A $4.5 Million Diamond Loss Under the Table!
April 08, 10Some time ago, we closely followed the incredible court drama about an Ohio jeweler who claimed to have purchased a pink diamond worth $2.5 million for only $8,000 from an unidentified German-accented party in a Las Vegas restaurant.
The stone was subsequently lost in a shipment from Ohio to a New York diamond dealer whom a court found guilty of having stolen the stone. When this story first came out, we added the words “restaurants” and “Ohio jewelers” to our list of internet search-engine alerts.
Lo and behold, we received an email alert this morning containing links to hot news corresponding with those words. Antwerp-based Rosy Blue filed a $4.5 million action for breach of a guarantee agreement, conspiracy to defraud and fraudulent inducement against Edmond (“Eddie”) John Lane and Eddie Lane’s Diamond Showroom located in Cincinnati and West Chester, Ohio. No response to the complaint had been filed as of this hour; I assume that Eddie Lane will probably claim that he is not to be held responsible for losses incurred by Rosy Blue because of the defaults by a third party, Chad Davis and Davis & Associates – even though he in fact had guaranteed these payments.
The Rosy Blue lawsuit involves another incredible restaurant story, which prima facie reeks more of a sting than of a genuine good-faith loss. This is, however, not for us to decide. More importantly, this court case will test the validity and enforceability of a written guarantee that appeared solely in a letter of introduction by Lane to Rosy Blue’s Rajesh Mehta about a potential new customer for the Antwerp diamond dealer.
The Eddie Lane letter, which appears in the court documents, starts as follows: “Dear Rajesh. The customer I am bringing with me is Chad Davis and I guarantee any of his purchases. He will want best prices for cash terms. I have seen him buy 1 million in one sitting. As in any transaction I do with customers I bring to Antwerp, I would appreciate 1% on gross purchases. This is to be totally confidential & confirm to me by note. My 1% is to be paid after you were paid.”
Court records show that Lane also takes one percent of the buyer’s purchases plus travel expenses. Apparently, from this two percent, Lane seems willing to guarantee the transactions. He doesn’t take money for nothing.
Because of Lane’s introduction, Rosy Blue consequently sold to the Florida-based Chad Davis (who also conducts business through the Kentucky-based Davis & Associates) some $6.5 million worth of diamonds through 19 different transactions during a six-month period (April-October) in 2006. A monthly payment schedule had been worked out between Davis and Rosy Blue. Davis paid some $2 million – and then disaster struck in a fast-food restaurant in a Florida shopping mall.
Police Notified Only a Week Later
According to court papers filed in Florida, in an earlier action against Davis, Rosy Blue was notified by its client in November 2006 that approximately $4 million worth of diamonds purchased from Rosy Blue were allegedly stolen from him at the Florida Mall in Orlando, Florida. This happened when Chad Davis and his wife Amanda were shopping at the mall while carrying approximately $4 million worth of Rosy Blue diamonds in a Nordstrom shopping bag, a satchel, or in a computer bag. That is something that has not become clear until this very day.
In one of the versions of what actually happened, Davis claimed that he decided to stop and eat lunch at the food court within the Florida Mall. During lunch, Davis allegedly placed the shopping bag containing the diamonds under his table. After finishing lunch, Davis claimed he inadvertently failed to recover the shopping bag containing the diamonds from under his table before he left the mall, and it was not until he arrived home that he realized that the shopping bag was missing. In another version, there were five shopping bags, and a satchel that contained the diamonds was put into one of them.
Upon calling the mall, Davis learned that a bag had been found in a bathroom. He immediately returned to the Florida Mall to retrieve the shopping bag – but, sadly, there were no diamonds to be found. Mall security had found “a black laptop case with David and Associates business cards, a calculator, pen and tweezer,” according to the Found Property Report of the Florida Mall security services. Neither Davis nor mall security was able to recover the diamonds.
What happened next? Not much. It took Davis six days to call the local police to report that the diamonds were allegedly stolen. Since filing the police report, Davis’s story, regarding the diamonds allegedly being stolen, has continuously changed. What really alarmed Rosy Blue and did not go unnoticed in the Florida trial, was that Davis apparently was most uncooperative with the Orange County Police and Rosy Blue in their investigatory efforts to recover the allegedly stolen diamonds.
The Various Versions of Truth
When interrogated for a deposition, Lane was asked what Davis had told him about what happened. “He said that he had been stupid,” Lane recalls. “He went to Brinks and picked up the goods and he put them in his satchel that he wears around his neck. Then his wife Amanda said ‘will you go to Nordstrom with me?’ He did (instead of going to a post office). Thereafter, they went to have a snack and to unencumber himself, he took his satchel off and slid it down into one of the five [Nordstrom] shopping bags.”
The story gets weirder. According to the way Lane reconstructs what he was told, after Davis finished eating, he picked up the five Nordstrom shopping bags, put them in the trunk of his car and went home. Only then did he realize that the satchel with the diamonds had accidentally not been put in a Nordstrom bag, but that it had slid in between the bags - and was thus still under the table at the mall’s food court.
Lane, in his deposition, agreed with Rosy Blue’s lawyers that it was “peculiar that, despite numerous requests, Davis has been unable to provide lawyers with a single invoice or credit-card statement or anything else indicating that any goods were purchased at the Florida Mall on the date of the loss…” It also seemed unusual that someone would go shopping with his wife while carrying some $3-$4 million worth of diamonds on him, without having any insurance.
Rosy Blue didn’t “buy” the shopping bag story. The company made several claims in the Florida action against Davis, including fraud, and obtained a judgment against Davis for $1 million – and against Davis & Associates for $5 million. However, Davis and his company filed for Chapter 7 bankruptcy protection – and Rosy Blue has been unable to collect the $6 million award.
That is why this week Rosy Blue commenced legal action against the guarantor, Eddie Lane, in an Ohio court.
Conspiring to Defraud
It would probably be fair to be critical of Rosy Blue’s procedures of client due diligence and background checking before giving instant credit to a new client. Rosy Blue itself claims that “based on its long-standing business relationships with Lane and Eddie Lane’s Diamond Showroom, and induced by representation on the part of Lane, Diamond Showroom, Davis and Davis & Associates, as well as other assurances, Rosy Blue agreed to sell large quantities of diamonds to Davis and Davis & Associates.” And, as it turned out, it heavily relied on Lane’s written guarantee assuming responsibility for payments of the purchases. So its risks were limited since Lane enjoyed an excellent reputation.
Rosy Blue claims now that it doesn’t believe that Davis ever intended to pay for the diamonds and that Lane conspired with him. In the action filed this week, Rosy Blue asserts that Lane falsely declared having witnessed Davis as “buying 1 million in one sitting,” and that Lane knew that Davis neither had the financial assets to purchase such large amounts nor had the clientele to market and sell the diamonds at a profit. These are serious accusations and we’ll have to wait for Lane’s response.
A Cincinnati newspaper reported that Rosy Blue told a federal judge that it doubts its client’s claim that it lost $4.5 million in diamonds by leaving them in a bag under a table at a shopping mall’s food court. It finds that story “not credible.” The headline of the paper reads: “Diamond Dealer Doubts That Story.” This is probably an understatement.
Just as in the previous Missing Pink Diamond case that we reported on, the issue now boils down again to “lost” or “stolen.” And that begs the second question: does it really matter in order to enforce the guarantor to either pay for the “lost” or “stolen” goods? Does Rosy Blue just want its money or does it want much more – and to collect punitive damages for Lane’s alleged participation in a fraudulent sting? Time will tell.
Stay tuned.
Relevant court documents, including the letter containing Eddie Lane’s guarantee, can be found at www.diamondintelligence.com