Opinion ID: 678497
Heading Depth: 4
Heading Rank: 1

Heading: Admissibility of Bankruptcy Pleadings

Text: 62 Amoco argues that the district court erred in denying Amoco the opportunity to prove, allegedly via BNY's proof of claim submitted in the Drexel Burnham Lambert Group Bankruptcy proceedings, that as of November 15, 1990, only the principal amount of $183,687.76 was 'owed to the Bank of New York' as a result of its loan to Drexel under the note for which the Amoco platinum was accepted as collateral, not the $550,000 BNY was seeking. Amoco's Brief at 37. Amoco essentially argues that BNY's damages were limited to the amount owed on the underlying loan--$183,687.76. 63 Amoco's argument, however, confuses BNY's claim--for conversion of goods to which BNY was entitled under Article 7--with a claim that BNY might have brought against the collateral pursuant to the financing agreements. Under New York's version and interpretation of the U.C.C., proof that the platinum was delivered to the bailee and proof that the bailee refused, without legal excuse, to deliver the platinum on demand constitutes a prima facie case of conversion. I.C.C. Metals, Inc. v. Municipal Warehouse Co., 50 N.Y.2d 657, 660, 431 N.Y.S.2d 372, 374, 409 N.E.2d 849, 851 (1980); General Foods Corp. v. Pittston Warehouse, Corp., 110 A.D.2d 520, 521, 487 N.Y.S.2d 744, 746 (1st Dept.1985). 64 Recovery in an action for conversion is the full value of the converted property. General Foods, 110 A.D.2d at 521-22, 487 N.Y.S.2d at 746 (where the warehouseman simply refuses to return the bailed property and does not provide any explanation for its refusal, the plaintiff will be entitled to collect the full value, without more). The First Department in National Dairy Prod. Corp. v. Lawrence Am. Field Warehouse Corp., 22 A.D.2d 420, 255 N.Y.S.2d 788 (1st Dept.1965), observed that, as a general rule[,] ... one having a special right to immediate possession may recover the full value of the converted property from the wrongdoer and then account to the owner of the remaining proprietary interest for the surplus of market value over the special interest. Id. 255 N.Y.S.2d at 801. The First Department went on, however, to recognize an exception to this general rule in special circumstances where justice requires that the owner of a special interest recover only for the harm suffered. Id. The First Department further observed that [t]here is some authority ... that the special owner's recovery must be limited whenever the converting defendant is in 'privity' with the owner of the remaining proprietary interest. Id. (citing Davis v. Bliss, 187 N.Y. 77, 84-86, 79 N.E. 851, 853-54 (1907); 56 Am.Jur., Warehouses Sec. 215). The First Department then modified the Supreme Court's award of summary judgment, granting summary judgment on liability only and remanding the case for an assessment of damages. The Court of Appeals, however, reversed the Appellate Division and reinstated the judgment of the Supreme Court. Procter & Gamble v. Lawrence Am. Field Warehouse Corp., 16 N.Y.2d 344, 266 N.Y.S.2d 785, 213 N.E.2d 873 (1965). The Court of Appeals wrote, [a] warehouseman is liable in this State to the holder of the warehouse receipt for the full value of the merchandise, even where the holder of the receipt has only a special interest in the property. Procter & Gamble, 16 N.Y.2d at 355, 266 N.Y.S.2d at 793, 213 N.E.2d at 878-79 (citing Einstein v. Dunn, 61 A.D. 195, 70 N.Y.S. 520, 524-25 (1st Dept.1901), aff'd 171 N.Y. 648, 63 N.E. 1116 (1902); Mechanics & Trader's Bank v. Farmers and Mechanics' Nat'l Bank, 60 N.Y. 40, 52 (1875)). The Court of Appeals continued, 65 it is incumbent on the party entitled to possession to account for the surplus, if any to the owners of other interests in the goods..... The difficulty, as we view it, with the reasoning of the Appellate Division is that it prejudges the rights and liabilities between plaintiff and Allied [ (a potential buyer of the goods in question who had made a down payment on the goods) ] without Allied's being before the court, and gives the benefit to defendant without recourse by plaintiff to protect itself against whatever personal liability plaintiff might be under to return part of the deposit to Allied or its trustee in bankruptcy.... [P]laintiff may recover for the full value of the bailed merchandise even if plaintiff's interest consisted merely in having a lien upon the bailed [goods] to secure the balance of the purchase price which Allied had agreed to pay..... [W]here there has been conversion of merchandise, the holder of the warehouse receipt is entitled to recover for the full value of the merchandise, and the holder of the receipt must then fulfill his obligations to other contracting parties who were not, themselves, entitled to possession of the merchandise at the time of its conversion. 66 Procter & Gamble, 16 N.Y.2d at 355-58, 266 N.Y.S.2d at 793-95, 213 N.E.2d at 878-80. To be sure, the facts of the Procter & Gamble case are somewhat different from the facts in this case. Most importantly, the plaintiff in Procter & Gamble was the bailor, not, as in this case, the pledgee. We find, however, that the Court of Appeals would apply the same analysis were the plaintiff the pledgee of warehouse receipts rather than the bailor. In Procter & Gamble, the Court of Appeals felt compelled to distinguish Corn Exch. Bank v. American Dock & Trust Co., 163 N.Y. 332, 57 N.E. 477 (1900). In Corn Exch. Bank, the Court of Appeals held that a bank that held warehouse receipts as collateral to secure a loan could only collect from the defendant warehouseman the amount of the indebtedness on the loan, not the full value of the goods described in the warehouse receipts. The Court of Appeals in Procter & Gamble distinguished Corn Exch. Bank not on the grounds that the plaintiff was a pledgee rather than the bailor, but on the grounds that because the goods described in the warehouse receipts never existed, there was never a conversion. Procter & Gamble, 16 N.Y.2d at 356-57, 266 N.Y.S.2d at 794, 213 N.E.2d at 879-80. We find, therefore, that New York courts would allow the pledgee of duly negotiated warehouse receipts to recover the full value of the goods described therein. Whilst the Bank of New York would be accountable to Drexel's trustee in bankruptcy for any surplus, whether there is, in fact, any surplus is not relevant to the question whether Amoco is obliged to deliver the platinum to the Bank of New York. 67 In this case, there was sufficient documentary evidence to establish that the platinum was delivered to Amoco; that Amoco issued negotiable documents of title covering the platinum; that DBL Trading duly negotiated the holding certificates to BNY; and that BNY, as holder in due course of the holding certificates, demanded the platinum from Amoco. In addition, Amoco failed to offer a proper excuse for refusing BNY's demand. Amoco argues that, pursuant to N.Y.U.C.C. Sec. 7-603, it was entitled to a reasonable amount of time to sort out conflicting claims to the platinum. The district court considered this argument but found that, under the circumstances, Amoco's refusal was unreasonable. Amoco argues that it refused to surrender the platinum to BNY on the grounds that it was unsure whether, upon surrender, it might later be liable to DBL Trading or some other party claiming an interest in the platinum. These concerns regarding the potential claims of other parties are insufficient to excuse Amoco's failure, however. The U.C.C. provides that [i]f more than one person claims title or possession of the goods, the bailee is excused from delivery until he has had a reasonable time to ascertain the validity of the adverse claims.... N.Y.U.C.C. Sec. 7-603. Because no other person actually claimed title or possession of the goods, Sec. 7-603 simply does not apply. Thus, the two cases relied upon by Amoco are readily distinguishable. In both Northwestern Nat'l Sales, Inc. v. Commercial Cold Storage, Inc., 162 Ga.App. 741, 741-42, 293 S.E.2d 30, 31-32 (1982), and Corrigan Dispatch Co. v. Casa Guzman, S.A., 696 F.2d 359, 363 (5th Cir.1983), the bailee received actual notice from a third party of a claim to title or possession of the goods. Moreover, under the U.C.C., [a] bailee who in good faith including observance of reasonable commercial standards has received goods and delivered or otherwise disposed of them according to the terms of the document of title or pursuant to this Article is not liable therefor. N.Y.U.C.C. Sec. 7-404. Section 7-404 applies even though the person from whom [the bailee] received the goods had no authority to procure the document or to dispose of the goods. Hence, Amoco's concern over the fact that the Drexel trader who had arranged the leases contacted the Amoco employee responsible for the leases and asked for early termination of a lease on the ground the leased metal actually belonged to a third party, Amoco's Brief at 44-45, does not render its failure to deliver reasonable. 68 We find that because BNY made out a prima facie case of conversion, BNY was entitled to the full value of the converted property at the time of conversion--the date its demand was refused. Therefore, the amount owed to BNY by DBL Trading on the underlying note was immaterial to BNY's damages and properly excluded by the district court. 69