Alteration vs. Conservation Defined

[drcy]

There are many other sophisticated scientific methods that could be used: authenticating art and artifacts

One word that I often use: provenance. Cards that have been altered don't have a history-- or at least a history that shows it wasn't altered. Of course there are new finds. However, as autograph expert Jim Stinson once said of autographs: “Authentic autographs have a history or sources. Forgeries do not. They just ‘appear’.” Provenance is one thing that is standard is the high end art collecting world that is not in baseball card world.

Also, common sense is always useful.

[T206Collector]

Originally Posted by drcy

One word that I often use: provenance. Cards that have been altered don't have a history-- or at least a history that shows it wasn't altered. Of course there are new finds. However, as autograph expert Jim Stinson once said of autographs: “Authentic autographs have a history or sources. Forgeries do not. They just ‘appear’.” Provenance is one thing that is standard is the high end art collecting world that is not in baseball card world.

+1

[benjulmag]

Not being a slabbed card collector I am unfamiliar with the legal obligations of grading companies and don't know what if any disclaimers and/or damages limitations language is contained in their submission form.

Here's my question. I buy a PSA 8 T206 Cobb for $150k.
I subsequently CONCLUSIVELY establish through advanced forensic testing that the card was altered in such a manner that it should have been graded an "A". Am I entitled to receive damages from PSA and if so, what would they be?

It would seem to me that if PSA is on the hook for the $150k I paid for the card (and in return PSA has the right to resell the card (this time graded "A") and keep the sale proceeds), they have one huge contingent liability on their balance sheet. If I am correct in my view that the (great) majority of many types of N and T cards graded 8' and higher are altered, which alterations could be conclusively established through sophisticated forensic testing, PSA potentially could be wiped out.

Am I wrong in this assessment?

[Peter_Spaeth]

Originally Posted by benjulmag

Not being a slabbed card collector I am unfamiliar with the legal obligations of grading companies and don't know what if any disclaimers and/or damages limitations language is contained in their submission form.

Here's my question. I buy a PSA 8 T206 Cobb for $150k.
I subsequently CONCLUSIVELY establish through advanced forensic testing that the card was altered in such a manner that it should have been graded an "A". Am I entitled to receive damages from PSA and if so, what would they be?

It would seem to me that if PSA is on the hook for the $150k I paid for the card (and in return PSA has the right to resell the card (this time graded "A") and keep the sale proceeds), they have one huge contingent liability on their balance sheet. If I am correct in my view that the (great) majority of many types of N and T cards graded 8' and higher are altered, which alterations could be conclusively established through sophisticated forensic testing, PSA potentially could be wiped out.

Am I wrong in this assessment?

Q: Do you guarantee the grades for my cards?
A: PSA guarantees that all cards submitted to it shall be graded in accordance with PSA grading standards and under the procedures of PSA. If PSA, in fact, concludes that the card in question no longer merits the PSA grade assigned or fails PSA’s authenticity standards, PSA will either: 1) Buy the card from the submitter at the current market value if the card can no longer receive a numerical grade under PSA's standards, or 2) Refund the difference in value between the original PSA grade and the current PSA grade if the grade is lowered. In this case, the card will also be returned to the customer along with the refund for the difference in value.

[Peter_Spaeth]

Corey I am sure their auditors must review and approve of their reserve for the guaranty, it will be interesting to see if recent events affect that. I've always thought it was a time bomb and expected them to someday revoke it. Of course they do have control -- they have to agree with you.

[swarmee]

Yes, it seems PSA self-insures for their Grade Guarantee rather than pays an insurance company for protection. In their most recent quarterly stockholders report, they stated they increased their reserve fund to cover a predicted increase of grade guarantee liabilities.

Service Warranties
We generally issue an authenticity or grading warranty with every coin and trading card authenticated or graded by us. Under the terms of the warranty, in general, if a coin or trading card that was authenticated or graded by us later receives a lower grade upon resubmission to us for grading, or is found not to be authentic, based on our opinion, we are obligated under our warranty either to purchase the coin or trading card at
the current market value at the originally assigned grade or, instead, at the
customer’s option, to pay the difference in the current market value of the item between its original assigned grade and its lower grade. We accrue for estimated warranty costs based on historical claims experience, and we monitor the adequacy of the warranty reserves on an ongoing basis. If warranty claims were to increase in relation to historical trends and experience, we would increase the warranty reserves and incur additional charges that would have the effect of reducing income in those periods during which the warranty reserve is increased. See Item 7: “MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Critical Accounting Policies: Grading Warranty Costs”, and Item 8: Consolidated Financial Statements -Note 7 of this report for more information regarding our warranty reserves. As discussed above, before returning an authenticated or graded coin or trading card to our customer, we place the coin or trading card in a tamper-evident, clear plastic holder that encapsulates a label identifying the collectible as having been authenticated and graded by us. The warranty is voided if the plastic holder has been broken or damaged or shows signs of tampering.
We do not provide a warranty with respect to our opinions regarding the authenticity or quality of autographs or memorabilia.

We have no insurance coverage for claims made under these warranties, and therefore we maintain reserves for such
warranty claims based on historical experience. However, there is no assurance that these warranty reserves will prove to be
adequate, and as we expand our services in overseas markets, we may incur higher warranty claims than we have experienced in
the past. If our warranty reserves prove to be inadequate, our gross margin and operating results could be harmed. As a result, we
monitor the adequacy of our warranty reserves on an ongoing basis.

Due to the higher level of warranty payment in fiscal 2018, warranty expense recognized was $764,000 in fiscal 2018 as
compared to $302,000, and ($145,000) in fiscals, 2017 and 2016, respectively. Our warranty reserves were $862,000 and $834,000
at June 30, 2018 and 2017, respectively.

http://investors.collectors.com/stat...3-6a45441cf111

Will it bankrupt the company? Probably not. But it may hurt their stock price and increase costs of grading in the future to cover the losses.

[benjulmag]

It's an interesting issue. Continuing with the same example, suppose I waited 15 years before submitting the card for forensic testing, during which time the spread between an 8 Cobb and an "A" Cobb increased from, say, $20k to $125k. Could PSA argue I had a duty to undertake the testing years earlier (assuming the forensic testing method was commercially available during the entire 15-year period) and accordingly their exposure should be limited to $20k? By this line of reasoning, could they argue the statute of limitations has expired such that I am barred from collecting damages altogether?

[Peter_Spaeth]

Originally Posted by benjulmag

It's an interesting issue. Continuing with the same example, suppose I waited 15 years before submitting the card for forensic testing, during which time the spread between an 8 Cobb and an "A" Cobb increased from, say, $20k to $125k. Could PSA argue I had a duty to undertake the testing years earlier (assuming the forensic testing method was commercially was available during the entire 15-year period) and accordingly their exposure should be limited to $20k. By this line of reasoning, could they argue the statute of limitations has expired such that I am barred from collecting damages altogether?

They really should have promised to reimburse for out of pocket cost, not current market value. The buyer gets a huge windfall this way in a rising market. As to your question, who knows, it would depend on what the cause of action is and what triggers the statute of limitations I guess. I'd have to think about that. But as it's likely to run from when you did or could have discovered your claim in the exercise of reasonable diligence, you likely would be out.

[irv]

Originally Posted by benjulmag

It's an interesting issue. Continuing with the same example, suppose I waited 15 years before submitting the card for forensic testing, during which time the spread between an 8 Cobb and an "A" Cobb increased from, say, $20k to $125k. Could PSA argue I had a duty to undertake the testing years earlier (assuming the forensic testing method was commercially was available during the entire 15-year period) and accordingly their exposure should be limited to $20k. By this line of reasoning, could they argue the statute of limitations has expired such that I am barred from collecting damages altogether?

Originally Posted by Peter_Spaeth

They really should have promised to reimburse for out of pocket cost, not current market value. The buyer gets a huge windfall this way in a rising market. As to your question, who knows, it would depend on what the cause of action is and what triggers the statute of limitations I guess. I'd have to think about that. But as it's likely to run from when you did or could have discovered your claim in the exercise of reasonable diligence, you likely would be out.

Is a statute of limitations something that a seller can declare or is it the law that dictates what that period of time is?

[benjulmag]

Originally Posted by Peter_Spaeth

They really should have promised to reimburse for out of pocket cost, not current market value. The buyer gets a huge windfall this way in a rising market. As to your question, who knows, it would depend on what the cause of action is and what triggers the statute of limitations I guess. I'd have to think about that. But as it's likely to run from when you did or could have discovered your claim in the exercise of reasonable diligence, you likely would be out.

I agree with your point about exercise of reasonable diligence, unless I could fashion an argument that it was only recently that I was reasonably put on notice about the likelihood of alteration. I would think the action would be breach of contract, though there could be a lack of privity problem if I was not the person who submitted the card for grading. If I bought it from an auction house, they probably had a disclaimer that they are not responsible for the accuracy of graded cards. So they would be protected. However, they probably would have a duty to reveal the consignor, and that would be the person I would have to go after. That person in turn would assign me his right to sue the grading company (assuming he was the person who had the card graded). If he in turn bought it from someone else and it was that other person who had the card graded, then he would have to go after that person. This potentially could go on down the chain until I reached the person who had the card graded.

What a mess.