By Kurt Mattson

 

Defendant, along with Plaintiff's now-estranged wife, Dorie, established a company that was in the business of selling jewelry at retail. In an action commenced against Plaintiff, Dorie, several of Plaintiff's business entities, and Dorie's limited liability company (LLC), Defendant alleged that Dorie misappropriated corporate funds, and that Plaintiff and his business entities aided in that wrongdoing.

Defendant’s action was partially settled by written stipulation in 2013, which provided that Defendant's counsel (K&M), would “retain a jewel auctioneer with at ' least 15 years' experience in the industry to provide a schedule of minimum selling prices of [certain] Jewelry, as determined by said auctioneer, subject to reasonable business practices, then offer all of the Jewelry at such minimum prices" to Plaintiff and his business entities, by sending them and their attorney "a copy of the schedule of selling prices of the Jewelry" . . . "via email." It further provided that "if the selling price of any or all of the Jewelry is not paid to K&M within 10 days after the aforesaid notice . . . K&M may arrange for the sale of the Jewelry in its discretion."

 

Select Fine Jewelry successfully sold at Freeman's in recent years, including an impressive diamond solitaire ring (top right) | sold for $802,000 and a rare fancy vivid yellow diamond pendant (bottom) | sold for $760,000

 

Jewelry Sold Without Required Notice to Plaintiff — at Bargain Price

Dorie and her LLC settled the Defendant action by transferring and surrendering full right, title, and ownership the jewelry to Defendant. There was no dispute that Defendant then—without notice to Plaintiff—auctioned off the subject jewelry. He didn’t have it appraised by an experienced jewel auctioneer as required by the stipulation. The property yielded $427,455.22.

Plaintiff alleged that Defendant breached the stipulation of settlement by failing to provide him, his business entities, or his attorney with the required notice, thus depriving him of the opportunity to purchase the jewelry at the appraised prices. Further, she instead auctioned off the jewelry for only $427,455.22—Plaintiff argued that the actual value of the jewelry was roughly $1.57 million, and that he sustained damages equal to the difference between the value he attributed to the jewelry and the "minimum selling prices" that might have been determined by a properly retained auctioneer.

In support of his motion, Plaintiff submitted evidence of stipulation of settlement that obligated Defendant to give him notice of her intent to sell the jewelry and a right of first refusal, but she instead auctioned it off without any notification to Plaintiff. Defendant asserted that Plaintiff’s motion for summary judgment should be denied because there were triable issues of fact as to whether Plaintiff or his businesses were ready, willing, and able to purchase the subject jewelry; the promise to provide him notice and an opportunity to purchase the jewelry wasn’t supported by any consideration; and he didn’t actually sustain damages as a result of the sale of the jewelry.

 

The Elements of Breach of Contract

Judge Nancy M. Bannon of the New York Supreme Court wrote that to successfully prosecute a cause of action to recover damages for breach of contract, the plaintiff is required to establish:

  1. the existence of a contract;
  2. the plaintiff's performance under the contract;
  3. the defendant's breach of that contract; and
  4. resulting damages. 

The judge held that failure to follow the procedures set forth in a stipulation of settlement constituted a breach of contractual obligations. And in this case, because Plaintiff's motion was for summary judgment on the issue of liability only, he wasn’t required to submit proof of the amount of damages.

Plaintiff established that the stipulation of settlement was a contract, that he and his businesses performed their obligations pursuant to the stipulation, and that Defendant breached her obligations under the stipulation by auctioning off the jewelry without providing Plaintiff notice and an opportunity to exercise the right of first refusal.

Judge Bannon explained that, although Plaintiff wasn’t obligated to establish the amount of his alleged damages at this point, his affidavit established that had he been given the opportunity to purchase the jewelry at "minimum selling prices," and exercised the right of first refusal, he would’ve been able to resell the jewelry at a higher price. Thus, the judge held that Plaintiff made a prima facie showing that it would be reasonable to infer that there probably were damages arising from the alleged breach.

 

Defendant’s Arguments Don’t Convince Judge

Judge Bannon found Defendant’s arguments were legally unavailing, since Plaintiff wasn’t required to show that he was ready, willing, and able to exercise a right of first refusal in order to make out a breach of contract cause of action. Further, he wasn’t obligated to make a prima facie showing as to the amount of damages. The judge said that even if Defendant had a colorable argument that Plaintiff's financial inability to purchase the jewelry in 2013 could defeat his breach of contract claim, the deposition transcripts, which reflect testimony given during 2013, didn’t reflect the financial condition of Plaintiff or his businesses at the time of the alleged breach.

 

Plaintiff's Financial Condition and the Right of First Refusal

With respect to Defendant's contention that Plaintiff was obligated on this motion to establish, prima facie, that he was ready, willing, and able to exercise the right of first refusal, the New York Court of Appeals explained in a 1989 case that:

The effect of a right of first refusal, also called a preemptive right, is to bind the party who desires to sell not to sell without first giving the other party the opportunity to purchase the property at the price specified. Such right of first refusal differs from an option in significant respects. Unlike an option--in essence, an offer which by contract is to be kept open--a right of first refusal does not, at the time it is given,' include an operative offer. Rather, it is a restriction on the power of one party to sell without first making an offer of purchase to the other party upon the happening of a contingency: the owner's decision to sell to a third party. Under a right of first refusal, the only offer involved is one to be made in the future, if and when the owner reaches agreement with a third-party purchaser. Also, unlike an option—which creates in the optionee a power to compel an unwilling seller to sell at the agreed price—a right of first refusal contemplates a willing seller who desires to part with the property. In sum, a right of first refusal merely provides that before an owner sells, it will first give the other party a chance to buy.

Contrary to Defendant's contention, a party who has the right of first refusal will only be obligated to show that he or she was ready, willing, and able to exercise that right where he or she seeks specific performance of the agreement. Damages for breach are available regardless of the readiness of the holder of the right, provided that the wrongful deprivation of the exercise of the right actually causes injury.

 

The Judge’s Ruling

The judge found that Plaintiff established that he and his business entities gave consideration for the right of first refusal and performed their obligations under the stipulation by discontinuing their counterclaims. It is well settled, she noted, that a written promise to discontinue a legal claim can constitute valid consideration.

Judge Bannon also said that Defendant's contention that Plaintiff's motion must be denied because he did not and could not demonstrate damages as a result of the breach of contract was without merit.

But while the precise amount of damages need not be demonstrated at this point, the judge said it was reasonable to infer here that there likely were damages arising from the breach, leaving the amount to be determined at trial, and after the completion of discovery.

Plaintiff's motion for summary judgment was granted on the issue of liability, and the motion was otherwise denied. Go don v Schaeffer, 2018 N.Y. Misc. LEXIS 2463 *; 2018 NY Slip Op 31259(U) (N.Y. Sup. Ct. June 19, 2018).

 

Takeaway

As this litigation progresses, the plaintiff will need to show his damages, which he contended was based on the actual value of the jewelry being roughly $1.57 million. He will need to show that he sustained damages equal to the difference between the value he attributed to the jewelry and the “minimum selling prices” that might have been determined by a properly retained auctioneer or a qualified appraiser.

 

Want more articles like this delivered straight to your inbox? Sign up for Freeman's monthly Business Bulletin newsletter today