[*1]
Gallery Seomi v Sotheby's, Inc.
2010 NY Slip Op 51005(U) [27 Misc 3d 1231(A)]
Decided on April 27, 2010
Supreme Court, New York County
Fried, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and will not be published in the printed Official Reports.


Decided on April 27, 2010
Supreme Court, New York County


Gallery Seomi, Plaintiff,

against

Sotheby's, Inc. AND JOHN DOE, Defendants.




602573/2009



APPEARANCES:

McLaughlin & Stern, LLP

260 Madison Avenue

New York, New York 10016

Attorneys for the Plaintiff

Jon Paul Robbins, Esq.

Stroock & Stroock & Lavan, LLP

180 Maiden Lane

New York, New York 10038

Attorneys for Defendant Sotheby's, Inc

Charles G. Moerdler, Esq.

Christine E. Ellice, Esq.

Bernard J. Fried, J.



In this breach of contract action, defendant Sotheby's Inc. ("Sotheby's") moves pursuant to CPLR 3211(a)(1), (a)(3), and (a)(7) to dismiss the second amended complaint.

The second amended complaint alleges that on or about July 14, 2007, plaintiff Gallery Seomi ("Seomi") was the successful bidder on a painting which was auctioned by Sotheby's. (Second Amend. Compl., ¶ 8). The painting was by the artist Sean Scully and was entitled "Flannen" (the "Painting"). The complaint further alleges that Seomi paid the full bid amount of $936,000 by October 10, 2007. (Id. at

¶¶ 8—9). Seomi allegedly then sold the Painting to Moon-Deuk Park ("Park"), a citizen of South Korea, on or about November 10, 2008. However, from the successful bidding to the purchase of it by Park and after, the Painting was at all times in possession of Sotheby's.

From November 2007, when Seomi purchased approximately $10,000,000 worth of works of art from Sotheby's and quickly fell into arrears on those purchases, until April 22, 2009, with a brief cure of its outstanding debt in April/May 2008, Seomi was in default of its payment obligations to Sotheby's. Seomi's relationship with Sotheby's was governed by Conditions of Sale that appear in all Sotheby's auction catalogues and bind the bidders (the "Contract"). [*2]According to Paragraph 8 of the Contract, "on the fall of the auctioneer's hammer, title to the offered lot will pass to the highest bidder acknowledged by the auctioneer, and such bidder thereupon . . . will immediately pay the full purchase price or such part as [Sotheby's] require[s]." (Id., Ex. 2). As to purchaser default, Paragraph 8 of the Contract provides in pertinent part:

If any applicable conditions herein are not complied with by the purchaser, the purchaser will be in default and in addition to any and all other remedies available to [Sotheby's] by law, including, without limitation, the right to hold the purchaser liable for the total purchase price, including fees, charges and expenses more fully set forth herein, [Sotheby's], at [its] option, may (x) cancel the sale of that, or any other lot or lots sold to the defaulting purchaser at the same or any other auction, retaining as liquidating damages all payments made by the purchaser, or (y) resell the purchased property, whether at public auction or by private sale, or (z) effect any combination thereof.

. . .

In addition, a defaulting purchaser will be deemed to have granted and assigned to [Sotheby's] and [its] affiliated companies, a continuing security interest of first priority in any property or money of or owing to such purchaser in [Sotheby's] possession or in the possession of any of [Sotheby's] affiliated companies, and we may retain and apply such property or money as collateral security for the obligations due to [Sotheby's] or to any affiliated company of [Sotheby's]. [Sotheby's] shall have all of the rights accorded a secured party under the New York Uniform Commercial Code.

On December 23, 2008, Jan Prasens, the Managing Director of Sotheby's Financial Services, an affiliate of Sotheby's, sent an e-mail to Seomi (the "Prasens email") notifying that Sotheby's will "start offering pieces held by" it and that it "just received an offer for [the Painting] for $500,000 all-in (including commission)." (Id. at ¶ 17). Seomi was advised that "Sotheby's purpose in offering the works of art held' by Sotheby's was to satisfy Seomi's obligations to it in whole or in part." (Id. at ¶ 17). Seomi never responded to the Prasens email. (Id. at ¶ 19).

On January 22, 2009, Sotheby's sold the Painting in a private sale for $440,000 to defendant John Doe. (Sotheby's Memo. of Law in Support, p. 9). According to Sotheby's, at the time, Seomi was in default of its payment obligation to Sotheby's in aggregate amount of $15 million, and the entire $440,000 was credited to Seomi's account, reducing Seomi's outstanding debt. (Id.).

Seomi commenced the instant action on August 18, 2009.[FN1] The day before, Park executed an Assignment of Claims Agreement, "unconditionally and irrevocably

assign[ing] to Seomi any Sotheby's Claims and any rights, claims or causes of action which Park [*3]had, have, or may have, in law or in equity, with respect to" the Painting.[FN2] (Second. Amend. Compl., Ex. 1).

Seomi alleges four causes of action: (1) replevin, (2) conversion, (3) negligence, and (4) breach of contract. The first and second causes of action are brought by Seomi as assignee of Park. The third cause of action is brought by Seomi in its own capacity and as assignee of Park. The fourth cause of action is brought by Seomi in its own capacity. Seomi, in response to the motion to dismiss, agreed to "not contest the dismissal" of the first three causes of action. (Plaintiff's Memo. of Law in Opp., p. 2). This leaves the fourth cause of action for breach of contract which Seomi grounds in the Uniform Commercial Code, alleging that Sotheby's failed to give proper notice to Seomi of the sale of the Painting to John Doe and failed to conduct that sale in commercially reasonable manner as provided for in the U.C.C. As to damages, Seomi seeks $540,000, the difference between the amount Sotheby's credited Seomi for the Painting and the price Park paid to Seomi (which is the amount that Seomi is responsible for to Park). (Plaintiff's Memo. of Law in Opp., p. 13).

Arguing for dismissal pursuant to CPLR 3211(a)(7), Sotheby's asserts: (1) Seomi has no claim because it has not sustained a "loss," an essential prerequisite to a viable claim, as set forth in U.C.C. § 9-625(b), and (2) Seomi failed to allege sufficient facts to show lack of proper notice under U.C.C .§§ 9-611, 9-612, 9-613,

and (3) and to show that Sotheby's failed to conduct the sale in commercially reasonable manner under U.C.C. § 9-610. Sotheby's also challenges Seomi's status as a U.C.C. debtor, arguing that Seomi's representations that it had good and clean title to the Painting during the course of the sale to Park (while knowing full well that it did not hold such title because of Sotheby's default policy) negates any claim that Seomi was a U.C.C. debtor, after the sale to Park on November 10, 2008. (Sotheby's Reply Memo. of Law in Further Support, p. 13—14). In addition, Sotheby's asserts that Seomi engaged in champerty when it obtained the Assignment of Claims Agreement from Park, providing this allegation as one of the reasons for imposing actual costs for Seomi's alleged frivolous and patently improper conduct during the course of this action. (Sotheby's Reply Memo. of Law in Further Support, p. 19—22).

On a motion to dismiss pursuant to CPLR 3211(a)(7), "the sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegation are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail." (Guggenheimer v. Ginzburg, 43 NY2d 268, 275 [1977]; see also Rovello v. Orofino Realty Co., 40 NY2d 633 [1976]). Every factual allegation must be accepted as true and the allegations are to be liberally construed in a light most favorable to the pleading party. (Leon v. Martinez, 84 NY2d 83, 87-88 [1994] [stating: "We determine only whether the facts as alleged fit within a cognizable legal theory."]; see also 511 West 232nd Owners Corp. v. Jennifer Realty Co., 98 NY2d 144, 151-152 [2002]). [*4]

§ 9-625(b) provides: "Subject to subsections (c), (d), and (f), a person is liable for damages in the amount of any loss caused by a failure to comply with this article." Accordingly, a party must show a "loss." (Official Comment 3 to U.C.C. § 9-625 ["Damages for violation of the requirements of [Article 9] are those reasonably calculated to put an eligible claimant in the position that it would have occupied had no violation occurred."]). Seomi has not demonstrated that it sustained any actual loss, and instead claims that it is responsible to Park for the Painting and if it is unable to deliver the Painting, it will have to refund the purchase price of $980,000. (Plaintiff's Memo. of Law in Opp., p. 13). At this time, Seomi's "loss" is purely conjectural and inadequate as a matter of law to sustain a U.C.C. cause of action for damages.[FN3]

Finally, there is no basis for me to impose costs as requested by Sotheby's.

Accordingly, it is ORDERED that Sotheby's motion to dismiss the second amended complaint is granted, in its entirety, and the complaint is dismissed; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

DATED:

E N T E R

J.S.C.

Footnotes


Footnote 1:A prior proceeding, commenced in this Court on March 9, 2009 by Sotheby's (Sotheby's, Inc. v. Gallery Seomi, et al., Index. No. 600724/2009) to recover approximately $14 million in outstanding debt from Seomi, was discontinued without prejudice following Seomi's payment of the full amount due to Sotheby's. (Sotheby's Memo. of Law in Support, p. 5—6).

Footnote 2:The Assignment of Claims Agreement defines "Sotheby's Claims" as Park's "claims against Sotheby's, including but not limited to claims seeking to require Sotheby's to return the Painting or, in the alternative, claims for damages from Sotheby's." (Second. Amend. Compl., Ex. 1).

Footnote 3:Although the determination on the issue of "loss" obviates the need to reach the remaining arguments, brief mention is warranted. Both the "proper notice" requirement under U.C.C. § 9-611 and the "commercially reasonable" requirement under U.C.C. § 9-610 appear to be issues of fact more appropriate for determination on a motion for summary judgment than on a motion to dismiss. As to the champerty allegation, in light of a recent Court of Appeals' decision, Seomi's behavior does not appear to be properly characterized as champertous under Judiciary Law § 489(1). (See Trust for the Certificate Holders of Merrill Lynch Mortgage Investors, Inc. v. Love Funding Corp., 13 NY3d 190, 201 [2009] ["In short, the champerty statute does not apply when the purpose of an assignment is the collection of a legitimate claim. What the statute prohibits, as the Appellate Division stated over a century ago, is the purchase of claims with the intent and for the purpose of bringing an action' that [the purchaser] may involve parties in costs and annoyance, where such claims would not be prosecuted if not stirred up in [an] effort to secure costs'."] [brackets in the original])