As reported previously, all fifty states and the District of Columbia have adopted the 2003 revisions of Article 7.
As is often the case, there were few cases concerning Article 7 during the reporting period. Two involve section 7-204 and one involves an important reminder of the significance of documents of title in commercial transactions.
Lindsayca Inc. v. Custom Process Equipment LLC involved a claim against an alleged warehouse for failing to protect stored equipment under section 7-204 and for breach of an agreement related to storing it. Lindsayca had ordered two pieces of equipment and could not take delivery of them. Custom Process Equipment (CPE) agreed to store them until they could be retrieved. Five years later, CPE sent a notice of “Termination of Storage Agreement” and asserted that it had rights under section 7-210, specifically a warehouse lien, that it would seek to enforce. Upon inspection, Lindsayca found the goods were damaged and sued under section 7-204 and made claims against CPE as a “warehouse” under the U.C.C. After all, CPE had asserted a warehouse lien in the first instance.
The court consulted the definition of “warehouse” under section 7-102(a)(13) and concluded that CPE was not “a person engaged in the business of storing goods for hire.” Its lack of any state licensure was an important factor in the court’s decision. “CPE is not a ‘warehouse’ under the Act, as storing goods that you sell does not convert your business into a warehouse. This is true even when the goods at issue are already sold and awaiting transportation to their destination.” Accordingly, the court dismissed the section 7-204 claim. And it dismissed the breach of contract claims as they had all been pleaded based on CPE’s alleged status as a warehouse. The court, however, allowed the plaintiff leave to amend.
Geotech Enterprises, Inc. v. 181 Edgewater, LLC is another section 7-204 case involving damage to property stored in a warehouse and destroyed by Hurricane Sandy. The plaintiff alleged that the property had been stored at the defendant’s warehouse by a nonparty who did so without the plaintiff ’s knowledge. The warehouse moved for summary judgment, arguing among other things that it was not an insurer of goods and, thus, should not be liable to the owner with whom it had no contractual privity. The trial court denied the motion, after which the defendant appealed. The appellate division affirmed. The appellate division found that the lack of contractual privity was not a problem for purposes of section 7-204(a) and tort liability, noting that “bailees ‘may be subject to tort liability for failure to exercise reasonable care, irrespective of their contractual duties.’” Interestingly, the text of section 7-204 articulates a liability rule for warehouses, but it does not mention to whom the warehouse may be liable.
Abington Emerson Capital, LLC v. Adkins reminds readers of warehouse liability on the issuance of warehouse receipts, though it arises outside of Article 7. Abington was a bank specializing in “purchase order financing to high-risk borrowers with bad credit.” Adkins borrowed $1.5 million from Abington to deal tires for mining equipment. XPO Logistics, Inc. and XPO Global Forwarding, Inc. were defendants as well, and those companies provided warehousing services to Adkins, receiving the tires and agreeing to notify Abington of their receipt and condition. An XPO employee, named Baltagi, allegedly fraudulently issued warehouse receipts for the tires and provided related communications. The opinion disposes of XPO’s summary judgment motion, which challenged Abington’s suit on multiple grounds. The court denied all motions, concluding that there was sufficient evidence from which a factfinder could conclude that Balgati’s actions fell within the scope of his employment and satisfied the related doctrinal elements necessary to attribute Balgati’s fraud to XPO, including reliance. The court also denied the motion seeking to dismiss claims for punitive damages and federal and state RICO charges.
