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Ipcon Collections LLC v. Costco Wholesale Corp

August 24, 2011


The opinion of the court was delivered by: Briccetti, J.:


Plaintiff Ipcon Collections LLC commenced this action against defendant Costco Wholesale Corp. seeking damages for injuries suffered by plaintiff's purported predecessor-in-interest ES Electrosales Leadsinger Co., Ltd. ("Leadsinger") because of defendant's alleged conduct. Pending before the Court are (1) defendant's motion to dismiss (Doc. #5); (2) plaintiff's cross-motion to stay arbitration contained within its opposition to the motion to dismiss (Doc. #15); and (3) defendant's amended motion for sanctions (Doc. #14).*fn1 For the following reasons, defendant's motion to dismiss is granted, plaintiff's cross-motion to stay arbitration is denied, and defendant's amended motion for sanctions is denied.


For the purposes of ruling on the motions, the Court reviews the factual allegations of the complaint as well as the parties' evidentiary submissions.

Ipcon is the assignee and holder of all rights related to certain claims by Leadsinger against Costco. Leadsinger is a seller of a variety of electronic products, including karoake systems. Costco is a national retailer.

From October 2005 to September 2008, Costco sold Leadsinger's products on a temporary basis at a number of Costco's locations through Costco's "Roadshow" program pursuant to various agreements between Costco and Leadsinger. These agreements each contained a provision, substantially similar in each agreement, which provided:

All claims and disputes that (1) are between Vendor and Costco Wholesale or either's subsidiaries, parents, affiliates, officers, directors and/or employees, and (2) arise out of or relate to the Agreement Documents or their subject matter, interpretation, performance or enforcement, or any other agreement, transaction or occurrence between Vendor and Costco Wholesale (including without limitation any tort or statutory claim) . . . shall be arbitrated under the Commercial Arbitration Rules of the American Arbitration Association . . . , in English at Seattle, Washington, before one neutral arbitrator . . . who shall be a member of the AAA's Large Complex Case Panel . . . .*fn2 During the Roadshow program, a vendor (such as Leadsinger) is given approximately ten days to sell its products at various Costco locations at displays specifically showcasing the vendor's products. To participate in the Roadshow program, Costco demanded Leadsinger use a staffing company known as Crossmark. The products are shipped and purportedly consigned to Costco, but not purchased or received in inventory by Costco. Product sales are captured and vendors are paid on the sales which occur during the scheduled dates. Leadsinger believed payments would be made thirty days after the sales were captured.

Costco represented that, before payments would be made, unsold product would be returned to Leadsinger. Nonetheless, Costco deducted the value of unsold products from the payment to Leadsinger for the products sold. Costco then retained the unsold products instead of returning them to Leadsinger.

In addition, Costco sold consigned products outside the Roadshow dates, and such sales were not captured by Costco's accounting. Therefore, they were not reported to Leadsinger, and no payment was made on account of them. Costco did not inform Leadsinger that its accounting system could not properly account for consigned products sold outside the Roadshow program.

Further, Costco treated all Leadsinger products received, although on consignment, as if owned by Costco. This treatment was concealed from Leadsinger and was used to induce Leadsinger into sending products to Costco for the Roadshow program. It resulted in the sale of Leadsinger products at salvage prices to wholesalers and bulk dealers.

Moreover, Costco maintained its accounting system so as not to provide any method by which a Roadshow location could charge back only the freight costs of the products returned to Leadsinger without deducting the entire value of the product. Thus, the value of the goods remaining after Roadshows was improperly deducted from payments to Leadsinger.

Finally, products which had been sold by Costco to retail customers were inappropriately accepted for return by Costco, which resulted in further improper deductions from the vendor accounts. This was due to Costco's allegedly-"liberal" return policy. These returns included returns for products which functioned properly and met consumer expectations at the time of sale.

Plaintiff alleges Costco fraudulently induced Leadsinger to enter into the agreements with Costco because Costco hid its true intention not to adhere to the terms of the agreements. Plaintiff asserts claims for fraud; fraudulent returns and misaccounting; conversion; negligent ...

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