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Zaretsky v. William Goldberg Diamond Corp.

United States Court of Appeals, Second Circuit

April 21, 2016

STEVEN ZARETSKY, an individual, and SUZANNE ZARETSKY, an individual, Plaintiffs-Counter Defendants-Appellees,
WILLIAM GOLDBERG DIAMOND CORPORATION, a New York For-Profit Corporation, Defendant-Counter Claimant-Appellant. [*]

Argued: September 15, 2015

The parties assert competing claims of ownership of a 7.35 carat pear-shaped diamond. The defendant appeals from a Final Order (treated as a judgment, Fed.R.Civ.P. 54(a)) of the United States District Court for the Southern District of New York (Shira A. Scheindlin, Judge) concluding that the plaintiffs are the rightful owners of the diamond, and granting summary judgment in their favor. In a prior Opinion and Order, the district court determined that the person to whom the defendant consigned the diamond was a "merchant" under the second definition of section 2-104(1) of the New York Uniform Commercial Code, and for that reason alone qualified as a person who could transfer rights to entrusted goods under a separate section of that code, section 2-403(2). We conclude, however, that the district court erred in failing to apply the requirement of section 2-403(2) that a merchant entrusted with a good can transfer rights to it only if that person "deals in goods of that kind, " which we understand to mean regularly "sells" goods of that kind. Assessing the record on summary judgment, we conclude that there is no material evidence to support the application of section 2-403(2) to this case. The judgment of the district court is therefore:

REVERSED and REMANDED with instructions to the district court to enter summary judgment for the defendant.

Howard Wintner, The Abramson Law Group, PLLC, New York, New York, for Defendant–Counter Claimant–Appellant.

William I. Strasser (Conrad M. Olear, Gregory D. Emond, on the brief), Strasser & Associates, P.C., Paramus, New Jersey, for Plaintiffs–Counter Defendants–Appellees.

Before: Newman, Sack, and Lynch, Circuit Judges.

Sack, Circuit Judge

In 2003, the appellant William Goldberg Diamond Corporation ("WGDC") consigned a large pear-shaped diamond to Derek Khan, a celebrity fashion stylist. Khan, without WGDC's permission, subsequently sold the diamond to a third party. Through a series of transfers, the diamond ultimately came into the possession of the appellees Steven Zaretsky and Suzanne Zaretsky (the "Zaretskys"). Following Steven Zaretsky's attempt to insure the diamond, its questionable provenance became apparent, and the instant litigation to clarify title ensued.

Section 2-403(2) of the New York Uniform Commercial Code (the "NYUCC") provides that "[a]ny entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business." Whether Khan "deals in goods of that kind" under this provision-and could therefore effectively transfer WGDC's rights to the diamond-is the primary issue on appeal.

The district court (Shira A. Scheindlin, Judge) did not decide that issue. It concluded that Khan had the power to transfer WGDCs rights to the diamond under section 2-403(2) solely because, "'[b]y his occupation, ' Khan clearly '[held] himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction.'" Zaretsky v. William Goldberg Diamond Corp., 69 F.Supp.3d 386, 391 & n.33 (S.D.N.Y. 2014) (second brackets in original) (quoting N.Y. U.C.C. Law § 2-104(1)). That finding established that Khan qualified as a "merchant" under the definition set forth in section 2-104(1) of the NYUCC; however, it did not establish that he transferred rights to the diamond under section 2-403(2). By the terms of section 2-403(2), Khan had the power to transfer all rights in a "good" (the diamond) given to him by an "entruster" (WGDC) only if he was at the time a merchant who "deals in goods of that kind" (diamond jewelry and the like).

Although the New York Court of Appeals has not explicitly defined "deal[ing] in goods of that kind/ persuasive authority from New York courts and elsewhere leads us to conclude that the phrase means the regular sale of the kind of goods at issue in the case. Applying that definition, we conclude that the Zaretskys have not raised a triable issue of fact as to Khan's capacity to transfer title under section 2-403(2) because there is no record evidence that he regularly sold diamonds or other high-end jewelry. We further conclude that the Zaretskys' remaining arguments-regarding the timeliness of this appeal, whether the consignment is a "transaction of purchase" under section 2-403(1) of the NYUCC, and the defense of laches-are without merit. We therefore direct the district court on remand to enter summary judgment for WGDC.


Factual Background

WGDC, a New York corporation, identifies itself as one of the oldest and most reputable American manufacturers and wholesale dealers of polished diamonds and other high-end diamond jewelry. From June 2002 through February 2003, WGDC consigned millions of dollars' worth of such jewelry to non-party Derek Khan, a fashion stylist in New York who outfitted his clients for celebrity events and photo shoots, often using this jewelry.[1] Through the wearing of its diamond jewelry by celebrities, WGDC hoped to boost its image, prestige, and presumably, ultimately, its profits.

In February 2003, WGDC consigned to Khan a pendant containing a pear-shaped diamond (the "Diamond") weighing approximately 744 carats.[2] The consignment was made pursuant to a WGDC memorandum (the "Consignment Agreement") that Khan executed, and which stated that the document "[wa]s not an invoice or bill of sale." Joint Appendix ("J.A.") 336 (capitalization removed). The reverse side of the Consignment Agreement further provided that Khan "acquire[d] no right or authority to sell, pledge, hypothecate or otherwise dispose of the merchandise, or any part thereof"; that any sale of the merchandise "shall occur only if and when [Khan] shall have received from [WGDC] a separate invoice covering specific merchandise on the memorandum"; and that the agreement was governed by New York law. J.A. 338.

WGDC became worried when Khan, atypically, failed to return the Diamond on time. In or about February 2003, WGDC reported the disappearance of the Diamond to the New York City Police Department. Later that month, WGDC retained the services of a private investigator to search for the Diamond. On March 19, 2003, WGDC also reported the theft to the Gemological Institute of America (the "GIA"), a not-for-profit entity that grades and certifies gemstones and maintains a database of stolen diamonds and other jewelry. Khan was subsequently convicted of the theft of many items, including the Diamond, from WGDC and other jewelers.[3]

On March 17, 2003-two days prior to WGDC's report to the GIA-the New York diamond supplier Louis E. Newman, Inc., submitted the Diamond (now weighing, for reasons not disclosed in the record, 7.35 carats) to the GIA for certification. The certification was issued one week later. The GIA apparently did not realize that the gemstone reported stolen by WGDC and the gemstone it certified for Louis E. Newman, Inc., were one and the same.

In late 2003, Stanley & Son Jewelers, Inc. ("S&S"), purchased the Diamond from Louis E. Newman, Inc., on behalf of one Frank Walsh as a present for his wife, Donna Walsh (together, the "Walshes"). Some nine years later, in August 2012, Donna Walsh gave the Diamond to her daughter and son-in-law, Suzanne Zaretsky and Steven Zaretsky, both New Jersey residents. Steven Zaretsky authorized another jeweler to appraise the Diamond for insurance purposes. On December 10, 2012, that jeweler submitted the Diamond to the GIA for certification. Soon thereafter, the GIA informed the Zaretskys that the Diamond appeared to have been stolen from WGDC in 2003. The GIA has retained possession of the Diamond pending a final resolution of its rightful owner.

Procedural History

In June 2013, the Zaretskys brought a diversity action in the United States District Court for the District of New Jersey against the GIA, WGDC, Eve Goldberg (Vice President of WGDC), Louis E. Newman, Inc., and several unidentified "John Doe" and "ABC Corporation" defendants. The Zaretskys sought, among other relief, a declaratory judgment to the effect that they hold proper title to the Diamond.

In February 2014, a motion by Eve Goldberg and WGDC for a change of venue to the Southern District of New York was granted by the New Jersey district court, and the case was transferred to the Southern District. The Zaretskys then amended their complaint, adding Louis Newman & Company, LLC, and S&S as defendants. WGDC then answered and filed a counterclaim against the Zaretskys for an order establishing its rightful ownership of the Diamond.

After the dismissal of several claims[4] and parties, [5] and the completion of discovery, the Zaretskys and WGDC filed cross-motions for summary judgment. In support of its motion, WGDC submitted a declaration by Eve Goldberg stating that "Khan did not ever purchase or sell any diamonds from or to the WGDC, and he was never involved or a participant in any transaction involving the sale of a diamond or piece of jewelry of the WGDC to anyone, not even a celebrity customer." Goldberg Decl., Oct. 27, 2014, J.A. 326 32 (emphasis in original). The record before the district court also contained a declaration by Khan that the Zaretskys submitted in opposition to WGDC's motion, which describes the two types of consignment agreements he had with various jewelers:

Under the terms of certain consignment agreements, . . . I would provide the specified jewelry to certain celebrities or other well-known individuals[] for whom I was employed as personal stylist[.] [T]he particular individuals would receive the items for personal use and as prospective purchasers of the items. Such terms would be explicit within the consignment agreement[s] themselves. . . . Under the terms of other consignment agreements, I was given authority, by the consignor, to sell the specified items of jewelry to those by whom I was employed as a stylist. On multiple occasions[, ] several of the celebrities for whom I worked as stylist[] expressed a desire to purchase the specific item of jewelry consigned to me. I would then introduce the particular prospective purchaser . . . to the respective consignor to facilitate and complete the consignment sale for the specific jewelry item. ...

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