The opinion of the court was delivered by: Trager, District Judge.
Plaintiff, Siemans Energy and Automation Inc. ("Siemans"), manufactures
electrical products. Defendant, Coleman Electrical Supply Co., Inc.
("Coleman"), purchased and distributed electrical supplies. Coleman was
owned and operated by two, now feuding, brothers William and Stanley
Coleman. It appears that, since at least the onset of this action,
Coleman has ceased to exist.
In order to induce Siemans to advance Coleman electrical products on an
open account, William and Stanley both signed separate personal guaranties
dated October 15, 1996. Each individual guaranty ensured all sums
advanced by Siemans up to $75,000, plus interest, attorney's fees and
costs of collection. Thereafter, Siemans began shipping electrical
supplies to Coleman.
In 1998, after losing one of its major clients, Coleman began
experiencing financial difficulties and started to fall behind in
payments on its outstanding bills. In an attempt to lessen its debt,
Coleman offered to return some of the unpaid goods to Siemans for
resale. Siemans refused the returns and demanded payment of the
outstanding debt along with payment on the personal guaranties. When
defendants failed to pay, Siemans commenced this action. In its
complaint, Siemans seeks $311,984.37 from defendant Coleman, the amount
owed for goods shipped, $75,000 from defendant William, and $75,000 from
defendant Stanley pursuant to their personal guaranties.
Defendant Coleman and defendant William assert two major defenses.
First, they argue that Siemans had a duty to mitigate its damages and
failed to do so. See Def. Mem. in Opp. to Pl. Mot. for Sum. J., p. 4.
Second, they contend that Siemans violated the distribution agreement's
covenant of good faith by engaging in "selective and disparate" pricing
methods. Id. at p. 7. In addition, defendant Stanley claims that summary
judgment is not warranted against him because Siemans' moving papers are
insufficient, and more importantly, because there are material questions
of fact pertaining to an alleged conspiracy by Siemans and William to
defraud Stanley or that this question at least warrants further
Defendants Coleman and William submit one joint opposition to summary
judgment. Defendants first contend that Siemans had a duty to mitigate
defendants' damages by accepting Coleman's offer to return the unsold
goods. Siemans counters that the inventory which Coleman offered to
return was subject to the financing lien of Coleman's secured lender,
CIT, and that, therefore, if Siemans had accepted the inventory it would
have subjected itself to the possibility of an action for conversion by
CIT. See Decl. of Douglas J. Kramer in Reply to Def. Opp. to Pl. Mot. for
Sum. J., citing Aff. of Kenny Kirsh, dated 1/21/99.
Since the present case concerns the sale of goods, the duty to mitigate
question is governed by § 2-709 of the Uniform Commercial Code
("U.C.C."). See N.Y. U.C.C. § 2-709 (McKinney's 1999). Specifically,
§ 2-709(1)(a) provides, in pertinent part, that "[w]hen the buyer
fails to pay the price as it becomes due the seller may recover, together
with any incidental damages . . . the price of goods accepted." Id.
Clearly, since it is undisputed that Coleman accepted the goods shipped
by Siemans, Siemans has the right to seek the amount due under the
contract. While § 2-709(1)(b) provides that a seller may recover the
price "of goods identified to the contract if the seller is unable after
reasonable effort to resell them at a reasonable price," this section
applies only to goods that have been identified but not actually shipped
or accepted. Id. at § 2-709(1)(b). Thus, § 2-709(1)(b) is not
in this case, and there is no obligation under § 2-709 on the part of
the seller to accept a return of previously accepted goods.
The distinction between subdivisions (a) and (b) of § 2-709, with
respect to the duty to mitigate, is clearly displayed in Industrial
Molded Plastic Products, Inc. v. J. Gross & Son Inc., 263 Pa.Super.
515, 398 A.2d 695 (1979), a case concerning a buyer who purchased
5,000,000 clothing clips from a manufacturer, but wrongfully failed to
take possession of or pay for 4,228,000 of the clips. Because, in that
case, the buyer had repeatedly given assurances that it intended to
accept the clips, the court held that the clips had been deemed
accepted. The Pennsylvania Superior Court, interpreting U.C.C. §
2-709(1)(a), held that although a duty exists to mitigate when dealing
with goods that have merely been identified, "a seller of goods is 
entitled to recover the contract price due for goods accepted by the
buyer." Id. at 522, 398 A.2d at 699 (emphasis added). Specifically, the
court held that, "[u]nder the code, a buyer's acceptance of goods
occurs, inter alia, when, after a reasonable opportunity to inspect the
goods, the buyer fails to make an effective rejection of them. To
preserve his rights, the seller is only obligated to tender the goods in
accordance with the terms of the contract. The seller is under no
obligation to resell accepted goods in order to maintain his action for
price." Id. at 522, 398 A.2d at 699 (citations omitted) (emphasis added).
Furthermore, in Unlaub Co., Inc., v. Sexton, 568 F.2d 72 (8th Cir.
1977), a case involving a contract for the sale of coal screen units, the
Eighth Circuit, also interpreting U.C.C. § 2-709(1)(a), held that
once the coal screen units had been accepted, the seller was entitled to
recover the unpaid balance of the contract price and was "under no
obligation to attempt a resale of accepted goods." Id. at 76 n. 3.
Attempting to prove Siemans did, indeed, have some sort of duty to
mitigate — the source of which is unspecified — Coleman
relies on Banker v. Nighswander, Martin and Mitchell, 37 F.3d 866 (2d
Cir. 1994). In that case, the plaintiff hired defendant law firm to
advise and represent it in its efforts to collect a debt owed on a
promissory note. After the United States District Court for the Southern
District of New Hampshire granted summary judgment to the debtors on the
promissory note, plaintiff brought suit in the United States District
Court for the District of Vermont, alleging that the law firm's advice
concerning collection on the $350,000 note amounted to legal
malpractice. Defendants argued that plaintiff had a duty to mitigate his
damages by filing an appeal of the New Hampshire district court's
decision. The Second Circuit, however, applying New Hampshire common
law, construed the duty to mitigate to attach only in situations where
the plaintiff could have avoided losses by "reasonable effort without
undue risk, expense or humiliation," and found that the plaintiff was
under no duty to mitigate his damages by retaining counsel, at his own
expense, to file an appeal. See Banker, 37 F.3d at 872 (quoting Emery v.
Caledonia Sand & Gravel Co., 117 N.H. 441, 448, 374 A.2d 929, 934
(1977)). Thus, it would appear that Banker supports not Coleman's, but
Siemans', position. Here, had Siemans accepted the return of goods which
were subject to a perfected security interest, Siemans would have opened
itself up to liability for conversion, clearly an undue risk.*fn1 Case
law is full of stilts by secured creditors against manufacturers and
suppliers for wrongly converting the creditors' collateral. In those
cases, the manufacturers accepted
returned goods upon which the secured creditors had obtained liens. See,
e.g., Hong Kong and Shanghai Banking Corp., Ltd., v. HFH USA Corp.,
805 F. Supp. 133 (W.D.N.Y. 1992); W.N. Provenzo, Inc., v. Monahan &
Co., Inc., (In re Monahan & Co., Ltd.), 29 B.R. 579 (Bankr.D.Mass.
1983); NationsBank of D.C., N.A. v. Blier (In re Creative Goldsmiths of
Washington, D.C.), 178 B.R. 87 (Bankr.D.Md. 1995).
Furthermore, as noted, defendants have not cited, nor has research
disclosed, any common law case holding that, in the absence of a prior
agreement, a manufacturer is under a duty to mitigate its losses by
accepting a return from its distributor of goods which have already been
sold and delivered. To the contrary, Reforestacion Cafetalera Agro
— Industrial S.A. v. Campesino Food Corp., 97 Civ. 5553, 1999 WL
4964 (S.D.N.Y. Jan. 6, 1999), explicitly held, without relying on the
U.C.C., that a coffee seller is under no duty to mitigate its damages by
accepting from a buyer the return of coffee that had been sold,
delivered, and accepted. Accordingly, Siemans' duty to mitigate its
damages did not involve an obligation to accept the return of already
shipped products. As Coleman ...