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Supreme Showroom, Inc. v. Branded Apparel Group LLC

United States District Court, S.D. New York

June 27, 2018

SUPREME SHOWROOM, INC., Plaintiff,
v.
BRANDED APPAREL GROUP LLC, d/b/a SXS Group LLC, Defendant.

          OPINION & ORDER

          PAUL A. ENGELMAYER, DISTRICT JUDGE

         Pending before the Court are competing motions for partial summary judgment in this dispute between a clothing supplier, defendant Branded Apparel Group LLC ("Branded"), and its contractually authorized sales representative, plaintiff Supreme Showroom, Inc. ("Supreme"). The parties' dispute, which involves claims by Supreme and counterclaims by Branded, turns principally on whether Supreme's agreement to serve as sales representative for a third party, Gant USA Corporation ("Gant"), also a clothing supplier, breached its legal duties to Branded. For the reasons that follow, the Court denies all motions for summary judgment, except as to Branded's counterclaim for unjust enrichment, on which the Court grants Branded's motion for summary judgment. The case will now proceed to trial.

         I. Background [1]

         A. The Parties

         Supreme, a Chicago-based corporation, is a "commissioned independent sales representative" for companies in the fashion apparel industry. JSF ¶ 1. Supreme's sole shareholder is Joshua Muthart. Id.

         Branded, formerly known as SXS Group LLC, is a New York City-based limited liability company in the business of designing, contracting for manufacture, importing, marketing, and selling contemporary and private label menswear. Id. ¶ 3. Branded's members are Gary Jacobs, the company's CEO, and his two sons, Jason Jacobs and Jeffrey Jacobs. Id. ¶¶ 3-4. At all times relevant here, Jason managed the company's finances and operations, while Jeffrey worked in product development, design, merchandising, and marketing. Id. ¶¶ 5-6.[2]

         B. The Sales Representative Agreement

         On June 18, 2013, Branded and Supreme entered into a written Sales Representative Agreement. Id. ¶ 11 Id. Ex. A (the "SRA"). In exchange for a 12% sales commission, Supreme agreed to serve as Branded's sales representative in 12 Midwestern states. Id. ¶ 9; SRA ¶¶ 1, 9(a). Branded also agreed to pay Supreme a $1, 000 monthly showroom fee "to cover costs associated with exhibiting [Branded's] line in [Supreme's] showroom." SRA ¶ 9(a).

         Pursuant to the contract, Supreme agreed to "use its best efforts to solicit orders for the sale of SXS's [i.e., Branded's] products by presenting SXS's products in a clear, understandable and professional manner ... to retailers within the Sales Representative's [i.e., Supreme's] territory." SRA ¶ 2. All purchase orders or sales orders were "subject to SXS's approval," and SXS would prepare and deliver all invoices to customers. Id. ¶ 3. Supreme agreed to "assist SXS in collecting unpaid invoices upon request by SXS" and "assist SXS in the resolution of any and all disputes, adjustments, and/or other differences between SXS and any customers." Id.

         Under the heading "NO AGENCY."[3] the SRA described the parties' relationship as follows: "Sales Representative is an independent contractor and under no circumstances will Sales Representative commit SXS to the delivery of SXS products and accessories, purport to legally bind SXS in any matter, and/or hold himself out as an employee or agent with legal authority to bind SXS." Id. ¶ 4. "In keeping with the foregoing, no Sales Representative may carry a business card that [is] exclusive to SXS." Id.

         Under the heading "RULES OF CONDUCT." the SRA provided that "[u]nder no circumstances shall the representative market, sell, distribute, solicit, or be involved in any way with another manufacturer of contemporary menswear and/or accessories, without the express written approval of SXS." Id. ¶ 5(d) (the "exclusivity provision").[4] The parties further agreed that "any failure to enforce the paragraphs [under this heading] is not to be considered a waiver of SXS's rights hereunder and representative hereby waives any right they may have to the defense of laches." Id. ¶ 5(e). Finally, the agreement provided that "[a]ny violation of the above provisions shall be grounds for immediate termination by SXS of the agreement." Id.

         Under the heading "REPORTING AND SALES FORECASTS," the SRA required Supreme to provide monthly sales-activity reports and copies of all correspondence between Supreme and customers. Id. ¶ 8.

         Under the heading "COMPEN SATION," the SRA provided that Supreme would receive 12% of the net sale amount of each order and $1, 000 per month in showroom fees. Id. ¶ 9(a).[5]The agreement further provided that Branded "shall have the option of accepting or rejecting any order or orders taken by the Sales Representative." SRA ¶ 9(c).

         Under the heading "GOVERNING LAW," the SRA provided that the agreement was "drafted under the laws of the state of New York, and the venue for any legal recourse shall take place under laws as written in New York." Id. ¶ 15.[6]

         Finally, under the heading "TERMS," the parties agreed that the SRA would "continue in force for one year, renewable for an additional one-year term by mutual agreement." SRA ¶ 17.

         C. The Parties' Course of Conduct Under the SRA

         Branded and Supreme worked together from June 18, 2013 through June 1, 2016. JSF ¶ 10. During this period, the parties did not always conform their conduct to the terms of the SRA. For instance, on one occasion, Branded allowed Supreme to work outside of the territory contemplated by the SRA. Id. ¶14. And Branded did not always observe the SRA's payment requirements: Branded sometimes made only partial commission payments, and sometimes (occasionally with Supreme's permission) paid commissions either early or late. Id. Branded also did not always pay the showroom fee on time. Id. Nevertheless, Branded was current on its showroom fees through October 2014, at which point Supreme ceased operating a showroom. Id. ¶¶ 18-19. The parties agree that the October 2014 invoice was the only invoice Branded paid while Supreme did not maintain a showroom. Id. ¶¶ 18-20.

         The parties also did not strictly observe the SRA's renewal provision. On June 17, 2014, when the SRA's initial one-year term expired, the parties never discussed the issue of renewal. Id. ¶ 15. Instead, they simply continued their business relationship. Id. Likewise, on June 17, 2015, after the first one-year renewal term expired, the parties again simply continued their business relationship without discussion, until Branded terminated it on June 1, 2016. Id. ¶ 16.

         The parties agree that throughout the course of their relationship, Supreme lacked the authority to sign contracts, hire employees, or grant customer markdowns on Branded's behalf. Id. ¶12; see also Def. Mem. at 6. Instead, Supreme took the lead in negotiating sales of Branded goods with customers, offering discounts that it would then submit to Branded for approval. JSF ¶ 12. Branded gave Supreme "quite a bit [of] room" in offering these discounts. Id. Accordingly, when Supreme wrote to request approval from Branded of the discounts it had offered, the requests read like foregone conclusions. See, e.g., Id. ¶ 27 ("Josh extended a 20% courtesy discount."); see also Id. ¶¶ 21-26. Branded represents, and Supreme does not dispute, that Branded regularly honored the prices negotiated by Supreme. Def. Mem. at 7 n.7 (citing Jacobs Aff. ¶ 6).

         D. Supreme's Representation of Gant

         Before hiring Supreme, Branded did little to no business in the Midwest. JSF ¶ 28. One of the first customers Supreme developed for Branded, beginning in 2013, was Trunk Club-a business offering retail customers the services of a personal shopper. Id. ¶ 29. By the end of 2015, Trunk Club had become Branded's largest customer. Id. ¶ 32.

         In late February or early March 2015, Supreme began conversations with Gant, another clothing designer and Trunk Club vendor. Id. ¶¶ 46, 51. Supreme did not notify Branded of these conversations. Id. ¶ 47. On May 1, 2015, Supreme entered into a written agreement with Gant providing that Supreme would represent Gant's menswear lines within the same territory covered by the SRA. Id. Ex. B at Sched. A.

         On May 12, 2015, Supreme emailed Trunk Club to announce that it had signed Gant. Id. ¶ 52. On May 18, 2015, Branded learned (from sources other than Supreme) that Gant had hired Supreme. Id. ¶ 53. The next day, Jeffrey Jacobs reached out to Muthart by text to inquire. Id. ¶55. Muthart confirmed that Supreme had taken on Gant as a client, to which Jeffrey replied "[congratulations." Id. ¶ 55. Jeffrey then added, "[d]on't tell [Gary and Jason] we spoke about it if you don't mind ©." Id. Muthart responded, "[g]onna be good for all of us," to which Jeffrey replied, "I think so." Id.

         Later that day, Muthart sent Branded's principals and its President, Jeff Block, an email advising them of the Gant representation and asking to set up a phone call. Id. ¶ 56. Shortly thereafter, Jeffrey once again contacted Muthart via text message:

Jeffrey: Thank you for the email Well done
[...]
So gary and jason are concerned about trunk club
Please give them some comfort
But I love the power move
Muthart: I would do nothing to hurt our business there
Jeffrey: It's great to be next to Gant with you and great for you
Muthart: We built that from the ground up and have way to [sic] much work into it
Jeffrey: Are you handling trunk club for them?
Muthart: Yes but in a different capacity. There's no concern. We'll pick up a lot of piggy back business here and it will be great for sxs to hang with Gant at an agency level
Jeffrey: I fully agree
Muthart: Please console your family please
Jeffrey: I will it's all good
[...]
If you take emotions out of it. It makes sense and I'm proud of you. I just hope you continue to build the trunk business with slate and not take dollars from us to Gant
Muthart: They don't have that capacity and that's not my style
Jeffrey: We love you and you are the backbone of ...

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