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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: April 7, 2019

Claimed Deception Among Jewelry Wholesales Supported General Business Law 349 Claim Because Alleged Fraud Ultimately Harmed Public

On March 18, 2019, Justice Scarpulla of the New York County Commercial Divsion issued a decision in KS Trade LLC v. International Gemological Inst., Inc., 2019 NY Slip Op. 30728(U), holding that alleged deception among jewelry wholesalers supported a General Business Law Section 349 claim because the alleged fraud ultimately harmed the public, explaining:

General Business Law Section 349 provides that deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are unlawful. This statute requires a showing that defendant is engaging in a consumer-oriented act or practice that is deceptive or misleading in a material way, and that plaintiff has been injured by reason thereof. In determining whether the act is consumer oriented, the question is whether the matter affects the public interest in New York, not whether the suit is brought by a consumer or a competitor. A deceptive act or practice has been defined as a representation or omission likely to mislead a reasonable consumer acting reasonably under the circumstances.

Here, this is not just a private commercial dispute between parties. Rather, the crux of this dispute is alleged conduct ultimately aimed at the public. Consumers are not just incidental parties — parties to whom the fraudulent certificates, appraisals and stones were passed on to – rather, the conduct was ultimately directed at misleading the consumers, in fraudulently grading and selling stones that consumers are buying at artificially inflated prices. The conduct, as alleged, is sufficiently stated as consumer oriented within the meaning of the statute.

Further, while the original deception is alleged to have occurred at the international level, the moving defendants’ conduct is sufficiently alleged as a deceptive act or practice resulting in injury Moving defendants are alleged to have sought a kickback or illicit fee in return for issuing a consistent grading to that of the allegedly fraudulent grading issued by the international IGI entities, in furtherance of the purported scheme. This conduct, as alleged, is sufficiently stated as a deceptive act or practice to mislead the public within the meaning of the statute.

As to the injury, KS alleges that when KS refused to pay the illicit fee, it was left with allegedly over-graded stones with no New York certificate, that its customer refused to buy. If others in the industry, as alleged, have been paying the illicit fee to IGI NY, consumers purchasing the end product jewelry have been receiving fraudulently graded stones at artificially inflated prices.

(Internal quotations and citations omitted).

Commercial litigation frequently involves fraud-based claims. This decision relates a statute-based fraud claim brought by under General Business Law Section 349. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a fraud-based claim, including one brought pursuant to a state or federal statute.

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