“Diamonds are nothing more than chunks of coal that stuck to their jobs,” said Malcom Forbes. An industry that generates over $13 billion annually, diamonds are considered one of the world’s major natural resources. Critical to the integrity of the market are reports or certificates that grade the quality of the stones based upon the “four C’s”: color, cut, clarity and carat. These reports are issued by one of several grading entities. One of them, the Gemological Institutes of America, Inc. (“GIA”), is considered to be one of the most well-respected and renowned.
Diamond purchasers and resellers, such as L.Y.E. Diamonds Ltd. (“LYE”) and E.G.S.D. Diamonds Ltd. (“EGSD”), contract with GIA in order for the formers’ diamonds to be analyzed and graded. On May 15, 2015, GIA published an Alert, advising the diamond industry that it reasonably suspected that nearly 500 diamonds submitted to GIA’s laboratory in Israel might have been subjected to a “temporary treatment” that masks the inherent color of the stone, leading to an improper higher grading level. In the Alert, which was published on its websites and mass email, LYE and EGSD, were identified.
As a result of the published Alerts, LYE and EGSD claim they were defamed and suffered significant losses. They sued, filing a complaint for $180 million in compensatory and punitive damages, alleging defamation and trade libel. At issue on the defendants’ motion to dismiss was whether GIA was entitled to qualified immunity, negating any presumption of implied malice. Qualified immunity may exist when a statement is made by a person in the discharge of a duty — either private or public — in which another person relies as both have a common interest.
In ruling on the motion to dismiss in L.Y.E. Diamonds Ltd. v. Gemological Inst. of Am., Inc., at the outset, Justice Barry Ostrager rejected plaintiffs’ procedural argument that “qualified immunity” is an affirmative defense that could not be raised in a pre-answer motion. Rather, the court relied on a series of First Department cases holding that a question of privilege could be determined at the pleading stage. Turning to the merits of the application of the privilege, the court recognized that the Alerts served a “public function by warning interested parties of potentially treated diamonds, pursuant to GIA’s agreement with plaintiffs.” Applying the privilege, the burden then shifted to plaintiffs to demonstrate that malice existed which would negate the privilege. The court granted dismissal of the complaint, finding that the plaintiffs did not allege more than conclusory allegations of malice, with little or no detail that would support an inference that the statements were made out of spite or ill will.
Where allegations of actual malice are required to support a defamation claim, the courts appear to consistently uphold a heightened pleading standard, see, e.g., Themed Rests., Inc. v. Zagat Survey, LLC. Remember, CPLR 3016(a) requires specificity when it comes to pleading defamation claims. Thus, it behooves the drafter to allege facts surrounding the time, place, manner of publication, and the context of the statements made.