Chapter 20
Chapter 21
Title, Risk, and Insurable Interest
Case 21.1
897 A.2d 1247, 2006 PA Super 88
Superior Court of Pennsylvania.
EMPIRE FIRE AND MARINE INSURANCE COMPANY
v.
BANC AUTO, INC., Patrick Figueroa, Individually and t/a Car Mart, VA, Euro Motorcars, Inc.
Appeal of Euro Motorcars, Inc. (“Euro”).
Argued Feb. 14, 2006.
Filed April 19, 2006.
BEFORE: , , JJ. and , P.J.E.
, J.:
1 Euro Motorcars (Euro) appeals from the judgment entered on November 10, 2004, in the Court of Common Pleas of Delaware County. Empire Fire & Marine Insurance (Empire) filed a declaratory judgment action to determine its obligations to its insured, Banc Auto, Inc. (Banc), regarding a series of transactions involving Banc, Euro and Patrick Figueroa (Figueroa), a middleman. Banc and Euro also filed cross-claims against each other as well as against Figueroa. The trial court determined Banc was entitled to the proceeds from the sale of the automobile in question. Euro claims numerous errors by the trial court. After a thorough review of the submissions by the parties, the official record and relevant law, we affirm.
2 On July 10, 2001, Euro Motorcars, a car dealership located in Bethesda, Maryland, acquired a 2000 Mercedes-Benz S430 in trade for another car. On July 12, 2001, Euro contacted Figueroa regarding the car. Euro knew Figueroa as an authorized agent for two other car dealers, Maygoun Auto Sales (Maygoun) and Car Mart. Euro had dealt successfully with Figueroa on many prior occasions. Figueroa expressed interest in buying the Mercedes on behalf of Maygoun. Euro agreed to sell the Mercedes to Figueroa for $56,500. Euro allowed Figueroa to take the car without making any payment. It was understood that once Figueroa tendered payment to Euro, Euro would turn over the title to the vehicle.
3 Rather than selling the car to Maygoun, Figueroa decided to sell the car to Banc, a car dealership located in Manheim, Pennsylvania. Banc has also successfully done business with Figueroa on prior occasions. Figueroa agreed to sell the car to Banc for $56,500 plus a percentage of Banc's ultimate profit in reselling the vehicle. Banc ultimately issued a check at Figueroa's instruction made out to Car Mart. Figueroa then cashed the check and, fairly obviously, never paid the money over to Euro. Because Euro never received payment for the car, it refused to *1249 turn over the title to the vehicle. Because Banc did not receive the car's title, it could not resell the car and instead, used the vehicle for its own benefit for approximately two years, until the car was sold by court order for $40,000.
4 When it realized it had been had, Banc filed charges against Figueroa. Figueroa was eventually convicted and has made $10,000 in restitution payments to Banc. Meanwhile, Empire, Banc's insurer, filed this declaratory judgment action, naming Banc, Euro and Figueroa as defendants. The previously mentioned cross-claims were then filed. Empire eventually settled with Banc and agreed to pay Banc $30,000, but retained subrogation rights. Ultimately, the trial court ruled in favor of Banc, awarding it the proceeds from the sale of the car.
Discussion
5 Euro now raises six issues on appeal. Those issues and our summary discussion are as follows:
1. The Court erred in finding that Banc was the lawful owner of the Mercedes and therefore that Banc was entitled to monetary damages.
6 Since Figueroa was given possession of the car by seller Euro, he had voidable, not void, ownership. This is unlike the situation in . Therefore, Figueroa had the ability to sell the car to Banc. Also, rather than stealing the car, essentially Figueroa stole the check from Banc.
2. The Court erred in failing to find that Figueroa unlawfully converted or stole the Mercedes from Euro and therefore he could not pass legally cognizable title to Banc Auto.
7 As discussed above, Figueroa did have the authority to sell the Mercedes to Banc. He just did not have the authority to steal the check from Banc which should have been given to Euro. Moreover, there is no showing in the record as to when Figueroa formed the intent to commit a theft. It well might have been that at the time he took possession of the Mercedes from Euro, he planned to go through with a legitimate transaction, and it was only later that he formed the intent to commit a theft.
3. The Court erred in finding that Banc Auto was a good faith purchaser for value without notice of a defect in title.
8 The Court found that transactions of this kind are routine in the trade, and it was usual to give possession of a car to a middleman and only transfer title after the check is paid. Therefore, there is nothing to show anything unusual about this transaction that would disqualify Banc from being a good faith purchaser for value.
4. The Court created a windfall for Banc Auto by allowing it to recover the full amount of its alleged monetary loss ($56,500) plus retaining the value of the possession and use of the Mercedes (around 20,500 miles) during the period of time from when it was in possession of the car and until the Court ordered the sale (1-1/2 year period).
9 A car depreciates in value as it gets older. There is no showing by Euro by way of expert testimony or otherwise as to how much of the decline in value from $56,500 to $40,000 was due to the extra mileage put on the car rather than passage of time. The Court would be left to speculate as to what percentage was attributed *1250 to the mileage. Likewise, this would be offset by lost profits on the car. There is nothing to show that Banc is still not out of pocket at least $6,500, the difference between the amount of the check and the recovery.
5. The Court failed to consider payments made from Empire to Banc Auto as part of the Settlement Agreement and potential payments made by Figueroa to Banc Auto as part of Figueroa's agreement with the Lancaster County District Attorney.
10 Because the insurance proceeds paid to Banc from Empire must be repaid to Empire both as a collateral source and under the terms of the settlement, these need not be deducted from the figure. The Court's order requires an offset for any sums received by Figueroa, so this was considered by the trial judge.
6. The Court failed to enter a decision in favor of Euro and against Banc Auto.
11 This is simply a catch-all claim, apparently based on all the prior claims. A detailed discussion of the issues follows.
1. The Court erred in finding that Banc was the lawful owner of the Mercedes and therefore that bank was entitled to monetary damages.
12 It will be helpful here to start with a discussion of the difference between a void title and a voidable title. provides guidance. In order to possess voidable title, one must obtain goods through the assent of the original owner, but not necessarily acquire good title. Void title, on the other hand, derives from a situation where the goods were not obtained through the assent of the original owner. In common application, this means if goods are stolen and resold, no good title can be transferred because the thief has never had proper title to the goods and so cannot pass good title to another. However, if the goods are obtained through the consent of the original owner, even though that original owner may have been fraudulently induced to part with the goods, title is merely voidable and a buyer in good faith may still obtain title to the goods.
. This concept is discussed in more detail later in this decision.
13 Euro's claim here is essentially that it still held legal ownership of the car because it still held title to the car, never having transferred that title to either Figueroa or any other entity. Euro cites to a number of cases, including: ; ; and . Euro also cites the Motor Vehicle Code, , , and , to support this proposition.
14 The case law cited by Euro stands for the general proposition that to own, and therefore have the ability to dispose of, an automobile, a person must have title to the automobile. The Motor Vehicle Code sections simply give instruction how title is transferred, as in what forms must be filled out and when such forms should be filed. We have no argument with the general proposition put forth by Euro; certainly title to vehicle eventually must be transferred to the new owner. Rather, it is in the application of the general principle to the specific facts of this matter where Euro runs afoul.
*1251 ¶ 15 The cases cited by Euro all pre-date Pennsylvania's adoption of the Uniform Commercial Code (the Code). While the Code does not specifically alter the notion that title is an important factor in determining ownership, it did alter notions of how and when title passes from seller to purchaser.
16 Regarding the power to transfer, states, in relevant part:
(a) A purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest, acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though:
(1) the transferor was deceived as to the identity of the purchaser;
(2) the delivery was in exchange for a check which is later dishonored; or
(4) the delivery was procured through fraud punishable as larcenous under the criminal law.
(b) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him the power to transfer all rights of the entruster to a buyer in the ordinary course of business.
17 The Code further describes the passing of title in :
Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time and place, and in particular and despite any reservation of a security interest by the bill of lading.
18 Reading these sections of the Code together, it is apparent that Euro transferred, at a minimum, voidable title to Figueroa when it delivered the Mercedes to him pursuant to their sales agreement. The fact that Euro claims to have been deceived as to the ultimate purchaser is immaterial, as is any contention that Figueroa obtained the car through a fraud which was punishable under the criminal law. Once Euro voluntarily delivered the car to Figueroa, Figueroa obtained the title, despite not having any document of title, and was free to dispose of the car to a buyer in good faith. Thus, Euro's argument that it was still the legal owner of the car fails.
There is no clear evidence as to when Figueroa formed his intent to defraud. He may have obtained the vehicle from Euro with every intention of following through on a legitimate transaction, in which case it would appear that Figueroa obtained good title upon receiving the car. If Figueroa intended to obtain the vehicle from Euro by fraud, title still passes to Figueroa, although that title is now considered voidable. Because of the specific facts of this case, the status of the title, whether it is good or voidable, does not alter the analysis or outcome.
2. The Court erred in failing to find that Figueroa unlawfully converted or stole the Mercedes from Euro and therefore he could not pass legally cognizable title to Banc Auto.
19 There was no showing in the court below as to when Figueroa formed *1252 his larcenous intent. It may well be that at the time he took possession of the Mercedes from Euro, Figueroa planned to go through with a legitimate transaction. While a court may have been able to infer that Figueroa intended to steal from Euro, the evidence does not mandate that finding. In fact, Figueroa was convicted of stealing the check, not the car. While it is legally possible for Figueroa to have stolen both the car and the check, it remains that he was not convicted of both.
20 As noted above, title passed to Figueroa when Euro delivered the car to Figueroa, even though he may have deceived Euro in obtaining the vehicle and despite any security interest Euro may have had in the car. As such, Figueroa could pass legally cognizable title to a buyer in good faith.
3. The Court erred in finding that Banc Auto was a good faith purchaser for value without notice of a defect in title.
21 The trial court determined that transactions such as those found in this matter are common in the trade and our review of the record confirms that determination. Euro had used Figueroa in the same capacity many times prior to this transaction. Banc Auto was also familiar with Figueroa. This method of transferring cars from one dealer to another seems, to our untrained eye, to largely be a matter of trust. Euro delivers a car to a middleman via a sales contract and trusts to be paid when the middleman is paid. The ultimate purchaser receives the vehicle from the middleman confident that documentary title will be delivered from the original seller after paying the middleman. The middleman trusts the ultimate seller to deliver to him a percentage of the sales price. This system appears to work the vast majority of the time, or else it would have been replaced by a more reliable system.
22 Figueroa simply took advantage of the trust built into this system. From our review of the record, no one had any reason to distrust the transaction until Figueroa personally cashed the check made out to Car Mart.
23 The Code defines “good faith” as “[h]onesty in fact in the conduct or transaction concerned.” . Black's Law Dictionary defines a bona fide purchaser as one who buys something for value without notice of another's claim and without actual or constructive notice of any defect in title. It further states that generally, a bona fide purchaser's rights to the property are not affected by the transferor's fraud against a third party. There is no evidence that Banc Auto ever acted in any way other than honestly concerning this transaction, nor is there any evidence to show that Banc should have been in any way suspicious of this transaction as opposed to the myriad of other similar transactions.
Eighth Edition, West Publishing, 2004.
Black's indicates a bona fide purchaser equates to a good faith purchaser.
4. The Court created a windfall for Banc Auto by allowing it to recover the full amount of its alleged monetary loss ($56,500) plus retaining the value of the possession and use of the Mercedes (around 20,500 miles) during the period of time from when it was in possession of the car and until the Court ordered the sale (1-1/2 year period).
24 Had there been any evidence of specific amounts of depreciation attributable*1253 to Banc's use of the car, Euro's argument would carry more weight. This is not a situation where Euro presented testimony that a Mercedes-Benz S430 depreciates at ‘x’ number of cents per mile and then the trial court ignored the evidence. The record is devoid of any specific amount of depreciation of the car due to use. As a result, any attempt by the trial court to take Banc's use of the car into account would necessarily be based upon speculation. See (jurors must be provided with reasonable amount of information sufficient to estimate damages without speculation). Because Euro presented no evidence regarding the depreciation of the Mercedes, Banc cannot be considered to have received a windfall for failing to take depreciation into account.
5. The Court failed to consider payments made from Empire to Banc Auto as part of the Settlement Agreement and potential payments made by Figueroa to Banc Auto as part of Figueroa's agreement with the Lancaster County District Attorney.
25 This argument is clearly erroneous. The evidence presented showed the money paid to Banc by its insurer, Empire, was subject to repayment pursuant to the subrogation interest of Empire. Thus, Banc does not receive a double payment as a result of this award. Also, the trial court's order requires an offset for any sums received from Figueroa, so this issue was both considered by the trial court and addressed by the trial court.
6. The Court failed to enter a decision in favor of Euro and against Banc Auto.
26 This argument appears to be a catch-all, simply encompassing all the prior arguments. Because Euro is not entitled to relief on the other issues, the catch-all fails as well.
27 Judgment affirmed.
Case 21.2
283 Conn. 65, 925 A.2d 1048
Supreme Court of Connecticut.
Kerstin LINDHOLM
v.
Peter M. BRANT et al.
No. 17729.
Argued Nov. 29, 2006.
Decided July 3, 2007.
SULLIVAN, J.
*66 The plaintiff, Kerstin Lindholm, appeals FN1 from the judgment of the trial court in favor of *67 the named defendant, Peter M. Brant,FN2 on the plaintiff's claim of conversion of a painting by Andy Warhol entitled “Red Elvis” (Red Elvis). The plaintiff claims on appeal that the trial court improperly determined that the defendant was a buyer in the ordinary course of business and, therefore, lawfully took all of the plaintiff's rights in Red Elvis pursuant to General Statutes § 42a-2-403 (2).FN3 We disagree and affirm the judgment of the trial court.
FN1. The plaintiff appealed from the judgment of the trial court to the Appellate Court and we transferred the appeal to this court pursuant to General Statutes § 51-199(c) and Practice Book § 65-1.
FN2. Although the plaintiff's complaint also named the Brant Foundation, Inc., and Anders Malmberg as defendants, the plaintiff did not appeal from the judgment in favor of the Brant Foundation, Inc., and withdrew her complaint against Malmberg prior to trial. For purposes of this appeal, therefore, references to the defendant are to Peter M. Brant.
FN3. General Statutes § 42a-2-403(2) provides: “Any 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.”
The record reveals the following facts and procedural history, as detailed in the trial court's memorandum of decision. The plaintiff was introduced to Anders Malmberg, a Swedish art dealer, in the late 1970's or early 1980's during the course of her marriage to Magnus Lindholm (Lindholm). Throughout the next thirty years, Malmberg served as an art advisor to both the plaintiff and Lindholm. In his capacity as an art dealer, Malmberg assisted the plaintiff in her purchase of two works of art, and assisted Lindholm in multiple purchases and sales of works of art. Malmberg handled all of the Lindholms' purchase and sale transactions for works of art.
In 1987, the plaintiff purchased Red Elvis from Malmberg for $300,000. The only written documentation evidencing the plaintiff's purchase of Red Elvis was the invoice that she received from Malmberg, written on Malmberg's stationary. During the process of purchasing Red Elvis, the plaintiff relied entirely on Malmberg to complete the transaction.
In 1989, the plaintiff, with the assistance of Malmberg, loaned Red Elvis to the Museum of Modern Art in New *68 York to be included in a Warhol exhibition. A label affixed to the painting indicated that it was owned by a “[p]rivate [c]ollector” and had been loaned to the Museum of Modern Art “[c]ourtesy Anders Malmberg.” The defendant visited the exhibition, viewed Red Elvis and saw its label, thereby becoming aware that Malmberg was associated with Red Elvis and its owner.FN4
FN4. The defendant had purchased Red Elvis in or around 1969, when he was a young college student, and had owned the painting fora brief period of time.
In 1996, the Guggenheim Museum (Guggenheim) decided to sponsor an exhibition of Warhol paintings that would travel to several European venues, ending in New York City during the summer of 2000. Vivien Greene, an assistant curator at the Guggenheim, prepared a list of Warhol works of art to be considered for inclusion in the exhibition. Red Elvis was one of the works of art on the list. Also included on **1051 the list were several works of art owned by the defendant, who at this time was a member of the Guggenheim's board of trustees.
In late summer of 1998, Germano Celant, a curator of the exhibition, met with the defendant to discuss loaning some of his Warhol artwork to the exhibition. In addition, Celant asked the defendant to assist him in obtaining loans of other Warhol artwork for the exhibition, including Red Elvis. The defendant advised Celant that he believed that Red Elvis was owned by a Swedish woman and that Celant should contact either Stellan Holm, a Swedish art dealer, or James Mayer, a London art dealer, for more information. The defendant referred Celant to Holm and Mayer because he knew that Malmberg was associated with Red Elvis and its owner, and that Holm and Mayer had had previous business relations with Malmberg. The defendant also spoke to Holm, who had worked with the defendant on numerous occasions buying and selling Warhol artworks.
*69 In the fall of 1998, the defendant had never met Malmberg, but was aware that he enjoyed a reputation as a well respected art dealer. At that time, the defendant did not personally know either the plaintiff or Lindholm.
Through the efforts of Holm, who had contacted Malmberg, the plaintiff agreed to lend Red Elvis to the exhibition. Holm notified the defendant that the plaintiff would lend Red Elvis to the Guggenheim and that her name would be listed on the loan forms. Malmberg helped the plaintiff to complete the loan forms, in which the plaintiff requested that the exhibition display Red Elvis with an identification plaque that read “ ‘Private Collection, Courtesy Anders Malmberg, Malmo, Sweden.’ ” The defendant assisted the Guggenheim with the shipping arrangements for Red Elvis, which was sent from the United States to Europe in September, 1998. Accordingly, as of September, 1998, the defendant knew from Holm that the plaintiff owned Red Elvis and that it was on loan to the Guggenheim for a Warhol exhibition.
In 1998, Lindholm initiated divorce proceedings against the plaintiff in Connecticut. Because of a shortage of funds, the plaintiff enlisted Malmberg to assist her in selling certain works of art located in the Lindholms' residence in Greenwich. On November 16, 1999, the plaintiff and Malmberg entered into an agreement that designated Malmberg as the plaintiff's agent for the purpose of selling “ ‘certain works.’ ” Although the agreement did not specify which artworks Malmberg was authorized to sell, the plaintiff had neither agreed to sell nor discussed with Malmberg or anyone else the possibility of selling Red Elvis.
On December 6, 1999, the family court issued an order requiring the plaintiff “to immediately return ... all artwork and other property which she removed from the marital home whether claimed by [Lindholm] or [the plaintiff]” and enjoining the plaintiff “from selling *70 property without a court order....” FN5 On December 8, 1999, the plaintiff's divorce counsel wrote a letter to Malmberg notifying him of the court order, thereby putting Malmberg on notice that he no longer was authorized to sell any property of either the plaintiff or Lindholm.
FN5. This order was not lifted until the Lindholms' divorce was finalized in June, 2000.
During this same time period, Holm, who had been working closely with the defendant in the purchase and sale of other Warhol works of art, advised the defendant, on the basis of a conversation with Malmberg, that Malmberg had purchased **1052 Red Elvis. Holm also asked whether the defendant would be interested in purchasing the painting if it became available for sale. Soon afterward, the defendant met with Holm and Malmberg at the defendant's residence. When Malmberg and Holm repeated that Malmberg had purchased Red Elvis from the plaintiff and asked whether the defendant would be interested in purchasing it, the defendant indicated that he would.
On or about February 2, 2000, the defendant agreed to pay Malmberg $2.9 million dollars for Red Elvis. Malmberg gave the defendant an invoice for the $2.9 million sale, indicating that a $900,000 deposit would be required immediately and that the balance would be due by a certain date. Although the defendant wired the deposit money to Malmberg, he objected to paying the balance prior to delivery of the painting without first entering into a formal contract with Malmberg. The defendant retained counsel to draft a contract and to conduct the necessary lien searches to identify any claims that Lindholm, who was in the midst of a bitter divorce and was reputed to be litigious, might have to the painting. During the contract negotiations, the law firm that the defendant had retained conducted a lien *71 search and an Art Loss Register FN6 search relating to Red Elvis. Neither search revealed a claim or lien by Lindholm or any other individual. The defendant's counsel cautioned the defendant, however, that these searches only provided “minimal assurances” that Malmberg had good title to the painting.
FN6. The Art Loss Register is a permanent international database of stolen and missing works of art recognized as the best mechanism for determining whether a piece of art is stolen.
The defendant and Malmberg exchanged numerous drafts of the contract during the negotiations, which were completed on March 20, 2000. Ultimately, Malmberg agreed to delay payment of the balance until the delivery of Red Elvis to a bonded warehouse in Denmark.
During the negotiations, Holm served as a messenger between Malmberg and the defendant's counsel. In an effort to address the defendant's concerns about Lindholm's potential claims, Holm prepared a letter (the Swedish-English letter) to be signed by the plaintiff stating that she had good title when she sold the painting to Malmberg. The letter would be treated as confidential unless Lindholm made a claim to Red Elvis. Holm showed the letter to the defendant, but the letter was never signed by the plaintiff. When the defendant's counsel requested a copy of the signed letter, Holm refused, stating that it was none of the defendant's business. The defendant's counsel communicated Holm's response to the defendant.
The defendant also was concerned that, even though Holm had assured him that Malmberg was the current owner, Malmberg had not yet acquired title to the painting or that this transaction was going to be a “flip.” FN7 *72 The defendant's counsel, in an effort to clarify whether Malmberg owned the painting, requested a copy of the invoice from the plaintiff to Malmberg. Malmberg denied this request on the ground that such invoices are not normally and customarily disclosed in the context of an art transaction.
FN7. “Flipping” is a term of art in the art industry that refers to a situation in which the purchaser of a painting immediately sells the painting for a higher price. The second purchase is often conditioned on the new owner's concealing the sale from the original owner. To prevent flipping, owners often will ask purchasers to agree not to resell the painting for a period of one year.
**1053 On February 17, 2000, during the contract negotiations between the defendant and Malmberg, the Guggenheim notified the plaintiff, as a lender to the Warhol exhibition, that the exhibition would be terminating prematurely. At that point, the plaintiff agreed, at the suggestion of Greene, to lend Red Elvis to the branch of the Guggenheim located in Bilbao, Spain. After Malmberg advised the plaintiff that Red Elvis would get better exposure at an exhibition at the Louisiana Museum in Copenhagen, Denmark, the plaintiff agreed to lend the painting to the Louisiana Museum. The plaintiff did not inform Greene that she had changed her mind about displaying the painting in Bilbao until Greene called her on March 17, 2000.
Also on March 17, 2000, the defendant spoke with Elissa Myerowitz, a registrar employed by the Guggenheim, to inquire when his Warhol works of art would be returned to him. The defendant also asked about the current status of Red Elvis. Myerowitz indicated that the painting was being returned to the plaintiff, who was listed as the lender on the loan forms. The defendant advised Myerowitz that the plaintiff no longer owned Red Elvis and that she should contact the new owner, Malmberg, because it was his understanding that Malmberg wanted Red Elvis to go to Denmark. The defendant believed that Red Elvis was going to be shipped to Denmark because, at that time in the negotiations, he had agreed to accept delivery there. Myerowitz then told Greene about her conversation with the defendant, after which Greene called the plaintiff. During this conversation, the plaintiff informed *73 Greene that she had changed her mind and had decided to lend the painting to the Louisiana Museum. The plaintiff also informed Greene that Red Elvis should be released to Malmberg's custody because he was going to arrange for the shipment of the painting to Denmark. Greene advised the plaintiff that she would have to provide the Guggenheim with a letter authorizing the Guggenheim to release Red Elvis to Malmberg, which the plaintiff did on March 20, 2000. Greene then informed Myerowitz of the substance of Greene's conversation with the plaintiff, confirming that Red Elvis was to be released to Malmberg for shipment to the museum in Denmark. On March 21, 2000, the defendant called Myerowitz to inform her about the shipping arrangements to Denmark.
On April 12, 2000, after execution of the purchase contract, the defendant wired the remaining $2 million purchase price to Malmberg's bank account and took possession of Red Elvis. On April 27, 2000, the defendant had the painting insured and arranged to have it shipped from Denmark to the United States. The defendant then allowed Red Elvis to be shown in a traveling exhibition from May, 2000, through the end of 2002, doing nothing to conceal the fact that he believed that he owned the painting.
From March, 2000, until the fall of 2000, the plaintiff took no steps to verify that Red Elvis was on display at the Louisiana Museum but, instead, relied on Malmberg's representations that the painting was there. In the fall of 2000, Malmberg informed the plaintiff that Red Elvis had not arrived at the Louisiana Museum in time to be a part of the exhibition. Thereafter, following an inquiry from Malmberg, the plaintiff authorized the sale of Red Elvis for $4.6 million to a Japanese buyer. The plaintiff authorized Malmberg to ship Red Elvis to Japan. In January, 2001, the plaintiff met with Malmberg and delivered an invoice conveying title to Red Elvis *74 to one of Malmberg's companies, Eagle Eye Art Investments, Inc. The plaintiff agreed to have the sale proceeds sent directly to Malmberg's bank account. When the plaintiff agreed to sell Red Elvis for $4.6 **1054 million, she believed that she still owned Red Elvis, and was unaware that Malmberg already had sold the painting to the defendant in March, 2000.
In June, 2001, while awaiting her $4.6 million payment from the sale to the Japanese buyer, the plaintiff read a magazine article that reported that the defendant had purchased Red Elvis from Malmberg. When the plaintiff telephoned Malmberg, he told her that the article was inaccurate and that the defendant actually had bought a different painting, which was referred to as Green Elvis. For more than one year from the time that the plaintiff learned that the defendant had purchased Red Elvis, the plaintiff unsuccessfully sought the return of the sale proceeds from Malmberg.
On April 5, 2002, counsel for the plaintiff sent a letter to the defendant informing him that Malmberg's purported sale of Red Elvis to the defendant had not been authorized by the plaintiff and that title in the painting had not passed to the defendant. He further stated that, if the defendant did not return the painting to the plaintiff, she would commence proceedings against the defendant in the United States to recover the painting.
On November 5, 2002, the plaintiff filed an amended complaint alleging, inter alia, conversion, conspiracy to commit fraud, statutory theft, and unjust enrichment against the defendant.FN8 With respect to all counts, the *75 defendant asserted the special defense that he was a buyer in the ordinary course of business pursuant to § 42a-2-403(2), under which he took all of the plaintiff's rights to Red Elvis.
FN8. In January, 2003, the plaintiff filed a complaint in Sweden seeking to have Malmberg criminally prosecuted. In March, 2003, the Swedish court convicted Malmberg of gross fraud embezzlement and rendered judgment in favor of the plaintiff in the amount of $4.6 million. The Swedish court allowed the plaintiff to pursue additional damages against Malmberg in the future. Subsequently, on May 24, 2005, the plaintiff withdrew her claims against Malmberg in this action. See footnote 2 of this opinion.
At trial, the defendant presented expert testimony that, in the art industry, it was the ordinary and customary practice that if an individual regularly worked with a particular art dealer or an art dealer was identified on the identification label of a loaned work of art, inquiries about an art transaction would be presented to the art dealer rather than directly to the principal. Buyers ordinarily and customarily relied on representations made by respected dealers regarding their authority to sell works of art. Purchases and sales of works of art were documented solely by a single invoice from seller to buyer. It was also ordinary and customary to proceed with the purchase of valuable works of art without requesting or receiving documentary proof that the selling dealer had the authority to sell the work of art.
Following a trial to the court, the trial court issued a memorandum of decision on August 29, 2005, in which it concluded that the defendant had satisfied his burden of proving that he was a buyer in the ordinary course of business, and rendered judgment in favor of the defendant. The court noted that the defendant, a merchant, had bought Red Elvis in good faith by observing reasonable commercial standards of fair dealing in the art industry and by taking reasonable steps to investigate title. The court further recognized that “the vast majority of art transactions ... are completed on a handshake and an exchange of an invoice,” and found that the defendant had taken the unusual steps of “retaining counsel, authorizing counsel to engage in due diligence and insisting on formal contract documents [containing warranties and representations] in addition**1055 to an invoice.” In addition, the court indicated that the defendant's counsel had conducted a lien search and *76 an Art Loss Register search that revealed no defects in title, and found that the defendant reasonably had relied on the assurances of Malmberg and Holm, both of whom had reputations as honest and trustworthy art dealers. Moreover, the court concluded that it was reasonable for the defendant to believe that Malmberg had title to the painting because the Guggenheim had released the painting to him and he had been able to deliver Red Elvis to the defendant in Denmark. Because the plaintiff had been represented by an art dealer, it would have been inappropriate for the defendant to contact the plaintiff directly. The court concluded, on the basis of the reasonable steps taken by the defendant, that it would have been an extraordinary measure for the defendant to have insisted on seeing the signed Swedish-English letter or the invoice from the plaintiff to Malmberg.
This appeal followed. The plaintiff claims that the trial court improperly concluded that the defendant took good title to Red Elvis as a buyer in the ordinary course of business because: (1) the defendant was an art merchant who had valid concerns about Malmberg's ability to convey title; (2) applicable commercial standards of fair dealing required the defendant to “investigate [the transaction] scrupulously”; (3) the investigation conducted by the defendant's counsel provided only “minimal assurances” that Malmberg had good title; (4) Malmberg refused to provide documentary proof that he owned Red Elvis; and (5) the defendant could have discovered that Malmberg did not have good title and that a court order precluded the plaintiff from selling the painting if he had telephoned the plaintiff, the plaintiff's counsel, Lindholm, or Lindholm's counsel. We disagree and, accordingly, affirm the judgment of the trial court.
[1][2][3] As a preliminary matter, we set forth the appropriate standard of review. “Historical facts constitute a recital *77 of external events and the credibility of their narrators. So-called mixed questions of fact and law, which require the application of a legal standard to the historical-fact determinations, are not facts in this sense.... [Such questions require] plenary review by this court unfettered by the clearly erroneous standard.... When legal conclusions of the trial court are challenged on appeal, we must decide whether [those] ... conclusions are legally and logically correct and find support in the facts that appear in the record.” (Citation omitted; internal quotation marks omitted.) Friezo v. Friezo, 281 Conn. 166, 181, 914 A.2d 533 (2007). Here, we must determine whether the trial court properly concluded that the defendant was a buyer in the ordinary course of business. This requires application of the legal standards in the governing statutes to the underlying historical facts. Accordingly, the plaintiff's claim that the defendant is not a buyer in the ordinary course is a mixed question of fact and law subject to our plenary review.
[4][5] The plaintiff claims that the trial court improperly found that the defendant had established his affirmative defense that he was a buyer in the ordinary course, and, therefore, took all of the plaintiff's rights to Red Elvis. “It is an elementary rule that whenever the existence of any fact is necessary in order that a party may make out his case or establish his defense, the burden is on such party to show the existence of such fact.” (Internal quotation marks omitted.) Zhang v. Omnipoint Communications Enterprises, Inc., 272 Conn. 627, 645, 866 A.2d 588 (2005). Therefore, the burden was on the defendant to show the existence of such facts as **1056 would entitle him to the status of a buyer in the ordinary course pursuant to § 42a-2-403.
Section 42a-2-403(2) 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 *78 of the entruster to a buyer in ordinary course of business.” “ ‘Entrusting’ ” is defined as “any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor's disposition of the goods have been such as to be larcenous under the criminal law.” General Statutes § 42a-2-403(3).
There is no dispute in the present case that the plaintiff's March 20, 2000 letter authorizing the Guggenheim to release Red Elvis to Malmberg constituted an entrustment under § 42a-2-403(3), or that Malmberg, an art dealer, is a merchant dealing in “goods of that kind”-works of art-under § 42a-2-403(2). Under the plain language of § 42a-2-403(2) and (3), therefore, Malmberg, as a merchant dealing in art entrusted with the painting, had the power to transfer all the rights of the entruster to a buyer in the ordinary course of business.
A “ ‘[b]uyer in [the] ordinary course of business' ” is defined as “a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person ... in the business of selling goods of that kind. A person buys goods in the ordinary course if the sale to the person comports with the usual or customary practices in the kind of business in which the seller is engaged or with the seller's own usual or customary practices....” General Statutes § 42a-1-201(9).FN9 A person buys goods in good faith if there *79 is “honesty in fact and the observance of reasonable commercial standards of fair dealing” in the conduct or transaction concerned. General Statutes § 42a-1-201(20).FN10
FN9. The trial court in its analysis relied on the current version of § 42a-1-201(9). At the time of the sale from Malmberg to the defendant, a buyer in the ordinary course of business was defined as “a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind but does not include a pawnbroker....” General Statutes (Rev. to 1999) § 42a-1-201(9). Neither party contends that the trial court used the wrong statutory standard for determining whether the defendant is a buyer in the ordinary course of business. We also note that the second sentence of the current version of § 42a-1-201(9), which was added to the statute by Public Acts 2001, No. 01-132, § 135, can be interpreted as codifying the standard in existing case law, that a sale must comport with the usual or customary practices in the kind of business in which the seller is engaged. For convenience and consistency in our analysis, we refer to the current version of § 42a-1-201(9).
FN10. The trial court in its analysis used the version of the statute in effect at the time of the sale, which provided that “ ‘[g]ood faith’ in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” General Statutes (Rev. to 1999) § 42a-2-103 (1)(b). That language currently is codified at § 42a-1-201(20). See Public Acts 2005, No. 05-109, § § 7 and 23. Because both definitions contain identical language, we refer to the current definition of good faith in § 42a-1-201(20) for convenience.
[6] We are required, therefore, to determine whether the defendant followed the usual or customary practices and observed reasonable commercial standards of fair dealing in the art industry in his dealings with Malmberg. As we have indicated, the defendant presented expert testimony that the vast majority of art **1057 transactions, in which the buyer has no reason for concern about the seller's ability to convey good title, are “completed on a handshake and an exchange of an invoice.” It is not customary for sophisticated buyers and sellers to obtain a signed invoice from the original seller to the dealer prior to a transaction, nor is it an ordinary or customary practice to request the underlying invoice or corroborating information as to a dealer's authority to convey title. Moreover, it is not customary to approach the owner of an artwork if the owner regularly worked with a particular art dealer because any inquiries about an art transaction customarily are presented to the art dealer rather than directly to the principal. *80 It is customary to rely upon representations made by respected dealers regarding their authority to sell works of art. A dealer customarily is not required to present an invoice establishing when and from whom he bought the artwork or the conditions of the purchase.
We are compelled to conclude, however, that the sale from Malmberg to the defendant was unlike the vast majority of art transactions. The defendant had good reason to be concerned that Lindholm might have claims to the painting. Several courts have held that, under such circumstances, a handshake and an exchange of invoice is not sufficient to confer status as a buyer in the ordinary course. In Porter v. Wertz, 68 A.D.2d 141, 143, 416 N.Y.S.2d 254 (1979), aff'd, 53 N.Y.2d 696, 421 N.E.2d 500, 439 N.Y.S.2d 105 (1981), for example, the owner of a painting entrusted it to an individual with whom he previously had conducted art transactions for display in the individual's home. This individual then used the services of a delicatessen employee, posing as an art dealer, to sell the painting to a merchant art buyer. Id., at 145-46, 416 N.Y.S.2d 254. In discussing the good faith obligation of a merchant, the court stated that although the definition of good faith “by its terms embraces the reasonable commercial standards of fair dealing in the trade, it should not-and cannot-be interpreted to permit, countenance or condone commercial standards of sharp trade practice or indifference as to the provenance, i.e., history of ownership or the right to possess or sell an object d'art....” (Internal quotation marks omitted.) Id., at 146, 416 N.Y.S.2d 254. The buyer made no inquiry as to whether the purported art dealer, who was in fact a delicatessen employee, was the owner of the painting or had been authorized by the owner to sell the painting. Id. Because a simple telephone call would have revealed the fact that the defendant was not an art merchant, thereby leading to doubt that would have required further verification, the court concluded*81 that the buyer could not claim buyer in the ordinary course of business status. Id., at 146-47, 416 N.Y.S.2d 254.
In Howley v. Sotheby's, Inc., New York Law Journal, Vol. 195 (February 20, 1986) p. 6, col. 3B, the owner of a painting sought its recovery from the defendant art dealer. The defendant had purchased the painting from the caretaker of the owner's home, who had posed as the owner's nephew, even though the defendant was unsure whether the “owner's nephew” had authority to sell the painting. Id. The court concluded that, because the defendant was a professional art dealer, he should have been “scrupulously concerned with taking proper title in anything he purchases.” Id. Because the defendant had not taken any steps to verify title, even after the “owner's nephew” informed him that the sale first needed the owner's approval, the defendant did not fulfill his obligation and was liable for conversion. Id.
In Cantor v. Anderson, 639 F.Supp. 364, 367-68 (S.D.N.Y.), aff'd, 833 F.2d 1002 (2d Cir.1986), the court, citing Howley, imposed a duty upon a sophisticated buyer to **1058 inquire into a painting's ownership when circumstances dictate. In Cantor, the buyer and the seller had engaged in numerous previous art transactions. Id., at 366. When the buyer sought the return of several of his artworks that were on consignment with the seller, the seller gave the buyer a painting, to which he claimed ownership, as security for the artworks on consignment. Id., at 367. The buyer, who had been aware of the seller's financial difficulties and was familiar with the seller's practice of selling works on consignment, had reason to doubt the seller's ownership of the painting. Id., at 368. This doubt led to a duty to obtain some verification that the seller had good title. Because the buyer had made no efforts to verify title to the painting, choosing to rely solely on the seller's assurances, the court concluded that the buyer had not fulfilled his duty and was liable for conversion. Id., at 368-69.
*82 Finally, in Morgold, Inc. v. Keeler, 891 F.Supp. 1361, 1369 (N.D.Cal.1995), the court held that an art dealer buyer had obtained good title to a painting by satisfying “the reasonable commercial standards in the art industry....” FN11 In that case, the buyer and the seller had engaged in previous art transactions for several years. Id., at 1364. When the buyer purchased the painting from the seller, he was unaware that the seller had only a one-half interest in the painting. Id., at 1363-65. The court imposed a duty on “dealers in art [to] take reasonable steps to inquire into the title to a painting, particularly if there are warnings that something is wrong with a transaction.” Id., at 1368. In Morgold, Inc., the buyer had engaged in previous art transactions with the seller and had contacted an expert on the artist, who gave no indication of problems with the painting's title. Id., at 1365. Because there were no other warning signs indicating problems with title, the court concluded that the buyer had fulfilled his duty to make a reasonable inquiry and had acquired good title and a right to possession of the painting. Id., at 1369.
FN11. Although the court in Morgold, Inc. v. Keeler, supra, 891 F.Supp. at 1367, analyzed the buyer's obligation to act in good faith pursuant to § 2403 of the California Uniform Commercial Code, that definition is the same as the definition of good faith applicable to a buyer seeking status as a buyer in the ordinary course of business pursuant to § 42a-2-403, and is, therefore, relevant to our analysis.
[7] We agree with these courts that a merchant buyer has a heightened duty of inquiry when a reasonable merchant would have doubts or questions regarding the seller's authority to sell. We further conclude that the steps that a merchant must take to conform to reasonable commercial standards before consummating a deal depend on all of the facts and circumstances surrounding the sale. In the present case, the defendant had concerns about Malmberg's ability to convey good title to Red Elvis because he believed that Lindholm might have had a claim to the painting. The defendant *83 also was concerned that Malmberg had not yet acquired title to the painting or that the transaction might be a “flip”
Because of his concern that Lindholm might make a claim to Red Elvis, the defendant took the extraordinary step of hiring counsel to conduct an investigation and to negotiate a formal contract of sale on his behalf. He also insisted on and obtained a formal contract containing representations and warranties that Malmberg had title to the painting. In addition, during the course of the investigation, the defendant's counsel conducted both a lien search and an Art Loss Register search that revealed no competing claims to Red Elvis. Although the defendant was cautioned**1059 that the searches provided only minimal assurance that Malmberg had good title to the painting, such searches typically are not conducted during the course of a normal art transaction and, therefore, provided the defendant with at least some assurance that Lindholm had no claims to the painting.
Moreover, the evidence was sufficient for the trial court reasonably to conclude that at all times during the transaction, both Malmberg and Holm had reputations as honest, reliable, and trustworthy art dealers. This is not like the situation in Porter v. Wertz, supra, 68 App. Div. at 146, 416 N.Y.S.2d 254, in which the court concluded that the buyer was not a buyer in the ordinary course of business because he did not know the dealer or his reputation. The defendant had little reason to doubt Malmberg's claim that he was the owner of Red Elvis, and any doubts that he did have reasonably were allayed by relying on Holm's assurances that Malmberg had bought the painting from the plaintiff because she needed money due to her divorce. The defendant established at trial that it is customary to rely on the assurances of respected art dealers when conducting a transaction, *84 and the defendant had no reason to depart from this practice.
The defendant's concerns were further allayed when Malmberg delivered Red Elvis to a bonded warehouse in Denmark, the delivery location the parties had agreed to in the contract of sale. At the time of the sale, the painting was on loan to the Guggenheim, whose policy it was to release a painting on loan only to the true owner, or to someone the true owner had authorized to take possession. The defendant was not informed that the plaintiff had authorized release to Malmberg for the sole purpose of lending the painting to a museum in Denmark. Knowing that the Guggenheim would release the painting to an authorized party only, it was reasonable for the defendant to believe that Malmberg was the true owner of the painting. We conclude that these steps were sufficient to conform to reasonable commercial standards for the sale of artwork under the circumstances and, therefore, that the defendant had status as a buyer in the ordinary course of business.
We recognize that the customary practice in the art industry of not requiring a merchant buyer to obtain documentary proof that the seller owns the work of art whenever there are reasonable doubts or questions regarding the seller's authority to sell imposes risks on persons who entrust art to an art dealer. Section 42a1-201 (9) evinces a legislative desire, however, for courts to respect “the usual or customary practices in the kind of business in which the seller is engaged....” We are not entitled to impose the type of business practices that we would prefer.
[8] Moreover, the evidence presented at trial established that the reason that documentary proof of ownership customarily is not required is to protect the confidentiality of the owner and the buyer. Requiring a merchant buyer to obtain an invoice or other supporting documentation*85 proving the seller's ownership would in every transaction destroy the privacy and confidentiality that buyers and sellers have come to desire and expect. Accordingly, only when circumstances surrounding the sale cast severe doubt on the ownership of the artwork are merchant buyers required to obtain documentary assurance that the seller has good title. In this instance, the Swedish-English letter was produced at Holm's suggestion to give the defendant assurance that the plaintiff had good title when she sold the painting to Malmberg. In light of the customary practices in the industry, the defendant reasonably could have concluded that Malmberg was unwilling to produce a **1060 signed copy of the letter because of his desire to protect the owner's expectation of confidentiality in their transaction. The purpose of the letter was not to give the defendant assurance that Malmberg had good title to the painting, and any concerns about Malmberg's title that could be inferred from the refusal to show the defendant a signed copy of the letter were quickly allayed by Malmberg's subsequent delivery of the painting to Denmark. Accordingly, we conclude, on the basis of all the circumstances surrounding this sale, that the defendant's failure to obtain an invoice from the plaintiff to Malmberg or a signed copy of the Swedish-English letter does not strip him of his status as a buyer in the ordinary course of business. For the same reasons, we conclude that the defendant was not required to contact directly the plaintiff or other parties who might have had knowledge concerning Red Elvis' title.
We conclude that the trial court properly determined that the defendant was a buyer in the ordinary course of business and, therefore, took all rights the plaintiff had to the painting pursuant to § 42a-2-403(2).
The judgment is affirmed.
Case 21.3
426 F.Supp.2d 875
United States District Court,W.D. Wisconsin.
SPRAY-TEK, INC., Plaintiff,
v.
ROBBINS MOTOR TRANSPORTATION, INC., Defendant.
No. 05 C 506 S.
April 5, 2006.
MEMORANDUM AND ORDER
, District Judge.
Plaintiff Spray-Tek, Inc. commenced this action against defendant Robbins Motor Transportation, Inc. alleging defendant is subject to liability for cargo loss or damage pursuant to the Carmack Amendment to the Interstate Commerce Act et seq. because of its status as a regulated for-hire carrier. Plaintiff also alleges defendant is subject to liability based on the principles of promissory estoppel and unjust enrichment. Plaintiff seeks an award of ordinary and special damages in this action. Jurisdiction is based on and . The matter is presently before the Court on cross-motions for summary judgment. Also presently before the Court are: (1) defendant's motion to strike the affidavit of Colin Barrett because plaintiff failed to previously disclose him as an expert witness; and (2) defendant's motion to strike plaintiff's reply brief and supporting affidavits because they were untimely filed. The following facts are either undisputed or those most favorable to the non-moving party.
BACKGROUND
Plaintiff Spray-Tek, Inc. is engaged in the business of commercial dehydration of food flavor, pharmaceutical and soft chemical products. In 2003 plaintiff entered into a contract with Niro, Inc. (hereinafter Niro) in which Niro was to design and manufacture a fourteen foot diameter cone bottom drying chamber (hereinafter drying chamber) for plaintiff. Pursuant to the terms of the contract Niro was also responsible for shipping the drying chamber from its facility in Hudson, Wisconsin to plaintiff's facility in Bethlehem, Pennsylvania. The contract stated in relevant part:
2.0 PRICING
2.1 Base Spray Dryer System
For one (1) Niro-Bowen spray drying system with 14-ft. diameter, cone-bottom drying chamber, having a design production capacity as specified in Section 8.0 of this quotation, and including all scope of equipment and services as specified in this quotation document, F.O.B. points of manufacture in the U.S.A. Freight charges for shipment of mechanical scope to site are to be pre-paid by Niro and invoiced to Buyer at-cost, utilizing Buyer's preferred carrier(s) where possible.
Price ................................. $1,161,500.00
...IX. RISKS OF LOSS. The Purchaser shall bear the risk of loss of or damage*879 to the equipment and parts after delivery of the equipment and parts to the job site or to the shipping point if delivery F.O.B. shipping point is specified.
On October 14, 2004 Niro's representative Mr. David Thoen contacted defendant Robbins Motor Transportation, Inc. to obtain an estimate for transporting the drying chamber to plaintiff. Mr. Thoen spoke with Mr. Robert Kauffman, Jr. who serves as defendant's Southwest Regional Terminal Manager. Mr. Thoen provided Mr. Kauffman with information concerning the dimensions and estimated weight of the drying chamber as well as Niro's required pick-up and delivery dates which were October 18, 2004 and October 25, 2004 respectively. After receiving said information Mr. Kauffman prepared and sent an estimate to Niro. Defendant's estimate stated in relevant part:
Re: Rates for Hudson, WI to Bethlehem, PA
Thank you for including Robbins Motor Transportation in this opportunity to bid our services to you again! Below indicates the price for transportation with dims of:
Load # 1 Vessel 25 x15 x14.75 25,000 lbs. $16,887
Loading on the 18th of October and delivering on the 25th of October. The delivery date is subject to change due to permits and routing.
...STANDARD TERMS AND CONDITIONS
ESTIMATE IS BASED ON DIMENSION, WEIGHT, AND SERVICES SPECIFIED. CHANGES OR ERRORS IN THESE COULD AFFECT PRICING. RATE ESTIMATE VALID FOR 30 DAYS. WE FOLLOW THE FOLLOWING DETENTION RATES (PER HOURS OR FRACTION THEREOF) FLATBEDS $85.00/HOUR EXTENDABLE. DROPDECK OR LOWBED AT $100.00/PER HOUR
DETENTION RATE ON SPECIALIZED EQUIPMENT WILL VARY DEPENDING UPON THE NUMBER OF AXELS. MODIFICATIONS TO EQUIPMENT NECESSARY TO TRANSPORT CARGO DUE TO UNUSUAL SHAPE OR SPECIAL HANDLING WILL BE AT SHIPPERS EXPENSE. COST CAN BE INCLUDED IN QUOTATION IF REQUIREMENTS ARE KNOWN IN ADVANCE.
Approval: _____________________
Mr. Thoen signed the estimate and faxed it back to defendant on October 14, 2004. Mr. Thoen and Mr. Kauffman never discussed the value of the drying chamber before the estimate was prepared. However, Mr. Kauffman testified at his deposition that “value really doesn't come into play” in preparing an estimate. Additionally, he testified he failed to advise Mr. Thoen that he could have his rate quotation based on either value or weight and dimensions. Finally, Mr. Thoen testified at his deposition that he never advised Mr. Kauffman before he prepared the estimate that if defendant failed to deliver the drying chamber by October 25, 2004 plaintiff would be subject to consequential damages.
On October 18, 2004 defendant arrived at Niro's facility in Hudson, Wisconsin and the drying chamber was loaded onto its trailer. Niro prepared a Bill of Lading for the shipment by completing the blanks on the form for: (1) load information; (2) identity of the carrier; (3) address of the consignee and shipper; (4) description of the dryer; and (5) weight of the dryer. Additionally, the Bill of Lading stated in relevant part:
Received, subject to the classifications and tariffs in effect on the date of this Bill of Lading:
*880 ...the property described below in apparent good order, ... It is mutually agreed, as to each carrier of all or any of said property over all or any of said portion of said route to destination, and as to each party at any time interested in all or any of said property, that every service to be performed hereunder shall be subject to all the conditions not prohibited by law, whether printed or written, herein contained (as specified in Appendix B to Part 1035) which are hereby agreed to by the shipper and accepted for himself and his assigns.
...Note-where the rate is dependent on value, shippers are required to state specifically in writing the agreed or declared value of the property. The agreed or declared value of the property is hereby specifically stated by the shipper to be not exceeding-
$____________________ per____________________
Mr. Thoen signed the Bill of Lading on Niro's behalf. Defendant's driver signed it as well. However, Mr. Thoen failed to declare a value for the drying chamber on the Bill of Lading. The Bill of Lading was part of a multi-copy form Niro provided to defendant. Said Niro prepared form was the only documentation exchanged between the parties on October 18, 2004.
On or about October 28, 2004 the drying chamber was damaged while it was in transit on Interstate Highway 695 in Baltimore, Maryland. Accordingly, the drying chamber never arrived at plaintiff's facility in Bethlehem, Pennsylvania. The drying chamber was damaged when it struck an overpass and became dislodged from defendant's vehicle. It was inspected and declared a total loss. Accordingly, Niro manufactured a replacement drying chamber for plaintiff and invoiced it $233,100.00 in replacement costs. Additional facts relevant to the Court's analysis will be discussed throughout the course of this opinion.
MEMORANDUM
Plaintiff argues it is entitled to partial summary judgment on three issues: (1) defendant's liability under the Carmack Amendment; (2) defendant's liability cannot be limited by released rate provisions contained within its tariff; and (3) plaintiff's entitlement to damages for repair costs. Defendant argues it is entitled to summary judgment on three issues as well: (1) its potential liability was effectively limited to $2,500.00 per ton because of limited liability provisions contained within its tariff and terms and conditions; (2) plaintiff is not entitled to special damages; and (3) plaintiff's common law claims of unjust enrichment and promissory estoppel are preempted by the Carmack Amendment.
As a preliminary matter, the Court has before it defendant's motion to strike plaintiff's reply brief and supporting affidavits because they were untimely filed. Defendant's motion is one of form over substance. Defendant was not prejudiced by plaintiff's minimal delay in filing its reply brief and supporting affidavits. Accordingly, defendant's motion to strike is denied. See .
Additionally, the Court has before it defendant's motion to strike the affidavit of Colin Barrett because plaintiff failed to previously disclose him as an expert witness. Defendant asserts it will suffer prejudice if plaintiff is allowed to use Mr. Barrett's testimony because it will have “little or no opportunity to depose Mr. Barrett, rebut his ‘expert’ opinions, nor challenge his credentials, as is [defendant's] right.” Additionally, defendant asserts it will not have the opportunity to “solicit expert opinions of its own.” Again, *881 defendant's motion is one of form over substance. Trial in this action is not set to begin until April 27, 2006 which gives defendant approximately three weeks to depose Mr. Barrett and to “solicit expert opinions” of its own. Accordingly, plaintiff's failure to previously disclose Mr. Barrett as an expert witness is harmless within the meaning of and defendant's motion to strike the affidavit of Colin Barrett is denied.
Summary judgment is appropriate where the “pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” .
A fact is material only if it might affect the outcome of the suit under the governing law. . Disputes over unnecessary or irrelevant facts will not preclude summary judgment. Further, a factual issue is genuine only if the evidence is such that a reasonable fact finder could return a verdict for the nonmoving party. A court's role in summary judgment is not to “weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” .
To determine whether there is a genuine issue of material fact for trial courts construe all facts in the light most favorable to the non-moving party. (citation omitted). Additionally, a court draws all reasonable inferences in favor of that party. However, the non-movant must set forth “specific facts showing that there is a genuine issue for trial” which requires more than “just speculation or conclusory statements.” (citations omitted).
A. Defendant's liability under the Carmack Amendment
Plaintiff asserts uncontested facts in the record establish its prima facie case under the Carmack Amendment. Additionally, plaintiff asserts nothing in the record suggests that the drying chamber was damaged because of one of the excepted causes which would relieve defendant of liability. Accordingly, plaintiff argues it is entitled to summary judgment on the issue of defendant's liability under the Carmack Amendment. Defendant asserts plaintiff failed to meet its burden of establishing its prima facie case under the Carmack Amendment because it failed to demonstrate that the drying chamber arrived in damaged condition. Additionally, defendant asserts plaintiff failed to establish its amount of damages. Accordingly, defendant argues plaintiff's motion for summary judgment on the issue of liability should be denied.
The Carmack Amendment to the Interstate Commerce Act (hereinafter Carmack Amendment) states in relevant part:
A carrier providing transportation or service... shall issue a receipt or bill of lading for property it receives for transportation under this part. That carrier and any other carrier that delivers the property and is providing transportation or service...are liable to the person entitled to recover under the receipt or bill of lading. The liability imposed under this paragraph is for the actual loss or injury to the property caused by (A) the receiving carrier, (B) the delivering carrier, or (C) another carrier over whose line or route the property is transported in the United States....Failure to issue a receipt or bill of lading does not affect the liability of a carrier.
. The purpose of the Carmack Amendment is to “establish *882 uniform federal guidelines designed in part to remove the uncertainty surrounding a carrier's liability when damage occurs to a shipper's interstate shipment.” .
Under the Carmack Amendment plaintiff bears the burden of establishing a prima facie case which requires it to demonstrate: (1) delivery to the carrier in good condition; (2) arrival in damaged condition; and (3) the amount of damages. , reh'g. denied, . Upon such a showing the burden shifts to the carrier to demonstrate both that it was free from negligence and that damage to the shipment was due to one of the excepted causes relieving it of liability. (citing The excepted causes are: (1) acts of God; (2) the public enemy; (3) acts of the shipper himself; (4) public authority; or (5) the inherent vice or nature of the goods. (citations omitted). If defendant cannot meet its burden plaintiff is entitled to recover damages for its actual loss or injury to the shipment.
Defendant concedes that it received the drying chamber in good condition. Accordingly, plaintiff's first element of its prima facie case is established. Defendant also concedes the drying chamber was damaged. However, defendant asserts plaintiff cannot establish the second element of its prima facie case because it cannot demonstrate that the drying chamber actually arrived at its final destination which was plaintiff's Bethlehem, Pennsylvania facility.
The purpose of demonstrating delivery to the carrier in good condition and arrival in damaged condition is to show an adverse change in the condition of goods while they were in the carrier's custody which implies that whatever injury occurred was caused by the carrier. (citing Accordingly, carriers are subject to liability under the Carmack Amendment even if goods they were transporting never arrive at their final destination. See (defendant carrier liable to plaintiff under the Carmack Amendment despite the fact that plaintiff's goods were stolen before final delivery) and (defendant carrier liable for loss incurred by plaintiff for household goods destroyed by fire while in transit).
It is undisputed that the drying chamber was damaged when it struck an overpass and became dislodged from defendant's vehicle. Additionally, it is undisputed that after the accident the drying chamber was inspected and declared a total loss. Accordingly, the fact that the drying chamber never arrived at plaintiff's facility is irrelevant because the record clearly demonstrates that there was an adverse change in the condition of the drying chamber while it was in defendant's custody.
An additional argument defendant asserts concerning plaintiff's second element of its prima facie case is that plaintiff cannot demonstrate it owned the drying chamber during transport. However, the contract plaintiff entered into with Niro establishes that it was the owner of the drying chamber when it was damaged. The contract provided that the terms of sale were F.O.B. points of manufacture in the U.S.A. According to the declaration of David Brand who serves as plaintiff's vice-president and general manager F.O.B. *883 points of manufacture means that the drying chamber became plaintiff's property once it was “placed on board the delivery truck at its point of manufacture in Hudson, Wisconsin.”
Mr. Brand's assertion that plaintiff owned the drying chamber once it was loaded onto defendant's trailer is reinforced by the provision in the contract concerning risks of loss. Said section provided that plaintiff would bear the risk of loss of or damage to the equipment after delivery to the shipping point if delivery F.O.B. shipping point was specified. Here the shipping point and the manufacturing point were identical. Accordingly, the F.O.B. points of manufacture language contained within plaintiff's contract demonstrates that plaintiff bore the risk of loss once the drying chamber departed from Niro's Hudson, Wisconsin facility. There is no genuine issue concerning either ownership of the drying chamber or arrival of the drying chamber in damaged condition. Accordingly, plaintiff established the second element of its prima facie case.
Finally, defendant asserts plaintiff cannot meet its burden of establishing the third element of its prima facie case because it failed to demonstrate what “it is obligated to pay for the dryer.” However, the declaration of Mr. Brand indicates that Niro invoiced plaintiff $233,100.00 for the replacement dryer. Accordingly, plaintiff established the third element of its prima facie case because its amount of damages is $233,100.00.
Plaintiff met its burden of establishing a prima facie case under the Carmack Amendment. Accordingly, the burden now shifts to defendant to prove that it was both free from negligence and that damage to the shipment was due to one of the excepted causes relieving it of liability. (citation omitted). Defendant concedes it failed to produce any evidence establishing that damage to the shipment was due to one of the accepted causes. Accordingly, plaintiff is entitled to summary judgment on the issue of defendant's liability under the Carmack Amendment.
B. Limitation of defendant's liability under the Carmack Amendment and plaintiff's entitlement to repair costs
Defendant asserts it limited its liability to $32,500.00 because of limited liability provisions contained within its tariff and terms and conditions which serve to limit its liability to $2,500.00 per ton unless a shipper declares a higher value. Accordingly, because Niro failed to declare a value for the drying chamber on the Bill of Lading defendant argues it is entitled to summary judgment limiting is liability to $32,500.00. Plaintiff asserts defendant failed to provide Niro with notice of its released rate valuation or provide it with an opportunity to choose between two different levels of liability. Additionally, plaintiff asserts defendant's tariff is void as a matter of law. Accordingly, plaintiff argues it is entitled to summary judgment concerning the non-limitation of defendant's liability which would entitle it to damages for repair costs in the amount of $233,100.00. An exception to the general rule that a carrier is liable for the actual loss or injury to property exists pursuant to . Said statute provides in relevant part:...a carrier...may...establish rates for the transportation of property... under which the liability of the carrier for such property is limited to a value established by written or electronic declaration of the shipper or by written agreement between the carrier and shipper if that value would be reasonable under the circumstances surrounding the transportation.
*884 Said written agreement between a carrier and a shipper may incorporate a limitation of liability contained within a tariff. .
Under the prior statutory scheme four requirements had to be met by a carrier to limit its liability under the Carmack Amendment. A carrier had to: (1) maintain a tariff within the prescribed guidelines of the Interstate Commerce Commission; (2) obtain the shipper's agreement as to his choice of liability; (3) give the shipper a reasonable opportunity to choose between two or more levels of liability; and (4) issue a receipt or bill of lading prior to moving the shipment. (citing ).
However, the Interstate Commerce Commission (hereinafter ICC) no longer exists. Additionally, carriers are no longer required to file tariffs with the ICC's successor the Surface Transportation Board. Accordingly, element number one can no longer be a requirement for applying a liability limitation. However, a liability limitation provision contained within a tariff does not automatically limit a carrier's liability because today tariffs have no binding effect apart from their status as contracts. . Accordingly, a carrier must upon the shipper's request provide it with “a written or electronic copy of the rate, classification, rules, and practices [such as a tariff] upon which any rate applicable to a shipment, or agreed to between the shipper and the carrier is based.” .
Plaintiff asserts defendant cannot limit its liability under the Carmack Amendment based on provisions contained within its tariff because its tariff is entirely void by operation of law. A carrier is no longer required to file a tariff with the Surface Transportation Board. Accordingly, tariffs are no longer automatically binding upon a shipper. See However, as previously indicated a carrier's liability can be effectively limited based on a liability limitation provision contained within a tariff if said tariff is part of an enforceable contract between the parties. Accordingly, the fact that defendant's tariff is not automatically applicable is not dispositive of the matter because the Court must still determine what documents served as enforceable contracts between Niro; defendant; and plaintiff as Niro's assign.
First, the Court concludes defendant's October 14, 2004 estimate served as an enforceable contact between the parties. The estimate contained all required contract elements: (1) offer; (2) acceptance; and (3) consideration. See . However, that does not end the Court's inquiry because a subsequently issued Bill of Lading can also serve as an enforceable contract. See . Accordingly, if the Bill of Lading served as an enforceable contract the parties' motions for summary judgment are ones of contract interpretation. When a motion for summary judgment concerns contract interpretation summary judgment is only proper if the contract “is clear and unambiguous as a matter of law, meaning that [it] can be read only one way.” (citing ). The Court concludes the Bill of Lading served as an enforceable contract between Niro and defendant.*885 Accordingly, elements two and four of the test were established when: (1) Niro prepared its Bill of Lading; and (2) Mr. Thoen and defendant's driver signed the Bill of Lading. However, summary judgment is not proper because the contract is ambiguous concerning the issue of whether defendant gave Niro a reasonable opportunity to choose between two or more levels of liability.
The Bill of Lading contained the language “[r]eceived, subject to the classifications and tariffs in effect on the date of this Bill of Lading.” Defendant's tariff provides in relevant part:
ITEM 161-APPLICATION OF RATES VALUATION-CARRIER'S LIABILITY
When a shipper tenders a shipment and declares a value in excess of $2,500.00 per ton...such shipment will only be accepted subject to the base valuation rate of one dollar...for each one thousand dollars...of fraction thereof of the declared value.
The shipper must make and sign the following notation of the Bill of Lading: “The agreed or declared value of the property on the Bill of Lading is hereby specifically stated by the shipper to be $__________ per 2,000 pounds. SIGNED: ______________________________.”
Unless a greater value is declared by the shipper and stated on the Bill of Lading the carrier's liability for any loss or damage to any article or package comprising the shipment shall be limited to $2,500.00 per ton...or fraction thereof.
The language contained in Item 161 of defendant's tariff was incorporated into paragraph 18 of defendant's terms and conditions entitled Limited Liability. The Bill of Lading also contained the language “where the rate is dependent on value, shippers are required to state specifically in writing the agreed or declared value of the property.” It is undisputed that Niro failed to advise Mr. Kauffman of the value of the drying chamber before he prepared the estimate. Additionally, it is undisputed that Niro failed to declare a value for its shipment on the Bill of Lading. Accordingly, at first glance it appears defendant's liability was effectively limited by its tariff which was incorporated into the shipper prepared Bill of Lading. However, there remains a genuine issue concerning whether Niro's rate was dependent on value.
Mr. Kauffman testified that value does not come into play when rates are determined. He indicated dimensions are what is important. Additionally, Mr. Kauffman testified that he uses defendant's computer tariff system when he prepares a quote which takes into account: (1) the pickup point; (2) the delivery point; (3) weight; (4) size; and (5) dimension. Value of an item apparently is not taken into account by defendant's computer tariff system. Further, Mr. Kauffman testified that he has never used defendant's paper tariff (including Item 161) in preparing an estimate. Additionally, his office does not maintain a copy of defendant's paper tariff. Finally, Mr. Kauffman testified he: (1) failed to advise Mr. Thoen that he could have his rate quotation based on either value or weight and dimension; and (2) is not sure whether Niro was provided defendant's terms and conditions. Although it is undisputed that Mr. Thoen failed to request a copy of either defendant's tariff or terms and conditions. Accordingly, there remains a genuine issue of material fact concerning the issue of whether defendant provided Niro with a reasonable opportunity to choose between two different levels of liability. If the jury finds in the affirmative plaintiff's damages will be limited to $32,500.00. However, if *886 the jury answers in the negative defendant will be subject to liability for the full value of plaintiff's actual loss.
C. Plaintiff's entitlement to special damages
Defendant asserts it is entitled to summary judgment on the issue of special damages because it never received notice of any circumstances which would give rise to plaintiff's special damages. Plaintiff asserts its change order and additional general contracting costs were natural and probable consequences of defendant's breach. Accordingly, plaintiff argues defendant's motion for summary judgment concerning the issue of special damages should be denied.
The Carmack Amendment is comprehensive enough to “embrace all damages resulting from any failure to discharge a carrier's duty with respect to any part of the transportation to the agreed destination.” (internal quotation marks and citation omitted). Accordingly, an injured party can recover damages for delay, non-speculative lost profits and all reasonably foreseeable consequential damages. (citations omitted). However, the Carmack Amendment has not changed the common law rule that special damages are usually not recoverable in a breach of contract action. (citation omitted). Special damages are those that a carrier would not reasonably foresee as the ordinary consequence of a breach at the time the contract was made. (citations omitted). To recover special damages plaintiff must show that defendant had notice of circumstances which might lead to such damages. (citations omitted). Additionally, under the general rule notice of special damages must be given when the shipping contract is made. (citing ). Plaintiff cannot meet its burden of demonstrating that at the time the initial contract was made defendant had notice of circumstances which would lead to special damages. Accordingly, defendant is entitled to summary judgment on this issue.
Mr. Thoen testified at his deposition as follows:
Q Prior to October 18, 2004 did you have any knowledge what specifically [plaintiff] was going to use the dryer for?
A No, I have no idea. Other than it's a dryer.
Q Did you have any idea what was going on at [plaintiff's] facilities in Bethlehem, Pennsylvania?
A No. I had no contact with them at all. I worked strictly through Joe Mally.
Q ...He told you the delivery date he needed it by?
A That's correct.
Q Did he tell you the specifics of why he needed it by that date?
A No, he did not.
Q So did you request a specific delivery date from Robbie Kauffman at [defendant]?
A Yes, I did.
Q ...Did you say anything to Robbie Kauffman or anyone else at [defendant] regarding what had happened if [plaintiff] didn't receive the dryer by the delivery date?
A. No.
Q. ...Did you tell [defendant] anything about time being of the essence or consequential damages?
*887 A. I did not know of any....
It is undisputed that the only contact between Niro and defendant occurred between Mr. Thoen and Mr. Kauffman. Accordingly, defendant was unaware when it entered into the initial transportation contract with Niro that plaintiff's facility in Bethlehem, Pennsylvania was under construction and failure to deliver the drying chamber by October 25, 2004 would subject plaintiff to additional general contracting or change order costs. Additionally, defendant clearly indicated on its estimate that delivery date was subject to change due to permits and routing.
Plaintiff asserts that it was “obvious to [defendant] that Niro was shipping a unique, one-of-a-kind object that was part of a larger system being assembled at [plaintiff's] facility.” However, plaintiff cannot rest on conclusory allegations alone and successfully defeat a motion for summary judgment. The undisputed evidence in the record establishes that defendant did not have the prerequisite notice at the time it entered into the initial contract with Niro that failure to deliver the drying chamber by October 25, 2004 would subject plaintiff to special damages. Accordingly, plaintiff cannot seek recovery for its change order or additional general contracting costs in the form of special damages under its Carmack Amendment claim. Defendant's motion for summary judgment on the issue of special damages is granted.
D. Preemption of plaintiff's common law claims under the Carmack Amendment.
Defendant asserts that plaintiff's common law claims for unjust enrichment and promissory estoppel must be dismissed as a matter of law because they are preempted by the Carmack Amendment. Plaintiff concedes that this action is governed exclusively by the Carmack Amendment. Accordingly, defendant's motion for summary judgment on the issue of preemption is granted and count two of plaintiff's complaint is dismissed. The Court's role on summary judgment is not to weigh the evidence and determine the truth of the matter. Accordingly, trial in this action will focus on the issue of whether defendant provided Niro with a reasonable opportunity to choose between two different levels of liability. Both the October 14, 2004 estimate and the Bill of Lading served as enforceable contracts. The October 14, 2004 estimate does not contain a term or condition limiting defendant's liability. However, the Bill of Lading limits defendant's liability by incorporating its tariff. Accordingly, when the two documents are viewed together as a whole the Court concludes the contract is ambiguous and its interpretation must be reserved for the fact finder.
ORDER
IT IS ORDERED that defendant's motions to strike: (1) plaintiff's reply briefs and supporting affidavits; and (2) the affidavit of Colin Barrett are DENIED.
IT IS FURTHER ORDERED that plaintiff's motion for summary judgment concerning defendant's liability under the Carmack Amendment is GRANTED and in all other respects DENIED.
IT IS FURTHER ORDERED that defendant's motion for summary judgment concerning: (1) the inapplicability of special damages; and (2) preemption of plaintiff's common law claims under the Carmack Amendment is GRANTED and in all other respects DENIED.
IT IS FURTHER ORDERED that Count Two of plaintiff's complaint is DISMISSED.
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