United States District Court, S.D. New York
OPINION AND ORDER
JESSE M. FURMAN, District Judge.
Plaintiff Shrenuj USA, LLC ("Shrenuj") brings this action against Defendants Rosenthal & Rosenthal, Inc. ("Rosenthal"), R. Klein Jewelry & Co., Inc. ("Klein Jewelry"), and Richard Klein ("Klein"), for damages arising from Rosenthal's seizure of Klein Jewelry's inventory, which allegedly included Shrenuj's consigned goods. Plaintiff moves for summary judgment on liability against Rosenthal, for spoliation sanctions against Rosenthal, and for severance of its claims against Rosenthal from, among other things, cross-claims that Rosenthal has brought against Klein and Klein Jewelry. (Docket No. 36). For the reasons stated below, Plaintiff's motion for partial summary judgment is DENIED, its motion for spoliation sanctions is GRANTED (although the Court defers the question of what sanction to impose until trial), and its motion for a severance is GRANTED in part and DENIED in part.
The following facts - derived from Shrenuj's Amended Complaint (Docket No. 20) ("AC"), Rosenthal's Answer and Cross-Claims (Docket No. 22) ("Rosenthal's Cross-Claims"), Klein Jewelry and Klein's Answer and Cross-Claims (Docket No. 25) ("Klein Jewelry's Cross-Claims"), and the admissible material the parties submitted on this motion - are viewed in the light most favorable to Rosenthal, the non-moving party. See, e.g., Gould v. Winstar Commc'ns, Inc., 692 F.3d 148, 157-58 (2d Cir. 2012).
A. The Agreements
Klein is an officer and shareholder of Klein Jewelry, a jewelry distributor involved in holding and selling consignment goods, with its principal office located in Rockville Centre, New York. (AC ¶ 3, at 2, ¶ 2, at 3; Declaration of Michael S. Horn (Docket No. 38) ("Horn Decl."), Ex. 27 ("Klein Depo."), at 17-18). Klein Jewelry also manufactured and sold its own jewelry, which bore a Klein Jewelry trademark. (Klein Depo. 16). Rosenthal, a factoring and finance company, provided credit to Klein Jewelry. (AC ¶ 3, at 3). On September 28, 2006, Rosenthal, Klein Jewelry, and HSBC Bank USA ("HSBC") entered into a financing agreement, pursuant to which HSBC agreed to provide gold bullion to Klein Jewelry on a consignment basis. (Rosenthal's Cross-Claims ¶ 6, at 12; Horn Decl., Ex. 1; Declaration of Kieran X. Bastible (Docket No. 47) ("Bastible Decl."), Ex. A). Rosenthal, in turn, "agreed to place all orders to HSBC for the [c]onsigned [g]old on Klein Jewelry's behalf" and "unconditionally guaranteed all of Klein Jewelry's obligations." (Rosenthal's Cross-Claims ¶ 6, at 12). In exchange, Klein Jewelry granted Rosenthal a security interest in all of its owned and thereafter acquired property and assets, and their proceeds. (Bastible Decl., Ex. A ¶ 5.1). In November 2009, Rosenthal filed a UCC-1 financing statement, dated October 22, 2009, to perfect a lien on that property. (Horn Decl., Ex. 23 ("Occhiogrosso Depo."), at 51-58). (Rosenthal later filed continuation statements. ( Id. at 80).)
On October 15, 2009, Klein Jewelry entered into a consignment agreement with Shrenuj, a wholesale diamond and jewelry business. (AC ¶ 4, at 3). The Purchase Money Security Agreement on Goods between the two parties provided that Shrenuj held title to the goods it consigned to Klein Jewelry, was the sole owner of those goods, and that Klein Jewelry would not create any lien or security interest in the goods without the written consent of Shrenuj. ( Id. ¶ 5, at 3). If Klein Jewelry violated their agreement, Shrenuj could take possession of the consigned goods and receive reimbursement for reasonable expenses, including reasonable attorney's fees and court costs. ( Id. ¶ 7, at 3). On October 22, 2009, Shrenuj filed a UCC-1 Financing Statement with the New York Secretary of State for all of Shrenuj's consigned goods. ( Id. ¶ 9, at 4; Horn Decl., Ex. 2, at 1-2). Rosenthal was informed of both the consignment agreement and the UCC-1 financing statement via letter on November 3, 2009. (AC ¶ 10, at 4; Horn Decl., Ex. 2, at 8-9). Thereafter, Shrenuj shipped jewelry - worth at least $62, 042.55 - to Klein Jewelry, which placed those goods on consignment. (Horn Decl., Ex. 2, at 5; see also AC ¶ 13, at 4 (stating that $77, 553.19 worth of goods "remain on consignment" with Klein Jewelry)). According to Atit Shah - the general manager of Shrenuj - at least "a majority" of the goods bore Shrenuj's trademark stylized "S" logo. (Horn Decl., Ex. 26 ("Shah Depo."), at 7, 70-74). Klein Jewelry was to hold the jewelry until it was sold or until it was held for some specified period of time. ( See id. at 103-05). Under the agreement, Klein Jewelry was not required to pay Shrenuj for any of the consigned goods unless and until it was able to sell the goods. (Klein Depo. 73-74).
B. Rosenthal's Seizure of Klein Jewelry's Inventory
Rosenthal conducted periodic audits of Klein Jewelry's inventory and records to ensure that it was complying with the terms of their financing agreement. (Klein Depo. 26-27; Rosenthal's Cross-Claims ¶¶ 16, 19, at 13-14). In late August or early September 2011, a team of Rosenthal employees conducted such an audit and discovered a significant shortage of gold bullion - worth more than one million dollars. ( Id. ¶ 19, at 14; Def. Rosenthal's Mem. Law Opp'n (Docket No. 46) ("Def.'s Mem. Law") 4). Over the next two weeks, Rosenthal employees sorted the goods in Klein Jewelry's inventory to confirm the shortage. (Horn Decl., Ex. 25 ("Corcoran Depo."), at 40-42). In a demand and default letter dated September 14, 2011, Rosenthal then notified Klein Jewelry and Klein that (1) Klein Jewelry was in default of the financing agreement; (2) based on that default, Rosenthal was terminating the agreement; and (3) Rosenthal demanded full payment of amounts due under the financing agreement and gold consignment agreement. (Rosenthal's Cross-Claims ¶ 21, at 14).
Rosenthal then confiscated Klein Jewelry's inventory. (AC ¶ 14, at 4; Klein Jewelry's Cross-Claims ¶ 1, at 9). According to Michael Corcoran, the Rosenthal employee who led the verification and seizure process, Klein Jewelry's inventory had "no organization" (Corcoran Depo. 46); only some jewelry items had item numbers, noted on a bag or tag. ( Id. 43, 47; see also Klein Depo. 21-22 (explaining that consigned goods were commingled with other goods and that "every single" item from consignors like Shrenuj should have had a tag with prefix and number)). Klein Jewelry did, however, maintain inventory records of consigned goods, which identified each jewelry item with a code and noted whether the item had been shipped to a vendor. (Horn Decl., Ex. 3; see also Klein Depo. 63-64). Klein Jewelry designated Shrenuj's consigned goods with an "SH" prefix followed by a series of numbers or letters. (Horn Decl., Ex. 3; see also Klein Depo. 63-64). Corcoran, however, claimed that he and his team "never saw inventory records" at Klein Jewelry and that Klein never explained the meaning of the item codes; in addition, he did not recall whether he saw any "SH" bags or tags. (Corcoran Depo. 27, 43, 72-73). Indeed, according to Corcoran, when asked for any relevant records, Klein responded that he was unable to provide any. ( Compare Corcoran Depo. 43; Occhiogrosso Depo. 34, with Klein Depo. 50-51).
During the seizure process, Rosenthal's employees examined each item of jewelry for karat amount, removed tags, and sorted the jewelry into piles based on weight; they did not photograph the items or videotape the seizure. (Corcoran Depo. 45). According to Corcoran, the Rosenthal employees also examined each item for markings; he testified that he does not recall seeing any such markings or trademarks, including Shrenuj's trademark "S" logo. ( Id. at 45, 48-49; see also Def.'s Mem. Law 8-9). Based on this process, Rosenthal prepared records identifying each item of jewelry by weight and short description. (Horn Decl., Ex. 4). Corcoran testified that, in preparing those records, "if [the employees] had an item number, [they] included the item number, " but if they could not identify such a number, they "put a description of what the item was." (Corcoran Depo. 45). Notably, some of the item numbers in Rosenthal's records include the prefix "SH" (Horn Decl., Ex. 4, at 7), but Shrenuj suggests that those items corresponded to Klein Jewelry's own labeling system, which - as noted - identified Shrenuj goods by using an "SH" prefix on its labels. (Mem. Law Supp. Mot. Summ. J., Mot. Sanctions, and Mot. Severance (Docket No. 37) ("Pl.'s Mem. Law") 14-15; see also Klein Depo. 63-65). Corcoran, however, testified that the six or seven items that said "SH' on [Rosenthal's] records" might have corresponded to " some information that [the team] had available to [them]" from Klein Jewelry's tags, bags, or other labels. (Corcoran Depo. 74 (emphasis added); see also id. 72-73). But Corcoran could not recall what similar prefixes - such as "SR" or "S" - meant. ( Id. at 75). Curiously, a comparison of the item numbers on Klein Jewelry's list of Shrenuj's consigned goods and Rosenthal's records reveals that no "SH" item number in Klein's records overlaps with any "SH" item number in Rosenthal's records. ( Compare Horn Decl., Ex. 3, with Horn Decl., Ex. 4, at 7).
The Rosenthal team did, however, identify a number of items as consigned and placed those items in a box labeled "Memo." (Horn Decl., Ex. 28 ("Kirschenbaum Depo."), at 141-142). Klein testified that he reminded Rosenthal employees multiple times about the need to return consigned goods. (Klein Depo. 35, 49). In an e-mail dated September 13, 2011, Klein advised Rosenthal that "the vendors that have consigned goods" had been asking whether their goods would be returned. (Horn Decl., Ex. 5). But Rosenthal disputes whether Klein ever reminded the Rosenthal team that the seized inventory included consigned goods, provided a list of such goods, or disclosed that Shrenuj's consigned goods were protected by a UCC filing. (Def.'s Mem. Law 5, 9. Compare Klein Depo. 35, 49, with Horn Decl., Ex. 24 ("Bobby Depo."), at 29-30; Corcoran Depo. 43; Occhiogrosso Depo. 34). In any event, the goods were eventually placed in bank bags and were transported and given to David Kirschenbaum, an outside contractor whom Rosenthal retained to liquidate the inventory. (Occhiogrosso Depo. 38-39).
C. Rosenthal's Liquidation of the Seized Goods
Immediately following the seizure, Rosenthal neither conducted a UCC search nor contacted the companies that had provided Klein Jewelry with consigned jewelry. (Occhiogrosso Depo. 39, 43-44, 50-51). Instead, Rosenthal began a liquidation process, led by Kirschenbaum, in which the goods were first weighed, examined for markings and qualities, and bagged. (Kirschenbaum Depo. 41-42). Kirschenbaum testified that he examined all of the jewelry through a "loop" - or "loupe, " a magnifying tool used by jewelers - and that he did not see Shrenuj's stylized "S" trademark; had he seen that trademark, he asserted, he would have set the jewelry aside. (Kirschenbaum Depo. 141-142). Within a few weeks, ...