Shimamoto v. S&F Warehouses, Inc.

257 A.D.2d 334, 693 N.Y.S.2d 110, 38 U.C.C. Rep. Serv. 2d (West) 1295, 1999 N.Y. App. Div. LEXIS 7452
CourtAppellate Division of the Supreme Court of the State of New York
DecidedJune 22, 1999
StatusPublished
Cited by7 cases

This text of 257 A.D.2d 334 (Shimamoto v. S&F Warehouses, Inc.) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Shimamoto v. S&F Warehouses, Inc., 257 A.D.2d 334, 693 N.Y.S.2d 110, 38 U.C.C. Rep. Serv. 2d (West) 1295, 1999 N.Y. App. Div. LEXIS 7452 (N.Y. Ct. App. 1999).

Opinion

OPINION OF THE COURT

Wallach, J.

This is an action for conversion arising from allegedly illegal enforcement of a warehouseman’s lien, asserting breach of article 7 of the Uniform Commercial Code. The appeal presents a novel issue regarding the interpretation of UCC 7-210 that has apparently never produced a reported decision in this State, and rarely elsewhere, for that matter.

In 1980 and 1981, plaintiffs decedent imported a quantity of “ultra cashmere” fabric1 from Italy, described as a “viscous rayon” with a suede-like nap, for use in his clothing manufacturing business. The fabric was initially stored in a Customs-bonded warehouse in Brooklyn, pending payment of import duties. When a dispute arose with the warehouseman as to the alleged loss of some of these goods, the fabric was transferred in 1986, at the behest of United States Customs agents, to the bonded section of defendant S&F Warehouses at the Brooklyn Navy Yard, where it remained until its disposal in 1991. (The physical transfer was carried out by defendant S&J Trucking Co.) Plaintiffs decedent agreed to pay the storage charges for these 358 cartons, at $640.80 per month, but he shortly became delinquent in these payments. By June 1991, when the arrears had exceeded $42,000, defendant Fishof, a vice president of S&F, referred collection of the debt to defendant Simon Meyrowitz Meyrowitz & Schlussel (the law firm) for collection. The law firm hired defendant FES Auctions to conduct a lien sale. Defendant Seipp, principal of FES, forwarded a draft notice of sale to attorney Schlussel, who would later testify at trial that he did not review the notice for compliance with the Uniform Commercial Code because he was under the impression that the Code only covered the sale of goods, and had nothing to do with auctions.

Unlike the sale of noncommercial goods (UCC 7-210 [2]), there are few specific requirements regarding the advertising of a public sale to enforce a lien on warehoused commercial [337]*337goods. UCC 7-210 (1) requires only that the sale be conducted in a “commercially reasonable” manner, after all interested parties are notified of the nature, time and place of the sale, the amount due, and their right to challenge in a special proceeding the validity of the lien or the amount claimed. A warehouseman who fails to comply with these requirements for sale becomes liable for damages, “and in case of willful violation is liable for conversion” (UCC 7-210 [9]).

Even though the auction advertisement placed by FES in two issues of The American Banker, a paper of limited circulation, fell short of complete notice (e.g., it failed to mention the address or telephone number of the law firm where the auction was to take place), such publication was not required by the statute for the sale of commercial goods. The required formal notice mailed to the last known address of plaintiffs decedent was more specific, identifying the date and place, the value attributed to the goods ($25,000), and the amount of the lien ($42,847.81). But even that notice failed to include the statutorily required notification of the claimant’s entitlement to challenge the validity of the lien or the amount claimed. The notice was thus defective in this respect.

The auction was held at the law firm’s office on the morning of September 24, 1991. Even attorney Schlussel was not present, because this was a religious holiday. When no bidders appeared, the auctioneer exercised S&F’s statutory option (UCC 7-210 [4]), on instructions from Schlussel, and entered a winning bid of $25,000. Title to the goods passed thereupon to S&F. Plaintiffs decedent appeared at the law firm’s office a few days later to inquire about his goods, and was informed that they had been sold.

This action for conversion seeks compensatory damages of $2,174,375, the alleged value of the fabric. Determination of damages was left to the jury.

On the eve of trial, an application by the warehouse and trucking defendants to cross-claim against the law firm was denied. Plaintiffs then agreed to dismissal of the complaint against the auctioneer and his company, and against the individual partners of the law firm. At the conclusion of trial, the balance of the case on liability was taken away from the jury. After directing a verdict in favor of the law firm, the trial court made findings that the recently absolved auctioneer had in fact been negligent in noticing the auction, and that the law firm had also been negligent in failing to oversee and correct the auctioneer’s errors. The negligence of these two agents was [338]*338now imputed solely to the warehouseman and its trucking carrier, and a verdict on the issue of liability was directed against those defendants and their principals. This was error.

The UCC standard for enforcement of a warehouseman’s lien on merchandise is that the sale must be “commercially reasonable” (UCC 7-210 [1]). If anything, the remaining defendants adopted the prudent course of consulting an attorney, who in turn procured a licensed auctioneer. These defendants had every right to assume that once the case was placed in the hands of the law firm and its designated auctioneer, those latter entities would exercise their expertise in bringing about a valid foreclosure of the warehouseman’s lien. To dismiss the case against the erring parties and leave the diligent client fully liable as a matter of law is a result that is not only unsupported in the record, but is repugnant to common sense.

In dismissing the case against the law firm, the trial court found that the firm had been negligent, but that “something more than negligence [was] required” to hold it liable.2 On the other hand, the remaining defendants were found to have willfully violated the statute with regard to the notice and conduct of the auction, and thus were held liable for conversion (UCC 7-210 [9]).

In so ruling, the trial court erroneously relied upon a Pennsylvania Bankruptcy Court decision (Grant v Superior Moving & Stor., 182 Bankr 709, affd 1995 US Dist LEXIS 13867 [ED Pa, Sept. 18, 1995, Weiner, J.]). That case is inapposite. The standard applied in Grant was section 7210 (b) of Pennsylvania’s Warehouseman’s Act (13 Pa Cons Stat Annot § 7210 [b]), which is equivalent to New York’s UCC 7-210 (2), the provision that treats enforcement of a warehouseman’s lien on storage “other than goods stored by a merchant in the course of his business”. In Grant, the goods in question were the personal property of a residential evictee, whereas our case is governed by the more general procedures outlined in UCC 7-210 (1), involving the foreclosure of a lien on warehoused merchandise. Furthermore, the trial court relied upon mere dictum, for the Grant court had found that the warehouseman had committed no “willful violation” of the statute, and thus was not liable for conversion.

The trial court’s emphasis on meticulous compliance with UCC 7-210 is undermined by the very structure of the statute. [339]*339For example, the trial court focused on certain purported “illegalities” in the notice and conduct of the auction, viz.,

• the “auction was not held in a place reasonably near where the property was stored”. This is a requirement found in UCC 7-210 (2) (e), and has no equivalent in section 7-210 (1).

• the auction “was not advertised in a kind of newspaper which was likely to attract the textile trade”.

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Bluebook (online)
257 A.D.2d 334, 693 N.Y.S.2d 110, 38 U.C.C. Rep. Serv. 2d (West) 1295, 1999 N.Y. App. Div. LEXIS 7452, Counsel Stack Legal Research, https://law.counselstack.com/opinion/shimamoto-v-sf-warehouses-inc-nyappdiv-1999.