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Hoffman v. L & M Arts Health System, Inc.

United States Court of Appeals, Fifth Circuit
838 F.3d 568 (2016)


Marguerite Hoffman (plaintiff) owned a valuable painting, referred to as the Red Rothko, that she wanted to sell. However, for a variety of reasons, news of the sale could hurt Hoffman’s reputation. Accordingly, Hoffman wished to sell the painting in a secret, private sale. Hoffman engaged L & M Arts Health System, Inc. (L&M) (defendant) to help sell the painting on these terms. L&M found a buyer, David Martinez (defendant). The parties ultimately entered a sale agreement for $17.6 million, with a confidentiality clause in the agreement. Several years later, Martinez decided to sell the Red Rothko. Hoffman offered to buy back the painting, but Martinez declined her offer. Instead, Martinez sold the Red Rothko at a very public auction for approximately $31 million. Hoffman sued Martinez and L&M in Texas state court for breaching the confidentiality clause in the original sale contract, and the defendants removed the case to federal district court. The parties disputed the meaning of the confidentiality clause, with the existence of a breach turning on the interpretation. The district court found that there was a breach, and a jury awarded Hoffman the difference between the amount that Hoffman would have received for a public sale (without any confidentiality) and the $17.6 million that Hoffman received for the private sale (with the confidentiality clause). The defendants appealed both the breach finding and the validity of the measurement of damages. On appeal, Hoffman sought either affirmation of the current award or else restitution damages in the form of Martinez disgorging the amount he was enriched by the public-auction sale in violation of the confidentiality clause.

Rule of Law


Holding and Reasoning (Elrod, J.)

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