Morgan Art Foundation Limited v. McKenzie d/b/a American Image Art

Background

Morgan Art Foundation Ltd. (MAF) brought this multi-party action concerning intellectual-property rights and related disputes involving the late artist Robert Indiana. MAF alleged claims against American Image Art and Michael McKenzie, and also asserted claims against Jamie Thomas and the Estate of Robert Indiana. The opinion describes the parties’ competing allegations about who had authority to create, market, and sell various Indiana artworks.

Thomas and the Estate had settled a separate Maine lawsuit. In that lawsuit, Thomas generally claimed that the Estate owed him a defense and indemnification in this federal case. The settlement agreement, executed on December 24, 2019, included a monetary settlement of Thomas’s claims for reimbursement of legal fees incurred in the federal and Maine actions. It also required the Estate to defend and indemnify Thomas in this action through counsel selected by the Estate. Thomas agreed to reasonably cooperate in his defense, including by providing documents and testimony. The agreement also imposed additional restrictions concerning the litigation, administration of the Estate, and marketing or sale of Robert Indiana artworks. It did not prevent truthful testimony under oath.

Motion to Compel

The American Image Art defendants asked the court to require Thomas and the Estate to produce settlement agreements and related defense or indemnity agreements. Thomas and the Estate offered either to stipulate to certain facts or to produce a redacted version showing provisions about indemnification, legal fees, and liability, while redacting the specific amount of any payment.

The Estate argued that disclosure of the settlement terms could unfairly harm its position in settlement negotiations with the American Image Art defendants in a related arbitration. The American Image Art defendants agreed to confidentiality but argued that redactions were unwarranted because Thomas was a pivotal witness who could support or contradict their claim that Indiana authorized the works at issue.

Analysis

Federal Rule of Civil Procedure 26(b) permits discovery of nonprivileged information that is relevant to a claim or defense and proportional to the needs of the case. The court explained that Federal Rule of Evidence 408 limits the use of settlement communications and agreements for certain purposes at trial, such as proving or disproving the validity or amount of a disputed claim, but does not make those materials privileged from discovery.

The court also held that a confidentiality provision or filing under seal does not by itself prevent discovery of a settlement agreement. The agreement was relevant because Thomas was likely to be an important witness about Indiana’s state of mind and whether Indiana created or knowingly approved the Dylan works, WINE, the BRAT sculpture, and other artworks marketed under his name. The agreement could also show whether Thomas had a financial incentive or other motivation to testify favorably to the Estate and unfavorably to MAF or the American Image Art defendants.

The court declined to limit disclosure to indemnification provisions or to redact payment amounts. It reasoned that the amount and other terms could bear on Thomas’s bias or prejudice, and that merely revealing that a settlement existed would not show how favorable it was or what special terms might influence his testimony.

Ruling and Confidentiality

Judge Barbara Moses ordered Jamie Thomas and James W. Brannan, as personal representative of the Estate of Robert Indiana, to produce a complete and unredacted copy of the Confidential Settlement Agreement and Mutual Release. Production was subject to the parties’ stipulated Confidentiality Agreement and Protective Order. Thomas and the Estate could designate the agreement as confidential under that order.

The court clarified that producing the agreement in discovery did not necessarily make it admissible at trial or otherwise determine how it could be used. The court directed production within one business day after new counsel appeared for the American Image Art defendants. If new counsel had not appeared by July 20, 2020, any other party could request appropriate relief by letter application.