DW Properties v. Live Art Market, Inc., a Delaware corporation

Background

DW Properties sued Live Art Market, Inc. over its purchase of a painting by Cornelius Annor titled “ya tena ase.” DW Properties alleged that Live Art told its principal, Sacha Daskal, that the painting could likely be resold for $120,000 and that Live Art would deliver good title without resale restrictions. DW Properties purchased the painting for $80,000.

The complaint alleged that Live Art’s earlier agreement with Good Lamp imposed a three-year restriction on offering the painting at an art fair or public auction and required a right of first refusal for a private sale. DW Properties alleged that Live Art did not disclose these restrictions or include them in the sale contract. When DW Properties later tried to sell the painting through Phillips, Phillips withdrew it after learning about the restrictions.

Live Art moved to dismiss the amended complaint for failure to state a claim. The court treated the complaint’s factual allegations as true for purposes of the motion.

Claims and Analysis

Breach of contract. The court denied the motion to dismiss this claim. The sale invoice warranted that good title would pass to DW Properties upon payment. The court said DW Properties had sufficiently alleged that Live Art’s failure to comply with, or disclose, the Good Lamp restrictions may have created an encumbrance—a restriction or claim that clouds title—and therefore may have prevented Live Art from delivering the promised good title.

The court noted that the Good Lamp agreement was not entirely clear about whether Live Art had to obey the resale restrictions itself or instead had to include them in contracts with later buyers. Either interpretation supported allowing the contract claim to proceed at this stage. The court also said DW Properties could not directly sue Live Art for violating restrictions in the Good Lamp agreement because DW Properties was not a party to that agreement. Any liability to DW Properties would instead arise from Live Art’s alleged failure to provide good title under the DW Properties–Live Art sales contract.

Breach of warranty. The court allowed this claim to proceed. It rejected Live Art’s argument that the warranty claim was impermissibly duplicative of the contract claim, explaining that New York law permits alternative theories of liability at this stage. The court did not require DW Properties to choose between describing Live Art’s promise as a contract term or as an express warranty.

Breach of the implied covenant of good faith and fair dealing. The court granted the motion to dismiss this claim. DW Properties based it on the same resale-restriction facts underlying the contract claim and sought the same relief. The court held that the implied-covenant claim was redundant of the express contract claim.

Negligent misrepresentation. The court denied dismissal of this claim. Under New York law, negligent misrepresentation requires, among other things, a special relationship involving a duty to provide accurate information, a false or incorrect representation, intended reliance, and reasonable reliance that causes harm.

The court found DW Properties’ allegations sufficient to suggest a special relationship beyond a typical one-time sale. Daskal allegedly purchased about fifteen artworks from Live Art; Live Art approached him about the painting; Live Art advised him about its marketing potential and expected resale price; and Live Art repeatedly communicated with him to encourage the purchase. The court also found sufficient allegations that Live Art negligently misrepresented that DW Properties would receive good title and that no resale restrictions affected the sale.

Disposition

The court held that Live Art’s motion to dismiss was granted in part and denied in part. The contract, warranty, and negligent-misrepresentation claims survived. The implied-covenant claim was dismissed as duplicative of the contract claim. The court directed Live Art to file an answer to the surviving claims within 21 days after the opinion and order and directed the Clerk of Court to close the motion at ECF Number 19.