## Facts

- Jane C. Koven consigned to Christie’s a pastel attributed to Georges Braque under a written consignment agreement.
- Christie’s examined the work before sale and concluded it was authentic.
- Christie’s sold the work at auction to Barbaralee Diamonstein for $600,000 and remitted the net proceeds to Koven.
- After the sale, Diamonstein questioned authenticity; Christie’s sought additional views, including from a recognized Braque authority, who refused to certify authenticity.
- The consignment agreement permitted Christie’s to rescind a sale if, in its sole judgment, the sale might subject Christie’s to liability, including under its authenticity guarantee.
- Christie’s rescinded the sale, refunded the buyer, and demanded that Koven return the sale proceeds; Koven refused.
- Christie’s sought coverage under its errors-and-omissions insurance; Underwriters reimbursed Christie’s and sued Koven as subrogees to recover the refunded amount.
- Koven filed third-party claims against Christie’s and the buyer, asserting (among other theories) breach of fiduciary duty and breach of contract based on Christie’s investigation and rescission.
- After an earlier denial of summary judgment, Christie’s moved for reconsideration and renewed summary judgment; the Underwriters also sought summary judgment on subrogation.

## Issues

1. Whether Christie’s breached fiduciary duties owed to its consignor by investigating authenticity concerns post-sale and rescinding the auction sale.
2. Whether the consignment agreement authorized Christie’s to rescind based on its “sole judgment,” and what standard (good faith vs. objective reasonableness) governed that discretion.
3. Whether, given Christie’s contractual authority and conduct, the Underwriters as subrogees could recover from Koven the proceeds she retained after rescission.

## Decision

- The court granted reconsideration and entered summary judgment for Christie’s on Koven’s third-party claims.
- The court held Christie’s did not breach fiduciary duty or the consignment agreement by investigating authenticity and rescinding the sale.
- The court held the “sole judgment” rescission clause was enforceable and constrained by good faith, not an objective reasonableness test.
- The court found no evidence Christie’s acted in bad faith, arbitrarily, or capriciously in rescinding after authenticity doubts intensified.
- The court granted summary judgment for the Underwriters on their subrogation claim against Koven to recover the amount paid due to rescission.

## Legal Principles

- An agent’s fiduciary obligations may be defined and limited by the parties’ contract; contractually authorized conduct is not disloyal if performed within the agreement’s bounds.
- A contractual clause granting an agent discretion in its “sole judgment” is reviewable for good faith; it does not permit arbitrary, capricious, or bad-faith action.
- When a principal consents by contract to an agent’s protective self-interest (e.g., avoiding liability tied to guarantees), the agent may act on that consent even if the result harms the principal’s immediate financial position.
- Subrogated insurers may assert the insured’s rights to recoup funds where the insured’s payment and demand for reimbursement were contractually justified.

## Conclusion

The court held that Christie’s permissibly rescinded the auction sale under a consignment agreement giving it discretion to avoid potential liability, because it acted in good faith and within the contract; accordingly, Koven’s fiduciary-duty and contract claims failed, and the Underwriters, as Christie’s subrogees, were entitled to recover the refunded sale proceeds from Koven.


Greenwood v. Koven, 880 F. Supp. 186 (S.D.N.Y. 1995)