Thursday, October 06, 2016

The Fifth Circuit brings some sense to the Marguerite Hoffman breach of confidentiality lawsuit

This has been going for for six and half years.  Background here, here, and here.  Briefly, Hoffman sued collector David Martinez and L&M gallery for breach of the confidentiality clause in the sale of a Rothko.  The District Court threw out the claims against Martinez, but let stand a $500,000 verdict against the gallery.  (Hoffman had reportedly sought more than $22 million.)  The Fifth Circuit has now thrown out the verdict against the gallery too.  You can read the decision here.

There were always three things that struck me as really odd about the case.

First, my very first reaction to the claim, way back in 2010, was to note the strangeness of the core claim "that, because Martinez agreed to keep the transaction confidential, he could never re-sell the work. That is, he is said to have breached the confidentiality clause not in the usual way such clauses are breached -- i.e., by blabbing about it -- but by the mere act of selling."  The Fifth Circuit refuses to read the confidentiality provision as "permanently prevent[ing] the public sale of the [work]."

Second, I never understood the damages theory in the case.  Hoffman's theory seemed to be that her damages were the amount she "gave up by selling the work privately (with a confidentiality clause) rather than at auction, as if sales at auction always do better than private sales."  The Fifth Circuit rejects this "auction premium" theory as hypothetical and speculative.

And last, the lawsuit always seemed to be, as The Art Market Monitor put it, "self-defeating."  If the concern was to not draw attention to the fact that Hoffman sold the Rothko ... well, here we are six and a half years later still talking about the fact that Hoffman sold the Rothko.  I would also assume that the legal fees for six and a half years of litigation were not insignificant.

In any event, the end at last of a pretty bizarre case.