United States District Court, E.D. Texas, Sherman Division
MEMORANDUM OPINION AND ORDER
L. MAZZANT UNITED STATES DISTRICT JUDGE.
before the Court is Defendants' Motion for Sanctions Due
to Fabrication of Evidence (Dkt. #208). Having considered the
pleadings, the Court finds that the motion should be granted
in part and denied in part. Plaintiffs shall not be permitted
to allege at trial that any invoices, appraisals, point of
sale, or repair receipts issued to customers before May 25,
2016 contained the written disclosure stating that the
standards of diamond grading vary between laboratories.
matter, Plaintiffs The Diamond Consortium, Inc. d/b/a The
Diamond Doctor (“Diamond Doctor”) and David Blank
(collectively, “Plaintiffs”) allege that
Defendants Brian Manookian, Brian Cummings, Cummings
Manookian, PLC (collectively, the “Manookian
Defendants”) and Mark Hammervold and Hammervold PLC
(collectively, the “Hammervold Defendants”)
engaged in a scheme to defraud and extort Plaintiffs (Dkt.
#131). Plaintiffs allege that the Manookian Defendants
created websites and advertisements “falsely accusing
The Diamond Doctor of having committed ‘diamond
fraud' and ‘cheating' customers through the
sale of ‘overgraded' diamonds” (Dkt. #131 at
¶ 29). Plaintiffs allege that Manookian threatened
Plaintiffs with several diamond over-grading lawsuits, unless
Plaintiffs retained Cummings Manookian as counsel and paid a
$25, 000 monthly retainer fee for a period of 120 months,
totaling three million dollars (Dkt. #131 at ¶ 51).
Plaintiffs allege that the Manookian Defendants'
“campaign was and is completely false” and that
“The Diamond Doctor and Blank do not commit
‘fraud' or sell ‘overgraded
diamonds'” (Dkt. #131 at ¶ 33). Regarding
their diamond grading, Plaintiffs allege that:
The Diamond Doctor has had, and continues to maintain, a
consistent policy of disclosing to its clients the potential
for significant differences between grading and
certifications from one laboratory to another. Simply put,
The Diamond Doctor makes its clients aware that a
certification from one lab may be perceived as being more
reliable than a certification from another. These disclosures
include the potential for higher appraised values for
diamonds with particular certifications and the resulting
retail pricing disparities.
(Dkt. #131 at ¶ 23). In the pending Motion for Sanctions
Due to Fabrication of Evidence, the Manookian Defendants
allege that the Diamond Doctor did not in fact disclose to
its clients the potential for differences between grading
certifications (Dkt. #208). The Manookian Defendants issued
Plaintiffs a request for production of documents providing
any information to customers about diamond grading. The
Manookian Defendants allege that Plaintiffs produced
fabricated sales receipts and appraisals containing a diamond
grading disclosure that was not included on original sales
receipts and appraisals (Dkt. #208). Defendants allege that
Plaintiffs created “evidence beneficial to them in
hopes of escaping a finding of fraud, which would undo all of
its allegations that Defendants' advertisements are
false.” (Dkt. #208 at p. 12).
response, Plaintiffs state that Diamond Doctor “does
not maintain, and has never maintained, physical or
electronic copies of invoices or appraisals.” (Dkt.
#236 at ¶ 1). Plaintiffs state that Diamond Doctor
retains electronic records of all data pertaining to
inventory and each customer transaction on Excel databases in
its inventory management and point of sale system, Jewels2000
by LogicMate (“LogicMate”) (Dkt. #236 at ¶
1). According to Plaintiffs, “[w]hen an invoice or
appraisal is queried in LogicMate, the system retrieves
relevant data points from the Excel databases and prints them
on a template that exists in LogicMate (Dkt. #236 at ¶
3). Invoice-related data points are printed on an invoice
template and appraisal related data points are printed on an
appraisal template (collectively, “Templates”)
(Dkt. #236 at ¶ 3).
state that the Templates “are hard-coded into LogicMate
and contain static information that does not regularly change
from sale to sale (things like the Diamond Doctor logo,
website . . . and legal disclaimers)” (Dkt. #236 at
¶ 3). Plaintiffs state “[b]y nature of the
LogicMate internal structure and functioning, Diamond Doctor
has no ability to print a queried invoice or appraisal on the
old Template in effect at the time of the original
transaction” (Dkt. #236 at ¶ 5). “As a
result, the newly-generated document will not be an exact
duplicate of the original if any changes to the Template have
been made since the time of the original document”
(Dkt. #236 at ¶ 5).
18, 2016, Defendants requested copies of any invoices or
appraisals Diamond Doctor provided to any customers
purchasing EGL-graded diamonds from 2010 through the present
(Dkt. #236 at ¶ 6). On May 25, 2016, Diamond
Doctor's custodian of records, Nicole Becker
(“Becker”), updated Diamond Doctor's invoice,
appraisal, point of sale, and repair Templates to include a
written disclosure regarding diamond grading standards (Dkt.
#236 at ¶ 9). The disclosure states:
“A diamond certificate, also called a diamond grading
report is a report created by an independent laboratory
stating the quality of a diamond according to their grading
standards. The standards of grading vary between
laboratories.” (the “Grading Disclosure”).
(Dkt. #236 at ¶ 9); (Dkt. #236 at Exhibit 1A). Invoices
and appraisals printed after May 25, 2016 include this
Grading Disclosure (Dkt. #236 at ¶ 9). However, the
Grading Disclosure would not have appeared on any invoices or
appraisals for transactions occurring before May 25, 2016
(Dkt. #236 at ¶ 9). Counsel for Plaintiffs was unaware
of this change to the Templates (Dkt. #236 at ¶ 9).
December 7, 2016, Plaintiffs' counsel produced over 53,
000 pages of documents to Defendants, including invoices and
appraisals that were “all printed on the Templates in
effect at the time they were printed rather than the
Templates in effect at the time of the past
transactions” (Dkt. #236 at ¶ 8). As a result, the
produced documents contained the Grading Disclosure that was
not present on invoices or appraisals for transactions
occurring before May 25, 2016 (Dkt. #236 at ¶ 9). On
April 20, 2017, Becker signed a Business Records Affidavit
stating that the produced documents were true and correct
copies of the sales receipts made by the Diamond Doctor (Dkt.
#208, Exhibit 6). Becker stated that the only known
differences between the produced documents and original sales
receipts given to customers were the redacted customer names
and contact information and lack of photographic images (Dkt.
#208, Exhibit 6).
receiving original sales receipts and appraisals from Diamond
Doctor customers, Defendants noticed the discrepancy between
the produced documents containing the Grading Disclosure and
original sales receipts not containing the Grading Disclosure
(Dkt. #208 at p. 7). On May 17, 2017, Counsel for the
Manookian Defendants contacted counsel for Diamond Doctor
explaining the discrepancies and their intent to file a
motion for sanctions (Dkt. #236 at ¶ 14). On May 17 and
18, 2017, counsel for Diamond Doctor reviewed the produced
documents and contacted counsel for the Manookian Defendants
to explain the LogicMate system and why the produced
documents contained the Grading Disclosure (Dkt. #236 at
¶ 15). Counsel for Diamond Doctor offered to enter into
any necessary stipulations to remedy the discrepancies (Dkt.
#236 at ¶ 15).
18, 2017, counsel for the Manookian Defendants filed the
pending Motion for Sanctions Due to Fabrication of Evidence
(Dkt. #208). That same day, the Hammervold Defendants filed a
Motion Joining in Co-Defendants Motion for Sanctions due to
Fabrication of Evidence (Dtk. #209). On May 24, 2017, Becker
testified during her deposition that when she signed the
Business Records Affidavit in April 2017, she did not review
the documents produced in December 2016 and was not aware
that the produced documents contained the Grading ...