## Facts

- William Goldberg Diamond Corporation (WGDC), a diamond dealer, owned a 7.35-carat pear-shaped diamond.
- In 2003, WGDC consigned the diamond to Derek Khan, a celebrity fashion stylist, for use in styling clients.
- The consignment did not transfer title to Khan and did not authorize him to sell without WGDC’s approval and invoicing.
- Khan, without permission, transferred the diamond to a third party; it later reached other holders and ultimately Steven and Suzanne Zaretsky.
- In 2012, when the Zaretskys sought to insure the diamond, it was identified as stolen, and possession was retained pending a determination of ownership.

## Issues

1. Whether WGDC’s entrustment of the diamond to Khan gave Khan power to transfer WGDC’s title under N.Y. U.C.C. § 2-403(2) as a “merchant who deals in goods of that kind.”
2. Whether the Zaretskys could alternatively establish good title under N.Y. U.C.C. § 2-403(1) on a voidable-title theory premised on the consignment being a “transaction of purchase.”
3. Whether WGDC’s appeal was untimely or WGDC’s claim was barred by laches.

## Decision

- The Second Circuit reversed the judgment for the Zaretskys and remanded with instructions to enter summary judgment for WGDC.
- The court held that § 2-403(2) requires that the entrusted party “deals in goods of that kind,” meaning the party regularly sells that type of goods.
- The record contained no evidence that Khan regularly sold diamonds or other high-end jewelry; therefore, he lacked power under § 2-403(2) to transfer WGDC’s rights.
- The court rejected the § 2-403(1) voidable-title theory because the consignment was not a qualifying “transaction of purchase.”
- The court rejected arguments that the appeal was untimely and that laches barred WGDC’s claim.

## Legal Principles

- Under N.Y. U.C.C. § 2-403(2), entrustment empowers transfer of the entruster’s rights only when the goods are entrusted to a merchant who deals in goods of that kind, understood as regularly selling those goods.
- Status as a “merchant” based on knowledge or skill under N.Y. U.C.C. § 2-104(1) is insufficient, by itself, to satisfy § 2-403(2)’s “deals in” requirement.
- A consignment that does not constitute a “transaction of purchase” does not create voidable title under N.Y. U.C.C. § 2-403(1) capable of supporting good title in a downstream good-faith purchaser.
- Appellate timeliness and equitable defenses such as laches must be supported by the record; unsupported assertions do not defeat otherwise proper appellate review or ownership claims.

## Conclusion

The Second Circuit held that entrustment protection under N.Y. U.C.C. § 2-403(2) applies only when the entrusted party regularly sells the relevant type of goods; because the stylist did not, he could not pass title, and WGDC remained the rightful owner.


Zaretsky v. William Goldberg Diamond Corp., 820 F.3d 513 (2d Cir. 2016)