Filed 7/14/22

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

M & L FINANCIAL, INC.,

Plaintiff and Appellant,

v.

SOTHEBY’S, INC.,

Defendant and Respondent.

 B312816

 Los Angeles County

 Super. Ct. No. 20STCV12144

APPEAL from a judgment of the Superior Court of 

Los Angeles County, Mark V. Mooney, Judge. Affirmed in part, 

reversed in part, and remanded with directions.

Bienert Katzman Littrell Williams, Michael R. Williams 

and Nancy J. Sandoval for Plaintiff and Appellant.

Sheppard, Mullin, Richter & Hampton, Todd E. Lundell, 

Adam F. Streisand, Bryan M. Wittlin and Meghan K. McCormick 

for Defendant and Respondent.

____________________
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M & L Financial, Inc. (M&L) took 45 vivid yellow diamonds 

worth $4 million to Sotheby’s for auction on consignment. M&L 

told Sotheby’s it was the exclusive owner of the diamonds, but 

Sotheby’s later released them to a stranger without telling M&L. 

The diamonds vanished. M&L sued Sotheby’s, which escaped on 

demurrer. We reverse a breach of contract ruling, affirm a tort 

ruling, and remand. Statutory citations are to the Civil Code.

We independently review demurrer rulings, taking the 

complaint’s allegations as true. 

Leon Landver is the principal of M&L. We call the two 

M&L. 

A man named Jona Rechnitz owed M&L “substantial” 

sums. As security for his debt, Rechnitz transferred ownership of 

45 vivid yellow diamonds to M&L on the understanding Rechnitz 

could repurchase them at a fixed price. 

Then Rechnitz had another idea: he proposed M&L list the 

diamonds with Sotheby’s, an auction house. M&L had never 

dealt with Sotheby’s, but Rechnitz said he had a long-standing 

relationship with an executive there named Quig Bruning. M&L 

did not know, but later learned, Bruning and Rechnitz were 

friends. Rechnitz had flown Bruning to Las Vegas in a private jet 

and had given Bruning valuable tickets to a sporting event. 

Rechnitz proposed to introduce M&L to Bruning. 

M&L, Bruning, and Rechnitz met in April 2019 at 

Sotheby’s Los Angeles office. M&L brought the diamonds to the 

meeting, and that was the last it saw of them.

Bruning explained the first step in the auction process was 

for him to send the diamonds to Sotheby’s New York office for 

appraisal. Depending on the results, Sotheby’s would decide 
3

whether to propose terms for the sale. M&L agreed to proceed as 

Bruning suggested. 

Bruning began to fill out a printed form with many blank 

lines. The form was entitled “Sotheby’s Consignment Listing.” 

The front of the one-page form had empty spaces for a name, 

contact information, items, estimated value, and so forth. 

On the back of the form was Sotheby’s New York address 

and paragraphs of fine print titled “Conditions of Receipt.” The 

fine print did not include an integration clause. It did include, 

however, a paragraph 7, which momentarily will assume 

importance because it states and indeed insists that the form is 

not the sum of the agreement: “If any of the terms of the 

consignment agreement between you and Sotheby’s conflict with 

any of the terms herein, the terms of the consignment agreement 

shall prevail. No property will be offered for sale absent receipt 

by Sotheby’s of a signed consignment agreement.” 

On the front of the “Sotheby’s Consignment Listing” form is 

a space labeled “Consignor Name.” The word “Name” is in the 

singular. No space exists for a second consignor name. The fine 

print on the back of the form does not address the possibility of 

more than one “consignor.” 

In the space for “Consignor Name,” Bruning wrote “Jadelle 

Jewelry + M&L Financial Inc.” Jadelle was the name of 

Rechnitz’s company. 

When Bruning included “Jadelle Jewelry” in the space 

labeled “Consignor Name,” M&L immediately told Bruning this 

was not accurate because M&L was the sole owner of the 

diamonds and was the sole party providing them to Sotheby’s. 

Bruning “indicated he understood.” Rechnitz did not disagree. 
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Bruning wrote the estimated value of the diamonds was $4 

million.

M&L signed the form as Bruning had written it, without 

altering the handwriting about “Jadelle Jewelry.” 

Bruning took the diamonds and gave the original of the 

form to M&L. 

After the April 2019 meeting, M&L did not hear from 

Sotheby’s. In late 2019, M&L phoned Bruning, who announced 

surprising news: Sotheby’s had given the diamonds to someone 

named Levin Prado. Prado told Sotheby’s he was picking up the 

diamonds on behalf of Rechnitz. Sotheby’s had no written 

records about its release of the diamonds. Sotheby’s had not 

mentioned its release of the diamonds to M&L. 

M&L never recovered the diamonds and does not know 

where they went. 

M&L sued Sotheby’s and appended to its complaint a news 

article about how Rechnitz had been sentenced to 10 months in a 

New York “corruption scandal.” 

M&L amended its complaint. The trial court sustained 

Sotheby’s demurrer with leave to amend. Our record does not 

explain the court’s reasoning. M&L’s second amended complaint 

alleged claims for breach of contract, negligence, and conversion. 

The court sustained Sotheby’s demurrer to the contract and 

conversion claims without leave to amend, but it granted leave to 

amend as to the negligence count. Again, the record does not 

recount the court’s logic. M&L’s third amended complaint 

alleged one count of negligence. The trial court sustained 

Sotheby’s demurrer without leave to amend. The court’s order 

explained a person may not ordinarily recover in tort for the 

breach of duties that merely restate contractual obligations. 
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M&L appealed.

M&L had stated a proper claim for breach of contract, so it 

was wrong to sustain the demurrer to this count. 

The essence of this consignment contract was simple. M&L 

gave diamonds to Bruning, told him they belonged to M&L, and 

left them for Sotheby’s to appraise in anticipation of a 

consignment sale. There was no agreement yet that Sotheby’s 

definitely would auction the diamonds for M&L, but a potential 

auction was the point of Sotheby’s involvement. Sotheby’s 

breached this agreement by giving the diamonds to stranger 

Prado without M&L’s permission. This breach cost M&L the 

value of the lost diamonds. (See, e.g., CACI No. 303 [breach of 

contract elements].) 

Sotheby’s sole defense rests on Civil Code section 1828, 

which fails because that law does not apply to this case. 

Section 1828 is an old and little-used provision that has 

received scant attention in the past century. This section, 

unamended since its original enactment in 1907, provides as 

follows, with our emphasis: “When a deposit is made in the name 

of two or more persons, deliverable or payable to either or to their 

survivor or survivors, such deposit or any part thereof, or increase 

thereof, may be delivered or paid to either of said persons or to 

the survivor or survivors in due course of business.” 

The deal between M&L and Sotheby’s was not a deposit 

“made in the name of two . . . persons.” (We assume without 

deciding this was a “deposit.”) On his form, Bruning wrote in his 

friend’s company “Jadelle” along with M&L’s name, but M&L 

immediately clarified, it is alleged, that M&L was the sole owner 

of the diamonds and was the sole party providing them to 

Sotheby’s. Bruning assented and the deal went forward on this 
6

basis. Sotheby’s then breached the contract by, without notice to 

M&L, giving M&L’s diamonds to a stranger claiming to be 

Rechnitz’s representative.

Sotheby’s protests Bruning wrote “Jadelle” on the form, and 

so Jadelle and its principal Rechnitz had made the “deposit” in 

the name of two parties: Jadelle and M&L. At the demurrer 

stage, this protest is unavailing. M&L alleged it explained the 

situation to Sotheby’s, which manifested assent. This allegation 

controls at this stage.

Sotheby’s argues M&L errs by including oral terms about 

how M&L was the exclusive owner of the diamonds. Sotheby’s 

view is the written contract governs, pure and simple, and cannot 

be informed by what M&L told Sotheby’s.

To the contrary is Justice Traynor’s famous decision in 

Pacific Gas & Electric Co. v. G. W. Thomas Drayage etc. Co.

(1968) 69 Cal.2d 33 (Thomas Drayage), which pronounced 

California’s rule for deciding when to allow recourse to extrinsic 

evidence in a contract case. The test “to explain the meaning of a 

written instrument is not whether it appears to the court to be 

plain and unambiguous on its face, but whether the offered 

evidence is relevant to prove a meaning to which the language of 

the instrument is reasonably susceptible.” (Id. at p. 37; see also 

Ri-Joyce, Inc. v. New Motor Vehicle Board (1992) 2 Cal.App.4th 

445, 452, fn.1 [applying Thomas Drayage].) 

M&L’s oral statement about exclusive ownership satisfies 

this test. The conversation between M&L and Bruning is 

relevant to prove a meaning. The language of Sotheby’s form is 

reasonably susceptible of the meaning that the diamonds 

belonged only to M&L and, if released, were to be returned only 

to M&L. 
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Nothing in this spare form contravened M&L’s assertion of 

ownership. Bruning extemporized by putting two names—

Jadelle Jewelry and M&L Financial, Inc.—in the space for a 

single “Consignor Name.” This handwritten improvisation 

created ambiguity. What were the respective rights and duties of 

Jadelle versus M&L? The form did not illuminate that question. 

M&L’s oral statement did. Under Thomas Drayage, this 

allegation of an oral statement was relevant and proper.

Moreover, paragraph 7 of the form’s “Conditions of 

Receipt”—which we quoted above with emphasis—shows even 

Sotheby’s did not expect and would not allow this form to be the 

complete statement of all contractual terms between it and M&L. 

And, we repeat, there was no integration clause. In sum, 

Sotheby’s form did not state the whole deal.

Sotheby’s cites Kim v. Westmoore Partners, Inc. (2011) 201 

Cal.App.4th 267, 283 for the proposition that a plaintiff cannot 

allege that a defendant has breached a contract where the basis 

of the breach is contradicted by the terms of the contract attached 

to the complaint. This decision sparkles but does not apply here, 

for it involved a contract with an integration clause. (Ibid.) 

M&L’s illuminating allegation does not contradict Sotheby’s 

opaque form, which distinguishes Fundin v. Chicago Pneumatic 

Tool Co. (1984) 152 Cal.App.3d 951, 956 (“The written sales 

contract attached to the complaint clearly shows that it is a 

contract between plaintiff and Shepherd, and not between 

plaintiff and Chicago”). Sotheby’s other citation is far afield. 

(See Holly Sugar Corp. v. Johnson (1941) 18 Cal.2d 218, 226–227 

[plaintiff may elaborate its complaint by appending a verified tax 

protest].)
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In sum, it was error to sustain the demurrer to M&L’s 

proper breach of contract claim.

As for M&L’s negligence claim, however, the trial court’s 

ruling was right. 

The economic loss rule governs. “In general, there is no 

recovery in tort for negligently inflicted ‘purely economic losses,’ 

meaning financial harm unaccompanied by physical or property 

damage.” (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 

905, 922 (Sheen).) By deferring to the contract between parties, 

the economic loss rule prevents the law of contract and the law of 

tort from dissolving one into the other. (Ibid.) 

M&L and Sotheby’s had a contract. That controls. M&L 

offers no good reason for departing from the fundamental 

economic loss rule, which bars its tort claim. 

M&L cites section 1852, which specifies a depository for 

hire must use at least ordinary care for the preservation of the 

thing deposited. M&L claims this section creates an exception to 

the economic loss rule and thus permits recovery in tort. This is 

incorrect.

“Using contract law to govern commercial transactions lets 

parties and their lawyers know where they stand and what they 

can expect to follow legally from the words they have written. 

But if a disappointed buyer has the option of abandoning the 

contract and suing in tort, the significance of the contract is 

diminished and the doctrines that protect the integrity of the 

contractual process are reduced in importance.” (Farnsworth, 

The Economic Loss Rule (2016) 50 Val.U. L.Rev. 545, 553.) The 

Restatement states this form of the economic loss rule thusly: 

“there is no liability in tort for economic loss caused by negligence 

in the performance or negotiation of a contract between the 
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parties.” (Rest.3d Torts, Liability for Economic Harm (June 

2020) § 3; see also Sheen, supra, 12 Cal.5th at p. 923.)

Regarding conversion, M&L forfeited this argument by 

omitting legal authorities from its opening papers showing the 

trial court erred. (See United Grand Corp. v. Malibu Hillbillies, 

LLC (2019) 36 Cal.App.5th 142, 146, 153.)

DISPOSITION

We reverse the judgment and remand for further 

proceedings regarding M&L’s breach of contract claim. We 

award costs to M&L.

WILEY, J.

We concur: 

STRATTON, P. J. 

HARUTUNIAN, J.*

* Judge of the San Diego Superior Court, assigned by the 

Chief Justice pursuant to article VI, section 6 of the California 

Constitution.