April 17 (Bloomberg) -- Merrill Lynch & Co.'s plan to auction what Christie's International called ``one of the greatest jewelry collections'' was thwarted by jeweler Ralph O. Esmerian in a 48-hour showdown in three courts.

The sale, which Christie's scheduled for April 15 and then delayed to yesterday amid the legal wrangling, ``will not take place,'' said Helen Chaitman, one of Esmerian's lawyers, after a U.S. bankruptcy court hearing yesterday in Lower Manhattan.

Chaitman's statement followed a private meeting between the lawyers of Esmerian, 68, and Merrill in the chambers of Judge Robert Drain, who didn't issue a formal ruling.

Chaitman said Esmerian, a fourth-generation jeweler, got his wish to sell his family heirlooms through Fred Leighton Inc., the retailer he bought in 2006. Merrill had lent Esmerian $178 million, in part to buy Fred Leighton, and in October declared the loan in default. Merrill then sought to sell its collateral, Esmerian's antique jewelry, through Christie's.

Esmerian argued he could get far more for the jewels through private sales -- and thus pay the debt by selling fewer pieces. Merrill spokesman Bill Halldin said the bank is grateful Leighton and other Esmerian entities will be under court supervision as a result of Leighton's bankruptcy petition this week.

``We look forward to an expedited resolution of these matters and a full repayment of all funds due to us,'' he said.

Christie's said in a statement that it was ``obviously disappointed not to proceed with the auction.''

More Momentum

The latest decision halts, at least for now, a public tug- of-war between Merrill and Esmerian that began this year and gained momentum this week.

The star lots of the planned 115-lot auction on April 15 were a $15 million pink diamond ring and a diamond-encrusted brooch worth up to $6 million, according to Christie's estimates.

Late April 14, a New York appeals court granted an emergency motion by Esmerian to block the sale. The case went back to New York State Judge Helen Freedman, who has been on the case since January. She issued an order favoring Merrill.

Esmerian then appealed to New York state Appellate Court Judge Richard Andrias. On the afternoon of April 15, Andrias ordered the auction to proceed. Esmerian responded with a bankruptcy petition for Leighton and seven special-purpose companies he had created, effectively blocking the sale again.

At 6 p.m., as collectors and dealers gathered at Christie's Rockefeller Center offices, waiting for the auction to begin, Francois Curiel, Christie's global head of jewelry, emerged to announce the sale was off.

Merrill had filed its own motion in bankruptcy court on April 15 to permit the sale, and Curiel said he hoped the auction would proceed after yesterday's hearing. Instead, at about 5:20 p.m. yesterday, Judge Drain told the court, ``I'm not going to compel an auction.''

Dubai, Dallas

Christie's is among the losers. Rahul Kadakia, a Christie's senior vice president, testified that in mounting the auction and marketing the jewels around the world with stops in Dubai, Dallas and London, Christie's spent about $500,000. Potential buyers had converged in New York for a hyped evening sale that never happened.

``The risk is our reputation,'' Kadakia said.

Merrill lawyer Howard R. Hawkins Jr., commenting on the bank's preference for an auction, had said in a Jan. 23 affidavit that ``there is significant prospect of recession'' in the U.S.

``If Merrill Lynch is not permitted to proceed with a prompt auction of the collateral, Merrill Lynch may miss the current favorable jewelry market and fail to recover all of its debt.''

Hawkins declined to comment yesterday.

Esmerian has debts totaling about $200 million, to Merrill, Christie's, and Sotheby's, another auctioneer, according to court papers and an interview with Esmerian.

In his testimony, Esmerian was adamant the jewelry he, his father and grandfather assembled over 100 years shouldn't be auctioned off ``willy-nilly.''

He said many wealthy customers prefer to deal one-on- one with a jeweler.

``Very few clients like to be seen buying at an auction,'' he said.

To contact the writer of this story: Philip Boroff in New York at pboroff@bloomberg.net

Last Updated: April 17, 2008 22:24 EDT