a 501(c)3 Non-Profit Education Organization 5 September 2018
Editorial: The Initial Consultation with Lawyers
What happens when lawyers get involved in jewelry industry litigation?
After my editorial of last week outlining my intention to reveal documentation from the industry litigation I have experienced, I received a huge outpouring of support, tempered by words of caution from some of my closest friends. While I appreciate the words of caution, it is the many opinions expressed to me that it is indeed time for the backroom litigation activities be revealed that motivates me to move forward with this. The purpose is not to expose any one person or any one organization, although these documents contain names and are from court records. The purpose is to allow people, both in the industry and consumers, to get a better concept of exactly what is going on behind the scenes in this industry that is not getting told by the mainstream industry media.
The industry media, for the most part, has become nothing more than a source of fluff reporting placating high dollar advertisers. The real story of what is going on in the legal offices and court rooms regarding chicanery taking place in this industry…well, that story is just not being told. Sad but true. Having been a party to major litigations that were hushed up in the media, I fully understand the frustration of trying to do the right thing in this industry, only to have the industry media totally ignore the effort and instead placate the wishes of the high dollar advertisers.
Over the past 20 years I have been both a defendant and expert witness in numerous legal actions ranging from the District Court of the United States Virgin Islands to the California Supreme Court to jewelry insurance litigation in the United Kingdom. While most expert witness is concerned with grading or values, my usual expert witness duties involve legal insurance issues, because I am a state licensed Property and Casualty Insurance Adjuster of the Texas Department of Insurance (License #1300433) that is accepted in over 40 states in the U.S. Law firms call me in to help investigate legal issues within the jewelry industry. In the insurance industry we call that Special Investigations Unit (SIU), for which I was trained by retired US Secret Service and retired FBI agents while working with USAA. Expert witness based on SIU investigations makes up the large part of my work. That is, when I am not being personally sued for my efforts to expose fraud in this industry.
That is where this story begins...in law offices.
What Every Lawyer Asks
Going back over 20 years to Diamonds International -v- Robert James, up until the most recent litigation involving the Diamond Doctor -v- Manookian, et al., the one question, in one form or another, that every lawyer has asked is this:
“How can an industry this big operate with no legal oversight, no uniform standards, and no enforcement of rules?”
The truth is, when I am called in for consultation on a new case, 80% of the initial consultation hours are spent trying to explain how the jewelry industry operates in such a legal void. How can a world-wide industry that transacts billions of dollars in business exist with no legal or government control, and no oversight or enforcement regarding ethical operations? That is the first conceptual hurdle that attorneys have to deal with in jewelry litigation.
In my 20 years of experience in litigation, every single lawyer I have consulted for has sat back in his or her chair and just gasped at the realization that the jewelry industry operates with no oversight and no uniform enforceable standards.
This is particularly revealing when they realize the FTC Guides for the Jewelry Industry are part of the Codified Federal Register and are in no way enforceable statutes.
The obvious problems faced by all these attorneys is that it is difficult to litigate issues of ethics based on a breach of ethical dealing when no specific legal standard of ethical performance exists anywhere in the jewelry industry.
It is even more astonishing when they realize that the industry's largest organization, the Gemological Institute of America who touts themselves as the “foremost authority” of the industry, is just a 501(c)3 non-profit organization like so many others, nothing more. The GIA has no legal standing as any kind of “industry authority” as they claim. Furthermore, as became crucial in the Manookian litigation, the GIA has no actual diamond grading standards. Nothing. No legal foundation or set of standards by which any diamond must be graded, even within the GIA itself.
Which brings us to the next revelation from my consultations with lawyers involved in jewelry industry litigation.
The GIA is an Industry Bully!
The GIA is reported to throw huge weight around with their advertising budget. During the Direct Shopping Network -v- Robert James, Colored Stone Magazine, et al., litigation, I was amazed that my previous employer, Jewelers Circular/Keystone (JCK) did not bother to write a single word about the litigation or ask to interview defendants in the case...even though this was the biggest fraud litigation in the history of the colored gemstone industry.
We were told by internal sources that the GIA dictated that nothing was to be written about this story or the GIA would pull their massive advertising budget from any publication. This type of thing happened to Colored Stone magazine at the outset of the story when Ande Gem and Mineral Company, (later proven to the at the heart of the fraud), pulled a major advertising contract from Colored Stone magazine for reporting on the issue. The GIA was also deeply involved in what was later proven to be fake expedition reports to the claimed Tibet andesine mines, and the GIA even hired one of the main perpetrators of the hoax to be on their payroll, Dr. Abduriyim. While I can neither confirm nor deny the report on the GIA influence, the fact is that the four year litigation regarding Tibet andesine, that went all the way to the California Supreme Court, got no coverage by the jewelry industry media.
Indeed, the GIA has demonstrated their propensity to be the industry bully by publishing claims that they are the “Official Gemology School” of the jewelry industry, a false and malicious claim that hurts all other gemology schools of the world. Their published Google ad is below:
Perhaps the greatest astonishment I hear from lawyers is when they realize that, despite the GIA claiming to the “foremost authority” of the industry, it is a fact they have no published, legally binding diamond grading standards. None. They have nomenclature, but they do not have legally binding standards to present in court. In fact, they have no published standards AT ALL!
In my most recent deposition as expert witness, the opposing lawyer consistently tried to get me to admit that the "GIA diamond grading standard was the “recognized industry standard” for grading diamonds".
My simple response: “Please provide me with a copy of the GIA diamond grading standards.”
The response was…silence. Why? None exist.
What is more important from a legal standpoint, the GIA has no more legal standing to set forth a binding set of diamond grading standards on the industry than your local jewelry appraiser or home town, independent retail jewelry store.
The single most astonishing point that the lawyers always end with is this:
The GIA puts disclaimers in their grading reports that state that even if their employees make a mistake on purpose, the GIA is not responsible?
From a legal standpoint, that makes the entire GIA Diamond Grading Report nothing but a sales tool because by their own admission, the grading information follows no set standard and is not backed by any guarantee of accuracy. In fact, the situation is just the opposite:
If the GIA makes a mistake, even on purpose, they are not liable to anyone.
How many of you could operate with that kind of concept? Think about this: Even if you break a customer’s diamond on purpose, you are not liable. Great for you, but how many customers do you think you would get? The GIA gets millions with just that self-protection.
Clearly, litigating violations of ethical selling is a very difficult effort. With no legal standards, no oversight, no rules of conduct, and a huge multi-million-dollar industry bully throwing its weight around, the ability to get any type of ethics litigation accomplished is difficult, at best.
That is where most initial consultations end, and the case work begins.
This will end Part 1 of this report and get us ready for our first litigation documentation review. In the next issue, I will demonstrate with legal documents what happens when the GIA makes a mistake that costs hundreds of thousands of dollars to the buyer and seller. How do lawyers handle that situation in litigation?
That is coming next week. You will not want to miss this.
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Robert James FGA, GG
President, Insurance Institute of Jewelry Appraisal Inc.
a 501(c)3 Non-Profit Education Organization
Property and Casualty Adjuster, Texas Department of Insurance License #1300433
If you would like to study gemology and jewelry appraisal with industry professionals with a solid reputation for ethics and integrity, we invite you to visit our website by clicking the link below:
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