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EXPORTOS APPAREL GROUP v. CHEMICAL BANK

September 26, 1984

EXPORTOS APPAREL GROUP, LTD., d/b/a PANACHE/LE SPORTSAC, Plaintiff, against CHEMICAL BANK, Defendant.


The opinion of the court was delivered by: HAIGHT

MEMORANDUM OPINION AND ORDER

HAIGHT, District Judge:

 Plaintiff Exportos Apparel Group, Ltd., doing business as Panache/Le Sportsac ("Exportos"), is a corporation organized under the laws of India, authorized to do business in the State of New York, and engaged in the manufacturing and selling of garments. Defendant Chemical Bank ("Chemical") is Exportos's exclusive factor in the United States. Exportos sold certain garments to a Rhode Island wholesaler, Fashion House, Inc. The invoice was processed in accordance with the terms of the factoring agreement, and Exportos's account with Chemical credited accordingly. Thereafter a dispute broke out between Exportos and Fashion House concerning the quality of the goods. Fashion House did not pay the invoice. Chemical, purporting to act in accordance with the terms of the factoring agreement, "charged back" the unpaid invoice against Exportos's account. Exportos, having taken Fashion House to arbitration, ultimately settled its claim for an amount less than the face value of the unpaid invoice. Exportos now sues Chemical for the difference, plus costs and attorney's fees. Jurisdiction in this Court is founded on diversity of citizenship.

 Chemical now moves for summary judgment dismissing the complaint pursuant to Rule 56, F.R.Civ.P. For the reasons stated, the motion is granted and the complaint dismissed.

 I.

 The record evidences two factoring agreements entered into between Exportos (identified in the agreements as the "partnership") and Chemical. Each agreement provided that Chemical would act as Exportos's factor, and would purchase accounts receivable from Exportos in connection with sales by the latter to customers whose credit worthiness had been approved by Chemical. The first of these agreements was entered into on November 2, 1977. Exportos and Chemical entered into a second factoring agreement on October 1, 1982. The wording of these contracts is different in certain respects, but the parties agree that there is no significant difference in the controlling provisions. The "charge back" provisions of the two contracts appear in the margin. *fn1" We are concerned with two factoring agreements because Exportos shipped the goods to Fashion House during the lifetime of the first factoring agreement, but Chemical exercised its right of charge back (also known as "reversal") after the second contract came into effect.

 The manner in which the factoring contracts operated is summarized in the affidavit of Kenneth J. Kelly, a vice president of Chemical, in his affidavit in support of the motion (P5 at p. 2):

 "This action challenges a "charge back" (or a reversal) of a credit of about $150,000 made by Chemical acting as plaintiff's factor to plaintiff's factoring account at Chemical. Pursuant to the contracts (Exhibits A and B), plaintiff would assign invoices to Chemical representing plaintiff's accounts receivable generated by sales by plaintiff of its goods (in this case, apparel). Once Chemical approved the credit of plaintiff's customers, Chemical would credit plaintiff's account with the face amount of the invoices, less a commission. It would then be Chemical's task to collect the invoices from the buyers, or take a loss if the buyers proved financially unable to pay. If, however, the buyer raised any claim regarding the quality of the goods, Chemical by contract could reverse the credit (i.e., charge-back) and reassign the invoice to plaintiff, and let plaintiff undertake collection."

 On July 26, 1982, Exportos entered into a purchase order agreement for the sale of garments to Fashion House. Simultaneously, Exportos telephoned Chemical's factoring division, setting forth the identity of the purchaser and the terms of the proposed sale. On July 28 Exportos received a computerized print-out from Chemical. The print-out is captioned "Chemical Bank Order Acknowledgment." The order amounts are given. Under the caption "action taken," the word "approved" appears opposite the name of Fashion House. An "approval number" is given, and a "credit analyst" identified, in this case, one "F. Boestfleisch." Having received that advice from Chemical, Exportos sent the goods by truck to Fashion House in early August, 1982. In September, 1982 Chemical credited Exportos's account in the sum of $150,475.25, representing the amounts due on the Fashion House invoices, discounted by the commission to which Chemical was entitled under the factoring agreement.

 Thereafter an increasingly angry exchange of correspondence arose between Exportos and Fashion House, with Chemical becoming involved in the exchange. These letters need not be quoted in full. It is sufficient for present purposes to say that Fashion House took the position that the garments were unsatisfactory because they did not fit. Exportos did not accept that contention. Fashion House refused to pay the invoice. Exportos commenced an action against Fashion House in this Court, before Judge Broderick. That proceeding was stayed pending arbitration. On the eve of arbitration, Fashion House settled Exportos's claim for $130,000.

 In the interim, in January, 1983, Chemical charged back Exportos's account in the sum of $161,888.54. That amount represented the amount previously credited to Exportos in respect of the Fashion House invoices, together with interest in accordance with the terms of the factoring agreement.

 The evidence adduced at the Exportos/Fashion House arbitration tended to show that Fashion House's protestations of dissatisfaction with Exportos's goods were sham; and that in fact, after receiving them, Fashion House successfully resold the goods to purchasers of its own.

 Exportos's suit against Chemical Bank alleges three causes of action. The first sounds in contract. Exportos alleges that Chemical made no good faith attempt to verify the bona fides of Fashion House's claim that the garments were defective, before charging back Exportos's account. In failint to make such an investigation before charging back the account, Chemical is alleged to have "acted improperly and in violation of the factoring arrangement." Complaint, P20.

 Secondly, Chemical is charged with negligence in its initial investigation of the credit of Fashion House. Exportos alleges that it delivered the goods to Fashion House in reliance upon Chemical's investigation and approval of ...


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