Maybe it was inevitable: a U.S. court has issued a subpoena to the Gemological Institute of America (GIA) to release specific “Certifigate”-related records. The subpoena (discovered on the Internet through Google) was issued by a California judge on behalf of the County Common Pleas Court in Dayton, Ohio, in the case of Stafford Jewelers Inc., (plaintiffs), versus John M. Stafford, et al (defendants). The case (# 2005 CV 07059) involves a dispute on the use of the trade name Stafford Jewelers. The whole case, and the related counterclaim, ostensibly has absolutely nothing to do with the GIA or certificates. Nevertheless, this case may well become the catalyst to bring details of the “Certifigate” investigation conducted by the GIA into the open.  

The subpoena is as mystifying as it is intriguing. The court demands that the GIA deliver “all documents or communications sent by any person on behalf of GIA to Julius Klein Diamonds (JKD), and/or any person on JKD’s behalf, including but not limited to, Zuri Mesica and/or KJKD West that relate, refer or pertain to the revocation, rescinding or suspension or closing of any privileges, rights are ability of JKD West to utilize or access GIA, including but not limited to the GIA Laboratory and all divisions thereof … for any reason including, but not limited to (1) alleged violations of GIA’s Code of Ethics; and/or (2) suspected misconduct, all as forth in the attached Exhibit 1 dated March 20, 2008, or Exhibit 2 dated March 27, 2008, or Exhibit 3, dated November 15, 2005.”

These exhibits refer to press releases that appear on the GIA website, as well as the letters recently sent to all GIA clients and employees regarding “recent rumors in the trade press impugning the good reputation of the GIA.” The subpoena requires that these and more documents be delivered on May 27, 2008, at the law offices of Sullivan, Hill, Lewin, Rez and Engel in San Diego, California. This is quite close to the GIA’s Carlsbad headquarters, so it shouldn’t be too difficult to comply.

The lawyers are either out on a fishing expedition or they know something that we don’t. But what, if anything, connects JKD, its West Coast representative Zuri Mesica, the GIA and “Certifigate” to a trade-name dispute in Ohio? We have yet to find out. We did a search of U.S. court records on the combination of the words Stafford Jewelers and Julius Klein Diamonds and stumbled on an ostensibly totally unrelated civil court action involving a missing 5.56 carat, fancy intense pink diamond, valued at between $1.5 million to $2 million.

In this case (C3-06-371), heard in an Ohio District Court, jeweler John Stafford seeks damages from JKD for alleged “breach of contract, unlawful conversion through theft, obtainment by fraud, and/or negligent handling” in respect of the aforementioned stone. This case has been going on for nearly two years and seems to be proceeding slowly. However, perusing dozens and dozens of court papers does reveal that the GIA bribery scandal was mentioned in the original complaint, as one can download today from the court records, and this conceivably might play a role in the final summations before the jury. More about this later.

As Mesica has now been subpoenaed in the use of trade name case and as his name comes up frequently in the missing pink diamond case, it seems likely that somehow he represents the link between the two cases and makes Julius Klein Diamonds and the GIA part of the judicial proceedings of these two separate trials.

What is this all about? Embrace yourself for a weird story. It began when the Centerville, Ohio-based jeweler John Stafford had a meeting with a man with a German accent, apparently named Karl Vaughn, at a breakfast restaurant at the JCK Las Vegas show in 2005. The two sides never met before, but had held some prior telephone contact. Karl (if that is his real name) offered a fancy pink diamond for immediate sale, with a strange tale. Apparently, his mother didn’t like the stone, it was bringing bad luck or something, had been in the family for ages, and he wanted to sell the stone. Stafford immediately valuated the stone at more than a million dollars, maybe even two, and cautiously suggested a purchase price of $800,000. Somehow, Karl mistakenly understood Stafford’s offer as being only $8,000 – and he immediately agreed. Clearly the seller didn’t have a clue as to the value of the stone. The deal was finalized. Stafford paid in cash, and when Karl went to his car to take out his driver’s license for identification, he simply took off. Since then, the seller has never been found.

Apparently, Stafford had some marital problems at the time, and he decided to remain silent on this spectacular purchase. Upon return to Ohio, he put the stone in a personal vault, rather than in the safe of the family-owned and -operated jewelry business. The stone was also not recorded in the inventory of the store. Thus his wife and grown-up children, who work in the store, never had a chance to inspect the stone. Stafford did show the stone to a few prospective buyers and local confidantes – so the existence of the stone is not in doubt. Whether it in fact is as valuable and whether it is indeed fancy intense pink is an open question. The seller did not show a grading certificate, nor did Stafford himself ever submit the stone for grading.

Stafford enjoyed then a trusting relationship with one his diamond suppliers, Zuri Mesica, of the JKD West Coast office. In February 2006, Stafford says he agreed with Mesica that the fancy pink stone would be shipped to the JKD office in New York for evaluation (the stone still had no grading report) and sale. What happened next is a matter of contention. Using the services of Brinks couriers, the stone – sealed in a Brinks bag and insured for $1.5 million – was shipped to New York. When the Brinks bag was opened at the JKD premises, the bag was said to be tampered and empty – no stone. The video recording at JKD premises that record all activities didn’t capture some of the crucial moments in the bag-opening process. Had there been a stone to begin with? Was the Brink’s bag tampered with during transport? Did the stone disappear at the JKD premises? These are questions about which an Ohio jury will have to decide in a trial set to begin in September 2008. None of this seems GIA-related. Just read on.

Judge Strikes Reference to GIA Scandal
The complaint filed against Julius Klein Diamonds in late 2006 states (paragraphs 4 and 13) that Stafford “held JKD in high esteem, believing it to be a diamantaire actually worthy of a DTC sight license. In fact, when Mr. Stafford heard of the GIA ‘bribe-for-cert-upgrade’ scandal, he was deeply concerned that JKD’s reputation, if indeed involved, might be tarnished. He actually encouraged JKD to ‘go on the offensive’ and even went so far as to draft a letter for JKD for publication in trade journals. The letter, drafted by Mr. Stafford, denied any involvement by JKD in the scandal and reiterated JKD’s ‘honesty’ and ‘integrity’ in the business. Mr. Stafford e-mailed the letter to Mr. Mesica. When he heard nothing in response, Mr. Stafford inquired about the status of the letter; he was advised that JKD’s attorneys did not recommend the letter be published.”

Needless to say that Julius Klein Diamonds protested against the reference to the GIA scandal and District Court Judge Thomas Rose agreed. In quite strong language, he stated that “all of the claims brought by the Plaintiffs relate to the alleged loss of the Pink Diamond.

None involve the ‘bribe-for-cert-upgrade’ scandal. There are no allegations that any certificates received by the Plaintiffs from JKD were inaccurate and there are no allegations of any harm caused by an alleged involvement of JKD in the “bribe-for-cert-upgrade” scandal.

“The Plaintiffs argue that the ‘bribe-for-cert-upgrade’ scandal is part of the history of the business relationship between Plaintiffs and JKD and shows that Plaintiffs completely trusted JKD. However,” writes Judge Rose, “the only way Stafford’s trust in JKD could be implicated is in his willingness to ship the Pink Diamond to JKD. Yet, he knew about the scandal and JKD’s decision to not publish the letter before he sent the Pink Diamond to JKD.”

The judge found that allegations of JKD’s involvement in the scandal are highly prejudicial to JKD and ordered that the respective references (paragraphs 4 and 13) of the Complaint are struck “because they are immaterial and impertinent to the alleged wrongdoing and they are highly prejudicial to JKD.”

This decision by the judge was made more than a year ago, in March 2007. One can only wonder why the jeweler included it in his complaint to begin with as the scandal had, indeed, nothing to do with this specific missing pink. Unless, of course, the intention was to tarnish his supplier’s reputation.

The GIA scandal clearly was, so far, no issue in the missing pink case. In the meantime, the insurance company, which is a co-defendant to the case, has refused to compensate Stafford as the stone never properly appeared in the jeweler’s accounting books and inventory. Likewise, Brinks denied liability as the shipping bag, it says, had been properly delivered and wasn’t tempered with, even though Stafford thinks otherwise.

The jeweler now concentrates on JKD, which he considers solely responsible for the disappearance. At a very late stage, Stafford, who first said he held JKD in high esteem, now somehow seems to believe that if he can show that JKD might have been implicated in the bribery scandal, this may help his case. Something must have happened to bring the jeweler back to the GIA issue – in spite of last year’s court ruling. What might the argument be? We don’t want to conjecture – we simply don’t know. We only know that a California law firm has been hired to go after the GIA and to secure the correspondence, if there is such correspondence, between GIA and JKD. Has Stafford embarked on a fishing expedition in the GIA pond?

But why submit a subpoena to the GIA in an entirely different court case? The GIA and JKD must be as puzzled as we are – though we think we are gradually getting a fairly accurate understanding of the jeweler’s legal strategy.

The Tale of Two Separate Court Actions
We secured copies of virtually all documents of the two different court cases – the case of Stafford against JKD and the case of James Stafford against his brother John – and asked a U.S. lawyer to tell us what he thinks is actually going on here.

The Stafford Jewelers’ missing pink case against JKD has progressed to such an advanced stage that it is simply too late to call for additional disclosures or depositions. So, apparently, another way needs to be found to get to GIA.

The case which is used for the subpoenas against the GIA and Zuri Mesica involves a complaint filed in Dayton, Ohio, by a certain Jim (James) Stafford against his brother, John, for a dispute concerning name usage. Not all the facts and circumstances of the name usage case are in the public domain and we must assume that Stafford’s lawyers have presented convincing reasons to the Ohio court when it asked for court approval for the subpoena requiring the deposition in California of both JKD’s Mesica and the GIA. [The subpoena covers information and documents on Mesica's JKD West business and the JKD business in New York.] 

This is a most unusual situation: getting discovery in one legal case apparently mostly, but not only, to support another one. My U.S. legal sources say that this is “perfectly proper and legal.”

The GIA will most likely abide by the subpoena as it doesn’t have to worry about legal consequences. It does have the right to fight it – but may find it hard to find justification to do so. It always feared the “legal and moral risk” of naming names. With the subpoena, this falls away – and the moral risks associated with avoiding to give honest answers are sufficiently heavy as to not to go down that road.

But, in all fairness, the GIA must be mindful of the fact that Stafford may use the GIA information in a court case where all references to the GIA scandal were removed from the complaint by the judge. If the GIA is being brought back into the case – there must be a compelling reason. So far no such reason can be found on any of the documents filed in court as late as of this afternoon.

 Moreover, if John Stafford is proven wrong and there exists no correspondence between GIA and JKD, the diamond trader may actually benefit from this weird legal maneuvering. It might become the first client of the GIA to be officially exonerated by the GIA of any wrongdoing.

To me, it is mind-boggling that a single jeweler in Ohio may have a chance to succeed where the concerted industry action has failed to find out who are, or who are not, recipients of the (six) letters from the GIA denying them further access to grading services. It is also mind-boggling that there is so much to do about a 5.56 carat fancy intense pink diamond that has no GIA certificate, was not seen by anyone who really can make the fine distinction between the various colors, but John Stafford himself. As JKD’s Zuri Mesica said in an affidavit, it may well have been a HPHT color treated diamond to begin with. Maybe $8,000 wasn’t such good a price after all. This we’ll probably never know.

Whatever the GIA will present or say will become public record for anyone with access to the Internet. I don’t know whether it will help John Stafford to get the multi-million dollar compensation he seeks for the stone purchased for $8,000 – but by getting the GIA to finally shed light on “Certifigate,” the jeweler may unwittingly be doing a service to the industry. But don’t hold your breath – a bizarre story is bound to bring further twists. Stay tuned - we’ll keep you posted.

Have a nice weekend.

Click on the links below for PDF copies of above mentioned court cases:
Main Complaint Missing Pink Case
GIA Subpoena
Notice to Deposition of GIA
Motion to Strike GIA Reference
Stafford Brothers Complaint

IMPORTANT CLARIFICATION

Minutes after our story went online, we received an important clarification from Donald E. Burton, Esq. of Faruki Ireland & Cox P.L.L, Dayton, Ohio, one of the attorneys representing Stafford Jewelers, Inc., the Plaintiff in the Montgomery County, Ohio case (case 2005 CV 07059) referenced in the first paragraph of our article. It is in that case that Defendant John Stafford seeks to subpoena GIA records that he was denied in the Columbus [Missing Pink Diamond] case referenced in our article. Mr. Burton asked us to clarify as follows:

"Cincinnati, Ohio-based Stafford Jewelers, Inc. has nothing to do with the subpoena, and it was in fact filed by John Stafford who operates a store in Centerville, Ohio under the name ' Stafford Jewelers.' The two businesses are completely separate and unrelated entities -- the corporate name registered with the state of Ohio by John Stafford is US Diamond and Gold Jewelers, Inc."

AN ADDITIONAL RESPONSE

We briefly summarized some of the key elements of what we called the “Missing Pink Diamond” case. In the limited scope of an online column, we squarely focused on the GIA Subpoena and no efforts were made to delve deeply in the charges made by Stafford against Julius Klein Diamonds. With due respect, the commercial dispute between John Stafford and Julius Klein Diamonds is of no great concern to our readers.

In contrast, the issuance of a Subpoena demanding the disclosure by the GIA of information related to “Certifigate” has significant news value and is of interest to many of our readers. Indeed, our exclusive story represented a journalistic scoop in the diamond and jewelry trade press.

Attorney Dianne F. Marx, who represents the plaintiff in the “Missing Pink Diamond” case, has e-mailed us an extensive, most interesting and detailed response, which speaks for itself.

We only like to draw our readers’ attention to Paragraph 3 (sub-paragraphs 28 through 32) of the lawyer’s letter (pages 4 and 5) which cites John Stafford’s affidavit on his concerns about the “bribe-for-cert-upgrade” scandal.

We are publishing the letter and the materials at the request of John Stafford’s attorneys verbatim, without any further editorial comments.

We are grateful to Mrs. Marx for having taken the trouble to prepare such an extensive discussion for our readers.

Chaim Even-Zohar