Sheung Wan Gallery Ltd. v. Kagan

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SHEUNG WAN GALLERY LTD., Plaintiff, v. MICHAEL KAGAN, Defendant.

MICHAEL KAGAN, Counterclaimant and Crossclaimant, v. SHEUNG WAN GALLERY LTD., Counterclaim Defendant, and OVER THE INFLUENCE INC., Crossclaim Defendant.

No. 23 Civ. 2519 (VM)

United States District Court, S.D. New York

January 18, 2024

DECISION AND ORDER

VICTOR MARRERO, UNITED STATES DISTRICT JUDGE.

This case began as a contract action filed by Plaintiff Sheung Wan Gallery Ltd. (“SWG”) against Defendant Michael Kagan (“Kagan”) on March 24, 2023. (See Dkt. No. 1 [hereinafter the “Complaint” or “Compl.”].) On May 26, 2023, Kagan answered the Complaint and asserted five claims of his own against SWG and Crossclaim Defendant Over the Influence Inc. (See Answer, Counterclaims, and Crossclaims, Dkt. No. 8 [hereinafter the “Answer, Affirmative Defenses, and Counterclaims” or separately as the "Answer,” the “Affirmative Defenses,” and the “Counterclaims”].^[1])

Now before the Court is SWG's and Over the Influence Inc.'s joint motion to dismiss four of Kagan's five Counterclaims. (See Dkt. No. 21.) For the reasons below, the Court DENIES the motion to dismiss.

I. BACKGROUND^[2]

Kagan is a visual artist living in Brooklyn. SWG is a Hong Kong business entity that does business under the name “Over the Influence.” It owns and operates Over the Influence art galleries in Hong Kong, Los Angeles, Bangkok, and Paris. Over the Influence Inc. (“OTI Inc.”) is a Delaware corporation with principal offices in Hong Kong. SWG and OTI Inc. operate in concert as a single business enterprise under common ownership and control, and they represent themselves to the art market and general public as a single entity doing business as “Over the Influence” without regard to any corporate or other distinction between the two entities. The Court will therefore use the term “SWG” to refer to both entities collectively, unless the distinction between the two is relevant.

A. THE REPRESENTATION AGREEMENT

Kagan and SWG signed a contract (the “Representation Agreement” or the “Agreement”) pursuant to which Kagan appointed SWG to serve as his exclusive agent with respect to certain artworks created by Kagan and purchased from him by SWG. The term of the Representation Agreement was two years, beginning July 1, 2019.

The Agreement provided that Kagan would sell SWG 35 artworks per year over the two-year term, in exchange for quarterly payments totaling $1.1 million. The parties further agreed to work together in good faith to produce art prints from Kagan's artworks, with production and shipping costs to be paid by SWG and the proceeds “to be split 65 percent to SWG and 35 percent to [Kagan].” (Counterclaims ¶ 19.)

In the Agreement, SWG promised to use its best efforts to promote and represent Kagan, increase Kagan's worth or market value, and organize shows. SWG also expressly assumed a fiduciary duty to Kagan. Moreover, the parties each agreed to take no action intended or that would reasonably be expected to harm the other party and agreed that the fiduciary relationship and the duty not to harm would survive the termination of the contract for an additional two years.

The Agreement further contains a force majeure clause providing that the parties are not liable for failure to perform resulting from causes outside their control. And a choice-of-law clause provides that the Agreement “and any non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance with Hong Kong law.” (Counterclaims, Ex. A cl. 20.1.)

Kagan and SWG both allege that the other party failed to perform. Kagan admits that despite receipt of payment for 70 artworks, he has provided SWG with only approximately 22 artworks. Kagan alleges that SWG failed to timely pay money due him under the Agreement and that SWG failed to pay vendors it hired in connection with the production of Kagan's artworks, damaging Kagan's reputation.

B. THE CERNAN SCULPTURE EDITIONS

Before the term of the Representation Agreement began, Kagan created a three-dimensional digital model embodying a sculptural work called “Cernan,” in collaboration with nonparty Olo Industries LLC (“Olo”). Pursuant to an agreement between Olo and Kagan with an effective date of May 20, 2019, Olo assigned to Kagan its interests in Cernan, such that Kagan was and is the sole owner of all copyright interests in the work.

Kagan created three derivative sculptural works based on Cernan, titled "Cernan (White),” "Cernan (Blue),” and “Cernan (Black),” and he is the sole owner of all copyright interests in these three works. Kagan and SWG agreed that SWG would produce and release editions of Cernan (White), Cernan (Blue), and Cernan (Black) (together the "Cernan editions”), numbering 100 each and with 20 artist proofs for each, to be fabricated by Olo subject to Kagan's direction and final approval.

On approximately October 8, 2020, Kagan reviewed and approved Olo's proofs of the Cernan editions. These proofs contained no copyright notice. Later the same month, SWG offered the Cernan editions for sale through its online store known as Garey the Third, located at the website gareythethird.com. The Cernan editions sold out within minutes.

SWG promised purchasers of the Cernan editions that the sculptures would be shipped within four to six weeks. But SWG failed to arrange for the production of the Cernan editions for almost one year after the sculptures were sold. Shipping did not start until about 15 months after purchasers were promised delivery. As a result of the delay, Kagan received messages from angry purchasers of the sculptures who had concluded that the offering was fraudulent, allegedly damaging Kagan's reputation. Additionally, SWG failed to pay Kagan for his agreed percentage of the sales - approximately $36,000 - for more than one year after the payment was due.

When the Cernan editions were delivered to purchasers, the sculptures themselves and the boxes in which they were delivered contained the inscription “© 2021 Garey III,” which Olo inscribed at SWG's direction even though only Kagan owned the copyright interest in those works.

C. SWG'S ALLEGED ATTEMPTS TO INTERFERE WITH KAGAN'S PROFESSIONAL RELATIONSHIPS

In or around the spring of 2021, Kagan told SWG that he did not intend to renew the Representation Agreement, the term of which expired on June 30, 2021. Upon learning of Kagan's intention not to renew the Agreement, SWG executives Raphael Geismar (“Geismar”) and Vivien Rousseau repeatedly threatened to block Kagan's sales of his artworks through other art dealers. Shortly before the commencement of this lawsuit, Geismar met with art dealer Adam Lindemann (“Lindemann”) and Lindemann's gallery director. Lindemann's gallery had been planning a major show of Kagan's artworks. At the meeting between Geismar, Lindemann, and the gallery director, Geismar purportedly made disparaging and untrue statements intended to interfere with Lindemann's representation of Kagan and to cause Lindemann to decide not to proceed with the show of Kagan's artworks.

D. PROCEDURAL HISTORY

SWG filed this suit against Kagan on March 24, 2023, bringing a breach of contract claim and an unjust enrichment claim in the alternative. (See Compl. ¶¶ 106-132.) Kagan answered the Complaint on May 26, 2023 and asserted five

Counterclaims against SWG: (1) breach of contract, (2) breach of fiduciary duty, (3) provision of false copyright management information, (4) distribution of false copyright management information, and (5) copyright infringement. (See Counterclaims ¶¶ 53-85.) Kagan brings the same claims against OTI Inc., denominating them crossclaims with respect to that entity. (See id.)^[3] OTI Inc. waived service and appeared, and it and SWG are both represented here by the same law firm. (See Dkt. Nos. 11, 14.)

On July 25, 2023, consistent with the Court's Individual Practices, SWG and OTI Inc. jointly filed a pre-motion letter sent to Kagan and identifying alleged deficiencies in four of Kagan's five Counterclaims that would purportedly supply grounds for a motion to dismiss. (See Dkt. No. 15 [hereinafter the “Motion” or “Mot.”].) On August 1, 2023, Kagan filed a letter sent in response to SWG and in which Kagan advised that he would “maintain all of the counter-crossclaims as pleaded.” (Dkt. No. 16 [hereinafter “Opp.”] at 1.) On August 11, 2023, SWG filed a letter requesting that the Court schedule a pre-motion conference and advising the Court that the parties' letter exchange failed to resolve the dispute and thus avoid the need for motion practice. (See Dkt. No. 17.) SWG's August 11 letter also contained responses to legal arguments made by Kagan in his August 1 letter. (See Id. [hereinafter “Reply”].)

On August 24, 2023, the Court ruled that a pre-motion conference would not be necessary and ordered the parties to advise whether they would consent to the Court deeming the pre-motion letters as a fully briefed motion and ruling on the basis of the letters or whether they would instead request full briefing on the motion to dismiss. (See Dkt. No. 18.) On August 29, 2023, the parties jointly filed a letter advising that they consented to the Court deeming the pre-motion letters as a fully briefed motion and ruling on the basis of the letters. (See Dkt. No. 19.)^[4]

II. LEGAL STANDARD

The Court construes the Motion as made under Federal Rule of Civil Procedure 12(b)(6) (“Rule 12(b) (6)”). To survive such a motion, the relevant Counterclaims must each “contain sufficient factual matter, accepted as true to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This standard...