Claiming that “the good name of Paraíba itself has been hijacked,” David Sherman, chief executive officer of Paraiba.com, has filed a $120 million lawsuit against the American Gem Trade Association; the Gemological Institute of America; Brazil Imports Inc.; and several individuals, including AGTA present and past board members. The suit was filed April 7 in Superior Court of the State of California, Santa Cruz.
Sherman objects to a recent move by AGTA and laboratories that belong to the Laboratory Manual Harmonization Committee concerning the name Paraíba. His suit claims that they have taken the locality origin classification Paraíba tourmaline and redefined it as a color variety classification, paraiba tourmaline, for similar gems found in Mozambique and Nigeria.
Paraíba tourmaline is a copper- and manganese-colored elbaite tourmaline mined in the state of Paraíba, Brazil. Its color can range from very rare and dramatic dark sapphirelike blues to neon Windex blues to neon Scope mouthwash greens. These gems were discovered in the mid 1980s and continue to be mined in Paraíba. The AGTA Gem Testing Center and other gemological labs have decided that copper- and manganese-color tourmalines from other parts of the world (particularly Africa) that have similar color characteristics should be given the variety name paraiba tourmaline.
“There is only one stone that can be legitimately called Paraíba, and it is exclusively mined in the province of Brazil that it is named for,” Sherman argued in a statement.
Sherman’s suit charges AGTA and others with intentional interference with prospective business advantage, negligent interference with prospective business advantage, unfair competition or business practice, and RICO (Racketeer Influenced and Corrupt Organizations Act) violations by mail fraud and wire fraud.
Sherman argues that by allowing the name Paraíba to be used for stones produced outside Brazil—in locations as far away as Mozambique and Nigeria—AGTA has failed to do what its charter requires.
In addition, Sherman claims that the labs’ decision has diminished the value of the rare gems and cost him “devastating financial losses.” The lawsuit demands that AGTA and others named in the suit pay him $120 million: $20 million for “general and special damages” and $100 million in punitive damages. In addition, he is requesting an “appropriate injunctive order to prevent the continued conduct of defendants.”
At press time, AGTA chief executive officer Doug Hucker told JCK that he had “received a letter from Sherman’s attorney who wants to sit down and talk about some concerns. And we are more than willing to sit down and talk.” According to Sherman’s attorney’s office, subpoenas have been served to facilitate the discovery phase of the litigation process.
Members of AGTA have voiced opposing views about this subject for several years. Some agree with Sherman that the name Paraíba is a location and only a location. “Paraíba is a trade name that denotes material from a specific region, as does Kashmir,” writes Simon Watt, of Mayer & Watt, Maysville, Ky. “If the labs cannot determine locale, instead of diluting the value of Paraíba by assigning that term to all future cuprian tourmalines, they should just stick to gemology and allow the traders to determine whether to call a stone Paraíba or not.”
Others believe the controversy is much ado about nothing and say that naming a variety after a locality is appropriate and the media are to blame for the fuss. As one member put it, “Ten minutes of fame, fanned by the large dollar amount on the lawsuit, has excited the gem media.”
Part of Sherman’s argument is that Paraíba tourmalines from Brazil were of limited number. The Paraíba mine, near the village of São José de Batalha, where Sherman has mining rights, and the adjoining mines in the Brazilian state of Rio Grande do Norte, ran out of recoverable quantities of gemstones. As a result, existing stones maintained a high level of value, which increased over time.
Sherman claims that some or all of the defendants named in the suit began to import, sell, and distribute the African stones throughout the United States, and that these stones were fraudulently represented as Paraíba tourmalines, even though they were not from Paraíba and did not have the same chemical composition as stones from Paraíba. (While the chemical formula may appear to be the same, specific amounts of copper and manganese vary from one locality to another. It’s this variation that many believe is responsible for the vivid neon colors that characterize the Brazilian material.)
Sherman charges that using the name Paraíba was intended to defraud the public into believing the African stones were of higher quality and were from the Paraíba area of Brazil, which would inflate their price.
Sherman also says African stones began to flood the market, depressing the price of what he calls “real” Paraíba stones. The future value of the Brazilian stones also fell because, Sherman claims, there is now a “virtually unlimited supply of such stones.”
“Authentic Paraíba tourmaline holds its neon color in stones as small as 1 mm in diameter,” Sherman says. “But even without a trained eye, people can see it is different from tourmaline mined elsewhere.”
Around 2005, Sherman alleges, it became known in the jewelry industry that African stones were being passed off as Paraíba tourmalines by those named in the suit. Sherman also alleges that, to cover up their actions, AGTA and the others “entered into a conspiracy: They agreed to redefine as a Paraíba stone any cuprian elbaite that contained copper and manganese.”
“They stood to gain a lot from what they decided to do,” Sherman says. “They had a vested economic interest in preventing lawsuits for fraud, maintaining the value of the African stones, or in protecting the members of the gem association. AGTA had a clear economic interest in passing off the African stones as Paraíba stones.”
He also claims that “in 2005, the AGTA and other defendants collectively decided to redefine Paraíba stones to include all cuprous elbaites regardless of place of origin. The AGTA used its power in the jewelry business as the final arbiter regarding the qualifications and certification of gemstones to widely disseminate the false information regarding the redefinition of Paraíba stones.”
Sherman told JCK that AGTA is bearing the brunt of his suit because, he claims, “They’re breaking their own code of ethics.”
According to AGTA’s “Code of Ethics and Principles of Fair Business Practices,” members must protect the industry and their clients against misrepresentation and avoid exaggeration. They must be diligent in combating and exposing gemstone misrepresentation and not take unfair advantage of another person or firm’s merchandise in order to promote and sell his or her own merchandise. Gems must not be misrepresented as to their origin.
In addition, AGTA members must adhere to the following Federal Trade Commission rules:
§ 23.1 Deception (general): It is unfair or deceptive to misrepresent the type, kind, grade, quality, quantity, metallic content, size, weight, cut, color, character, treatment, substance, durability, serviceability, origin, price, value, preparation, production, manufacture, distribution, or any other material aspect of an industry product.
Note 1 to § 23.1: If, in the sale or offering for sale of an industry product, any representation is made as to the grade assigned the product, the identity of the grading system used should be disclosed.
Note 2 to § 23.1: To prevent deception, any qualifications or disclosures, such as those described in the guides, should be sufficiently clear and prominent. Clarity of language, relative type size and proximity to the claim being qualified, and an absence of contrary claims that could undercut effectiveness, will maximize the likelihood that the qualifications and disclosures are appropriately clear and prominent.”
The AGTA Web site (www.agta.org/gtc/pondering-paraiba.html) says, “Traders asked gemological labs to describe the gems on lab documents as ‘paraíba’ tourmaline. This forced labs to come up with a definition for this variety.”
AGTA determined that the stones get their color as a result of the presence of copper and manganese. “But building a variety definition based on composition alone is fraught with danger,” AGTA said on its Web site.
It’s fraught for two reasons: First, new discoveries add to our knowledge about what creates color. Second, color is affected by factors unrelated to composition, including size, cut, and inclusions.
AGTA GTC decided to follow the definition that was created by the Laboratory Manual Harmonization Committee, an organization made up of representatives from seven major international gem labs. The LMHC definition says, “The name ‘paraiba’ is derived from the Brazilian locality where this gemstone was first mined, however today it may come from a number of localities” (see www.agta.org/gtc/docs/lmhc6-paraiba.pdf).
AGTA added this statement to its Web site: “While paraíba tourmalines were first found in Brazil’s Paraíba State, stones of similar color and composition have now been found in Rio Grande do Norte State (Brazil), Nigeria, and Mozambique. Some purists have argued that the paraíba variety should be limited to Brazilian stones, but the decision of the LMHC was that this variety will be defined by color and composition, not country-of-origin. Upon request, member labs of the LMHC will identify the country-of-origin on their documents, thus satisfying all clients.”
On April 25, 2007, AGTA’s then-president Rick Krementz responded to a Feb. 16, 2007, blog post (“The Price War of Paraíba Africana Tourmaline”) on JCK‘s Web site. Krementz wrote: “To add some clarity to your paraiba comments: 1) Paraíba (upper case with an accent on the ‘i’) refers to the state in Brazil where these tourmalines were first found. Subsequently, many, if not most of these gems came from the neighboring state of Rio Grande de Norte. 2) ‘paraiba’ (lower case without an accent) refers to the copper-containing elbaite tourmaline, first discovered in Brazil and later found in Nigeria and Mozambique.” (See www.jckonline.com/blog/1950000195/post/1910006991.html.)
Sherman doesn’t accept the explanations. “What the AGTA did was wrong,” he says. “We intend to go all the way. Ultimately, it’s the public that has been injured here. It’s in the interest of the gem industry in the long run to prevent this destructive sort of fraud.”