Bank of New York v. Amoco Oil Co.

• Decision Date: 08 August 1994
• Docket Number: D,No. 1620,1620
• Parties: , 24 UCC Rep.Serv.2d 209 The BANK OF NEW YORK, Plaintiff-Appellee, v. AMOCO OIL COMPANY, Defendant-Appellant. AMOCO OIL COMPANY, Counter-Claimant, v. The BANK OF NEW YORK, Counter-Defendant. AMOCO OIL COMPANY, Third-Party Plaintiff, v. DREXEL BURNHAM LAMBERT TRADING CORPORATION, Third-Party Defendant. ocket 93-9031.
• Court: U.S. Court of Appeals — Second Circuit

Page 643

35 F.3d 643

63 USLW 2127, 24 UCC Rep.Serv.2d 209

The BANK OF NEW YORK, Plaintiff-Appellee, v. AMOCO OIL COMPANY, Defendant-Appellant.

AMOCO OIL COMPANY, Counter-Claimant, v. The BANK OF NEW YORK, Counter-Defendant.

AMOCO OIL COMPANY, Third-Party Plaintiff, v. DREXEL BURNHAM LAMBERT TRADING CORPORATION, Third-Party Defendant.

No. 1620, Docket 93-9031.

United States Court of Appeals Second Circuit.

Argued April 21, 1994.

Decided Aug. 8, 1994.

Melvin Goldstein, Washington, DC (Charles R. Claxton, Goldstein & Claxton, Washington, DC, of counsel), for defendant-appellant.

James H. Forte, Newark, NJ (Michael J. Geraghty, William F. Maderer, Saiber, Schlesinger, Satz & Goldstein, of counsel), for plaintiff-appellee.

Before: OAKES, KEARSE and MAHONEY, Circuit Judges.

OAKES, Senior Circuit Judge:

Amoco Oil Company appeals from a judgment of the Southern District of New York, Charles H. Tenney, Judge, (1) finding that (a) "holding certificates" issued by Amoco, as lessee, evidencing the lessor's ownership of and right to a quantity of leased platinum constituted negotiable "documents of title" under Article 7 of the Uniform Commercial Code and (b) the "holding certificates" were duly negotiated to the Bank of New York; and (2) awarding the Bank of New York $550,000 plus prejudgment interest for damages caused when Amoco failed promptly to deliver the platinum. We affirm.

I. Background

The Amoco Oil Company ("Amoco") operates six oil refineries in the United States which use platinum as a catalyst to speed the process of refining gasoline. To prepare the platinum to serve as a catalyst in these refineries, Amoco first binds the platinum to aluminum pellets and then introduces the pellets into the refining process. During the refining process, other elements bind with the platinum, gradually decreasing its catalytic effectiveness. After about six months, the catalyst is "spent" and the pellets sent to a metal reclaimer where the platinum is recovered from the pellets. The recovered platinum is then used again as a catalyst.

To meet its needs of catalytic grade platinum, Amoco owned approximately 280,000 troy ounces of platinum. Amoco occasionally needed additional platinum, however, because of the length of time it took to recover the platinum from the spent catalytic pellets. Amoco also occasionally needed additional platinum because some platinum--between 2,000 and 4,000 ounces a year--was lost in the process of loading and unloading the platinum from the refinery and in the process of reclaiming the platinum from the spent catalytic pellets. To meet these occasional needs, Amoco leased additional platinum, commingling the leased platinum with the platinum it owned outright.

Prior to the bankruptcy of the Drexel Burnham Lambert Group, a subsidiary of that group, Drexel Burnham Lambert Trading ("DBL Trading"), speculated in metals, including platinum. Rather than simply warehouse the platinum it purchased, DBL Trading leased the platinum to industrial users. In this way, DBL Trading stood to benefit from rental income generated by the leased platinum as well as from any increase in the value of the platinum on the spot market. DBL Trading's drive to maximize profits did not end there, however. Rather, having leased the platinum, DBL Trading would use its ownership of the platinum as collateral to secure financing, essentially using the platinum to leverage its trading accounts.

DBL Trading leased 22,230 troy ounces of platinum to Amoco. As a condition of these leases, Amoco issued "holding certificates" to DBL Trading. These documents certified that Amoco was "holding" a specified quantity of platinum of a catalytic grade "for the account or order of" DBL Trading and stated that the "[m]aterial is to be released on surrender of this Certificate properly endorsed." On December 6, 1989, DBL Trading endorsed certain of these certificates over to the Bank of New York ("BNY") as collateral to secure loans.

On February 13, 1990, the Drexel Burnham Lambert Group declared bankruptcy. Upon learning of this, BNY decided not to renew its loans to DBL Trading. Shortly thereafter, BNY declared DBL Trading in default of its obligations. BNY then demanded that Amoco deliver the platinum to BNY's account. Amoco refused. On March 12, 1990, BNY brought suit against Amoco under the diversity jurisdiction of the Southern District of New York.

On April 4, 1990, Amoco and BNY entered into a partial settlement. Under that partial settlement, Amoco agreed to deliver the platinum to BNY. Because the value of platinum had fallen since February 15, 1990, however, BNY reserved the right to continue its suit against Amoco. BNY did agree, though, that any damages recovered in that action were not to exceed $550,000. This agreement was filed with the district court on April 6, 1990. ¹ Agreement, Bank of New York v. Amoco Oil Co., No. 90-1617 (S.D.N.Y. Apr. 6, 1990) ("Agreement").

In an order dated November 5, 1991, Judge Tenney denied cross motions for summary judgment. The case was tried to the court without a jury on June 14, 15, and 16, 1993. In an order entered on August 26, 1993, Judge Tenney found for BNY, awarding BNY $550,000 in damages plus prejudgment interest from April 4, 1990. Final judgment was entered on September 7, 1993.

II. Jurisdiction

The district court had jurisdiction pursuant to 28 U.S.C. Sec. 1332 (1988), because BNY is a New York corporation whose principal place of business is the state of New York, Amoco is a Maryland corporation headquartered in Illinois, and the amount in controversy exceeded $50,000. Final judgment was entered on September 7, 1993. Amoco filed a timely notice of appeal on October 4, 1993. This court has jurisdiction pursuant to 28 U.S.C. Sec. 1291 (1988).

III. Discussion

A. Applicable Law and the Standard of Review

A federal court sitting in diversity jurisdiction will, of course, apply the law of the forum state on outcome determinative issues. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 80, 58 S.Ct. 817, 823, 82 L.Ed. 1188 (1938); 28 U.S.C. Sec. 1652 (1988). This includes the forum state's rules governing choice of law. Klaxon Co. v. Stentor Elec. Mfg. Co., Inc., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941). Under the law of New York, the parties may stipulate that the law of a state bearing a reasonable relation to the transaction governs their rights and duties under the transaction. N.Y.U.C.C. Sec. 1-105(1). ² In this dispute, the parties have stipulated that the law of New York governs. Agreement at 6.

Before we can apply the law of New York, however, we must determine what that law is. Although the district court made this determination below, we must make this determination de novo. Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991). In making this determination, we will consider not only state statutes but also state decisional law. Erie, 304 U.S. at 78, 58 S.Ct. at 822. We of course will afford the greatest weight to the decisions of the New York Court of Appeals. However, "where there is 'no decision by th[e New York Court of Appeals] then [we] must apply what [we] find to be the state law after giving "proper regard" to relevant rulings of other courts of the State.' " Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114, 119 (2d Cir.1994) (quoting Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1783, 18 L.Ed.2d 886 (1967)). Where the law of the state is uncertain or ambiguous, we will carefully predict how the highest court of the state would resolve the uncertainty or ambiguity. See Travelers, 14 F.3d at 119. In making this prediction, we may "consider relevant cases from jurisdictions other than New York in an effort to predict '[w]hat would be the decision of reasonable intelligent lawyers, sitting as judges of the highest New York court, and fully conversant with New York "jurisprudence." ' " Id. (quoting Cooper v. American Airlines, 149 F.2d 355, 359 (2d Cir.1945)); see also Leon's Bakery, Inc. v. Grinnell Corp., 990 F.2d 44, 48 (2d Cir.1993) (federal court may consider all sources used by the highest court of the state, including decisions of other jurisdictions).

The central question in this appeal is whether "holding certificates" for platinum constitute negotiable "documents of title" under Article 7 of the Uniform Commercial Code ("U.C.C."). ³ Many of the issues in this case, therefore, are governed by New York's version of the U.C.C.--particularly Article 7. This case, however, does not involve the types of transactions--warehousing and shipping--with which the drafters of Article 7 were primarily concerned. Rather, this case involves two types of transactions: (1) the lease of platinum and (2) a loan secured, in part, by the lessor's interest in the platinum. The terms of Article 7, however, like the terms of other Articles, are to "be liberally construed and applied to promote [the U.C.C.'s] underlying purposes and policies." N.Y.U.C.C. Sec. 1-102(1). This rule of construction is especially important in this case because it involves the lease of goods--a commercial practice that was relatively uncommon when the U.C.C. was first adopted. ⁴

B. Documents of Title under U.C.C. Sec. 1-201(15)

BNY claims that the holding certificates issued by Amoco fall within the U.C.C.'s definition of "documents of title." As such, BNY argues, Amoco is subject to the obligations imposed by the U.C.C. upon issuers of documents of title including the duty to deliver the goods upon demand accompanied by production of the document. See N.Y.U.C.C. Sec. 7-403.

The U.C.C. defines "document of title" as follows:

"Document of title" includes bill of lading [sic], dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession...