Morrison Cohen Scores Significant Appellate Victory for Diamond Jewelry Manufacturer

January 20, 2021 - Morrison Cohen partners Jeffrey D. Brooks and Y. David Scharf achieved a significant appellate victory in the New York Supreme Court Appellate Division, First Department.  The litigation involved an alleged scheme by Defendant International Gemological Institute, Inc. and others to overgrade and misrepresent the quality and value of diamonds sold into the New York jewelry market.  The case reached the First Department on an appeal and a cross-appeal from a decision of the trial court that had partially granted and partially denied Defendant’s motion to dismiss the complaint against it and its alleged co-conspirators. 

On appeal, the First Department affirmed the trial court’s decision to sustain the claims for common law fraud and deceptive trade practices (GBL § 349) but also held that the trial court had erred in dismissing the antitrust claims asserted under New York’s Donnelly Act (GBL § 340).  The First Department was persuaded by Morrison Cohen’s arguments that the complaint sufficiently alleged a per se restraint of trade because the alleged overgraded diamond scheme constituted a form of horizontal price-fixing, as well as agreed that the complaint also sufficiently pled an unreasonable restraint of trade under the “rule of reason” standard because it alleged that the participants had market power sufficient to produce “a market-wide anticompetitive effect.” 

The First Department further ruled that the trial court had erred in dismissing the conspiracy-to-commit-fraud claim.  Though the trial court had held that no cause of action for civil conspiracy exists under New York law, the First Department agreed with Morrison Cohen that conspiracy is a viable tort claim where another underling tort is also alleged. 

The case is KS Trade LLC v. Int’l Gemological Institute, Inc., et al., Index No. 656173/2016, Case No. 2019-3600, 2019-3731.