Fiduciary Duty Established by Contract May Be Released by Contract, Too

In Stephanie Clegg v. Sotheby’s, 23-cv-01995, 2003 WL 8281487 (S.D.N.Y. Nov. 30, 2023), the Southern District of New York held that the fiduciary duties of a consignee could be defined by a written consignment agreement and further modified by subsequent written agreements between the parties.

In 1994, Stephanie Clegg bought from Sotheby’s a painting attributed to the artist Marc Chagall.  Clegg and her husband had bought and sold art exclusively through Sotheby’s for decades, and Clegg trusted Sotheby’s.  Sotheby’s, however, failed to inform Clegg of vulnerabilities concerning this painting’s stated provenance.  First, Sotheby’s failed to alert Clegg to the existence of an organization, the Comité Marc Chagall, that authenticated works attributed to Chagall.  Second, it failed to disclose to Clegg that this painting had not been authenticated by the Comité.  Third, it failed to mention that the painting’s stated provenance began with ownership by a gallery whose proprietor had been convicted and sentenced to prison for selling stolen art.

In 2020, Clegg consigned the painting to Sotheby’s for sale.  In connection with that arrangement, a Sotheby’s representative told Clegg by email that the painting would need to be “shipped to Paris” for authentication.  Clegg then signed a consignment agreement giving Sotheby’s “absolute discretion” to consult with experts about the painting’s provenance.  That consignment agreement stated that it superseded all prior understandings or agreements between the parties and could only be amended by written agreement signed by both parties.

After the consignment had commenced, Sotheby’s presented Clegg with a letter agreement seeking her permission to send the painting to the Comité for authentication.  The letter disclosed that, if the Comité were to decline to authenticate the painting, the painting could be seized by the Comité and destroyed by French authorities.  The agreement indemnified and released Sotheby’s from liability for any action the Comité might take.

Clegg expressed surprise and concern at these developments, but Sotheby’s personnel told her that the Comité rarely seized works and that Sotheby’s would take steps to confirm the painting’s provenance before sending it to the Comité.  Clegg signed.

Perhaps predictably, the Comité unanimously declared the painting to be inauthentic and asked French authorities to seize the painting and destroy it.  Clegg sued Sotheby’s for damages, alleging, among other things, that Sotheby’s violated fiduciary duties to her by failing to disclose issues concerning the painting’s provenance at the time Sotheby’s sold the painting to her and by later underplaying the risk that the Comité would seize the painting.  Sotheby’s moved to dismiss.

The District Court dismissed the complaint in its entirety.  No fiduciary relationship existed between Clegg and Sotheby’s when Sotheby’s sold the painting to Clegg. Although Clegg’s multidecade exclusive relationship with Sotheby’s led Clegg to trust Sotheby’s, that trust alone did not create a fiduciary relationship in a transaction that was otherwise at arms’ length.  Further, although Sotheby’s did owe fiduciary duties to Clegg when it later received the painting from her on consignment, those duties arose from the terms of the consignment agreement, not by operation of law, and Clegg subsequently waived those fiduciary obligations when she signed the letter agreement authorizing Sotheby’s to submit the painting to the Comité.  Finally, Clegg was not entitled to rely on any oral guarantees or assurances from Sotheby’s, since the consignment agreement giving rise to the parties’ fiduciary relationship could only be modified by a writing signed by both parties.

Fiduciary relationships play a vital role in ensuring that parties exercise the appropriate duties of care to one another.  This case provides several important reminders about the nuances of those fiduciary duties: (1) although fiduciary duties attach automatically to certain relationships, those duties can be modified by contract; (2) fidicuary duties are not static but may evolve throughout a relationship; (3) once a relationship is reduced to a contract, parties must take care to ensure that that contract reflects all of their rights and obligations, including those that arise from previous written or oral agreements.

If you have questions about the enforceability of a written or oral agreement, please contact Michael Rakower or Travis Mock.


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