Zaretsky v. William Goldberg Diamond Corp.
820 F.3d 513
| 2d Cir. | 2016Background
- WGDC consigned a 7.44‑carat pear‑shaped diamond (the Diamond) to celebrity stylist Derek Khan in Feb. 2003 under a consignment agreement that expressly prohibited Khan from selling or otherwise disposing of the merchandise without a separate invoice from WGDC.
- Khan failed to return the Diamond, was later convicted of stealing items from WGDC, and the Diamond passed through several hands to the Zaretskys, who obtained it in 2012 and submitted it for GIA certification; the GIA flagged it as possibly stolen.
- WGDC sued to recover the Diamond; after venue transfer and discovery, the district court granted summary judgment to the Zaretskys, concluding Khan was a "merchant" under N.Y. UCC § 2‑104(1) and could transfer WGDC’s rights under § 2‑403(2).
- WGDC appealed, arguing (inter alia) that § 2‑403(2) applies only to merchants who "deal in goods of that kind" (i.e., regularly sell such goods), and that Khan did not regularly sell diamonds or high‑end jewelry.
- The Second Circuit reversed, holding § 2‑403(2) requires the entrustee be a merchant who actually "deals in goods of that kind," found no triable evidence Khan regularly sold diamonds, and directed entry of summary judgment for WGDC.
Issues
| Issue | Plaintiff's Argument (Zaretsky) | Defendant's Argument (WGDC) | Held |
|---|---|---|---|
| Whether appeal was timely | WGDC’s notice filed after Nov.17 order was untimely | Notice was filed within 30 days of the separate December 12 final judgment | Appeal was timely (notice filed within 30 days of Dec.12 entry) |
| Whether § 2‑403(2) allows any § 2‑104(1) "merchant" to pass title | Khan qualified as a merchant under § 2‑104(1)’s knowledge/skill prong, so could pass title | § 2‑403(2) requires the merchant to "deal in goods of that kind" (i.e., regularly sell them) to pass title | § 2‑403(2) requires the entrustee to be a merchant who "deals in goods of that kind," not merely a merchant under other § 2‑104(1) prongs |
| Whether Khan "dealt in" diamonds/high‑end jewelry | "Deal" can mean transacting business in the industry; the record raises factual dispute | No evidence Khan regularly sold diamonds; consignment terms denied sale authority | No triable issue: record lacks evidence Khan regularly sold diamonds; he did not "deal in" such goods under § 2‑403(2) |
| Alternative defenses: § 2‑403(1) "transaction of purchase" & laches | Delivery was a transaction of purchase or conditional sale; laches bars recovery | Consignment was not a purchase (no transfer of ownership); WGDC acted promptly and not prejudicially delayed | § 2‑403(1) inapplicable (no transaction of purchase); laches does not bar WGDC’s claim |
Key Cases Cited
- Zaretsky v. William Goldberg Diamond Corp., 69 F. Supp. 3d 386 (S.D.N.Y. 2014) (district court opinion granting summary judgment to purchasers)
- Town of Sullivan v. Sanford Fire Apparatus Corp., 185 A.D.2d 425 (N.Y. App. Div. 1992) (interpreting "deals in goods of that kind" to require selling that kind of goods)
- Porter v. Wertz, 53 N.Y.2d 696 (N.Y. 1981) (purpose of entrustment rule is to protect reliability of commercial sales by merchants who regularly deal in the goods)
- Toyomenka, Inc. v. Mount Hope Finishing Co., 432 F.2d 722 (4th Cir. 1970) (construing "deals in goods" to mean regularly engaged in selling goods of that kind)
- Am. Standard Credit, Inc. v. Nat’l Cement Co., 643 F.2d 248 (5th Cir. 1981) (explaining "transaction of purchase" requires that delivery was intended to transfer ownership and distinguishes conversion from voidable title)