JN Contemporary Art LLC v. Phillips Auctioneers LLC

Background

JN Contemporary Art LLC (“JN”) buys, sells, and exhibits artwork. Phillips Auctioneers LLC (“Phillips”) operates an auction business that accepts artwork for public or private auction. In two June 27, 2019 contracts, JN agreed to place an irrevocable bid for a Jean-Michel Basquiat painting and to consign a Rudolf Stingel painting to Phillips for a planned May 2020 evening auction.

Under the Stingel Agreement, Phillips guaranteed JN a minimum of $5 million for the painting. Phillips would receive a commission on any amount above that minimum. The agreement also stated that Phillips could select, change, or reschedule the auction date, but that moving it later than May 2020 required JN’s prior written consent. Another provision allowed Phillips to terminate the agreement immediately if the auction was postponed because of circumstances beyond the parties’ reasonable control, including natural disasters and similar events. If Phillips terminated under that provision, its obligation to pay the guaranteed minimum would be void and it would have no other liability to JN.

In December 2019, JN used the Stingel painting and another work as collateral for a $5 million loan from Muses Funding I LLC. JN, Phillips, and Muses also signed a security amendment recognizing Muses’s first-priority lien on the Stingel painting and providing for payments to Muses from the guaranteed minimum and net auction proceeds.

After the COVID-19 pandemic spread to New York, government restrictions affected nonessential business activities. Phillips announced that it was postponing sales and events, including the relevant art sales. Phillips later sent JN a termination letter stating that the pandemic and continuing government orders had prevented the auction from being held in May 2020. The letter invoked the termination provision, stated that the guaranteed minimum was void, and said Phillips would have no liability under the agreement.

JN filed this action on June 8, 2020, and moved for a temporary restraining order. Its amended complaint asserted breach-of-contract claims based on the Basquiat and Stingel Agreements and claimed that Phillips’s termination violated the implied duty of good faith and fair dealing. Phillips held a virtual contemporary-art auction on July 2, 2020, before the motion was fully submitted.

Relief Requested and Legal Standard

JN asked the court to require Phillips to offer the Stingel painting at its next available online or in-person contemporary-art auction and to comply with the agreement by paying JN the $5 million guaranteed minimum. The court treated the requested temporary restraining order as a mandatory preliminary injunction because it would require Phillips to take affirmative action and would provide much of the relief JN sought.

To obtain that relief, JN had to show irreparable harm—an actual and imminent injury that money damages could not remedy—as well as the required likelihood or strength of success on the merits and that the injunction would serve the public interest. Because the requested injunction was mandatory, the court applied a heightened standard requiring a clear or substantial likelihood of success. The court stated that irreparable harm was the most important requirement.

Court’s Analysis

The court held that JN had not shown irreparable harm. It determined that money damages could compensate JN for any harm it might prove at trial. Although JN argued that the painting’s auction price could not be known without an auction, the court found that JN had not shown that the painting’s value could not be established at trial. The court pointed to the established profession of art appraisal and its valuation methods, including prior appraisals of the Stingel painting that had predicted an auction price with reasonable accuracy.

The court also rejected JN’s argument that the agreement’s statement about speculative pre-sale estimates made valuation impossible. In the court’s view, Phillips’s refusal to guarantee a specific sale price before the auction did not mean that the painting’s value could not be determined for purposes of a damages award. The court noted that JN could seek an auction as specific performance at trial, meaning a court-ordered performance of the contractual obligation.

The court further concluded that JN had not shown any additional injury from waiting until trial. JN sought the same basic compensatory relief through the motion—auction proceeds—that it sought at the end of the case. JN’s later assertions about harm to its reputation, goodwill, ability to buy and sell artwork, employees, and business were conclusory and did not establish harm beyond compensable financial loss.

The court found that cases involving restraints on the sale of unique artwork did not apply because JN was asking Phillips to sell the Stingel painting and distribute the proceeds under the agreement, not to prevent the painting from being sold. Because JN failed to establish irreparable harm, the court did not address the other requirements for injunctive relief.

Disposition

Judge Denise Cote denied JN Contemporary Art LLC’s June 8, 2020 motion for a temporary restraining order. The opinion did not decide the merits of JN’s breach-of-contract or good-faith claims.