Edelman Arts, Inc. v. Spoelstra
| Decision Date | 05 May 2020 |
| Docket Number | 17-cv-4789 (JGK) |
| Parties | EDELMAN ARTS, INC., Plaintiff, v. REMKO SPOELSTRA et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Following the entry of a default judgment against all defendants on the plaintiff's claim for breach of contract, the case was referred to Magistrate Judge Sarah Netburn for an inquest on damages. After receiving submissions from the plaintiff, Edelman Arts, Inc., the only party that appeared at the inquest, the Magistrate Judge issued a Report and Recommendation concluding that this Court should award no damages to the plaintiff. The plaintiff timely objected to the Report and Recommendation. For the reasons that follow, the Court declines to adopt the Report and Recommendation at this time. The case is recommitted to the Magistrate Judge pursuant to Federal Rule of Civil Procedure 72(b)(3) for further proceedings consistent with this opinion.
The allegations in the Complaint, which are accepted as true for purposes of liability, are as follows. The plaintiff, Edelman Arts, Inc., is a New York-based business that finds and brokers works of art for sale around the world. Second Amended Complaint ("SAC") ¶ 1. At some point, the plaintiff was introduced to Remko Spoelstra, a contractor who purchases art on behalf of a member of the Abu Dhabi royal family. Id. at ¶¶ 3, 9. Around the time of the introduction, Spoelstra, at the instruction of the defendant Jason Holloway, an employee of a member of the Abu Dhabi Royal Family, viewed and agreed to purchase from the plaintiff a number of works of art on behalf of the defendant Swiss Business Council. Id. at ¶¶ 4, 10, 14, 20, 21. Specifically, Spoelstra agreed to purchase from the plaintiff a Keith Haring acrylic on canvas for $6 million, an untitled Keith Haring acrylic on tarp ("Haring Tarp 1") for $4.8 million, another Keith Haring untitled acrylic on tarp ("Haring Tarp 2") for $6 million, an untitled Keith Haring enamel on wood totem for $3 million, and an Edvard Munch painting for $7 million. Dkt. No. 25-1, at 1-4; SAC ¶ 14. The plaintiff invoiced Spoelstra on November 18, 2016 for each of the works. Dkt. No. 25-1. Spoelstra then billed Swiss Business Council for the works. SAC ¶ 21; Dkt. No. 25-2. Following billing, Holloway traveled to New York City to take possession of the works following payment. SAC ¶ 22. The plaintiff never received payment and did not proceed to deliver any of the works to Holloway. Id. at ¶ 25. The plaintiff then commenced this actionfor breach of contract against the defendants for their failure to complete the transactions.
Following the inception of the lawsuit, the plaintiff allegedly mitigated damages arising from the defendants' breach of contract by selling Haring Tarp 1 for $3,125,000.00 and Haring Tarp 2 for $3,500,000.00. Id. at ¶¶ 15-17. In the SAC, the plaintiff initially requested damages principally of $20,175,000.00, calculated by totaling up $6 million for the unsold Haring canvas, $3 million for the unsold Haring totem, $4,175,000.00, the invoiced prices for Haring Tarp 1 and Haring Tarp 2 less the amount recouped for those pieces by subsequent sales to third parties, and $7 million for the Munch painting. Id. at ¶¶ 29-32.
Judge Katherine B. Forrest, to whom this case was previously assigned, found, when entering a default liability judgment against all defendants except Spoelstra, that the SAC "appropriately addresses all legal elements of a breach of contract claim, if all the allegations in the complaint are taken as true." Dkt. No. 56. On April 22, 2019, this Court found that the plaintiff was entitled to a default judgment against all defendants, including Spoelstra, on the plaintiff's claim for breach of contract. Dkt. No. 84. The Court then referred the case to the Magistrate Judge for an inquest on damages. Dkt. No. 85.
In the plaintiff's proposed findings of fact and conclusions of law, the plaintiff did not renew its request for damages in the principal amount of $20,175,000.00, but instead requested damages of $7,585,000.00 plus $2,199.441.87 in interest, calculated using the New York State statutory interest rate of nine percent per annum, for a total of $9,784,441.87. Dkt. No. 90 ¶ 21. The reduction in the plaintiff's damages request from the SAC to the inquest appeared to be due to the fact that the plaintiff's damages request at the inquest was based primarily on estimated commissions that the plaintiff would have received for brokering the sale of the five works of art to the defendants had the defendants not breached the contract. The plaintiff indicated that its commission for the sale of the $7 million Munch painting to the defendants would have been $1.4 million (Dkt. No. 90 ¶ 23); the plaintiff's commission for the sale of the $6 million Haring canvas to the defendants would have been $1.2 million (id. at ¶ 24); and the plaintiff's commission for the sale of the $3 million Haring totem to the defendants would have been $600,000 (id. at ¶ 25).1The remaining damages request appeared to be the difference between what the plaintiff would have collected for Haring Tarp 1 and Haring Tarp 2, had the defendants purchased those two works, and what the plaintiff allegedly did collect after the two works were sold to third parties to mitigate damages, although the plaintiff's proposed findings of fact and conclusions of law did not refer to Haring Tarp 2 but only to Haring Tarp 1, which originally carried an invoice price of $4.8 million.2 Id. at ¶ 22.
Following the submission of the plaintiff's findings of fact and conclusions of law, the Magistrate Judge requested that the plaintiff "set forth in greater detail the factual and legal basis for calculating damages based on a combination of potential commissions and the difference between the asking price and the sale price of one 'Haring work' [Haring Tarp 1] (the invoice for which is included in Plaintiff's Proposed Findings of Fact and Conclusions of Law as 'Exhibit D')." Dkt. No. 92. The plaintiff then supplemented its proposed findings of fact and conclusions of law with an affidavit of Spoelstra and a declaration of Asher Edelman, the president of the plaintiff Edelman Arts, Inc. Dkt. No. 93. These submissions attested tothe sales history and commission structure with respect to Haring Tarp 1. The submissions sought to provide further support that the damages suffered by the plaintiff with respect to Haring Tarp 1 were $1,985,000.00 based on the difference between the original invoice price of $4,800,000.00 and $2,815,000.00, the amount allegedly received for the sale of Haring Tarp 1 after commissions were deducted. Edelman Decl. (Dkt. No. 93) ¶¶ 6-16 & Exs. A, B.
On January 14, 2020, the Magistrate Judge issued a Report and Recommendation recommending that this Court award no contract damages to the plaintiff because, although the defendants were liable for breach of contract, "[t]he Court cannot determine with reasonable certainty based on the evidence provided by Plaintiff that the commissions on the invoiced sales equal the amounts listed in Plaintiff's damages calculations." Dkt. No. 94, at 6. In particular, the Magistrate Judge found that "[n]owhere in Plaintiff's submissions does Plaintiff provide evidence of the percentage of the alleged commission, how that commission is calculated, that Plaintiff has received any similarly calculated commissions in the past, or that such commission amounts are routine or industry standard." Id. at 7. Additionally, the Magistrate Judge found that the "Plaintiff does not adequately account for the remaining discrepancy between the principal amount sought ($7,585,000.00) and theCourt's calculation of the alleged three lost commissions plus the one resale difference ($5,185,000.00)." Id. Consequently, the Magistrate Judge stated that she could not "conclude that Plaintiff is entitled to any of the $7,585,000.00 it seeks." Id. at 8.
The plaintiff timely filed objections to the Report and Recommendation pursuant to 28 U.S.C. § 636(b)(1) and Federal Rule of Civil Procedure 72(b) on the grounds that 1) the Magistrate Judge did not ask for supplemental filings on the issue of calculating commissions, broadly, but only asked for supplemental filings concerning Haring Tarp 1, and that the Magistrate Judge nevertheless recommended an award of no damages in large part because no evidence was submitted about how commissions were calculated; 2) the Magistrate Judge failed to award damages totaling $1,985,000 for Haring Tarp 1, which was sold to mitigate damages; and 3) the Magistrate Judge failed to award damages totaling $3 million for the Haring totem. Dkt. No. 97.3
The district court must "make a de novo determination of those portions of the report . . . to which objection is made" and "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1); see also Fed. R. Civ. P. 72(b)(3). "The judge may also receive further evidence or recommit the matter to the magistrate judge with instructions." 28 U.S.C. § 636(b)(1); see also Fed. R. Civ. P. 72(b)(3). When reviewing the Report and Recommendation of a magistrate judge, In re Hulley Enters. Ltd., 400 F. Supp. 3d 62, 69 (S.D.N.Y. 2019) (internal citation omitted) (quoting Nelson v. Smith, 618 F. Supp. 1186, 1189-90 (S.D.N.Y. 1985)).
Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490, 495 (2d Cir. 1995) (alteration and internal quotation marks...
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