Schulhof v. Jacobs
Not reported (New York Supreme Court, Trial Level) (2017)
Rule of Law:
An agent owes a fiduciary duty to their principal to act with the utmost good faith, including full disclosure of all material facts related to the agency, particularly the actual selling price of an asset and any profits gained by the agent beyond agreed-upon compensation. Failure to do so constitutes fraud, breach of fiduciary duty, and breach of contract, entitling the principal to recover secret profits and forfeit the agent's compensation.
Facts:
- Lisa Jacobs worked as a private curator and art advisor for Hannelore B. Schulhof's art collection from 1998 until Mrs. Schulhof's death in February 2012.
- On October 25, 2011, Michael P. Schulhof (as executor) and Lisa Jacobs entered into a written agreement for Jacobs to find a buyer for a Jean-Michel Basquiat painting ("The Work") for a minimum of $6 million, in exchange for a $50,000 fee, explicitly prohibiting Jacobs from accepting any fee from the purchaser.
- On November 1, 2011, Jacobs met with art dealer Amy Wolf and stated the asking price for The Work was $6.5 million; by November 2, Jacobs and Wolf reached an agreement for the sale at $6.5 million.
- On November 7, 2011, Jacobs emailed Mr. Schulhof, falsely stating she "was able to get the [buyer] up to 5.5 million," leading Mr. Schulhof to agree to that lower price.
- Jacobs proposed a two-step transaction, where Mr. Schulhof sold The Work to Jacobs for $5,450,000, and Jacobs would immediately resell it to Wolf for a purported $5.5 million.
- On November 11, 2011, Jacobs executed a contract with Wolf to sell The Work for $6,500,000.
- On November 16, 2011, Jacobs wired $5,450,000 to Mr. Schulhof after receiving the full $6.5 million from Wolf, without disclosing the actual sale price or her $1 million profit.
- Approximately one year later, Mr. Schulhof discovered that The Work had been sold for $6.5 million and that Jacobs had kept an additional $1 million beyond her agreed-upon $50,000 fee.
Procedural Posture:
- On August 26, 2013, Michael P. Schulhof commenced an action in the New York State Supreme Court (trial court) against Lisa Jacobs, asserting causes of action for breach of fiduciary duty, fraud, breach of contract, restitution, and unjust enrichment.
- The parties engaged in discovery, including depositions, and fact discovery was completed.
- Mr. Schulhof filed a motion for summary judgment against Lisa Jacobs.
- Lisa Jacobs cross-moved for summary judgment to dismiss Mr. Schulhof's complaint.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a professional art curator, acting as an agent under an agreement that prohibits taking fees from a purchaser and requires disclosure of offers, commit fraud, breach of contract, and breach of fiduciary duty by misrepresenting the actual sale price of an artwork to the seller and secretly retaining a $1 million profit?
Opinions:
Majority - Charles E. Ramos, J.
Yes, a professional art curator acting as an agent under such an agreement commits fraud, breach of contract, and breach of fiduciary duty by misrepresenting the actual sale price and secretly retaining a $1 million profit. The court found clear evidence that Jacobs misrepresented the buyer's willingness to pay $5.5 million when she knew Wolf was ready to pay $6.5 million, intending to induce Mr. Schulhof's reliance, which he reasonably did, resulting in $1 million in damages. Given the longstanding business relationship and the terms of the October Agreement, Jacobs owed Mr. Schulhof a fiduciary duty to disclose the $6.5 million offer. Her actions directly breached the October Agreement, which required notification of offers above $6 million and prohibited fees from the purchaser. As a "faithless servant," Jacobs was required to disgorge the $1 million in secret profits and forfeit her $50,000 compensation for disloyalty. The court declined to evaluate the unjust enrichment claim as duplicative of the breach of contract claims.
Analysis:
This case strongly affirms the high standards of loyalty and transparency required of agents, particularly those in fiduciary roles, reinforcing that self-dealing and undisclosed profits are unacceptable. It illustrates that courts will not hesitate to enforce contractual provisions prohibiting undisclosed fees and will apply the "faithless servant" doctrine, requiring disgorgement of secret profits and forfeiture of compensation for breaches of fiduciary duty. The ruling serves as a cautionary tale for professionals acting as agents, emphasizing that full disclosure is paramount and that any attempt to deceive a principal for personal gain will result in severe financial penalties, impacting future cases involving agent-principal relationships and professional ethics.
