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Mellen Inc. v. Biltmore Loan and Jewelry - Scottsdale LLC

United States District Court, D. Arizona

June 3, 2016

Mellen Incorporated, Plaintiff,
v.
Biltmore Loan and Jewelry - Scottsdale LLC, Defendant.

          ORDER

          Douglas L. Rayes, United States District Judge

         This case involves a dispute over the ownership of a 4.05 carat blue heart-shaped diamond worth approximately $2 million. Plaintiff moves to preliminarily enjoin Defendant from selling, moving, or otherwise transferring the diamond pending the resolution of this action. Doc. 13. The Court held oral argument on the motion on June 1, 2016. For the reasons below, the motion is granted.

         BACKGROUND

         For purposes of the preliminary injunction motion, the following facts are undisputed unless otherwise noted. In June 2013, Plaintiff Mellen Incorporated acquired a rare 4.05 carat internally flawless fancy blue heart-shaped diamond ring valued at approximately $2 million. Doc. 15, ¶ 3. In January 2015, Mellen received a call from the diamond dealer from whom it had purchased the ring. The dealer informed Mellen that Scott Meyrowitz, a diamond dealer from Florida, was interested in taking the ring "on memo" from Mellen to show to a potential buyer. Id.[1] Because the dealer vouched for Meyrowitz, Mellen contacted Meyrowitz via telephone. Id., ¶ 5. Meyrowitz stated that he had a customer in Pittsburgh interested in purchasing the ring. Id. The parties agreed that the memorandum price would be $2 million, and Meyrowitz provided proof of insurance to cover the ring. Id., ¶¶ 5-6. Meyrowitz assured Mellen that he would keep the ring in a vault at Wells Fargo Bank in Florida and would remove it to only to show to customers. Id., ¶ 6. With these assurances, Mellen sent the ring to Meyrowitz via Brinks transport. Id., ¶ 8.

         Over the course of the next two months, Mellen periodically contacted Meyrowitz to inquire about the status of the ring. Id., ¶ 9. At one point, Meyrowitz stated that a sale was imminent and that the ring was on its way to Pittsburgh for the customer to inspect. Id. No sale ever occurred, however, and after several weeks, it became increasingly difficult to get a response from Meyrowitz. Id. Eventually, Mellen demanded return of the ring, and Meyrowitz stated that he would ship it back to New York. Id., ¶ 10. In May 2015, Meyrowitz ceased contact with Mellen, failed to return the ring, and failed to pay the memorandum price. Id., ¶ 11.

         Unbeknownst to Mellen, once Meyrowitz received the ring, he immediately contacted David Goldstein of Defendant Biltmore Loan and Jewelry - Scottsdale LLC ("Biltmore"). Doc. 24 at 5.[2] Meyrowitz told Goldstein that he knew someone who wanted to pawn a diamond and asked whether Goldstein was interested. Id. Shortly thereafter, Joseph Gutekunst called Goldstein and discussed pawning the diamond he owned. Id. Goldstein believed Gutekunst owned the diamond and that Meyrowitz was "brokering the diamond ring for Mr. Gutekunst." Doc. 24-2, ¶ 6. Goldstein asserts that Meyrowitz told him that Gutekunst "had two diamonds and that Mr. Gutekunst needed money for the expansion of his business." Id. Goldstein believed that Gutekunst was in the vitamin business and that Gutekunst had purchased the diamond from Meyrowitz. Id.

         On February 2, 2015, the ring was delivered to Biltmore from a Wells Fargo bank in Florida, "rather than [from] Mr. Gutekunst’s home state [of] Minnesota." Doc. 24 at 5. Goldstein examined the ring and requested a current Gemological Institute of America (GIA) certificate. Id. On February 20, 2015, Meyrowitz sent the new GIA certificate to Goldstein. Id. at 6. On February 26, 2015, Goldstein received a shipment containing only the diamond-the ring mount was no longer included. Id. Nevertheless, Goldstein and Gutekunst agreed that Gutekunst would pledge the diamond to Biltmore for a $1 million loan. Id. Gutekunst traveled to Scottsdale to sign the pawn contract, and on March 4, 2015, Biltmore wired $1 million to a bank account designated by Gutekunst. Id. at 7.[3] In October 2015, Gutekunst offered to sell the diamond outright for an additional $250, 000. Id. at 8. On November 17, 2015, Biltmore wired $250, 000 to a bank account designated by Gutekunst. Id.

         In March 2016, Goldstein took the diamond to a trade show and located a buyer willing to pay $1.625 million for the diamond. Id., ¶ 12. The buyer requested a current GIA certificate, but by that time, GIA had "red-flagged" the diamond because Mellen had reported it stolen to law enforcement. Id. Consequently, the buyer backed out. Id.

         On September 28, 2015, Mellen filed suit against Meyrowitz and his company SSB International LLC in Florida state court seeking a writ of replevin to recover the ring. Doc. 13 at 6. On January 11, 2016, the Florida court ordered Meyrowitz to disclose the location of the ring to Mellen. Id. After being threatened with contempt, Meyrowitz stated that Gutekunst was holding the ring in a safe deposit box at a Wells Fargo Bank in Minnesota. Id. Meyrowitz promised not to transfer the ring. Id. Immediately thereafter, Mellen filed suit in Minnesota to recover the ring and obtained a temporary restraining order preventing either Gutekunst or Meyrowitz from accessing the safe deposit box. Id. at 7. When Mellen inspected the safe deposit box, however, the ring was gone. Id. In March 2016, under threat of sanctions, Meyrowitz appeared at a deposition but invoked his Fifth Amendment right against self-incrimination. Id. at 6-7. On March 2, 2016, Mellen finally learned from law enforcement that the ring was in Biltmore’s possession. Id. at 7. Both Mellen and Biltmore claim ownership of the diamond.

         LEGAL STANDARD

         "A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008); Am. Trucking Ass’n, Inc. v. City of L.A., 559 F.3d 1046, 1052 (9th Cir. 2009). These elements are balanced on a sliding scale, whereby a stronger showing of one element may offset a weaker showing of another. See Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131, 1134-35 (9th Cir. 2011). However, the sliding-scale approach does not relieve the movant of the burden to satisfy all four prongs for the issuance of a preliminary injunction. Id. at 1135. Instead, "‘serious questions going to the merits’ and a balance of hardships that tips sharply towards the plaintiff can support issuance of a preliminary injunction, so long as the plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in the public interest." Id. at 1135. The movant bears the burden of proof on each element of the test. Envtl. Council of Sacramento v. Slater, 184 F.Supp.2d 1016, 1027 (E.D. Cal. 2000).

         ANALYSIS

         Mellen seeks to enjoin Biltmore from moving or selling the diamond. It also seeks an order requiring the diamond to be held in the exclusive possession and control of Biltmore or a court-appointed receiver during the pendency of this action. Mellen has the burden of demonstrating each of the four elements necessary to obtain preliminary injunctive relief. The Court finds Mellen has met its burden.

         I. Likelihood of Success on the Merits

         Mellen argues that the memorandum under which Meyrowitz took possession of the diamond "unambiguously shows that [Mellen] is the owner" of the diamond. Doc. 13 at 11. The memorandum signed by Meyrowitz states:

The merchandise described below, is delivered to you on memorandum, at your own risk from all hazards, regardless of the cause of the loss or damage, only for examination and inspection by prospective purchasers, upon the express condition that all such merchandise shall remain the property of [Mellen], and shall be returned on demand, in its full and original form. . . . You acquire no ...

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