Local jeweler closes shop after lawsuit

HANAPEPE — A Kauai jeweler has closed its doors after a contract dispute resulted in a 3rd Circuit Court decision in favor of a Big Island ring designer and manufacturer.

The defendant, Paul McCarthy, owner of Sheldon Gate Jewelry Designs at 3900 Hanapepe Road, was taken to court by Jerry Guire, manager of Hawaii Titanium Rings in Kailua-Kona.

A judgment issued in October from Judge Elizabeth Strance of the 3rd Circuit Court in Kona resulted in $65,586.04 in damages for unpaid jewelry and unreturned inventory, with 10 percent interest, totaling $18,957.04.

Guire went to collect on two years of mounting credit and unpaid merchandise, and said McCarthy’s response was to take him to court.

“He basically ripped us off $90,000,” Guire said. “We took it to court and the case lasted over two years, until two weeks ago when we got the judgment against him.”

Efforts to reach McCarthy were unsuccessful.

Hawaii Titanium Rings is a family-run design and manufacturing company that has wholesaled and retailed shank rings with Guire as manager in Kona since 1998. In January 2008, the company entered into a consignment and special order business relationship with McCarthy.

Guire said he was impressed with McCarthy’s jewelry store and the quality of the diamonds and gold he sold. McCarthy became the exclusive distributor of the titanium rings on Kauai.

They started with a $50,000 agreement for wholesale and a consignment agreement that included 36 rings to start. It was a fair relationship, Guire said, but within two years there were $50,000 in past due invoices and many of the 170 rings on consignment were unaccounted for in the inventory.

“That ($50,000) didn’t even include consignment,” Guire said. “After two years in court, he returned about 130 pieces of jewelry, but still has outstanding a balance of $20,000 in consignment jewelry and the $50,000 in past due invoices with interest.”

McCarthy refused to sign the standard consignment agreements but orally agreed to them, Guire said. Because of that the court didn’t require McCarthy to pay for Guire’s attorney’s fees.

The court did find, however, that the verbal agreement was sufficient after Guire proved that the course of practice was in accordance with the agreements.

In the court’s decision it notes that Sheldon Gate continued to order and buy more rings through 2009. McCarthy was paying at times by bartering his own jewelry with Guire or using a credit card.

The payments were erratic and there were no inventory reports, the decision noted. Despite the financial difficulties, the Kauai store still had the most orders, which may have keep the partnership going until the end of 2009, when a dispute about the product, orders and payments was resolved verbally. Business continued into 2010.

By the end of 2010, Guire purchased nearly $16,000 in diamonds to offset the amount due. The balance was still approaching $40,000 by the end of the year.

Guire testified that McCarthy was promoting his titanium and koa rings as Sheldon Gate Jewelry Designs that were manufactured by Hawaii Titanium Rings. Guire contacted McCarthy about claims of false representation and ordered it stopped. The problems of reconciliation of consignment ring inventory and payment for special orders continued, but the two continued doing business into 2012.

Payments were made on old invoices but new orders were made at the same time, Guire testified in court. The account was never brought down to a manageable level.

When McCarthy invited Guire to attend a jewelry show in Las Vegas to meet Gabriel Tokowlski, the two presented the world-renowned diamond cutter with a specially made titanium ring. Just who designed “the bling ring” was also disputed, and the court found insufficient evidence to support either claim of who designed that ring or any other unique ring that would qualify for court protection.

Guire testified that McCarthy began to claim that the rings were of his own design and were now being manufactured in Germany. All references to Hawaii Titanium Rings were removed, including in-store signs and displays.

When McCarthy made arrangements to work with a German manufacturer, Guire said he ceased attempts to collect the debt and retained legal counsel in August 2012.

Guire filed a complaint to demand $47,913.87 owed for special orders and for the return of consignment rings valued at $44,486.13.

During the course of litigation, McCarthy returned approximately $28,000 worth of consigned rings. At that point, Guire was satisfied to drop the case against mounting legal fees.

But McCarthy filed a countersuit in November 2013. It required both cases to move forward in a lengthy and expensive ordeal.

“I tried to drop the case when he returned partial jewelry, and he wouldn’t let me because of the countersuit,” Guire said. “That cost me another $40,000 to continue.”

The court ruled that oral sales agreements existed between the parties for special orders and consignment property.

McCarthy breached the agreement by failing to pay the outstanding special orders or returning unsold consignment. McCarthy was ordered to pay the $47,913.87 in outstanding special order invoices, and all remaining rings except for $17,672.93 in unaccounted inventory.

Guire said he heard from McCarthy’s neighbor that he was filing for bankruptcy and leaving the island. He said it is difficult to cope with spending $70,000 to receive justice and all McCarthy has to do is leave.

“His course of action was to close his store,” Guire said. “He pulled his displays and took the signs down and he’s gone.”

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Tom LaVenture, staff writer, can be reached at 245-0424 or by emailing tlaventure@thegardenisland.com.

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