By Kurt R. Mattson
VARGAS PAINTINGS DAMAGED IN SUPERSTORM SANDY
Plaintiff shipped the works of art to a CFASS warehouse in New York, near the East River in an area designated as a Flood Zone A area. The works of art were received at the warehouse two weeks before Superstorm Sandy hit, which damaged the warehouse and some of the art stored there. Plaintiff alleged that CFASS breached the agreements by negligently failing to properly store and protect the works of art from the storm and failing to inspect the works of art and mitigate damage after the storm passed. Plaintiff further claimed that, as a result, two of the Vargas works sustained serious and irreparable damage. He sought to recover $11,055,000 in damages—including lost profits because the damaged works of art could no longer be reproduced and sold.
CFASS contended that Plaintiff's alleged damages couldn’t exceed the $200,000 property value that Plaintiff declared on the Agreements, and that the consequential damages Plaintiff sought weren’t recoverable under the terms of the agreements and the law. CFASS also argued that, pursuant to the parties’ agreements, Plaintiff wasn’t entitled to recover lost profits as damages.
WERE THE PLANTIFF'S LOST PROFITS CERTAIN?
Judge Saliann Scarpulla of the Supreme Court of New York explained in his opinion that on a breach of contract claim, a party “may not recover damages for lost profits unless they were within the contemplation of the parties at the time the contract was entered into and are capable of measurement with reasonable certainty.” Damages must be capable of measurement based upon known reliable factors “without undue speculation.” Further, where a contract is silent on the subject of lost profits, the judge said that “courts, employing a common sense approach, must determine what the parties intended by considering the nature, purpose and particular circumstances of the contract known by the parties . . . as well as what liability the defendant fairly may be supposed to have assumed consciously, or to have warranted the plaintiff reasonably to suppose that it assumed, when the contract was made,” citing earlier decisions.
The judge noted that the terms and conditions clauses of the parties’ agreements for the works of art didn’t directly discuss lost profits, but the relevant language showed that lost profits damages wasn’t contemplated at the time of the agreements were signed. Specifically, the terms and conditions clauses state that the parties agreed that “CFASS' liability for loss or damage, by any cause, including negligence, is limited to the actual cash value of lost or damaged property, but in no event may the actual cash value of the property subject to a given claim exceed the declared value.” That language, Judge Scarpulla found, plainly evidenced an intent to disclaim recovery of lost profits.
“CFASS' liability for loss or damage, by any cause, including negligence, is limited to the actual cash value of lost or damaged property, but in no event may the actual cash value of the property subject to a given claim exceed the declared value.”
Judge Saliann Scarpulla of the Supreme Court of New York
Further, the judge said that the evidence Plaintiff submitted didn’t raise any triable issues on whether CFASS knew or had any basis upon which to reasonably contemplate that the works of art were intended for reproduction, marketing, and sale with an alleged net profit of more than $10 million. Nowhere in that agreement did the parties reference the joint venture or that Plaintiff advised CFASS that the works of art had a maximum value of $200,000 or more.
Finally, Judge Scarpulla held that the evidence demonstrated that Plaintiff's potential consequential damages weren’t capable of measurement with reasonable certainty. Plaintiff testified that he wasn’t in the businesses of publishing, promoting works of art, distributing works of art, or marketing limited editions. He testified that he had no experience in marketing Vargas works of art or in a project like the joint venture and had not earned any income from any sources of marketing, purchasing, or trading works of art. He also testified that he didn’t have a firm business or marketing plan, although he did have marketing ideas for the subject works of art and other Vargas pieces. Plaintiff testified that he had no pre-sales and hadn’t approached any collectors with the news of the joint venture.
Plaintiff's testimony also demonstrated that the future of the joint venture is questionable, even had the Vargas paintings not been damaged. The evidence showed that the parties didn’t contemplate lost profits as a measure of damages, and Plaintiff's demand for lost profits was too speculative and incapable of being proven with any reasonable certainty.
CFASS also sought to cap the recoverable fair market value of the damaged artworks at $37,000, the amount Plaintiff paid for the artworks, or at $200,000—the value declared by Plaintiff and the amount CFASS previously offered to pay in settlement of the dispute. In opposition, Plaintiff argued that, at minimum, he was entitled to the combined appraised value of $400,000 and relied primarily on the appraisal report issued by his expert witness, the owner of a fine art auction house.
WHAT IS THE STANDARD MEASURE OF DAMAGES WHEN PROPERTY IS DAMAGED?
The judge explained that the standard measure of damages when property is damaged, but not destroyed, "is the difference between the market value before the damage and the market value after.” "Where property is totally destroyed, the measure of damages is its reasonable market value immediately before destruction.”
Upon review, Judge Scarpulla found the art expert’s report of little value in determining the value of the works of art, both before and after the damage. The expert’s finding of a $400,000 combined insurance replacement value lacked proper evidentiary foundation and, instead, was based on mere speculation and conjecture.
Despite CFASS's argument, the judge couldn’t find, as a matter of law, that the fair market value of the works of art was equal the combined $37,000 that Plaintiff paid for the works of art. Plaintiff testified that the purchase prices he paid were well below fair market value and considered the consulting and financing services that Plaintiff expected to provide regarding the marketing of the prints. This raised an issue of fact as to the fair market value of the works of art.
As a result, Christies’ motion was granted on the lost profits demands.
(Sullivan v. Christie's Fine Art Stor. Servs., Inc., 2019 N.Y. Misc. LEXIS 344 *; 2019 NY Slip Op 30190(U) N.Y. Sup. Ct. January 25, 2019).
About the Author
Kurt R. Mattson is the President of Union Legal Research. He is the former Director of Library Services and Continuing Education at Lionel Sawyer & Collins in Las Vegas. Prior to this, he worked at BNA and other legal publishers, spending a substantial portion of his career working for Thomson Reuters. He serves as a consultant for several businesses, law firms, and marketing companies.
Kurt received his JD from William Mitchell College of Law and his Masters of Law (LLM) from George Washington University. He received his Masters of Library Information Science (MLIS) from Wayne State University. Kurt is the editor of Lexis’ BSA/AML Update, co-author of A.S. Pratt’s Mortgage Procedure Guide to Federal and State Compliance, and author of Fair Debt Collection Practices: Federal and State Law and Regulation. He is also a contributing author of Brady on Bank Checks. Kurt is also a contributor to other business and legal publications.