By David Honig, Esq.*
What happens when you place a multi-million dollar winning bid on a Jean-Michel Basquiat painting on behalf of a client, and your principle (a.k.a. the client) has a change of heart about purchasing the work? This is the situation in which famed New York art dealer Jose Mugrabi recently found himself. At a May 15, 2015 sale at Christie’s in New York, Mugrabi’s company Jombihis placed the winning bid of $37,125,000.00 on Basquiat’s “The Field Next to the Other Road” on behalf of a client. On November 9, 2015 Jombihis signed a promissory note to pay Christie’s the $37,125,000.00 plus interest in three instalments with $5 million to be paid upon signing. Additionally, Mugrabi signed the promissory note as a personal guarantee.
Art dealers who operate as a middleman between sellers and buyers are taking significant personal risks when they purchase works in their own name on behalf of clients. While the art market is notorious for controlling the narrative and keeping transactions confidential, when news break about record setting deals or transactions gone wrong in the art market, they tend to spread like the wild fire.
According to the Baer Faxt newsletter, a paid service that scops art market news, the client who authorized Mugrabi to bid on his behalf decided to back out of the deal after sending the initial $5 million. As a result of the client backing out, Jombihis failed to send Christie’s the second installment due on January 4, 2016, in the amount of $13,562,500.00. Christie’s followed up with Mugrabi about the delinquent payment three times, the first follow-up was conducted in person at Mugrabi’s office. During the third exchange Christie’s told Mugrabi that he or anyone else acting on or behalf of Jombihis would be forbidden from participating at any of Christie’s upcoming auctions in London. The final payment of $18,562,500.00, due on February 15, 2016, also went unpaid.
As a result of the breach of contract, Christie’s filed a motion for summary judgment in lieu of complaint in New York Supreme Court, New York County on February 29, 2016. New York Civil Practice Law and Rules §3213 allows a plaintiff to file a notice of motion and motion for summary judgment in lieu of a complaint if the “action is based upon an instrument for the payment of money only or upon any judgment.”
Four days after Christie’s filed its motion for summary judgment a joint statement was released by Christie’s and Jombihis stating that an agreement had been made in “principle,” so far no details of the settlement have been disclosed except The Wall Street Journal reports that Mugrabi “will pay his bill in full.” It is not clear from this statement whether Christie’s will be paid interest and attorney’s fees or just the outstanding $32,125,000.00 owed for the painting.
Christie’s motion can be read in its entirety via Scribd. Public dispute resolution through litigation in cases involving major art market players is as rare as a complaint date-stamped “February 29.” The precipitous ‘amicable’ resolution that followed the filing also raise questions about the need to turn to the court system to enforce contractual obligations.
A walk down memory lane: While conducting research on the settlement I noticed something peculiar, all sources seemed to have the same information regarding Murgabi’s statements about the client who decided not to go through with the sale and settlement but when I looked for a press release or statement I couldn’t find one. . According to artnet news Mugrabi made these statements about the painting and settlement to Baer Faxt. No other article that I came across, including the Wall Street Journal, mentioned Baer Faxt yet they all had the same information. The reason for this appears to be that The Wall Street Journal’s source was Mugrabi’s son but this scenario leads one to wonder if The Wall Street Journal had used Bear Faxt as its source would it be in violation of the “hot news” doctrine from International News Service v. Associated Press, 248 U.S. 215 (1918). The hot news doctrine created a “quasi-property right” in news allowing an exclusive period of reporting on news collected by one agency. Meaning one news agency would not be able to read another’s paper or “bulletin” and report news it did not investigate and uncover the facts itself. Of course this is just a journey down the academic rabbit hole since in the almost century since International News Service v. Associated Press was decided, the hot news doctrine has been largely done away with first through subsequent cases such as Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), which put an end to federal common law, and more recently by the passage of the 1976 Copyright Act which preempted state law on copyright issues.
- Josh Baer (The Baer Faxt, New York, N.Y.), March 2016. You can susbscribe to the Baer Faxt newsletter here: http://www.baerfaxt.com/
- Christie’s Inc. v. Jombihis Corp. and Jose Mugrabi 651047/2016 (filed February 29, 2016).
- Brian Boucher, “ Mugrabi Breaks His Silence over Christie’s Non-Payment Complaint” artnet news (March 4, 2016) https://news.artnet.com/market/jose-mugrabi-breaks-silence-christies-complaint-441353.
- Kelly Corw “Christie’s, Mugrabi Settle Lawsuit over $37 Million Painting” The Wall Street Journal (March 4, 2016), http://www.wsj.com/articles/christies-mugrabi-settle-lawsuit-over-37-million-painting-1457135018.
- Marion Maneker “Christie’s Seeks Judgment Against Mugrabi Family for $32 Million Unpaid on Basquiat Painting” Art Market Monitor (February 29, 2016), http://www.artmarketmonitor.com/2016/02/29/christies-seeks-judgment-against-mugrabi-family-for-32m-unpaid-on-basquiat-painting/.
- International News Service v. Associated Press, 248 U.S. 215 (1918).
About the Author: David Honig is a post graduate fellows at the Center for Art Law. He is a member of the Brooklyn Law School class of 2015. While attending law school he focused his studies on intellectual property and was a member of the Brooklyn Law Incubator & Policy (BLIP) Clinic. He is admitted to New York and New Jersey state bars.
Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. Readers should not construe or rely on any comment or statement in this article as legal advise. Instead, readers should seek an attorney.