
motion to alter or amend the judgment, thereby enabling the court to award her damages by
second amended judgment under an alternative measure of damages. The court is filing
today an amended judgment in accordance with the rulings that follow.1
I
This case is the subject of several prior opinions,2 with which the parties are well
familiar. Accordingly, although the court will begin by summarizing certain background
facts, the jury verdict, and defendants’ pertinent contentions in support of their Rule 50(b)
motions, it will primarily recount the pertinent facts and procedural history in the context of
its specific rulings below.
Hoffman sold the Rothko painting in April 2007 under the terms of a letter agreement
dated April 24, 2007 (the “Letter Agreement”) that provided that “[t]his letter will serve as
1
Some of the pertinent briefing has been filed under seal. The court has determined
that this memorandum opinion and order need not be sealed.
2
See, e.g., Hoffman v. L & M Arts, 2013 WL 4511473 (N.D. Tex. Aug. 26, 2013)
(Fitzwater, C.J.); Hoffman v. L & M Arts, 2013 WL 432771 (N.D. Tex. Jan. 28, 2013)
(Fitzwater, C.J.); Hoffman v. L & M Arts, 2012 WL 4321739 (N.D. Tex. Sept. 21, 2012)
(Fitzwater, C.J.); 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.).
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an agreement between Greenberg Van Doren Gallery on behalf of the seller and L&M Arts
on behalf of the buyer for the sale of [the Rothko painting].” L&M Ex. 28. John Van Doren
(“Van Doren”) of Greenberg Van Doren Gallery and Robert Mnuchin (“Mnuchin”) of L&M
signed the letter, which contained the following confidentiality clause that is at the center of
this lawsuit: “[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.” Id.
Hoffman had attempted through Van Doren to sell the Rothko painting before. After
Van Doren contacted Mnuchin about a possible sale, Mnuchin and his partner at L&M,
Dominique Lévy (“Lévy”), identified Studio Capital as a potential buyer. L&M did not
disclose Studio Capital’s identity. The parties negotiated a price of $19 million, with $17.6
million to be paid to Hoffman and a $700,000 commission to be paid to each agent. On
February 27, 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 included this provision: “[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.”
P. Ex. 21.
Before the February sale was finalized, an art professional contacted Hoffman to
discuss the fact that she was selling the Rothko painting. Hoffman was alarmed that a third
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party had discovered that the painting was for sale, and she decided not to proceed with the
transaction. The buyer remained interested in making the purchase, however, and the
negotiations for the sale of the Rothko painting were revived.
In April 2007 Hoffman agreed to sell the painting for the original net price of $17.6
million, with the additional requirement that the buyer make a confidential cash contribution
to the Dallas Museum of Art (“DMA”). Unlike the February Agreement, which included
a clause that referred to the seller’s “wish . . . that the sale and terms of the sale remain
confidential” and the “request[] that confidentiality be maintained indefinitely,” id.
(emphasis added), the Letter Agreement contained the clause under which all parties agreed
“to make maximum effort to keep all aspects of this transaction confidential indefinitely,”
L&M Ex. 28.
Following the April 2007 sale, L&M invoiced Martinez and Studio Capital for the
Rothko painting. Studio Capital kept the painting in storage, and it eventually consigned it
to Sotheby’s in 2010. Sotheby’s auctioned the Rothko painting on May 12, 2010, and it sold
for $31,442,500, a price more than $13 million in excess of what Hoffman had received
when she sold it privately in 2007.
Hoffman sought to prove at trial that L&M, Martinez, and Studio Capital breached
the confidentiality clause of the Letter Agreement and that she was damaged as a result
because, when she sold the Rothko painting privately, she did so at a substantial discount in
exchange for the promise of strict confidentiality, forfeiting the additional millions of dollars
that the painting would have brought if sold at public auction. The jury found that Hoffman
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proved her breach of contract claim against L&M, Martinez, and Studio Capital,3 although
it had a more modest view of the extent of her compensatory damages. Regarding Hoffman’s
requests for damages, the jury found as follows: “[t]he difference, if any, between the sum
of money for which Hoffman sold the painting in the transaction in question and what she
could have sold the painting for at public auction on or around April 24, 2007,” Ct. Charge
Question No. 3(A), was “$500,000”; “[t]he difference, if any, between the value of the
benefits Hoffman conveyed under the contract to the defendant in question and the value of
the benefits she received in exchange,” id. Question No. 3(B), was “0” as to L&M and “0”
as to Studio Capital/Martinez4; and “[t]he value of the benefits that the defendant in question
received in connection with the transaction” was “$450,000” for L&M and “$750,000” for
Studio Capital/Martinez, id. Question No. 3(C).
After the jury returned its verdict, the court directed Hoffman to elect her remedy as
between the two measures of damages that the jury had answered in her favor. In a letter to
the court,5 Hoffman maintained that she was entitled to recover the aggregate amount of
damages that the jury had found in answer to Question No. 3(A) and (C), i.e., $1.7 million.
3
The jury also found that defendants had not proved their waiver defenses, which were
premised on the assertion that Hoffman had waived defendants’ failure to comply with the
confidentiality clause of the Letter Agreement.
4
The parties agreed that the court’s charge could designate Studio Capital and
Martinez as a single entity.
5
Hoffman’s January 3, 2014 letter to the court was not filed of record. By order filed
today, the court is directing that the letter be made part of the record as an exhibit to the
order.
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Alternatively, she requested that the court award the sum of $1.2 million that the jury had
found in answer to Question No. 3(C). In a memorandum decision, the court rejected
Hoffman’s position that she was entitled to the aggregate amount of compensatory damages
that the jury had found in response to Question No. 3(A) and (C); instead, it entered
judgment in Hoffman’s favor in the amount of her alternative request for $450,000 from
L&M and $750,000 from Studio Capital and Martinez.6
L&M, Studio Capital, and Martinez moved at all pertinent times during trial and after
the verdict for judgment as a matter of law. They now renew their Rule 50(b) motions.
Studio Capital and Martinez move for judgment on several grounds, but the court need only
reach one: that a reasonable jury could not have found that L&M was their agent and that
they were bound by the Letter Agreement.7 L&M moves for judgment as a matter of law on
the following grounds: (1) Hoffman elected a legally barred disgorgement remedy; (2) she
failed to prove her breach of contract claim because there was insufficient evidence of a
breach; and (3) she failed to prove her breach of contract claim because there was insufficient
evidence of causation.
6
The court stated that Hoffman could challenge this decision by such means as a
timely motion to alter or amend the judgment. The court also noted that it was awarding
other relief available under Texas law for breach of contract, and that a party could challenge
the awarding of this relief by such means as a timely motion to alter or amend the judgment,
or, in the case of attorney’s fees and nontaxable expenses, in the context of Hoffman’s
anticipated motion for attorney’s fees and nontaxable expenses.
7
The court does not suggest that the other grounds on which Studio Capital and
Martinez rely have merit. In fact, there are grounds that, if reached, the court would reject.
See, e.g., infra note 14.
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II
“A motion for judgment as a matter of law ‘challenges the legal sufficiency of the
evidence to support the verdict.’” Jacobs v. Tapscott, 516 F.Supp.2d 639, 643 (N.D. Tex.
2007) (Fitzwater, J.) (quoting Hodges v. Mack Trucks, Inc., 474 F.3d 188, 195 (5th Cir.
2006)), aff’d, 277 Fed. Appx. 483 (5th Cir. 2008).
Judgment as a matter of law is appropriate with respect to an
issue if there is no legally sufficient evidentiary basis for a
reasonable jury to find for a party on that issue. This occurs
when the facts and inferences point so strongly and
overwhelmingly in the movant’s favor that reasonable jurors
could not reach a contrary verdict. In considering a Rule 50
motion, the court must review all of the evidence in the record,
drawing all reasonable inferences in favor of the nonmoving
party; the court may not make credibility determinations or
weigh the evidence, as those are jury functions. In reviewing
the record as a whole, the court must disregard all evidence
favorable to the moving party that the jury is not required to
believe. That is, the court should give credence to the evidence
favoring the nonmovant as well as that evidence supporting the
moving party that is uncontradicted and unimpeached, at least
to the extent that that evidence comes from disinterested
witnesses.
Id. (quoting Brennan’s Inc. v. Dickie Brennan & Co., 376 F.3d 356, 362 (5th Cir. 2004). The
court will “‘uphold a jury verdict unless the facts and inferences point so strongly and so
overwhelmingly in favor of one party that reasonable [jurors] could not arrive at any verdict
to the contrary.’” Goodner v. Hyundai Motor Co., 650 F.3d 1034, 1039 (5th Cir. 2011)
(quoting Cousin v. Trans Union Corp., 246 F.3d 359, 366 (5th Cir. 2001)). “In other words,
the ‘jury verdict must be upheld unless there is no legally sufficient evidentiary basis for a
reasonable jury to find as the jury did.’” Id. at 1039-40 (quoting Foradori v. Harris, 523 F.3d
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477, 485 (5th Cir. 2008)).
In this removed diversity case, the court will apply Texas substantive law and federal
procedure. In the briefing, Hoffman relies only on Texas law, and defendants rely on both
Texas and New York law. Although defendants maintain, as they did in their pretrial choice
of law briefing, that New York law governs, they appear to do so only because they contend
Hoffman cannot recover attorney’s fees under New York law on her breach of contract claim.
Because there is no indication that the outcome of defendants’ motions for judgment as a
matter of law would be different if decided under New York law, the court will rely on Texas
law in deciding them. If the court later agrees with L&M that New York law applies and that
Hoffman cannot recover attorney’s fees on her breach of contract claim, that decision will
not be incongruous with today’s, because in that context the choice of law question will be
determinative of the outcome and must be resolved.8
8
Hoffman’s application for attorney’s fees remains pending. See infra note 27. On
February 14, 2014 the court granted defendants’ motion to bifurcate fee proceedings,
permitting them in their responses to Hoffman’s February 13, 2014 motion for attorney’s fees
and related nontaxable expenses to address only whether such fees and costs are recoverable.
This bifurcation procedure will enable the court to determine the choice of law in the context
of whether Hoffman can recover attorney’s fees and related nontaxable expenses from L&M,
depending on whether Texas or New York law applies.
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III
The court turns first to the renewed motion of Studio Capital and Martinez for
judgment as a matter of law.
A
Studio Capital and Martinez contend that “Defendants are entitled to judgment as a
matter of law because [Hoffman] did not present any evidence at trial from which the jury
could have reasonably found that L&M acted as Defendants’ agent in entering into the Letter
Agreement.” Studio Capital/Martinez Br. 3-4. They maintain that there is no evidence that
they ever communicated to L&M or to Hoffman any intent to confer any authority on L&M
to enter into the Letter Agreement on their behalf, and that the undisputed evidence is that
this did not occur.
Studio Capital and Martinez did not sign the Letter Agreement, and neither was
identified in the contract as a party. The court instructed the jury in the court’s charge that
although Hoffman, Studio Capital, and Martinez are not
identified as parties in the letter agreement, you can find that
they are contractually bound by the letter agreement if Hoffman
proves by a preponderance of the evidence that . . . L&M Arts
acted on behalf of Studio Capital and Martinez with actual or
apparent authority when entering into the letter agreement.
Ct. Charge at 7-8. By finding that Studio Capital and Martinez breached the Letter
Agreement, the jury implicitly found that L&M acted either with actual or apparent authority
to bind Studio Capital and Martinez when it entered into the Letter Agreement. Studio
Capital and Martinez are only entitled to a judgment as a matter of law if the evidence was
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insufficient for a reasonable jury to find that L&M acted with actual or apparent authority.
B
Under Texas law, “[a]n agent’s authority to act on behalf of a principal depends on
some communication by the principal either to the agent (actual or express authority) or to
the third party (apparent or implied authority).” Gaines v. Kelly, 235 S.W.3d 179, 182 (Tex.
2007). Absent actual or apparent authority, an agent cannot bind a principal. Huynh v.
Nguyen, 180 S.W.3d 608, 622 (Tex. App. 2005, no pet.).
“Actual authority usually denotes the authority a principal (1) intentionally confers
upon an agent, (2) intentionally allows the agent to believe he possesses, or (3) by want of
due care allows the agent to believe he possesses.” United Residential Props., L.P. v. Theis,
378 S.W.3d 552, 564 (Tex. App. 2012, no pet.) (citation and internal quotation marks
omitted). “‘Actual authority is created through written or spoken words or conduct of the
principal communicated to the agent.’” Id. (quoting Walker Ins. Servs. v. Bottle Rock Power
Corp., 108 S.W.3d 538, 549-50 (Tex. App. 2003, no pet.)). The existence of an agency
relationship based on actual authority “may be implied from the conduct of the parties or
from the facts and circumstances surrounding the transaction in question[, but] cannot be
based merely on the words or deeds of the agent.” CNOOC Se. Asia Ltd. v. Paladin Res.
(SUNDA) Ltd., 222 S.W.3d 889, 899 (Tex. App. 2007, pet. denied) (citing Walker Ins.
Servs., 108 S.W.3d at 550).
Actual authority includes both express and implied authority. 2616 S. Loop L.L.C. v.
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Health Source Home Care, Inc., 201 S.W.3d 349, 356 (Tex. App. 2006, no pet.); Spring
Garden 79U, Inc. v. Stewart Title Co., 874 S.W.2d 945, 948 (Tex. App. 1994, no pet.).
Express authority is delegated to an agent by words of the principal that expressly and
directly authorize the agent to do an act or series of acts on behalf of the principal. Crooks
v. M1 Real Estate Partners, Ltd., 238 S.W.3d 474, 483 (Tex. App. 2007, pet. denied).
“Implied authority is the authority to do whatever is reasonably necessary and proper to carry
out the agent’s express powers.” Id. (citing Spring Garden 79U, 874 S.W.2d at 948).
“Implied agency therefore exists only as an adjunct to express actual authority; an agent that
does not have express authority cannot have implied authority.” Reliant Energy Servs., Inc.
v. Cotton Valley Compression, L.L.C., 336 S.W.3d 764, 783 (Tex. App. 2011, no pet.)
(citation omitted); see also Spring Garden 79U, 874 S.W.2d at 948.
Apparent authority “is based on the doctrine of estoppel, and one seeking to charge
the principal through apparent authority of an agent must establish conduct by the principal
that would lead a reasonably prudent person to believe that the agent has the authority that
he purports to exercise.” Biggs v. U.S. Fire Ins. Co., 611 S.W.2d 624, 629 (Tex. 1981)
(citing Sw. Title Ins. Co. v. Northland Building Corp., 552 S.W.2d 425, 428 (Tex. 1977);
Douglass v. Panama, Inc., 504 S.W.2d 776, 778-79 (Tex. 1974); Chastain v. Cooper & Reed,
257 S.W.2d 422, 427 (Tex. 1953)). To determine an agent’s apparent authority, the court
examines the conduct of the principal and the reasonableness of the third party’s assumptions
regarding the agency’s authority. Gaines, 235 S.W.3d. at 183. “[O]nly the conduct of the
principal is relevant.” Id. at 182 (citing NationsBank, N.A. v. Dilling, 922 S.W.2d 950, 953
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(Tex. 1996) (per curiam)); see also United Residential Props., 378 S.W.3d at 564 (“Apparent
authority is based on estoppel, and only the conduct of the principal in leading a third party
to believe that the agent has authority may be considered.” (citations and internal quotation
marks omitted)). “Declarations of the alleged agent, without more, are incompetent to
establish either the existence of the alleged agency or the scope of the alleged agent’s
authority.” Gaines, 235 S.W.3d at 183-84 (citing Sw. Title Ins. Co., 552 S.W.2d at 428); see
also Huynh, 180 S.W.3d at 623 (“Only the conduct of the principal may be considered;
representations made by the agent of his authority have no effect.”).
C
The court considers first whether there was legally sufficient evidence for a
reasonable jury to have found that Studio Capital and Martinez conferred actual authority
on L&M to enter into the Letter Agreement on their behalf.
1
Studio Capital and Martinez argue that L&M did not act as their agent, but, consistent
with art industry practice, acted as an intermediary, purchasing the Rothko painting from
Hoffman and then reselling it to them. They cite the trial testimony of Martinez, Mnuchin,
and Lévy, each of whom testified that L&M was not authorized to sign the Letter Agreement
on behalf of Studio Capital or Martinez. Studio Capital and Martinez also rely on undisputed
evidence that L&M did not show the Letter Agreement to Martinez and that he was unaware
that L&M had signed the Letter Agreement on his behalf.
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Hoffman responds that the following evidence was presented concerning L&M’s
actual authority: Martinez averred in his answer to Hoffman’s second amended complaint
that “L&M acted as agent for Studio Capital,”9 P. App. 66; the Letter Agreement itself stated
that L&M was acting “on behalf of the buyer,” id. at 98; Martinez testified that L&M signed
the Letter Agreement “as agent,” Tr. 4:10010; Martinez testified that he told Lévy, “if the
seller is interested in proceeding, I am ready to go forward,” id. at 4:141, and that he
“committed to the gallery to purchase the painting and they were relying on [his]
commitment to go and purchase the painting from the seller,” id. at 4:183; and Martinez
informed L&M that he agreed to every term in the Letter Agreement, including terms that
only he could perform. Hoffman argues that a reasonable jury could have inferred from this
evidence that Studio Capital and Martinez intentionally or negligently authorized L&M to
do that which was necessary, including sign the Letter Agreement, to complete the
transaction on the terms to which they had agreed.
9
In their answer to Hoffman’s third amended complaint—the operative pleading in
this case—Studio Capital and Martinez removed the quoted statement, and they instead
“den[ied] that L&M acted as agent for Martinez and Studio Capital.” Studio Capital &
Martinez Ans. to 3d Am. Compl. ¶ 34.
10
Studio Capital and Martinez dispute this interpretation of Martinez’s trial testimony,
arguing that “[p]lainly, what Mr. Martinez said, as was apparent to everyone in the
courtroom, was that L&M had signed the [Letter] Agreement without having been authorized
to act as an agent for Studio Capital.” Studio Capital/Martinez Reply 2. They also cite
Martinez’s trial testimony that “I do not understand [L&M’s] being my agent. I understand
them being a gallery that was going to buy the painting and sell it to me.” Id. (quoting Tr.
4:147).
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2
The court holds that a reasonable jury could not have found that Studio Capital or
Martinez intentionally conferred on L&M the authority to enter into a binding contract on
its or his behalf, intentionally allowed L&M to believe it possessed this authority, or
negligently allowed L&M to believe it possessed such authority. See United Residential
Props., 378 S.W.3d at 564. There was no evidence presented at trial that Studio Capital or
Martinez ever directly communicated to L&M that it had the authority to enter into a
contractual agreement with Hoffman that would be binding on Studio Capital or Martinez.
Nor was there evidence that Martinez, Mnuchin, or Lévy believed that L&M had such
authority. Martinez (one of the principals) and Mnuchin and Lévy (the alleged agents) each
testified that, despite the language used in the Letter Agreement, he or she did not actually
believe that L&M was authorized to enter into a contract with Hoffman that would be
binding on Studio Capital or Martinez. See Tr. 3:188 (testimony of Mnuchin); id. at 4:74
(testimony of Lévy); id. at 4:147 (testimony of Martinez). In fact, Martinez testified that he
always believed the “role of the gallery as an intermediary” because “they buy paintings
from people, they sell paintings to others [a]nd so there is always a contract between the
gallery and the seller, in the same way that there is a contract between the gallery and the
buyer, in this case Studio Capital and myself.” Id. at 4:140. Martinez also testified that “of
course [he] knew that there was a contract” between L&M and Hoffman, but he had “never
seen during [his] lifetime collecting art where the gallery shows [him], the buyer, the invoice
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of the seller [o]r the agreement with the seller.” Id. at 4:140-41. Similarly, Lévy testified
that
[u]sually what you do, you mirror the terms of a contract in
another document. In this case it was the invoice. But you
mirror the terms with the buyer . . . it is two transactions. You
have a transaction with the seller, where you have heard all of
the seller’s wishes and requirement[s], and then you have a
transaction with the buyer. So it’s two different documents if
one would say.
Id. at 4:33 (emphasis added).
Hoffman argues that, because Martinez gave L&M his “blessing” to every term of the
Letter Agreement, and because many of these terms were promises that only Martinez or
Studio Capital could have made and kept, “a reasonable jury could infer that Martinez
intentionally or negligently authorized L&M to do that which was necessary, including
signing the [Letter Agreement], to complete the transaction on the terms to which [Martinez
and Studio Capital] agreed.” P. Br. 3. The court concludes that the evidence does not
support Hoffman’s position. In fact, Martinez testified that he did not “authorize L&M to
negotiate the purchase of” the Rothko painting, but instead merely “presented them a
counteroffer to the offer that was presented to [him and Studio Capital].” Tr. 4:100-01.
Moreover, Martinez, Mnuchin, and Lévy each testified that, as is customary in the art
industry, they contemplated that there would be two separate agreements in connection with
the sale of the Rothko painting: a seller’s agreement between Hoffman and L&M (in which
L&M guaranteed payment in the event the sale fell through on the buyer’s end), and a
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buyer’s agreement between L&M and Martinez or Studio Capital. See id. at 4:146
(testimony of Martinez that his understanding of agreements he had with galleries was “I’m
buying paintings from them, and they are buying paintings from an unspecified seller,” and
that he did not understand that the relationship was any different in the 2007 sale); id. at 4:33
(testimony of Lévy about a similar understanding). Thus when considered in the only
context that the jury could reasonably have drawn from the evidence, Lévy’s testimony that
Martinez gave his “blessing” to each of the terms, Martinez’s statement to Lévy that “if the
seller is interested in proceeding, I am ready to go forward,” id. at 4:141, and Martinez’s
testimony that “I committed to the gallery to purchase the painting and they were relying on
my commitment to go and purchase the painting from the seller,” id. at 4:183, are all
consistent with a belief that L&M would enter into a purchase agreement with Hoffman and
that Martinez (or Studio Capital) would purchase the painting from L&M via a separate
transaction.11
Because a reasonable jury could not have found that Studio Capital or Martinez ever
communicated to L&M or otherwise implied through its or his conduct that L&M was
11
In fact, the terms to which Martinez agreed were memorialized in a separate
document: the April 18, 2007 invoice (“April Invoice”). The April Invoice details the terms
to which Studio Capital and Martinez agreed and that Lévy represented constituted L&M’s
binding contract with the buyer. See Tr. 4:32 (testimony of Lévy that “the invoice in our
profession is really the binding document, i.e., the contract”); id. at 4:39-40 (describing April
Invoice as “a contract between [L&M] and Studio Capital,” and explaining that “99 percent
of the time” the invoice is the binding agreement between the gallery or auction house and
the buyer).
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authorized to enter into a contract with Hoffman that would be binding on Studio Capital
and/or Martinez, or intentionally or negligently allowed L&M to believe it possessed this
authority, the court holds that there was insufficient evidence for a reasonable jury to have
found that L&M had actual authority to enter into the Letter Agreement on behalf of Studio
Capital and/or Martinez.
D
The court considers second whether there was legally sufficient evidence for a
reasonable jury to have found that L&M had apparent authority to enter into the Letter
Agreement on behalf of Studio Capital and Martinez.
1
Studio Capital and Martinez argue that the jury could not have reasonably found that
L&M had apparent authority to bind them to the terms of the Letter Agreement because there
was no evidence presented at trial that Studio Capital or Martinez manifested to Hoffman or
her agent, Van Doren, that L&M had such authority. They posit that “the uncontradicted
evidence is that Studio Capital and Mr. Martinez had no contact with Hoffman or her agent
Van Doren.” Studio Capital/Martinez Br. 7. Studio Capital and Martinez reason that,
because there were no communications between Studio Capital or Martinez and Hoffman,
there could not have been any manifestation that could have reasonably led Hoffman to
suppose that L&M was acting with the authority it purported to exercise.
Hoffman responds that there was sufficient evidence for a reasonable jury to find that
L&M had apparent authority to commit Studio Capital and Martinez to the terms of the
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Letter Agreement because Hoffman was made aware of the following conduct: Studio
Capital and Martinez did not dispute that they breached the February Agreement— which
was the precursor to the Letter Agreement—by disclosing the potential sale to Brett Gorvy
(“Gorvy”), the Head of Christie’s Contemporary Art Department; Studio Capital and
Martinez discussed this breach with L&M; and Martinez traveled with Lévy to Texas to
inspect the Rothko painting. Hoffman maintains that, when she learned that the undisclosed
buyer wanted to proceed with the sale on new terms, she could have reasonably inferred,
based on the undisclosed buyer’s assent to the February Agreement, that L&M was
authorized to sign the Letter Agreement as well. Moreover, she argues that Martinez
performed certain of the new terms in the Letter Agreement, such as permitting Hoffman to
retain the painting for six months after the sale, and that a reasonable jury could have found
that she reasonably believed the undisclosed buyer had authorized L&M to enter into the
Letter Agreement on the buyer’s behalf.
2
The court holds that a reasonable jury could not have found that L&M acted with
apparent authority to enter into a binding contract. Apparent authority “is based on the
doctrine of estoppel, and one seeking to charge the principal through apparent authority of
an agent must establish conduct by the principal that would lead a reasonably prudent person
to believe that the agent has the authority that he purports to exercise.” Biggs, 611 S.W.2d
at 629 (citations omitted). “The principal must have affirmatively held out the agent as
possessing the authority or must have knowingly and voluntarily permitted the agent to act
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in an unauthorized manner.” NationsBank, 922 S.W.2d at 953 (citing Douglass, 504 S.W.2d
at 778-79); Huynh, 180 S.W.3d at 623 (same). As with actual authority, “only the conduct
of the principal is relevant.” Gaines, 235 S.W.3d at 182; id. at 183 (holding that summary
judgment evidence did not establish apparent authority because it “consist[ed] almost entirely
of acts or statements attributed to the alleged agent . . . rather than to the putative principal”).
In order for the jury to have reasonably found that L&M acted with apparent authority
to bind Studio Capital and/or Martinez to the Letter Agreement, there must have been
sufficient evidence to find that Studio Capital or Martinez engaged in conduct that
reasonably led Hoffman to believe that L&M had this authority. See Biggs, 611 S.W.2d at
629. It is undisputed that neither Studio Capital nor Martinez had any direct interaction with
Hoffman or her agent, Van Doren. In fact, at the time of the April 2007 sale, Hoffman did
not even know the identity of the undisclosed buyer of the painting. Accordingly, the
evidence did not permit the jury to have reasonably found that Studio Capital or Martinez
affirmatively held L&M out as its or his agent who possessed the authority to enter into the
Letter Agreement. See NationsBank, 922 S.W.2d at 953; Huynh, 180 S.W.3d at 623.
Nor was the evidence sufficient for a reasonable jury to have found that Studio Capital
or Martinez “knowingly and voluntarily permitted [L&M] to act in an unauthorized manner.”
See NationsBank, 922 S.W.2d at 953. “[T]he principal’s full knowledge of all material facts
is essential to establish a claim of apparent authority based on estoppel.” Gaines, 235
S.W.3d at 182. “[T]he party must show that the principal had full knowledge of all material
facts at the time of the conduct alleged to be the basis for the apparent authority.” Expro
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Americas, LLC v. Sanguine Gas Exploration, LLC, 351 S.W.3d 915, 925 (Tex. App. 2011,
pet. denied). Thus where there is no evidence that the principal had knowledge of the
conduct alleged to constitute the basis of the estoppel, apparent authority cannot be
established. See Rourke v. Garza, 530 S.W.2d 794, 803 (Tex. 1976) (holding that where
there was no evidence that company was aware of indemnity provisions included on back of
delivery ticket signed by company’s superintendent, company was not bound by terms of
indemnity provisions under theory of apparent authority), abrogated on other grounds by
Ford Motor Co. v. Ledesma, 242 S.W.3d 32, 45-46 (Tex. 2007); Neubaum v. Buck Glove
Co., 302 S.W.3d 912, 919 (Tex. App. 2009, pet. denied) (reversing finding of apparent
authority where there was no evidence that principal was aware that agent—who was
authorized to fill purchase orders for principal—was making unauthorized loans to third
parties on behalf of principal); Argyle Indep. Sch. Dist. v. Wolf, 234 S.W.3d 229, 240 (Tex.
App. 2007, no pet.) (holding that letter sent by school superintendent did not constitute valid
and binding contract because there was no evidence that school district was aware of letter,
and superintendent therefore did not have apparent authority to bind school district).
Hoffman maintains that the following is sufficient evidence of L&M’s apparent
authority to commit Studio Capital and Martinez to the Letter Agreement: when negotiating
the Letter Agreement, Hoffman was made aware that Studio Capital and Martinez did not
dispute that they had breached the February Agreement by disclosing the potential sale of the
painting to Gorvey; Studio Capital and Martinez discussed the breach with their agent, L&M;
Martinez traveled with Lévy to Texas to inspect the painting; and when Hoffman learned that
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the undisclosed buyer wanted to proceed with the sale on new terms, she could have
reasonably inferred, based on the undisclosed buyer’s assent to the February Agreement, that
L&M was authorized to sign the Letter Agreement as well. Hoffman also relies on evidence
that the undisclosed buyer performed certain new terms of the Letter Agreement, such as
permitting Hoffman to retain the painting for six months following the sale. She maintains
that, in light of the performance by Studio Capital and Martinez of these terms and the other
conduct of which she was made aware, a reasonable jury could have found that she
reasonably believed the undisclosed buyer had authorized L&M to enter into the Letter
Agreement on behalf of the buyer. The court disagrees.
To understand why the evidence is legally insufficient, it is important to focus initially
on the source of the information that Hoffman maintains supported her reasonable belief that
L&M acted with authority. As Studio Capital and Martinez point out in their reply brief,
“whatever Hoffman claims to have ‘been made aware of’ by Van Doren, there is no evidence
that it came from Defendants. . . . Whatever came from L&M to Van Doren is irrelevant as
a matter of law; an alleged agent cannot create apparent authority, whatever it does or says.”
Studio Capital/Martinez Reply 4. A reasonable jury could not have based a finding of
apparent authority, for example, on what Van Doren related to Hoffman.12
12
Moreover, to the extent Hoffman relies on Martinez’s performance of certain of the
terms contained in the Letter Agreement and his traveling with Lévy to Dallas to personally
view the Rothko painting, neither of these facts is sufficient evidence that Martinez or Studio
Capital had knowledge (actual or inquiry) of the existence of the February Agreement or the
Letter Agreement, which is required for apparent authority. See Rourke, 530 S.W.2d at 802.
Rather, Martinez’s traveling to Dallas with Lévy to view the painting and his performing
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The court must therefore assess what a reasonable jury could have found that Studio
Capital and Martinez knowingly and voluntarily did to give Hoffman the reasonable belief
that L&M was authorized to sign the Letter Agreement. The essence of Hoffman’s argument
is this: the undisclosed buyer authorized L&M to enter into the February Agreement; the
undisclosed buyer breached the February Agreement; and when the undisclosed buyer was
again interested in purchasing the painting, Hoffman could have reasonably inferred, based
on the undisclosed buyer’s assent to the February Agreement, that L&M was authorized to
enter into the Letter Agreement on the undisclosed buyer’s behalf as well. The fallacy with
this argument is that the evidence was insufficient for a reasonable jury to have found that
Studio Capital and Martinez acted with full knowledge of all material facts, which is
“essential to establish a claim of apparent authority based on estoppel.” Gaines, 235 S.W.3d
at 182. According to the trial evidence, because of the way art sale transactions of this type
are customarily structured, Studio Capital and Martinez would have thought that the seller
of the painting had sold it to L&M, who, in turn, was selling it to Studio Capital and
Martinez, i.e., in two separate transactions. Studio Capital and Martinez would not have
acted with knowledge of the material fact that their conduct with respect to the February
Agreement could reasonably have led Hoffman to believe that L&M had the authority to
enter into the Letter Agreement. In fact, Martinez “never saw either of the two contracts .
certain of the terms that the parties had agreed upon is entirely consistent with a belief that
he (or Studio Capital) was contractually obligated to L&M, but not to anyone else (including
Hoffman).
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. . the February [Agreement] or the [Letter Agreement], until right at or immediately before
[his] deposition in this case in 2012.” Tr. 4:101. There was no basis in the evidence for a
reasonable jury to have found that Studio Capital or Martinez had any reason to inquire into
whether L&M (specifically, Mnuchin) had, unbeknownst to it or him, purported to enter into
a contract on behalf of Studio Capital or Martinez. Without evidence that Studio Capital and
Martinez had knowledge of the material fact that L&M had actually purported to enter into
the February Agreement on their behalf, a reasonable jury could not have found that Studio
Capital or Martinez conferred apparent authority on L&M to enter into the Letter Agreement
on its or his behalf. See Rourke, 530 S.W.2d at 802.
E
The court holds that the jury could not have reasonably found that L&M acted with
actual or apparent authority to enter into the Letter Agreement on behalf of Studio Capital
or Martinez. Accordingly, the court grants the renewed motion of Studio Capital and
Martinez for judgment as a matter of law and dismisses Hoffman’s actions against them with
prejudice.13
13
In support of its motion for judgment as a matter of law, L&M argues in a footnote
that, if the court holds that L&M lacked authority to sign the Letter Agreement on behalf of
Studio Capital and Martinez, L&M is entitled to judgment as a matter of law on the ground
that “a contract executed by an unauthorized agent, who makes the agreement on behalf of
another, not in his individual capacity, is not enforceable.” L&M Br. 10 n.6 (emphasis,
citation, and internal quotation marks omitted). This argument would have force, however,
only if L&M was not a party individually to the Letter Agreement, i.e., it made the agreement
only on behalf of Studio Capital and Martinez, not in its individual capacity. But a
reasonable jury could have found that L&M was a party to the Letter Agreement in its
individual capacity. For example, L&M explicitly agreed in the Letter Agreement to
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IV
The court now turns to L&M’s motion for judgment as a matter of law. L&M moves
for judgment as a matter of law on the following grounds: (1) Hoffman elected a legally
barred disgorgement remedy; (2) she failed to prove her breach of contract claim because
there was insufficient evidence of a breach; and (3) she failed to prove her breach of contract
claim because there was insufficient evidence of causation.
A
The court will consider first whether a reasonable jury could have found that L&M
breached the Letter Agreement. As noted, Hoffman sought to prove at trial that L&M failed
to comply with the confidentiality clause in the Letter Agreement, which provided, in
pertinent part: “[a]ll parties agree to make maximum effort to keep all aspects of this
transaction confidential indefinitely.” L&M Ex. 28. In Hoffman v. L & M Arts, 774
F.Supp.2d 826 (N.D. Tex. 2011) (Fitzwater, C.J.) (“Hoffman I”), the court construed this
language to require defendants
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.
guarantee the buyer’s payment of the purchase price of the painting. And “[a]ll parties [to
the Letter Agreement]”—not merely the seller and buyer of the painting—“agree[d] to make
maximum effort to keep all aspects of this transaction confidential indefinitely.” L&M Ex.
28.
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Id. at 834. Consistent with this interpretation, the court instructed the jury that
under the confidentiality clause, all parties to the contract agreed
to use their best efforts to keep all aspects of the transaction
confidential indefinitely. Whether a party used such best efforts
is determined by assessing whether the party made every
reasonable effort to keep all aspects of the 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.
Ct. Charge 9-10. The court also instructed the jury that “[t]he fact that the sale of the
painting had occurred is an aspect of the transaction.” Id. at 9. Under these instructions, the
jury found that L&M breached the Letter Agreement.
L&M contends on two grounds that Hoffman failed to present sufficient evidence that
L&M materially breached the Letter Agreement: (1) the “goal” of the confidentiality clause
was met, regardless of L&M’s efforts; and (2) there was no evidence that L&M disclosed
any aspect of the Letter Agreement.14
14
L&M adopted and incorporated by reference in its motion the arguments made by
Studio Capital and Martinez in their renewed motion for judgment as a matter of law. Studio
Capital and Martinez maintain that the court erred in construing the Letter Agreement to
contain a “best efforts” clause and in instructing the jury that “[t]he fact that the sale of the
painting had occurred is an aspect of the transaction” that was intended to be kept
confidential. Studio Capital/Martinez Br. 9-10 (quoting Ct. Charge 9). They also contend
that the court erred in interpreting the “maximum effort” obligation of the confidentiality
provision to be similar to a “best efforts” provision, and in instructing the jury that “all
aspects” of the transaction include the fact of the sale. The court’s construction of the Letter
Agreement represents its legal interpretation and is the law of the case. The court therefore
declines to accept this ground of the motion of Studio Capital and Martinez, which L&M
adopted by reference.
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B
L&M maintains that, to prove that L&M breached a best efforts-type confidentiality
clause, Hoffman was required to establish two sequential sub-elements: first, that the goal
of the clause (i.e., to keep all aspects of the transaction confidential) was not achieved; and,
second, that L&M did not exercise its best efforts to meet that goal. Citing and quoting the
Fifth Circuit’s decision in Kevin M. Ehringer Enterprises, Inc. v. McData Services Corp.,
646 F.3d 321 (5th Cir. 2011), L&M posits that a contracting party may fulfill the contractual
goal “regardless of the quality of its efforts,” and it maintains that no reasonable jury could
have found that the goal of the confidentiality clause was not met because no aspect of the
Letter Agreement was ever disclosed by anyone except Hoffman. L&M Br. 6.
If L&M’s argument is that the jury could not reasonably have found that the goal of
the confidentiality clause was not achieved and that L&M did not exercise its best efforts to
meet that goal, this contention is easily dismissed. For reasons that the court explains in
§ IV(C), the court concludes that the jury could reasonably have found that the goal of the
confidentiality clause was not achieved, and that L&M did not use its best efforts to keep all
aspects of the transaction confidential indefinitely, 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.
There is a suggestion in L&M’s brief and in its counsel’s oral argument on this
- 26 -
motion that L&M is making a different argument: that when the goal of a best efforts-type
clause is met, a contracting party cannot be found to have breached that clause. See L&M
Br. 6 (citing and quoting McData for proposition that “a contracting party may fulfil the
contractual goal ‘regardless of the quality of its efforts’” (bold font omitted)); Tr. Oral Arg.
13-14 (“Under the McData case . . . if the goal of the clause is met there can be no breach.
For example, if I promise to use my best efforts to consummate a transaction and the
transaction is consummated and I have done nothing to make that transaction get
consummated, the plaintiff doesn’t have a breach claim against me. The goal of the clause
was met.”). If this is L&M’s argument, it still fails, because the jury could reasonably have
found, and it implicitly did find,15 that the goal of the confidentiality clause was not
achieved.16
15
Concerning the third and fourth elements of Hoffman’s breach of contract claim, the
jury found that L&M breached the contract and that Hoffman suffered damages as a result
of the breach. Under these circumstances, the goal of the Letter Agreement could not have
been achieved.
16
It is also questionable whether such an absolute rule can be drawn from a correct
reading of McData or the cases on which it relies.
In McData the panel addressed, in pertinent part, whether the defendant (McData)
could be held liable for fraudulently inducing the plaintiff (Ehringer) to enter into a product
purchase contract on the basis that, despite its contractual promise to use its “best efforts” to
promote, market, and sell the products during the contractual term, McData never intended
to use its “best efforts.” McData, 646 F.2d at 323. McData argued on appeal that, because
“best efforts” had no precise meaning either in the contract or under the law, Ehringer could
not prove that McData had no intent to perform, or that there was nothing by which to
measure the breach and lack of intent to perform. Id. at 325-26. McData maintained that,
to form the basis of a fraudulent inducement claim, it was necessary that the contract term
be definite, specific, and unconditional. Id. at 326.
The question the panel addressed was whether, under Texas law, “the ‘best efforts’
- 27 -
term is sufficiently definite to serve as a benchmark for analyzing McData’s intent at the time
it entered into the Agreement.” Id. Because the Supreme Court of Texas had not analyzed
the term “best efforts” to determine its meaning in a contract, the panel made an Erie-guess
based on the rulings of Texas intermediate courts. In particular, it relied on CKB &
Associates, Inc. v. Moore McCormack Petroleum, Inc., 809 S.W.2d 577 (Tex. App. 1991,
writ denied), and Herrmann Holdings Ltd. v. Lucent Technologies Inc., 302 F.3d 552 (5th
Cir. 2002), which had relied on CKB.
In addressing the question before it, the McData panel began by summarizing what
CKB had noted: “best efforts” is a nebulous standard; under some circumstances, a party can
use best efforts to achieve a contractual goal and fall well short, and under different
circumstances, an effort well short of one’s best may be sufficient to hit a target. McData,
646 F.2d at 326 (citing and quoting CKB, 809 S.W.2d at 581). Therefore, “to be enforceable,
a best efforts contract must set some kind of goal or guideline against which best efforts may
be measured.” Id. (quoting CKB, 809 S.W.2d at 581). The McData panel then quoted CKB
for a premise from which L&M draws the phrase “regardless of the quality of its efforts” that
it uses in its brief:
If the contract sets out such goal or guideline, [a] contracting
party that performs within the guidelines fulfills the contract
regardless of the quality of its efforts. When a party misses the
guidelines, courts measure the quality of its efforts by
circumstances of the case . . . and by comparing the party’s
performance with that of an average, prudent, comparable
[party].
Id. (quoting CKB, 809 S.W.2d at 582) (brackets and ellipsis in original; internal quotation
marks omitted).
The panel’s purpose for quoting CKB was not to recognize the absolute rule for which
L&M contends—a party who achieves the goal of a best-efforts type clause cannot have
breached it—but to analyze whether such a clause is enforceable so that it can serve as the
predicate for a fraudulent inducement claim. This is confirmed by the panel’s ultimate
conclusion that “these cases make clear that ‘best efforts’ provisions may be enforceable
under Texas law if they provide some kind of objective goal or guideline against which
performance is to be measured.” Id. at 327. Moreover, the language quoted from CKB does
not refer explicitly to fulfilling only the goal of the contract. It references performing within
the guidelines when it states that such performance “fulfills the contract regardless of the
quality of its efforts.”
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C
L&M also contends that there was no evidence that it disclosed any aspect of the
Letter Agreement.
According to L&M, Van Doren, who drafted the Letter Agreement, admitted at trial
that the phrase “this transaction” used in the confidentiality clause was intended to
encompass only those things contained within the four corners of the agreement, which is
consistent with the court’s determination that the Letter Agreement is unambiguous; there
is no evidence L&M disclosed anything contained within the four corners of the Letter
Agreement; and because there is no such evidence, the jury had no basis reasonably to find
that L&M breached the Letter Agreement. L&M maintains that the only fact disclosed in the
Sotheby’s auction catalogue (which L&M neither prepared nor distributed) is the public fact
that the Rothko painting was once displayed in the Fast Forward exhibition at the DMA, a
public fact that could not be made non-public under the Letter Agreement. It posits that
disclosure of this public fact could not have constituted a breach of the Letter Agreement
because it was not an aspect of the Letter Agreement and it was publicly known before the
agreement was executed. L&M contends that, even if Hoffman has established that the mere
publication of the public fact of the Rothko painting’s exhibition history in the Sotheby’s
auction catalogue could have disclosed an aspect of the Letter Agreement by allowing
someone to deduce that Hoffman had sold the painting in April 2007, she did not present any
evidence that any such deduction actually occurred, and her interrogatory answers prove that
the only people who reached this deduction were those whom she told.
- 29 -
L&M’s argument divides into two premises, both of which lack force. The first strand
of the argument is that L&M could only have breached the Letter Agreement by disclosing
something contained within the four corners of the agreement. This assertion is contrary to
the law of the case and the court’s instructions to the jury. L&M was contractually obligated
to use its best efforts to keep all aspects of the transaction confidential indefinitely. The fact
of the sale itself was an aspect of the transaction.
The second component of L&M’s argument is that the only disclosure made was in
the Sotheby’s auction catalogue: the public fact that the Rothko painting was once displayed
in the Fast Forward exhibition at the DMA. L&M maintains that this disclosure could not
have breached the Letter Agreement. But this is not the only breach of the Letter Agreement
that the jury could reasonably have found that L&M committed.
Regardless whether L&M disclosed to anyone that the transaction had occurred, it
was obligated to use its best efforts to keep all aspects of the transaction confidential
indefinitely. L&M did not show the Letter Agreement to Studio Capital or Martinez until
after this lawsuit was filed. Nor did L&M advise Studio Capital or Martinez of the language
in the confidentiality clause.17 When L&M discovered that Studio Capital and Martinez
intended to auction the Rothko painting at Sotheby’s—which Hoffman’s expert, Victor
17
The language L&M provided Martinez in the April Invoice differs from the content
of the confidentiality clause because the April Invoice does not contain the “maximum
effort” language or the “all aspects” language of the Letter Agreement.
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Wiener (“Wiener”), testified had “a huge broad outreach,” Tr. 4:22118—it did not inform
Sotheby’s of the confidentiality clause in the Letter Agreement, nor did it attempt to
persuade Sotheby’s or Martinez to forgo the auction. The jury could have reasonably found
that—even if L&M did not disclose the fact of the transaction to anyone—L&M failed to
make every reasonable effort to keep all aspects of the 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.
Accordingly, the court holds that a reasonable jury could have found that L&M
breached the confidentiality clause.
18
Wiener testified:
Public auctions nowadays, and in 2007 as well, have huge broad
outreach especially the high end auction houses. They produce
tens of thousands of catalogs. They take out massive amounts
of advertising. They use the Internet to solicit attention. They
contact prospective sellers. They have dinner parties in which
the works of art are displayed. They have receptions. They
sometimes put art on tour. They have innumerable resources at
their disposal. To give you an example, if I may, my new
startup company which does have good funding and does have
a big outreach has subscription base on the Internet of about
300,000 subscribers. And when we sold the drawing that made
3.5 million dollars, and we had a number of other good items in
that sale, there were over ten million hits on that particular
Internet site to see that object. Phenomenal.
Tr. 4:221-22.
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V
L&M maintains that Hoffman failed to prove her breach of contract claim because
there was insufficient evidence of causation.
According to L&M, a reasonable jury could not have found that Hoffman suffered any
damages as a result of L&M’s breach of the confidentiality clause because she failed to
adduce sufficient evidence that L&M’s failure to give a written copy of the Letter Agreement
to Studio Capital actually caused Studio Capital to auction the painting, which is the sole
source of her claimed damages. L&M contends that the evidence conclusively shows that
the May 2010 auction of the Rothko painting would have occurred regardless of anything
L&M did or did not do. It posits that the evidence conclusively establishes that Mnuchin
shared all the terms of the agreement with Lévy, who in turn shared them with Martinez; that
Martinez’s counsel did see a copy of the Letter Agreement before the May 2010 auction; and
that Martinez testified that, even if he had seen the agreement when it was signed, he would
not have done anything different. Therefore, L&M maintains that a reasonable jury could
not have found that L&M’s failure to show Studio Capital a copy of the agreement, or
L&M’s other alleged acts or omissions, caused Hoffman’s claimed damages, which flow
entirely from the public auction of the Rothko painting in May 2010.
The fallacy in L&M’s reasoning is that it is made without reference to Hoffman’s
benefit of the bargain theory of damages, which the court addresses infra at § VII(D). For
reasons the court explains there, a reasonable jury could have found that Hoffman did not
receive the benefit of her bargain with L&M. She accepted a lower sale price in exchange
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for L&M’s agreement to make maximum effort to keep all aspects of the transaction
confidential indefinitely. Her damages for breach of contract were caused when she did not
get the benefit of her bargain. The jury could reasonably have found that she did not.
The court therefore holds that the jury could reasonably have found that L&M’s
breach of the confidentiality clause caused Hoffman damages in the form of the lost benefit
of her bargain.
VI
The court now turns to L&M’s contention that Hoffman has elected a disgorgement
remedy that is legally barred under Texas law.
A
In Question No. 3(A) of the court’s charge, the court asked the jury to find “[t]he
difference, if any, between the sum of money for which Hoffman sold the painting in the
transaction in question and what she could have sold the painting for at public auction on or
around April 24, 2007.” Ct. Charge 15. The jury answered “$500,000.” Id. Question No.
3(B) asked the jury to find “[t]he difference, if any, between the value of the benefits
Hoffman conveyed under the contract to the defendant in question and the value of the
benefits she received in exchange.” Id. The jury answered “0” for L&M and “0” for Studio
Capital/Martinez. Id. Question No. 3(C) asked the jury to find “the value of the benefits that
the defendant in question received in connection with the transaction.” Id. The jury
answered “$450,000” for L&M and “$750,000” for Studio Capital/Martinez. Id.
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After the jury returned its verdict, the court directed Hoffman to elect her remedy.
In a letter to the court, Hoffman stated that she was entitled to recover the aggregate sum of
the damages that the jury found in answer to Question No. 3(A) and (C). Alternatively, she
requested that the court award the sum of $1.2 million that the jury found in answer to
Question No. 3(C). The court entered judgment in Hoffman’s favor in the amount of her
alternative request: $450,000 from L&M, and $750,000 from Studio Capital and Martinez
(jointly).
L&M maintains19 that Question No. 3(C) is a disgorgement-based question, and that,
under Texas law, disgorgement is not available as a remedy for a breach of contract claim.
It contends that Hoffman’s attempt to re-characterize Question No. 3(C) as seeking
“restitution” damages fails because restitution is designed to restore to the plaintiff the value
of what she parted with in performing the contract, and Question No. 3(C) seeks only to
measure the gross benefits that L&M obtained.20 L&M maintains that, even if Question No.
3(C) covers restitutionary damages, such damages are unavailable as a matter of law because
19
Because the court has granted the motion of Studio Capital and Martinez above, it
refers in this section to all arguments as if made by L&M alone. Because L&M adopted by
reference the motion and arguments of Studio Capital and Martinez, the court has relied on
these grounds while attributing them to L&M alone (although citing the Studio Capital/
Martinez brief, where necessary).
20
During the pretrial conference, the court stated that, in preparing its pretrial draft of
the jury charge, it had “broken out the damages [Hoffman is] seeking into three parts that are
based on [her] request,” and it indicated that one of these parts was “intended to be akin to
disgorgement.” Pretrial Conf. Tr. 97. L&M contends that, because Question No. 3(B)
covered restitution damages, Question No. 3(C) was “clearly” intended to cover
disgorgement. Studio Capital/Martinez Br. 16.
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restitution is based on the equitable principle of unjust enrichment, and the existence of an
enforceable contract precludes restitution when the benefits that were allegedly wrongfully
obtained were obtained under an express agreement. L&M reasons that, under Restatement
(Third) of Restitution and Unjust Enrichment (“Restatement”) § 39 cmt. a (2011), restitution
is only available if normal money damages provide “inadequate protection.” According to
L&M, this is not the case here because the jury awarded Hoffman $500,000 in compensatory
damages in response to Question No. 3(A) as a purported measure of the benefit of her
bargain. L&M posits that Question No. 3(C) fails to take into account the benefits Hoffman
received (i.e., the $500,000 donation to the DMA and the right to keep the Rothko painting
in her home for six months) in connection with the sale, and that she is not entitled to
restitution because she cannot return these benefits. Finally, L&M argues that there is no
evidence that Hoffman ever parted with $450,000 and gave it to L&M, and Hoffman is not
entitled to any of the commissions earned by L&M in connection with the transaction
because the commissions were paid entirely by the buyer, not by Hoffman.
Hoffman responds that Question No. 3(C) did not ask for a “disgorgement” measure
of damages (the primary objective of which is deterrence) because the court’s charge made
clear that the jury could only award compensatory damages, the purpose of which are to
make Hoffman whole. She thus argues that Question No. 3(C) was consistent with a
restitution theory of damages and cites to Restatement § 39, which allows “restitution” as
damages for a deliberate breach of contract measured by “the profit realized by the promisor
- 35 -
as a result of the breach.” Restatement § 39. She posits that the $1.2 million that the jury
found in response to Question No. 3(C) constitutes the type of damages contemplated by
Restatement § 39 and recovered in Morgan v. Stagg, 1987 WL 18703 (Tex. App. Oct. 22,
1987, no writ), and City of Harker Heights, Texas v. Sun Meadows Land, Ltd., 830 S.W.2d
313 (Tex. App. 1992, no writ). Citing Morgan and Harker Heights, Hoffman maintains that
the existence of an enforceable contract does not preclude an award of restitution damages;
that the measure of damages in Question No. 3(C) focuses entirely on defendants’ ill-gotten
gains and, accordingly, does not require that Hoffman make the type of factual showing that
would be necessary to obtain restitution damages that restore the status quo ante; that
awarding Hoffman the benefits defendants realized from the breach will not cause her to reap
a “windfall” because the court clearly instructed the jury to award only damages caused by
defendants’ unlawful conduct as opposed to all of the benefits defendants obtained in
connection with the transaction; that the benefits reaped by defendants from breaching their
contract with Hoffman were more than double the amount she could recover under
traditional benefit-of-the-bargain damages and she may elect to recover the higher amount;
and, finally, that Hoffman is not required to show “opportunistic breach,” just that
defendants’ conduct was not negligent and there is no evidence that defendants’ actions in
selling the Rothko painting at public auction were anything but conscious.
- 36 -
B
Under Texas law, “[t]he universal rule for measuring damages for the breach of a
contract is just compensation for the loss or damage actually sustained.” Phillips v. Phillips,
820 S.W.2d 785, 788 (Tex. 1991) (quoting Stewart v. Basey, 245 S.W.2d 484, 485-86
(1952)). In Hoffman v. L & M Arts, 2013 WL 4511473 (N.D. Tex. Aug. 26, 2013)
(Fitzwater, C.J.) (“Hoffman V”), the court explained:
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. 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. 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.
Id. at *6 (internal quotation marks and citations omitted; bracketed material added).
Although considered the “normal” measure of damages under Texas law, benefit-ofthe-bargain is not the only measure of damages available for a breach of contract claim. For
example, courts may also award “reliance damages,” which “restore any expenditures the
non-breaching party made in reliance on the contract,” and “restitution damages,” which
“restore property or money taken from the non-breaching party and restore it to the position
it would have been in had no contract been made.” Wes-Tex Tank Rental, Inc. v. Pioneer
Natural Res. USA, Inc., 327 S.W.3d 316, 320 n.4 (Tex. App. 2010, no pet.) (citing Harker
Heights, 830 S.W.2d at 317; Mistletoe Express Serv. of Okla. City, Okla. v. Locke, 762
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S.W.2d 637, 638-39 (Tex. App. 1988, no writ)). Hoffman argues that the proper measure
of damages is the value of the benefits defendants derived as a result of their breach of
contract. She relies on Restatement § 39, which provides:
If a deliberate breach of contract results in profit to the
defaulting promisor and the available damage remedy affords
inadequate protection to the promisee’s contractual entitlement,
the promisee has a claim to restitution of the profit realized by
the promisor as a result of the breach. Restitution by the rule of
this section is an alternative to a remedy in damages.
Restatement § 39(1).
The Supreme Court of Texas has not adopted § 39 of the Restatement. Absent a
binding decision of the Supreme Court of Texas on an issue of substantive Texas 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.
Hoffman V, 2013 WL 4511473, at *3 n.3 (citations omitted).
Restatement § 39 represents a departure from the traditional view that “‘[d]amages
for breach of contract protect three interests: a restitution interest, a reliance interest, and an
expectation interest.’” Sharifi v. Steen Auto., LLC, 370 S.W.3d 126, 148 (Tex. App. 2012,
no pet.) (quoting Chung v. Lee, 193 S.W.3d 729, 733 (Tex. App. 2006, pet. denied));
Restatement (Second) of Contracts § 344 (1981). Although phrased in terms of “restitution,”
§ 39 does not seek to restore the plaintiff to her original position,21 but instead “describes a
21
Restitution “is generally defined [under Texas law] as an equitable remedy under
which a person is restored to his or her original position before the loss or injury.” Fazio v.
Cypress/GR Hous. I, L.P., 403 S.W.3d 390, 426 (Tex. App. 2013, pet. denied) (citing In re
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disgorgement remedy.” Restatement § 39 cmt. a (emphasis in original).
Under Texas law, disgorgement of profits is “an equitable remedy meant to prevent
the wrongdoer from enriching himself by his wrongs.” Allstate Ins. Co. v. Receivable Fin.
Co., L.L.C., 501 F.3d 398, 413 (5th Cir. 2007) (citation and internal quotation marks
omitted). Unlike restitution, the purpose of disgorgement is not to make the victim whole
but to prevent the wrongdoer’s enrichment from ill-gotten profits. SEC v. Huffman, 996 F.2d
800, 802 (5th Cir. 1993). Courts interpreting Texas law have specifically held that
disgorgement of profits is not an appropriate remedy for a breach of contract claim. See
Henry v. Masson, 333 S.W.3d 825, 849 (Tex. App. 2010, no pet.) (“Disgorgement of profits
is not a measure of damages available in a breach of contract action. ‘The normal measure
of damages in a breach of contract case is the benefit of the bargain, the purpose of which
is to restore the injured party to the economic position it would have been in had the contract
been performed.’” (quoting City of The Colony v. N. Tex. Mun. Water Dist., 272 S.W.3d 699,
739 (Tex. App. 2008, pet. dism’d))); see also UDV N. Am., Inc. v. Tequila Cuervo La
Rojena, S.A., 2001 WL 1223638, at *10 (5th Cir. Sept. 26, 2001) (per curiam) (affirming
J.R., 907 S.W.2d 107, 109 (Tex. App. 1995, no writ)); see also Burlington N. R.R. Co. v. Sw.
Elec. Power Co., 925 S.W.2d 92, 97 (Tex. App. 1996, no pet.) (“The purpose of restitution
is to place an aggrieved plaintiff in the position he occupied prior to his dealings with the
defendant.”). Restitution damages are measured by the “amount which would put plaintiff
in as good a position as he would have been in if no contract had been made.” Coon v.
Schoeneman, 476 S.W.2d 439, 441 (Tex. Civ. App. 1972, writ ref’d n.r.e.). In other words,
restitution “restores to plaintiff the value of what he parted with in performing the contract.”
Id.; see also Harker Heights, 830 S.W.2d at 317 (“Restitution involves restoring property
or money taken from the plaintiff.”).
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holding that, under Texas law, party was not entitled to disgorgement as remedy for breach
of contract because disgorgement is not available as remedy for breach of contract unless
contracting parties had confidential or fiduciary relationship and plaintiff failed to establish
such a relationship); Bancservices Grp., Inc. v. Strunk & Assocs., L.P., 2005 WL 2674985,
at *6 (Tex. App. 2005, pet. denied) (mem. op.) (“For a breach of contract action, the measure
of damages is not the benefits received by the defendant, but the loss or damage actually
sustained by the plaintiff.”).
The “primary object of § 39 is to prevent the unjust enrichment of the defendant at
the expense of the plaintiff.” Restatement § 39 cmt. a. Thus damages under § 39 are
calculated solely by reference to the breaching party’s ill-gotten gains; no consideration need
be given to the benefit of the parties’ bargain or to what amount is necessary to compensate
the plaintiff for her losses. In fact, “a claimant under [§ 39] may recover the defendant’s
profits from breach, even if they exceed the provable loss to the claimant from the
defendant’s defaulted performance.” Id. (emphasis added). Under Texas law, however, “a
plaintiff is not to be put in a better position by a recovery of damages for the breach of a
contract than he would have been in if there had been performance.” Guardian Trust Co.
v. Brothers, 59 S.W.2d 343, 345 (Tex. Civ. App. 1933, writ ref’d) (citation omitted); accord
Neuman v. Spector Wrecking & Salvage Co., 490 S.W.2d 875, 878 (Tex. Civ. App. 1973,
no pet.). Permitting a plaintiff to recover disgorgement as a remedy for breach of contract
would thus be inconsistent with the “goal in measuring damages for a breach-of-contract
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claim,” which “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.) (emphasis added) (citations omitted); see also
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 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.”).
Because Texas law does not authorize disgorgement as a remedy for a breach of
contract claim and § 39 would permit a plaintiff to recover more for breach of contract than
is necessary to compensate her for the loss sustained as a result of the breach, the court
makes an Erie prediction that the Supreme Court of Texas would neither adopt Restatement
§ 39 nor permit Hoffman to recover, as a remedy for breach of contract, the value of the
profits that L&M derived from its breach of the Letter Agreement.
Hoffman relies on Harker Heights to argue that “Texas courts have applied the theory
of recovery embodied in section 39 of the Restatement to award breach-of-contract plaintiffs
the benefits derived from a defendant’s breaches.” P. Br. 15. In Harker Heights the
defendant, the City of Harker Heights (“City”), had reached an agreement with two
developers under which the City would approve the developers’ subdivision plats if they
would escrow their share of the City’s projected costs of annexing and improving a road that
was adjacent to and abutted the proposed subdivisions. Harker Heights, 830 S.W.2d at 315.
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The City never annexed the road, and the developers filed suit seeking, inter alia, restitution
of the escrowed funds and damages for breach of contract. Id. at 316. The court of appeals
upheld the trial court’s judgment permitting the developers to recover their escrowed funds,
less the value of certain road improvements made by the city. Id. at 315. In affirming the
trial court, the court of appeals did not award plaintiffs any profits that the City had obtained
as a result of the breach (in fact, there was no evidence that the City had profited from the
breach other than by retaining plaintiffs’ escrowed funds and not performing as promised
under the parties’ agreement). Although the court of appeals explained that “restitution
focuses on forcing the defendant to disgorge benefits that it would be unjust to keep, rather
than on compensating the plaintiff,” in affirming the trial court’s judgment, it simply restored
to the plaintiffs the value of what they parted with, less the value of what they received. Id.
at 317.
Similar to Harker Heights, the jury in this case was specifically asked to find “[t]he
difference, if any, between the value of the benefits Hoffman conveyed under the contract
to the defendant in question and the value of the benefits she received in exchange.” Ct.
Charge 15 (Question No. 3(B)). The jury answered “0.” Id. If the court were to follow the
holding of Harker Heights and award damages consistent with that opinion, it would not, as
Hoffman urges, award her “the value of the benefits that the defendant in question received
in connection with the transaction.” Id. (Question No. 3(C)). Instead, it would award $0,
which represents the difference in the value of the benefits Hoffman conveyed under the
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Letter Agreement (similar to the escrowed funds), less the value of the benefits she received
in exchange (similar to the value of certain road improvements made by the City).22
Hoffman argues that the jury could not have awarded “disgorgement” in answering
Question No. 3(C) because the court clearly instructed the jury that it could only award
“compensatory damages,” the “purpose [of which] is to make Hoffman whole.” P. Br. 17
(quoting Ct. Charge 13). She maintains that the damages the jury found in answering
Question No. 3(C) are restitution damages meant to compensate her “by awarding a
monetary substitute for the performance she paid for and should have received.” Id.
(brackets and internal quotation marks omitted) (citing Restatement § 39, cmts. d-e). The
court disagrees.
The damages Hoffman is describing are benefit-of-the-bargain damages, not
restitution damages.23 See Hoffman V, 2013 WL 4511473, at *6 (stating that benefit-of-thebargain measure of damages “‘seeks to restore the injured party to the economic position it
22
Hoffman also relies on Morgan, in which a Texas court of appeals affirmed a jury
award of $3,000 in profits that the defendant had earned by breaching a non-competition
clause. Morgan, 1987 WL 18703 , at *3. The Morgan court appears to have awarded the
type of damages that Restatement § 39 contemplates (Restatement § 39 in fact cites Morgan
as the basis for illustration No. 6). But it is an unpublished opinion, it does not cite any
Texas law in support of its conclusion, and it addresses only whether the evidence supported
the verdict rather than whether a plaintiff suing for breach of contract under Texas law can
recover under a disgorgement theory of damages. Accordingly, this court declines—based
on Morgan alone—to hold that Texas would follow the approach taken in Restatement § 39.
23
To the extent Hoffman seeks to recover under a restitution measure of damages, as
the court explains above, it is Question No. 3(B) ( the difference in value between what
Hoffman gave and what she received) that sought the jury’s finding in this respect.
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would have been in had the contract been performed.’” (quoting Advanced Polymer Scis.,
Inc., 128 S.W.3d at 317 n.6)). As one Texas court of appeals has explained:
expectation damages are benefit of the bargain damages that
restore the non-breaching party to the same position it would
have been in had the contract not been breached. . . . Restitution
damages restore property or money taken from the nonbreaching party and restore it to the position it would have been
in had no contract been made.
Wes-Tex Tank Rental, 327 S.W.3d at 320 n.4 (citations omitted). “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.” Hoffman V, 2013 WL
4511473, at *6 (citations omitted). This calculation focuses solely on the value that will
fairly compensate the plaintiff for her loss; it does not take into account any profit or other
benefit that the defendant obtained through its breach. Fairly read, Question No. 3(C) does
not compensate Hoffman “by awarding a monetary substitute for the performance she paid
for and should have received.” P. Br. 17.
The court therefore holds as a matter of law that Hoffman is not entitled to recover
the sums that the jury found in answer to Question No. 3(C).
VII
Having determined that Hoffman cannot recover from L&M based on the damages
that the jury found in answer to Question No. 3(C), the court now decides whether Hoffman
is entitled to judgment in the amount of her alternative request, based on the jury’s answer
to Question No. 3(A).
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A
Before reaching the merits of this question, the court must address a procedural issue.
L&M maintains that Hoffman has forfeited any right to recover the sum of $500,000 that the
jury found in response to Question No. 3(A) because she failed to file a motion to alter or
amend the judgment. At oral argument, the court asked L&M’s counsel whether Hoffman
can now elect to recover based on the jury’s answer to Question No. 3(A). He responded:
at this stage procedurally the only proper step for the court to
take would be to enter a take nothing judgment, in which case
the plaintiff then would have 28 days to move to alter or amend
that judgment, but I do not think that under rule 59 and rule 5,
which relate to the deadlines for moving to alter or amend the
judgment, that the court has the jurisdictional power to reform
the judgment in that way.
Tr. Oral Arg. 5-6. Counsel also maintained that
if the court entered a take nothing judgment [Hoffman will] do
what [she does] and we would consider whether legally [she]
can now elect a different remedy. I think we would oppose that,
but I can’t tell you as a matter of law whether [she is] allowed
to do it if [she] get[s] a second bite at the judgment, essentially.
Id. at 6-7.
The court concludes that Hoffman has not forfeited her right to recover the alternative
measure of damages that the jury found in response to Question No. 3(A). Hoffman elected
her remedy in accordance with the court’s directive. She first argued that she was entitled
to all damages awarded in Question No. 3(A) and Question No. 3(C). She contended next
that she was entitled to recover the sums awarded in Question No. 3(C). Finally, she elected
in the alternative to recover the sum of $500,000 that the jury found in response to Question
- 45 -
No. 3(A) if the court determined that equitable restitution was not allowed. P. Jan. 3, 2014
Ltr. to Court at 3 (stating that Hoffman would “elect to recover the $500,000 that the jury
awarded as compensatory benefit-of-the-bargain damages in the event that the Court
determines that equitable restitution is not available as a matter of law as a remedy for breach
of contract.”). Under no circumstances can it be said that Hoffman intentionally waived her
right to recover the sum of $500,000 that she elected in the alternative.
Nevertheless, there is support for L&M’s contention that the court cannot now enter
an amended judgment in Hoffman’s favor based on this alternative measure of damages.
This is because Hoffman did not file a timely motion to alter or amend the judgment, and the
time for the court to act sua sponte has elapsed. There is authority for the proposition that
a district court loses jurisdiction to grant relief under Rule 59(e) when the time for filing such
a motion has expired. See, e.g., Washington v. Patlis, 868 F.2d 172, 174 (5th Cir. 1989)
(quoting de la Fuente v. Cent. Elec. Coop., Inc., 703 F.2d 63, 65 (3d Cir. 1983) (per curiam))
(stating that period for serving Rule 59(e) motion is jurisdictional and cannot be extended in
discretion of district court); Martin v. Wainwright, 469 F.2d 1072, 1073 (5th Cir. 1972) (per
curiam) (same). And although there is also support for the premise that a district court can
grant Rule 59(e) relief sua sponte, the courts that permit this require that the court act within
the time for filing a Rule 59(e) motion, i.e., 28 days after the entry of judgment. In Burnam
v. Amoco Container Co., 738 F.2d 1230 (11th Cir. 1984) (per curiam), the Eleventh Circuit
held that, “so long as the court acts within [28] days after the entry of judgment, the court has
the power on its own motion to consider altering or amending a judgment.” Id. at 1232
- 46 -
(bracketed material added to reflect current time period for filing Rule 59(e) motion); see
also, e.g., Hidle v. Geneva Cnty. Bd. of Educ., 792 F.2d 1098, 1100 (11th Cir. 1986) (“This
court has held, in [Burnam v. Amoco], that where no motion has been filed by either party
a district court has a limited power to act sua sponte to alter or amend a judgment so long as
done within [28] days after the judgment is entered.” (bracketed material added to reflect
current time period for filing Rule 59(e) motion)). “Courts have recognized that FRCP
59(e)’s language is ambiguous with regard to a trial court’s authority to act sua sponte.”
Cristobal v. Siegel, 2014 WL 3029144, at *3 (Guam July 7, 2014) (citing Burnam, 738 F.2d
at 1232). “Other circuits have cited to the Eleventh Circuit without expressly adopting the
rule.” Id. (citing Dr. Jose S. Belaval, Inc. v. Perez-Perdomo, 465 F.3d 33, 37 n.3 (1st Cir.
2006); Marshall v. Shalala, 5 F.3d 453, 454 (10th Cir. 1993)). “In addition, several federal
trial courts have found that they may amend judgments sua sponte pursuant to FRCP 59(e),
as long as they act within the applicable time period.” Id. (collecting cases).
But this does not mean that there is no avenue available for Hoffman to recover under
this alternative measure of damages. L&M’s counsel appeared to recognize this when he
stated at oral argument that the court could enter a take nothing judgment, after which
Hoffman would be able to file a timely motion to alter or amend the amended judgment. In
fact, the court does have jurisdiction to grant Hoffman this relief because it is today granting
a timely motion to alter or amend the judgment, and in doing so is changing what the original
judgment did, to Hoffman’s detriment. “A successive motion directed to the same judgment
is ineffectual, but when there is a new judgment—an alteration independently sufficient to
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restart the time for appeal—there is also a new period in which to file a motion under Rule
59.” Kraft, Inc. v. United States, 85 F.3d 602, 607 (Fed. Cir. 1996) (quoting Charles v.
Daley, 799 F.2d 343, 348 (7th Cir. 1986)). To decide whether the period for filing a
successive motion has commenced, the court determines whether the amendment to the
judgment has made a change in what the judgment did. See Charles L. M. v. Ne. Indep. Sch.
Dist., 884 F.2d 869, 870 (5th Cir. 1989) (stating “that the test is whether the amendment of
the judgment made no change in what the judgment did[.]” (quoting Harrell v. Dixon Bay
Transp. Co., 718 F.2d 123, 128 n.4 (5th Cir. 1983) (internal quotation marks omitted)). Such
a change occurs when an amended judgment denies part of the damages that the plaintiff was
awarded under a prior judgment. For example, in Harrell the plaintiff’s successive motion
for reconsideration (which the Fifth Circuit treated as a Rule 59(e) motion) was deemed
timely because, after the district court entered a judgment favorable to the plaintiff, it entered
an amended judgment in response to the defendant’s motion in which it set aside part of the
damages that it had originally awarded to the plaintiff. Harrell, 718 F.2d at 127-29. The
Eleventh Circuit followed Harrell in Wright v. Preferred Research, Inc., 891 F.2d 886 (11th
Cir. 1990), holding that a Rule 59 motion filed after the entry of a second judgment that
reduced the amount of damages tolled the time for appeal. Id. at 889-90.
In sum, because Hoffman did not move to alter or amend the original judgment, L&M
appears to be correct that the court lacks jurisdiction to award her relief in the amended
judgment under the alternative measure of damages. The court must therefore enter an
amended judgment that dismisses Hoffman’s action against L&M. This amended judgment
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will change what the original judgment did by denying Hoffman the damages that she elected
and on which the court based the original judgment. Hoffman will then be able to file a
timely motion to alter or amend the amended judgment, in response to which the court will
enter a second amended judgment that will enable her to recover under her alternative
election: the sum of $500,000 that the jury found in response to Question No. 3(A).24
B
Having addressed this procedural question, the court now turns to the merits of
L&M’s arguments. L&M maintains that Hoffman cannot recover benefit-of-the-bargain
damages for L&M’s breach of the confidentiality provision of the Letter Agreement.25 It
posits that the only damages that she can recover are consequential damages, and, had an
instruction on consequential damages been given, no reasonable jury could have found any
damages because there was no evidence of any injury to Hoffman as a consequence of the
breach. L&M maintains that, even if benefit-of-the-bargain damages were categorically
available to Hoffman, the court’s jury instruction was erroneous because it did not properly
reflect the benefit of the parties’ bargain. L&M contends that the jury should have been
instructed to find “(1) whether both buyer and seller agreed that ‘the sale price for the
[Rothko painting] was substantially reduced from what the price would have been if this
24
The second amended judgment will adhere to the court’s decision dismissing
Hoffman’s actions against Studio Capital and Martinez.
25
This is an example of a contention drawn from the brief of Studio Capital and
Martinez, which L&M adopted.
- 49 -
provision had not been included’ and (2) ‘the price that you find the buyer and seller would
have agreed to under the April 24, 2007 contract if the contract had not included the
confidentiality provision.’” Studio Capital/Martinez Br. 22 (quoting Studio Capital/Martinez
Proposed Jury Charge 21). In other words, L&M contends that Hoffman was required to
prove that she would have sought a higher price had the confidentiality provision not been
included in the Letter Agreement, and that she was obligated to prove that both parties would
have agreed to that higher price without the confidentiality provision. L&M maintains that
Hoffman did not meet this burden because there is no evidence that Studio Capital or
Martinez would have paid more for the Rothko painting had the confidentiality provision not
been included.
Hoffman responds that this challenge to the jury instructions is not an appropriate
basis for relief under Rule 50(b).26 She posits that, to recover benefit-of-the-bargain
damages, she was not required to prove that Studio Capital and Martinez would have paid
a higher price for the Rothko painting had the Letter Agreement not included a
confidentiality provision. According to Hoffman, “[w]hat matters is whether the amount for
26
In making this argument, Hoffman relies on Hancock v. Chicago Title Insurance
Co., 2013 WL 2391500, at *2 (N.D. Tex. June 3, 2013) (Fitzwater, C.J.), in which the court
held that the failure of the movant to move for judgment as a matter of law on an issue
waived the movant’s ability to seek relief on that issue under Rule 50(b). Unlike in Hancock,
however, defendants did move for judgment as a matter of law on this issue. See Tr.
5:131(“Finally, she didn’t show damages. There’s no evidence here of benefit of the bargain
damages, because there is no evidence of any discount in the sale price agreed or made for
confidentiality.”); id. at 5:135 (“there is no evidence that anyone would have paid more for
the painting absent the existence of the confidentiality clause”).
- 50 -
which she could have sold the [Rothko painting] at public auction was higher than the sum
she received under the Contract,” P. Br. 24, and there was sufficient evidence for the jury
to find that she could have sold it for $500,000 more than she received.
C
In Hoffman V the court made an Erie prediction that Hoffman’s damages theory is
legally viable under Texas law. Hoffman V, 2013 WL 4511473, at *6 & n.9 (“so far as the
court can determine, Hoffman’s damages theory is legally viable”). The court explained 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 consideration—here, the promise of strict confidentiality—in
exchange for the Rothko painting.” Id. at *6. The court noted in a footnote that it had not
found any case that suggested that what Hoffman is seeking to recover is unavailable under
Texas law as a matter of law, but that the court could “revisit this issue after the verdict,” if
necessary. Id. at *6 n.9.
L&M contends that the court should now revisit the issue and hold that Hoffman is
only entitled to recover consequential damages. But apart from arguments that the court
considered and rejected in Hoffman V, L&M has not provided any basis for the court to
revisit its decision. Having found no basis to call into question its Erie prediction in
Hoffman V, the court denies L&M’s motion to the extent it argues that Hoffman can only
recover consequential damages.
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D
L&M next argues that Hoffman was required to prove that both she and the buyer
understood that the sale price was being reduced because of the confidentiality provision,
and that without the confidentiality provision, the buyer would have paid a higher price. In
support, L&M relies on two opinions of the Supreme Court of Texas: Formosa Plastics
Corp. USA v. Presidio Engineers & Contractors, Inc., 960 S.W.2d 41 (Tex. 1988), and
Fortune Production Co. v. Conoco, Inc., 52 S.W.3d 671 (Tex. 2000).
In Formosa the plaintiff, Presidio Engineers and Contractors, Inc. (“Presidio”), was
awarded a contract for a large construction project at one of the facilities of Formosa Plastics
Corporation (“Formosa”) based on its low bid of $600,000. Id. at 43. The project took
substantially longer than expected, and, as a result, Presidio incurred additional,
unanticipated costs. Id. Presidio alleged that, in preparing its bid, it had relied on
information contained in a Formosa bid package that Presidio later learned was false.
Presidio sued Formosa, alleging, inter alia, a claim for fraudulent inducement. Id. At trial,
the jury awarded Presidio $700,000 in fraud damages. Id. at 49. In response to Formosa’s
contention that the award was excessive, Presidio argued that, had it been told the truth about
the project, it would have bid $1.3 million, and by subtracting the amount it was paid
($600,000) from what was reasonable and necessary to perform the work ($1.3 million),
there is legally sufficient evidence to support the $700,000 damages award. Id.
The Supreme Court of Texas held that the damages award was “entirely speculative
- 52 -
because there is no evidence that Presidio would have been awarded the project if it had
made a $1.3 million bid.” Id. at 50. In fact, it is likely that, had Presidio bid $1.3 million,
it would not have been awarded the project because two of the three other bids Formosa
received were lower than $1.3 million. Accordingly, the court did not permit Presidio to
recover the full $700,000 in damages based on its benefit-of-the-bargain theory.
In Hoffman V the court relied on Fortune Production to make its Erie prediction
concerning whether Hoffman could recover under her theory of benefit-of-the-bargain
damages. The court summarized the case as follows:
In Fortune Production one of the issues the Supreme Court of
Texas addressed was whether the plaintiffs, who were producers
of natural gas, could recover as benefit-of-the-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.
The court concluded that, because there was evidence that the
defendant 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. 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.”
Hoffman V, 2013 WL 4511473, at *7 (citations omitted). But because there was no evidence
that the defendant would have agreed to pay $3.50 per Mcf for all of the plaintiffs’ residue
gas, as the jury found, the court concluded that the evidence did not support the amount of
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damages found by the jury. Fortune Production, 52 S.W.3d at 682.
In Hoffman V the court relied on Fortune Production because it appeared to support
the premise that a party can recover benefit-of-the-bargain damages for breach of contract
measured by the lower price that the non-breaching party was willing to accept in exchange
for a promise of performance by the breaching party of certain contractual terms. See
Hoffman V, 2013 WL 4511473, at *7 (introducing discussion of Fortune Production by
stating, “Although Hoffman does not cite, and the court has not found, a case that is factually
similar to this one, the court has located Texas authority that appears to support the premise
that the damages Hoffman seeks are legally available.” (footnote omitted)). Although the
court noted that cases involving fraudulent inducement are instructive—because “the benefit
of the bargain measure of damages is available for both fraudulent inducement and breach
of contract claims,” id. at *7 n.12 (quoting Sterling Chemicals, Inc. v. Texaco Inc., 259
S.W.3d 793, 798 (Tex. App. 2007, pet. denied))—it did not suggest that doctrines and case
law that control such cases apply equally to breach of contract claims. L&M is attempting
to derive from Formosa and Fortune Production—two cases involving fraud claims—the
prerequisites for recovering benefit-of-the-bargain damages in the context of a breach of
contract claim. These requirements are found, however, in well-settled principles of Texas
law that govern benefit-of-the-bargain damages sought as a remedy for breach of contract.
As explained in Hoffman V, “‘[t]he goal in measuring damages for a
breach-of-contract claim is to provide just compensation for any loss or damage actually
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sustained as a result of the breach.’” Hoffman V, 2013 WL 4511473, at *6 (quoting Parkway
Dental Assocs., 391 S.W.3d at 607). Courts accomplish this goal through benefit-of-thebargain damages, which “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.” Id. (citing Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 817 (Tex.
1997)). Hoffman bargained for—and expected to receive—$19 million (less commissions)
plus confidentiality; she actually received $19 million (less commissions), but not the
confidentiality for which she had bargained. One method of measuring the value of the
confidentiality that she expected to receive as part of the bargain is to determine the
difference between what she could have sold the painting for at public auction (i.e., without
confidentiality) and what she in fact sold it for (i.e., with confidentiality). Id. at *7 (holding
that “it is permissible to measure benefit-of-the-bargain 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.”). To meet this burden of proof, Hoffman was not required to satisfy the
requirements that L&M draws from Formosa and Fortune Production. For purposes of this
measure of damages, it is irrelevant whether Studio Capital or Martinez would have paid this
amount for the painting had the confidentiality provision not been included. It was only
necessary for Hoffman to prove—as she did—the amount that some purchaser would have
paid at a public auction.
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Based on its Erie prediction in Hoffman V, and in the absence of persuasive
arguments to the contrary, the court holds that Hoffman is entitled to recover benefit-of-thebargain damages, and that these damages can be calculated by determining the difference
between what she could have sold the Rothko painting for at public auction (i.e., without
confidentiality) and what she actually sold the painting for in a private sale (i.e., in exchange
for non-monetary consideration in the form of the confidentiality clause). See Hoffman V,
2013 WL 4511473, at *7. L&M has not established as a matter of law that Hoffman cannot
recover benefit-of-the-bargain damages under this measure or under the evidence presented
at trial. Accordingly, this basis of L&M’s Rule 50(b) motion is denied.
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*
*
*
For the foregoing reasons, the court grants the Rule 50(b) motion filed by defendants
Studio Capital and Martinez, and it grants in part and denies in part L&M’s Rule 50(b)
motion. The court is today entering an amended judgment consistent with these rulings.27
SO ORDERED.
September 4, 2014.
_________________________________
SIDNEY A. FITZWATER
CHIEF JUDGE
27
There are other motions pending for decision: Hoffman’s November 25, 2013
motion for sanctions against L&M; Hoffman’s February 13, 2014 motion for attorney’s fees
and related non-taxable expenses; Hoffman’s March 12, 2014 motion to increase the amount
of costs taxed against defendants; and defendants’ March 12, 2014 motion to retax costs. To
the extent these motions are brought against or by Studio Capital and Martinez, they are
denied because Hoffman’s actions against these defendants are being dismissed by the
amended judgment filed today. The motions otherwise remain pending to the extent brought
against or by L&M.
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