JCK Special Report: Jewelry Markup On Trial

Jeweler Jim Jackson’s biggest sale, the sale that almost put him out of business, started, as most jewelry sales do, with a romantic gesture.

In 2005, Robinson Brown Jr., whose family company, Brown-Forman, in Louisville, Ky., is known for alcohol brands like Jack Daniel’s, saw a picture of an emerald necklace that Richard Burton gave to Elizabeth Taylor. He decided that donating an emerald necklace to Louisville’s Speed Museum would be a fitting tribute to his late wife, Jean McCauley Brown, who had died in 2004.

He asked Jackson, his jeweler for more than 20 years, to make a necklace for him, saying he would be willing to pay $3 million for the emeralds. Brown and his wife had been customers of Jackson’s sixth-floor Louisville store, Aesthetics in Jewelry, since a few years after it opened in 1976.

Jackson called his emerald dealer, Ray Zajicek, of Equatorian Imports, in Dallas, and told him he was looking for a layout of spectacular emeralds. Zajicek said he didn’t have loose stones that would fit the bill but he knew of a recently completed necklace and earring suite by Krementz Gemstones that would.

Jackson called in the necklace, along with the matching earrings, and brought it to Brown’s house to show him.

"He loved it, he absolutely loved it," Jackson remembers. "The emeralds were almost luminescent. It was an incredible piece of jewelry, absolutely gorgeous."

The beauty of that emerald necklace is one of the few things that has never been disputed.

Brown wrote an $800,000 check for the necklace and matching earrings, naming the necklace Queen of the Creek, his nickname for his late wife.

Brown’s daughters suggested making the center emerald detachable so the necklace could also be worn without it. Jackson made the requested alteration without charge, taking out extra insurance for the tricky task of removing and resetting the center emerald. At the family request, he also created an 18k gold plaque for the presentation box that said "Queen of the Creek: In Loving Memory of Jean McCauley Brown."

After the sale, Jackson prepared an appraisal on the necklace, valuing it at $960,000. What the appraisal said and didn’t say soon became an issue.

The trouble started when Brown died four months later.

"After Mr. Brown died, the kids asked me if I would take the necklace back," Jackson says. "I said I wasn’t in the position to do that but that I would try to sell it on their behalf." Jackson advertised the necklace in the Rapaport Diamond Report and in local publications. After two months, the necklace hadn’t sold, so the family took it to New York to try to find a buyer.

They took the necklace to two estate dealers, Paul Vartanian and Bradley Lempert, who both made offers, bolstered by appraisals, of $200,000. Christie’s and Sotheby’s offered similar auction take-in estimates of $180,000 and $230,000.

The family decided to sue Jackson for misrepresentation. At trial in July 2009, the lead attorney for the estate, Glenn Cohen, said the family was asking only for the deal to be undone because Jackson had misled Brown as to the value of the necklace.

Jackson’s attorney Sandra McLaughlin put it much more succinctly: "This family thinks the jeweler made too much money."

Jackson paid $500,000 for the necklace and earrings and added a 60 percent markup to reach the sale price of $800,000. (Jackson prefers to describe the sale price as representing a 37.5 percent margin rather than a 60 percent markup, but the numbers remain the same.)

Gem dealer Jeffrey Bilgore, who specializes in high-end one-of-a-kind pieces and also has experience as a retail gem buyer, says a 50 percent to 60 percent markup is the norm at this price point.

Brown-Forman marks up its whiskey more, Jackson points out. (Last year the company generated $1.6 billion in gross profit on $3.2 billion in sales.) Clearly, in an industry where keystone is standard, the margin wasn’t at issue; at issue was the total dollar value it represented.

The stakes in the case were high, not only for Jackson but also for the industry as a whole. "It would have been devastating to the industry if heirs who thought Daddy paid too much for something could just return it," McLaughlin says.

"In my opinion this was a landmark case in American retail," says Bilgore, who attended the trial. "If it had gone the other way, it would mean that the family of a buyer could return a piece years later because of things said at point of sale or in an appraisal."

For Jackson, the three years of litigation affected not only his reputation but also his ability to obtain financing. "I had to sell a lot of gold and borrow money from my mother and friends to keep going," he says. "It was tough."

In the end, the jury returned a unanimous verdict in favor of Jackson. But Jackson admits he made mistakes that made him vulnerable to this lawsuit. His experience contain valuable lessons for every jeweler (see sidebar).

For Jackson, a nightmare is over. He says he has a "three-inch stack" of e-mails, cards, and letters from customers wishing him well, and the trial even brought him new customers: three jurors who have already come into his store.

"I feel like Jimmy Stewart in It’s a Wonderful Life," he says. "The outpouring of support from my customers has been overwhelming. My customers know I wouldn’t cheat anybody. But now I am afraid to sell anything to anyone of any consequence."

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