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United States District Court, Southern District of New York

January 30, 2003


The opinion of the court was delivered by: Laura Taylor Swain, United States District Judge


Spainerman Gallery, Profit Sharing Plan ("Plaintiff" or "Spainerman"), commenced this action against Mary Merritt ("Defendant"), asserting common law tort damages claims, including claims for fraud and negligence, and seeking a declaratory judgment for good title to a painting pursuant to section 2-403 of the Uniform Commercial Code ("U.C.C.") or common law. Defendant moved for an order dismissing the complaint for lack of personal jurisdiction, and/or improper venue; alternatively, Defendant contended that this court should abstain from adjudicating the dispute, in light of the pendency of related state litigation. Plaintiff cross-moved for summary judgment, pursuant to Rule 56 of the Federal Rules of Civil Procedure, with respect to Plaintiff's claim seeking declaratory judgment for good title to the painting pursuant to U.C.C. section 2-403. At a pre-trial conference held on May 24, 2002, Defendant withdrew her motion to dismiss insofar as it asserted lack of personal jurisdiction and sought abstention. In supplemental briefing following the pre-trial conference, Defendant argued that Plaintiff's action should be dismissed, pursuant to the Rooker-Feldman doctrine, in light of a judgment rendered in the related state court litigation.

The Court has jurisdiction of this matter, based on complete diversity of citizenship of the parties, pursuant to 28 U.S.C. § 1332 (West 2002). The amount in controversy is greater than $75,000.

The Court has considered thoroughly all submissions related to these motions. For the reasons stated below, Defendant's motion to dismiss is denied. Plaintiff's motion for partial summary judgment with respect to its claim seeking declaratory judgment for good title to the painting pursuant to U.C.C. section 2-403 is also denied.


In its complaint, Plaintiff asserts that Defendant sold a valuable painting by the American artist Arthur Wesley Dow, entitled "Grand Canyon" (the "painting"), to an individual, Timothy Fagan ("Fagan"), a merchant who regularly deals in artwork, furniture, antiques, china, paintings and prints and is part owner of an antique store in Connecticut. (Compl. ¶¶ 7-8.) Plaintiff asserts that it is the legal Owner of the painting by virtue of Defendant's alleged sale of the painting to Fagan and Plaintiff's subsequent purchase from Fagan. (Id. ¶ 8.) Alternatively, Plaintiff alleges that Defendant entrusted the possession of the painting to Fagan, and that Plaintiff believed that Fagan dealt in goods of the same kind. (Id. ¶ 9.)

Plaintiff alleges that, on or about February 16, 1998, Fagan visited Craftsman Auctions to discuss the painting with the owner of that establishment, Jerry Cohen ("Cohen"). (Id. ¶ 14.) Fagan gave the painting to Cohen in order to have it appraised for a possible public auction. Cohen advised Fagan that a national advertising campaign would precede the auction of the painting. (Id. ¶ 18.) Fagan agreed with the course of action and national publicity campaign. (Id.) Cohen placed an advertisement for the auction in Maine Antiques Digest magazine. (Id. ¶ 19.)

According to the complaint, in or about March 1998, Fagan returned to Defendant and offered her an additional sum of money in recognition of the value of the painting. (Id. ¶ 21.) Defendant refused to accept any further payments for the sale of the painting. (Id.) On or about May 19, 1998, Plaintiff purchased the painting at the Fontaine's auction gallery in Massachusetts for $165,000.00 (Id. ¶ 22.) Defendant's niece Katra Showah ("Showah") subsequently saw an advertisement for the auction of the painting and learned that the painting had been sold at auction for a significant sum. (Id. ¶ 23.) Defendant thereafter claimed that she had originally transferred the painting to Fagan for appraisal purposes only and that Fagan had breached the contract and converted the painting. (Id.) On November 15, 1999, Defendant commenced a lawsuit against Fagan in Connecticut state court, seeking damages for breach of contract and conversion. (Id. ¶ 27.)

The complaint further asserts that, after filing the lawsuit against Fagan, Defendant complained to the United States Attorney's Office that Fagan had converted the painting. (Id. ¶ 28.) Pursuant to Defendant's complaint, an investigation into the circumstances surrounding the sale of the painting was commenced and a subpoena was subsequently issued which called for the production of the painting. (Id. ¶¶ 29-30.)

The painting is currently in the possession of the Government of the United States, which has commenced an interpleader action to determine the appropriate disposition of the painting (United States v. Spainerman Gallery PSP and Mary Merritt, no. 02 civ. 1082 (LTS)). The interpleader action has been consolidated with the instant action.

Fagan defaulted in the liability phase of the Connecticut litigation and on May 17, 2002, following proceedings relating to the determination of damages, the Superior Court for the judicial District of Danbury, Connecticut entered its Memorandum of Decision in Defendant Merritt's action against Timothy Fagan. That court found, among other things, that Fagan had converted the painting in question, and awarded Merritt over $395,000 in damages, interest and counsel fees. Mary Merritt v. Timothy Fagan,No. Cv99-033 78 66 S, slip op. (Conn. Super. Ct. May 17, 2002). This judgment apparently remains unsatisfied and Fagan's appeal of the decision remains pending.


Subject Matter Jurisdiction: Rooker-Feldman Doctrine

Defendant contends that the Rooker-Feldman doctrine deprives this Court of subject matter jurisdiction of Plaintiff's claims, which are premised largely on contentions that Fagan acquired the painting from Plaintiff legitimately, in light of the Connecticut state court's decision in Defendant's favor on her conversion and related claims against Fagan. The Rooker-Feldman doctrine holds that the lower federal courts lack power to review state court judgments, to consider issues which are "inextricably intertwined" with such judgments, and to entertain claims seeking relief that, if granted, would modify state court decisions. District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482-84 and n. 16 (1983). The doctrine precludes federal district court jurisdiction of matters that are in effect collateral attacks on state court judgments. The only relevant permissible avenues for review of such judgments are the state superior courts and/or the United States Supreme Court. Feldman, 460 U.S. at 482-84. Defendant also points out that 28 U.S.C. § 1738 requires the federal courts to give preclusive effect to state judgments. 28 U.S.C.A § 1738 (West 2002).

"`Inextricably intertwined' [,as used in Rooker-Feldman jurisprudence,] means, at a minimum, that where a federal plaintiff had an opportunity to litigate a claim in a state proceeding (as either the plaintiff or defendant in that proceeding), subsequent litigation of the claim will be barred under the Rooker-Feldman doctrine if it would be barred under the principles of preclusion." Moccio v. New York State Office of Court Administration, 95 F.3d 195, 199-200 (2d. Cir. 1996).

Having considered the instant controversy in light of these principles, the Court concludes that dismissal of Plaintiff's claims on Rooker-Feldman grounds is unwarranted. The Court first notes that the Connecticut judgment was obtained on default. UnderNew York and Connecticut law, collateral estoppel forecloses only those issues that have been actually litigated and determined in a prior action. See Yoon v. Fordham University Faculty and Administrative Retirement Plan, 263 F.3d 196, 201 (2d Cir. 2001) (citing to New York law); Willard v. Travelers Insurance Co., 247 Conn. 331, 332 (1998) (citing to Connecticut law). An issue is not actually litigated if there has been a default. Id. Thus, the Connecticut decision was not actually litigated for purposes of preclusion and the related consideration of application of the Rooker-Feldman doctrine.

Furthermore, there is no identity of parties between the instant case and the Connecticut state litigation — Plaintiff Spainerman was not a party to the Connecticut lawsuit, which was brought against Fagan alone. Defendant's argument that Spainerman is nonetheless bound by the judgment against Fagan as Fagan's privy is unavailing, even though Spainerman's current title to the painting derives from Fagan's possession of it. Plaintiff purchased the painting close to two years prior to the commencement of the Connecticut state court proceeding. In New York,*fn1 a transferee of property is not considered in privity with its transferor for preclusion purposes where the finding or judgment at issue was entered in litigation that commenced after the transfer. See Gramatan Home Investors Corp. v. Lopez, 46 N.Y.2d 481, 487 (1979); see also Metropolitan Ins. Co. v. Bigelow, 283 F.3d 436, 445 (2d Cir. 2002) (J. Pooler, concurring). Plaintiff thus is not in privity with Fagan and is not precluded by the Connecticut judgment from taking the position that Fagan had rightful title to the painting. Nor is this Court precluded by the Rooker-Feldman doctrine from entertaining Plaintiff's claims. Plaintiff's motion to dismiss the complaint is therefore denied.

The Motion for Summary Judgment

Summary Judgment Standard

Pursuant to Rule 56 of the Federal Rules of Civil Procedure, 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 judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Andy Warhol Foundation for the Visual Arts. Inc. v. Federal Insurance Co., 189 F.3d 208, 214 (2d Cir. 1999); Tomka v. Seiler Corp., 66 F.3d 1295, 1304 (2d Cir. 1995). The moving party bears the initial burden of demonstrating "the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the moving party meets that burden, the opposing party must come forward with "specific facts showing that there is a genuine issue for trial," Fed.R.Civ.P. 56(e), by "a showing sufficient to establish the existence of [every] element essential to the party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322. In assessing the record to determine whether there is a genuine issue of material fact, the court must resolve all ambiguities and draw all factual inferences in favor of the nonmoving party. Anderson v. Liberty Lobby. Inc., 477 U.S 242, 255 (1986); Vann v. City of New York, 72 F.3d 1040, 1048-49 (2d Cir. 1995).

Res Judicata and Collateral Estoppel

Defendant argues that, in light of the Connecticut court's decision in her favor in the action against Fagan, holding that Fagan converted the painting, the doctrines of res judicata and collateral estoppel apply to prevent this Court from considering Plaintiff's claims in this action, which are premised largely on contentions that Fagan acquired the painting from Plaintiff legitimately. Under the doctrine of res judicata (also known as claim preclusion), ""[a] final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action."' Saud v. Bank of New York, 929 F.2d 916, 918-19 (2d Cir. 1991) (quoting Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981)).*fn2 New York State has adopted a transactional analysis approach to deciding res judicata issues. O'Brien v. City of Syracuse, 54 N.Y.2d 353, 357 (N.Y. 1981). "[O]nce a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy." Id. Connecticut's approach to claim preclusion appears to be similar. See Advest. Inc. v. Allen Wachtel, 235 Conn. 559, 565 n. 5 (1995).

In applying collateral estoppel, the Court looks to whether "(1) the issue in question was actually and necessarily decided in a prior proceeding, and (2) the party against whom the doctrine is asserted had a full and fair opportunity to litigate the issue in the first proceeding. . . . The party asserting issue preclusion bears the burden of showing that the identical issue was previously decided, while the party against whom the doctrine is asserted bears the burden of showing the absence of a full and fair opportunity to litigate in the prior proceeding." Colon v. Coughlin, 58 F.3d 865, 869 (2d Cir. 1995).

Defendant's invocation of the doctrine of collateral estoppel here is inappropriate. Plaintiff was not a party to the Connecticut litigation and is not considered in privity with Fagan for collateral estoppel purposes because it acquired the painting prior to the commencement of the Connecticut litigation. See Rooker-Feldman discussion supra at see also Gramatan Home Investors Corp., 46 N.Y.2d at 487; Metropolitan Ins. Co., 283 F.3d at 445. Preclusion is unavailable in the circumstances of this case for the further reason that the liability element of the Connecticut decision was determined adversely to Fagan on the basis of default. Mary Merritt v. Timothy Fagan, No. Cv99-033 78 66 S, slip op. at 3. Collateral estoppel forecloses litigation only of issues that have been actually litigated and determined in a prior action; an issue is not actually litigated if it is decided on default. Yoon, 263 F.3d at 201 (citing to New York law); Willard, 247 Conn. at 332 (citing to Connecticut law).

Res judicata is similarly unavailing for Defendant in the circumstances of this case. Put simply, Plaintiff did not assert any claims or even participate in the Connecticut litigation. There is thus no basis for holding that the resolution of that litigation precludes Plaintiff from asserting its claims in this forum. U.C.C. section 2-403

Plaintiff moves for summary judgment on Count Six of its complaint, contending that, on the undisputed facts, it has clear title to the painting pursuant to section 2-403 of the U.C.C. That statute provides, in pertinent part, as follows.

(2) 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.
(3) "Entrusting" includes 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.
N.Y.U.C.C. section 2-403 (McKinney 2002).*fn3 For this provision to govern the sale and afford Plaintiff relief, it must be shown that Plaintiff entrusted the painting to Fagan; that Fagan, the seller, was a merchant; that Fagan dealt in "goods of that kind"; and that Spainerman was a "buyer in the ordinary course of business" within the meaning of the statute.

It is undisputed that Defendant entrusted the painting to Fagan. In an affidavit submitted in opposition to the instant motion, Defendant stated that Fagan "offered to take the painting and have it appraised to determine whether it was of any value. Based on my prior relationship of trust with Fagan . . . I entrusted the painting to him for an appraisal." (Merritt Aff. at ¶ 8.) Defendant contends that Fagan did not purport to have the appraisal expertise himself but, rather, indicated that he would be taking it for a third party appraisal. See, e.g., Merritt Dep., Ex. B to Def.'s Statement of Material Facts in Dispute, at 59. Plaintiff, as noted above, contends that Defendant sold the painting to Fagan outright and that Fagan was a dealer in the relevant type of goods. As is proper on a motion for summary judgment, all facts are here construed, and inferences drawn, in favor of Defendant as the non-moving party.

The Court turns to whether Fagan can properly be considered a merchant "who deals in goods of that kind" under the U.C.C. The term "merchant" is broadly defined for purposes of the U.C.C., encompassing both a dealer in goods of the particular kind and a person who "otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation hold himself out as having such knowledge or skill." N.Y.U.C.C. § 2-104 (McKinney 2002) (emphasis supplied); see American Plastic Equipment. Inc. v. CBS Inc., 886 F.2d 521, 528 (2d Cir. 1989) (New Jersey version of statute). Even on Defendant's account of her dealings with Fagan, it is clear that he would qualify as a merchant under this broad definition. According to Defendant, Fagan dealt in furniture, antiques and art (or possibly only such items that could also be described as "secondhand . . . junk") but represented that he knew someone who could be employed as an appraiser who had knowledge relevant to the painting at issue here. (Merrit Dep., Ex. B to Bruh Aff., at 55, 59).

U.C.C. section 2-403(2)'s statutory estoppel provision does not, however, simply require that the person to whom goods were entrusted meet the general definition of "merchant." Application of U.C.C. section 2-403(2) requires that the entrustee have been "a merchant who deals in goods of that kind."N.Y.U.C.C. § 2-403 (McKinney 2002); cf. American Plastic Equipment. Inc., 886 F.2d at 528 (discussing similar language in U.C.C. section 2-314). Material issues of fact preclude resolution on summary judgment of the question of whether Fagan was such as merchant. As noted earlier, Defendant contends that Fagan undertook to have another person appraise the painting, disclaiming relevant knowledge. Evidence to this effect could support an inference that Fagan did not deal in goods of the relevant kind. Furthermore, although Fagan is generally referred to as one who dealt in "art" that might also be "dunk", there is no agreement among the parties that Fagan dealt in fine art identified as such; a jury could conclude that Fagan was not a dealer in the relevant type of goods. The parties have also raised various factual issues regarding the sale of the painting through the auction house that may have an impact on the ultimate determination of whether Plaintiff was a "buyer in the ordinary course of business" within the meaning of U.C.C. section 2-403(2). Issues may well remain for jury determination as to whether the sale was in the ordinary course of Fagan's business or even that of the auction house. Thus Plaintiff is not, on the current factual record, entitled to judgment as a matter of law on its U.C.C. section 2-403(2) declaratory judgment claim.

Election of remedies

Finally, Plaintiff contends that Defendant is precluded from contesting Plaintiff's title to the painting by the doctrine of election of remedies. The Connecticut state court awarded Defendant a money judgment upon her conversion claim against Fagan. Plaintiff argues that, because Defendant pursued a conversion claim against Fagan in Connecticut state court, the doctrine of election of remedies precludes Defendant from claiming ownership of the painting in this action. While acknowledging that she is not entitled to a double recovery, Defendant contends that she is not precluded because, although she has been awarded a judgment by the Connecticut Superior Court, that judgment is on appeal and she has not received any money in satisfaction of the Connecticut judgment.

Under the traditional, harsh, doctrine of election of remedies, assertion of a cause of action generally precluded a plaintiff from use of any other ground or theory of recovery. See Commentary to N.Y.C.P.L.R. 3002, at C3002:1, C3002:3. The cases cited by Plaintiff are, by and large, quite old and, to the extent they construe New York law, appear to predate New York's statutory amelioration of the doctrine.*fn4 Under current New York law,

Where causes of action exist against several persons, the commencement or maintenance of an action against one, or the recovery against one of a judgment which is unsatisfied, shall not be deemed an election of remedies which bars an action against the others.
N.Y.C.P.L.R. § 3002(a) (McKinney 1991); see also Kelley v. Galina-Bouquet. Inc., 552 N.Y.S.2d 305, 307 (1st Dep't 1990) (citing N.Y.C.P.L.R. § 3002 (McKinney 1991)) (where plaintiff brings multiple actions which "do not involve exactly the same parties, are based upon different causes of action, and seek different relief . . . [the second action] is not barred by the doctrine of election of remedies."). Further, a plaintiff may obtain judgments against multiple parties until the judgments are satisfied and plaintiff is made whole. See Gatz v. Foster, 552 N.Y.S.2d 850, 850 (2d Dep't 1990).

The sole Connecticut case cited by Plaintiff in support of its election of remedies argument is inapposite. That case dealt with the propriety of a trial court requiring a plaintiff to determine, prior to submission of a case to a jury, which remedy it would pursue, in order to prevent an award of a double recovery in that one case. See Treglia v. Zanesky, 67 Conn. App. 447 (2001).

Here, Defendant is in the first instance defending against an action brought by Spainerman, a non-party to the Connecticut litigation, and asserts a right to the painting in the Government's interpleader action. She has not recovered on the monetary judgment against Fagan, which is on appeal. Under these circumstances and on the current record, the Court does not find that the election of remedies doctrine precludes Defendant from contesting Spainerman's claim to the painting.

Plaintiff's motion for summary judgment is, therefore, denied.


For the foregoing reasons, Defendant's motion to dismiss the complaint is denied and Plaintiff's motion for partial summary judgment as to the sixth cause of action is also denied.

The next pre-trial conference in this matter is scheduled for January 31, 2003. The parties shall be prepared to discuss a schedule for further proceedings in these cases.


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