320 F. Supp. 1080 | D.C. Cir. | 1970
MEMORANDUM OPINION
Litigation in this Court entitled “In re Estate of Morris Louis Bernstein, Louis Bernstein, Petitioner, v. Marcella Bernstein, Respondent, Administration No. 107514,” was settled and dismissed “with prejudice” by a Consent Order entered October 8, 1964. The present action asks the Court to “rescind, set aside and render invalid” this final settlement. Testimony was taken on rescission commencing September 15, 1970, following extensive pretrial discovery. Numerous exhibits were received, and the record contains a stipulation of some undisputed facts. The issues in this essentially fact case have been fully briefed and argued. This Memorandum Opinion supplements Findings of Fact filed this date and contains the Court’s Conelusions of Law upholding the settlement and awarding defendant costs.
The issue in the prior probate litigation concerned title to numerous paintings created by a deceased artist, Morris Louis Bernstein, who had died intestate without children. Defendant Marcella Bernstein Brenner (administratrix and hence respondent in the administration proceeding) was the artist’s widow. She had asserted title to the paintings by survivorship and excluded them from the estate account. Plaintiff Louis Bernstein, who filed the petition commencing the contest in the administration proceeding, was the artist’s father. He died August 9, 1969, after the settlement, and one of his sons, Aaron (the father’s executor), has been substituted as plaintiff in the present rescission action.
Throughout the administration proceeding, including all settlement negotiations, both parties were represented by experienced members of the District of Columbia Bar: James A. Earnest for the plaintiff, and I. S. Weissbrodt for the defendant. After substantial pretrial litigation and shortly before trial, counsel negotiated a settlement that was then agreed to by their clients. Defendant paid plaintiff $50,000 in cash. Plaintiff executed a notarized release discharging defendant of “any and all manner of actions * * * [and] claims * * * both at law and in equity * * * by reason or means of any matter or thing from the beginning of the world to the day of the date of these presents.” (Defendant’s Exhibit 3.) Plaintiff’s three adult sons, who had actively participated in the litigation, also agreed to the settlement and each executed a similar release. (Findings 67, 68, 69.) This suit to undo that settlement was commenced more than two years later, on December 16,1966.
Morris Louis
Morris Louis’ output was prolific. There were approximately 577 canvasses rolled up and unsold mainly in the basement of his home at the time of his death. The size, quality, color and theme of these paintings varied markedly. Some canvasses when eventually stretched — the so-called giants — covered an entire wall (as much as 11 to 17 feet in one direction), and there were literally hundreds of these huge paintings. Others were smaller, presenting vertical or horizontal stripes, veils, elongated globules or splashes of color. Some canvasses were bright, some brown and dark. Some were clearly defined, others appeared worked over and more uncertain. The group included some paintings that Morris Louis himself had directed be destroyed, and many others that the dealers and critics most favorable to his work considered and continue to consider totally unsalable and unworthy of the painter’s true talent. There were, of course, also a relatively small number of paintings that had particular aesthetic appeal for those who had an informed taste for modern art, and these proved highly salable once his best works gradually came to be in vogue after his death.
Obviously this type of collection raised difficult questions of valuation. Andre Emmerich of the Emmerich Galleries in New York, an early believer in Morris Louis and his agent for the United States before and after his death, made an appraisal of $164,000 at time of death. Emmerich reasoned that given the lack of substantial public interest in the painter, the difficult problems presented by the size and advanced taste of the paintings and wide variations in quality, the collection would bring the most if sold as a unit to a single buyer or syndicate. His valuation on this basis was accepted by the Internal Revenue Service. (Finding 37.)
The painter’s widow was primarily interested in establishing her husband’s reputation and acceptance as a painter and felt no immediate financial or other compulsion to flood the market with paintings following death by either a single sale of the collection or by numerous individual sales. She obviously needed advice and technical assistance and turned to obvious sources: Greenberg, an experienced modern art critic; art dealers Emmerich and the Rubins, who had each purchased some of Morris Louis’ paintings and had an early appreciation of his competence as well as knowledge of the United States and foreign markets; and Weissbrodt, her lawyer. After careful study, this group decided that only some stripes of better quality had any apparent immediate market and some of these paintings were selectively offered and promoted by a posthumous show at the Emmerich Gallery. After examining some 300 giants, an effort was also made to use a selected few, again the very best, to interest prestige shows such as the Guggenheim and the Venice Biennale. Gradually some stripes and an occasional giant began to sell, often on consignment, at improved prices. This careful, slow and technically difficult process went forward, aided by significant fa
The suit that led to the settlement here under attack was brought on April 2, 1964, many months after Morris Louis’ death. The father and brothers, all of whom lived in Florida, knew little about the aesthetic or commercial aspects of modern art. They had not been in close contact with the painter’s creative work during his lifetime. Perhaps, in belief that the paintings were virtually worthless, they at first accepted the widow’s accounting, which did not list the paintings as an asset of the estate although they knew of their existence. However, rumors as to amounts received or being asked for particular paintings, and a sense that Morris Louis was apparently “catching on,” ultimately sparked their interest in asserting the caveat against the administration. It is now suggested the Bernsteins were unsophisticated, uninformed relatives, easily misled. The documents and impressions gained at the trial do not bear this out. The testimony and numerous letters written by the Bernsteins show their financial astuteness, an ability to appreciate relevant facts, close attention to details and keen acquisitiveness.
Prior to settlement, plaintiff and his sons had information and rumors leading them to believe, among other things, that the paintings might have a value of as much as $1,500,000 if sold over a long term; that current asking prices were in the range of $10,000 to $12,000 a painting; that sales were going pretty well both in the United States and abroad, where a group had been sold for $30,000; that Morris Louis had become a nationally known artist whose works were being catalogued by the renowned art critic Greenberg and handled by the Emmerich Gallery in the United States and by the Rubins abroad; that there had been numerous magazine articles about Louis’ talents and various exhibitions; that there had been a memorial exhibition at the Guggenheim Museum; that Louis’ income had supposedly skyrocketed before his death; and so forth. (Findings 11, 12, 15, 18-20, 29, 41 and 42.) Advice given by Earnest, who wrote careful, detailed letters covering all significant developments, were cheeked by other lawyers and accountants for the Bernsteins in Florida. They were given access to masses of data, including tax returns, appraisals and correspondence, all pursuant to a broad duces tecum subpoena in aid of discovery served on the widow and Weissbrodt prior to settlement. (Finding 41.)
If rescission is to be had there must be sufficient proof of misrepresentation and fraud or some breach of fiduciary duty shown. While the complaint in this matter has been amended on a number of occasions, the principal ground for the claim of rescission originally rested upon alleged misrepresentations claimed to be fraudulently made by Weissbrodt in his dealings with Earnest. These . alleged misrepresentations concerned the value of the paintings which were the subject of the administrative proceeding. It is unnecessary to discuss misrepresentation in detail, for during trial these claims ultimately focused on a single letter, written by Weissbrodt on October 5, 1964, in response to Earnest’s letter of September 30. Both these letters are annexed to the Stipulation of Facts. In his letter of October 5, Weissbrodt stated that while he did “not agree with the statements and assumptions” made by Earnest in reaching an estimate of $350,000 as the net value of the paintings, he was “willing as a premise for settlement purposes to entertain” that figure. Plaintiff contends that this statement was fraudulent in that Weissbrodt knew the $350,000 figure to be well below the actual value of the paintings, yet led Earnest to believe that the figure was a fair estimate. The Court is unable to accept this contention, for it is contrary to the facts and contradicted by common experience.
Here were two competent, knowledgeable, wary lawyers seeking to arrive at
Plaintiff treats the question of the value of the paintings as though value were a fact known to Weissbrodt at all times and ascertainable by the simple mathematical process of multiplying the average price received for paintings already sold against the total number of unsold paintings at the time of death. This, of course, is a faulty assumption. The value of the paintings sold related only remotely to the value of the collection as a whole. By constant review and re-examination and a highly selective process, certain paintings had been placed in the market and for exhibition because of their unusually high artistic merit. The remaining paintings were inherently less valuable, many of them were totally unsalable and indeed others had been marked for destruction by the artist. All concerned recognized that to maximize the value of the collection, sales would have to occur over a long period, perhaps ten to fifteen years. Weissbrodt did, in a speculative way, indicate at an early stage of the administration suit that if the paintings continued to be carefully sold over many years and public taste did not change in the meantime the paintings might be worth $1,000,000. He stated this not as fact but as opinion. There is no indication whatsoever that he had any reason to believe at the time he gave this information or up until settlement that his statement was not wholly accurate as an opinion. He never modified or withdrew this and substantially less than this figure had been received from sale of the best paintings prior to settlement. This was not, therefore, a “statement of an opinion not actually held, or the reckless statement of an opinion by one with special knowledge” found to constitute fraud in Gsell v. Adams, 316 F.Supp. 394, 400 (D.Or.1969).
The claim of misrepresentation here is doubly defective because it is, of course, essential to rescission not only that substantial misrepresentation be shown, but that the proof establish that the representations were relied on by the party seeking rescission. Plaintiff noticed the deposition of the father, Louis Bernstein, which was taken in the present case before his death. The deposition, signed by Louis Bernstein, is in evidence. From this, transcript it appears, contrary to the present contentions of his sons, that he relied primarily on the Emmerich valuation in making the settlement and this valuation of $164,000 as of the time of death remains unimpeached and indeed is not seriously
As the case progressed, and perhaps in recognition of the insubstantial nature of the fraud and misrepresentation claims, plaintiff increasingly placed his primary reliance on a different theory. Plaintiff contends that under probate law the administratrix was obligated to make full disclosure of information in her possession concerning the prices being obtained for paintings sold during the period between the artist’s death and settlement, or, at the very least, the aggregate amount received by the widow for the total number of paintings sold. It is urged that Weissbrodt, as attorney for the administratrix, was under a similar duty to disclose, and that the failure of either the administratrix or her attorney to reveal this information in the face of indications that Earnest, as the representative of Louis Bernstein, may well have been somewhat undervaluing the paintings, requires a court of equity to set the settlement aside.
There are a number of reasons, both factual and legal, why this contention must also fail. Throughout the negotiations plaintiff was well aware that Weissbrodt represented the administratrix in both her probate and individual capacity and that the widow had not included the paintings in the estate, firmly claiming title in herself by right of survivorship. Early in the litigation that preceded the settlement, Earnest, on behalf of the plaintiff, sought to obtain precise information concerning the price at which each painting had been sold or would be sold in the future. After full hearing before the United States District Court and pending review by the United States Court of Appeals, Weissbrodt was successful in obtaining a consent order which did not require disclosure of prices being paid for paintings. Defendant was acting in the interests of all concerned in seeking to conserve and enhance the value of the paintings. In an affidavit filed in May 1964 in the probate proceeding, Mr. Emmerich stated as follows:
Because of the extreme delicacy which permeates the market in the early period of distribution of the work of an artist who has recently achieved recognition * * * art dealers maintain great confidentiality with respect to all aspects of the sale of paintings. Prices are not disclosed, the number of paintings available for sale is not disclosed, and frequently, the names of purchasers are not disclosed even to the artist. These are the established trade customs in the art business. (Plaintiff’s Exhibit 2, p. 4) (Emphasis added).
As Earnest himself came to recognize, public disclosure of sales prices would seriously depress future sales of the paintings.
Plaintiff argues that, even if no duty to disclose existed while the issue of ownership was being litigated, a duty did arise when settlement negotiations began, since defendant was then negotiating for the purchase of Louis Bernstein’s interest in the estate. The flaw in this argument is that defendant was purchasing not an interest in the estate, but an end to a lawsuit in which title to the paintings was still hotly contested and in which many variables besides value of the paintings had to be considered. Detailed findings (see Findings 46, 49, 50, 51, 56, 58, 61, 62) present these other factors and they need only be briefly mentioned here.
The Court has analyzed the authorities cited and is unable to find any decision or any canon of ethics which placed upon the administratrix or Weissbrodt an obligation to advise the plaintiff prior to settlement of amounts obtained from sales of individual paintings or any .authoritative valuation of the paintings, even if there was one, which could have been passed on. The question of value was always speculative and remains speculative today. All of the parties were aware of this and there is no rule of law which necessitated any disclosure beyond that which was made. Plaintiff’s best case is Estate of Albright, 309 N.Y. 126, 127 N.E.2d 910 (1955), but that case does not stand for the proposition for which it is advanced. There the party seeking rescission of the settlement was entitled to share in what was acknowledged to be the property of the estate, if she could establish that she was the bona fide widow; the New York Court of Appeals decided only that the claim of rescission could be heard and determined prior to trial on the merits of her claim against the estate.
The settlement in this instance was made by experienced attorneys and the courts have long recognized that arm’s length disposition of litigation, particularly settlements made through counsel by sophisticated litigants, cannot lightly be set aside merely because subsequent developments may indicate that the bargain made proved more beneficial to one party than the other. It is not unusual in a rescission action for those seeking reopening of a settlement to rationalize objections and even to distort facts. This is such a case. Many of the positions now taken by the plaintiff's son Aaron cannot be said to be credible in the light of the documentary evidence and what the Court finds to be the wholly credible testimony of Weissbrodt. The two key individuals involved on plaintiff’s side in the settlement, Louis Bernstein and his lawyer Earnest, are dead, thus illustrating the particular difficulties presented in an attempt to reopen a negotiated arm’s length settlement under the impetus of hindsight and post-settlement rationalizations. The Court has entered judgment on behalf of the defendant and wholly exonerates Weissbrodt from the various shifting attacks on his integrity.
The Court considers this a completely unfounded suit and has concluded in its discretion that this is an appropriate case in which to award defendant attorneys’ fees as well as certain out-of-pocket costs. The Court is well aware of the general rule that attorneys’ fees will not be awarded as costs except in extraordinary cases. The reasons for this rule are fully discussed by the Supreme Court in Fleischman Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 717-718, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967). This, however, is an extraordinary case.
From the beginning of this lawsuit, the allegations of fraud were unsupported by any evidence except a conviction
There are other factors to be considered. The defendant was not deposed, called as a witness nor shown to have given Weissbrodt any directions or instructions. Rather, she is depicted on this record as one who, confronted with lawsuits by her husband’s relatives, placed her confidence in a recognized member of the bar and proceeded thereafter as he in his professional judgment suggested. In short, she did nothing but seek and follow legal advice. For having done this and defended an unfounded suit she faces substantial legal fees well above the amount she paid to settle the original litigation. On the other hand, the plaintiff has only some out-of-pocket expenses. This shocks the conscience, given the nature of the suit.
There is ample authority for the award of counsel fees in equity cases such as this. In Sprague v. Ticonic National Bank, 307 U.S. 161, 164, 59 S.Ct. 777, 779, 83 L.Ed. 1184 (1939), the Supreme Court stated: “Allowance of [counsel fees and other expenses not included in ordinary taxable costs] in appropriate situations is part of the historic equity jurisdiction of the federal courts.” See also Gazan v. Vadsco Sales Corp., 6 F.Supp. 568 (E.D.N.Y.1934):
This court in an equity action has inherent power to grant an additional allowance of costs as between client and solicitor. Such costs may be awarded where fraud and misconduct have been charged, and not sustained when the suit was brought without any basis and was vexatious and oppressive.
In Cleveland v. Second National Bank & Trust Co., 149 F.2d 466 (6th Cir. 1945), cert. denied, 326 U.S. 775, 66 S.Ct. 231, 90 L.Ed. 468 (1945), appellant had charged the trustee of an estate with fraud, a charge which the court had determined to be “utterly unfounded.” Substantial counsel fees were allowed the trustee as costs. In affirming this award, the Sixth Circuit noted: “It is common experience that charges of mismanagement and fraud against fiduciaries will speedily blast the best reputations, and it is also common experience that once destroyed they may not easily be restored.” 149 F.2d 466, 470. The same might be said for charges of fraud and breach of fiduciary obligation against an attorney.
Defendant was ably and conscientiously represented by highly competent counsel. Their normal time charges for some 3,388 hours logged total $154,006, but they acknowledge that they will be forced to reduce this amount in any actual billing. It is difficult to set an hourly rate for attorneys who handled different phases of the case. A bare minimum charge for this time in the aggregate is $30 per hour, a figure well below the firm’s normal time charges and one which experience suggests in
A final question is whether attorneys’ fees should be assessed against the estate, against Aaron Bernstein individually and as executor of the estate, or against all three Bernstein brothers. The estate has no assets, and can meet only $5,000 covered by the cost bond. The money received in the 1964 settlement was transferred by Louis Bernstein to his sons by gift prior to his death well before this case came to trial. Aaron Bernstein, as executor of his father’s estate, was thereafter substituted as plaintiff, and he with support from his brothers kept the suit alive solely for their own benefit. In this effort Aaron Bernstein took the prime responsibility. Without his acquiescence the suit could not have gone forward. Nathan Bernstein was somewhat active and testified at trial, while Joseph apparently took only a limited role. Nathan and Joseph are not parties to the suit, are not before the Court, and costs will not be assessed against them.
An executor of an estate may in certain circumstances be held personally liable for the costs of a lawsuit prosecuted by him in his representative capacity. In re Butler, 20 F.Supp. 995 (W.D.Va.1934), states the general rule to be that
executors and administrators are not personally liable for costs of litigation conducted by them in good faith, as to transactions arising during the lifetime of their decedent, but may be so held liable where they act in an imprudent or ill-advised manner in conducting such litigation; * * *
20 F.Supp. at 999. In accord with this decision are Singer v. Singer, 196 S.W.2d 938 (Tex.Civ.App.1946); Page v. Cave, 94 Vt. 306, 111 A. 398 (1920); and Lynch v. Webster, 17 R.I. 513, 23 A. 27 (1891). It is thus both just and proper that the major burden of this lawsuit should fall upon Aaron Bernstein. The full amount of costs will be assessed against him both individually and as executor.
Only the following out-of-pocket costs will be allowed defendant, i. e., all amounts paid for one copy of any deposition or trial transcript; filing fees; witness fees; $800 for Florida counsel; and any transportation expenses ineurz-ed in attending out-of-town depositions noticed by plaintiff. Out-of-pocket costs totaling $12,477.12 are claimed. These are not itemized in sufficient detail but counsel can promptly determine the amount to be awarded in the light of the foregoing. Only costs of the type indicated above up to the face amount of the bond will be allowed for out-of-pocket costs. This amount should be promptly negotiated between counsel and incorpoz’ated in an order granting judgment for defendant on the merits, for attorneys’ fees in the amount of $81,310, and for out-of-pocket costs computed as herein set forth. The $50,000 rescission bond shall stand and not be released until final order in this case following whatever appeal, if any, is taken.
Morris Louis Bernstein’s professional name, by which he will hereafter be referred.