Over the last few months, I have been a student in an online business law program hosted by the eCornell system and the Cornell Law School faculty. Although not intended to make anyone a lawyer, this program has given me the opportunity to study with some of the top Law Professors in the country. I am using what I learn here to develop our Litigation and Expert Witness for Appraisers course, coming next month. Tonight, I completed one of my last section discussions and wanted to share it with everyone. With a better understanding of how the law works, it will help us all work to make our industry a safer place for dealers, consumers, and everyone.
Below is today’s homework assignment for my eCornell Law School class: Working with Legal Professionals. The question was what legal issues do I see in the industry, what have I done to deal with them, and how will I possibly deal with them in the future. My answer is below. It is a concept we all need to start thinking about for the future of the industry.
The biggest legal issue confronting the jewelry industry these days is that of the concept of “Certified Diamonds” or “Certified Gemstones”. Literally billions of dollars of diamonds and gemstones are sold each year under the guise of carrying some type of “certification” as to quality. Unfortunately, there are no industry standards and no formal oversight of the labs that produce these “certifications”. No regulatory agency and no government licensing required. The labs tout themselves as the “Authority” of diamond grading and spend millions of dollars in advertising to entice dealers and consumers to use their grading and identification reports. Dealers sell diamonds based on the concept of being “certified,” and yet on the back of each certificate is a disclaimer rejecting any legal liability for any errors on the certificate. Over the years I have been expert witness to many litigations where a grading lab made a heinous error, only to walk away from the situation and avoid all liability for that error on their document, based on this tiny print disclaimer on the back of their certificate. This has left buyers and sellers to bear the cost of litigation regarding the error and how it impacted the transaction.
As previously stated, over the years I have been expert witness to many of these cases. However, my best effort was a case in which I was a party to the action. I have discussed this before here in this forum. It is on the case Direct Shopping Network -v- Robert James, Colored Stone Magazine, et al. In this case a major fraud was being perpetrated based on a known error in these lab reports. The perpetrator was the television jewelry shopping channel as they used the certificates to tout certain gemstones as all natural based on the lab reports. In a ruling of the California Appeals Court, the “certifications” were thrown out of evidence under the “hearsay” rule. Specifically, the reports were issued by unknown persons acting under the name of the gem lab issuing the certificates. Without these bogus certificates in evidence, we prevailed in the case. Colored Stone Magazine in the first case, and I prevailed in my case under collateral estoppel in a later hearing before the same California Appeals Court.
This online Cornell Business Law program courses have taught me the importance of case law, in the absence of specific statutes or regulations regarding a matter of legal importance. Indeed, researching my case I found the case has been cited 20 times in other cases.
I intend on using my case to further the industry understanding about these “certifications.” These meritless “certificates” are ubiquitous in the market, used to entice consumers to trust the identification and grading of diamonds and colored gemstones, when the certificates are not worth the paper they are written on.
As one dealer in the diamond industry once told me regarding this effort: “Robert, you are trying to hold back the ocean with a broom”, I can only say I am out here sweeping as fast as I can, for as long as I can. Through the knowledge I have gained from these Cornell Business Law Program courses, I now have a much larger broom.