United States: Mum’s The Word: New York’s Highest Court Maintains Anonymity In Auction Sales

In late 2012, we reported on a New York Appellate Division order that sent shockwaves and fear of instability through the auction house world.  Late last month, the New York Court Appeals issued its opinion in the case of William J. Jenack Estate Appraisers and Auctioneers, Inc. v. Rabizadeh, overturning the Appellate Division and ruling that an auctioneer need not disclose the actual name of the owner who has consigned the work.  The Court ruled that only disclosure of the name of the auctioneer would satisfy New York's Statute of Frauds.  The decision reverses the earlier opinion and re-permits the long-established practice of anonymity with regard to the names of owners of auctioned works.

Plaintiff/Appellant William J. Jenack Estate Appraisers and Auctioneers, Inc. ("Jenack") sells fine art and antiques at public auction.  Jenack permits bidding online via an "Absentee Bid Form" on its website.  The website informs prospective buyers that "if your bid is successful you are legally responsible to make payment according to the terms set forth here[,]" and that "Bids will not be executed without signature.  Signature denotes that you agree to our terms."

At its September 21, 2008 public auction, Jenack offered for sale an item on which Defendant Albert Rabizadeh ("Rabizadeh") submitted a signed, absentee bidder form with his contact and credit card information.  At the September 2008 auction, Rabizadeh was the successful bidder, with a winning bid of $400,000.  When the auction for the item closed, the chief clerk recorded Rabizadeh's winning bid on Jenack's "clerking sheet," which included the lot number, catalogue description, the number assigned by Jenack to the consignor, Jenack's name and title, "William J. Jenack Appraisers/Auctioneers," and Rabizadeh's assigned bidding number as the buyer and winning bid amount.  The clerking sheet did not contain Rabizadeh's name or that of the consignor.

Jenack subsequently invoiced Rabizadeh for an amount of $497,398, which reflected the bidding price, the 15% "buyer's premium" and applicable taxes.  Rabizadeh failed to pay the invoice.  Jenack then filed suit for breach of contract, seeking damages, including the bid price and buyer's premium.  Rabizadeh moved for summary judgment asserting that he was not liable for the price of the auction item because there was no writing memorializing any contract between Jenack and Rabizadeh, as required by the New York's Statute of Frauds.  Generally, under New York's Statute of Frauds, a contract for the sale of goods at a price of $500 or more must comply with the signed writing requirement of Uniform Commercial Code ("UCC") 2-201(1).  However, New York's General Obligations Law ("GOL") section 5-701(a)(6) specifically applies to the auctioning of such goods, and requires "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[.]"

Jenack argued that there was a bid agreement between the parties due to Rabizadeh's submission of the winning bid at the auction, and that the documents related to Rabizadeh's $400,000 bid satisfied New York's Statute of Frauds.   Rabizadeh disputed that the clerking sheet constituted the writing required by GOL § 5-701(a)(6), in part because it did not state the name of the consignor.

At the trial court level, the New York Supreme Court denied Rabizadeh's motion and granted Jenack summary judgment on liability.  The Appellate Division, Second Department, reversed, concluding that Rabizadeh demonstrated prima facie that Jenack failed to comply with GOL § 5-701(a)(6) because the clerking sheet did not include "the name of the person on whose account the sale is made," as required by the statute.

The issue before the Court of Appeals was whether the sale of the auction item to Rabizadeh was memorialized in a writing that satisfied New York's Statute of Frauds.  The court looked to the purpose of the statute, stating that the Statute of Frauds is designed to protect the parties and preserve the integrity of contractual agreements and to prevent the enforcement of unfounded fraudulent claims.  The court continued, '[i]n short, the purpose of the Statute of Frauds is simply to prevent a party from being held responsible, by oral, and perhaps false, testimony, for a contract that the party claims never to have made."  With that backdrop, the court examined the actions of the parties and the body of documents at issue in the transaction.

The court made clear that the statutorily required writing does not need be contained in one single document; rather, it may be furnished by "piecing together other, related writings," and a court may look to documents relevant to the bidding and the auction to see if the statute was satisfied.

Addressing whether the clerking sheet alone satisfied the statute, the court observed that the text of the GOL states clearly that the memorandum must include names.  GOL § 5-701(a)(6) requires the disclosure of the name of the buyer and the name of "the person on whose account the sale was made," and the clerking sheet only included only numbers in place of those names.  In concluding that the clerking sheet alone was insufficient, the court reasoned that to allow for numbers, rather than names, would undermine the purpose of the statute "by increasing the possibility of fraud."  The court concluded that the numbers assigned by Jenack to represent the buyer and seller/consignor on the clerking sheet did not satisfy GOL § 5-701(a)(6).

However, the court reiterated that "related writings" that supply the required names must be considered in the Statute of Frauds analysis, along with the clerking sheet.  The court stated that the absentee bidder form, along with the clerking sheet, provided the necessary information to establish Rabizadeh as the buyer, and both documents contained information (item number, bidder number, the auctioneer, and a detailed description of the item) pertaining to the terms of sale as required by the statute.  The GOL also required disclosure of "the name of the person on whose account the sale was made," which arguably required revealing the name of the consignor/seller.  Jenack (and amici from the auction industry) argued that in the auction business "it is a time honored and necessary custom and practice of auction houses to maintain the confidentiality of the seller," and that such practice was important to New York State; in other words, required revelation of a seller's identify would undermine the industry.

The Court reasoned, however, that the GOL does not reference the "seller," and thus thought it clear that the seller's name was not necessary in order to satisfy the requirement of "the name of the person on whose account the sale was made."  The court went on to state that it was well settled that an auctioneer serves as a consignor's agent, and that the clerking sheet listed Jenack as the auctioneer, and thus Jenack served as the agent of the seller.  The court concluded that the clerking sheet therefore satisfactorily provided the name of the person on whose account the sale was made and met that requirement of GOL § 5-701(a)(6).

The court then harkened back to the purpose of the Statute of Frauds while offering a scolding of Rabizadeh's conduct.  The court stated "[t]he Statute of Frauds was not enacted to afford persons a means of evading just obligations; nor was it intended to supply a cloak of immunity to hedging litigants lacking integrity; nor was it adopted to enable defendants to interpose the Statute as a bar to a contract fairly, and admittedly, made," and criticized Rabizadeh for using the statute as a means to evade a just obligation.  The court concluded that Rabizadeh took "affirmative steps to participate in Jenack's auction, including executing an absentee bidder form with the required personal information," and could not then "seek to avoid the consequences of his actions by ignoring the existence of a documentary trail leading to him."

The Court of Appeals' decision has great national and international importance, given the prominence and prestige of the New York auction market.  In its decision, the Court of Appeals maintained the option for sellers of auctioned works to remain anonymous, an option of great value and historical import to the auction industry and its participants.  The decision also clarifies what is required of auctioneers in the information they provide and collect so as to avoid future challenges to sales based on the Statute of Frauds.  Further, the opinion serves as a warning to future auction buyers who may develop buyer's remorse after the close of an auction – New York courts will look to the purpose of the Statute of Frauds and the entirety of the relevant documentation in evaluating whether a regretful buyer may be excused from obligations based on a technicality in the letter of the statute.

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