United States District Court, Southern District of New York
April 10, 1991
NATIONAL MICROSALES CORPORATION, PLAINTIFF,
THE CHASE MANHATTAN BANK, N.A., DEFENDANT.
The opinion of the court was delivered by: Sweet, District Judge.
Plaintiff National Microsales Corporation ("NMC") has moved for summary
judgment on its complaint against defendant Chase Manhattan Bank, N.A.
("Chase"). NMC has also moved for sanctions against Chase for its conduct
in discovery. For the following reasons, the motion for summary judgment
is granted in part and denied in part. The motion for sanctions is denied
at this time, with leave to renew at the close of litigation.
The parties and the underlying dispute are described in more detail in
the earlier opinion in this case dated October 13, 1989, 1989 WL 125884
as amended on October 20, 1989 ("the Opinion"). NMC v. Chase Manhattan
Bank, 88 Civ. 8437 (RWS) (S.D.N.Y. Oct. 20, 1989). NMC is a Connecticut
corporation engaged in the business of buying and selling computer output
microfilming ("COM") equipment. Chase is a national bank which in 1988
entered into negotiations with NMC to sell some of its used COM equipment
to NMC for resale. When Chase subsequently sold the equipment to a third
party, NMC filed this diversity suit alleging breach of contract.
In June 1989, Chase moved for summary judgment dismissing NMC's
complaint on the basis of the Statute of Frauds. N.Y.U.C.C. §
2-201(1). NMC cross-moved for summary judgment striking Chase's
affirmative defense of the Statute of Frauds on the grounds that the
contract was covered by the "merchant's exception" to the Statute.
N.Y.U.C.C. § 2-201(2). Both motions were denied in the Opinion,
because there was a factual dispute as to whether Chase was a "merchant"
for UCC purposes. Opinion at 6-7.
The parties thereafter engaged in discovery related to the issue of
Chase's status as a merchant of COM equipment. On November 30, 1990, NMC
renewed its motion for summary judgment striking Chase's Statute of
Frauds defense and also sought entry of judgment in its favor. The motion
was argued on December 21, 1990.
The principal facts relied upon by NMC on the present motion relate to
Chase's activities in the disposal of used COM equipment. Based upon its
own review of Chase's records, NMC asserts without contradiction that the
value of used COM equipment disposed of by Chase during the years 1987
through 1989 totalled nearly
$6.5 million dollars. NMC also points to Chase's adoption of uniform
procedures for purchasing new equipment and disposing of used equipment
and other "surplus fixed assets," including procedures for soliciting
bids from prospective purchasers of surplus property.
Chase's response is based primarily on the affidavit of George J.
Stehle ("Stehle"), Chase's vice president in charge of office purchasing
and contracts administration. Stehle testified that Chase never purchases
goods for resale and that Chase has no specialized knowledge concerning
the goods which it buys for its own use. He also stated that Chase had no
familiarity with the market for the equipment which it purchased, and
that when it disposes of surplus goods, it generally sells them to
resellers, rather than end users, and usually sells the equipment for
less than fair market value.
The standards for summary judgment are set forth in the Opinion. The
court is not "to weigh the evidence and determine the truth of the matter
but to determine whether there is a genuine issue for trial." Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91
L.Ed.2d 202 (1986). Summary judgment is warranted only if "the evidence
is such that a reasonable jury could not return a verdict for the
nonmoving party." Id. at 248, 106 S.Ct. at 2510.
1. Chase is a Merchant for Purposes of the UCC.
Section 2-104 of the UCC defines a merchant as "a person who deals in
goods of the kind or otherwise by his occupation holds himself out as
having knowledge or skill peculiar to the practices or goods involved in
the transaction. . . ." N.Y.U.C.C. § 2-104(1). The Official Comment
to this section states that
The special provisions as to merchants appear only in
this Article and they are of three kinds. Sections
2-201(2), 2-205, 2-207 and 2-209 dealing with the
statute of frauds, firm offers, confirmatory
memoranda, and modification rest on normal business
practices which are or ought to be typical of and
familiar to any person in business. For purposes of
these sections almost every person in business would,
therefore, be deemed to be a "merchant" under the
language "who . . . by his occupation holds himself
out as having knowledge or skill peculiar to the
practices . . . involved in the transaction . . ."
since the practices involved in the transaction are
non-specialized business practices such as answering
N.Y.U.C.C. § 2-104 Official Comment 2 (McKinney's 1964). This comment
implies that Chase's familiarity with the goods it purchases and sells is
sufficient to establish that it is a merchant for the purposes of §
2-201. American Plastic Equipment, Inc. v. CBS, Inc., 886 F.2d 521, 528
(2d Cir. 1989) (construing same UCC comment under New Jersey law to
conclude that defendant "held itself out as having sufficient familiarity
with the postal system and the answering of mail to be considered a
merchant under § 2-102"). For Statute of Frauds purposes, the scope
and extent of Chase's activities qualify it for merchant status under the
2. Summary Judgment on the Complaint is not Warranted.
Although Chase is therefore precluded from relying on the Statute of
Frauds as an affirmative defense to NMC's action, this does not
necessarily resolve the case. As the Official Comment to § 2-201
Between merchants, failure to answer a written
confirmation of a contract within ten days of receipt
is tantamount to a writing under subsection (2) and is
sufficient against both parties under subsection (1).
The only effect, however, is to take away from the
party who fails to answer the defense of the Statute
of Frauds; the burden of persuading the trier of fact
that a contract was in fact made orally prior to the
written confirmation is unaffected.
N.Y.U.C.C. § 2-201 Official Comment 3 (McKinney's 1964) (emphasis
added). Because there is a factual dispute between the parties concerning
whether there was
ever an oral agreement to sell the COM equipment in question to NMC,
summary judgment is inappropriate. However, because it appears that this
question is dispositive of the question of Chase's liability to NMC,
further proceedings should be directed toward determining whether or not
the alleged oral agreement existed.*fn1
3. Sanctions Against Chase are Not Warranted At This Time.
NMC seeks sanctions against Chase for what it perceives as abuse of the
discovery process, based primarily on Chase's conduct prior to and during
Stehle's deposition on November 20, 1990. Although NMC claims to seek
sanctions under both Rule 11 and Rule 37 of the Federal Rules of Civil
Procedure, the motion appears to be directed toward the discovery process
rather than any "pleading, motion, or other paper" signed by Chase.
Therefore, sanctions under Rule 11 are not appropriate.
NMC's argues that Chase should be sanctioned for (1) failing to produce
documents as directed by the Court; and (2) obstructing Stehle's
deposition. The first complaint is based on this Court's order of March
15, 1990, directing Chase to produce "[a]ll summaries of records
concerning sale of micrographic equipment for the years 1986, 1987,
1988, 1989 and 1990 to date, . . . and the summaries of any records
concerning the trade-in of such equipment as against new purchases." NMC
v. Chase Manhattan Bank, 88 Civ. 8437 (RWS) Order at 1 (S.D.N.Y. Mar.
15, 1990) ("the Order"). NMC apparently believes that the Order directed
Chase to compile such summaries and produce them, while Chase argues that
it merely directed production of those summaries already in its
possession. Chase's interpretation is correct, and based on its
representations that no such summaries exist, its non-production was in
no way sanctionable.
As for Stehle's deposition, NMC argues that counsel for Chase objected
to questions and refused to allow the witness to answer. The first
objection was made in response to a question regarding an invoice
supplied to Chase in a business transaction. Stehle admitted that he was
familiar with the type of document in question, but counsel refused to
permit him to testify as to the meaning of the data contained in the
document. Not only was counsel's objection ill-founded, her refusal to
permit the witness to answer the question over the objection was a
violation of Federal Rule of Civil Procedure 30(c). This Rule, which
governs the taking of depositions, provides that "[e]vidence objected to
shall be taken subject to the objections." Except in the case of a
question which calls for privileged information, "[t]he proper procedure
to follow when an objection is raised to a question propounded in a
deposition is for the attorney who raises the objection to note his
objection but to allow the question to be answered." Hanlin v.
Mitchelson, 623 F. Supp. 452, 455 (S.D.N.Y. 1985), aff'd in part, rev'd
on other grounds, 794 F.2d 834 (2d Cir. 1986); accord Ralston Purina Co.
v. McFarland, 550 F.2d 967, 973 (4th Cir. 1977); Chira v. Lockheed
Aircraft Corp., 85 F.R.D. 93, 99 n. 8 (S.D.N.Y.), aff'd, 634 F.2d 664 (2d
Cir. 1980); Shapiro v. Freeman, 38 F.R.D. 308, 311-12 (S.D.N.Y. 1965)
("It is not the prerogative of counsel, but of the court, to rule on
"Moreover, once the deponent refuses to answer, the examining party has
`the option of suspending the examination and moving immediately for a
court order compelling an answer, or of completing the examination as to
other matters and the moving for such an order.'" Kamens v. Horizon
Corp., 81 F.R.D. 444, 445 (S.D.N.Y.
1979) (quoting 4A Moore's Federal Practice ¶ 37.02 (2d ed.
1978)). Thus Chase's objection to adjourning the deposition pending
a resolution of NMC's complaint was also unfounded.
However, despite Chase's failure to observe the proper procedures,
sanctions under Rule 37 are not appropriate. The appropriate remedy would
have been for NMC to move under Rule 37(a) for an order compelling
answers to its questions. As set forth in Rule 37(b), sanctions may be
awarded only where a party has violated such an order: "If a deponent
fails to be sworn or to answer a question after being directed to do so
by the court . . . the failure may be considered a contempt of that
court." F.R.C.P. 37(b)(1). Because there was no order compelling Stehle
to answer NMC's questions, no sanctions can be awarded. Moreover, as the
issue regarding Chase's status as a merchant has been decided in NMC's
favor, it seems likely that no further discovery from Stehle will be
necessary. However, in the event that NMC encounters further difficulty
in obtaining proper discovery from Chase, it may renew its motion for
Rule 37 sanctions.
NMC's motion is granted to the extent of striking Chase's affirmative
defense based on the Statute of Frauds and UCC § 2-201. The motion is
denied to the extent that it request judgment in NMC's favor on the
complaint. NMC's motion for sanctions is denied with leave to renew as
future developments warrant.
It is so ordered.