ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Thursday, December 26, 2013

Seller of Rothko Painting Wins Case Against Buyer and Dealers for Breach of Confidentiality Agreement

Untitled 1961In 2007, Marguerite Hoffman decided to sell a major painting by Mark Rothko, and the buyer and delers agreed to keep the sale confidential. Mrs. Hoffman's husband, soft-drinks bottling magnate Robert K. Hoffman, had died the year before, and she wanted to quietly raise money from a discreet buyer.  After a trial earlier this month, a jury in Dallas federal court found that two New York art dealers and a billionaire collector breached the confidentiality agreement, but also awarded plaintiff damages in an amount much less than she had sought.  According to the WSJ:

The 2007 sale, to Studio Capital, a Belize-registered company advised by Mexican-born financier David Martinez, was arranged by prominent New York art dealer Robert Mnuchin and his then-partner, Dominique Lévy. The transaction, in which Mrs. Hoffman received $17.6 million, involved a letter agreement that "all parties agree to make maximum effort to keep all aspects of this transaction confidential indefinitely."

But according to Mrs. Hoffman's lawsuit, the private transaction came to light three years later when Studio Capital turned around and sold the painting in a highly publicized auction at Sotheby's, where it fetched $31.4 million and indirectly revealed the Hoffmans' prior ownership in marketing materials.

Mrs. Hoffman sued Mr. Mnuchin's and Ms. Levy's art gallery, L&M Arts, and Mr. Martinez and Studio Capital, claiming breach of contract. She claimed she could have sold the painting at auction herself and received far more, had she not wanted secrecy. In closing arguments, her attorney, Roger Netzer of Willkie Farr & Gallagher, argued that damages should be between $12.4 million and $22.4 million, based on disputed expert testimony about the art market before the 2008 financial crash.

Jurors in U.S. District Court found all three defendants did breach the agreement, and the panel assessed two types of damages, one of $500,000 and another totaling $1.2 million. The judge ruled that Mrs. Hoffman will have to choose between the two sums, although it is conceivable her counsel may try to claim both types of damages, for a total of $1.7 million.

"I am elated," said Mrs. Hoffman after the verdict. "This case was always about something other than money. It was about justice and integrity and honesty and trust and friendship."

Jonathan Blackman, an attorney at Cleary Gottlieb Steen & Hamilton, who represented Mr. Martinez and Studio Capital, said the limited damages amount to a defense victory. "We feel very good," he said. "After three years and enormous legal expenses on the part of the plaintiff, the elephant labored and came forth with a mouse." He said his clients plan to challenge the damages and breach-of-contract findings.

Major transactions in the art world often involve secrecy, and confidentiality clauses of differing stripes have become common in recent years. Before the trial, some lawyers said a victory by Mrs. Hoffman could have broad implications for the art world by threatening to turn such confidentiality agreements into restrictions or even prohibitions of resales.

Bill Carmody, an attorney at Susman Godfrey who represented defendant L&M Arts in the case, said "it was obviously a huge win for us," because the "jury awarded her a mere fraction of the $20-plus million she wanted."

[Meredith R. Miller]

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