LAWSUIT
StudioCL Loses Court Case Against Chinese Manufacturer
After deliberating for one day, a jury ruled on March 25 that StudioCLmust pay a Chinese manufacturer more than $400,000 for money the Los Angeles apparel maker still owes the garment factory. StudioCL is also responsible for the plaintiff’s attorney fees, which could add another $400,000 to the tab in a trial that started March 11.
StudioCL said it would appeal the ruling.
In October 2011, Donshen Textile sued StudioCL in Los Angeles County Superior Court for $309,000 plus interest in unpaid bills due in early 2011 for clothing made under LinQ,StudioCL’s contemporary label.
Studio CL, owned by Carole Little and Leonard Rabinowitz, maintained it didn’t pay its latest bills because the apparel factory, based in Hong Kong, and a middleman, Andrew Stein of Savvy Sourcing, purposely undervalued the merchandise in documents presented to customs officials in Los Angeles. This meant the import duty paid was reduced by as much as 75 percent in some cases, even though StudioCL was paying the higher value, court documents said.
Four years ago, U.S. Customs and Border Protection launched “Operation Mirage” to deal with a wave of undervalued textiles coming in from China.
The merchandise was shipped landed duty paid (LDP) as opposed to free on board (FOB). Rabinowitz, who for years shipped his merchandise FOB, switched to LDP in 2010. But he said in court documents he was concerned there were risks in this shipping method. Consequently, all his confirmation orders had a clause that stipulated that “seller warranties that the subject goods conform to all U.S. laws governing textiles and apparel.”
StudioCL filed a cross-complaint in the case, maintaining that Donshen Textile, owned by John Chen, and Savvy Sourcing had been getting StudioCL merchandise through customs using false dollar amounts, which is illegal.
Rabinowitz said this went against assurances from Donshen Textile that everything was being done by the books.
But the jury disagreed. “The jury ruled for the plaintiffs on all counts,” said Paul Kurtzhall, one of the attorneys for Donshen Textile and Savvy Sourcing.
Attorney Betty Levine, also representing Donshen Textile and Savvy Sourcing, said StudioCL was using the FOB/LDP issue as a “red herring” to get out of paying its invoices. “Leonard Rabinowitz’s allegations were clearly a desperate attempt by a desperate man to avoid paying his bills,” she said after the court case was over.
In the apparel contract with Donshen Textile, Rabinowitz and Little personally guaranteed any monies owed the Hong Kong apparel factory. That means they cannot have their company declare bankruptcy to avoid paying the judgment.
Rabinowitz said the jury did not make a determination for the undervaluation of the garments and that Customs and Border Protection has an open investigation into the transactions.
“We were disappointed that the jury was unable to connect the dots,” Rabinowitz said. “We feel confident that justice will be had.”
