De Beers Wins Victory, but Keeps Defaulting

De Beers has received some good news in its continuing legal battles.

A court recently denied class-action status to a group of consumers who sued the company because they claimed they were defrauded on their diamond purchases. The consumers sought millions in damages on the grounds that, since the diamond industry was controlled by a monopoly in violation of antitrust laws, they had paid more for their diamond than they would have otherwise.

But the court said it would be almost impossible to determine how much the plaintiffs were owed. And since they are denied class certification, this means the plaintiffs will likely receive no money for their claims.

In a conference call, De Beers managing director Gary Ralfe hailed the judgment and said, "This is a major step forward for De Beers ... that will be very important in deflating [other antitrust] cases."

This victory is particularly significant since De Beers defaulted on this case, meaning it never showed up to answer the charges, as it has no U.S. presence. So, in a sense, the plaintiffs managed to lose a major part of their case despite not having a courtroom opponent.

This consumer class-action lawsuit has been worrisome to the industry, since the plaintiffs had asked the judge for a cessation of U.S. advertising, as well as sales to New York sightholders. Despite the recent ruling, those prospects remain open, although some contend it's less likely.

Roy Goldberg, a litigation attorney for the Washington, D.C., office of Sheppard Mullin, who has followed the case, says, "An injunction against advertising is almost unheard of because of the First Amendment ... Typically, [denial of class certification] means the death knell of these cases, because there is no financial incentive to go forward."

In related news regarding the other antitrust cases, De Beers continued its practice of not answering them in court.

It recently defaulted in two class-action lawsuits—one from the head of the Miami bourse, Derek Parsons, and the second from a New Jersey company, Anco Industrial Diamond. Both charge the company with antitrust violations, but with a different focus: The Parsons case charges Supplier of Choice is squeezing dealers out of the pipeline, while the second suit deals with its domination of the diamond market.

By defaulting, De Beers forgoes the right to defend itself against the charges—which means the suits will proceed, with the court's approval, to the penalty phase. The lawyer for both cases, Jared Stamell (whose ex-partner is running the consumer case), says he hopes to combine the two for a hearing this summer. The cases also need class certification from the court.

How the plaintiffs can collect damages against a company with no legal U.S. presence was unclear, and Stamell says it is still too early to tell how he will proceed.

But Parsons, whose suit asks for $3 billion, says that "at some point De Beers is going to have to come forward and face up to the damage they are doing."

"My people [in the Miami bourse] are hurting because of what's going on in the supply chain," he says. "There are going to be people going out of business here and all over the country."

Ralfe has called the suits "without merit" and suggested that De Beers is staying out of the United States because of them: "Those that wantonly bring litigation against us need to know that De Beers is not prepared to play their game."

But Stamell counters: "They do play the litigation game but in the most unusual way for a solvent company. They default and admit everything."