Yesterday, the Second Circuit reversed a decision by Judge Scheindlin granting summary judgment in favor of two plaintiffs seeking to confirm ownership of a 7.4-carat diamond under the UCC’s “merchant entrustment” rule (see our original coverage of the case here).  The defendant below, the original owner of the diamond, had lent the diamond to

In an opinion yesterday, Judge Scheindlin granted summary judgment to two plaintiffs who sought to confirm their rightful ownership of a 7.44 carat diamond.  The original owners (referred to as “WGDC”) had lent the diamond to a stylist named Derek Khan, who was in the business of arranging for celebrities to wear his clients’ jewelry, and who apparently stole the diamond at some point in the past. Under the UCC’s “merchant entrustment” rule, an owner who entrusts goods to a “merchant” — someone who (1) “deals in goods of the kind” or (2) “”holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction” — bears the risk of an improper sale to innocent third parties. WGDC argued that Mr. Khan could not be a “merchant” because he was in the fashion business, not in the business of buying and selling diamonds, but Judge Scheindlin disagreed:
Continue Reading Judge Scheindlin Awards Stolen 7-Carat Diamond to Innocent Buyers Under UCC “Merchant Entrustment” Rule