JN Contemporary Art LLC v. Phillips Auctioneers LLC
Decision Date | 16 December 2020 |
Docket Number | 20cv4370 (DLC) |
Citation | 507 F.Supp.3d 490 |
Parties | JN CONTEMPORARY ART LLC, Plaintiff, v. PHILLIPS AUCTIONEERS LLC, Defendant. |
Court | U.S. District Court — Southern District of New York |
For plaintiff JN Contemporary Art LLC: Aaron Richard Golub, Nehemiah Glanc, Russell I. Zwerin, Aaron Richard Golub, Esquire PC, 35 East 64th Street, Suite 4A, New York, NY 10065.
For defendant Phillips Auctioneers LLC: Luke Nikas, Maaren Alia Shah, Neil Thomas Phillips, Quinn Emanuel Urquhart & Sullivan LLP, 51 Madison Avenue, 22nd Floor, New York, NY 10010.
In June 2019, plaintiff JN Contemporary Art LLC ("JN") and defendant Phillips Auctioneers LLC ("Phillips") entered into two agreements governing the auctioning of two paintings: one by artist Rudolf Stingel ("Stingel Painting") and another by artist Jean-Michel Basquiat ("Basquiat Painting"). While the Basquiat Painting was sold at a public auction the same day the parties executed those agreements, the Stingel Painting was to be auctioned at an auction then scheduled to occur in New York in May 2020.
After the COVID-19 pandemic swept through New York in the Spring of 2020, Phillips terminated the agreement to auction the Stingel Painting and refused to pay JN the minimum price it was guaranteed in connection with the auction. JN now seeks an order compelling Phillips to auction the Stingel Painting and pay it in accordance with the terms of the parties’ agreement. Phillips has moved for dismissal of this action. For the following reasons, the action is dismissed.
The following facts are taken from the Second Amended Complaint ("SAC") and documents integral to it or incorporated by reference.1 JN buys, sells, and exhibits works of art. Phillips is an art auction house that takes works of art on consignment for public or private auction.
In 2019, JN owned the Stingel Painting and Phillips or its principal owned the Basquiat Painting. JN agreed to place a bid at a June 2019 auction for the Basquiat Painting and to consign the Stingel Painting to Phillips for auction in New York in May 2020. The agreement was recorded in two June 27, 2019 contracts, which will be referred to as the Basquiat Agreement and the Stingel Agreement.
Broadly, the Basquiat Agreement obligated JN to place a bid on the Basquiat Painting at Phillips’ 20th Century & Contemporary Art Evening Sale in London on June 27, 2019. It was executed "[c]onditional upon" JN's execution of the Stingel Agreement and "conditional upon the [Basquiat Painting] being offered for sale with a commitment by Phillips to pay the Seller a Guaranteed Minimum" of GBP £3,000,000. JN agreed to place an "Irrevocable Bid" of GBP £3,000,000 for the Basquiat Painting at the auction. In consideration for JN's irrevocable bid, Phillips would pay JN a "Financing Fee" of 20% of the purchase amount above GBP £3,000,000, which was referred to as the overage, if JN or an unrelated third party purchased the Basquiat Painting at a price "exceeding GBP [£]3,000,000."
At the June 2019 London auction, JN placed its bid and an unrelated third-party bidder purchased the Basquiat Painting at the auction for GBP £3,200,000 plus additional fees. There is no allegation that Phillips has not paid JN the Financing Fee described in the Basquiat Agreement.
The Stingel Agreement is identified in its preamble as a Consignment Agreement, with JN listed as the Consignor, the sale date identified as "May 2020," and the Phillips Department listed as "20th Century & Contemporary Art-NY". The Special Terms listed in the preamble are a Guaranteed Minimum of "USD $5,000,000," subject to the terms of the agreement.
The Stingel Agreement provided that the Stingel Painting "shall be offered for sale in New York in our major spring 2020 evening auction of 20th Century & Contemporary Act currently scheduled for May 2020" ("New York Auction"). JN was not permitted to bid on the painting. If the painting were not sold at the auction, Phillips would announce that "it has been ‘passed,’ ‘withdrawn’ ‘returned to owner’ or ‘bought-in.’ "
"Subject to ... any applicable withdrawal or termination provision," Phillips guaranteed that JN would receive $5 million (the "Guaranteed Minimum") from the sale of the Stingel Painting at the New York Auction. The Stingel Agreement provided Phillips with a commission from JN equal to 20% of the amount by which the final bid price at the auction of the Stingel Painting exceeded the Guaranteed Minimum, among other things. Phillips denied that it was making any "representations or warranties to [JN] about the actual price at which [the Stingel Painting] will sell," and JN "agree[ed] not to rely on pre-sale estimates as a prediction or guarantee of the value of a Lot or the price at which it will be sold."
The agreement permitted Phillips to withdraw the painting from the auction "at any time before sale if in our sole judgment after consultation with you ... just cause exists." In that event, Phillips’ "obligation to make payment of the Guaranteed Minimum shall be null and void". JN was not, however, permitted to withdraw the Stingel Painting "from sale after the date of the Agreement for any reason."
The Stingel Agreement references the schedule of the New York Auction in three additional places. If the Stingel Painting was damaged prior to the New York Auction, the Guaranteed Minimum "shall be null and void" and JN could "decide whether to withdraw the [Stingel Painting] or to include [Stingel Painting] in the next appropriate auction after restoration has been completed with mutually agreed revised pre-sale estimates and terms of sale."
Finally, Paragraph 12(a)2 of the Stingel Agreement set forth a termination provision (the "Termination Provision"). It stated:
In the event that the auction is postponed for circumstances beyond our or your reasonable control, including, without limitation, as a result of natural disaster, fire, flood, general strike, war, armed conflict, terrorist attack or nuclear or chemical contamination, we may terminate this Agreement with immediate effect. In such event, our obligation to make payment of the Guaranteed Minimum shall be null and void and we shall have no other liability to you.
(Emphasis supplied.)3
The Stingel Agreement contains a choice of law clause. The parties agreed that the agreement would be governed by New York law. Like the Basquiat Agreement, the Stingel Agreement contained an integration clause.
On December 27, 2019, and using the Stingel Painting and another work as collateral, JN obtained a $5 million loan from Muses Funding I LLC ("Muses"). In connection with that agreement, JN, Phillips, and Muses executed a Security Amendment to the Stingel Agreement. The Security Amendment granted Muses a first-priority lien on the Stingel Painting. Also under the Security Amendment, Phillips agreed to pay Muses the Guaranteed Minimum and net sale proceeds from the auction of the Stingel Painting. Like the Stingel Agreement, the Security Amendment acknowledged that the Stingel Painting was to be offered for sale "during the 20th Century & Contemporary Art–NY Auction to be held by Phillips in New York in May 2020 (‘Auction’)."
In March 2020, as the ferocity of the COVID-19 pandemic became more apparent in New York, Governor Andrew Cuomo declared a State Disaster Emergency and issued a series of executive orders restricting and eventually barring all non-essential business activities until June 2020. On March 14, Phillips announced a postponement of auctions. The announcement on its website was entitled "Auction Update: Temporary Closures & Postponements" stating:
As more of our community of staff, clients and partners becomes affected by the spread of the Coronavirus, we have decided to postpone all of our sales and events in the Americas, Europe and Asia.... Our upcoming 20th Century & Contemporary Art sales in New York will be held the week of 22 June 2020, consolidating the New York and London sales into one week of auctions.
In the months that followed the announcement, representatives of Phillips told JN that they would honor their contractual commitments with consigners. On May 26, Phillips raised the possibility of offering the Stingel Painting at auction in November 2020. In connection with that possibility, the parties discussed potential payment and interest terms.
On June 1, however, the owner of Phillips sent JN's principal an electronic message of an unsigned copy of a letter dated May 31, 2020 terminating the Stingel Agreement (the "Termination Letter"). Phillips mailed a signed copy of the Termination Letter on June 2, and JN received it on June 4.4
The Termination Letter provides, in relevant part:
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