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New World Trading Co. Ltd. v. 2 Feet Productions, Inc.

United States District Court, S.D. New York

May 16, 2014


Michael J. Calvey, Esq., Michael J. Calvey, LLC, North Bergen, NJ, for Plaintiffs.

Desmond C.B. Lyons, Esq., Kyle C. McGovern, Esq., Diane B. Cavanaugh, Esq., Lyons McGovern, LLP, White Plains, NY, Russell Marc Yankwitt, Esq., Yankwitt LLP, White Plains, NY, for Defendant.


SHIRA A. SCHEINDLIN, District Judge.


New World Trading Co. Ltd. ("New World") and Quanzho Hengyu Light Industrial Development Co., Ltd. ("Hengyu") (together, "plaintiffs") bring this action against 2 Feet Productions, Inc. ("2 Feet") for breach of contract involving the manufacture of footwear in China for resale in the United States. Plaintiffs originally brought claims for fraud and breach of contract against 2 Feet and 2 Feet's president, Udi Avshalomov.[1] On September 24, 2012, I granted defendant's motion to dismiss all claims against Avshalomov as well as the fraud claim against 2 Feet.[2] Plaintiffs' only surviving claim was for breach of contract against 2 Feet. 2 Feet subsequently asserted a counterclaim against Hengyu in the amount of $1, 666, 617.00 plus costs and interest.[3]

I held a bench trial from March 17 to March 19, 2014. The parties made post-trial submissions on April 4, 2014, and supplemental submissions on April 25 and April 27, 2014. Pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, I make the following findings of fact and conclusions of law. In reaching these findings and conclusions, I have considered the testimony, documentary evidence, demeanor of witnesses, and the arguments and submissions of counsel.


A. The Parties

New World is a corporation organized under the laws of China, with its offices and principal place of business in China.[4] New World's owner and president is K.J. Kim.[5] New World serves as an intermediary between Chinese factories and foreign wholesalers who purchase footwear.[6] However, New World does not have an export license.[7] Instead, New World contracts with Uptop, a trading company with an export license, to facilitate its transactions with foreign wholesalers.[8] From January 1, 2010 through December 31, 2011, New World had a two-year contract with Uptop providing that Uptop shipped the footwear and received payments from customers.[9]

Hengyu is a footwear manufacturer organized under the laws of China, with its principal place of business in China.[10] Hengyu's owner and President is Peter Zhu.[11]

2 Feet is a footwear wholesaler incorporated under the laws of New York, with its offices and principal place of business in New York.[12] 2 Feet's President is Udi Avshalomov.[13] 2 Feet commissions the manufacture of footwear abroad and then sells the footwear to retailers in the United States.[14]

B. 2 Feet's Contract with New World

1. The Purchase Orders

In or about 2008, 2 Feet obtained a license for the sale of Rocawear footwear, a prominent U.S. brand owned by rapper and mogul Jay-Z.[15] The Rocawear license required 2 Feet to use only factories that met certain conditions regarding the use of lead and child labor.[16] In late 2009, Avshalomov went to China, where he and Kim visited several factories.[17] In the spring of 2010, 2 Feet placed a series of orders with New World for various styles of footwear.[18] New World produced a total of fifty purchase orders at trial.[19] The purchase orders specify the quantity and cost of each style as well as the ship date of the order.[20] The total amount due to New World under the fifty purchase orders is $3, 114, 251.[21] 2 Feet argues that the purchase orders represent the terms of the parties' initial agreement.[22]

New World then contracted with approximately ten different factories in China for the manufacture of 2 Feet's orders.[23] At trial, New World produced a business record in the form of a chart corresponding to the purchase orders.[24] Every purchase order is represented on the summary chart, although the price terms are not always the same.[25] The total "FOB amount" in the summary chart is $2, 776, 909.20, which New World argues is the full amount 2 Feet owed.[26]

New World also sent 2 Feet a series of "pro forma" invoices in April of 2010 confirming the purchase orders.[27] All of the twenty-nine pro forma invoices were signed by either Avshalomov or Cindy Lee, a 2 Feet employee.[28] The total amount due under the pro forma invoices is $2, 187, 220. The price terms on the pro forma invoices do not always match those on the purchase orders or summary chart.[29]

The footwear was shipped on various dates through the summer and fall of 2010.[30] Some of the orders were shipped to 2 Feet, while others were shipped directly to 2 Feet's customers, a practice known as "drop shipping."[31] According to New World, 2 Feet paid a total of $1, 918, 446.85 for the shipments.[32] 2 Feet argues that it paid $1, 918, 446.85 to Uptop, but made additional payments directly to the factories.[33] 2 Feet has presented bank records evidencing wire transfers to Uptop ($1, 943, 446.85) and several factories ($293, 005.10) between May and December of 2010.[34] However, 2 Feet has conceded that it paid only $1, 918, 446.85 to Uptop rather than the amount evidenced by the bank records submitted at trial.[35] New World argues, and Kim testified, that the payments made in May were for the previous season's orders.[36] Subtracting the payments made in May, 2 Feet made payments of $263, 089.80 to the factories. Therefore, including the payments made directly to the factories, I find that 2 Feet paid a total of $2, 181, 536.65 under the purchase orders.

2. Timeliness of Deposits and Shipments

Because the footwear in question was seasonal, timeliness was critical to 2 Feet.[37] Many of the orders were shipped after the ship dates listed on the purchase orders.[38] 2 Feet put New World on notice that it was concerned about the timeliness of some of the shipments.[39]

New World argues that the shipments were late because 2 Feet was late in providing necessary deposits.[40] A New World business record indicates that the vast majority of 2 Feet's deposits were late, often by as much as seventy to a hundred days.[41] In response, 2 Feet argues that deposits were never part of the parties' agreement.[42] Indeed, most of the purchase orders contain "Net 60" payment terms and do not appear to require initial deposits.[43]

However, some of the purchase orders indicate that an initial deposit of twenty percent is required.[44] Similarly, many of the pro forma invoices signed by Avshalomov or Cindy Lee list deposits of twenty or thirty percent.[45] Avshalomov's testimony that he never agreed to provide any deposits on the purchase orders is not credible.[46] Although Avshalomov argues that New World attempted to spring the deposits on him belatedly, he personally signed many of the pro forma invoices containing deposit terms.[47] Moreover, he admitted on cross-examination that he had made deposits to New World on the previous season's orders.[48]

Therefore, I find that 2 Feet was required to submit deposits on many of the purchase orders, and failed to do so in a timely manner. New World put 2 Feet on notice on various occasions that delays in deposits would result in delays in shipment.[49] 2 Feet has failed to prove that the shipment delays were ...

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