Zaretsky et al v. Gemological Institute Of America, Inc. et al

Filing 152

MEMORANDUM OPINION AND ORDER re: 122 MOTION to Dismiss . filed by STANLEY & SONS JEWELERS, INC. For the foregoing reasons, S&S's motion to dismiss is GRANTED in full and without prejudice for the reasons discussed above. (Signed by Judge Shira A. Scheindlin on 8/18/2014) (lmb)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

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STEVEN ZARETSKY and SUZANNE
ZARETSKY,
MEMORANDUM
OPINION AND ORDER

Plaintiffs,
- against -

14 Civ. 1113 (SAS)

THE WILLIAM GOLDBERG DIAMOND
CORPORATION, STANLEY & SONS, INC.,
and JOHN DOES (1-5), and ABC
CORPORATIONS (1-5),
Defendants.

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SHIRA A. SCHEINDLIN, U.S.D.J.:
I.

INTRODUCTION
Steven and Suzanne Zaretsky bring this diversity action to determine

the legal ownership of a 7.35 carat, pear-shaped diamond (the "diamond") that
plaintiffs' jeweler delivered to the Gemological Institute of America, Inc. ("GIA")
for certification and appraisal in December 2012. Suzanne Zaretsky's parents
purchased the diamond from Stanley & Sons ("S&S") in 2003, and Suzanne's
mother gifted it to Suzanne and her husband, Steven, in August 2012.
GIA is holding the diamond until its ownership can be determined
1

because it believes the same diamond was reported as stolen from the William
Goldberg Diamond Corporation ("WGDC") in 2003. Plaintiffs assert that they
have legal title to the diamond, but, in the alternative, plead claims for breach of
warranty of title and misrepresentation against S&S. 1 S&S moves to dismiss the
breach of warranty claim for lack of standing under Federal Rule of Civil
Procedure ("Rule") 12(b )(1 ), and both claims for failure to state a claim under Rule
12(b)(6). For the following reasons, S&S's motion to dismiss is GRANTED.
II.

BACKGROUND 2

On May 29, 2002, GIA certified a 7.44 carat, pear-shaped diamond for

Second Amended Complaint ("SAC") iii! 46-67. Plaintiffs added S&S
as a defendant in the First Amended Complaint on April 23, 2014. On July 3,
2014, S&S moved to dismiss. Before the motion was fully briefed, plaintiffs
amended their complaint again, adding a misrepresentation claim against S&S. On
July 23, 2014, I granted S&S's requests to 1) deem its previously filed motion to
dismiss to serve as the response to the SAC, and 2) submit an enlarged reply brief
to address the misrepresentation claim. See Dkt. No. 138.
2

Familiarity with the procedural history of this case is presumed and
will not be repeated here. Unless otherwise indicated, the facts are drawn from the
SAC. Well-pleaded factual allegations are presumed true for the purposes of this
motion. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). However, allegations in
the Complaint that consist of conclusory statements or threadbare recitals of causes

of action are not entitled to the presumption of truth. See Kirkendall v.
Halliburton, 707 F.3d 173, 175 n.1 (2d Cir. 2013); Bigio v. Coca-Cola Co., 675
F.3d 163, 173 (2d Cir. 2012) (citing Iqbal, 556 U.S. at 678).
2

WGDC (the "WGDC diamond"). 3 On March 19, 2003, WGDC sent GIA a copy of
a police report indicating certain items of jewelry, including a 7.44 carat stone,
were stolen from WGDC in January 2003. 4
On March 24, 2003, GIA certified a 7.35 carat pear-shaped diamond
for Louis E. Newman, Inc. 5 Suzanne Zarestky's parents, Frank and Donna Walsh,
purchased that diamond on December 23, 2003 from S&S. 6 S&S, in tum,
purchased the diamond from Louis E. Newman. 7
In August 2012, after Frank Walsh's death, Donna Walsh gave the
diamond to plaintiffs as a gift. 8 On December 10, 2012, Steven Zaretsky brought
the diamond to nonparty K&D Jewelers ("K&D") in order to have it appraised for
insurance purposes. 9 Steven Zaretsky authorized K&D to submit the diamond to

3

See 5129102 GIA Report for William Goldberg, Exhibit ("Ex.") G to

SAC.
4

See SAC ,-i 32; 313103 New York City Police Department Complaint
faxed from WGDC to GIA on 3/19/03, Ex. F to SAC.
5

See 3124103 GIA Report for Louis E. Newman, Inc., Ex. E to the

Complaint.
6

See SAC ,-r 25.

7

See id. ,-i 26.

8

See id. ,-i,-i 27-29.

9

See id. ,-i 6.
3

GIA after K&D recommended obtaining an appraisal and certification from GIA. 10
On December 20, 2012, GIA informed Steven Zaretsky that it would
not release the diamond because a diamond with similar characteristics - that is,
the WGDC diamond - had been reported stolen in March 2003. 11 Zaretsky
demanded the return of the diamond, but GIA refused based on its disputed
ownership. 12 On April 17, 2013, GIA issued a Notice of Competing Claims
"identifying the party reporting the [diamond] as stolen as well as outlining terms
to which the parties must conform in order for the [diamond] to be returned." 13
The notice names Eve Goldberg as the party reporting the diamond as stolen and
representing a claim of ownership on behalf of WDGC. 14
III.

DISCUSSION
A.

Breach of Warranty of Title

Section 2-312 of New York's Uniform Commercial Code ("UCC")
establishes a warranty of good title in every contract for sale of goods. S&S argues
that plaintiffs lack standing to bring a breach of warranty of title claim because
10

See id.

if 7.

ll

See id.

if 9.

12

See id.

if~

13

Id. if 19.

14

See id.

11-14.

if 20.
4

they lack "privity of contract or intended third party beneficiary status" with regard
to the sale between the Walshes and S&S. 15 Plaintiffs do not deny that they lack
privity, but argue that they are third party beneficiaries to the contract. Because
standing is a jurisdictional issue, it must be resolved before reaching the merits. 16
"'The doctrine of standing asks whether a litigant is entitled to have a
federal court resolve [its] grievance. This inquiry involves both constitutional
limitations on federal-court jurisdiction and prudential limitations on its
exercise. "' 17 A plaintiff may show constitutional standing under Article III by
alleging an actual "case or controversy." 18 "The 'prudential standing rule ...
normally bars litigants from asserting the rights or legal interests of others in order

15

S&S Memorandum of Law in Support of Motion to Dismiss at 9.

16

See Alliance for Environmental Renewal, Inc. v. Pyramid Crossgates
Co., 436 F.3d 82, 87 n. 6 (2d Cir. 2006) ("[A]lthough standing and subject matter
jurisdiction are distinct concepts," lack of standing represents "a limitation of the
authority of a federal court to exercise jurisdiction.").
17

Hillside Metro Assoc., LLC v. JP Morgan Chase Bank, Nat. Ass 'n,
747 F.3d 44, 48 (2d Cir. 2014) (quoting Kowalski v. Tesmer, 543 U.S. 125, 128-29
(2004)).
18

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). To meet
this burden, a plaintiff must show ( 1) personal injury; (2) causation evidencing a
connection between the plaintiffs injury and the defendant's alleged conduct; and

(3) redressability, or some, non-speculative, likelihood that the plaintiffs injury
can be remedied by the relief requested of the court. See W.R. Huff Asset Mgmt.
Co., LLC v. Deloitte & Touche LLP, 549 F.3d 100, 106-07 (2d Cir. 2008).
5

to obtain relief from injury to themselves. "' 19 Courts may "consider third-party
prudential standing even before Article III standing." 20
New York law requires that plaintiffs alleging that they are third-party
beneficiaries to a contract "establish that the parties to the contract intended to
confer a benefit on the third-party." 21 "It is ancient law in New York ... that to
succeed on a third party beneficiary theory, a non-party must be the intended
beneficiary of the contract, not an incidental beneficiary to whom no duty is
owed." 22 Under New York law, a third-party is an intended beneficiary only if
'"no one other than the third-party can recover if the promisor breaches the
contract' or the contract language should otherwise clearly evidence 'an intent to
permit enforcement by the third-party. "' 23 "[D]ismissal of a third-party-beneficiary
claim is appropriate ... where the complaint relies on language in the contract or

19

Rajamin v. Deutsche Bank Nat. Trust Co., - F.3d-, 2014 WL
2922317, at *7 (2d Cir. Jun. 30, 2014) (quoting Warth v. Seldin, 422 U.S. 490, 509
(1975)).
20

Hillside Metro, 747 F.3d at 48.

21

Subaru Distribs. Corp. v. Subaru ofAm., Inc., 425 F.3d 119, 124 (2d
Cir. 2005) (citing State of Cal. Pub. Employees' Ret. Sys. v. Shearman & Sterling,
95 N.Y.2d 427, 434-35 (2000)).
22

Hillside Metro, 747 F.3d at 49 (quotations omitted) (emphasis added).

23

Debary v. Harrah's Operating Co., Inc., 465 F. Supp. 2d 250, 263-64
(S.D.N.Y. 2006) (quotingArtwear, Inc. v. Hughes, 615 N.Y.S.2d 689, 692 (1994)).
6

other circumstances that will not support the inference that the parties intended to
confer a benefit on the claimant." 24
Plaintiffs claim that they are third party beneficiaries because "no one
other than the third party [plaintiffs in this case] can recover against" S&S, since
Donna Walsh's "right to bring an action with respect to the [diamond] was lost
upon the gifting of the [diamond] to the plaintiffs." 25 But this assertion misstates
the law. Unlike privity, third party beneficiary status is determined at the time a
contract is entered into. Nothing in the complaint or sales contract suggests that
the parties intended to confer a benefit on Suzanne and Steven Zaretsky when the
Walshes purchased the stone in 2003. Thus, Donna Walsh's subsequent gift of the
diamond to Suzanne is irrelevant for determining whether the contract of sale was
a third party beneficiary contract.
Even if the Zaretskys had standing, their breach of warranty claim is
time-barred. Under Section 2-725 of New York's UCC,
( 1) An action for breach of any contract for sale must be
commenced within four years after the cause of action has accrued
.... [and]
24

Subaru Distribs. Corp., 425 F.3d at 124-25 (citing First Capital Asset
Mgmt., Inc. v. N.A. Partners, L.P., 688 N.Y.S.2d 25, 27 (1999) andArtwear, Inc.,
615 N.Y.S.2d at 693)).
25

Plaintiffs' Memorandum of Law in Opposition to S&S's Motion to
Dismiss ("Pl. Opp."), at 5.
7

(2) [a] cause of action accrues when the breach occurs, regardless
of the aggrieved party's lack of knowledge of the breach. A
breach of warranty occurs when tender of delivery is made ....
Plaintiffs claim that their cause of action against S&S has not yet accrued and "will
only accrue if and when the Court determines plaintiffs' title to the [diamond] is
void." 26 This is because, according to plaintiffs, "New York courts regard
warranty of title as analogous to the covenant of quiet enjoyment in the sale of
land," and in those cases, "no cause of action accrues until the buyer is disturbed in
his possession." 27
This argument is meritless. "Section 2-312 does not impose an
implied covenant of quiet enjoyment or perpetual warranty on sales contracts." 28
Official Comment 2 to Section 2-312 specifically notes that an action for breach of
warranty of title is controlled by Section 2-725 and accrues "when tender of
delivery is made." Tender was made on December 23, 2003. As a result, the
statute of limitations expired on December 23, 2007, over six years before
plaintiffs sued S&S.

26

Id. at 9.

27

Id. at 10.

28

Doss, Inc. v. Christies, Inc., No. 08 Civ. 10577, 2009 WL 3053713, at
*3 (S.D.N.Y. Sept. 23, 2009).
8

B.

Misrepresentation
Plaintiffs also bring a tort claim of misrepresentation against S&S,

claiming that S&S "misrepresented the state of their title to [the diamond]." 29 It is
unclear whether plaintiffs claim sounds in intentional fraud or negligent
misrepresentation. Regardless, plaintiffs now admit that "[a]t the time of filing of
the [SAC], discovery in the possession of plaintiffs did not reveal sufficient facts to
assert a tort cause of action" against S&S, but seek to "reserve the right to assert
[the] same [claim], should discovery reveal[] facts which would support a cause of
action sounding in tort." 30 Thus, the misrepresentation claim as pied in the SAC
clearly fails.
Plaintiffs' purported reservation of its right to bring a negligent
misrepresentation claim against S&S in the future is futile because any such claim
is duplicative of the time-barred breach of warranty claim. 31 "[A] simple breach of
contract claim is not to be considered a tort unless a legal duty independent of the
contract itself has been violated. This legal duty must spring from circumstances

29

SAC~

30

Pl. Opp. at 6, n.5.

67.

31

See Torok v. Moore's Flatwork & Foundations, LLC, 966 N.Y.S. 572,
574 (3d Dep't 2013) (holding that misrepresentation claims are duplicative when
"based upon the same alleged wrongful conduct as the breach of contract claim").
9

extraneous to, and not constituting elements of, the contract." 32 However, if
plaintiffs learn of facts to support an independent cause of action for fraud against
S&S, that claim could theoretically be timely. 33
Plaintiffs claim that S&S is a "required" party under Rule 19(a)(l)(A)
because "the Court would not be able to afford complete relief among the existing
parties" if plaintiffs' title in the diamond is determined to be void. 34 If plaintiffs
discover facts to support a valid fraud claim against S&S, they may seek leave to
amend again, or file a new lawsuit. But Rule 19 does not require joinder of parties

32

Clark-Fitzpatrick, Inc. v. Long Island R. Co, 70 N.Y. 2d 382, 389
(1987). Further, to the extent plaintiffs' claim sounds in negligence, because
plaintiffs seek only monetary damages against S&S, such recovery is barred under
New York's economic loss rule. See King County, Wash. v. IKB Deutsche
Industriebank AG, 863 F. Supp. 2d 288, 302 (S.D.N.Y. 2012) ("Under New York's
'economic loss' rule, a plaintiff cannot recover in tort for purely economic losses
caused by a defendant's negligence.").
33

Under New York law, the statute of limitations for fraud is the greater
of six years from the date of the fraud, or two years after plaintiff discovered the
fraud, or could with reasonable diligence have discovered it. See Civil Practice
Law and Rules§ 213(8). "To recover damages for fraud under New York law, a
plaintiff must prove: ( 1) a misrepresentation or a material omission of fact which
was false and known to be false by defendant; (2) made for the purpose of inducing
the other party to rely upon it; (3) justifiable reliance of the other party on the
misrepresentation or material omission; and (4) injury." Abu Dhabi Commercial
Bank v. Morgan Stanley & Co., Inc., 888 F. Supp. 2d 478, 484 (S.D.N.Y. 2012).
Donna Walsh has standing to bring the claim in her personal capacity, or can
assign her claim to plaintiffs. See id. ("New York law permits free assignability of
fraud claims.").
34

Pl. Opp. at 11.
10

against whom there are no timely or valid claims at this time.

V.

CONCLUSION
For the foregoing reasons, S&S 's motion to dismiss is GRANTED in

full and without prejudice for the reasons discussed above.

SO ORDERED:

ira A. Scbemdlin
U.S.D.J.
Dated:

New York, New York
August 18, 2014

11

-Appearances -

For Plaintiffs:

William I. Strasser, Esq.
Gregory D. Emond, Esq.
Strasser & Associates, P.C.
7 East Ridgewood A venue
Paramus, NJ 07652
[phone]
Fax:[phone]
For William Goldberg Diamond Corporation:

Howard Alan Wintner, Esq.
Katryna Dikansky, Esq.
The Abramson Law Group
12 East 41 st Street 8th Floor
New York, NY 10017
[phone]
For Stanley & Sons, Inc.:

John A. Schepisi, Esq.
Gregory Michael Dexter, Esq.
Schepisi & McLaughlin, P.A.
4 73 Sylvan Avenue
Englewood Cliffs, NJ 07632

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