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Gemological Institute of America, Inc. v. Zarian Co.

August 4, 2006

GEMOLOGICAL INSTITUTE OF AMERICA, INC, PLAINTIFF,
v.
ZARIAN CO., LTD., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Ronald L. Ellis, United States Magistrate Judge

OPINION & ORDER

I. INTRODUCTION

Plaintiff, Gemological Institute of America, Inc. ("GIA"), a corporation engaged in the business of analyzing and grading diamonds and gemstones, initiated this interpleader action on June 5, 2003, to resolve the ownership of a diamond it was holding. Defendants Zarian Co., Ltd. ("Zarian") and Siyance Brothers' Diamond Corp. ("S.B.") both claim rightful ownership of the diamond. On September 16, 2003, the parties consented to the trial of this matter before the undersigned, pursuant to 28 U.S.C. § 636(c).

Zarian moved for summary judgment on December 22, 2004, which the Court granted, in part, and denied, in part. See Gemological Inst. of Am., Inc. v. Zarian Co., Ltd., 349 F. Supp. 2d 692 (S.D.N.Y. 2004). Familiarity with the facts outlined in that opinion and order is assumed herein. Upon summary judgment, the identity of the diamond at issue was not in dispute. The diamond is one which had been previously graded by the GIA, and previously owned by Zarian. GIA identified the diamond through its own internal grading reports and three gemologists' analyses. The Court found that the diamond had been stolen from Zarian's booth at an International Jewelry Fair in Dubai, United Arab Emirates, on May 16, 2001, and then came to GIA's New York office on October 29, 2001, when S.B. submitted it for grading.

However, the Court found that material facts were in dispute as to whether, as S.B. alleged, it had bought the diamond in Israel and then sent it to New York, or whether, as Zarian alleged, the sale or transfer of the diamond had taken place in New York. The location of the transfer of possession of the diamond is critical to the Court's determination of ownership because, while in New York a purchaser of personal property cannot obtain title to stolen goods, in Israel, under certain circumstances, a good faith purchaser can obtain such title.

Following further discovery, a bench trial was held from June 12-13, 2006, and the parties submitted post-trial briefs shortly thereafter. For the reasons discussed below, the Court finds that, even if S.B. bought the diamond in Israel, S.B. has not met its burden to show that the purchase fulfills the requirements of the Israeli Sales Law for the transfer of title of stolen goods. Judgment is therefore entered for Zarian.

II. BACKGROUND

S.B. was established by Benyamin Siyance ("Siyance") and his brother, Gabriel Siyance. Trial Transcript ("Tr.") at 80-81. The Siyance family has a history of engaging in the purchase and sale of diamonds, with locations in Israel, Italy, and New York. Id. at 16, 74, 79. In Israel, the Siyance family's business is called David Gems, after the Siyance brothers' father. Id. at 22. Michael Sianes ("Sianes"), another of the Siyance brothers, is located in Israel and has an office in the Ramat-Gan Diamond Exchange ("the Exchange"). Id. at 15, 26-27. Sianes has been a member of the Exchange for twelve years. Id. at 15.

According to the testimony at trial, the Siyance family meets a few times each year to discuss their business. Id. at 19-20, 89. Sianes and Siyance testified that the members of the family share equally in the finances and the operation of the business. Id. at 18, 32, 37, 48. Sianes and Siyance also both testified that Sianes selects diamonds and buys them for the family business. Id. at 17, 20, 89. If Sianes deems a particular diamond appropriate for sale in New York, he sends it to S.B.'s office there. Id. at 19, 20, 89.

Sianes testified that on October 15, 2001, he bought an 11.57 carat diamond from Shemesh Zevulun ("Zevulun") in Sianes's office on the Exchange. Id. at 26-27. Zevulun is the Vice President of the Israeli Precious Stones and Diamonds Exchange. Zevulun Dep. at 20; Tr. at 24. The two men had regularly done business together for many years. Tr. at 23. Zevulun verified that he sold Sianes the diamond. Zevulun Dep. at 65-68. According to both men, in the morning on that day, Zevulun saw Sianes and told him he had a stone he thought he might be interested in. Tr. at 27; Zevulun Dep. at 65. Later, Zevulun came to Sianes's office with the stone. Tr. at 27-28. Sianes examined it, id. at 27, and after some negotiation, agreed to pay $370,000 for it. Id. at 28, 29, 59. Sianes exchanged the diamond for a petek, a note, which both men reported was later destroyed, as was the custom, once their account was settled. Id. at 29-30; Zevulun Dep. at 76.

After buying the diamond from Zevulun, Sianes testified that he sent it to S.B. in New York, and Siyance testified that he received it there. Tr. at 32, 90-91. Meyer Sommer ("Sommer"), a diamond broker who had worked with S.B. for many years, Sommer Dep. at 13, took the diamond and submitted it to GIA for grading. Tr. at 91, 92; Sommer Dep. at 23-24.

S.B. documented this with a consignment memo. Tr. at 92, 134; Zarian Exh. 12. After the diamond was submitted to GIA, S.B. was informed that the diamond matched the description of a stone that had been stolen from Zarian. Tr. at 93. GIA notified S.B. that it was holding the stone until its ownership could be determined. Id.

III. DISCUSSION

A. Choice of Law: New York versus Israel

In a diversity action, a federal court applies the choice of law rules of the state in which it sits, in this case, New York. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Spanierman Gallery v. Merritt, 2004 WL 1781006, at *3 (S.D.N.Y. Aug. 10, 2004). New York choice of law mandates that questions regarding the "validity of a transfer of personal property [be] governed by the law where the property is located at the time of the transfer." Wertheimer v. Cirker's Hayes Storage Warehouse, Inc., 2001 WL 1657237 (N.Y. Sup. Sept. 28, 2001) (replevin action); see Greek Orthodox Patriarchate of Jerusalem v. Christie's, Inc., 1999 WL 673347, at *4 (S.D.N.Y. Aug. 30, 1999). Furthermore, where the theft occurs is irrelevant; what is important is where the sale or transfer of the stolen property took place. See Kunstsammlungen Zu Weimar v. Elicofon, 536 F. Supp. 829, 846 (E.D.N.Y. 1981). Therefore, where the sale of the diamond occurred is material in this case because it will determine which law on purchases applies. As noted, while Zarian claims the transfer occurred in New York, S.B. claims it occurred in Israel.

Under New York Law, a purchaser of personal property cannot acquire good title from a seller who stole the property. SeeKunstsammlungen, 536 F. Supp. at 846; Candela v. Port Motors Inc., 617 N.Y.S.2d 49, 50 (App. Div. 2d Dep't 1994) (finding that purchasing a car from a successor in interest to a car thief results in purchaser receiving void title). Because the Court has already determined that the diamond was ...


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