99 N.Y.2d 165 (2002)
When enforcing a warehouseman’s lien under UCC 7-210, a failure to comply with the statute’s requirements gives rise to a cause of action for damages, and while a “willful violation” results in conversion damages, a non-willful violation requires a determination of whether the sale was commercially reasonable.
Summary
Plaintiff, an administrator of an estate, sued a warehouse, trucking company, law firm, and auctioneer for conversion and other claims related to the sale of stored fabric to satisfy a warehouse lien. The New York Court of Appeals held that while the defendants’ actions did not amount to a willful violation justifying conversion damages under UCC 7-210(9), a question remained regarding the commercial reasonableness of the sale. The court emphasized that a failure to demand return of the goods is not a prerequisite to a claim under UCC 7-210(9) when a conversion claim is not viable. The case was remitted for a new trial on the commercial reasonableness of the sale and entitlement to damages.
Facts
Bart Schwartz, a textile importer, stored fabric at S&F Warehouses. A dispute arose, and Schwartz fell behind on storage payments. The warehouse retained a law firm to collect the debt, who then hired an auctioneer. A “Notice of Sale on Lien” was sent to Schwartz, stating the lien amount and a planned auction. The notice lacked a statement of Schwartz’s right to challenge the lien under UCC 7-211. The auction occurred, with S&F Warehouses bidding on and acquiring the fabric for $25,000. Schwartz later inquired about his goods and was informed of the sale. He did not attempt to settle the account or recover the goods.
Procedural History
Plaintiff sued, alleging conversion, due process violations, and negligence. The Supreme Court directed a verdict against the warehouse defendants. The Appellate Division reversed, finding no willful violation and remanding for trial on commercial reasonableness. On remand, the Supreme Court dismissed the remaining claim due to plaintiff’s failure to demand return of the goods, which the Appellate Division affirmed. The Court of Appeals granted leave to appeal.
Issue(s)
1. Whether the defendants committed a “willful violation” of UCC 7-210(9) by failing to include notice of UCC 7-211 rights in the Notice of Sale on Lien, thus entitling plaintiff to conversion damages.
2. Whether a demand for return of goods is a condition precedent to commencing an action for damages under UCC 7-210(9) based on a non-commercially reasonable sale.
3. Whether the plaintiff demonstrated entitlement to damages as a result of a commercially unreasonable sale.
Holding
1. No, because the evidence did not demonstrate a reckless disregard for legal obligations amounting to a willful violation of UCC 7-210(9).
2. No, because a demand for return of goods is not required in a statutory cause of action based on failure to comply with the foreclosure process under UCC 7-210 when a conversion claim is not viable.
3. Undetermined; the case was remitted to determine whether the sale was commercially unreasonable and, if so, the resulting damages.
Court’s Reasoning
The court clarified that UCC 7-210(9) defines the circumstances under which different types of damages are awarded, based on the degree of culpability. It adopted the Appellate Division’s definition of “willful violation” as a “grossly reckless disregard for legal obligations.” The court agreed that the defendants’ actions did not rise to that level, even with the attorney’s failure to review the notice of sale. It emphasized that the plaintiff’s remedy was limited to a statutory cause of action challenging the sale under UCC 7-210(9), and that the statute does not require a demand for return of goods as a prerequisite. The court distinguished I.C.C. Metals v. Municipal Warehouse Co., as that case involved common-law negligence and conversion claims, not a warehouse lien foreclosure. While acknowledging the failure to include notice of section 7-211 rights was a violation, the plaintiff failed to demonstrate how that specific omission caused damages, as the validity of the lien was conceded. The court remanded the case for a determination of whether the sale was commercially reasonable, and if so, the actual damages caused. The plaintiff would need to demonstrate how aspects of the sale fell short of what a diligent warehouse lienholder would do, resulting in lower proceeds. Quoting UCC 7-210(1), the court noted: “the fact that a better price could have been obtained by a sale at a different time or in a different method from that selected by the warehouseman is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner.”