On July 14, a California court ruled that Sotheby’s may be on the hook for $4 million in missing diamonds.

According to the appellate ruling in Los Angeles Superior Court—which assumes all the facts in the plaintiff’s complaint are true—the sequence of events leading to the lawsuit went like this:

– Jona Rechnitz, the owner of Jadelle Diamonds and Jewelry, owed money to M&L Financial, a Los Angeles–based finance firm.

– As security for his debt, Rechnitz transferred ownership of 45 vivid yellow diamonds to M&L, with the understanding that they could eventually be repurchased.

– Rechnitz later proposed M&L list the diamonds with Sotheby’s, where he had a long-standing relationship with a jewelry executive.

– M&L brought the diamonds to Sotheby’s, which sent the diamonds to its New York City office for appraisal.

– In late 2019, Sotheby’s told M&L it had given the diamonds to an associate of Rechnitz.

– The auction house had no written records about the release of the diamonds.

The Superior Court based its ruling on the contract signed by M&L. It listed a space for “Consignor Name” (singular). The Sotheby’s exec originally wrote both “Jadelle Jewelry + M&L Financial Inc.,” which M&L protested was inaccurate. The Sotheby’s executive purportedly agreed. M&L signed the form, without removing the word “Jadelle.”

A lower court ruled in the auction house’s favor, citing a precedent that said when a deposit is made with “one or more persons,” payment can be made to either person.

But the appeals court overruled that judgment.

“Sotheby’s view is the written contract governs, pure and simple, and cannot be informed by what M&L told Sotheby’s,” said the ruling. “M&L alleged it explained the situation to Sotheby’s, which manifested assent. This allegation controls at this stage.”

Sotheby’s tells JCK that it “regards the allegations in the complaint as baseless and riddled with untruths and mischaracterizations. We will continue to vigorously defend this in court.”

Rechnitz notes he is not being sued in his case and agrees with Sotheby’s that the complaint contained “mischaracterizations.”

JCK had previously reported that Rechnitz’s company, Jadelle, had gone bankrupt after it was the target of several lawsuits. Los Angeles Assistant U.S. Attorney Dan Boyle has since said that Rechnitz was the victim of a robbery, in which his goods were stolen. This led to a majority of the lawsuits against Jadelle, as well as the bankruptcy case, to be dropped.

M&L’s attorney did not respond to a request for comment by the time of publication.

Photo: Getty Images Plus/Alena Kravchenko

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