Opinion
Civil Action 21 Civ. 6574 (LJL) (SLC)
07-28-2022
SOTHEBYS, INC., Plaintiff, v. FREDERIC THUT, BETTINA VON MARNITZ THUT, and FAAM, LLC, Defendants.
THE HONORABLE LEWIS J. LIMAN, UNITED STATES DISTRICT JUDGE
REPORT AND RECOMMENDATION
SARAH L. CAVE, UNITED STATES MAGISTRATE JUDGE.
I. INTRODUCTION
Plaintiff Sotheby's, Inc. (“Sotheby's”) filed this action asserting fraud and breach of contract claims under New York law against Defendants: (1) Frederic Thut (“Mr. Thut”), (2) Bettina Von Marnitz Thut (“Mrs. Thut,” together with Mr. Thut, the “Thuts”), and (3) FAAM, LLC (“FAAM,” together with the Thuts, the “Defendants”). (ECF No. 10 at 1 (the “Complaint”)). Following Defendants' failure to appear and defend themselves in this action, Sotheby's moved for entry of default judgment. (ECF No. 28 (the “Motion”)). The District Court referred the Motion to the undersigned for a report and recommendation. (ECF No. 32).
For the reasons set forth below, I respectfully recommend that Sotheby's be awarded: (1) compensatory damages in the amount of $3,013,910.00; (2) pre-judgment interest in the amount of $688,560.70; (3) post-judgment interest; and (4) permission to file a bill of costs with the Clerk of the Court, pursuant to Federal Rule of Civil Procedure 54(d) and Local Rule 54.1.
II. BACKGROUND
A. Factual Background
The Court summarizes the factual background of Sotheby's claims based on the allegations in the Complaint (ECF No. 10), which are accepted as true for purposes of determining liability. See Arellano v. Green Apple 37 Inc., No. 20 Civ. 5293 (LJL), 2021 WL 4319568, at *1 (S.D.N.Y. Sept. 23, 2021); Rosado v. Castillo, No. 20 Civ. 3913 (LJL), 2021 WL 1172626, at *1 (S.D.N.Y. Mar. 29, 2021); see also Augusto Corrales v. AJMM Trucking Corp., No. 19 Civ. 4532 (LJL), 2020 WL 1911189, at *2 (S.D.N.Y. Apr. 20, 2020) (“A defendant's default is an admission of all well-pleaded factual allegations in the complaint except those relating to damages.”). Where noted, additional facts are drawn from documents Sotheby's submitted in support of the Motion, including Sotheby's Memorandum of Law in Support of its Motion for Entry of a Default Judgment (ECF No. 29 (the “Memorandum of Law”)), the Declarations of Paul Cossu (ECF No. 30 (“Cossu Decl.”)) and Aimee M. Scillieri (ECF No. 31 (“Scillieri Decl.”)), and their supporting exhibits (ECF Nos. 30-1 - 30-4; 31-1 - 31-12 (the Motion, Memorandum of Law, Cossu and Scilleri Decl., and exhibits, the “Damages Submission”)).
1. The October 2016 Consignment
On October 3, 2016, Mrs. Thut signed a consignment agreement (the “October 2016 Agreement”) with Sotheby's, agreeing to consign three works of art (the “October 2016 Lots”) to Sotheby's for sale at a public auction in November 2016 (the “First Auction”). (ECF Nos. 10 ¶¶ 1618; 31-1 at 7-10). According to the October 2016 Agreement, Mrs. Thut authorized Sotheby's “to rescind the sale of [the October 2016 Lots] in accordance with the Conditions of Sale and Terms of Guarantee,” which the October 2016 Agreement incorporated by reference, if Sotheby's (1) were to learn “that the [p]roperty is inaccurately described in the catalogue,” (2) were to learn “that the [p]roperty is a counterfeit (a modern forgery intended to deceive),” or (3) “determine[s] in [its] sole judgment that the offering for sale of any lot of [p]roperty has subjected or may subject [it] and/or [Mrs. Thut] to any liability[.]” (ECF No. 31-1 at 5 (the “Liability Clause”); see ECF No. 10 ¶ 20). If Sotheby's received notice from a purchaser of an intent to rescind one of the October 2016 Lots subject to rescission, the October 2016 Agreement obligated Mrs. Thut to return to Sotheby's, within ten days of receiving notice, “any sale proceeds[.]” (ECF No. 31-1 at 5 (the “Notice Clause,” together with the Liability Clause, the “Rescission Clauses”); see ECF No. 10 at 5 ¶ 21). The October 2016 Agreement also obligated Mrs. Thut “to indemnify and hold [Sotheby's] and each purchaser harmless from and against any and all claims, actions, damages, losses, liabilities and expenses (including reasonable attorneys' fees) relating to the breach or alleged breach of any of your agreements, representations or warranties in” the October 2016 Agreement. (ECF No. 31-1 at 3-4 (the “Indemnification Clause”); see ECF No. 10 ¶ 22).
Mrs. Thut represented that the October 2016 Lots consisted of three works by Diego Giacometti (“Giacometti”), (1) Console a double plateaux, modele a grenouilles (“Lot 306”); (2) Table-feuilles: modele de salle a manger aux grenouilles (“Lot 307”); and (3) Lanterne aux feuilles et oiseau (“Lot 308”). (ECF Nos. 10 ¶¶ 16-17; 31-1 at 7-10). Mrs. Thut also represented that she had “no reason to believe that any lot of [p]roperty is not authentic or is counterfeit[,]” and submitted authenticity documents from: (1) Pierre Matisse, a New York art detailer whose archives are now held at the Morgan Library, (2) Serge Matta, the brother of surrealist Chilean painter Roberto Matta, and (3) James Lord, an associate of Giacometti (collectively, the “Provenance Documents”). (ECF No. 31-1 at 4; see ECF No. 10 ¶¶ 3, 24-25).
The Court observes that Giacometti is a 20th-century sculptor and designer. See SOTHEBY'S, https://www.sothebys.com/en/articles/diego-giacometti-designs-of-a-life-1 (last visited July 26, 2022).
On November 15, 2016, the October 2016 Lots were sold at the First Auction. (ECF No. 10 ¶¶ 27-32; see ECF No. 31-2 at 2-3). Lot 306 sold for $162,500.00, of which Mrs. Thut received $122,200.00. (ECF No. 10 ¶¶ 27-28). Lot 307 sold for $300,000.00, of which Mrs. Thut received $255,600.00. (Id. ¶¶ 29-30). Lot 308 sold for $672,500.00, of which Mrs. Thut received $363,000.00. (Id. ¶¶ 31-32). Altogether, Mrs. Thut received $740,800.00 in proceeds from the sale of the October 2016 lots. (Id. ¶¶ 27-32).
$122,200.00 (Lot 306) + $255,600.00 (Lot 307) + $363,000.00 (Lot 308) = $740,800.00 (Amount Sotheby's Remitted to Mrs. Thut for October 2016 Lot).
2. The March 2017 Consignment
On March 27, 2017, Mrs. Thut signed a consignment agreement (the “March 2017 Agreement”) with Sotheby's, agreeing to consign a single work of art (the “March 2017 Lot”) to Sotheby's for sale at a public auction in May 2017 (the “Second Auction”). (ECF Nos. 10 ¶¶ 3334; 31-3 at 8-11). The March 2017 Agreement contained Rescission and Indemnification Clauses identical to the October 2016 Agreement. (Compare ECF No. 31-3 at 4-5 with ECF No. 31-3 at 4-5).
Mrs. Thut represented that the March 2017 Lot consisted of Giacometti's Applique au oiseau a Trois Branches (A Pair). (ECF Nos. 10 ¶ 33; 31-3 at 9). Mrs. Thut also represented that she had “no reason to believe that any lot of [p]roperty is not authentic or is counterfeit[,]” (ECF No. 31-3 at 4), and submitted “virtually identical provenance to the provenance provided by Defendants in connection with the October 2016 Lots.” (ECF No. 10 ¶ 40).
On May 17, 2017, the March 2017 Lot was sold at the Second Auction. (ECF No. 10 ¶ 41; see ECF No. 31-4 at 2-4). The March 2017 Lot sold for $225,000.00, of which Mrs. Thut received $169,200.00. (ECF No. 10 ¶¶ 41-42).
3. The April 2017 Private Sale
On April 13, 2017, Mrs. Thut signed a Private Sale Agreement (the “April 2017 Agreement”) with Sotheby's, agreeing to consign a single work of art (the “April 2017 Lot”) to Sotheby's for a private sale (the “Private Sale”). (ECF Nos. 10 ¶ 43; 31-5 at 1-7). According to the April 2017 Agreement, Mrs. Thut authorized Sotheby's “to rescind the sale and return the Purchase Price (including commission)” for the April 2017 Lot if Sotheby's were to determine that Mrs. Thut could not “guarantee to the purchaser . . . the authorship, period, culture or origin of” the April 2017 Lot. (ECF No. 31-5 ¶ 5; see ECF No. 10 ¶ 46). The April 2017 Agreement gave Sotheby's a four-year right to rescind the sale should Mrs. Thut breach her guarantee. (ECF No. 31-5 at ¶ 5).
Mrs. Thut represented that the April 2017 Lot consisted of Giacometti's Hanging Lantern. (ECF Nos. 10 ¶ 43; 31-5 at 5). Mrs. Thut also represented that she had “no reason to believe that the [p]roperty is not authentic or is counterfeit[,]” (ECF No. 31-5 ¶ 3), and submitted “virtually identical provenance to the provenance provided by Defendants in connection with the October 2016 Lots and the March 2017 Lot[].” (ECF No. 10 ¶ 44).
On April 24, 2017, the April 2017 Lot was sold in a Private Sale. (ECF No. 10 ¶ 49; see ECF No. 31-6 at 2-4). The April 2017 Lot sold for $535,000.00, of which Mrs. Thut received $435,417.00. (ECF No. 10 ¶¶ 49-50).
4. The October 2017 Consignment
On October 11, 2017, Mrs. Thut signed a consignment agreement (the “October 2017 Agreement,” together with the October 2016, March 2017, and April 2017 Agreements, the “Agreements”) with Sotheby's, agreeing to consign a single work of art (the “October 2017 Lot,” together with the October 2016, March 2017, and April 2017 Lots, the “Consigned Lots”) to Sotheby's for sale at a public auction in November 2017 (the “Third Auction”). (ECF Nos. 10 ¶¶ 51-52; 31-7 at 8-10). The October 2017 Agreement contained Rescission and Indemnification Clauses identical to the October 2016 Agreement. (Compare ECF No. 31-1 at 3-5 with ECF No. 31-7 at 4-5).
Mrs. Thut represented that the October 2017 Lot consisted of Giacometti's La Promenade des Amis. (ECF Nos. 10 ¶ 51; 31-7 at 10). Mrs. Thut also represented that she had “no reason to believe that any lot of [p]roperty is not authentic or is counterfeit[,]” (ECF No. 31-7 at 4), and submitted “virtually identical provenance to the provenance provided by Defendants in connection with the October 2016 Lots, the March 2017 Lot[], and the [April 2017 Lot].” (ECF No. 10 ¶ 58).
On November 15, 2017, the October 2017 Lot was sold at the Third Auction. (ECF No. 10 ¶¶ 59-60; see ECF No. 31-8 at 2-6). The October 2017 Lot sold for $411,000.00, of which Mrs. Thut received $310,200.00. (ECF No. 10 ¶¶ 59-60).
5. Sotheby's Rescission of the Consigned Lots
In 2018, Denis Vincenot (“Mr. Vincenot”), an expert who worked closely with Giacometti's estate, was retained as an independent expert to review a buyer's (the “Buyer”) collection of Giacometti's works. (ECF No. 10 ¶ 61). Mr. Vincenot inspected the collection, which included the October 2016 and April 2017 Lots. (Id. ¶ 62). After examining the collection, Mr. Vincenot concluded that the October 2016 and April 2017 Lots were inauthentic. (Id. ¶ 61). Mr. Vincenot drafted a written report elaborating on the inauthenticity of the October 2016 and April 2017 Lots (the “Vincenot Report”), which the Buyer then provided to Sotheby's. (Id.)
After receiving the Vincenot Report, Sotheby's engaged with Mr. Vincenot in “hopes that it might persuade him to change his mind based on the strength of the Provenance Documents Defendants had provided in connection with the consignments.” (ECF No. 10 ¶¶ 64-65). “Due to the difficulty surrounding authentication of works by [Giacometti] in general,” reliance on provenance “is so important for establishing authenticity.” (Id. ¶¶ 72-73). Accordingly, Sotheby's notified Defendants of the allegations of inauthenticity and requested original versions of the Provenance Documents (the “Originals”), which Defendants provided. (Id. ¶¶ 66-67). Sotheby's retained the “services of one of the foremost handwriting experts [(the ‘Experts')] in the United States to conduct an analysis of the” Originals. (Id. ¶ 67). Sotheby's also provided to the Experts samples of writings attributed to Pierre Matisse. (Id. ¶ 69). The Experts concluded: “(1) the Provenance Documents purportedly written by Pierre Matisse were inconsistent with the samples sourced from the Pierre Matisse archives; (2) the Provenance Documents purportedly written by Pierre Matisse, Serge Matta, and James Lord were all written by the same hand; and (3) the presence of counterfeit protection system coding (introduced to all printers in the 1990s) on the letterhead used for two Provenance Documents dated 1982 confirms that these Documents were not created in 1982.” (Id. ¶ 70). Sotheby's concluded that the “Consigned Lots were not authentic.” (Id. ¶ 73).
On April 16, 2019, Sotheby's informed Defendants that (1) it was rescinding the sales of the October 2016 and April 2017 Lots, pursuant to the Rescission Clauses in the October 2016 and April 2017 Agreements, (2) it would notify Defendants about rescission of other sales of the Consigned Lots, and (3) “demand[ing] that Defendants immediately return the net sale proceeds remitted as required under the applicable consignment agreements.” (ECF No. 10 ¶ 74). Sotheby's rescinded the sales and refunded to the buyers the purchase prices for the October 2016 and April 2017 Lots, which totaled $1,670,000.00. (Id. ¶ 75 (the “First Rescission”)). Defendants did not return to Sotheby's the proceeds with respect to the First Rescission. (Id. ¶ 76).
Sotheby's retained Mr. Vincenot to inspect additional property consigned by Defendants, including the March 2017, October 2017, and the FAAM Lots, (see § II.A.7, infra). (ECF No. 10 ¶ 77). Mr. Vincenot concluded, in a written report (the “Sotheby's Vincenot Report”), that the March 2017, October 2017, and one of the FAAM Lots were inauthentic. (See § II.A.7, infra). (Id. ¶ 78). Because the March 2017 and October 2017 Lots were determined to be inauthentic, Sotheby's initiated the process to rescind both sales (the “Second Rescission,” and the “Third Rescission,” respectively). (Id. ¶¶ 101-02).
6. The Rescission Agreement
On July 10, 2019, Mr. Thut signed an agreement with Sotheby's (the “Rescission Agreement”), pursuant to which he agreed to return to Sotheby's the net sale proceeds Defendants had received in connection with the sales of the October 2016 and April 2017 Lots (i.e., the First Rescission). (ECF Nos. 10 ¶ 92; 31-12 at 4). Specifically, the Rescission Agreement obligated Mr. Thut to pay to Sotheby's $1,146,216.00 in installments, or alternatively, to consign additional properties to Sotheby's, over a four-and-a-half year period. (ECF Nos. 10 ¶ 92; 31-12 at 2). The Rescission Agreement also clarified that, “[t]he terms and provisions of the Agreements and Conditions of Sale and Terms of Guarantee for the relevant sale(s) shall continue to apply as amended by this Letter Agreement and are incorporated by reference herein.” (ECF No. 31-12 at 3). Mr. Thut subsequently consigned to Sotheby's two properties (the “Offset Lot”), which sold at auction for $72,000.00. (ECF No. 10 ¶¶ 93-94). Apart from the Offset Lot, Mr. Thut has refused to comply with the terms of the Rescission Agreement. (Id. ¶ 96).
7. Sotheby's Rescission of the FAAM Lots
In its review of the Provenance Documents, Sotheby's identified other lots with “identical provenance as the Consigned Lots,” but that Defendants consigned through different consignors (the “FAAM Lots,” together with the Consigned Lots the “Giacometti Works”). (ECF No. 10 ¶ 79). The Thuts acquired the Giacometti Works in France, but refused to disclose to Sotheby's the source. (Id. ¶ 80). The Thuts placed the Giacometti Works on auction through FAAM, without disclosing their ownership interests. (Id. ¶ 81). The Thuts “purchased the Consigned Lots themselves in order to re-consign them to Sotheby's.” (Id.) For the Giacometti Works that they did not purchase, the Thuts encouraged the buyers (the “FAAM Buyers,” individually, a “FAAM Buyer”) to re-consign the FAAM Lots to Sotheby's “to avoid potential suspicion through the consignment of too many works to Sotheby's directly.” (Id. ¶¶ 84-85). The FAAM Lots sold for $1,229,500.00. (Id. ¶¶ 86-90). When Sotheby's determined the inauthenticity of the Consigned Lots, and learned of Mr. Thut's involvement with the FAAM Lots, it began to rescind the sales of the FAAM Lots, as follows. (Id. ¶ 91).
$466,000.00 (FAAM Lot 306 Purchase Price) + $175,000.00 (FAAM Lot 309 Purchase Price) + $588,500.00 (FAAM Lot 311 Purchase Price) = $1,229,500.00.
In May 2016, a FAAM Buyer re-consigned to Sotheby's what they represented to be Giacometti's Lampe aux branche coupe et oiseau (a pair) (“FAAM Lot 306”). (ECF No. 31 ¶ 31). On May 10, 2016, FAAM Lot 306 sold at auction for a purchase price of $466,000.00. (Id. ¶ 33). On June 14, 2016, Sotheby's remitted $351,110.00 to the consignor of FAAM Lot 306. (Id. ¶ 35). On February 24, 2020, after learning that FAAM Lot 306 was inauthentic, Sotheby's rescinded the sale of FAAM Lot 306, and refunded the purchase price of the lot to the buyer (the “FAAM Lot 306 Rescission”). (Id. ¶ 36).
In November 2016, a FAAM Buyer re-consigned to Sotheby's what they represented to be Giacometti's Table grecque, modele carre (“FAAM Lot 309”). (ECF No. 31 ¶ 37). On November 15, 2016, FAAM Lot 309 sold at auction for a purchase price of $175,000.00. (Id. ¶ 39). On January 3, 2017, Sotheby's remitted $131,600.00 to the consignor of FAAM Lot 309. (Id. ¶ 41). On August 19, 2021, after learning that FAAM Lot 309 was inauthentic, Sotheby's rescinded the sale of FAAM Lot 309, and refunded the purchase price of the lot to the buyer (the “FAAM Lot 309 Rescission”). (Id. ¶ 42).
In November 2016, a FAAM Buyer re-consigned to Sotheby's what they represented to be Giacometti's Lampadaire aux feuilles et oiseaux (“FAAM Lot 311”). (ECF No. 31 ¶ 37). On November 15, 2016, FAAM Lot 311 sold at auction for a purchase price of $588,500.00. (Id. ¶ 43). On December 21, 2016, Sotheby's remitted $451,200.00 to the consignor of FAAM Lot 311. (Id. ¶ 45). On April 30, 2019, after learning that FAAM Lot 311 was inauthentic, Sotheby's rescinded the sale of FAAM Lot 311, and refunded the purchase price of the lot to the buyer (the “FAAM Lot 311 Rescission”). (Id. ¶ 46).
B. Procedural Background
On August 3, 2021, Sotheby's commenced this action by filing a summons and complaint against Defendants. (ECF No. 10 (the “Original Complaint”)). After being informed that the Original Complaint possessed a deficiency, Sotheby's filed the Complaint on August 5, 2021. (ECF No. 10; see ECF min. entry Aug. 3, 2021). In the Complaint, Sotheby's asserted claims for: (1) fraud against all Defendants; (2) breach of contract against Mrs. Thut for breach of the Agreements; and (3) breach of contract against Mr. Thut for breach of the Rescission Agreement. (ECF No. 10 ¶¶ 103-44). Sotheby's sought compensatory damages in the amount of $6,988,717.00, plus interest, attorneys' fees, and costs. (Id. at 23 ¶¶ a-e).
On September 10, 2021, the Honorable Judge Alison J. Nathan directed the parties to appear for an initial pretrial conference on Friday, November 5, 2021. (ECF No. 13). On September 13, 2021, Sotheby's served the Summons and Complaint on FAAM, and filed proof of service on the docket. (ECF No. 15). On October 25, 2021, Sotheby's filed a letter-motion (the “Letter-Motion”) seeking to adjourn the initial pretrial conference “[b]ecause FAAM has not appeared, and the Thuts have not yet been served[.]” (ECF No. 16). On October 26, 2021, the Court granted the Letter-Motion and directed Sotheby's to “file a status update on its service to Defendants by December 9, 2021.” (ECF No. 17).
On November 12, 2021, Sotheby's filed a motion to authorize service on the Thuts by alternative means. (ECF No. 18 (the “Service Motion”)). In support of the Service Motion, Sotheby's filed two affidavits of attempted service on the Thuts (ECF No. 19-1 - 19-2), and a letter from Sotheby's directing the Thuts to “appropriately preserve and retain any and all information relevant to Sotheby's claims,” as Sotheby's intended “to take legal action against [the Thuts] with regard to [their] clear breaches of the agreements[.]” (ECF No. 19-3 at 1-2). On November 15, 2021, the Court granted the Service Motion (the “Service Order”). (ECF No. 21). That same day, pursuant to the alternative methods of service authorized by the Service Order, Sotheby's served the Summons and Complaint on the Thuts via email. (ECF No. 22).
On December 8, 2021, Sotheby's requested leave to file its application for a default judgment against Defendants, which the Court granted. (ECF Nos. 23; 25). On December 17, 2021, the Clerk of the Court entered Certificates of Default against Defendants. (ECF Nos. 25-27).
On January 21, 2022, Sotheby's filed the Motion, which Judge Nathan referred to the undersigned for a report and recommendation. (ECF Nos. 28; 32). Sotheby's filed proof of service of the Damages Submission on Defendants by email pursuant to the Service Order. (ECF No. 33). On February 4, 2022, the Court directed Defendants to file a response to the Motion no later than February 18, 2022. (ECF No. 34 (the “Scheduling Order”)). The Court warned that if Defendants failed to respond to Sotheby's Damages Submission in accordance with the Scheduling Order or to contact the Court to request an in-court hearing, the Court would issue a Report and Recommendation based on Sotheby's submission alone, without an in-court hearing. (Id.) On February 7, 2022, Sotheby's filed proof of service of the Scheduling Order on Defendants via email pursuant to the Service Order. (ECF No. 35). On April 11, 2022, this matter was reassigned from Judge Nathan to the Honorable Lewis J. Liman. (ECF min. entry Apr. 11, 2022). Defendants have not yet appeared in this action, responded to the Motion, or contacted the Court.
III. LEGAL STANDARD
A party seeking a default judgment must follow the two-step procedure set forth in Federal Rule of Civil Procedure 55. See Bricklayers & Allied Craftworkers Loc. 2, Albany, N.Y. Pension Fund v. Moulton Masonry & Const., LLC, 779 F.3d 182, 186-87 (2d Cir. 2015). First, under Rule 55(a), where a party has failed to plead or otherwise defend in an action, the Clerk of the Court must enter a certificate of default. Fed.R.Civ.P. 55(a). Second, after entry of the default, if the party still fails to appear or move to set aside the default, the Court may enter a default judgment. Fed.R.Civ.P. 55(b). Whether to enter a default judgment lies in the “sound discretion” of the trial court. Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir. 1993). Because a default judgment is an “extreme sanction” that courts are to use as a tool of last resort, Meehan v. Snow, 652 F.2d 274, 277 (2d Cir. 1981) (per curiam), the district court must “carefully balance the concern of expeditiously adjudicating cases, on the one hand, against the responsibility of giving litigants a chance to be heard, on the other.” Fermin v. Las Delicias Peruanas Rest., Inc., 93 F.Supp.3d 19, 29 (E.D.N.Y. 2015) (citing Enron, 10 F.3d at 96). In considering whether to grant a default judgment, district courts are “guided by the same factors [that] apply to a motion to set aside entry of a default.” First Mercury Ins. Co. v. Schnabel Roofing of Long Is., Inc., No. 10 Civ. 4398 (JS) (AKT), 2011 WL 883757, at *1 (E.D.N.Y. Mar. 11, 2011). Specifically, a “district court is to be guided principally by three factors: (1) whether the default was willful, (2) whether the defendant demonstrates the existence of a meritorious defense, and (3) whether, and to what extent, vacating the default will cause the nondefaulting party prejudice.” S.E.C. v. McNulty, 137 F.3d 732, 738 (2d Cir. 1998).
A defendant's default is deemed “a concession of all well-pleaded allegations of liability,” Rovio Ent., Ltd. v. Allstar Vending, Inc., 97 F.Supp.3d 536, 545 (S.D.N.Y. 2015), but a default “only establishes a defendant's liability if those allegations are sufficient to state a cause of action against the defendants.” Gesualdi v. Quadrozzi Equip. Leasing Corp., 629 Fed.Appx. 111, 113 (2d Cir. 2015). The Court must determine “whether the allegations in a complaint establish the defendants' liability as a matter of law.” Id.
IV. DISCUSSION
A. Jurisdiction and Venue
As a threshold matter, the Court has original jurisdiction over Sotheby's fraud and breach of contract claims pursuant to 28 U.S.C. § 1332(a). See Rossillo v. Becton, Dickinson & Co., No. 21 Civ. 852 (LJL), 2021 WL 793916, at *2 (S.D.N.Y. Feb. 26, 2021). Federal courts have diversity jurisdiction over “‘all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between-(1) citizens of different States.'” Hogue v. BJ's Wholesale Club, Inc., No. 22 Civ. 04829 (PMH), 2022 WL 2256291, at *1 (S.D.N.Y. June 23, 2022) (quoting 28 U.S.C. § 1332(a)); see Cresswell v. Sullivan & Cromwell, 922 F.2d 60, 68 (2d Cir. 1990) (“It is well established that for a case to come within this statute there must be complete diversity and that diversity is not complete if any plaintiff is a citizen of the same state as any defendant.”); see also Philip v. Deutsche Bank Nat. Tr. Co., No. 11 Civ. 8960 PGG, 2012 WL 2354242, at *2 (S.D.N.Y. June 20, 2012) (“In other words, if any plaintiff shares citizenship of the same state as any defendant, complete diversity does not exist and diversity jurisdiction is lacking.”).
Sotheby's is a duly organized New York corporation with its principal place of business located at 1334 York Avenue, New York, New York 10021. (ECF No. 10 ¶ 10). The Thuts are residents of the State of Florida, and FAAM is a limited liability company organized under the laws of the State of Florida with an address at 350 N.W. 29th Street, Miami, Florida 33127. (Id. ¶ 11-13). Because “the citizenship of a limited liability company is determined by the citizenship of each of its members[,]” Carter v. HealthPort Techs., LLC, 822 F.3d 47, 60 (2d Cir. 2016), and Mr. Thut is the sole member of FAAM, FAAM's citizenship is, therefore, Florida. (Id. ¶ 1). Accordingly, because the Complaint requests damages of $6,988,717.00, plus interest, (id. at 23 ¶¶ a-e), the Court determines that both the amount in controversy and complete diversity requirements are established.
The Court also has personal jurisdiction over Defendants. Personal jurisdiction is “a necessary prerequisite to entry of a default judgment.” Reilly v. Plot Commerce, No. 15 Civ. 05118 (PAE) (BCM), 2016 WL 6837895, at *2 (S.D.N.Y. Oct. 31, 2016) (citation omitted), adopted by, 2016 WL 5107058 (E.D.N.Y. Sept. 19, 2016). Here, Sotheby's served the Summons and Complaint on Defendants. (See ECF Nos. 15, 22, 33, 35; see also ECF No. 35). Further, under N.Y. C.P.L.R. § 302(a)(1) (“Section 302”), the “jurisdictional net” of the Court reaches Defendants in this case because, “under the totality of circumstances, [they] ‘purposefully avail[ed] themselves of the privilege of conducting activities within New York, thus invoking the benefits and protections of its law.'” WowWee Grp. Ltd. v. Meirly, No. 18 Civ. 706 (AJN), 2019 WL 1375470, at *3 (S.D.N.Y. Mar. 27, 2019). Because Section 302 “is a ‘single act statute', and proof of one transaction in New York is sufficient to invoke jurisdiction,” Champion Motor Grp., Inc. v. Visone Corvette of Massachusetts, Inc., 992 F.Supp. 203, 206 (E.D.N.Y. 1998) (quoting Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467, (1988)), Defendants' conduct was “purposeful,” Fica Frio, Ltd. v. Seinfeld, 434 F.Supp.3d 80, 90 (S.D.N.Y. 2020), and there exists a “substantial relationship between the transaction and the claim asserted[,]” id., Defendants are subject to personal jurisdiction under Section 302. See Newmont Mining Corp. v. AngloGold Ashanti Ltd., 344 F.Supp.3d 724, 736 (S.D.N.Y. 2018). Finally, the Court finds that the assertion of personal jurisdiction over Defendants comports with due process. See Fica Frio, Ltd., 434 F.Supp.3d at 93-94 (finding that not circumstances existed rendering the exercise of personal jurisdiction unreasonable).
In addition, because “a substantial part of the events giving rise to the claims occurred in the Southern District of New York[,] (ECF No. 10 ¶ 3), venue is proper in this District. See 28 U.S.C. § 1391(b)(2); see also Gulf Ins. Co. v. Glasbrenner, 417 F.3d 353, 358 (2d Cir. 2005)
B. Default Judgment
As noted above, before entering a default judgment, the Court must consider “(1) the willfulness of default, (2) the existence of any meritorious defenses, and (3) prejudice to the nondefaulting party.” Guggenheim Cap., LLC v. Birnbaum, 722 F.3d 444, 455 (2d Cir. 2013); see Gonzaga Cortez v. Hang Lin, No. 19 Civ. 0905 (LGS), 2019 WL 4256363, at *3 (S.D.N.Y. Sept. 9, 2019) (listing three factors).
Here, each factor supports entry of a default judgment. First, although willfulness “requires something more than mere negligence, such as egregious or deliberate conduct[,]” Gonzaga, 2019 WL 4256363, at *3 (quoting Guardian Life Ins. Co. of Am. v. Premier Wealth Grp., LLC, No. 12 Civ. 9099 (AJN), 2017 WL 1040425, at *3 (S.D.N.Y. Mar. 16, 2017)), “a clear pattern of willful and deliberate disregard for the litigation” is sufficient. Bricklayers, 779 F.3d at 187. Defendants' failure to respond to the Complaint and the Court's orders is sufficient to “support an inference of willful default.” Guggenheim, 722 F.3d at 455; see J & J Sports Prods., Inc. v. 1400 Forest Ave Rest. Corp., No. 13 Civ. 04299 (FB) (VMS), 2014 WL 4467774, at *4 (E.D.N.Y. Sept. 9, 2014) (collecting cases where “a defendant's failure to respond to the complaint is sufficient to demonstrate willfulness”); see also Bridge Oil Ltd. v. Emerald Reefer Lines, LLC, No. 06 Civ. 14226 (RLC) (RLE), 2008 WL 5560868, at *2 (S.D.N.Y. Oct. 27, 2008) (“Since Defendants have been entirely unresponsive, their continued failure is willful.”).
Second, “[i]n order to make a sufficient showing of a meritorious defense in connection with a motion to vacate a default judgment, the defendant need not establish his defense conclusively, but he must present evidence of facts that, if proven at trial, would constitute a complete defense.” State St. Bank & Tr. Co. v. Inversiones Errazuriz Limitada, 374 F.3d 158, 167 (2d Cir. 2004); see Am. All. Ins. Co. v. Eagle Ins. Co., 92 F.3d 57, 61 (2d Cir. 1996) (“A defense is meritorious if it is good at law so as to give the factfinder some determination to make.”). Here, having failed to file an answer, or otherwise participate in the litigation, Defendants cannot establish a meritorious defense. See 1400 Forest Ave, 2014 WL 4467774, at *4.
Third, “[p]rejudice results when delay causes ‘the loss of evidence, create[s] increased difficulties of discovery or provide[s] greater opportunity for fraud and collusion.'” Ward v. Ramkalawan, No. 11 Civ. 4295 (JS) (ARL), 2013 WL 1149108, at *5 (E.D.N.Y. Feb. 11, 2013), adopted by, 2013 WL 1149068 (E.D.N.Y. Mar. 19, 2013). Accordingly, Sotheby's would be prejudiced if default judgment is not entered, “as there are no additional steps available to secure relief in this Court.” Bridge Oil, 2008 WL 5560868, at *2.
Because all three factors have been satisfied, the Court finds that entry of default judgment is warranted. Because their default equates to Defendants' concession of “all well-pleaded factual allegations of liability in the [C]omplaint,” the question becomes whether Sotheby's allegations, accepted as true, establish Defendants' liability on each claim, which the Court analyzes below. 1400 Forest Ave, 2014 WL 4467774, at *5; see Cement & Concrete Workers Dist. Council Welfare Fund, Pension Fund, Annuity Fund, Educ. & Training Fund & Other Funds v. Metro Found. Contractors Inc., 699 F.3d 230, 234 (2d Cir. 2012) (explaining that “a party's default is deemed to constitute a concession of all well-pleaded allegations of liability,” but not “an admission of damages”) (quoting Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992)); see also City of N.Y. v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011) (“It is an ‘ancient common law axiom' that a defendant who defaults thereby admits all ‘well-pleaded' factual allegations contained in the complaint.”) (quoting Vt. Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 246 (2d Cir. 2004)).
C. Defendants' Liability
The Court finds that Sotheby's Complaint, the allegations of which Defendants have admitted by their Default, combined with the additional facts gleaned from the Damages Submission, to which Defendants have not responded, sufficiently illustrate a sound legal basis for finding Defendants liable for both fraud and breach of contract.
1. Common Law Fraud
Sotheby's alleged that Defendants “fraudulently induced Sotheby's into entering into the [Agreements] by knowingly misrepresenting that the Consigned Lots were authentic when in truth, the Consigned Lots were not authentic.” (ECF No. 10 ¶ 104). “Under New York law, for a plaintiff to prevail on a claim of fraud, he must prove five elements by clear and convincing evidence: (1) a material misrepresentation or omission of fact, (2) made with knowledge of its falsity, (3) with an intent to defraud, and (4) reasonable reliance on the part of the plaintiff, (5) that causes damage to the plaintiff.” Schlaifer Nance & Co. v. Est. of Warhol, 119 F.3d 91, 98 (2d Cir. 1997); see Wade Park Land Holdings, LLC v. Kalikow, No. 21 Civ. 1657 (LJL), 2022 WL 657664, at *31 (S.D.N.Y. Mar. 4, 2022); see also Budhani v. Monster Energy Co., 527 F.Supp.3d 667, 687 (S.D.N.Y. 2021). “Claims for fraud must also satisfy the heightened pleading requirements of [Federal] Rule [of Civil Procedure] 9(b) and be pleaded ‘with particularity.'” Cambridge Cap. LLC v. Ruby Has LLC, 565 F.Supp.3d 420, 461 (S.D.N.Y. 2021) (“Cambridge I”) (quoting Fed.R.Civ.P. (9)(b)); see Cambridge Cap. LLC v. Ruby Has LLC, No. 20 Civ. 11118 (LJL), 2022 WL 2292817, at *4 (S.D.N.Y. June 24, 2022) (“Cambridge II”) (“Particularity ‘means the who, what, where, when and how: the first paragraph of any newspaper story.'”) (quoting Antigenics Inc. v. U.S. Bancorp Piper Jaffray, Inc., No. 03 Civ. 0971 (RCC), 2004 WL 51224, at *3 (S.D.N.Y. Jan. 9, 2004)). Rule 9(b) requires plaintiffs to “allege facts that give rise to a strong inference of fraudulent intent.” Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006) (quoting Acito v. IMCERA Grp., Inc., 47 F.3d 47, 52 (2d Cir. 1995)). Rule 9(b) also requires a complaint to “(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.” Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)).
a. False Statements
With respect to the first element, Sotheby's has described in detail how Defendants operated a scheme in which they introduced inauthentic Giacometti works into the art market by first “washing” the Giacometti Works through FAAM, see Moskal v. United States, 498 U.S. 103, 106 (1990), and, either personally or through the encouragement of the FAAM Buyers, consigned the works to Sotheby's. (ECF No. 10 ¶¶ 79-91). To facilitate the scheme, Mrs. Thut represented in each of the Agreements that she did not have a reason to believe that the Consigned Works were counterfeit or inauthentic, and provided the Provenance Documents, on which she intended Sotheby's to rely. (Id. ¶¶ 23, 39, 48, 57, 122). Sotheby's also alleges that when it requested the Originals, Defendants provided forged Provenance Documents. (Id. ¶¶ 67, 71). Further, Sotheby's alleges that Mr. Thut, when confronted about the inauthenticity of the Cosigned Lots, disclosed that the lots came from France, but refused to disclose the source. (Id. ¶ 80). See Martin Hilti Fam. Tr. v. Knoedler Gallery, LLC, 137 F.Supp.3d 430, 482 (S.D.N.Y. 2015) (declining to dismiss fraud claim where, inter alia, gallery's director refused to provide providence information, citing confidentiality). Because Sotheby's relied on the Provence Documents, which are given great weight, to represent to its buyers that each of the Giacometti Works was authentic, (ECF No. 10 ¶ 72), “the forgery in this case can serve as a predicate ‘misrepresentation' in a fraud cause of action.” Nirvana Int'l, Inc. v. ADT Sec. Servs., Inc., 881 F.Supp.2d 556, 563 (S.D.N.Y. 2012), aff'd, 525 Fed.Appx. 12 (2d Cir. 2013).
b. Defendants' Knowledge
For the second element, Sotheby's alleged that Defendants knowingly misrepresented: (1) “that the Consigned Lots were authentic when in truth, the Consigned Lots were not authentic[,]” (2) “the provenance of the Consigned Lots,” and (3) “the provenance of the [FAAM] Lots to [the FAAM] [B]uyers . . . knowing, or with reasonable prudence should have known, that those buyers would re-consign the [FAAM] Lots to Sotheby's.” (ECF No. 10 ¶¶ 104-06). Because “knowledge, and other conditions of a person's mind may be alleged generally[,]” the Court finds that Sotheby's has adequately alleged Defendants' knowledge that the representations they made to Sotheby's were false. Fed.R.Civ.P. 9(b); see Gov't Emps. Ins. Co. v. Erlikh, No. 16 Civ. 7120 (DLI) (SJB), 2019 WL 1487576, at *6 (E.D.N.Y. Feb. 28, 2019).
c. Intent to Defraud
For the third element, Sotheby's need only allege “facts which give rise to a strong inference that the [D]efendants possessed the requisite fraudulent intent.” Cosmas v. Hassett, 886 F.2d 8, 12-13 (2d Cir. 1989). A “strong inference” may be established by either: “(a) [] alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.” Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994). Although intent “may be alleged generally[,]” Fed.R.Civ.P. 9(b), courts “must not mistake the relaxation of Rule 9(b)'s specificity requirement regarding condition of mind for a license to base claims of fraud on speculation and conclusory allegations[.]” Lerner, 459 F.3d at 290 (quoting Acito, 47 F.3d at 52). Nevertheless, “great specificity is not required with respect to allegations of scienter.” Conn. Nat. Bank v. Fluor Corp., 808 F.2d 957, 962 (2d Cir. 1987) (quoting Goldman v. Belden, 754 F.2d 1059, 1070 (2d Cir. 1985)) (internal quotation marks and alterations omitted).
Here, Sotheby's has established Defendants' intent to defraud by alleging facts that sufficiently illustrate the existence of “both motive and opportunity to commit fraud[.]” Fishon v. Peloton Interactive, Inc., No. 19 Civ. 11711 (LJL), 2022 WL 179771, at *6 (S.D.N.Y. Jan. 19, 2022) (quoting Lerner, 459 F.3d at 290). Defendants had the opportunity to commit fraud by acquiring inauthentic, yet sufficiently convincing imitations, of Giacometti's artwork, and auctioning them through Mr. Thut's “own auction house, FAAM,” to the FAAM Buyers, who, thereafter, reconsigned the works to Sotheby's. (ECF No. 10 ¶ 1). The scheme was so sophisticated that the ruse was undetected until Mr. Vincenot evaluated the authenticity of the October 2016 and April 2017 Lots. (Id. ¶¶ 61-63). Despite the findings in the Vincenot Report, Sotheby's initially “engaged with [Mr.] Vincenot in the hopes that it might persuade him to change his mind based on the strength of the Provenance Documents[,]” and retained the Experts to evaluate the Originals. (Id. ¶ 65; see id. ¶¶ 66-69). Not until “the foremost handwriting experts in the United States” concluded that the Originals were forgeries did Sotheby's realize that Consigned Lots were not authentic. (Id. ¶ 67; see id. ¶ 73).
Sotheby's allegation that Defendants have “failed to provide or identify any credible legal basis for refusing to return the proceeds they received” from the rescinded sales, (ECF No. 10 ¶¶ 96-97), despite being contractually obligated to do so, reinforces the conclusion that that the “unmistakable intent” of the transactions were “to obtain funds that the [D]efendants were not entitled to obtain[.]” Allstate Ins. Co. v. Lyons, No. 11 Civ. 2190 (PKC) (VVP), 2015 WL 13735435, at *4 (E.D.N.Y. Mar. 10, 2015). Accordingly, the Court finds that Sotheby's has sufficiently alleged facts “that give rise to a strong inference of fraudulent intent.” Bongiorno v. Baquet, No. 20 Civ. 7288 (LJL), 2021 WL 4311169, at *7 (S.D.N.Y. Sept. 20, 2021).
d. Reasonable Reliance
As for the fourth element, “[t]he question of what constitutes reasonable reliance is always nettlesome because it is so fact-intensive.” Warhol, 119 F.3d at 98. Courts in this district “consider the entire context of the transaction, including factors such as its complexity and magnitude, the sophistication of the parties, and the content of any agreements between them.” Emergent Cap. Inv. Mgmt., LLC v. Stonepath Grp., Inc., 343 F.d 189, 195 (2d Cir. 2003). “When matters are held to be peculiarly within defendant's knowledge, it is said that plaintiff may rely without prosecuting an investigation, as he has no independent means of ascertaining the truth.” Lazard Freres & Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1542 (2d Cir. 1997). “A plaintiff cannot close his eyes to an obvious fraud, and cannot demonstrate reasonable reliance without making inquiry and investigation if he has the ability, through ordinary intelligence, to ferret out the reliability or truth about” defendant's alleged fraudulent conduct. Crigger v. Fahnestock & Co., 443 F.3d 230, 234 (2d Cir. 2006)).
Defendants' scheme was not an “obvious fraud,” nor did Sotheby's close its eyes. Id. Here, Defendants repeatedly reaffirmed the authenticity of the Consigned Lots to Sotheby's, first, by Mrs. Thut's representations in the Agreements, and, second, when Defendants provided the Originals to Sotheby's. (ECF No. 10 ¶¶ 104-06). When Sotheby's first suspected fraud, it (i) “conducted further research concerning the provenance of the Consigned Lots,” (ii) “engaged with [Mr.] Vincenot in hopes that it might persuade him to change his mind based on the Provenance Documents[,]” (iii) “raised the issue . . . with the Defendants[,]” and (iv) retained the Experts. (Id. ¶¶ 64-69). Given the lengths Defendants took to conceal the fraud, acquiring believable imitations from France, forging Provenance Documents, and exploiting Sotheby's reliance on the Originals, (id. ¶¶ 71-72, 80), all of which were “peculiarly within [D]efendant[s'] knowledge[,]” it was reasonable for Sotheby's to rely on the representations made by Defendants. Crigger, 443 F.3d at 234.
e. Injury
As to the final element, damages or injury “caused by the misrepresentation or omission[,]” Erlikh, 2019 WL 1487576, at *7, Sotheby's alleges “it has been damaged both by Defendants' refusal to return the sale proceeds and by their breaches” of the Sale and Rescission Agreements. (ECF No. 10 ¶ 98). Sotheby's alleges its damages “include the amount Defendants received from the sales of the property, Sotheby's commissions in connection with these sales, related costs and expenses, and attorneys' fees[,]” which it calculates to be “in no event totaling less than” $6,916,717.00. (Id. ¶¶ 99, 112, 132-35, 144). As such, Sotheby's has established that it was injured by Defendants' fraudulent scheme.
Sotheby's has, therefore, sufficiently established each of the elements to render Defendants liable for common law fraud.
2. Breach of Contract
Sotheby's asserts breach of contract claims against the Thuts, based on both Mrs. Thut's breach of the Agreements, and Mr. Thut's breach of the Rescission Agreement. (ECF No. 10 ¶¶ 128-35, 143). A plaintiff bringing a breach of contract claim, under New York law, must demonstrate: “(1) the existence of an agreement; (2) adequate performance of the contract by the plaintiff; (3) breach of contract by the defendant; and (4) damages.” Advanced Water Techs., Inc. v. Amiad U.S.A., Inc., 457 F.Supp.3d 313, 318 (S.D.N.Y. 2020) (quoting Swan Media Grp., Inc. v. Staub, 841 F.Supp.2d 804, 807 (S.D.N.Y. 2012)); see Ezeiruaku v. Am. Express Co., No. 20 Civ. 4004 (LJL), 2020 WL 6135794, at *4 (S.D.N.Y. Oct. 19, 2020). The Court examines the Thuts' liability as to breach of contract below.
a. Breach of Contract as to Mrs. Thut
Sotheby's claims that Mrs. Thut breached the Agreements. (ECF No. 10 ¶¶ 128-35). Here, the Court finds that Sotheby's has established each of the four elements of a breach of contract claim. Sotheby's has established the existence of the Agreements, (see ECF Nos. 10 ¶¶ 18, 34, 45, 52; 31-1; 31-3; 31-5; 31-7). See Rhee v. SHVMS, LLC, No. 21 Civ. 4283 (LJL), 2022 WL 596366, at *3 (S.D.N.Y. Feb. 28, 2022). The second element is also met, as “Sotheby's has performed all of its obligations under the . . . Agreements].” (ECF No. 10 ¶ 124). See Arch Specialty Ins. Co. v. Sealmax Glass Sys., Inc., No. 16 Civ. 1409 (PKC) (SMG), 2017 WL 11505249, at *3 (E.D.N.Y. Feb. 15, 2017). Mrs. Thut has, by virtue of her default, admitted that she breached the Agreements by “refusing to remit the payment due and owing to Sotheby's because of the rescission of the [Consigned Lots] and, . . . (b) breaching her guarantee to Sotheby's concerning the property[,]” (ECF No. 10 ¶¶ 128-31). See First Tech. Cap., Inc. v. Airborne, Inc., 378 F.Supp.3d 212, 219 (W.D.N.Y. 2019). Finally, Sotheby's alleges it “has been damaged both by [Mrs. Thut's] refusal to return the sale proceeds and by [her] breaches of” the Agreements, in an amount “in no event totaling less than” $2,306,000.00. (ECF No. 10 ¶¶ 98, 132-35, 23 ¶ b). Accordingly, the Court finds that Sotheby's has established Mrs. Thut's liability for breach of the Agreements. See BMO Harris Bank N.A. v. Mobius Bus. Sols., LLC, No. 17 Civ. 01037 (BKS) (DEP), 2018 WL 3862682, at *4 (N.D.N.Y. Aug. 14, 2018).
b. Breach of Contract as to Mr. Thut
Sotheby's claims that Mr. Thut breached the Rescission Agreement. (ECF No. 10 ¶ 143). With respect to the first element, Sotheby's established the existence of a Rescission Agreement, to which Sotheby's and Mr. Thut were “parties” and “agreed to all terms”. (Id. ¶¶ 137-38). Sotheby's also “performed all of its obligations under the [Rescission] Agreement.” (Id. ¶ 141). By virtue of his default, Mr. Thut has conceded he breached the Rescission Agreement by “(a) refusing to remit the payments due and owing to Sotheby's because of the rescission of the sales and, . . . (b) breaching his representations to Sotheby's concerning the property, including the terms provided in Sotheby's Conditions of Sale and Terms of Guarantee[.]” (Id. ¶ 143). Sotheby's alleges it “has been damaged both by [Mr. Thut's] refusal to return the sale proceeds and by [his] breaches of” the Rescission Agreement, in an amount “in no event totaling less than” $1,075,217.00. (Id. ¶ 98, 144). Accordingly, Sotheby's has established Mr. Thut's liability for breach of the Rescission Agreement.
D. Damages
Sotheby's seeks “the Court enter default judgment against Defendants in the amount of $3,013,910.00, exclusive of interest, costs, and punitive damages.” (ECF No. 29 at 10). The Court examines the elements of Sotheby's requested relief below.
Although Sotheby's requested in the Complaint damages in the amount of: (1) $3,535,500.00 as to the fraud claim; (2) $2,306,000.00 as to Mrs. Thut's breach of contract claim; (3) $1,147,217.00 as to Mr. Thut's breach of contract claim, plus (4) interest, and (5) attorneys' fees and costs, (see ECF No. 10 at 23 ¶¶ a-e), it has revised its request in the Scillieri Decl., (see ECF No. 31 ¶ 55), and the Memorandum of Law to the reduced amount of $3,013,910.00. (See ECF No. 29 at 10-11). Sotheby's also no longer requests attorneys' fees. (See ECF Nos. 30 ¶ 16; 31 at ¶ 55).
1. Legal Standard
As discussed above, (see § IV.B, supra), a defendant's default is deemed “a concession of all well pleaded allegations of liability,” however, “it is not considered an admission of damages.” Greyhound, 973 F.2d at 158. “Although the default establishes a defendant's liability, unless the amount of damages is certain, the court is required to make an independent determination of the sum to be awarded.” Wing v. E. River Chinese Rest., 884 F.Supp. 663, 669 (E.D.N.Y. 1995) (citing S.E.C. v. Mgmt. Dynamics, Inc., 515 F.2d 801, 814 (2d Cir. 1975)); see Liberty Mut. Ins. Co. v. Fast Lane Car Serv., Inc., 681 F.Supp.2d 340, 349 (E.D.N.Y. 2010) (“It is well-settled that the burden is on the plaintiff to establish its entitlement to recovery.”). Accordingly, a district court must “conduct an inquiry in order to ascertain the amount of damages with reasonable certainty.” Credit Lyonnais Sec. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999); see Lenard v. Design Studio, 889 F.Supp.2d 518, 527 (S.D.N.Y. 2012) (“Where, on a damages inquest, a plaintiff fails to demonstrate its damages to a reasonable certainty, the court should decline to award any damages, even though liability has been established through default.”). “A court may make a damages determination upon a review of detailed affidavits and documentary evidence.” Erlikh, 2019 WL 1487576, at *9.
2. Evidentiary Basis
The Court must also determine whether Sotheby's has provided sufficient evidence to support their claims for damages. See Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., Div. of Ace Young Inc., 109 F.3d 105, 111 (2d Cir. 1997); see also Bleecker v. Zetian Sys., Inc., No. 12 Civ. 2151 (DLC), 2013 WL 5951162, at *6 (S.D.N.Y. Nov. 1, 2013). In the Damages Submission, Sotheby's provides detailed invoices for each sale of the Consigned Lots, (see ECF Nos. 31-1; 31-2; 31-4; 31-6; 31-8); (ii) redacted invoices for each sale of the FAAM Lots, (see ECF Nos. 31-9 - 31-11), and requests damages in the amount of $3,013,910.00, exclusive of interest, costs, and punitive damages, (see ECF No. 29 at 10), for (1) the amount it refunded to buyers of the Consigned Lots, $1,625,617.00, deducting the value of the Offset Lots, $72,000.00; (2) the amount it refunded to buyers of the FAAM Lots, $933,910.00; and (3) lost commission in the amount of $526,383.00. (ECF No. 31 ¶¶ 50-54). Despite being warned, (see ECF No. 34), Defendants have not responded to the Scheduling Order or the Damages Submission, or provided any contrary evidence. The Court finds that Sotheby's has met its evidentiary burden of proving damages, and that an in-person hearing is unnecessary because Sotheby's Damages Submission constitutes a sufficient basis from which to evaluate the fairness of its damages request. See Fustok v. ContiCommodity Servs., Inc., 873 F.2d 38, 40 (2d Cir. 1989); see also Boston Sci. Corp. v. New York Ctr. for Specialty Surgery, No. 14 Civ. 6170 (RRM), 2015 WL 13227994, at *3 (E.D.N.Y. Aug. 31, 2015) (same).
3. Common Law Fraud Damages
For Defendants' fraud, Sotheby's seeks compensatory damages in an amount equal to the payments it has made as part of Defendants' scheme. (ECF No. 10 at 23 ¶ a). “Under New York's longstanding out-of-pocket rule, damages for fraud are to be calculated to compensate plaintiffs for what they lost because of the fraud.” Allstate Ins. Co. v. Nazarov, No. 11 Civ. 6187 (PKC) (VMS), 2015 WL 5774459, at *20 (E.D.N.Y. Sept. 30, 2015) (quoting Matana v. Merkin, 989 F.Supp.2d 313, 321 (S.D.N.Y. 2013)) (internal quotation marks and alterations omitted); see First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 768 (2d Cir. 1994) (“The general rule of fraud damages is that the defrauded plaintiff may recover out-of-pocket losses caused by the fraud.”). “Damages are to be calculated to compensate plaintiffs for what they lost because of the fraud, not to compensate them for what they might have gained[.]” Lama Holding Co. v. Smith Barney Inc, 88 N.Y.2d 413, 421 (1996).
In support of the Motion, Sotheby's submitted (i) invoices for each sale of the Consigned Lots, (see ECF Nos. 31-1; 31-2; 31-4; 31-6; 31-8); (ii) invoices for each sale of the FAAM Lots, (see ECF Nos. 31-9 - 31-11), and (iii) the Agreements, (see ECF Nos. 31-1; 31-3; 31-5; 31-7), which dictated the “Selling Commissions.” (See ECF Nos. 31-1; 31-2; 31-4; 31-6; 31-8). In total, Sotheby's remitted to Mrs. Thut, $1,625,617.00, as follows:
Name
Lot
Hammer Price
Buyer's Premium
Purchase Price
Remitted to Mrs. Thut
Console a double plateaux, modele a grenouilles
Lot 306 (October 2016 Lot)
$130,000.00
$32,500.00
$162,500.00
$122,200.00
Table-feuijles: modele de salle a manger aux grenouilles
Lot 307 (October 2016 Lot)
$240,000.00
$60,000.00
$300,000.00
$225,600.00
Lanterne aux feuilles et oiseau
Lot 308 (October 2016 Lot)
$550,000.00
$122,500.00
$672,500.00
$363,000.00
Applique au oiseau a Trois Branches(A Pair)
March 2017 Lot
$180,000.00
$45,000.00
$169,200.00
(ECF Nos. 31 ¶ 50; 31-1 at 7-10; 31-3 at 9; 31-5 at 5; 31-7 at 10). As Sotheby's concedes, Mr. Thut is credited for the value of the Offset Lots in the amount of $72,000.00, so the remaining net sale proceeds that Mrs. Thut has failed to return to Sotheby's totals $1,553,617.00. (ECF No. 31 ¶¶ 51-52).
Hanging Lantern
April 2017 Lot
N/A
N/A
$535,000.00
$435,417.00
La Promenade des Amis
October 2017 Lot
$330,000.00
$81,000.00
$411,000.00
$310,200.00
Total
$1,625,617.00
ECF No. 31-4 calculates the Purchase Price as $244,968.75. (ECF No. 31-4 at 3 (the “March 2017 Lot Invoice”)). It includes a $19,968.75 sales tax. (Id.) For purposes of this chart, and the analysis thereafter, the Court excludes the sales tax from the calculation, as Sotheby's does throughout the briefing. (See ECF Nos. 10 ¶ 41; 31 ¶ 50).
Sotheby's also requests $933,910.00, “the amount remitted to consignors who consigned the” FAAM Lots, as follows:
(ECF No. 10 ¶¶ 86-88; see ECF Nos. 31-9 - 31-11).
Name
Lot
Hammer Price
Buyer's Premium
Purchase Price
Remitted to FAAM Buyers
Lampe aux branche coupe et oiseau (a pair)
FAAM Lot 306
$380,000.00
$86,000.00
$466,000.00
$351,110.00
Table grecque, modele carre
FAAM Lot 309
$140,000.00
$35,000.00
$175,000.00
$131,600.00
Lampadaire aux feuilles et oiseaux
FAAM Lot 311
$480,000.00
$108,500.00
$588,500.00
$451,200.00
Total
$933,910.00
Finally, Sotheby's seeks $526,383.00, “the amount Sotheby's has lost in the form of commissions in connection with the rescinded sales[,]” as follows:
Name
Lot
Hammer Price
Buyer's Premium
Seller's Commission Percentage
Seller's Commission
(ECF No. 31 ¶ 53; see ECF Nos. 31-1; 31-3; 31-5; 31-7).
Console a double plateaux, modele a grenouilles
Lot 306 (October 2016 Lot)
$130,000.00
$32,500.00
6.00% of Hammer Price
$7,800.00
Table-feuilles: modele de salle a manger aux grenouilles
Lot 307 (October 2016 Lot)
$240,000.00
$60,000.00
6.00% of Hammer Price
$14,400.00
Lanterne aux feuilles et oiseau
Lot 308 (October 2016 Lot)
$550,000.00
$122,500.00
6.00% of Hammer Price
$33,000.00
Applique au oiseau a Trois Branches (A Pair)
March 2017 Lot
$180,000.00
$45,000.00
6.00% of Hammer Price
$10,800.00
Hanging Lantern
April 2017 Lot
N/A
N/A
$99,583.00
La Promenade des Amis
October 2017 Lot
$330,000.00
$81,000.00
6.00% of Hammer Price
$19,800.00
Total
$341,000.00
$185,383.00
In the April 2017 Agreement, the parties agreed that Sotheby's “may retain solely for [its] account as [its] commission any amount of the Purchase Price in excess of the Net Price, provided that [the] commission shall not exceed the amount [it] would be entitled to retain as [its] buyer's premium if the Property were sold at public auction in New York[.]” (ECF No. 31-5 at 2).
Sotheby's common law fraud claims permit recovery of only damages “for what [it] lost because of the fraud,” Pasternak v. Dow Kim, 961 F.Supp.2d 593, 596 (S.D.N.Y. 2013); see Gov't Emps. Ins. Co. v. Badia, No. 13 Civ. 1720 (CBA) (VMS), 2015 WL 1258218, at *23 (E.D.N.Y. Mar. 18, 2015) (awarding compensatory damages for damages plaintiff “suffered . . . as a result of the fraud scheme”). The Court's examination of Sotheby's submissions in support of the Motion, affirm that it is entitled to $3,013,910.00, in compensatory damages comprised of: (1) $1,625,617.00 for the Consigned Lots, of which it has only recovered $72,000.00; (2) $933,910.00 for the FAAM Lots; and (3) $526,383.00 in lost commissions. (ECF No. 31 ¶¶ 50-54). Because Sotheby's evidence demonstrates that Defendants' fraudulent scheme caused it to lose each of these amounts, the Court respectfully recommends that Sotheby's be awarded fraud damages against Defendants in the amount of $3,013,910.00.
4. Breach of Contract Damages
For its breach of contract claims, Sotheby's requests that it be reimbursed for “the amount Defendants received from the sales of the property, Sotheby's commissions in connection with these sales, related costs and expenses,” in light of the Thuts' “refusal to return the sale proceeds and by their breaches of” the Agreements and the Rescission Agreement. (ECF No. 10 ¶¶ 98-99). Under New York law, damages for breach of contract “attempts to secure to the injured party the benefit of his bargain, subject to the limitations that the injury-whether it be losses suffered or gains prevented-was foreseeable, and that the amount of damages claimed be measurable with a reasonable degree of certainty and, of course, adequately proven.” Terwilliger v. Terwilliger, 206 F.3d 240, 248 (2d Cir. 2000) (quoting Freund v. Washington Square Press, Inc., 34 N.Y.2d 379, 382 (1974)); see Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 185 (2d Cir. 2007) (“A party injured by breach of contract is entitled to be placed in the position it would have occupied had the contract been fulfilled according to its terms.”).
Here, because the common law fraud claim wholly compensates Sotheby's, (see § IV.D.2, supra), separate damages of common law breach of contract “would amount to double recovery for plaintiff.” Am. Transit Ins. Co. v. Bilyk, 514 F.Supp.3d 463, 479 (E.D.N.Y. 2021); see Ostano Commerzanstalt v. Telewide Sys., Inc., 880 F.2d 642, 649 (2d Cir. 1989); see also Lewis Fam. Grp. Fund LP v. JS Barkats PLLC, No. 16 Civ. 5255 (AJN) (JLC), 2021 WL 1203383, at *13 (S.D.N.Y. Mar. 31, 2021), adopted by, 2021 WL 4341080 (S.D.N.Y. Sept. 23, 2021); Rudd v. Advance Bedding Corp., No. 95 CV 2099, 1997 WL 104683, at *2 (E.D.N.Y. Feb. 20, 1997). Because “judicial policy forestalls a double recovery for an injury[,]” the Court respectfully recommends that damages be awarded for common law fraud only, and not for breach of contract. Barrington v. New York, 806 F.Supp.2d 730, 740 (S.D.N.Y. 2011) (quoting Zarcone v. Perry, 78 A.D.2d 70, 79 (1980), aff'd, 55 N.Y.2d 782 (1981)); Philips Lighting Co. v. Schneider, No. 05 Civ. 4820 (SLT) (MDG), 2014 WL 4274182, at *12 (E.D.N.Y. Aug. 28, 2014) (“New York does not permit for double recovery.”); see also Int'l Fid. Ins. Co. v. City of New York, 263 F.Supp.2d 619, 636 (E.D.N.Y. 2003) (“Under the New York doctrine of double recovery, defendants are precluded from bringing claims seeking a second recovery for the same injury.”).
5. Punitive Damages
Sotheby's also seeks “punitive damages in connection with Defendants' fraudulent conduct.” (ECF No. 10 ¶ 9). Under New York law, punitive damages “are awarded to punish a defendant for wanton and reckless or malicious acts and to protect society against similar acts.” In re Methyl Tertiary Butyl Ether (MTBE) Prod. Liab. Litig., 725 F.3d 65, 127 (2d Cir. 2013).; see Newman v. Mor, No. 08 Civ. 658 (RJD) (CLP), 2009 WL 890552, at *8 (E.D.N.Y. Mar. 31, 2009) (“New York law is clear in requiring a showing that defendant's conduct be “‘aimed at the public generally.'”); Mayline Enterprises, Inc. v. Milea Truck Sales Corp., 641 F.Supp.2d 304, 311 (S.D.N.Y. 2009) (“New York courts have refused to award punitive damages where plaintiff did not meet the ‘public harm' requirement, no matter how improper the defendant's activity.”); Linkers (Far E.) Pte., Ltd. v. Int'l Polymers, Inc., No. 94 Civ. 9226 (SS), 1996 WL 412854, at * 5 (S.D.N.Y. July 23, 1996) (“In addition to morally culpable conduct, however, the most current decisions by the [New York] Court of Appeals also appear to require conduct that is ‘part of a pattern directed at the public generally' before punitive damages may be imposed.”) (quoting New York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 316 (1995)); see also Baxter Diagnostics, Inc. v. Novatek Med., Inc., No. 94 Civ. 5220 (AJP), 1998 WL 665138, at *2 (S.D.N.Y. Sept. 25, 1998).
To recover punitive damages under New York law, the plaintiff must demonstrate that defendant's acts were (1) “gross, wanton, deliberate, evinced a reckless disregard for the plaintiffs' rights,” Key Bank of N.Y. v. Diamond, 203 A.D.2d 896, 897 (1994), (2) that the underlying act is “of such a high degree of moral turpitude on the part of the defendants as to imply criminal indifference to civil obligations[,]” Cross v. Zyburo, 185 A.D.2d 967, 968 (1992), and that the fraud is “aimed at the public generally[.]” Walker v. Sheldon, 10 N.Y.2d 401(1961). “Under New York law, whether to award punitive damages and how much to award are ‘primarily questions which reside in the sound discretion of the original trier of the facts.'” Cont'l Indus. Grp., Inc. v. Altunkilic, No. 14 Civ. 790 (AT) (JLC), 2020 WL 3884312, at *8 (S.D.N.Y. July 1, 2020) (quoting Greenbaum v. Handelsbanken, 67 F.Supp.2d 228, 267 (S.D.N.Y. 1999)) (collecting cases); see Marini v. Adamo, 995 F.Supp.2d 155, 208 (E.D.N.Y. 2014), aff'd, 644 Fed.Appx. 33 (2d Cir. 2016); see also Levi v. Commonwealth Land Title Ins. Co., No. 09 Civ. 8012 SHS, 2013 WL 5708402, at *10 (S.D.N.Y. Oct. 21, 2013) (“Imposition of punitive damages is discretionary, not mandatory.”) (quoting Birnbaum v. Birnbaum, 157 A.D.2d 177, 192 (4th Dep't 1990)); Aetna Cas. & Sur. Co. v. Hambly, 82 A.D.2d 814, 815, 439 N.Y.S.2d 440, 441 (1981).
The Court declines, in its discretion, to recommend an award of punitive damages. Although the allegations sufficiently illustrate an intent to defraud, Sotheby's does not allege conduct that the Court would deem “gross, wanton, deliberate, evinc[ing] a reckless disregard for the plaintiffs' rights,” Diamond, 203 A.D.2d at 897, nor does Defendants' conduct demonstrate a “high degree of moral turpitude on the part of the defendants as to imply criminal indifference to civil obligations.” Cross, 185 A.D.2d at 968; see Tianbo Huang v. iTV Media, Inc., 79 F.Supp.3d 458, 464 (E.D.N.Y. 2015). Further, given the recommendation of a substantial compensatory award, the Court does not believe that further punitive damages are necessary to “achieve punishment or deterrence.” State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 409 (2003).
Accordingly, the Court respectfully recommends that no punitive damages be awarded.
6. Pre-Judgment Interest
Sotheby's seeks pre-judgment interest on any damages award. (ECF Nos. 10 at 23 ¶¶ ac; 29 at 10-11). “Under New York law, awarding pre-judgment interest on damages awarded for fraud is mandatory.” In re Crazy Eddie Sec. Litig., 948 F.Supp. 1154, 1166 (E.D.N.Y. 1996); see Allstate Ins. Co. v. Kumar, No. 10 Civ. 8166 (KBF) (RLE), 2013 WL 2395748, at *4 (S.D.N.Y. June 3, 2013) (“The statutes provide for prejudgment interest on compensatory damages, and federal courts apply this standard where parties are liable for damages under New York State law.”); see also CareandWear II, Inc. v. Nexcha L.L.C., No. 20 Civ. 8773 (PAE), 2022 WL 220062, at *4 (S.D.N.Y. Jan. 25, 2022) (“New York law provides for prejudgment interest in breach of contract cases at the statutory rate of nine percent per year, dating from the date when the cause of action first came into existence.”). Since Sotheby's has sufficiently asserted common law breach of contract and fraud claims, it is entitled to pre-judgment interest as a matter of New York Law.
New York law provides for an annual simple interest rate of nine percent. N.Y. C.P.L.R. § 5004; see Dukes Bridge, LLC v. Sec. Life of Denver Ins. Co., No. 10 Civ. 5491 (SJB), 2020 WL 4070094, at *6 (E.D.N.Y. July 20, 2020), aff'd, 2021 WL 5986871 (2d Cir. Dec. 17, 2021) (“The interest is calculated at the non-compoundable rate of 9% per year.”). Interest on compensatory damages “shall be computed from the earliest ascertainable date the cause of action existed,” N.Y. C.P.L.R. § 5001(b), or otherwise, if the damages occurred at different times, “interest may be calculated either from the date each individual claim arose or from ‘a single reasonable intermediate date.'” Gov't Emps. Ins. Co. v. AMD Chiropractic, P.C., No. 12 Civ. 4295 (NG) (JO), 2013 WL 5131057, at *9 (E.D.N.Y. Sept. 12, 2013) (quoting N.Y. C.P.L.R. § 5001(b)).
a. The First Rescission
On April 16, 2019, Sotheby's informed Defendants that it was rescinding the sales of the October 2016 and April 2017 Lots. (ECF No. 29 at 10). On April 30, 2019, Sotheby's returned to the Buyer $1,670,000.00, the purchase price of the October 2016 and April 2017 Lots. (ECF No. 10 ¶ 75). Sotheby's seeks pre-judgment interest on the amount it remitted to Mrs. Thut for these sales ($1,146,217.00), and its lost commissions ($369,783.00). (ECF No. 29 at 10). The Court deducts from the principal on which pre-judgment interest accrues Mr. Thut's consignment of the Offset Lots, $72,000.00, to arrive at the amount of $1,444,000.00.(ECF No. 31 ¶¶ 51-52).
$1,146,217.00 in remittance to Mrs. Thut + $369,783.00 in commissions (i.e., Buyer's Premium and Seller's Commission) - $72,000.00 of Offset Value. (See § IV.D.2, supra).
To determine the date from which to calculate pre-judgment interest, the Court observes that, pursuant to the October 2016 Agreement's Intent to Rescind Clause, Mrs. Thut was required to return to Sotheby's the net sale proceeds remitted to her, on ten days' notice of Rescission. (ECF No. 31-1 at 5). Although the April 2017 Agreement does not contain a ten-day notice, (ECF No. 31-5 at 5-6), Sotheby's concedes that interest shall accrue at the time designated by the October 2016 Agreement. (ECF No. 29 at 10).
Accordingly, the pre-judgment interest on the October 2016 and April 2017 Lots began to accrue on May 10, 2019. (ECF No. 29 at 10). See Conway v. Icahn & Co., 16 F.3d 504, 512 (2d Cir. 1994) (noting that, under New York law, courts have “wide discretion” to determine “a reasonable date from which to award pre-judgment interest”). Pre-judgment has since accrued at a rate of $129,960.00 per year, $10,830.00 per month, or $356.05 per day. Pre-judgment interest has accrued for three years, two months, and 19 days, a total of 1,176 days. Accordingly, I respectfully recommend that Sotheby's be awarded pre-judgment interest of $418,714.80with respect to the First Rescission.
$1,444,000.00 x .09 % = $129,960.00.
$129,960.00 / 12 Months = $10,830.00.
$129,960.00 / 365 Days = $356.05.
$356.05 x 1,176 Days = $418,714.80.
b. The Second Rescission
On July 2, 2021, Sotheby's informed Defendants that it was rescinding the sales of the March 2017 Lot. (ECF No. 31 ¶ 15). On September 23, 2021, Sotheby's returned to the buyer $225,000.00, the purchase price of the March 2017 Lot. (Id. ¶¶ 12, 16). Sotheby's seeks prejudgment interest on the amount it remitted to Mrs. Thut for these sales, $169,200.00, and its lost commission, $55,800.00, which together total $225,000.00. (ECF No. 29 at 10-11).
$169,200.00 in remittance to Mrs. Thut + $55,800.00 in commissions (i.e., Buyer's Premium and Seller's Commission). (See § IV.D.2, supra).
Pursuant to the March 2017 Agreement, which contained an Intent to Rescind Clause identical to that of the October 2016 Agreement, (see § II.A.2, supra), Mrs. Thut was required to return to Sotheby's the net sale proceeds remitted to her on ten days' notice of Rescission. (ECF No. 31-3 at 5). Accordingly, the pre-judgment interest on the March 2017 Lot began to accrue on October 3, 2021. (ECF No. 29 at 11). Pre-judgment has since accrued at a rate of $20,250.00 per year, $1,687.50 per month, or $55.48 per day. Pre-judgment interest has accrued for nine months and 26 days, a total of 299 days. Accordingly, I respectfully recommend that Sotheby's be awarded pre-judgment interest of $16,588.52 with respect to the Second Rescission.
Although Sotheby's seeks pre-judgment interest from October 2, 2021, it incorrectly calculates when the interest would ripen. Pursuant to the March 2017 Agreement, Mrs. Thut is entitled to ten days to return the remittance - not nine.
$225,000.00 x .09 % = $20,250.
$20,250.00 / 12 Months = $1,687.50.
$20,250.00 / 365 Days = $55.48.
$55.48 x 299 Days = $16,588.52.
c. The Third Rescission
On July 2, 2021, Sotheby's informed Defendants that it was rescinding the sales of the October 2017 Lot. (ECF No. 31 ¶ 29). On August 23, 2021, Sotheby's returned to the buyer $411,000.00, the purchase price of the March 2017 Lot. (Id. ¶¶ 26, 30). Sotheby's seeks prejudgment interest on the amount it remitted to Mrs. Thut for these sales, $310,200.00, and its lost commission, $100,800.00, which together total $411,000.00. (ECF No. 29 at 10-11).
$310,200.00 in remittance to Mrs. Thut + $100,800.00 in commissions (i.e. Buyer's Premium and Seller's Commission). (See § IV.D.2, supra).
Pursuant to the October 2017 Agreement, which contained an Intent to Rescind Clause identical to that of the October 2016 Agreement, (see § II.A.4, supra), Mrs. Thut was required to return to Sotheby's the net sale proceeds remitted to her on ten days' notice of rescission. (ECF No. 31-7 at 5). Accordingly, the pre-judgment interest on the October 2017 Lot began to accrue on September 2, 2021. (ECF No. 29 at 11). Pre-judgment has since accrued at a rate of $36,990.00 per year, $3,082.50 per month, and $101.34 per day. Pre-judgment interest has accrued for ten months and 27 days, a total of 330 days. Accordingly, I respectfully recommend that Sotheby's be awarded pre-judgment interest of $33,442.20 with respect to the Third Rescission.
Although Sotheby's seeks pre-judgment interest from September 1, 2021, it incorrectly calculates when the interest would ripen. Pursuant to the October 2017 Agreement, Mrs. Thut is entitled to ten days to return the remittance - not nine.
$411,000.00 x .09 % = $36,990.
$36,990.00 / 12 Months = $3,082.50.
$36,990.00 / 365 Days = $101.34.
$101.34 x 330 Days = $33,442.20.
d. The FAAM Lots Rescission
Sotheby's also seeks pre-judgment interest on the damages it incurred rescinding the FAAM Lots. (ECF No. 29 at 11). Specifically, Sotheby's requests that post-judgment interest accrue from the day Sotheby's rescinded the respective sales. Id. The Court, exercising the “wide discretion” it has in “determining a reasonable date from which to award pre-judgment interest[,]” recommends awarding damages from the date Sotheby's remitted the purchase price to the purchasers of the FAAM Lots (the “FAAM Purchasers,” individually, a “FAAM Purchaser”). Crazy Eddie, 948 F.Supp. at 1167 (collecting cases).
i. FAAM Lot 306 Rescission
On February 24, 2020, Sotheby's returned to the FAAM Purchaser, $466,000.00, the purchase price of FAAM Lot 306. (ECF No. 31 ¶¶ 33, 36). Sotheby's seeks pre-judgment interest on the amount it remitted to the FAAM Buyer, $351,110.00. (ECF No. 29 at 11). Accordingly, the pre-judgment interest, which began to accrue on February 24, 2020, (see § IV.D.5.d, supra), has since accrued at a rate of $31,599.90 per year, $2,633.32 per month, or $86.58 per day.Pre-judgment interest has accrued for two years, five months, and five days, a total of 886 days. Accordingly, I respectfully recommend that Sotheby's be awarded pre-judgment interest of $76,709.88 with respect to the FAAM Lot 306 Rescission.
$351,110.00 x .09 % = $31,599.90.
$31,599.90 / 12 Months = $2,633.32.
$31,599.90 / 365 Days = $86.58.
$86.58 x 886 Days = $76,709.88.
ii. FAAM Lot 309 Rescission
On August 19, 2021, Sotheby's returned to the FAAM Purchaser, $175,000.00, the purchase price of FAAM Lot 309. (ECF No. 31 ¶¶ 39, 42). Sotheby's seeks pre-judgment interest on the amount it remitted to the FAAM Buyer, $131,600.00. (ECF No. 29 at 11). Accordingly, the pre-judgment interest, which began to accrue on August 19, 2021, (see § IV.D.5.d, supra), has since accrued at a rate of $11,844.00 per year, $987.00 per month, or $32.45 per day. Prejudgment interest has accrued for eleven months and ten days, a total of 344 days. Accordingly, I respectfully recommend that Sotheby's be awarded pre-judgment interest of $11,162.80 with respect to the FAAM Lot 309 Rescission.
$131,600.00 x .09 % = $11,844.00.
$11,844.00 / 12 Months = $2,633.32.
$11,844.00 / 365 Days = $32.45.
$32.45 x 344 Days = $11,162.80.
iii. FAAM Lot 311 Rescission
On April 30, 2019, Sotheby's returned to the FAAM Purchaser, $588,500.00, the purchase price of FAAM Lot 311. (ECF No. 31 ¶¶ 43, 46). Sotheby's seeks pre-judgment interest on the amount it remitted to the FAAM Buyer, $451,200.00. (ECF No. 29 at 11). Accordingly, the prejudgment interest, which began to accrue on April 30, 2019, (see § IV.D.5.d, supra), has since accrued at a rate of $40,608.00 per year, $3,384.00 per month, or $111.25 per day. Prejudgment interest has accrued for three years, two months, and 29 days, a total of 1,186 days. Accordingly, I respectfully recommend that Sotheby's be awarded pre-judgment interest of $131,942.50 with respect to the FAAM Lot 311 Rescission.
$451,200.00 x .09 % = $40,608.00.
$40,608.00 / 12 Months = $3,384.00.
$40,608.00 / 365 Days = $111.25.
$111.25 x 1,186 Days = $131,942.50.
Accordingly, the Court respectfully recommends that pre-judgment interest be awarded in a total amount of $688,560.70.
$418,714.80 (First Rescission) + $16,588.52 (Second Rescission) + $33,442.20 (Third Rescission) + $76,709.88 (FAAM Lot 306 Rescission) + $11,162.80 (FAAM Lot 309 Rescission) + $131,942.50 (FAAM Lot 311 Rescission) = $688,560.70.
7. Post-Judgment Interest
“Post-judgment interest is awarded on any money judgment recovered in a civil case.” Spin Master Ltd. v. Alan Yuan's Store, 325 F.Supp.3d 413, 426 (S.D.N.Y. 2018) (citing 28 U.S.C. § 1961). Post-judgment interest is “calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, . . . for the calendar week preceding[] the date of judgment.” 28 U.S.C. § 1961(a). Accordingly, the Court respectfully recommends that Sotheby's be awarded post-judgment interest in an amount to be determined according to the statutory formula set forth in 28 U.S.C. § 1961.
8. Costs
Finally, Sotheby's seeks an award of costs. (ECF Nos. 10 at 23 ¶ d; 29 at 11). To obtain costs in this district a prevailing party must, “[w]ithin thirty (30) days after the entry of final judgment, or, in the case of an appeal by any party, within thirty (30) days after the final disposition of the appeal, . . . file with the Clerk a notice of taxation of costs by Electronic Case Filing, . . . indicating the date and time of taxation which shall comply with the notice period prescribed by Fed.R.Civ.P. 54, and annexing a bill of costs.” Local R. 54.1(a); see Fed.R.Civ.P. 54(d)(1) (“Unless a federal statute, these rules, or a court order provides otherwise, costs-other than attorney's fees- should be allowed to the prevailing party.”). “After the Clerk taxes or refuses to tax a party's costs, the Clerk's decision may be reviewed by the Court on a ‘motion served within [7] days' of the Clerk's decision.” Hickey v. City of New York, 241 F.R.D. 150, 152 (S.D.N.Y. 2006) (quoting Fed.R.Civ.P. 54(d)(1)). Accordingly, the Court respectfully recommends that Sotheby's be granted leave to file with the Clerk a bill of costs within thirty days of entry of judgment.
V. CONCLUSION
For the reasons set forth above, I respectfully recommend that the District Court award to Sotheby's: (1) compensatory damages in the amount of $3,013,910.00; (2) pre-judgment interest in the amount of $688,560.70; (3) post-judgment interest; and (4) permission to file a bill of costs with the Clerk of the Court, pursuant to Federal Rule of Civil Procedure 54(d) and Local Rule 54.1.
Sotheby's is directed to serve a copy of this Report and Recommendation on Defendants and file proof of service on the docket.
NOTICE OF PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
The parties shall have fourteen (14) days (including weekends and holidays) from service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed.R.Civ.P. 6(a), (d) (adding three additional days when service is made under Fed.R.Civ.P. 5(b)(2)(C), (D), or (F)). A party may respond to another party's objections within fourteen (14) days after being served with a copy. Fed.R.Civ.P. 72(b)(2). Such objections, and any response to objections, shall be filed with the Clerk of the Court. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Liman.
FAILURE TO OBJECT WITHIN FOURTEEN (14) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).