about Arpege product from the U.S. Plaintiff's exh. 25. Colonia
itself, meanwhile, received from Australia a memorandum
purporting to have uncovered "further stock of U.S. based
Arpege," and asking Pesin whether he could "tell us any more
about where this stock is being shipped from?" Plaintiff's exh.
In the spring of 1989, Lanvin found approximately 100,000
bottles of Arpege Eau de Toilette 1-oz. spray, manufactured by
Colonia, in three locations in Europe: 15,000 in Zurich; 20,000
in Hamburg; and 60,000 in Antwerp. Lanvin purchased the goods.
The price suggested that there could be many intermediaries
involved in the transshipments.
In the summer of 1989, Lanvin's new management sent its
accountants to Colonia to examine Colonia's sales records.
Among the documents found was a "Colonia Inc. Stock Analysis By
Line Based on Current Cost," Plaintiff's exh. 19. Lanvin had
not previously seen this document. Lanvin found that the
information it contained was totally inconsistent with the
documents previously provided to Lanvin (plaintiff's exhs.
14-18), concerning both Colonia's customers and Colonia's
sales, even though the documents previously provided purported
to state all customers and all sales.
First, Plaintiff's exh. 19 contains many references to
"Special Sales" or "Sp. S1." None of the documents previously
provided to Lanvin, plaintiff's exhs. 14-18, contains any such
references, and Colonia had not previously discussed "Special
Sales" with Lanvin.
The "Special Sales" set forth in the new documents contained
other information not previously disclosed. For instance the
total sales for Arpege Eau de Toilette 1-oz. spray in 1988, as
previously shown to Lanvin shown in plaintiff's exh. 15, was
$334,625. The total of "regular" sales and "Special Sales" in
plaintiff's exh. 19 was, however, $824.215, substantially more
than twice the amount previously reported to Lanvin for this
one Arpege product.
The total of "regular" sales of Arpege Eau de Toilette 1-oz.
spray (product number 85199) on page 47 of plaintiff's exh. 19
is actually less ($229,260) than the total sales of that
product number shown in plaintiff's exh. 14. However, page 47
of plaintiff's exh. 19 contains two additional entries with two
additional product numbers, even though the product is exactly
the same. Each of these two new entries is for a "Special
Sale," with a special product number containing an additional
digit (product numbers 851991 and 851992, versus 85199 in
Plaintiff's exh. 15 and on page 46 of Plaintiff's exh. 19).
No product number for any Lanvin product contained an extra
digit in any of the documents previously provided to Lanvin.
These additional product numbers (and the substantial
additional sales they show) had never been previously disclosed
to Lanvin. Tr. 234-36.
Adding the $520,368 and $74,587 for the two listings of
Arpege Eau de Toilette 1-oz. spray "Special Sale" entries on
page 47 of Plaintiff's exh. 19, to the $229,260 for Arpege Eau
de Toilette 1-oz. spray on page 46 (product number 0085119),
one reaches the previously undisclosed total of $824,215, more
than twice the $334.625 previously reported to Lanvin in
Plaintiff's exh. 15.
Plaintiff's exh. 19 also had an entirely different history of
product returns from that previously provided by Colonia. An
after-sale return rate of 10-15 percent is typical. The regular
sales on page 46 did show returns. However, the two extra-digit
"Special Sales' showed zero returns of this product to Colonia.
During their audit at Colonia, Lanvin's accountants also
found a number of invoices pertaining to "Special Sales." These
invoices, plaintiff's exhs. 7, 10, 11 and 12, had not been
previously provided to Lanvin.
Although the documents (plaintiff's exhs. 14-18) purported to
list all of the Arpege customers, none of the customers on the
various invoices appeared on any of those documents.
Thus, the documents uncovered by Lanvin's accountants in the
summer of 1989 (plaintiff's exhs. 7, 10, 11, 12 and 19) were
seriously inconsistent with the documents (plaintiff's exhs. 14
and 15) that Colonia had previously provided to Lanvin, in that
they showed substantial Arpege sales previously unreported, to
Arpege customers previously unreported, leading to a total sale
more than twice the reported sale.
With the information gathered from the accountants' audit of
Colonia's documents, and knowing of the existence of the
100,000 pieces of Arpege in Europe, in August 1989, Bressler
decided to terminate Colonia. Tr. 349-51. Bressler testified
that, based on his business experience, the substantial
accounting inconsistencies uncovered by Lanvin's accountants
and the existence of 100,000 pieces of U.S. made Lanvin goods
in Europe were linked.
In view of what Lanvin had found, it determined not to permit
Colonia to invoke the 60-day notice and cure period provided in
Art. 22(a)(i) of the License Agreement. Defendant's exh. 1.
L'Oreal played no role in Bressler's decision to terminate
Bressler's termination letter, addressed to Pesin and dated
August 8, 1989, stated that Lanvin was immediately terminating
the License Agreement and Supply Agreement because Colonia had
permitted massive transshipments of Lanvin products outside the
Territory, in violation of Art. 2(i) of the License Agreement,
Defendant's exh. 1. Bressler added, however:
. . for a period of two months we will respond
to any reasonable and necessary request to help
you fulfill any specific outstanding orders, so
long as such orders do not themselves entail
additional violations of the agreements. With that
exception, our relations are at an end.
Defendant's exh. 3.
On August 11, 1989, Pesin responded to Bressler's letter,
indicating that unless Lanvin changed its position, in one week
Colonia would cancel all advertising and promotional support
for Lanvin, adding that the termination would cause Colonia a
loss of profits and goodwill, leading to a claim for damages.
Defendant's exh. 4.
In a response to Pesin dated August 25, 1989, Bressler
reiterated to Pesin Lanvin's position that the relationship was
over. The letter repeated that Lanvin would supply Colonia for
two additional months, adding:
. . in the unlikely event that you encounter any
particular order fulfillment problem after
conclusion of the two months' grace period, we
will duly consider any reasonable request you
might wish to make at that time. You should
understand, however, that any such consideration
would be given only as an accommodation to you,
and not incident to an ongoing business
relationship between us.
Defendant's exh. 5. at 2n.