Edelman Arts, Inc. v. Spoelstra

Background

Edelman Arts, Inc., described in the opinion as a New York-based business that finds and brokers art, sued Remko Spoelstra and other defendants for breach of contract. The complaint alleged that Spoelstra agreed to purchase five works of art for the Swiss Business Council, including three works by Keith Haring and an Edvard Munch painting. The alleged invoice prices totaled $26.8 million. The defendants did not pay, and Edelman Arts did not deliver the works.

Edelman Arts later sold two Haring works to third parties as an effort to reduce its losses. The court had already entered a default judgment finding all defendants liable for breach of contract. The case was then sent to Magistrate Judge Sarah Netburn for an inquest, meaning a proceeding to determine damages after the default judgment.

Damages Request and Recommendation

At the inquest, Edelman Arts requested $7,585,000 in damages plus interest. Its request relied mainly on estimated commissions it allegedly would have earned from brokering the sales, including 20 percent commissions on three works, and on the difference between the invoice price and the amount allegedly received from the later sale of Haring Tarp 1.

Magistrate Judge Netburn recommended awarding no damages. She concluded that Edelman Arts had not shown with reasonable certainty the percentage of the alleged commissions, how they were calculated, whether similar commissions had been received before, whether the amounts were routine or industry standard, or whether the defendants had agreed to the commission rate. She also found an unexplained difference between the damages requested and the amounts reflected in the calculations.

District Court’s Analysis

The district court reviewed the portions of the recommendation to which Edelman Arts objected. Under the governing standard, contract damages are intended to place the injured party in the economic position it would have occupied if the contract had been performed. The plaintiff must prove that the breach caused the damages and that the loss can be established with reasonable certainty. Mathematical precision is not required, but the damages must be measurable using reliable information rather than undue speculation.

The court agreed that Edelman Arts’s submissions were incomplete and unclear. However, it concluded that the recommendation of no damages could not be adopted because the magistrate judge had not taken the necessary steps to determine the damages with reasonable certainty. The court stated that the breach was clear and that Edelman Arts plainly had not intended to broker multimillion-dollar art sales without receiving commissions. It described the damages theory as sufficiently straightforward to permit calculation of the commissions and any reduction resulting from mitigation efforts.

The court also noted that the magistrate judge had asked for supplemental evidence about Haring Tarp 1, while recommending no damages for all five works. The district court stated that Edelman Arts should have the opportunity to submit additional evidence, and that an evidentiary hearing could be held if documentary submissions were insufficient. The court specifically expressed no view on the total amount of damages Edelman Arts would ultimately be able to prove.

Disposition

The court declined to adopt the Report and Recommendation at that time and recommitted the case to Magistrate Judge Netburn for further proceedings under Federal Rule of Civil Procedure 72(b)(3). The magistrate judge was directed to take the necessary steps to determine the damages and prepare a new recommendation. The court did not award a specific amount of damages in this opinion.