Jackson Walker’s “Red Rothko” Victory Affirmed by the Fifth Circuit

October 6, 2016 | Client Results

Jackson Walker, representing Martinez and Studio Capital, scored a recent victory over the attempted “hush-hush” sale by Marguerite Hoffman of Mark Rothko’s 1961 painting known as the Red Rothko.

The case rings a cautionary bell for those who wish to maintain secrecy in the sophisticated art market. Jackson Walker serves as local counsel to many firms with clients suing and being sued in Texas. With the right legal team in place, the case also demonstrates that a high-profile sophisticated business client from outside Texas can get a fair trial from a Texas jury.

In 2007, after the death of her husband, Robert K. Hoffman, co-founder of the National Lampoon magazine and soft-drinks bottling magnate, Marguerite Hoffman sought to discreetly arrange a sale of the painting which was conditionally pledged, and at the time on loan to, the Dallas Museum of Art. Ms. Hoffman testified that keeping the sale private protected her both from a public reaction to her decision to sell the work rather than donating it to the museum and from any talk of financial necessity that might be driving the sale. The painting was sold for $17.6 million, the second highest price ever paid for a Rothko at that time, under the terms of a Letter Agreement with L&M Arts. L&M Arts then worked out a separate agreement with David Martinez who bought the painting for Studio Capital Inc. The one-page Letter Agreement, drafted by the art dealers, stated that all parties would “make maximum effort to keep all aspects of this transaction confidential indefinitely” and that the work would not be displayed for at least six months. Three years later, Studio Capital sold the painting at a Sotheby’s auction for $31.4 million. The Wall Street Journal reported in 2013 that the auction catalog revealed no details of the transaction and did not name the prior owner. Hoffman alleged during trial that the catalogue left no doubt as to Ms. Hoffman’s previous sale of the painting.

Ms. Hoffman filed a case in Texas state court, which was removed to federal court, alleging breach of contract claims against Martinez, Studio Capital, and L&M Arts and seeking damages in the range of $22-$40 million for the lost value of selling the Rothko privately. Jackson Walker partner Gordon Shapiro served as lead trial counsel in the week long jury trial, assisted by Kurt Schwarz, for defendants Martinez and Studio Capital.

Working closely with co-counsel Cleary Gottlieb Steen & Hamilton, LLP of New York who also actively participated in the jury trial, Jackson Walker secured a complete victory for its clients at the trial level when Chief Judge Sidney A. Fitzwater granted Martinez and Studio Capital judgment as a matter of law and dismissed with prejudice all claims against David Martinez and Studio Capital Inc. Chief Judge Fitzwater later signed a take-nothing amended judgment and assessed costs against the plaintiff.

On September 28, 2016, the Fifth Circuit affirmed the trial court’s finding regarding the claims against Martinez and Studio Capital. Focusing on the display restriction, the Fifth Circuit reasoned that the “possibility of the new owner’s displaying the Red Rothko once six months had passed indicates that the parties did not intend that maximum efforts be undertaken to keep the fact of the 2007 sale confidential indefinitely.” The Fifth Circuit also vacated the district court’s judgment of some damages against L&M Arts. The result of the appeal is that the Ms. Hoffman receives no damages because there was no breach of the Agreement.

“We are very pleased that the Fifth Circuit saw what Martinez and Studio Capital have said from the beginning six years ago, there was never a breach of contract,” Jonathan Blackman of Cleary Gottlieb Steen & Hamilton LLP, an attorney for Martinez and Studio Capital, told Law360.

“Though it’s taken awhile, the right decision was made,”  Shapiro said. “It was a pleasure and honor to work again with the Cleary trial team. They always bring a lot of expertise to any matter.”

“Integrity is the most essential personal trait in a transaction,” said Shapiro, discussing the merits. “This lawsuit should never have been filed. David Martinez fulfilled every requirement requested in the sale, even some requests that were highly unusual.”

The case received a great deal of press coverage, including the following:

10/12/16 – Artsy.net: Court Ruling in Rothko Case Shows Limits of Art-World Secrecy
9/29/16 – Law360: 5th Circ. Trims Rothko Painting Ex-Owner’s Contract Row
9/10/15 – artnet News: Judge’s Surprise Decision Lets Rothko Flipper Off the Hook
2/4/15 – Center for Art Law: Case Review: Red Rothko Suit, a.k.a. Hoffman v. L&M Arts (TX)
9/16/14 – Barnebys.com: Dallas Art Patron Loses Lawsuit but Receives $500.000 in Damages
9/8/14 – D Magazine: Billionaire Bites Back: Judge All But Tosses Dallas Art Collector’s Lawsuit
9/5/14 – Dallas Morning News: Judge issues ‘major blow’ to Marguerite Hoffman, absolving international financier from having to pay her
3/11/14 – New York magazine: The Gavel Drops at Sotheby’s
2/23/13 – KERA News: Jury Awards Dallas Art Collector $500,000 In Fight Over Rothko Painting
12/10/13 – D Magazine: Red-Faced Squabble Over Secretive Rothko Sale Heads to Dallas Courtroom
12/9/13 – Dallas Morning News: Trial involving Rothko painting once owned by Marguerite Hoffman begins Tuesday
12/8/13 – The Wall Street Journal: Courtroom Brawl Begins in Dallas Over Secrecy of a Rothko Sale

Meet Our Team

Gordon Shapiro, a partner in our Dallas office, has more than 36 years’ experience as lead counsel in jury trials, bench trials, and arbitration actions for clients in several different industries.

Kurt Schwarz, a partner in our Dallas office, handles complex commercial litigation matters before state and federal court, as well as all appellate courts at both the state and national level.

To read more about the ruling, view “Court Ruling in Rothko Case Shows Limits of Art-World Secrecy.”

In This Story

Gordon M. Shapiro
Partner, Dallas