Opinion
602983/2005.
Decided September 19, 2008.
In this action, plaintiff United Apparel Sourcing, LLC sues defendant Garnietex International Corp., pursuant to Article 2 of the Uniform Commercial Code, for the outstanding unpaid balance of goods (i.e. women's apparel) sold by plaintiff to defendant. Plaintiff seeks summary judgment on its complaint, pursuant to CPLR 3212, asserting that there are no issues of fact for a jury to consider. In its cross motion, defendant seeks an order granting summary judgment on defendants' counterclaims asserted in its answer against plaintiff. For the reasons set forth herein, plaintiff's motion is denied, the complaint is dismissed, the counterclaims are severed, and defendant's cross motion is denied, with leave to renew, by motion.
Background
Plaintiff is a domestic company with its principal offices in New York City and is a representative of certain garment manufacturers in India. Defendant is a domestic company engaged in the business of importing and domestically manufacturing apparel for its retail customers. In late December 2004, defendant received an inquiry from its customer, Lane Bryant, regarding its ability to manufacture two summer styles of women's apparel (i.e. tunic tops and v-necks) to be sold in Lane Bryant's stores. In January 2005, defendant showed plaintiff a "sample" of the garments and asked if plaintiff would be able to make such garments at its factories in India. Upon the representation by plaintiff that it would be able to do so, defendant entered into purchase orders with Lane Bryant for 18,300 tunics at $15.75 per unit, and 6,600 v-necks at $13.75 per unit. In turn, defendant entered into purchase orders with plaintiff for 18,300 tunics at $11.75 (later raised to $12.00) per unit, and 6,600 v-necks at $7.25 per unit. Defendant's payment terms with plaintiff were 5 days ROG (Receipt of Goods).
The parties do not dispute that from June 6, 2005 through June 28, 2005, plaintiff delivered, via several shipments, 6,530 tunics and 6,600 v-necks, to a public warehouse in New Jersey designated by defendant, and defendant made partial payments of $19,942 for the tunics and $10,000 for the v-necks, for a sum of $29,942 (the Deposit). In its summary judgment motion, plaintiff asserts that the contract price for the garments sold and delivered to defendant is $126,210, and after deducting the Deposit, defendant owes plaintiff a payment balance of $96,286. Plaintiff argues that, because the garments were "accepted" by defendant pursuant to UCC § 2-606, and/or defendant did not "rightfully reject" the garments pursuant to UCC § 2-602, plaintiff is entitled to summary judgment as a matter of law, as there is no issue of fact for a jury to consider.
Although the number of tunics sold and delivered by plaintiff (based on its letter of August 5, 2005) was less than what was ordered, such number is not disputed by the parties.
In response, defendant contends, among other things, that the garments were delivered late due to plaintiff's manufacturing delays; that in an attempt to prevent Lane Bryant from cancelling the orders for late delivery, defendant and plaintiff agreed not to fully inspect the garments, but to forward them to Lane Bryant immediately; that the garments were later rejected by Lane Bryant as non-conforming due to quality defects, and defendant verbally informed plaintiff of such rejection promptly; that Lane Bryant returned the garments to defendant at defendant's expense, and instructed defendant to remove the Lane Bryant labels from the garments; and that defendant incurred costs and expenses in removing the labels and warehousing the returned garments, before reselling them to third parties at a substantial loss. Hence, in the cross motion, defendant argues that, under the applicable provisions of the UCC (as discussed more fully below), defendant is entitled to an order granting summary judgment dismissing the complaint, as well as granting the counterclaims against plaintiff based on its sale of non-conforming goods.
Discussion
In setting forth the standards for granting or denying a motion for summary judgment, pursuant to CPLR 3212, the Court of Appeals noted, in Alvarez v Prospect Hospital ( 68 NY2d 320, 324}, the following:
As we have stated frequently, the proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. Failure to make such prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers. Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary support in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action [internal citations omitted].
Following the above guidance, the courts have uniformly scrutinized motions for summary judgment, as well as the facts and circumstances of each case, to determine whether relief may be granted. Giandana v Providence Rest Nursing Home , 32 AD3d 126 , 148 (1st Dept 2006) (because entry of summary judgment "deprives the litigant of his day in court, it is considered a drastic remedy which should only be employed when there is no doubt as to the absence of triable issues"); Martin v Briggs, 235 AD2d 192, 196 (1st Dept 1997) (in considering a summary judgment motion, "evidence should be analyzed in the light most favorable to the party opposing the motion"). Conclusory allegations unsupported by competent evidence, however, are insufficient to defeat a summary judgment motion. Alvarez, supra, 68 NY2d at 324-325. Also, summary judgment is generally granted in favor of the movant if there are no material and triable issues of fact. Francis v Basic Metal, Inc., 144 AD2d 634 (2nd Dept 1988).
Plaintiff's Summary Judgment Motion
UCC § 2-606 defines a buyer's "acceptance" of goods. In relevant part, the statute provides that acceptance of goods occurs when the buyer (a) signifies to the seller that the goods are conforming after a "reasonable opportunity to inspect the goods" or that he will take them despite their non-conformity; (b) fails to make an "effective rejection" of the acceptance; or (c) "does any act inconsistent with the seller's ownership."In its motion, plaintiff argues that because the goods listed in its invoices were delivered by plaintiff and "received" by defendant, they were "accepted" by defendant. Motion, ¶ 30-31. Plaintiff also argues that defendant "not only retained the goods, despite their non-conformity, but Defendant admitted shipping them to Lane Bryant. Without doubt, the goods were duly accepted." Motion, ¶ 32-34.
Such arguments are not persuasive. First, a buyer's mere receipt of goods does not mean his "acceptance" of such goods, and plaintiff fails to cite any law in support of its position. Also, a buyer's "acceptance" of goods is subject to a "reasonable opportunity to inspect the goods," as provided in the statute. The following deposition testimony of Stephen Aronson, the Chief Executive Officer of defendant, indicated that defendant did not have a reasonable opportunity to inspect the goods.
Q:If the goods were non-conforming and you had a complaint, why would you ship them to Lane Bryant?
A:As I explained to you, we didn't have time to do our full inspection because the goods were so late and we found enough problems to go further in our inspection. We didn't have time to do that. When we spoke to Rick [plaintiff's co-owner who was present at the inspection] we asked him what he felt. Joel [defendant's pattern maker who was also at the inspection] and Rick both felt the garments looked okay and possibly could pass inspection at Lane Bryant. And we made a mutual decision at that point without going further in the inspection, delaying shipping and getting the order cancelled because of late delivery to ship the goods to Lane Bryant.
Aronson Deposition, p. 61-62.
Plaintiff does not refute the foregoing testimony. Indeed, it adopts the testimony and reprints same in its motion. Motion, ¶ 32. Plaintiff's alternative argument that defendant "accepted" the goods despite their non-conformity, however, is undermined by the testimony of its co-owner, Jatendar (Rick) Advaney, who testified that "[i]f [defendant's] buyer [would] not accept the goods, I would take the merchandise back." Advaney Deposition, at 156. Such testimony supports defendant's claim that plaintiff consented to defer any acceptance until the goods were accepted or rejected by defendant's buyer, Lane Bryant. Thus, despite plaintiff's argument to the contrary, defendant did not accept the goods pursuant to UCC § 2-606 (1) (a).
Defendant also did not accept the goods pursuant to § 2-606 (1) (b).This subsection expressly provides that the buyer accepts the goods if he fails to make an "effective rejection," "but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them." As discussed above, plaintiff does not dispute Aronson's testimony that defendant did not have a reasonable opportunity to inspect the goods before shipping them to Lane Bryant, due to plaintiff's delayed delivery. Further, whether a buyer's rejection of goods is "rightful" or "effective" is governed by § 2-602, which provides that "[r]ejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller." UCC § 2-602 (1). It is not disputed that Lane Bryant informed defendant in July that the garments failed inspection due to quality issues, and that defendant communicated same to plaintiff. Advaney Deposition, at 163 ("Sometime in July when I was requesting for the rest of the payments, Steve did mention that Lane Bryant is refusing the merchandise, due to inspection or quality control"). In addition to such verbal communication, which defendant asserts (and plaintiff does not dispute) occurred on or about July 14th, in a letter dated August 3, 2005, defendant reiterated to plaintiff that Lane Bryant had rejected the goods, and that defendant intended to seek damages against plaintiff due to the defective goods. A copy of the August 3 Letter is annexed as Exhibit B to the Motion. Based on the foregoing, and even assuming that the goods were "accepted" by defendant, this court finds that plaintiff was notified by defendant of its rejection of the goods within a reasonable time after delivery, and that such notice was communicated seasonably and effectively pursuant to § 2-602 (1).
Plaintiff also argues that defendant "accepted" the goods under § 2-606 (1) (c) by undertaking acts that were inconsistent with plaintiff's ownership interest in such goods. Specifically, plaintiff argues that after the goods were returned to defendant by Lane Bryant, defendant resold them to third parties, thus violating its statutory duties of holding such goods for a time sufficient to permit plaintiff's retrieval, as required by § 2-602 (2) (b). In support of such argument, plaintiff relies on its letter dated August 5, 2005, which was written in response to defendant's August 3 Letter, in which plaintiff stated, among other things, that "[i]f Lane Bryant is rejecting the shipment, then you can send the goods back to us or we can arrange for them to be picked up from your public warehouse." A copy of the August 5 Letter is annexed as Exhibit C to the Motion.
Section 2-602 (2)(b) provides that "if the buyer has before rejection taken physical possession of goods in which he does not have a security interest under [§ 2-711], he is under a duty after rejection to hold them with reasonable care . . . for a time sufficient to permit the seller to remove them. . . ."
Plaintiff's argument is without merit. UCC § 2-711 (3) provides that "[o]n rightful rejection . . . of acceptance a buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them. . . ." Here, it cannot be undisputed that the Deposit paid by defendant provided it with a security interest in the returned goods, and defendant could resell such goods to third parties under § 2-711 (3), so long as the sales are in a commercially reasonable manner and subject to the provisions of § 2-706. Fashion Shop LLC v Virtual Sales Group Corp., 525 F Supp 2d 436, 447 (SD NY 2007) (granting defendant buyer summary judgment dismissing the complaint and granting its counterclaims against plaintiff, where plaintiff sold non-conforming goods to defendant, who gave plaintiff a down payment, and defendant resold such goods to third parties pursuant to § 2-711 (3)).
Further, plaintiff does not dispute defendant's assertion that plaintiff had agreed to let defendant resell the goods at a discount. Advaney Deposition, at 164 ("Q: You agreed to let him sell it to somebody else? A: Based on minor discount of 50 cents or a dollar. Q: Did you ever try to sell the goods to someone else? A: No, because he wanted to sell it"). In such regard, it appears that the crux of plaintiff's complaint is that defendant did not succeed in reselling the non-conforming goods at a price that was satisfactory to plaintiff. Indeed, in the August 5 Letter, plaintiff complained to defendant that the low offers for the goods from third parties were "way below our discussions." It is also noteworthy that plaintiff failed to show or allege that the resales to third parties were not in a commercially reasonable manner. Fashion Shop, 525 F Supp 2d at 448 (upholding defendant's counterclaim against plaintiff seller because "[t]here is no evidence that [defendant] did not resell the [non-conforming] goods in a commercially reasonable manner").
Because plaintiff failed to establish that the goods were "accepted" by defendant under § 2-606 or that the goods were not "rightfully rejected" by defendant under § 2-602, its motion for summary judgment should be denied. Conversely, defendant's cross motion should be granted. In any event, because plaintiff has not refuted defendant's counterclaims that are based on non-conformity of goods, any grant of summary judgment in favor of plaintiff would be improper. Flick Lumber Co., Inc. v Breton Industries, Inc., 233 AD2d 779, 781 (3rd Dept 1996) (reversing lower court's grant of partial summary judgment in favor of plaintiff, because defendant "raised a significant issue regarding the nonconformity of the goods shipped to it by plaintiff which, if established, could significantly diminish or negate plaintiff's recovery . . .").
Defendant's Cross Motions
Defendant maintains that pursuant to its counterclaims, it is entitled to $43,507.15 in lost profits (which defendant claims is measured by the Lane Bryant contract price of $193,896.75, minus the re-sale price of the goods $54,121.60, minus $96,268.00 which is the balance of what defendant owed to plaintiff under their contract). Additionally, defendant maintains that under § 2-715, it is entitled to $22,485.17 for its expenses due to rejection of the goods ( see affidavit of Stephen Aronson attached to cross motion). Thus defendant seeks a total of $65,992.32, plus interest (the attorney's affirmation states that the total is $65,972.32).
Under § 2-715, a buyer is entitled to incidental and consequential damages resulting from a seller's breach. Incidental damages may include damages "reasonably incurred" by the buyer in the "inspection, receipt, transportation and care and custody of goods rightfully rejected." Consequential damages may include "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." The courts have held that a buyer may recover against a breaching seller both incidental and consequential damages, including lost profits. Hudson Feather Down Products, Inc. v Lancer Clothing Corp., 128 AD2d 674, 675 (2nd Dept 1987); Conservancy Holdings, Ltd. v Perma-Treat Corp., 126 AD2d 114 (3d Dept 1987).
Defendant has not met its burden to establish the amount owed on its counterclaims. Exhibit Q, the schedule entitled "Lane Bryant 2005 Returns" purports to show the amount of garments returned by Lane Bryant, as well as the receivables and expenditures related to defendant's resale of the garments. However, it appears that, among other things, the amount of returned garments shown in the schedule (11,021 or 11,660) does not match what was supposed to have been delivered to Lane Bryant (6,530 + 6,600 = 13,130), and the amount of receivables shown in the schedule when aggregated ($58,921.60) does not match the "resale price" of $54,121.60 stated in paragraph 65 of the cross motion.
Further, defendant maintains that it is entitled to lost profits because "United was aware the garments were being sold to Lane Bryant and therefore must conform with Lane Bryant's specifications." Plaintiff's argument, that it had no privity with Lane Bryant, does not address the issue. The issue under § 2-715 is whether the loss resulted 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." As plaintiff has not addressed whether lost profits are recoverable under § 2-715, and as defendant has not provided the court with case law supporting its contention that the loss here resulted from "general or particular requirements and needs of which the seller at the time of contracting had reason to know" merely because plaintiff knew the garments were made for Lane Bryant, the court denies the cross motion, with leave to renew, by motion. It is
ORDERED that plaintiff's motion for summary judgment in its favor is denied; and it is further
ORDERED that Clerk is directed to enter judgment in favor of defendant dismissing plaintiff's complaint, and sever defendant's counterclaims so that the action may continue on the counterclaims; and it is further
ORDERED that the defendant's cross motion is denied with leave to renew by motion; and it is further
ORDERED that prior to making such a motion, defendant is directed to arrange for a conference call with plaintiff and the court to discuss settlement of the balance of the action.
This constitutes the Decision and Order of the Court.