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Li & Fung (Trading) Ltd. v. Contemporary Streetwear, LLC

United States District Court, Second Circuit

June 6, 2013

LI & FUNG (TRADING) LIMITED, Plaintiff,
v.
CONTEMPORARY STREETWEAR, LLC, Defendant.

REPORT AND RECOMMENDATION

DEBRA FREEMAN, Magistrate Judge.

In this diversity action, Plaintiff Li & Fung (Trading) Ltd. ("Plaintiff') alleges that defendant Contemporary Streetwear, LLC ("Defendant") failed to pay for shipments of goods for which Plaintiff acted as the buying agent, and failed to pay to Plaintiff debts that Defendant had assumed. After Defendant failed to cooperate during the discovery phase of this litigation, the Honorable Colleen McMahon ordered that a default be entered against Defendant and referred the matter to me to conduct an inquest and issue a report and recommendation concerning damages. (Dkt. 36.) For the reasons that follow, I recommend that Plaintiff be awarded compensatory damages in the amount of $1, 722, 696.50, plus interest, calculated as set out below.

BACKGROUND

A. The Parties' Pleadings

Plaintiff's Complaint, dated March 23, 2011, asserts claims against Defendant for: (1) goods sold and delivered, (2) account stated, and (3) breach of contract. ( See generally Complaint, dated Mar. 23, 2011 ("Compl.") (Dkt. 1).) Specifically, Plaintiff', a Hong Kong corporation, alleges that it entered into an oral agreement (the "Agreement") with Defendant under which Plaintiff would act as Defendant's agent for buying apparel. ( See Compl. ¶¶ 1, 7.) Under the Agreement, Plaintiff would place orders for apparel with various vendors around the world on Defendant's behalf, and send invoices to Defendant, ( See id. ¶¶ 8-9.) According to the Complaint, the Agreement provided for inclusion on the invoices of a commission of five percent, and required Defendant to pay each invoice in lull, within 60 days of receipt. ( Id. ¶¶ 9-10.) Plaintiff further alleges that, from October, 2010, through February, 2011, Plaintiff ordered apparel on Defendant's behalf, delivered it, and sent invoices, all pursuant to the Agreement, but Defendant failed and refused to pay the amounts due. ( Id. ¶¶ 11-12.) Exhibit A to the Complaint lists 22 allegedly unpaid invoices by date, invoice number, and amount. (Compl., Ex. A.) The listed amounts add up to $1, 672, 998.96.

Separately, Plaintiff alleges that the parties entered into a written contract (the "Contract") in or about September, 2010, under which Defendant agreed to assume certain obligations of Icer Brands ("leer"), a licensee of Defendant. ( Id. ¶ 26.) Under the Contract, Plaintiff released its own outstanding claims against Icer, and Defendant (a) assumed Icer's obligations to pay Plaintiff $48, 000 for sample charges, and (h) agreed to take possession of Icer's inventory, sell the inventory, and remit the net proceeds to Plaintiff. ( Id. ¶ 27.) Plaintiff alleges that the value of the inventory in question is at least $94, 307.50. ( Id. ) Plaintiff further alleges that Defendant has not complied with its obligations under the Contract, and, specifically, has refused to remit the required net proceeds to Plaintiff. ( Id. 28-30, )

On May 18, 2011, Defendant filed an Answer (Answer, dated May 18, 2011 ("Ans.") (Dkt. 9)), which included counterclaims against Plaintiff In its Answer, Defendant asserted that Plaintiff owed Defendant fiduciary duties and that Plaintiff "often" breached the Agreement by, inter alia, "failing to find vendors who could provide... goods of sufficient quality, at a competitive price[, ] or deliver such goods on time[, ] and by failing to remit payments to vendors on a timely basis." (Ans. ¶ 58.) The goods that were of inferior quality or that were delayed in shipment were allegedly "useless" and caused Defendant to incur additional costs. (Ans. ¶ 59.) Defendant also alleged that Plaintiff would knowingly fail to obtain the lowest price available from vendors, and would instead allow vendors to inflate their invoice prices so that Plaintiff could keep portions of the payments remitted from Defendant above the five-percent agreed-upon commission. ( Id. ¶ 60.) Defendant asserted counterclaims for an accounting, for breaches of fiduciary duty and contract, for breaches of implied warranties, and for unjust enrichment and faithless servant. ( See id. ¶¶ 61-88.) Plaintiff denied Defendant's allegations of wrongdoing in an Answer to the counterclaims, dated July 6, 2011. (Dkt. 21.)

B. Defendant's Default

After Defendant failed to comply with Court orders, Judge McMahon found Defendant in default, dismissed its counterclaims, and referred the matter to me to conduct an inquest and issue a report and recommendation concerning damages. (Order, dated June 14, 2012 (Dkt. 36).) On June 22, 2012, this Court issued an Order requiring Plaintiff to file and serve on Defendant, no later than July 23, 2012, proposed findings of fact and conclusions of law. ( See Order, dated June 22, 2012 (Dkt. 38).) The Court cautioned Defendant that if, by August 22, 2012, it did not respond to Plaintiffs submissions or contact the Court in writing to request an in-court hearing, the Court would issue a report and recommendation on the basis of Plaintiff's written submissions alone, ( See id. )

C. Plaintiff's and Defendant's Proposed Findings

Plaintiff filed its proposed findings and a supporting declaration on July 20, 2012. ( See Proposed Findings of Fact and Conclusion of Law for Damages Inquest, filed July 20, 2012 ("Pl. Proposed Findings") (Dkt. 39); Declaration of Sean Coxall in Support of Plaintiff's Proposed Findings of Fact and Conclusions of Law in Support of Damages Inquest, dated July 16, 2012 ("Coxall Decl.") (Dkt. 40).) Sean Coxall ("Coxall"), the executive director of one of Plaintiff's divisions, attached 21 unsigned invoices to his declaration ( see Coxall Decl., Exs. 1-21), which, Coxall claims, "set forth a total Invoice Amount equaling $1, 615, 215.81" ( id. ¶ 7). Plaintiff then proposes that the Court find that Defendant owes Plaintiff that $1, 615, 215.81 under the Agreement, as well as $94, 307.50 under the Contract, plus pre-judgment interest on both amounts. (Pl. Proposed Findings, at § II ¶¶ 7-11.)

As noted above, Plaintiff's Complaint attached a list of 22 invoices, totaling $1, 672, 998.96 ( see Compl., Ex. A), but, for some undisclosed reason, at the inquest stage, Plaintiff has chosen to omit the last invoice and subtract its value from the total allegedly due ( see Coxall Decl., Exs. 1-21). While it is true that subtracting the value of the last invoice from the total listed in the Complaint would yield Plaintiff's currently requested total of $1, 615, 215.81, that total is not actually the sum of the values of the invoices Plaintiff has submitted, which instead add up to $1, 678, 389.00.[1]

The discrepancy between the amount Plaintiff requests, based on its original list, and the actual sum of the invoices arises because, on the original list, two of the invoices were said to have values that are several thousand dollars below the actual balances shown on the invoices that Plaintiff has now submitted. First, while Plaintiff initially gave an outstanding amount of $96456 for the first invoice on the list, invoice number CE15/100255, dated November 6, 2010 ( see Compl., Ex. A), the actual invoice with that number and date states a balance of S14, 137.75 ( see n.1 supra; Coxall Decl., Ex. 1). Second, while Plaintiff gave a value of $64, 284.42 for the eighth invoice on its list, invoice number CE15/10266, dated November 18, 2011 ( see Compl., Ex. A), the actual balance shown on that invoice is $114, 284.42, exactly $50, 000 higher ( see n.1 supra ; Coxall Decl., Ex. 8). Plaintiff offers no explanation for these discrepancies, and indeed appears unaware of them.

Defendant submitted its own proposed findings on August 23, 2012. ( See Defendant's Proposed Findings of Fact and Conclusions of Law for Damages inquest, dated Aug. 23, 2012 ("Def. Proposed Findings") (Dkt. 41).)[2] Defendant contests that the Agreement provided for payment of invoices within 60 days ( id., at § II, ¶ 5), and also asserts that Plaintiff's evidence is "insufficient as a matter of law to establish that the goods were actually received' and 'accepted' by" Defendant ( id. ¶ 6). Defendant requests leave to offer evidence in "mitigation of damages" as to shipments that arrived damaged or were not received at all. ( Id. ) In addition, Defendant complains of a purported lack of "transparen[cy]" in the process by which Plaintiff calculated its commissions, and asserts that, by charging a "mark-up" on its vendor prices, Plaintiff was actually able to retain more than the agreed-upon five-percent commission. ( Id. ¶ 8.) Defendant requests a hearing on the issue of how much more Plaintiffs invoices charged over the price that actually was, or should have been, paid to vendors - i.e., on the question of whether Plaintiff inflated the fair price of the goods, as legitimately charged by the vendors, by only five percent, or with another hidden mark-up. ( See id. )[3] Defendant admits, however, that it breached the Contract regarding leer and also admits that it owes plaintiff the net proceeds and interest from the sale of leer Brand's inventory. ( Id. ¶¶ 10-11.)

Defendant then goes on to propose "additional" findings regarding a separate dispute between KHQ, an affiliated entity of Plaintiff, and C2 Brands, an affiliated entity of Defendant. ( See id., ¶¶ 12-13.) Without submitting any documentary evidence in support of its position, Defendant asserts that Plaintiff's affiliate owes Defendant's affiliate approximately $1 million, and that Defendant "is entitled to a set off" for that amount against whatever amount the Court may find that Defendant owes Plaintiff in this case. ( Id. ¶ 13.)

Plaintiff replied to Defendant's Proposed Findings on September 14, 2012. ( See Plaintiffs Reply to Defendant's Proposed Findings of Fact and Conclusions of Law, dated Sept. 14, 2012 ("Pl. Reply") (Dkt. 43); see also Amended and Supplemental Declaration of Sean Coxall in Support of Plaintiff's Reply to Defendant's Proposed Findings of Fact and Conclusions of Law dated Sept. 13, 2012 ("Am. Coxall Decl.") (Dkt. 44).) In its reply, Plaintiff argues that, by seeking to introduce evidence of missing or damaged shipments, Defendant is attemptingg to challenge its liability through a "back door" and to revive the issues that it raised in its counterclaim, even though liability has already been established by Defendant's default and Defendant's counterclaims have been dismissed. (Pl. Reply ¶¶ 1-5.) Plaintiff also clarifies that the invoices attached to the original Coxall Declaration did not include the five-percent commission. ( Id. ¶¶ 6.) Coxall's amended declaration attaches new copies of the same 21 invoices, this time signed and with a separate line for the five-percent commission. ( See id. ¶ 6 and Exs. 1-21.) The second set of attached documents also includes the original vendor invoices, which confirm the pre-cotnmission amount shown on each of ...


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