Before WINTER, ALTIMARI and MAHONEY, Circuit Judges.
APPENDIX
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
Docket No. 91-7254
Filed November 26, 1991
WILDENSTEIN Co., INC., Plaintiff-Appellant,
— v. —
BRENT WALLIS, individually, in his capacity as president of the
Hal B. Wallis Foundation, in his capacity as trustee of the Hal
B. Wallis Trust, and in his capacity as executor of the Estate of
Hal B. Wallis; THE HAL B. WALLIS FOUNDATION; THE HAL B. WALLIS
TRUST; THE ESTATE OF HAROLD (HAL) B. WALLIS,
Defendants-Appellees.
Certificate to the New York Court of Appeals (pursuant to
McKinney’s Revised 1991 New York Rules of Court § 500.17(b) —
certification of unsettled questions of state law)
Wildenstein Co., Inc. (“Wildenstein”) (a New York
corporation, with its principal place of business in New York
City), deals in the collection and sales of fine art. Brent
Wallis is the son of the late Hal B. Wallis. Brent Wallis is the
executor of the Hal B. Wallis Estate (“Wallis Estate”), a
beneficiary and trustee of the Hal B. Wallis Trust (“Wallis
Trust”), and president and chairman of the board of the Hal B.
Wallis Foundation (“Wallis Foundation”). The Wallis Foundation is
a California corporation, organized for charitable purposes
within the meaning of Section 501(c)(3) of the Internal Revenue
Code of 1954, as amended. It owns certain paintings in the Wallis
Collection. The Wallis Trust is a California trust, created by
Hal Wallis, pursuant to a Trust Agreement dated March 18, 1982,
and later modified. Upon its creation, the Wallis Trust received,
among other things, all works of art then owned by Hal Wallis.
After Hal Wallis died, the Wallis Trust transferred most of these
works to the Wallis Foundation. In addition, pursuant to a Letter
of Instructions to the trustees of the Wallis Foundation, Hal
Wallis directed that most of the Wallis Collection be given to
the Los Angeles County Museum of Art on permanent loan. The
Wallis Estate is a California probate estate arising pursuant to
the Will of Hal Wallis, dated July 5, 1985.
While he was alive, Hal Wallis was an avid collector of
Impressionist and post-Impressionist works of art. He gave
several of these paintings to his second wife, Martha Hyer
Wallis, as gifts.
According to the undisputed allegations of the complaint,
Martha Wallis frequently borrowed from money lenders using the
paintings as security without her husband’s knowledge. In August
1980, she became acquainted with three confidence men, Harold
Pruett, Gerhard Whiffen, and Rory Keegan. In November 1980,
Martha Wallis needed to borrow one million dollars for an unknown
purpose. She contacted these three con-men about the possibility
of obtaining a loan. They apparently agreed, and as collateral
for the loan, Mrs. Wallis delivered to them four paintings —
Monet’s “Houses of Parliament,” Gauguin’s “The Siesta — A
Brittany Landscape,” and two paintings by Remington.
Additionally, Mrs. Wallis executed a power of attorney, which
purported to authorize Whiffen and Keegan to sell the paintings.
In January 1981, Whiffen and Keegan went to Wildenstein’s
offices in New York, met with Guy Wildenstein, Vice President of
Wildenstein, and offered to sell to Wildenstein “Houses of
Parliament” and “The Siesta — A Brittany Landscape.” Whiffen and
Keegan produced several documents, including the power of
attorney given to them by Mrs. Wallis, that demonstrated their
authority to sell the paintings and Mrs. Wallis’ ownership of the
paintings. Mr. Wildenstein offered to purchase the two paintings
for $650,000. Whiffen and Keegan initially turned down this
offer. Several days later, however, they returned to Wildenstein
and agreed to sell the paintings for $650,000, and Wildenstein
purchased them.
Page 634
Hal Wallis eventually learned that Wildenstein had acquired the
two paintings, even though Mrs. Wallis never informed her husband
that the paintings had been sold. Hal Wallis’ attorney, Jeffrey
Glassman, wrote to Mr. Wildenstein, and informed him that the
paintings had been sold without the permission of either Mr. or
Mrs. Wallis, and demanded the return of the two paintings.
Thereafter, Mr. Glassman initiated negotiations with Jeremy
Epstein, counsel for Wildenstein, for return of the paintings. On
April 20, 1982, the Wallises and Wildenstein executed a
Settlement Agreement (the “Agreement”). Pursuant to the
Agreement, Wildenstein sold the paintings back to the Wallises
for $665,000 — this represented Wildenstein’s original purchase
price plus its expenses. In addition, Wildenstein was granted a
right of first refusal and an exclusive right of consignment with
respect to all fifteen paintings in the Wallis Collection.
The provisions granting Wildenstein the purchase option are
contained in paragraph 3 of the Agreement:
If Mr. Wallis, Mrs. Wallis, or upon their decease,
the executors of their respective estates, receives
an offer acceptable to him or her for the purchase of
any painting . . . now in the possession of Mr. or
Mrs. Wallis, they shall give notice to Wildenstein of
such offer and its terms and conditions at least
thirty (30) business days prior to the proposed sale
and Wildenstein shall have the option to purchase
such painting upon the same terms and conditions as
those of such offer by giving Mr. Wallis, Mrs.
Wallis, or their respective executors notice of its
election to exercise the option within twenty (20)
business days after receiving notice of the proposed
sale.
The provisions granting Wildenstein an exclusive right of
consignment are contained in paragraph 4 of the Agreement, which
provides in relevant part:
If Mr. Wallis, Mrs. Wallis, or upon their decease,
the executors of their respective estates, determines
to sell at auction any painting [now in the
possession of Mr. or Mrs. Wallis], such painting
shall first be consigned exclusively to Wildenstein
for sale in accordance with the consignment agreement
appended hereto as Exhibit B.
Paragraph 4 also provides the way for determining the price at
which a painting is to be consigned and gives Wildenstein the
exclusive right of consignment for six months after receipt of a
consigned painting.
The reason for conferring the purchase option and the exclusive
right of consignment upon Wildenstein is stated in paragraph 5:
Prior to the time a painting . . . is consigned to
Wildenstein under the terms of paragraph 4 herein or
notice of an offer is given pursuant to paragraph 3
herein, Mr. Wallis, Mrs. Wallis, or upon their
decease, the executors of their respective estates,
shall not consign or offer to sell that painting to
any other person or institution. It is the intent of
this Settlement Agreement that Wildenstein shall have
the first opportunity to purchase or sell all
paintings [now in the possession of Mr. or Mrs.
Wallis]; provided, however, such opportunity of
Wildenstein to purchase or sell shall cease upon the
distribution from the estate of Mr. or Mrs. Wallis to
any charitable organization described in Section
501(c)(3) of the Internal Revenue Code.
Those who are bound by the Agreement are listed in paragraph 8:
Any reference herein to Wildenstein, Mr. Wallis, or
Mrs. Wallis shall be deemed to refer to any of their
respective executors, successors, and assigns, and
the terms and provisions of this Settlement Agreement
shall constitute obligations and shall inure to the
benefit of the executors, successors and assigns of
Wildenstein, Mr. Wallis and Mrs. Wallis, specifically
excluding therefrom any charitable organization
described in Section 501(c)(3) of the Internal
Revenue Code, which shall have received any painting
[now in the possession of Mr. or Mrs. Wallis]
pursuant to the last will of Mr. or Mrs. Wallis or
pursuant to a trust created by Mr. or Mrs. Wallis.
Page 635
Thus, the Agreement provides that the Wallis defendants must
give Wildenstein at least thirty days notice prior to any
proposed sale of a painting in the Wallis Collection and that
Wildenstein shall have the option to purchase such painting upon
the same terms and conditions as those of the proposed sale. The
Agreement further states that if the Wallis defendants decide to
sell any painting at auction, such painting shall first be
consigned exclusively to Wildenstein for six months.
Wildenstein’s rights of first refusal and exclusive consignment
are not limited to the lifetime of Mr. and Mrs. Wallis, but are
also binding upon the Wallis’ executors, successors, and assigns,
and can be asserted by Wildenstein’s successors and assigns.
Finally, the Agreement extinguishes the parties’ rights and
obligations with respect to any paintings in the estate of Mr. or
Mrs. Wallis that are given to any charitable organization
organized and described in Section 501(c)(3) of the Internal
Revenue Code.
When Mr. Wallis died in 1986, Mr. Epstein was advised that the
paintings in the Wallis Collection were being distributed to the
Wallis Foundation, pursuant to the terms of the Wallis Trust. Mr.
Epstein confirmed his understanding of the distribution to the
Foundation in a letter to Mr. Glassman dated October 21, 1986,
while at the same time reminding Mr. Glassman of the obligations
of the Agreement.
Wildenstein asserted no claim in the probate proceeding
conducted after Mr. Wallis’ death. It took no action until 1989,
when Wildenstein learned that the Wallis Collection was to be
sold at auction. On May 9, 1989, Wildenstein filed a complaint
and sought to enjoin the auction, which was scheduled for May 10,
1990. The district court refused to grant a temporary restraining
order, on the ground that Wildenstein had failed to show
irreparable harm.
Wildenstein’s complaint contains six counts. The first count
alleges that Hal Wallis fraudulently induced Wildenstein to enter
into the Agreement. It is brought against the Wallis Estate and
Brent Wallis, as executor of the Estate. The second count alleges
that all of the defendants conspired to defraud Wildenstein by
fraudulently inducing it to enter the Agreement, and by willfully
violating the Agreement. The third and fourth counts allege
breach of contract and fraud, and are brought against Brent
Wallis individually for willfully violating the terms of the
Agreement. The fifth and sixth counts allege that the Wallis
Foundation, and Brent Wallis in his capacity as its president,
revoked the permanent loan of certain paintings to the Los
Angeles County Museum of Art, in violation of Hal Wallis’
instructions, and that they intended to sell those paintings at
auction in violation of Wildenstein’s rights under the Agreement.
Wildenstein sought, in addition to injunctive relief, rescission
of the Agreement or, in the alternative, monetary damages on each
count, as well as costs and attorneys’ fees.
On May 31, 1989, the Wallis defendants answered the complaint,
alleging seven affirmative defenses and two counterclaims against
Wildenstein. Each of these related to the enforceability of
Wildenstein’s rights under the Agreement. On June 16, 1989, the
Wallis defendants amended their answer and counterclaims,
alleging an additional affirmative defense and an additional
counterclaim.
On February 2, 1990, the Wallis defendants moved for leave to
amend their answer and counterclaims to, inter alia, allege an
affirmative defense based upon the Rule Against Perpetuities and
the common law rule against unreasonable restraints on
alienation. The Wallis defendants simultaneously sought summary
judgment on this defense.
The district court granted this motion for summary judgment in
an opinion and order entered February 13, 1991. Wildenstein
Co. v. Wallis, 756 F.Supp. 158 (S.D.N.Y. 1991). After determining
that New York law applied to this case, the district court
analyzed Wildenstein’s rights under Metropolitan Transport.
Auth. v. Bruken Realty Corp., 67 N.Y.2d 156, 501 N.Y.S.2d 306,
492 N.E.2d 379 (1986). Wildenstein, 756 F.Supp. at 162. The
district court, however, refused to decide whether
Page 636
the Wildenstein-Wallis Agreement was the sort of commercial
transaction exempted from the Rule Against Perpetuities by
Bruken. Id. at 163. Instead, the district court found that
Wildenstein’s rights under the Agreement violated New York’s
common law rule against unreasonable restraints on alienation,
and thus these rights were unenforceable. Id. at 164-65.
Wildenstein appealed to this court, arguing, inter alia, that
under New York law, its rights are not an unreasonable restraint
on alienation. Additionally, Wildenstein argues that the district
court erred in not addressing whether it was entitled to some
relief, regardless of the validity of its rights under the
Agreement, in order to avoid the unjust enrichment of the Wallis
defendants. Nor, Wildenstein contends, did the district court
address whether its claims sounding in fraud and fraudulent
inducement are viable, again, regardless of the validity of the
Agreement.
The Wallis defendants argue in response that the district court
correctly found that Wildenstein’s rights were an unreasonable
restraint on alienation. Moreover, they contend that, regardless
of whether Wildenstein’s rights unreasonably restrain the
alienation of the Wallis Collection, those rights violate the New
York Rule Against Perpetuities. In support, they cite Morrison
v. Piper, 77 N.Y.2d 165, 565 N.Y.S.2d 444, 566 N.E.2d 643
(1990).
Although the New York Court of Appeals has recently decided two
cases concerning the validity of preemptive rights under the Rule
Against Perpetuities — Morrison v. Piper, 77 N.Y.2d 165, 565
N.Y.S.2d 444, 566 N.E.2d 643 (1990); and Metropolitan Transport.
Auth. v. Bruken Realty Corp., 67 N.Y.2d 156, 501 N.Y.S.2d 306,
492 N.E.2d 379 (1986) — neither decision resolves the specific
issues raised by this appeal. Moreover, there is no New York
precedent concerning whether, if the Agreement is invalid,
Wildenstein is nevertheless entitled to relief, e.g., for
unjust enrichment, or whether its allegations concerning fraud
and fraudulent inducement state a claim for relief.
The unsettled questions that should be decided by the New York
Court of Appeals are as follows:
(1) Does the New York Rule Against Perpetuities apply
to preemptive rights and future consignment interests
in personal property?
(2) Does the New York common law rule against
unreasonable restraints on alienation invalidate
preemptive rights and future consignment interests in
personal property?
(3) If either the Rule Against Perpetuities or the
common law rule against unreasonable restraints on
alienation invalidates the preemptive rights and
future consignment interests at issue here, can the
beneficiary of those rights and interests assert a
claim for unjust enrichment stemming from the loss of
such rights and interests?
(4) If either the Rule Against Perpetuities or the
common law rule against unreasonable restraints on
alienation invalidates the preemptive rights and
future consignment interests at issue here, can the
beneficiary of those rights and interests
nevertheless state a claim for fraudulent inducement
and fraud arising from the transaction that gave it
such rights and interests?
These questions should be decided by the New York Court of
Appeals because they involve important and undecided questions
concerning preemptive rights in personal property. There are no
New York Court of Appeals cases directly answering these
questions, and New York has a strong interest in deciding these
questions rather than having potentially erroneous federal
appeals court precedent on point.
The questions herein presented are likely to recur, and their
resolution at this time by the New York Court of Appeals would
aid in the administration of justice.
The foregoing questions are hereby certified to the Court of
Appeals for the State of New York as ordered by the United States
Court of Appeals for the Second Circuit.
Page 637
Dated at New York, New York, this 26th day of November, one
thousand nine hundred and ninety one.
/s/ ELAINE B. GOLDSMITH
Clerk of the United States Court
Of Appeals for the Second Circuit
