Legal shootout depends on lawyers

The Gunfight at the OK Corral has begun in a Central District of California United States Courthouse as Collector’s Universe, the parent company of the Professional Coin Grading Service, squares off against six named coin dealer defendants and 10 “John Doe” defendants charging them with violation of the federal “Lanham Act,” resulting from unfair competition and resulting in unjust enrichment.

In the real gunfight, Wyatt Earp and his brothers (as city marshalls in Tombstone, Ariz.,) and Doc Holliday, fought Billy Claiborne, the Clanton brothers, and others on Oct. 26, 1881, at 3 p.m. – probably the most famous or celebrated shoot-out in the history of the Wild West.

In the Collector’s Universe case, it’s just lawyers and judges at 10 paces.

Besides the claim that it creates unfair competition when a “Coin Doctor” performs his craft and alters the surface of a coin with putty, lasers or human sweat and oil that gives the appearance that a coin has a better grade than it truly deserves, a 15-page complaint filed May 13 positing several other legal theories against three individual coin dealer defendants and 25 “John Does.”

By the end of the month, the unidentified defendants were decreased and three more dealers were named. As the legal fight continues, some of the “Does” are likely to be converted to named defendants, and some others may be dismissed from the action based on what is found in depositions and discovery documents.

PCGS took a multi-prong approach, making a number of claims that might appear inconsistent to a layman, but which is allowed under a theory of alternative pleading in federal court. For example, they claimed a federal “Lanham Act” violation, as well as one under the California Unfair Competition statute.

They also claimed breach of contract – PCGS submitters must contractually pledge not to knowingly submit doctored coins (no use of putty, lasers, and the like to enhance a coin’s appearance and its putative value) and common law fraud, which requires no written agreement at all.

Also slipped in there: a “RICO” claim, typically put forth by the government on organized crime claims, but here used under a corruption theory under the Racketeer Influenced Corrupt Organization Act. To sustain that claim, proof must be offered that the defendants:

• used and caused to be used transmissions or communications by means of wire in interstate commerce;
• for the purpose of executing this scheme and artifice to defraud plaintiff, used and caused to be used the telephones and mails of the United States;
• received unjust economic benefit and derived income to which they were not entitled;
• approved and accepted benefits of the fraudulent and deceptive schemes, artifices and practices complained of;
• engaged in a pattern of racketeering activity that affects interstate commerce;
• solicited by wire (telephone) and through the use of the mails, all in interstate commerce, and,
• enterprise shared a common purpose of engaging in a pattern of racketeering activity to defraud plaintiff.

PCGS’s complaint makes the point in its “facts” that the claimed actions of “Coin Doctoring” violate title 18 of the U.S. Code; they even go so far as to cite the section, 18 USC §331, which they say is a criminal prohibition against coin doctoring.

To wit, “‘Doctoring’ U.S. and foreign legal tender [coins] is a federal crime under 118 U.S.C. §331: Whoever fraudulently alters, defaces, mutilates, impairs, diminishes, scales or lightens and of the coins minted at the mints of the United States... [shall be] fined under this title or imprisoned not more than five years”.

The problem with this analysis is not whether the section of the law covers coin doctoring – in my opinion it does (see below). Rather its that nobody died and left Collector’s Universe in charge to bring criminal prosecutions or impose fines. Theirs, alas some say, is simply a case about money.

Of course, there remains the possible rights to effect a citizen’s arrest. That clever fountain of useful information, Wikipedia, says that, “Each state, with the exception of North Carolina, permits citizen arrests if the commission of a felony is witnessed by the arresting citizen, or when a citizen is asked to assist in the apprehension of a suspect by police.”

California, where Collector’s Universe is located, has a special section of its penal law that covers it: Cal. Penal Code § 837, allows “[a] private person [to] arrest another ... [f]or a public offense committed or attempted in his or her presence.”

But Collector’s Universe is merely taking the headline route – saying that someone violates a federal law – and a felony to boot – but not having to prove it “beyond a reasonable doubt,” which is the criminal standard needed to obtain a conviction.

They are on the button, however, in their analysis – and some independent cases that I’ve found after some research online show it to be true. The case of U.S. v Wilson, 451 F.2d 209 (5th Circuit, 1971). The Texas Judge who convicted was Sarah Hughes, who swore LBJ in as President on Nove. 22, 1963.

Several of the defendants, the 5th Circuit Court of Appeals said, were appealing “from convictions involving a conspiracy to counterfeit rare United States coins.” Again in the court’s words, “The coins involved were 1939 and 1950 nickels with the mintmark ‘D’, 1931 pennies with an ‘S’ mintmark, 1955 dimes, 1955 double(d) die pennies and 1964 quarters.”

For good measure, the court noted, one person “was convicted of altering a 1932 quarter by adding the mintmark ‘D.’ All of the genuine issues of the coins counterfeited or altered were of extraordinary value to coin collectors, to whom the sales were made.

“The defendant challenges the sufficiency of the conviction in two respects: (1) whether the coins Cooke sold were counterfeit; and (2) whether he willfully and knowingly became a member of the conspiracy,” and the court ruled yes on both counts. All the convictions were confirmed.

Of course all that a lawsuit claims to be is a complaint that demands an answer, and a prayer for damages. That’s what the Collector’s Universe paperwork is. As of June 7, the latest activity was on May 28 when one party was dropped from the complaint and several more added. An early story would have missed that nuance – particularly the fact that someone previously alleged to have done something wrong was now out of the suit entirely.

The nub of the complaint is that contained in a single paragraph: “Defendants have submitted ‘doctored’ United States coins to PCGS for grading on multiple occasions for a period of years, either directly through dealers such as defendant ( ) or indirectly through other dealers.”

They give examples of that including a claim that, “Defendants knew that these coins had been ‘doctored’, by themselves and/or by other persons engaged by them for that purpose. Their methods included lasering the surfaces of extremely rare proof gold coins to remove surface imperfections, building up commonly worn or weakly-struck portions of coins with exotic metals, and other physical and chemical processes.”

They go on to claim that “Defendants represented to PCGS that these coins had natural surfaces, intending to deceive PCGS’s graders so that the ‘doctored’ coins would be certified by PCGS and then sold in the rare coin marketplace, where they would be covered by PCGS’s cash guarantee.”

Here’s a problem with their claim. Look at the examples cited by them in the complaint itself:

(a) 1926-D 25 cents, originally submitted to PCGS on March 23, 2001. Repurchased by CU on Sept. 23, 2008 under PCGS Guarantee. Liberty’s head artificially enhanced.

Comment: The original PCGS action was nine years ago.

(b) 1801 $10 gold piece, originally submitted to PCGS on Nov. 29, 2006, repurchased by CU on June 16, 2009, far $18,000 under PCGS Guarantee. Foreign substance added to coin’s surface to cover marks.

Comment: they don’t say how the foreign substance made it to the surface of the coin, and their claims involve actual knowledge; also the events are remote as to 2006, more than four years ago.

(e) 1918-D Mercury 10 cents, originally submitted to PCGS on May 17, 2001, repurchased on April 27, 2010, for $90,000 under PCGS Guarantee. Crossbands on dime had been rebuilt
Comment: a claim more than nine years old. Rebuilding cross bands doesn’t seem to be lightening the coin or its weight as other examples might.

(g) 1833 Bust 50 cents, originally submitted on April 8, 2004, repurchased on June 22, 2008, for $8,500 under PCGS Guarantee.

Comment: six years ago on original submission, almost two years on the replacement.

(h) 1928-D Standing Liberty 25 cents, originally submitted on May 30, 2001, repurchased in March 2005, for $4,650 under PCGS Guarantee. Liberty’s Head VMS rebuilt to appear “full.

Comment: an even longer time ago. Elapsed time does matter.

There are other cited instances that are shorter, and longer, but the crux of this is where it all fits into the the statutes of repose (or limitations of time).

In California, here’s the general rule:

• Personal Injury: 2 years.
• Fraud: 3 years.
• Libel / Slander / Defamation: 1 year.
• Injury to Personal Property: 3 years.
• Product Liability: 2 years.
• Contracts: Written, 4 years; Oral, 2 years.

All of these will likely come into play. Put differently, it will be a long way to the finish line, and there will be – in the Corral of the U.S. District Court for the Central District of California – room for some unspecified gunslingers to fight a fair fight, and to win.

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