LOS ANGELES (Legal Newsline) - Sotheby’s Inc. might be liable for handing $4 million in diamonds to a man who promptly disappeared, a California appeals court ruled, reversing a trial judge’s decision dismissing the case.
The famous auction house took possession of “45 vivid yellow diamonds” in 2019 under a consignment contract with M&L Financial. M&L said it had received the jewels as collateral for a loan to Jona Rechnitz, a onetime associate of former New York Mayor Bill DeBlasio who also claimed to have been a jeweler to the Kardashians.
Sotheby’s executive Quig Bruning drew up the contract naming M&L and “Jadelle Jewelry” – Rechnitz’s company -- as the consignors, despite the fact the contract allowed for only one party to sign. M&L said it told Bruning that was a mistake and he “did not disagree,” yet M&L signed the contract with both names and handed over the diamonds.
Later in 2019, Bruning told M&L Sotheby’s had given the diamonds to a man mnamed Levin Prado, who said he was picking them up for Rechnitz. Sotheby’s had no records about the release and M&L never recovered them.
M&L sued Sotheby’s, claiming Bruning was a friend of Rechnitz and the auction house had breached the contract and negligently caused the loss of its property.
The trial court, without explanation, sustained Sotheby’s demurrer, or motion to dismiss the contract claims and ultimately dismissed a negligence claim, ruling that M&L’s tort claim was actually a contract dispute.
M&L appealed and California’s Second Appellate Division Court, Division Eight, in a July 14 decision, reversed on the contract claim, saying “the essence of this consignment contract was simple.” M&L gave the diamonds to Bruning under the assumption Sotheby’s would appraise them and possibly put them up for auction, the court said.
“Sotheby’s breached this agreement by giving the diamonds to stranger Prado without M&L’s permission,” the appeals court ruled. “This breach cost M&L the value of the lost diamonds.”
Sotheby’s defended itself by citing Section 1828 of the Civil Code, a 1907 provision that a deposit made in the name of two or more people may be delivered to either of them. The appeals court described this as “an old and little-used provision that has received scant attention in the past century.”
Sotheby’s argued the court shouldn’t consider the evidence that M&L had corrected Bruning about who owned the diamonds and rely instead on the contract. But the appeals court said California law requires courts to look at outside evidence when it is relevant. In this case, the appeals court said, the contract allowed for only one consignor but Bruning had inserted two names, creating enough ambiguity to consider the oral agreement M&L claims.
“In sum, Sotheby’s form did not state the whole deal,” the court ruled.
The trial court was correct to dismiss the negligence claim, the appeals court went on, since the economic loss rule applies. That rule prevents plaintiffs from recovering “purely economic losses” stemming from a breach of contract.