## Facts

- G.S. Distribution, Inc. operated a retail jewelry store on Madison Avenue in Manhattan from 2003 until it closed in spring 2005.
- The company was indirectly owned and controlled by Giuseppe Scavetta, who entered the jewelry business without prior industry experience.
- The store’s inventory largely consisted of jewelry obtained from foreign designers and manufacturers under arrangements often described as “consignment,” but documentation and terms varied and were frequently unclear.
- After the business failed, the debtor filed a Chapter 7 case, and the trustee took control of remaining jewelry located at the store.
- Multiple suppliers asserted ownership of specific items, contending the jewelry was held on consignment and therefore not property of the bankruptcy estate.
- The debtor’s inventory and transaction records were incomplete and inconsistent, and the court made material credibility findings against key testimony when contradicted by contemporaneous documents.

## Issues

1. Whether jewelry in the debtor’s possession at the petition date was property of the estate under 11 U.S.C. § 541 or remained the property of suppliers under consignment or similar arrangements.
2. How to characterize the supplier transactions (true consignment/bailment versus sale or security arrangement) based on the parties’ conduct and documents.
3. Which party bore the burden of proving that particular pieces were not estate property, and what evidence sufficed given deficient records and conflicting testimony.
4. Whether suppliers who failed to satisfy applicable UCC consignment/perfection requirements were subordinate to the trustee’s rights under 11 U.S.C. § 544(a).

## Decision

- The court held that jewelry found in the debtor’s possession at the commencement of the case was presumptively property of the estate.
- The court placed the burden on claimants to prove specific items were not estate property and required credible, item-specific proof.
- The court rejected consignment claims supported only by labels, vague assertions, or testimony not corroborated by reliable contemporaneous records.
- Applying UCC consignment principles and § 544(a), the court ruled that suppliers who did not properly perfect or give required notice could not defeat the trustee’s rights as a hypothetical lien creditor.
- The court resolved ownership on a piece-by-piece basis, allowing some claims where documentation and testimony aligned, but determining that a substantial portion of the inventory belonged to the estate.

## Legal Principles

- Property in a debtor’s possession at the petition date is presumptively property of the estate; a third party asserting ownership must rebut that presumption with competent, credible evidence.
- Transaction labels are not controlling; courts determine whether an arrangement is a true consignment, a sale, or a security-type transaction by examining the full circumstances, including risk allocation and control over pricing and sales.
- Under the UCC, certain consignments to merchants may be treated as security interests; absent required filing/perfection, the consignor’s interest may be ineffective against the debtor’s creditors.
- A Chapter 7 trustee may use § 544(a) to assert the rights of a hypothetical lien creditor, defeating unperfected consignment or ownership interests in goods held by the debtor.

## Conclusion

The court largely treated the jewelry inventory as estate property because claimants failed to prove true, enforceable consignments for specific items and, in many instances, failed to perfect interests required to prevail over the trustee’s lien-creditor status.


In re G.S. Distribution, Inc., 331 B.R. 552 (Bankr. S.D.N.Y. 2005)