Opinion
No. 03 Civ. 0495 (GEL).
August 26, 2004
Isaac Stengel, pro se, for plaintiff.
David P. Stich, Solomon Pearl Blum Heymann Stich, New York, NY (Michael J. Semack, of counsel), for defendant.
OPINION AND ORDER
Plaintiff Isaac Stengel, a diamond dealer, brings the present action in diversity against defendant Bradford Black, for replevin of a 5.1-carat emerald-cut diamond in Black's possession that Stengel allegedly owns, or in the alternative for damages for conversion. Black moves to dismiss for lack of subject matter jurisdiction, claiming the amount in controversy is less than $75,000. For the reasons stated below, Black's motion will be granted.
BACKGROUND
The facts, which are taken from the complaint except where otherwise noted, are as follows. A diamond dealer named David Rosental contacted Isaac Stengel in May 2000 to procure a diamond of a particular size and shape for the defendant Bradford Black. Stengel testified at his deposition that he procured a 5.1-carat emerald-cut diamond from Julius Klein Diamonds LLC ("Klein") and sold it to Rosental, from whom Black in turn purchased it. (Stengel Tr. 38-57.) However, Rosental's check to Stengel for the promised amount was dishonored for insufficient funds. (Id. 62.) The diamond later became the subject of a dispute between Rosental and Black, and when Stengel asked Black to return the diamond in October 2002, Black refused, stating that he was holding it "as collateral" in that dispute. Stengel claims, however, that Black was aware that Rosental did not own the diamond. Stengel brought the present action for the return of the diamond with costs and interest, and in the alternative for damages in the amount of $84,150, which he claims is the retail value of the diamond.
At a status conference on March 17, 2004, the defendant indicated his intention to move to dismiss based on lack of jurisdiction, arguing that the pleadings and facts adduced in discovery do not support a finding that the amount in controversy could exceed $75,000. Since it was in the interest of efficiency to consider the jurisdictional question before addressing motions for summary judgment on the merits, the Court stayed proceedings in order to consider the jurisdictional question, which was briefed on an expedited schedule.
Plaintiff argues that the defendant's motion to dismiss was untimely because it was filed beyond the 20 days afforded to a defendant to assert affirmative defenses in an answer. (P. Mem. 4.) However, the absence of subject matter jurisdiction defeats the Court's power to take any action at all; thus, it may be raised, by motion of any party or by the Court sua sponte, at any time. Tongkook America, Inc. v. Shipton Sportswear Co., 14 F.3d 781, 786 (2d Cir. 1994). Accordingly, Rule 12(h)(3), Fed.R.Civ.P., allows the defense of lack of subject matter jurisdiction to be raised by motion at any time, not only in a defendant's answer.
DISCUSSION
I. Legal StandardPlaintiff asserts diversity jurisdiction under 28 U.S.C. § 1332; under the statute, such jurisdiction is proper only when the amount in controversy exceeds $75,000. The amount in controversy is determined from the time the action is commenced.Tongkook America, Inc. v. Shipton Sportswear Co., 14 F.3d 781, 784 (2d Cir. 1994). On a motion to dismiss challenging the sufficiency of the amount in controversy, the sum claimed by the plaintiff ordinarily controls, so long as it is claimed in good faith. St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289 (1938). A suit may not be dismissed for lack of the jurisdictional amount in controversy unless it appears "to a legal certainty" that the plaintiff cannot recover the amount claimed. Id. "[T]he legal impossibility of recovery must be so certain as virtually to negat[e] the plaintiff's good faith in asserting the claim. If the right of recovery is uncertain, the doubt should be resolved . . . in favor of the subjective good faith of the plaintiff." Chase Manhattan Bank, N.A. v. American Nat. Bank and Trust Co., 93 F.3d 1064, 1070 (2d Cir. 1996) (citations omitted).
However, the burden of proof rests on the party seeking to establish federal jurisdiction to demonstrate "to a `reasonable probability' that the claim is in excess of the statutory jurisdictional amount." Tongkook America, 14 F.3d at 784. "Where, as here, jurisdictional facts are challenged, the party asserting jurisdiction must support those facts with `competent proof' and `justify [its] allegations by a preponderance of evidence.'" United Food Comm. Workers Union v. CenterMark Props. Meriden Square, Inc., 30 F.3d 298, 305 (2d Cir. 1994), citing McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936). Such proof may consist of evidence in the record produced in discovery. Id. If on the face of the complaint or the facts disclosed at trial, it becomes apparent "to a legal certainty" that the plaintiff's claim could never have amounted to the sum necessary to confer jurisdiction, "there is no injustice in dismissing the suit." St. Paul Mercury, 303 U.S. at 290.
II. Amount in Controversy
A. Measure of Damages
To determine the amount in controversy in a claim for money damages, the starting point is the measure of damages permitted by law under the cause of action claimed. See Lucente v. IBM, 310 F.3d 243, 261 (2d Cir. 2000). The present action sounds in either conversion or replevin. In a conversion claim, the measure of damages is the fair market value of the property converted at the time of the conversion. Caballero v. Anselmo, 759 F. Supp. 144, 148 (S.D.N.Y. 1991); Hartford Acc. Indem. Co. v. Walston Co., 22 N.Y.2d 672, 673, 238 N.E.2d 754, 754 (1968). To the extent that plaintiff's complaint sounds in replevin, however, the rule is slightly more complicated. In an action for replevin, where repossession of the property is impossible, a plaintiff is entitled to the property's replacement value. See Satterwhite v. Harriman Nat. Bank Trust Co., 13 F. Supp. 493, 499 (S.D.N.Y. 1935). For these purposes, replacement value is measured at the time of trial in order to reflect any change in value during the time the property was wrongfully in the defendant's possession. Id.; Spear v. Auto Dealers' Discount Corp., 278 N.Y.S. 561, 561-62 (N.Y.Sup.Ct. 1935). Because the value of the property at the time of trial is a matter of speculation, this rule could conceivably allow for the exercise of jurisdiction even where the value of the property was less than the required jurisdictional minimum before the wrongful conversion took place.Cf. United Jersey Bank Southwest, N.A. v. Keystone Collision, Inc., 482 F. Supp. 71, 72 (E.D. Pa. 1979) (noting that where value of automobile in replevin action met jurisdictional minimum at the time of conversion but had depreciated, jurisdiction was proper where damages were available to compensate for depreciation). This complication does not affect the present case, however. First, there is no indication here that repossession of the diamond is impossible; the parties agree that Black continues to possess the diamond and could return it if ordered by the Court. Second, in this case, the result is the same no matter which measure is used, as plaintiff has failed to present any competent evidence that the value of the disputed diamond exceeded $75,000 either at the time it was acquired by Black or at any later point.
The complaint in this case does not state any specific cause of action under which the plaintiff claims relief. Defendant argues that the measure of damages should be that applicable to breach of contract claims. (D. Mem. 8.) This is incorrect, as no contract between Stengel and Black is alleged. Rather, construed liberally, plaintiff's pro se complaint sounds in either conversion or replevin. See Van Brunt v. Rauschenberg, 799 F. Supp. 1467, 1473 (S.D.N.Y. 1992) ("To state a claim for conversion under New York law, a plaintiff must allege that he has an immediate superior right of possession to a specific identifiable thing and that a defendant with intent to interfere with such ownership or possession exercised dominion or actually interfered with the property to the exclusion of or in defiance of the plaintiff's rights. Similarly, to establish a cause of action in replevin, the owner of the property must demonstrate that he has an immediate and superior right to possession of the chattel including proof of ownership.").
Plaintiff asserts that the proper measure of his damages is the value of the diamond at the time of trial. (P. Mem. 7.) While an exception to the general rule measuring damages from the time of conversion exists for "unique and irreplaceable" items like works of art, see Pagliai v. Del Re, No. 99 Civ. 9030, 2000 WL 122142, at *1 (S.D.N.Y. January 31, 2000), diamonds do not fall into this category, as they may be replaced. The general rule, therefore, applies here.
B. Evidence of the Diamond's Value
Stengel's complaint claims $84,150 in damages, which he asserts is the retail value of the diamond that he sold to Rosental and that Black now holds. However, outside this averment, nothing in the complaint or the post-discovery record places the value of this diamond above $75,000. On the contrary, the extensive competent evidence in the record, including sworn testimony and other statements by the plaintiff himself, overwhelmingly establishes that the value of the diamond is substantially less than the jurisdictional amount.
According to Stengel's deposition testimony, Rosental contacted him to seek a diamond of a particular quality for Black. Stengel then obtained the diamond in question from Klein in November 2001 for a mutually agreed-upon price of $45,721.50, which Stengel testified was a fair wholesale price for the diamond. (Stengel Tr. 38; 44-45.) Stengel then sold the diamond to Rosental for $49,898, which Rosental paid by check in April 2002. (Id. 69-70.) After Rosental's check bounced, Stengel reported the matter to the police in June 2002, claiming the diamond's value at $50,000. (Semack Aff. Ex. G; Stengel Tr. 67-68.) When he remained uncompensated, he sued Rosental in the New York state courts in July 2002, alleging damages in the amount of $51,878, which, according to the complaint in that case, amounted to his loss plus interest. (Semack Aff. Ex. B at Ex. 1, ¶ 11.)
Stengel testified that his price to Rosental represented a mark-up of 5% over the wholesale price (Stengel Tr. 80); in fact, the difference between the purchase and sale prices yields a profit of approximately 9%.
In addition to these undisputed facts, other evidence in the record corroborates a low value for the diamond. Black asserts that he paid Rosental $63,617 for the diamond. (P. Mem. 5.) Black's sworn testimony, however, reflects a slightly more complicated reality. Black originally paid Rosental $63,617 for a different diamond, several years earlier. (Black Tr. 28.) When that diamond was later damaged, Black forwarded the insurance proceeds, in the same amount, to Rosental in about May 2000, to purchase an "equivalent" stone. (Id. 36.) About a year and a half later (id. 40), after complaining to the FBI (id. 49-50) and suing and obtaining a default judgment (id. 66), Black finally received a diamond from Rosental — apparently the diamond Rosental obtained from Stengel. Black, however, was unhappy with the diamond, which he did not think was as good as the previous diamond he had purchased from Rosental. When Black objected to the quality of the stone, Rosental refused to refund his money or take the diamond back. (Id. 58-59.) In connection with his dispute with Rosental, Black had the diamond appraised; the resulting (unsworn) appraisal dated August 30, 2002, reflects a value for the diamond plus its setting, which included a platinum band and two smaller "tapered baguette" diamonds, of $68,500 excluding tax. (Semack Aff. Ex. F at 5.)
It is a reasonable inference that Rosental, who was the subject of numerous fraud complaints received by the FBI and the Postal Inspection Service (Semack Aff. Ex. G), would not have provided Black with a diamond worth more that Black had paid.
The only documentation in the record supporting a valuation of over $75,000 is the "Rapaport Diamond Report" provided by Stengel, dated April 4, 2003, which consists of a chart estimating the "approximate high cash asking price" for diamonds by weight and level of clarity. (Semack Aff. Ex. B at Ex. 5.) According to this chart, a diamond of the general size and quality of the one at issue would be valued at $16,300 per carat, or $83,130. However, as defendant points out, this report is not probative for several reasons. First, like Black's appraisal, it is not a sworn statement by anyone. At best, it could be considered, as a reference relied upon in the trade, as supporting documentation for an opinion by Stengel, an experienced diamond dealer. Second, it does not represent an appraisal of the diamond in question, but rather a chart by which one may estimate the asking price of diamonds of particular weights and levels of clarity generally. Third, it purports to list estimated prices only for "pear shaped" diamonds, rather than diamonds that are emerald-cut, like the diamond in dispute. The report explicitly states that "prices for fancy shapes are highly dependent on the cut." Finally, the report itself significantly qualifies its estimates, stating that they reflect "HIGH CASH NEW YORK ASKING PRICES," and that "these prices may be substantially higher than actual transaction prices." (Semack Aff. Ex. B at Ex. 5.) Given these limitations, the Rapaport Report is of little probative value in determining the actual fair market value of the diamond at issue here.
Stengel testified that the chart reflected wholesale prices. (Stengel Tr. 109-11.)
In response to these objections, plaintiff submits several pieces of "evidence" which he has attached to his opposition papers: a letter from Martin Hochbaum of the Diamond Dealer's Club, stating that the Rapaport report on pear-shaped diamonds "is used as a reference for all fancy shaped stones," two estimates from Kramer Brothers and S.H. Zell and Sons, purporting to value the disputed 5.1 carat VS2 clarity emerald-cut diamond at $107,000 and $124,500 respectively, and three appraisals carried out by the European Gemological Laboratory ("EGL") on various diamonds, which Stengel alleges are "inferior" to the diamond he sold to Rosental, ranging from $78,450 to $91,590. (See documents attached to P. Mem.)
These documents, however, are not part of the evidentiary record, and may not be considered by the Court. First, they were not produced in discovery, despite written interrogatories that are directly on point. Black demanded "the basis for Stengel's valuation of the Diamond and . . . all supporting documents (see Semack Aff. Ex. C, interrogatory #5); Stengel's terse response directed defendant to the Rapaport report, and no other source (id. Ex. D, response #5). Similarly, Black demanded the usual information regarding any expert witnesses to be called by Stengel (id. Ex. C, interrogatory #21); Stengel responded that he would provide such information (id. Ex D, response #21), but apparently never did. Even making all allowances for Stengel's pro se status, it would be unfair to defendant to accept the submission of purported expert opinions that were submitted for the first time after the close of discovery, after the defendant had spent the time and money to file a summary judgment motion to dismiss in good faith reliance on the presumption that the plaintiff had conformed to the discovery procedures prescribed by the Federal Rules, and that defendant therefore has not had an opportunity to explore by deposition.
Second, even if the Court were to overlook their belated production, none of the documents submitted are admissible in their present form. Neither the Hochman statement nor the various appraisals are submitted under oath, nor are the qualifications of the appraisers established. More significantly, the appraisals would not be competent testimony in any event. The letters from Kramer Bros. and S.H. Zell and Sons purport to provide an appraisal for the actual stone in question. However, neither appraiser purports to have actually examined the stone, nor could they have, as the appraisals were given in 2004, and the stone has remained in Black's possession during the pendency of this suit. The Kramer Bros. and Zell letters are therefore more in the nature of an estimated value, much like that produced by the Rapaport Report. Moreover, even taken at face value, they purport to reflect a "retail value" (Zell) or "replacement" value (Kramer). It is undisputed, however, that Stengel operated at the wholesale level; he provides no theory of damages under which he would be able to obtain as damages for conversion the retail value of a stone that he both purchased and sold at a wholesale price. The EGL appraisals, which also reflect "estimated retail replacement value[s]," are even further afield, reflecting appraisals not of the diamond at issue here but rather of other allegedly similar stones. Since, as Stengel himself has testified, each diamond is unique (Stengel Tr. 78), these appraisals are at best remote indications of the value of the diamond in question. Because neither the estimates nor the appraisals offered represent the results of an examination of the diamond in dispute, none of the evidence submitted is probative of the value of that diamond.
Stengel himself testified that retail prices for diamonds can be as much as 250% higher than the wholesale value. (Stengel Tr. 78.) His argument that the appraisal should be based on the prices charged by "Tiffany or Winston" (P. Mem. 6) is therefore disingenuous.
It bears emphasis that these objections to the admissibility of the submitted materials are not mere technical or formal defects that preclude the admission of probative evidence because of legal rules deployed to the disadvantage of a party who lacks legal training or representation. The problems with Stengel's submissions go directly to their probative value, as well as to their technical admissibility under rules of procedure or evidence. "Appraisals" submitted by experts who have not actually examined a precious stone whose quality has been the subject of serious dispute are of no probative weight; nor are estimates of the highly-inflated retail value of such stones probative of the damages due a diamond wholesaler in conversion or in default of replevin. Plaintiff's failure to submit these materials in a timely way during discovery prevented defendant from exploring these (and potentially other) deficiencies by cross-examination.
In fact, the best evidence presented that goes to the fair market value of this particular diamond at the time of the conversion is the price for which Rosental, a willing and knowledgeable buyer, actually purchased it in November 2001 from Stengel, a willing and knowledgeable seller. See Datas Industries Ltd. v. OEC Freight (HK), Ltd., No. 98 Civ. 6904, 2000 WL 1597843, at *5 (S.D.N.Y. Oct. 25, 2000), ("[I]t is not unreasonable to assume, in the absence of evidence to the contrary, that what the buyer and seller agreed to in this case, as reflected in the invoice, was in fact the fair market value."). That price was under $50,000. That valuation, moreover, is consistent with what Stengel himself represented to the police and to the New York State courts as the value of the property of which Rosental defrauded him. It is also consistent with the fact that Rosental tried to pass the diamond off to Black as worth approximately $63,000, and that Black, long before this jurisdictional issue arose, found it unsatisfactory at that price.
Stengel asserts that Black "had insurance coverage based on the appraised value which was more than the purchase price" and "paid his premium based on the appraised value." Because appraisers play a role in determining market value, he argues that the value of defendant's insurance should be used as a proxy for the market price. (P. Mem. 6.) However, he offers no evidence from the record to support his assertion about defendant's insurance, nor was the Court able to find any on independent examination of the record, save for a statement by Black in his deposition that he "guess[ed]" that the diamond was insured for $60,000. (Black Tr. 91.) This figure is consistent with the amount defendant paid for the diamond, and does not constitute evidence that it was worth more than $75,000.
C. Summary
In sum, whether plaintiff's claim is for conversion or replevin, plaintiff has failed to carry his burden on this jurisdictional challenge of demonstrating to a "reasonable probability" by a preponderance of evidence that he could have recovered the jurisdictional minimum amount at the time the suit was filed. He has failed to offer any competent proof that the diamond's value was over $75,000 either when it was in his possession, or when Black took possession of it, or at any time since. On the contrary, substantial evidence in the record establishes that the actual value of the diamond to Stengel is approximately $50,000. On these facts, there is no basis for jurisdiction based on the stone's value at the time of the conversion; similarly, jurisdiction would not be proper based on the entirely speculative chance that, should the case go to trial at some unspecified point in the future and should recovery of the diamond prove impossible, the plaintiff might at that time be entitled to recover some amount in excess of $75,000. Accordingly, his suit must be dismissed for lack of subject matter jurisdiction.
CONCLUSION
Defendant's motion is granted, and the complaint is dismissed for lack of subject matter jurisdiction.SO ORDERED.