Friday, November 02, 2012

On the Jenack Decision

There was an interesting Appellate Division decision last month involving the application of the statute of frauds to auction sales.  Nicholas O’Donnell summarizes the facts here.  It's been described as a “bombshell,” “monumental,” “potentially game-changing,” “mind-boggling.”  But Jonathan Olsoff of Sotheby’s has convinced me that the decision is being misread.

The Maine Antique Digest, for example, says “the justices’ decision meant that for the sale to be binding on the buyer, the name of the seller must be included in some part of the invoice, memorandum, bill of sale, clerking sheet, or other document given to the buyer at point of sale” (my emphasis).  Not so, says Jonathan:

“The court did not require disclosure of the name of the consignor during the auction process.  The decision deals only with the evidence that is required if an auction purchaser defaults in paying and is sued by the auction house.  The court held that because the auction house in the Jenack case refused to disclose the name of the consignor during the litigation – when an order protecting the consignor’s confidentiality could presumably have been obtained – the auction house failed to offer sufficient evidence to establish its claim.  Under the Jenack ruling, if an auction house offers evidence that its internal records comply with the requirements of Section 5-701 of the New York General Obligations Law, it will establish its claim against a defaulting purchaser and will be entitled to a court judgment requiring the purchaser to pay.”

But didn’t the court say the “auctioneer’s memorandum” must include the name of the seller?  Again, Jonathan says no:

“It seems clear enough that the Court based its holding on the fact that the auction house ‘failed to produce any writing identifying consignor “#428” by name, either in response to defendant’s discovery demands or in opposition to the defendant’s motion for summary judgment.’  If it was necessary for ‘the name of the person on whose account the sale was made’ to be on the ‘auctioneer’s memorandum,’ the production of another writing in discovery or on summary judgment would be immaterial. But the Court did note that and, just as it said that the absentee bid form could satisfy the writing requirement for the bidder, it clearly meant that the consignment agreement or other ‘writing identifying the consignor’ when ‘taken together’ with the auctioneer’s memorandum with the corresponding number would satisfy the statutory requirements requiring ‘the name of the person on whose account the sale was made.’ Further support is found in the form of the summary, in which the Court notes that the deadbeat bidder showed ‘prima facie’ that the memorandum failed to include the consignor’s name and that the auction housed ‘failed to raise a triable issue of fact in that regard.’ If a name on the auctioneer’s memorandum was necessary, there would be no way for the auction house to raise a ‘triable issue’ in any way. The auctioneer’s memorandum either had the consignor’s name or it didn’t. If a ‘triable issue’ could be raised, it would have to be raised by ‘another writing identifying’ the consignor.  But that would apparently have been enough, as that writing, plus the memorandum, taken together, would satisfy the statute.”

That seems right to me, but for a second opinion I went to my friend Jo Laird, formerly General Counsel at Christie’s.  She agreed with Jonathan:

“In further support of the argument, note that the court held that with respect to the buyer the existence of a direct paper trail that could identify the buyer by his number in the clerk's book was sufficient to satisfy the statutory requirement. There is no reason why the court would not have made the same decision with respect to the seller had the auction house provided the same kind of paper trail with respect to the seller. In fact, the court seemed to indicate that it would have by noting the gap in the evidence presented.”

Jo adds that “the real danger here is not the opinion itself. It is appealing the case to the Court of Appeals. [There are reports that Christie’s is ‘joining in Jenack's appeal to New York's highest court’ -- DZ]  On the record as it appears to stand in the case (i.e., with the house's failure to produce the consignment agreement, etc.) the appeal risks getting a worse opinion from a court with broader jurisdiction. Maybe not a good idea.”