“Intended use” is the linchpin of any appraisal. To perform an appraisal properly, you must know what it’s for and include the reason on the report itself. Why is the issue of intended use so important? The story behind a recent trial in Florida provides a dramatic answer.
In July 1993, Manuel Marcial, president of Key West, Fla.-based Emeralds International, showed an emerald-and-diamond ring to a vacationing couple, Meredith Gorman and Steven Zinn of Sarasota, Fla. The jeweler told the couple that the emerald, a 1.7-ct. pear shape, was from the Chivor mine, one of the more important mines in Colombia. The ring was priced at $6,900, and the couple needed more time to decide. Marcial gave them a business card on which he’d written the information about the ring.
Zinn contacted Marcial on Aug. 28, 1993, and made a $1,000 deposit on the ring. He paid the final installment on Dec. 5, 1994. The total price came to $7,383-$6,900 plus tax. When Zinn picked up the ring, Marcial prepared a replacement appraisal for him to use in obtaining insurance. The appraisal, a preprinted form that Marcial filled out by hand, indicated that the emerald was “Gem Fine,” the top grade in Marcial’s 3-grade in-store grading system. Value was set at $7,383.
Marcial recalls that every year while on vacation the couple would stop in and have him inspect the ring. On one of those visits, Marcial noticed that the emerald was showing signs of excessive wear. (“We were informed that a fracture line was developing at the tip of the pear-shape emerald,” Zinn would later write in a letter to Florida state attorney Kirk Zuelch.) Marcial cautioned Gorman to take advantage of his 100% trade-in policy. He told her that emeralds, like many gemstones, must be treated with care. “At that point the emerald could have been re-cut, and I would have been able to recover something from the stone,” Marcial says. Gorman declined the trade-in.
The next time Marcial saw the emerald-more than four years after he’d sold it-it was broken. The tip was missing, there were numerous chips and internal fractures, and Gorman wanted a refund or exchange. Marcial explained that recutting the stone was no longer an option and told Gorman that any salvage value he might have recouped for her was now gone.
Gorman and Zinn took the ring to Terry Coffrin, their jeweler in Sarasota, “to discuss” their “options.” Coffrin arranged for Nancy Stallworth Weiss of Bayside Jewelry Appraisals in Tampa, Fla., to prepare an appraisal on the chipped and cracked emerald. Weiss has a professional appraisal designation from the National Association of Jewelry Appraisers (NAJA) and is an affiliate of both the International Society of Appraisers (ISA) and the American Gem Society (AGS). She examined the ring and issued an insurance report that stated a value of $1,750 for the ring as is. Soon after Weiss completed her work, Zinn and Gorman took her appraisal to Emeralds International to confront Marcial.
Marcial responded that the emerald was properly represented at the time of sale but had been damaged through wear and tear and, in effect, reduced in quality and value.
Zinn and Gorman visited the office of Paul Meyers, an investigator for the Florida state attorney’s office. Meyers recommended that the couple obtain a second independent appraisal “with special attention directed toward the contention that gemstones can degenerate in quality due to normal wear.” They returned to Coffrin, who, according to his deposition testimony, advised Zinn to “hire the biggest gun you can hire,” an apparent reference to an appraiser who had more credentials than Weiss. Coffrin arranged to have the ring shipped to Miami appraiser Joseph Tenhagen, president of Joseph Tenhagen Gemstones Inc., part-owner and current officer of NAJA, and a veteran appraiser and gem consultant.
Memories about the nature of the communications between Coffrin and Tenhagen are vague, but Tenhagen’s appraisal, which appears to be another insurance replacement appraisal, valued the ring at $750.
A few months later, Gorman obtained an addendum to Tenhagen’s appraisal. Dated March 8, 1999, it reads: “.The emerald listed in this appraisal is not Gem Quality. It would have never been gem quality. It is a commercial quality emerald. No amount of wear could change a stone from gem quality to commercial quality. The emerald has a colorless hexagonal center crystal extending on an angle from the table through the stone, therefore it could never be considered ‘gem quality.'” The addendum goes on to say, “The point of the pear shape is broken because of an inherent weakness in this area due to numerous inclusions in this area.”
Armed now with Tenhagen’s appraisal and addendum, Gorman and Zinn informed the state attorney that they felt they had been defrauded “based upon [Emeralds International’s] fraudulent misrepresentation of a commercial quality emerald as a gem-fine quality emerald,” and they requested the assistance of his office in resolving the matter.
In a recorded interview with Paul Meyers, the state’s investigator, Marcial repeated his contention that the emerald had been fairly represented at the time of sale but had been reduced in quality by damage. The following excerpt is from that interview, which took place on April 27, 1999.
Meyers: What doesn’t seem logical to me-not knowing anything about stones, which I fully admit-that, comparing it to a Cadillac, that if I buy what I think is the Cadillac of an emerald, and then it gets damaged, I’m now told I don’t have a damaged Cadillac of emeralds anymore, I have a Hyundai.
Marcial: No, it was a Cadillac of an emerald when purchased but has been damaged..If an expensive, new Cadillac goes out and hits a concrete pole, it is no longer new.
Meyers: But it is still a Cadillac, right?
Marcial: Right, but it is not in the same condition. Is the dealer going to give you a full credit on it if you return it in that condition to him?
State attorney Kirk C. Zuelch arrested Marcial on criminal charges, and the jeweler spent a few hours behind bars before posting bail. The headline in the May 13, 1999, edition of the Key West Morning Star read: “Duval St. Emerald Dealer Charged With Fraud, Grand Theft. Emerald Ring Sold For $6,900, Appraised at $750.”
“I can’t begin to tell you how outnumbered and outgunned one feels when all the power and resources of the state and the imprimatur of ‘two unimpeachable experts’ comes at you like a landslide,” says Marcial. “It’s extremely intimidating and frightening. After the initial shocking blows, hopefully you recover and ‘gird the loins of endeavor’ for battle. You are at war.”
Marcial retained criminal defense attorney Gloria Fletcher of Schaffnit and Fletcher, Gainesville, Fla., to represent him. As the defense prepared its case, Marcial’s attorney realized that the state’s case was vulnerable on legal technicalities. Marcial, however, refused to pursue a defense based on technicalities. “I had done nothing wrong,” he says. “I did not want to be seen as someone who was let off on a technicality.”
The criminal trial of Manuel Marcial commenced in Monroe County Courthouse in Key West, Fla., on August 14, 2000. William Hoefer, author of the International Society of Appraisers expert witness course and a witness for the defense, recalls that the state was on the hot seat almost immediately. Weiss was vulnerable, Hoefer recalls. “Nancy Weiss had claimed in her appraisal that she wrote the report in compliance with USPAP [Uniform Standards of Professional Appraisal Practice]. However, Fletcher’s questioning nearly brought her to tears as she was forced to admit she had shredded her working notes even though USPAP requires that they be kept.”
When Fletcher motioned for a dismissal on grounds that the state had failed to meet its burden of proof, the judge dismissed four of the five counts. The original charge of theft was allowed to proceed.
The core of the defense’s case was that the emerald had been one grade before it was damaged by the client and was now another grade as a result of that damage. Value, like quality, was adversely affected by the damage.
Another part of the defense’s strategy was to dispel the notion that a colorless central crystal would mandate a commercial grade. To do that, they brought into evidence fine-quality sapphires and tanzanites that faced-up beautifully but had colorless central cores. They also called on Ray Zajicek, an emerald dealer and owner of Equatorian Imports in Dallas. Zajicek provided information backing up his contention that “unlocking the inner beauty of the crystal lies mainly in the skill of the cutter.”
The defense also called as a witness John E. Marion II, Ph.D., a director at Industrial Partners Consortium Lawrence Livermore National Laboratory in Livermore, Calif., and an expert in fracture analysis. Marion provided testimony that disputed both Weiss’s and Tenhagen’s claims that the emerald had always been commercial quality.
In the end, the testimony of Tenhagen, the state’s chief witness, actually bolstered the defense’s case. Says Fletcher: “He said that there was nothing wrong with Manuel coming up with his own grading scale. That the emerald could have been gem-fine. He also said that he called the state attorney many times to tell him that his appraisal was no good for establishing grand theft. The state attorney used it anyway.”
On August 21, 2000, after deliberating just 35 minutes-including the time it took to elect a foreman-the jury acquitted Manuel Marcial.
How did it happen? How could a case with two key pieces of evidence-Weiss’s and Tenhagen’s appraisals-fall apart so quickly? The answer is that the evidence was flawed: Both appraisals were inappropriate for the client’s purpose. They both reported replacement cost-not market value. Defense attorney Fletcher suggests that if Weiss’s and Tenhagen’s initial appraisals had been done for the proper purpose, the case probably would not have proceeded the way it did. Consider the following excerpts from Coffrin’s deposition:
Fletcher: Did you make any recommendations about recutting the stone?
Coffrin: No. That wasn’t their question. [Referring to Zinn and Gorman]
Fletcher: What was their question?
Coffrin: “Does that stone live up to this appraisal?” [Referring to Marcial’s certified appraisal]
Fletcher: Did you give them an answer to that?
Coffrin: In my opinion, it doesn’t..That’s why we sent it to Nancy Weiss to validate what that is.
But the kind of appraisal that Weiss performed could not possibly “validate” whether or not the stone “lived up” to Marcial’s original appraisal, because Weiss performed an insurance appraisal instead of a retrospective appraisal. Credentialed appraisers with whom we spoke say that in this instance, an insurance replacement appraisal was inappropriate for the clients, Zinn and Gorman.
During the trial, Fletcher tried to determine if Coffrin had explained the situation to Weiss. She also tried to ascertain what kind of appraisal was requested. In addition, Fletcher tried to determine if Weiss had asked Coffrin what type of appraisal he needed and whether Weiss had expertise in writing appraisals other than insurance replacement appraisals.
The following excerpt from Weiss’s deposition testimony provides the key to explaining why an insurance appraisal was not appropriate to the client’s needs.
Fletcher: What if anything did the jeweler [Coffrin] tell you when he asked you to appraise the ring?
Weiss: “Take a look at this ring, is there any way the emerald could be gem quality?” … I think he felt his client needed substantiation on possible misrepresentation.
“This statement indicates the intended use of the appraisal,” says Hoefer. He explains that a case of “possible misrepresentation” requires an appraiser to perform a retrospective appraisal, not an insurance appraisal. “This was the red flag signaling Weiss that there was a problem here,” Hoefer says. “An appraiser needs to find out specifically how the client intends to use the report.”
Says Weiss: “He asked me to do an insurance replacement appraisal. I basically do what I’m contracted to do. I try to do the best job I can.”
But Weiss’s appraisal disclosed both that the emerald was broken and unmounted at the time of examination, two factors that make an insurance appraisal inappropriate. No insurance company would insure a loose or broken emerald.
In Weiss’s defense, Fletcher said after the trial: “She didn’t know that [her appraisal] was going to be used in a criminal trial. She said in testimony that she couldn’t project the past, and valued the ring as is.”
Tenhagen, whose appraisal was the second key piece of evidence, says he doesn’t recall being asked to perform a retrospective appraisal or damage report, but his appraisal makes no mention of the report’s purpose, function, or assigned use. That failure to list intended use is a violation of an ethical
principle maintained by all appraisal organizations. Tenhagen’s appraisal also fails to note any damage to the emerald.
During Tenhagen’s deposition, defense attorney Fletcher asked him why he had not determined the correct purpose or intended use of the report before preparing an insurance replacement appraisal. When asked why it took from December to January to complete the appraisal, and why no clear date of inspection or date of value were stated on the report, Tenhagen responded that it was “just another chicken-s-t appraisal.”
“The real crux of the matter here,” says Hoefer, “is that neither one of them, Weiss or Tenhagen, asked enough of the right questions. You can have lots of reasons why not to ask more questions, but it’s no excuse. It’s just plain carelessness.”
“The ring was sent to me by a retail jeweler,” says Tenhagen. “It wasn’t for a court case.” But it was used as the basis of a court case. In fact, Tenhagen had a second Marcial ring appraised for state attorney Zuelch, and he used the same appraisal format even though, again, a retrospective appraisal was the appropriate one. As to why he didn’t ask any questions of the attorney’s office about the appraisal’s intended use, Tenhagen says, “I don’t ask questions. In order to be objective and unbiased, I try not to know too much about those situations.”
Hoefer sums up the fatal flaw in the prosecution’s case this way: “The charge was theft, but neither appraisal conformed to the requirements set forth to prove theft in the state of Florida. Florida requires market value at the time and in the vicinity of the theft, which, according to the state’s case, would have been the time of sale. And neither appraisal provided that information. The two chief pieces of evidence, namely Weiss’s and Tenhagen’s appraisals, reflected markets other than Key West and were dated years later than that required by law.”
Epilogue. When asked if action would be taken against the appraisers involved, members of the defense indicated that would be a possibility. It’s not clear, however, if that would be legal action or formal complaints to industry groups. Says Marcial: “The lack of attention to detail shows a cavalier attitude in a business which requires the most demanding attention to detail. Failure to contact the jeweler as part of establishing provenance, different retail markets, and establishing prices like shooting darts certainly does not show the levels of precision demanded by [the appraisal] trade.”
Tenhagen himself professes to teach appraisers about the importance of getting every detail right. “I tell people, write every appraisal like you’re going to have to defend it in court, ’cause when you don’t, you surely will.”
“Perhaps the most important aspect of this case,” says Marcial, “is that now there is a legal precedent that will accrue to the advantage of other jewelers who may find themselves in similar circumstances. Had the state prevailed, every jeweler would become insurer of his own merchandise. A customer could come back, as they did with me, five years later, admit to breaking the gem, and insist on having the jeweler refund or replace it or else have him arrested. No one should ever make the mistake of thinking it can’t happen to them.”
To date Marcial has spent nearly $200,000 defending himself. His attorney has served the required notice that he intends to sue state attorney Kirk Zuelch and investigator Paul Meyers for malicious prosecution. In November, Zuelch lost his bid for re-election to the office he had held for twenty years.
The information reported here is taken from the court record and some supplemental interviews. Additional reporting was done by Stuart Robertson of Gemworld International, Northbrook, Ill.