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Sotheby’s Might Be on Hook for $4 Million for Slip-Up
Court of Appeal Reinstates Action in Which Auction House Allegedly Gave Consigned Diamonds to Thief
By a MetNews Staff Writer
Sotheby’s is facing the prospect of liability for an alleged gaffe in turning over $4 million in diamonds, placed with it for possible auctioning, to an unknown person claiming to be an agent of one of the owners, under a decision of the Court of Appeal for this district handed down yesterday.
The auction house had “escaped” liability by virtue of the sustaining of demurrers to all causes of action put forth by plaintiff M & L Financial, Inc., Justice John Shepard Wiley Jr. of Div. Eight wrote, declaring that Los Angeles Superior Court Judge Mark V. Mooney erred in determining that the plaintiff cannot pursue its claim for breach of contract.
Ownership of 45 vivid yellow diamonds was transferred by Jona Rechnitz—the principal of Jadelle Jewelry and Diamonds in Beverly Hills, who was jeweler to Kim Kardashian and other celebrities—to M&L as security for moneys he owed it. Rechnitz later suggested that M&L have Sotherby’s auction the stones, and toward that end, he and a representative of M&L met with a vice president of Sotheby’s.
It was agreed that Sotheby’s would send the diamonds to its New York office for an appraisal and that an auctioning of them might ensue. A consignment form recited that the owners were “Jadelle Jewelry+M&L Financial.”
Oral Understanding
According to M&L’s pleadings, its representative pointed out that M&L was the sole owner; Rechnitz did not dispute that; Sotheby’s vice president acknowledged his understanding of the fact. Nonetheless, “Jadelle Jewelry+” was not crossed off and the form was signed by M&L’s representative, as well as Rechnitz.
A month later, Sotheby’s released the diamonds to a person claiming to be an agent of Jadelle. The whereabouts of the diamonds is unknown.
Sotheby’s disclaims liability. In its appellate brief, it explained:
“[T]he Consignment Listing unambiguously provided that Jadelle and M&L bailed the diamonds jointly, and Civil Code section 1828 permits a bailee to release jointly bailed property to either co-bailor. As the trial court properly recognized, Sotheby’s could not have breached the Consignment Listing, committed conversion, or been negligent by doing exactly what the parties’ agreement and California law permits it to do.”
Wiley’s Opinion
In his opinion reversing the judgment of dismissal, Wiley said:
“Sotheby’s sole defense rests on Civil Code section 1828, which fails because that law does not apply to this case.
“Section 1828 is an old and little-used provision that has received scant attention in the past century. This section, unamended since its original enactment in 1907, provides as follows, with our emphasis: ‘When a deposit is made in the name of two or more persons, deliverable or payable to either or to their survivor or survivors, such deposit or any part thereof, or increase thereof, may be delivered or paid to either of said persons or to the survivor or survivors in due course of business.’ ”
Addressing Sotheby’s contention that a “deposit” was made in the name of two parties, Jadelle and M&L, the justice said:
“At the demurrer stage, this protest is unavailing. M&L alleged it explained the situation to Sotheby’s, which manifested assent. This allegation controls at this stage.”
Sotheby’s Contention
Sotheby argued in its brief:
“The Consignment Listing unambiguously lists both Jadelle and M&L as ‘Consignor.’…By signing the Consignment Listing, M&L agreed to be bound by its terms and conditions, including the term setting forth the names of the joint consignors…. Because the Consignment Listing includes both M&L and Jadelle as consignors, M&L is foreclosed from alleging or arguing otherwise.”
Wiley responded by quoting Chief Justice Roger Traynor as saying in his 1968 opinion in Pacific Gas & Electric Co. v. G. W. Thomas Drayage Rigging Company, Inc. that extrinsic evidence may be admitted in a contract case “to explain the meaning of a written instrument.” The test, Traynor wrote, “is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.”
Test Satisfied
Wiley reasoned said the oral pronouncement by M&L’s representative that M&L was the sole owner and the acknowledgement of an understanding of that by Sotheby’s vice president “satisfies this test” because the conversation “is relevant to prove a meaning,” explaining:
“The language of Sotheby’s form is reasonably susceptible of the meaning that the diamonds belonged only to M&L and, if released, were to be returned only to M&L.”
When the vice president filled in the names of both Jadelle and M&L in the space for “Consignor Name,” Wiley said, an ambiguity was created. He said:
“What were the respective rights and duties of Jadelle versus M&L? The form did not illuminate that question. M&L’s oral statement did. Under Thomas Drayage, this allegation of an oral statement was relevant and proper.”
While stating that there was an “ambiguity,” the opinion does not point to anything in the agreement supporting an impression that M&L was actually the sole consignor.
Wiley agreed with Mooney that no cause of action exists for negligence given that the dispute is based on contract.
The case is M & L Financial v. Sotheby’s, Inc., B312816.
Attorneys on appeal were Michael R. Williams and Nancy J. Sandoval of the San Clemente firm of Bienert Katzman Littrell Williams, for M&L, and Todd E. Lundell, Adam F. Streisand, Bryan M. Wittlin and Meghan K. McCormick of offices of Sheppard, Mullin, Richter & Hampton, for Sotheby’s.
Rechnitz was sentenced in the U.S. District Court for the Southern District of New York on Dec. 20, 2019, to 10 months of confinement—with half of that time in home detention—for conspiracy to commit wire fraud and was ordered to pay restitution in the amount of $19 million. Jadelle has gone into bankruptcy.
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