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W.B. David Case Against DTC Falters, Gets Dismissed

Oct 7, 2011 2:41 PM   By Jeff Miller
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RAPAPORT... The Diamond Trading Company's (DTC) motion to dismiss an antitrust  complaint,  brought by the estate of W.B. David & Co. for various federal and state law violations, was granted by the U.S. District Court of the Southern District of New York. A good part of this seven-year  case centered on the plaintiff's argument that the DTC's supplier of choice program violated the Sherman Act among others. However, the judge determined that all original claims against supplier of choice had been abandoned by the plaintiff in subsequent legal amendments and thus fell outside of the applicable statute of limitations period, and were also barred by Sullivan vs. De Beers (No. 04 cv. 2819) or the case known as the De Beers class action settlement. But the plaintiff could possibly re-plead its case if the De Beers class action suit falls apart.

In the original complaint, filed in July 2004, W.B. David, which had been a DTC sightholder until December 2003, charged that the DTC, De Beers and others  controlled the world's diamond market and were engaged in anticompetitive conduct, affecting the U.S. markets for both rough and polished diamonds.  Secondly, the complaint alleged that  De Beers had stolen  a proprietary diamond-marketing campaign from W.B. David titled “Leading Jewelers of the World.” This complaint alleged that the DTC's supplier of choice program and the marketing campaign violated federal and state antitrust laws, including sections 1 and 2 of the Sherman Act, which address racketeering and corruption, as well as state common law.

W.B. David was forced into Chapter 7 by creditors in January 2006, at which time Angela Tese-Miner was appointed the estate's trustee. Tese-Miner filed an amended complaint in July 2007, in  which all but seven of the original defendants, as well as  specific allegations against the supplier of choice program and Leading Jewelers of the World campaign, were omitted. At that stage, the complaint centered instead upon  De Beers alleged involvement in what the plaintiff termed  “an amorphous, world-wide conspiracy with unnamed co-conspirators to control the global diamond market.”

While the court allowed the plaintiff jurisdictional discovery in January 2009, it granted defendants' motion to dismiss and denied the plaintiff's motion to amend the case in February 2010, because the amended complaint had  omitted “almost all of the original complaint's factual allegations" and introduced yet a new set of facts. The court also determined that the plaintiff failed to identify DTC conduct that had violated antitrust laws,  show an alleged secret agreement between DTC and ''another organization'' or to identify a relevant market.

In April 2010, Tese-Miner filed a second amended complaint asserting conspiracy to restrain trade in violation of section 1 of the Sherman Act, "monopolization" in violation of section 2 of the Sherman Act and, along with ''attempt to monopolize,'' ''conspiracy to monopolize'' and ''combination and conspiracy to restrain trade'' in violation of the Wilson Tariff Act and   the Donnelly Antitrust Act.

This second complaint argued that the DTC ''horizontally restrained the supply in the U.S. rough diamond market''  when the De Beers Group entered into trade agreements with ALROSA and sales agreements with the government of Botswana.  The plaintiff  also challenged  elements of the DTC's advertising and marketing campaigns, including its U.S. Carat Club and the Millennium Diamonds campaign, and resurrected claims against the supplier of choice program.

Defendants immediately sought dismissal of the second complaint, citing  the plaintiff's failure to allege any specific, actionable conduct by the DTC, and asserted that the conduct alleged by the plaintiff as unlawful fell outside the applicable time limitations period of February 2002 to December 2003,  after which W.B. David was no longer sightholder.  The defendants also argued that any additional claims were  covered by the De Beers class action settlement case, which  included two classes: The direct purchaser class and the indirect purchaser class, with W.B. David claiming to be a member of both classes.  That class action case is still pending.

However, in September 2010, the court denied the defendants'  request for dismissal because it ruled that they   had insufficiently briefed several issues, although they were permitted to  re-file a motion that addressed the following points: Whether any specific factual allegations in the second amended complaint related back to the original;  whether the plaintiff’s supplier of choice claims were covered by the Sullivan case and whether the plaintiff’s supplier of choice claims were  barred by the statute of limitations.

The defendants responded in October 2010 and the court decided on that request on September 29, 2011.

The judge's decision noted the court had determined that since the plaintiff had abandoned the original claims against the supplier of choice  program, this issue  fell  outside the applicable statute of limitations for any action under the Sherman Act. Plaintiffs generally can't resurrect once-abandoned claims by filing another complaint, including through  a new complaint or contending that the new complaint relates back to the original complaint.

''In sum, Plaintiff could have pled in the alternative or kept her supplier of choice claims alive in some other manner in her amended complaint, but she did not do so. Rather, she abandoned those claims, letting them lie dormant until the statute of limitations had run. For these reasons, the court finds that plaintiff’s claims arising out of the supplier of choice program have been abandoned, and cannot relate back to the original complaint," the judge ruled.

The plaintiff’s own characterization of the supplier of choice claims made it clear that these did not fall within the exception for “any direct purchaser claims of any sightholder,” and that  the supplier of choice program “resulted in closing most of the U.S. rough diamond market to plaintiff,” according to the judge.   So, the claims were not  based on any injury that W.B. David suffered as a result of purchasing diamonds from defendant as a sightholder; rather, they were based upon the injury W.B. David suffered as a result of no longer being able to make direct purchases from defendant, the judge wrote. Therefore, antitrust injury did not arise out of direct purchases made as a sightholder, they were precluded by the Sullivan release, the judge wrote.

The court also  dismissed claims related to  advertising and marketing activity regarding the U.S. Carat Club and Millennium Diamonds campaign, saying that these allegations fell  outside the applicable limitations period. There was nothing in the original complaint suggesting that W.B. David was challenging defendant’s advertising and marketing activity as a basis for an antitrust claim, the judge stated.

Claims  related to ALROSA and Botswana were dismissed. The judge stated that  the plaintiff's  claims regarding a ''conspiracy between defendant and De Beers Consolidate -- or any other member of the De Beers Group'' failed as a matter of law, because the plaintiff did not name at least one, specific, non-De Beers entity that was allegedly acting in concert with the DTC.

Although the ALROSA agreement with De Beers was mentioned in the original complaint, the amended complaint did not contain a single reference to ALROSA, the judge noted.  ''If it had, the court, in its February 24, 2010 opinion, might have found that certain parts of the amended complaint related back to the original complaint.

''However, like the plaintiff’s supplier of choice claims and her advertising and marketing claims, the court finds that the ALROSA claims were abandoned in the amended complaint. The defendant did not have notice of those claims in the three years between the amended  and the second amended complaint, and so relation back is not permissible,'' the judge wrote.

The 2005 sales agreement between Botswana and De Beers post-dated W.B. David’s time as a sightholder, thus  claims related to that agreement were barred by the Sullivan case. The judge also dismissed claims of combination and conspiracy to restrain trade in violation of the Wilson Act and  conspiracy to monopolize and restrain trade in violation based upon the Donnelly Act.

In the event that the Sullivan settlement is vacated, the plaintiff could re-plead  any claims surrounding the defendants' advertising and marketing activity that are timely from the second amended complaint  and  any claims related to the defendants' 2005 agreement with the government of Botswana, the judge concluded.  In addition, in its February 24, 2010 opinion, the court dismissed the plaintiff’s action against defendant Diamdel N.V. “without prejudice to re-file if the Sullivan class action settlement is not finalized.''


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Tags: antitrust case, company, De Beers, diamond trading, Jeff Miller
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