
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________          No. 97-1175                                   DEWELDON, LTD.,                                Plaintiff - Appellant,                                          v.                                    ROBERT MCKEAN,                                Defendant - Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF RHODE ISLAND                     [Hon. Ernest C. Torres, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                                Lynch, Circuit Judge,                                       _____________                  Hill* and John R. Gibson,** Senior Circuit Judges.                                              _____________________                                _____________________               Keven  A. McKenna,  with whom  Karen A.  Clark and  Keven A.               _________________              _______________      ________          McKenna, P.C. were on brief for appellant.          _____________               Matthew T. Oliverio for appellee.               ___________________                                 ____________________                                  September 24, 1997                                 ____________________                                        ____________________          *  Of the Eleventh Circuit, sitting by designation.          **  Of the Eighth Circuit, sitting by designation.                    HILL, Senior  Circuit Judge.   DeWeldon,  Ltd. sued  in                    HILL, Senior  Circuit Judge.                          _____________________          district court to  recover three paintings it alleges  are in the          possession  of Robert  McKean but  to which  he is  not entitled.          After  a bench  trial, the  district court  ruled that  McKean is          entitled  to retain  possession  of  the  paintings  and  entered          judgment for McKean.  This appeal ensued.                                          I.                    Felix  DeWeldon   is  a  well-known  sculptor  and  art          collector.   He  owned three  paintings  valued at  $26,000.   He          displayed  these, and  other collection-grade  paintings, on  the          walls of  his home--Beacon  Rock, in Newport,  Rhode Island.   He          declared  bankruptcy in 1991.   In 1992, Deweldon, Ltd. purchased          all  Felix  DeWeldon's  personal  property  from  the  bankruptcy          trustee.   In  1993,  Nancy  Wardell,  the  sole  shareholder  of          DeWeldon, Ltd.,  sold all her  DeWeldon, Ltd. stock to  the Byron          Preservation Trust, which  in turn sold Felix DeWeldon  an option          to repurchase the  paintings and a contractual  right to continue          to retain  possession of the paintings until  the option expired.          At all times, Felix DeWeldon continued to possess and display the          paintings  at Beacon  Rock.   In 1994,  his son  Byron approached          Robert McKean, an acquaintance, and  told him that his father was          interested  in selling some  of his paintings.  McKean viewed the          paintings at Beacon Rock and subsequently purchased the paintings          at issue for  $50,000.  DeWeldon, Ltd. sued in  district court to          recover the paintings.   The district court entered  judgment for          McKean.  For the following reasons, we affirm.                                         -2-                                         II.                    We conclude that the evidence sufficiently  establishes          the following facts found by  the district court.  Felix DeWeldon          was a "well-known artist" and "collector."   After DeWeldon, Ltd.          purchased Felix DeWeldon's paintings from his  bankruptcy estate,          Frederick Crevoiserat, director of DeWeldon, Ltd., entrusted  the          paintings to Felix DeWeldon as custodian.  DeWeldon, Ltd. allowed          Felix DeWeldon to maintain possession of the paintings; it put no          signs  on the  premises,  nor  tags or  labels  on the  paintings          themselves to  indicate that Felix  DeWeldon no longer  owned the          paintings.  The paintings remained on the walls of Beacon Rock.                    McKean  viewed the  paintings on  the  walls at  Beacon          Rock.  The only  tags on the back of the  paintings were those of          Christie's--the auction house.1   McKean inquired  of Christie's,          and was informed that the paintings  had not sold at auction  and          DeWeldon had  "re-purchased" them.2   McKean paid  more than  the          appraised value  of the paintings  and Felix DeWeldon gave  him a          bill of sale.                    In June of 1993, a  Mr. Panteleakis recorded a UCC lien          in  Newport, Rhode  Island  claiming a  security interest  in the          paintings.3  The  lien had been granted by DeWeldon,  Ltd. of 646                                        ____________________          1  At some time prior to the filing of bankruptcy, Felix DeWeldon          had commissioned Christie's to auction the paintings.          2   This term of  art in the trade  means that DeWeldon had taken          the paintings back when they did not sell at auction.          3  Apparently  Mr. Panteleakis had underwritten  DeWeldon, Ltd.'s          purchase of DeWeldon's personal property.                                         -3-          Bellevue Ave, not by Felix  DeWeldon of 145 Harrison Ave.   There          is  no  evidence  of  any  recorded  interest  in the  paintings,          security or otherwise, having been granted by Felix DeWeldon.                    In December of 1993, DeWeldon, Ltd. sued Felix DeWeldon          seeking possession  of the  paintings.   The  Rhode Island  court          denied  the  relief   based  upon  Felix  DeWeldon's   option  to          repurchase and right  of possession, but enjoined  Felix DeWeldon          from transferring or removing the paintings from Beacon Rock.                                         III.                    The  district court  concluded  from  these facts  that          DeWeldon,  Ltd.  is equitably  estopped  from  asserting, against          McKean, its  ownership interest  in the paintings.   We  need not          review  this holding,  as we  conclude that  the judgment  of the          district court may be affirmed on other grounds under the laws of          Rhode Island.4                    As  a general rule,  a seller cannot  pass better title          than he has  himself.  Nevertheless, the  Uniform Commercial Code          (UCC)  as adopted  by Rhode  Island  provides that  an owner  who          entrusts  items to a  merchant who  deals in  goods of  that kind          gives him or her power to transfer all rights of the entruster to          a buyer in the ordinary course of business.  R.I. Gen. Laws   6A-          2-403(2).5     "'Entrusting'  includes   any  delivery  and   any                                        ____________________          4   We may  affirm the judgment  on any  independently sufficient          ground  established by the record of  the case.  Ticketmaster-New                                                           ________________          York, Inc.  v. Alioto, 26 F.3d 201,  204 (1st Cir. 1994); Inmates          __________     ______                                     _______          of Suffolk County Jail v. Rufo, 12 F.3d 286, 291 (1st Cir. 1993).          ______________________    ____          5  Rhode Island law applies to this diversity action.                                         -4-          acquiescence  in  retention  of  possession,  regardless  of  any          condition  expressed between  the  parties  to  the  delivery  or          acquiescence and  regardless of  whether the  procurement of  the          entrusting or the possessor's disposition of the  goods have been          such as to  be larcenous under the criminal law."  R.I. Gen. Laws            6A-2-403(3).   Under  this provision, a  buyer in  the ordinary          course of business  will prevail  over the claim  of a party  who          entrusted such items to the merchant.  In order for  McKean to be          protected by    6A-2-403, DeWeldon, Ltd. must  have allowed Felix          DeWeldon to retain possession of the paintings.  McKean must have          bought the paintings in the ordinary course of business.  He must          have  given   value  for   the  paintings,   without  actual   or          constructive  notice of  DeWeldon Ltd.'s  claim  of ownership  to          them.   Finally,  Felix DeWeldon  must  have been  a merchant  as          defined  by R.I.  Gen. Laws    6A-2-104.   Under this  section, a          merchant is one who  has special knowledge or skill and  deals in          goods of the kind  or "otherwise by  his or her occupation  holds          him  or herself out as having knowledge  or skill peculiar to the          practices or goods involved in the transaction. . . ."  Id.                                                                  ___                    Under the facts  found by the district  court, McKean's          purchase  of  the  paintings  is  protected  by  the  entrustment          doctrine.  First, DeWeldon, Ltd. entrusted the paintings to Felix          DeWeldon.    After  DeWeldon, Ltd.  purchased  the  paintings, it          acquiesced  in  Felix  DeWeldon's retention  of  them.   Although          DeWeldon, Ltd. made some late efforts to regain possession of the          paintings, these efforts  were frustrated by its  own prior grant                                         -5-          to Felix  DeWeldon of an option and right of possession until the          expiration of the option.                    Second, McKean was  a buyer in  the ordinary course  of          business.   Byron informed  McKean that Felix  DeWeldon wished to          sell  some paintings.    The  paintings  were  hanging  in  Felix          DeWeldon's  home when McKean viewed and subsequently bought them.          He knew that Felix  DeWeldon had sold paintings  out of his  home          before.  McKean gave value for  the paintings.  In fact, he  paid          more than their appraised value.                    McKean had no actual notice  that Felix DeWeldon was no          longer  the true  owner of  the  paintings.   DeWeldon, Ltd.  did          nothing to  shield the paintings  in the cloak of  its ownership.          It did  not place  markings on the  paintings, as  Christie's had          when the paintings were in its possession; it posted no notice of          ownership  by  or near  the  paintings;  it  failed to  post  the          injunction  it secured against transfer of the paintings by Felix          DeWeldon; it  posted, but  then terminated,  a security  guard at          DeWeldon's  residence  despite  such  a guard's  being  expressly          permitted  in the  injunction;  it  posted  no  warnings  against          removal  of the  paintings from  the  residence.   There were  no          markings on the paintings or  other notice that Felix DeWeldon no          longer owned the paintings.   The paintings were hanging in Felix          DeWeldon's home.                    Neither  did McKean  have  any  constructive notice  of          another's ownership interest in the paintings.  The lien recorded          by Mr. Panteleakis  did not constitute such  notice because there                                         -6-          was  no way  McKean could  have discovered  it upon  a reasonable          inquiry.  It was not granted by Felix DeWeldon.                    Third, under  the facts  of this  case, Felix  DeWeldon          acted  as a  merchant  within  the meaning  of  the Rhode  Island          Commercial  Code.    Under  the  Code,  "merchant"  is  given  an          expansive definition. Providence & Worcester R.  Co. v. Sargent &                                ______________________________    _________          Greenleaf, Inc., 802 F.  Supp. 680, 684 n.2  (D.R.I. 1992).   The          _______________          Code provides that a merchant is "one who . . . by his occupation          holds himself  out as having  knowledge or skill peculiar  to the          practices . . . involved in the transaction  . . . ."   R.I. Gen.          Laws    6A-2-104.  Comment  2 to this section notes that  "almost          every  person in  business would,  therefore, be  deemed to  be a          'merchant'."  Id.                        ___                    The entrustment  provision of  the UCC  is designed  to          enhance the reliability of commercial sales by merchants who deal          in the kind of goods sold.  Porter v. Wertz, 421 N.E.2d 500 (N.Y.                                      ______    _____          1981) (art  dealer is  a merchant when  dealing in  goods of  the          kind--paintings).  It shifts  the risk of resale  to the one  who          leaves his property with the merchant.  Id. at 500-01.   See also                                                  ___              ________          Atlas Auto Rental Corp. v.  Weisberg, 281 N.Y.S.2d 400 (N.Y. City          _______________________     ________          1967).                    The  district court  found that  Felix  DeWeldon was  a          "well-known" artist  whose work was  for sale commercially  and a          "collector."  There was art  work all over Felix DeWeldon's home.          He had  recently sold  paintings to a  European buyer.     By his          occupation  he held  himself out  as having  knowledge and  skill                                         -7-          peculiar  to art and the art trade.   McKean viewed him as an art          dealer.                    We conclude from  these facts that Felix DeWeldon was a          "merchant" within the meaning of the entrustment provision of the          UCC as adopted by the Rhode Island Commercial Code.                    When  a person knowingly delivers his property into the          possession  of a  merchant dealing  in goods  of that  kind, that          person assumes the  risk of the merchant's  acting unscrupulously          by  selling   the  property  to  an  innocent   purchaser.    The          entrustment provision places  the loss upon the  party who vested          the  merchant with  the  ability to  transfer  the property  with          apparent good title.  The entrustor in this case, DeWeldon, Ltd.,          took that risk and bears the consequences.                                          V.                    DeWeldon, Ltd. entrusted three paintings to the care of          Felix DeWeldon.   Felix  DeWeldon was a  merchant who  bought and          sold paintings.   Robert McKean  was a purchaser in  the ordinary          course  of  business who  paid  value for  the  paintings without          notice of any  claim of ownership by  another.  Under the  law of          Rhode  Island, McKean  took good  title  to the  paintings.   The          judgment of the district court is affirmed.                                            affirmed                                            ________                                                     -8-
