Cala Diamonds, LLC v. Hra Grp. Holdings, Itay Ariel, Crossworks Mfg. Ltd.
| Decision Date | 21 September 2017 |
| Docket Number | CIVIL ACTION NO. 17-CV-1136 |
| Parties | CALA DIAMONDS, LLC Plaintiff, v. HRA GROUP HOLDINGS, ITAY ARIEL, CROSSWORKS MANUFACTURING LTD, HRA USA LTD, and MICHELLE SEGOLY Defendants. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
This civil action has been brought before the Court on Motion of the Defendants to Dismiss the Plaintiff's Complaint (Doc. Nos. 11 and 12) pursuant to Fed. R. Civ. P. Nos. 12(b)(2), 12(b)(6), and 9(b). For the reasons set forth below, Defendants' Motion shall be granted in part and denied in part.
Plaintiff CALA Diamonds, LLC ("CALA" or "Plaintiff") is a family-owned, retail jewelry business founded in 2014 by Paul and Becky Physh, with its principal place of business in Brookville, Pennsylvania. (Compl., ¶¶ 1, 10). Defendant HRA Group Holdings ("HRA Group") is incorporated under the laws of British Columbia, Canada and maintains a principal place of business in Vancouver, British Columbia, Canada and is involved in the international, wholesale jewelry business. (Compl.,¶ 2). Defendant H.R.A. U.S.A., Ltd. ("HRA USA") is alleged to be a registered agent of HRA Group and is incorporated in the State of Washington. (Compl., ¶ 5). Defendant Crossworks Manufacturing Ltd. ("Crossworks")(HRA Group, HRA USA, and Crossworks, collectively, "Corporate Defendants") is alleged to be "a division, subsidiary, partner or entity legally related to HRA Group" and maintains its principal place of business in Vancouver, British Columbia, Cananda, and is incorporated under the laws of the Northwest Territories, Canada. (Compl., ¶ 4). Defendant Michelle Segoly ("Segoly") is employed as the Brand Manager of Forevermark USA and Canadian Rocks for HRA Group, and resides in Vancouver, British Columbia, Canada. (Compl., ¶ 8). Lastly, Defendant Itay Ariel ("Ariel")(Segoly and Ariel, together, "Individual Defendants")(Corporate Defendants and Individual Defendants, together, "Defendants") "is an officer and authorized sales representative of Crossworks, HRA Group and/or HRA USA," and resides in Vancouver, British Columbia, Canada. (Compl., ¶ 6).
This action arises from a business relationship that developed between Plaintiff and Defendants in 2014, after Paul Physh contacted, scheduled, and traveled to Vancouver, Canada to "seek[] guidance and advice on how to become successful diamond dealers." (Compl., ¶¶ 12-16). At this meeting in August 2014, Mr. Physh met with Defendants Segoly and Ariel, who allegedly offered Plaintiff assistance and assurance that Defendants would sell diamonds to Plaintiff. (Compl., ¶¶ 17-18). Over the course of the following two years, Plaintiff would make several purchases from Defendants, with three transactions in particular making up the substance of this action.
According to the complaint, in March 2015, Segoly presented Plaintiff with a diamond ("Pink Diamond") that she claimed was unique, as it was "one of only two diamonds in the pink color grade to come out of Canada larger than 1 carat," which Plaintiff subsequently purchased for $25,000. (Compl., ¶¶ 23-25). After experiencing difficulty in selling this diamond, Plaintiff requested documentation to substantiate Segoly's alleged claims about the uniqueness of this particular gemstone; however, this request proved fruitless. (Compl., ¶¶ 27-29). Plaintiff alleges that, in reliance on these misrepresentations by Segoly, it overpaid for the diamond and injured its reputation with its potential customers who perceived Plaintiff as having overpriced the diamond. (Compl., ¶ 30).
Plaintiff also alleges that, in May 2015, it purchased five rings ("Diamond Rings"), each of which contained colored diamonds, for a total of $558,000. (Compl., ¶ 37). Defendants included a certification on the second page of the invoice for these rings, which stated that the diamonds were not "clarity enhanced diamonds." (Compl., ¶ 40). Plaintiff argues that it is industry practice for sellers of colored diamonds to disclose to purchasers "whether the clarity of the color of the diamonds has been enhanced in any way." (Compl., ¶ 39). In the process of getting the colored diamonds appraised, Plaintiff had mentioned to Defendants that it might need to have the diamonds extracted from the rings to more accurately determine their value. (Compl., ¶ 46). Allegedly, Defendants repeatedly urged Plaintiff not to do so as removal would damage the settings. (Compl., ¶ 47). Nevertheless, in April 2016, Plaintiff discovered that the diamonds were color-enhanced after extracting them from the rings. (Compl., ¶ 60). Consequently, Plaintiff requested a refund, but Defendants refused. (Compl., ¶ 65).
In July 2015, Defendants brought it to the attention of Plaintiff that there was a necklace for purchase, referred to as the Ideal Square Riviera ("Riviera necklace"), which Defendants claimed was worn by Kate Hudson on the red carpet at the Academy Awards ceremony. (Compl., ¶¶ 70-71). After discussing an offer with Ariel, Plaintiff purchased the necklace for $799,000. (Compl., ¶ 75). Following the purchase of the Riviera necklace, it is alleged that Defendants had inconsistently stated who designed the necklace. (Compl., ¶¶ 77-78). Despite Plaintiff's repeated requests for documentation to verify that Kate Hudson had worn the necklace on the red carpet, and to establish who actually designed the necklace, Defendants never provided such information. (Compl., ¶ 80). Plaintiff asserts that they relied on these claims when purchasing the necklace, which caused them to pay significantly more for it than they otherwise would have. (Compl., ¶¶ 85-89). Eventually in May 2016, Segoly informed Plaintiff that it was the Defendants who had actually designed the Riviera necklace. (Compl., ¶ 120). In June 2016, Ariel stated that the Riviera necklace had been "sent to Forevermark to be used on the Red Carpet and that Forevermark 'used' the Riviera on many occasions," but still provided no proof that it was ever worn by Kate Hudson. (Compl., ¶ 122).
Against this backdrop, Plaintiff brings this lawsuit against all of the Defendants alleging fraud and fraudulent concealment. In addition, Plaintiff brings claims only against the Corporate Defendants for breach of contract, breach of express and implied warranties, and negligent misrepresentation.
Standards Governing Motions under Fed. R. Civ. P.12(b)(2),
(A) Dismissal Pursuant to Rule 12(b)(2)
It is axiomatic that "[j]urisdiction to resolve cases on the merits requires both authority over the category of claim in suit (subject matter jurisdiction) and authority over the parties (personal jurisdiction) so that the court's decision will bind them. Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 577, 119 S. Ct. 1563, 1566, 143 L. Ed. 2d 760 (1999). Indeed, a court of competent jurisdiction is a court with the power to adjudicate the case before it. Lightfoot v. Cendant Mortgage Corp., 137 S. Ct. 553, 560, 196 L. Ed. 2d 493, 501 (2017). "Jurisdiction is power to declare the law, and when it ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the cause." Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 778-779, 120 S. Ct. 1858, 1865-1866, 146 L. Ed. 2d 836 (2000)(quoting Ex parte McCardle, 74 U.S. 506, 7 Wall. 506, 514, 19 L. Ed. 264 (1986)); Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 94, 118 S. Ct. 1003, 1012, 140 L. Ed. 2d 210 (1998). Therefore the validity of an order of a federal court depends upon the court's having jurisdiction over both the subject matter and the parties. Insurance Corporation of Ireland v. Compagnie Des Bauxites, 456 U.S. 694, 701, 102 S. Ct. 2099, 2103, 72 L. Ed. 2d 492 (1982).
Unlike subject matter jurisdiction which is both an Article III and a statutory requirement which cannot either be waived or conferred by agreement of the parties, personal jurisdiction represents an individual liberty interest which can, like other such rights, be waived. Id, 456 U.S. at 702-704, 102 S. Ct. at 2104-2105. Consequently, a defendant has the initial burden of raising the defense of lack of personal jurisdiction and this may be done by filing a motion for dismissal. TES Franchising, LLC v. Dombach, Civ. A. No. 10-0017, 2010 U.S. Dist. LEXIS 130314 at *3 (E.D. Pa. Dec. 9, 2010); Potts v. Harrah's Atlantic City Hotel & Casino, Civ. A. No. 06-5422, 2007 U.S. Dist. LEXIS 47197 at *3 (E.D. Pa. June 28, 2007); Poole v. Sasson, 122 F. Supp. 2d 556, 557 (E.D. Pa. 2000); Fed. R. Civ. P. 12(b)(2), 12(h)(1), (3). Once the defense is raised, the burden falls to the plaintiff to establish the court's jurisdiction over the moving defendant(s) by filing affidavits or producing other competent evidence. Metalfe v. Renaissance Marine, Inc., 566 F.3d 324, 330 (3d Cir. 2009); Dayhoff Inc. v. H.J. Heinz Co., 86 F.3d 1287, 1302 (3d Cir. 1996). In the absence of an evidentiary hearing, a plaintiff's complaint need only establish a prima facie case of personal jurisdiction. Allaham v. Naddaf, No. 15-2575, 635 Fed. Appx. 32, 36-37 (3d Cir. Dec. 17, 2015); Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 97 (3d Cir. 2004). And, unless and until an evidentiary hearing is held, a district court "must accept all of the plaintiff's allegations as true and construe disputed facts in favor of the plaintiff." Allaham, at 37(quoting Carteret Savings Bank, FA v. Shushan, 954 F.2d 141, 142, n.1 (3d Cir. 1992)). See also, Toys "R" Us, Inc. v. Step Two, S.A., 318 F.3d 446, 457 (3d Cir. 2003).
(B) Dismissal Under Rule 12(b)(6)
Under Fed. R. Civ. P. 12(b)(6), a complaint may be dismissed for "failure to state a claim upon which relief can be granted." Renfro v. Unisys Corp., 671 F.3d 314, 320 (3d Cir. 2011). In reviewing a challenged pleading, the courts are required to accept all well-pleaded factual allegations as true and draw all reasonable inferences in the non-movant's favor....
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