Zaretsky v. William Goldberg Diamond Corp.
69 F. Supp. 3d 386
| S.D.N.Y. | 2014Background
- WGDC consigned a 7.44-carat pear-shaped diamond to fashion stylist Derek Khan in Feb. 2003 under a consignment agreement that prohibited sale without WGDC approval.
- Khan failed to return the diamond; WGDC reported it stolen and filed a police report in March 2003.
- The diamond was submitted to the GIA for certification by Louis Newman on March 17, 2003 and certified March 25, 2003; later sold to Stanley & Sons for Frank and Donna Walsh, who conveyed it to plaintiffs.
- WGDC sued to recover the diamond, arguing Khan was a thief and could not convey title; plaintiffs argued Khan was an entrustee/merchant with voidable title under the UCC, so a later good-faith purchaser obtained good title.
- The central factual dispute (whether Khan ‘‘dealt in’’ jewelry) was unresolved, but the court found Khan nevertheless qualified as a "merchant" because his occupation as a celebrity stylist held him out as having knowledge/skill peculiar to jewelry.
- The Court granted plaintiffs’ summary judgment and denied WGDC’s, holding the UCC entrustment rule bars WGDC’s replevin claim and that innocent purchasers (plaintiffs) own the diamond.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can Khan, who misappropriated the diamond, pass good title to a later purchaser? | Khan was an entrustee/merchant with voidable title; a good-faith buyer obtained good title under UCC §2‑403. | Khan was a thief; a thief cannot pass title, so WGDC remains owner. | Held for plaintiffs: entrustment rule applies; innocent purchasers take good title. |
| Was Khan a "merchant" under UCC §2‑104? | Khan held himself out, by occupation as a celebrity stylist, as having knowledge/skill peculiar to jewelry and thus is a merchant. | Khan was a stylist, not a jewelry dealer; he did not buy/sell jewelry and thus is not a merchant. | Held for plaintiffs: even if he did not "deal in" jewelry, his occupation conferred requisite knowledge/skill to qualify as a merchant. |
| Does WGDC’s delay (laches) bar recovery? | Plaintiffs alternatively argued laches because WGDC waited and prejudiced purchasers. | WGDC disputed laches, emphasizing prompt reporting and investigation. | Not reached on the merits; court noted laches unlikely given timeline and plaintiffs prevailed on the substantive UCC question. |
| Proper standard on summary judgment? | Plaintiffs invoked summary judgment showing no genuine dispute on merchant status application and innocent purchaser status. | WGDC contended factual disputes precluded summary judgment. | Court applied summary judgment standard and granted plaintiffs’ motion. |
Key Cases Cited
- Porter v. Wertz, 53 N.Y.2d 696 (1981) (New York recognition of entrustment principle shifting resale risk to owner)
- Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574 (1986) (summary judgment standard guidance)
- Nelson v. Union Equity Co-operative Ex., 548 S.W.2d 352 (Tex. 1977) (construed "knowledge or skill" merchant definition broadly)
- Rivera v. Rochester Genesee Reg'l Transp. Auth., 743 F.3d 11 (2d Cir. 2014) (application of summary judgment standards)