California Apparel News

A bankrupt apparel maker has sued Saks Inc. in federal court, seeking hundreds of thousands of dollars for alleged unauthorized chargebacks and breach of contract.

Adamson Apparel Inc., a New York manufacturer that filed for Chapter 11 bankruptcy protection on Sept. 28, 2004, sold apparel to Saks Inc. in 2002 and 2003 under the XOXO and Baby Phat labels.

At the time, Saks operated 57 Saks Fifth Avenue stores, 52 Off 5th stores and more than 250 department stores, including Parisian, Proffitt’s, McRae’s, Younkers, Herberger’s, Carson Pirie Scott, Bergner’s and Boston Stores. The XOXO and Baby Phat clothing was sold in the more-moderateprice stores, such as Proffitt’s and Carson Pirie Scott.

Adamson Apparel, which is liquidating its assets after it converted its bankruptcy to Chapter 7, is seeking class-action status for the lawsuit filed Dec. 8 in U.S. District Court in Birmingham, Ala., where Saks is headquartered. If class-action status is granted, other apparel manufacturers who delivered to Saks from Dec. 8, 1999, until a judge issues a classaction certification can join the lawsuit seeking money for illegal chargebacks. Chargebacks are the costly penalties retailers impose on manufacturers for a number of things, such as late delivery, improper hang tags and failure to adhere to shipping regulations.

“The lawyers have filed this lawsuit as a vehicle to try to change the way retailers deal with their vendors,” said attorney Mark Brutzkus, whose law firm, Ezra Brutzkus Gubner LLP in Encino, Calif., is one of six law firms that filed the lawsuit.

Representatives for Saks Inc. declined to comment on pending litigation.

The Adamson Apparel case is similar to another chargeback lawsuit filed by Ezra Brutzkus Gubner and other law firms two years ago on behalf of Los Angeles designer Carole Little and Chorus Line Corp. against Federated Department Stores Inc. The lawsuit, filed in New York, also is seeking hundreds of thousands of dollars in damages for allegedly unwarranted chargebacks. The Carole Little lawsuit is still awaiting a decision by the court on whether it will be certified as a class-action case.

In the Adamson Apparel case, the New York company maintains that Saks took chargebacks for things such as goods not being floor-ready without letting the manufacturer inspect the goods or remedy the situation.

Adamson also maintains in its lawsuit that Saks was supposed to be given a discount on merchandise if the department-store chain paid its invoice on time. But the retailer paid late and still took the discount, the lawsuit said.

“[The] defendant had a standard practice of keeping the benefits of the improper discounts even if it returned the goods,” the lawsuit said.

Saks Fifth Avenue has been under the microscope recently for various practices related to its vendors. An internal investigation by the retailer found that more than $20 million in illegal markdown money was taken between 1999 and 2003. That led to three senior executives being forced to resign. Markdown money is the funds retailers charge vendors for products that they say are not selling well and have to be discounted so consumers will purchase them.

The U.S. attorney’s office and the Securities and Exchange Commission are investigating Saks for allegedly taking illegal chargebacks and markdowns. —Deborah Belgum