Legal memorandum

2010 WL 5298113 United States District Court,

S.D. New York.

FEDERATED RETAIL HOLDINGS, INC., Macy's Department Stores, Inc., Macys.com, Inc., and Macy's

Merchandising Group, Inc., Plaintiffs, v.

SANIDOWN, INC., Defendant. No. 06 Civ. 6119(LTS)(THK).

| Dec. 23, 2010.

Opinion and Order

LAURA TAYLOR SWAIN, District Judge.

Plaintiffs Federated Retail Holdings, Inc., Macy's Department Stores, Inc., Macys.com, Inc., and Macy's Merchandising Group, Inc. (collectively “Macy's” or “Plaintiffs”) brought this action against Defendant Sanidown, Inc. (“Defendant” or “Sanidown”), asserting claims under the New York Uniform Commercial Code (“N.Y.U.C.C.”) ..., as well as claims for fraud in the inducement and unjust enrichment, all arising from the parties' dealings with respect to down and feather bedding to be sold by Plaintiffs in the spring and fall of 2006. Defendant interposed counterclaims pursuant to the N.Y. U.C.C.

[...]

Findings of Fact

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For approximately fifteen years, Defendant supplied Plaintiffs with down- and feather-filled products, including pillows, comforters, and featherbeds, which Plaintiffs resold in their retail stores. The parties ordinarily contracted for the supply of these goods, according to specifications agreed upon by the parties and in quantities determined by Plaintiffs, for each of two seasons, spring and fall, each year. These contracts were memorialized in “projections” reflecting the price and anticipated number of goods that were to be supplied by Defendant each month during each season's “six-month delivery cycle.”

Over the course of each contract period, Plaintiffs periodically ordered specific quantities of goods that roughly corresponded to the quantities forecast in the projection

document, and Defendant then manufactured and delivered the ordered goods to Plaintiffs. In a given season, Plaintiffs sold that season's products along with any products left over from the prior season. [...]

[...]

The parties entered into separate contracts for the Spring 2006 and Fall 2006 seasons. In August 2005, Plaintiffs issued projections for the Spring 2006 contract [...]. In February 2006, Plaintiffs issued projections for the Fall 2006 contract [...]. [...]

[...]

[In April 2006, Plaintiffs learned that California Bureau of Home Furnishings and Thermal Insulation (“CBHF”), which licenses and regulates the bedding industry in California, found that one model of Defendant’s products was mislabeled because it contained less than the percentage of down stated on the label. In May 2006, Plaintiffs learned the American Down and Feather Council (“ADFC”), a trade organization, had tested the contents of some of Defendant's products and found them to violate industry labeling standards in that their filling content differed from that specified on their labels.]

[...]

In May 2006, Plaintiffs commissioned tests by the International Down and Feather Testing Laboratory & Institute (“IDFL”) of several products supplied by Defendant. In June 2006, Plaintiffs received the results of these additional content tests, which revealed that a number of the products did not contain the amount or type of down required by the specifications, and identified failures to comply with industry standards that were not expressly incorporated into the parties' agreements. [...] Some time after June 15, 2006, Leonard Marcus, the President of Macy's Merchandising Group, decided to cancel Plaintiffs' contracts with Defendant on the basis of the results of the earlier tests relating to Matterhorn Comforters, the new tests relating to other products, and Defendant's failure to alert Plaintiffs of the adverse Matterhorn Comforter ADFC test results. [Marissa Nono, Plaintiffs' Senior Products Manager in the area of “utility” bedding,] conveyed Marcus's decision to Frenkel in a telephone conversation on June 21, 2006, and told Frenkel that all Sanidown goods in Macy's possession would be returned to Sanidown.

[...] [Based on the evidence presented the Court finds that] Defendant did indeed ship a substantial number of items pursuant to the Spring 2006 contract that contained the

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incorrect type of fill material, and that were therefore non-conforming.

Plaintiffs presented no results pertaining to tests performed on any Fall 2006 goods, and no evidence of any non-conforming Fall 2006 goods was presented at trial. In addition, the Court finds that no evidence was proffered tending to show that the Fall 2006 goods that had been shipped prior to the cancellation of the contracts could not have been separated from the rejected Spring 2006 goods.

No further shipments or payments were made after June 21, 2006. [...]

Following Plaintiffs' cancellation of the contracts and their return of the merchandise, Defendant was left in possession of goods that were dirty and “not resalable.” Defendant was also left with components it had already purchased for the manufacture of further goods pursuant to the Fall 2006 contract. [...].

[...] Conclusions of Law

Plaintiffs' Unjust Enrichment Claim

There is no dispute as to the existence, validity or enforceability of the underlying contracts. “The existence of a valid and enforceable contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter .... The causes of action for ... unjust enrichment ... are ... quasi-contract claims and are therefore not viable ....” [citation omitted]. Therefore, Plaintiffs' unjust enrichment claim fails.

Plaintiffs' Fraudulent Inducement Claim

Plaintiffs have also asserted a claim, which they do not press in their post-trial submissions, that Defendant fraudulently induced them to enter into the Spring 2006 contract by misrepresenting the quality and content of its products. Under New York law, in order to maintain a cause of action for fraudulent inducement, the claimant must allege fraud that [...] occurr[ed] before the contract came into existence, and that leads the defrauded party to enter into the contract, rather than merely fraudulent non-performance of the contract. [citation omitted]. Plaintiffs presented no evidence of any representation by Defendant occurring prior to the formation of the Spring 2006 contract, much less that Defendant knew any such representation to be false. [citation omitted]. Plaintiffs' fraudulent inducement claim is therefore dismissed.

Plaintiffs' N.Y. U.C.C. Claims for Damages for Spring 2006 Contract Breach

A buyer who accepts goods later discovered to be defective or otherwise in breach of the relevant contract may, under N.Y. U.C.C. Article 2, [...] seek damages for the loss resulting from Defendant's breach, [citation omitted]. [...]

[...]

N.Y. U.C.C. § 2–711(1) provides for a [...] buyer's recovery of “so much of the price as has been paid.” [citation omitted]. Plaintiffs are therefore entitled to recover the price paid for the goods that they removed from their stores and returned to Defendant as a result of Defendant's breach of the Spring 2006 contract. Plaintiffs obviously may not recover the amount of unpaid invoices for the Spring 2006 program, and that amount will therefore be subtracted from the price of the returned goods. Therefore, Plaintiffs' purchase price damages are $545,006.72 ($804,761.71 originally invoiced for Spring 2006 merchandise returned to Defendant, minus $259,754.99 in unpaid invoices for Spring 2006). In addition to recovering the cost of purchasing the returned Spring 2006 goods, Plaintiffs seek to recover the profits they would have realized on those goods had they not been returned to Defendant. A buyer who has accepted the goods [and is entitled to monetary damages] may “recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable,” [citation omitted], and “[i]n a proper case any incidental and consequential damages [...] may also be recovered.” [citation omitted]. Consequential damages include lost profits, [citation omitted], as well as “any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise,” [citation omitted]. Defendant was well aware that Plaintiffs resold the goods it supplied and thus had reason to know of Plaintiffs' “requirements and needs.” [...] [...] Plaintiffs lost profits of $613,000 for July 2006, the only month remaining in the Spring 2006 sales period, as a result of the removal of merchandise on June 26, 2006, and are therefore entitled to recover that sum pursuant to N.Y. U.C.C. § 2–715. [...] Therefore, Plaintiffs are entitled to a total of $1,158,006.72 in damages on the Spring 2006 contract (purchase price recovery of $545,006.72 plus lost profits of $613,000).

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Defendant's N.Y. U.C.C. Counterclaims Fall 2006 Contract

As the Court explained in [an earlier] Order, Plaintiffs improperly cancelled the entire Fall 2006 contract, failing to [comply with a legal requirement to give Sanidown an opportunity to assure Plaintiffs that it would be able to fulfill the Fall 2006 contract]. Defendant seeks damages for breach of the Fall 2006 contract. [...] Plaintiffs' termination of the Fall 2006 contract clearly demonstrated their intention not to perform, and therefore constituted a total breach of that contract.

In light of Plaintiffs' breach, Defendant is entitled to recover “the difference between the market price at the time and place for tender and the unpaid [Fall 2006] contract price ... less expenses saved.” [citation omitted] [...] [...]

Defendant is also entitled to recover the costs reasonably incurred in connection with the manufacture of the first installment of Fall 2006 goods. [citation omitted][...] Therefore, Defendant is entitled to recover the contract price as to the goods manufactured and delivered to Plaintiffs as the first installment of the Fall 2006 contract in the sum of $862,000, plus 23.08 percent profits as to the remaining $7,570,075, for an additional $1,747,173.31, totaling $2,609,173.31 in damages relating to the Fall 2006 contract. [Other issues omitted]

Conclusion

For the foregoing reasons, Plaintiffs have prevailed on their N.Y. U.C.C. claims relating to the Spring 2006 contract and are entitled to recover a total of $1,709,186.58, Defendant has prevailed on its N.Y. U.C.C. claims relating to the Fall 2006 contract and certain [other claims] and is entitled to recover a total of $4,102,004.71. All other claims are dismissed. The Clerk of Court is respectfully requested to enter judgment awarding $2,392,818.13 to Defendant, each party to bear its own costs.

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