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“Pandorin’s Box”: Jenack v. Rabizadeh Threatens Anonymity of Sellers at Auction

February 25, 2013

Art lawyers are abuzz about the controversial decision that allowed an art collector who placed a winning bid at an auction to back out of the transaction unscathed.

What’s in a Box?*
In 2008 Consignor No. 428 tried to sell a valuable Russian antique through a public auction held in New York State. Bidder with a peddle No. 305 placed the winning bid for lot 193. However, the deal was found unenforceable because this transaction violated General Obligations Law § 5-701(a)(6).

Applicable Law
General Obligations Law § 5-701(a)(6) provides: “Every agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent . . . Notwithstanding section 2-201 of the uniform commercial code, if the goods be sold at public auction, and the auctioneer at the time of the sale, enters in a sale book, a memorandum specifying the nature and price of the property sold, the terms of the sale, the name of the purchaser, and the name of the person on whose account the sale was made, such memorandum is equivalent in effect to a note of the contract or sale, subscribed by the party to be charged therewith.” In other words, a promise to buy is enforceable if it is in writing and signed — a.k.a. Contract. If goods are sold at public auction, as was the case with the lot 193 auctioned in 2008, for the sales contract to be binding the auctioneer must record in his book (1) identification of the property sold and the selling price in the clerking sheets, (2) terms of the sale, (3) name of the buyer, (4) name of the seller.

What happened?
Here, a box that opened a can of worms was made by I.P. Khlebnikov in the 19th century (1) It was offered for public auction by an auctioneer in Chester, N.Y. named William J. Jenack. The highest bidder, holding peddle number 305 was Albert Rabizadeh** of Long Island (3) and his winning bid was recorded at $400,000 (1). Terms of sale were likely made known prior to the sale; however, something vital was missing, at least according to the court, to allow Rabizadeh to back out of the sale. It appears that Jenack, the auctioneer, failed to record the name of the consigner in the clerking sheets, even though he knew that consignor of the box was Jonathan A. Thompson from Greenwich, Connecticut.

Plaintiff’s legal efforts to recover damages for Rabizadeh’s breach of contract to purchase the antique box at auction succeeded with the New York Supreme Court, which denied defendant’s summary judgement motion that “any alleged contract was unenforceable for failure to comply with the statute of frauds” aka General Obligations Law § 5-701(a)(6). On appeal, however, the Appellate Court found ruled for the buyer finding that the writing requirement was not satisfied and there was no enforceable contract. From the opinion: “In this action, inter alia, to recover damages for breach of contract, the plaintiff, a professional auction house, alleged that the defendant, by absentee bid, entered into a contract to purchase an antique offered at a public auction, and thereafter refused to make payment for the subject antique. The question presented on this appeal is whether notations regarding the alleged sale of the antique, made by the auctioneer’s clerk contemporaneously with the bidding, which referred to the defendant and the consignor of the antique only by number, were sufficient to constitute a memorandum of the sale satisfying the statute of frauds. We hold that General Obligations Law § 5-701(a)(6) requires that the necessary memorandum, be it in one writing or multiple writings, reveal the identity of, not merely a number assigned to, the parties to the contract.”

What’s next?
Recently, the New York Times reported that the New York Court of Appeals will review the ruling in the spring and the result may force “the state’s auction industry to end its longstanding practice of keeping sellers’ names anonymous.” The prospective of transparency is generating all the hype! Art market, for now, thrives on anonymity. Often catalogues reveal limited information to protect the interests of consignors and may be gloss over problematic or unknown provenance of the works to be auctioned. For example, see Hoffman v. Martinez et al. 3:10-cv-00953-D. The ultimate outcome in Jenack v. Rabizadeh may force auction houses to reveal the identity of the consignor to the buyer if they want to have binding agreements.

Attorneys quoted in the article — Peter R. Stern (McLaughlin & Stern); Jonathan A. Olsoff (Sotheby’s); Christine Steiner (Sheppard Mullin); Leila A. Amineddoleh (Lambard & Geliebter); Nicholas M. O’Donnell (Sullivan & Worcester) demonstrated a split of opinions about this potentially significant change in the common practice. However, all seemed to agree that “they had not heard of court rulings in other states that appeared to restrict the granting of anonymity to sellers at auction.”

Rabizadeh is represented by Daniel R. Wotman, of Daniel R. Wortman & Associates, LLP.
Jenack is represented by Benjamin Ostrer, of Oster & Hoovler, PC.

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*PS Khlebnikov’s box did sell two years later for $50,000, a fraction of the earlier winning bid but an amount ten times more than the value listed in the 2008 catalog nevertheless.

*PSS Rabizadeh is not a stranger to litigation over his collecting interests. In July 2009, he sued a German auction house Nagel Auktionen for selling him a forged Russian gilded silver and cloisonné enamel goblet for $875,000, seeking rescission of the sale, damages for fraud, breach of contract and negligent misrepresentation.

Case Sequence:

William J. Jenack Estate Appraisers & Auctioneers, Inc. v Rabizadeh, 98 A.D.3d 1037, 1038 (N.Y. App. Div. 2d Dep’t 2012).
William J. Jenack Estate Appraisers & Auctioneers, Inc. v. Rabizadeh, 99 A.D.3d 270 (N.Y. App. Div. 2d Dep’t 2012).
William J. Jenack Estate Appraisers & Auctioneers, Inc. v. Rabizadeh, 5 N.E.3d 976 (N.Y. 2013).

Secondary Sources: The New York Times; Business Insider; Courthouse News Service (2012); Courthouse News Service (2009).

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 advice. For legal advice, readers should seek a consultation with an attorney.