Lipschutz v. Gordon Jewelry Corporation

Decision Date22 February 1974
Docket NumberCiv. A. No. 70-H-649.
PartiesIsidore LIPSCHUTZ, d/b/a Lipschutz & Gutwirth Co., Plaintiff, v. GORDON JEWELRY CORPORATION and Linz Bros., Inc., Defendants.
CourtU.S. District Court — Southern District of Texas


Arthur I. Winard, New York City, M. Michael Gordon, Houston, Tex., for plaintiff.

Charles Crady, III, Childress, Port & Crady, Houston, Tex., for defendants.


CARL O. BUE, Jr., District Judge.

Before the Court is plaintiff's second motion for summary judgment, plaintiff's first motion having been denied on February 5, 1971. As a result of substantial discovery having been undertaken since 1971, this Court is now satisfied that there no longer exists a real controversy as to a material fact. Accordingly, plaintiff's motion is granted.

Plaintiff is a wholesale diamond dealer doing business in New York City. The defendant Gordon Jewelry Corporation (Gordon's) is a Delaware Corporation, with its principal offices and place of business in Texas. The defendant Linz Bros., Inc., (Linz) is a Texas corporation doing business in Dallas, Texas, and is a subsidiary of Gordon's, both defendants being retail diamond and jewelry merchants. Prior to January 10, 1970, the plaintiff forwarded various items of jewelry to Linz, each accompanied by an "all-risk" memorandum described more fully below. In January, 1970, there was a robbery at Linz of approximately $1.5 million of merchandise (retail value), of which more than $700,000 was on consignment from wholesale dealers, the remaining being merchandise owned outright by Gordon's and/or Linz. There was insufficient insurance to cover all losses fully, as the actual cost of Linz owned jewelry plus the asking or memorandum price of consignment jewelry exceeded the approximately $1,000,000 of insurance coverage.

The stolen items of jewelry were selected from the plaintiff's stock in New York City and sent by registered mail to Linz. More specifically, of the approximately 19 instances in which such selections were made, some were chosen by a representative of Linz while personally present in New York City and then shipped by the plaintiff to Dallas, Texas; the majority of the selections, however, were made by the plaintiff's employees in response to telephone requests by Linz's representatives in Dallas, the merchandise then being sent in the manner described above. Regardless of which procedure was utilized in selecting the merchandise, the items were covered by accompanying all-risk memoranda, the scope and effect of which are at issue. Each memorandum contains the following printed recitations:

Received on consignment from Lipschutz & Gutwirth Co., 630 Fifth Avenue, New York City, the following goods, pursuant to the following agreement:
The goods described and valued as below are delivered to undersigned Linz Bros. for examination, remaining your property and subject to your order, and shall be at once returned to you on demand. The undersigned assumes full and unqualified responsibility for the absolute return of the said property, or the cash proceeds to you on demand, without any excuse or defense whatsoever. The goods will be considered sold only when cash payment has been forwarded to you.

Copies of the memoranda, signed by Linz, were returned to the plaintiff. The plaintiff contends that the mailing by the plaintiff in New York of the diamonds and jewelry, subject to the memoranda, was the last act required to be done to make the consignment agreement, that is, the All-Risk Memorandum, effective. The plaintiff further asserts that, the contract having been made in New York, New York law should apply which in its opinion compels the conclusion that the recitations in each memorandum constitute the whole contract between the plaintiff and Linz, that such recitations are unambiguous and that pursuant to their terms judgment in favor of the plaintiff is required as a matter of law. Green v. Wachs, 254 N.Y. 437, 173 N.E. 575 (1930). Plaintiff also contends that Gordon's is liable upon its representation to the trade in general, and the plaintiff in particular, that it would be responsible for all diamonds and jewelry sent to its subsidiary Linz, a representation upon which the plaintiff relied.

Aside from Gordon's denial of any liability for the loss incurred by its subsidiary, the defendants jointly contend: (1) that the recitations contained in each memorandum do not constitute the entire contract between the parties, there existing numerous trade customs and usages which vary the above terms, (2) that there exists a trade custom or usage in cases wherein all-risk memorandum merchandise is lost or stolen and there is insufficient insurance whereby a consignee suffering the loss or theft is liable only for the consignor's actual cost plus 5 percent, and alternatively, (3) that the consignment was, in fact, a bailment for the mutual benefit of plaintiff and Linz; thus, there is no liability, since the theft or robbery was not caused in any way by the negligence or misconduct of Linz.

Since this Court's denial of plaintiff's first motion for summary judgment in 1971, plaintiff has engaged in extensive and far reaching discovery in an effort to determine what trade practices and usages exist in the diamond industry with respect to all-risk memoranda as well as to discover facts surrounding this particular loss. Oral depositions were taken which focused substantially upon the litigants, their employees and those persons who presumably had knowledge of the trade practices upon which the defendants rely.1 Of particular interest to this Court are the responses made by witnesses to depositions upon written questions undertaken by the plaintiff following notice to opposing counsel as required by Fed.R. Civ.P. 31. Such inquiries were submitted to responsible officers of major associations of diamond wholesalers, manufacturers and retailers around the world, and evidently include representatives in each major diamond market.2 Similar questions were aimed at establishing the practices in the United States and at demonstrating that the customs were virtually identical.3

Trade Customs in the Diamond Industry

The diamond trade in the United States is primarily centered in a small geographical area in the City of New York. It is alleged by the plaintiff, reasonably supported in the record, and undenied by the defendants, that 99 percent of the wholesale diamond dealers in the United States are located in a six-block area in New York City. Under such conditions trade practices have tended to become relatively fixed and certain. This Court has studied the voluminous documents comprising the record and finds that definite trade customs do exist in the diamond industry and that they are substantially identical to those described in the affidavit of Albert Linz Hirsch in support of defendant Linz's opposition to the plaintiff's first motion for summary judgment. The record does reflect that on occasion jewelry is delivered under circumstances other than those utilizing an accompanying all-risk memorandum. However, such an instance has no relevance to the present litigation. In order that this case may be viewed in proper perspective, the following summary of the evidence in this case capsules the usual custom and practice in the diamond industry, nationally and internationally, with respect to consignment deliveries of diamonds and jewelry upon all-risk memoranda from wholesalers to retail merchants:

(a) Retail merchants will inquire of wholesale dealers, either in person, through an agent, or by telephone, whether the dealer has specific types of jewelry or diamonds within given price ranges; not infrequently, wholesale dealers will call upon merchants, in person, by agent, or by telephone, to advise that certain items within given price ranges are available.

(b) Regardless of who initiates the negotiations, if the retail merchant feels that he has a market for one or more of the items of jewelry offered by the wholesale dealer, he will select such item or items. If done in person with the stock available for inspection, the retail merchant makes the selection. If done by telephone, the wholesale dealer makes the selection as best he can to meet the retailer's specifications. In either case, the wholesale dealer mails the selection or otherwise delivers it to the retailer.

(c) The item or items of jewelry selected are delivered to the retail merchant accompanied by a memorandum. This document, identified generally as an "all-risk" memorandum, contains pre-printed information and blank spaces for the insertion of the date, the consignee and the items of merchandise delivered. The pre-printed language is not standardized, but the all-risk provision generally states that:

(i) the item or items of jewelry accompanying the memorandum are delivered to the retail merchant solely for the purpose of inspection by the retail merchant and prospective purchasers of such jewelry,
(ii) title to each item is retained by the wholesale dealer,
(iii) the retail merchant may not sell any item accompanying the memorandum without the prior written consent of the wholesale dealer,
(iv) the retail merchant assumes all risk and hazard with respect to the item or items of jewelry,

and occasionally there is the added provision that:

(v) the memorandum constitutes the entire agreement between the wholesale dealer and the retail merchant.

The wholesale dealer inserts on this form the name of the retail merchant, an itemized description of the jewelry accompanying the memorandum and the wholesale dealer's asking price or value. The retail merchant signs a copy of the memorandum and returns it to the wholesaler. This satisfies the requirements of the Statute of Frauds. See Uniform Commercial Code § 2-201.

(d) Upon receipt of items of jewelry accompanied by memorandum, the retail merchant or his agent will...

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