New England Biz Law Update
A jewelry manufacturer could sue the operator of a retail store chain over unauthorized sales of merchandise, a U.S. District Court judge in Rhode Island has ruled.
The defendant retailer argued that, in obtaining the merchandise from a number of co-defendants for resale in its stores, the defendant was a good-faith purchaser for value and the plaintiff manufacturer’s conversion claim must therefore be dismissed.
Chief Judge William E. Smith disagreed, noting that the plaintiff sent the defendant a letter on Oct. 18, 2013, stating unequivocally that the co-defendants had committed fraud in obtaining the jewelry.
“[A]s the title of the doctrine would suggest, it is incumbent upon a good faith purchaser for value to act in good faith,” Smith wrote. “The Court concludes that the October 18 letter was sufficient to place BJ’s on notice that the jewelry in question had been procured through fraud.”
The 25-page decision is Alex and Ani, LLC v. Elite Level Consulting, LLC, et al.
Providence, Rhode Island, attorneys Nicole J. Benjamin, Jeffrey K. Techentin and Joseph Avanzato represented the plaintiff. The retailer was defended by Providence lawyer Matthew Thomas Oliverio and New York attorneys Gerald Padian and Bradley M. Rank. Counsel for the co-defendants were William R. Grimm, Adam M. Ramos and David W. Zizik, all of Providence, and Joseph F. Hook of Middletown, Rhode Island.
VIP gift bags
Plaintiff Alex and Ani, LLC sells its merchandise at its company-owned stores as well as at boutiques owned by third parties. Before Alex and Ani will affiliate with a third-party-owned boutique, however, it employs a rigorous screening process to ensure that “jewelry is displayed in a manner that preserves [Alex and Ani’s] premiere-level brand.”
Defendant BJ’s Wholesale Club contacted the president and owner of co-defendants JJ&M Corp., Roxy Inc. and Genesis Sales Corp., in an attempt to procure Alex and Ani jewelry for resale at BJ’s. When the plaintiff rejected the application, the trio of JJ&M, Roxy and Genesis began exploring alternative means of securing Alex and Ani product.
Genesis agreed to pay co-defendants Travis Brody and Elite Level Consulting — or ELC — a commission for each piece of Alex and Ani jewelry that Brody was able to obtain. Brody then approached the plaintiff, claiming that ELC was working for the organizers of the Wellington Classic Fall Challenge, a prestigious dressage competition in Florida, in order to secure discounted merchandise that would be included in gift bags provided to patrons in VIP suites at the event.
After Brody assured the plaintiff that its product would be used for those promotional purposes only and would, in no event, be resold, the plaintiff agreed by contract to sell ELC 8,000 pieces of its jewelry at deeply discounted prices.
Several weeks later, Brody again contacted Alex and Ani, this time purporting to seek merchandise that could be given away as promotional gifts to elite guests at the Austin Film Festival. The plaintiff sold an additional 9,000 pieces to Brody and ELC.
Finally, in a third transaction, the plaintiff agreed to sell approximately 9,000 additional pieces to Brody and ELC, also purportedly for use in connection with the Austin Film Festival.
In total, Alex and Ani sold Brody and ELC some 26,668 pieces of its jewelry for approximately $250,000. The merchandise had a retail value of approximately $1 million.
In late September 2013, the plaintiff discovered that the merchandise that it had sold to Brody and ELC was being sold at discounted prices at BJ’s locations in Rhode Island and Massachusetts.
Despite representations from the plaintiff that the merchandise in question had been obtained through fraud, BJ’s declined to stop selling the items and received at least one additional shipment.
Conversion alleged
Co-defendants Brody and ELC argued that the plaintiff could not support a claim for conversion because Alex and Ani willingly sold the jewelry to Brody and ELC and no longer had title to it at the time of the alleged conversion.
“Even if the alleged conversion took place after Alex and Ani willingly sold the jewelry to Brody and ELC, Alex and Ani’s allegation that the sale was fraudulently induced is sufficient to allow the conversion claim to proceed because the contract pursuant to which the jewelry was sold was voidable at the time of the alleged conversion,” Smith wrote. “And, if the contract was induced by fraud and voidable, Alex and Ani had the right to possession of the property at the time of the alleged conversion.”
Defendant BJ’s moved for dismissal based on the fact that, after receiving the letter dated Oct. 18, 2013, BJ’s only ordered approximately $40,000 worth of product, leaving the plaintiff below the $75,000 threshold required for federal subject matter jurisdiction.
“This argument, while compelling, overlooks the fact that Alex and Ani has pled not only financial loss, but reputational harm as well,” Smith said. “Though the Amended Complaint does not put a dollar figure on the reputational harm allegedly resulting from the sale of Alex and Ani’s ‘distinctive fine-quality’ jewelry at BJ’s, it is conceivable that this harm, in addition to the monetary damages, would exceed $75,000.”
Alex and Ani, LLC — a Rhode Island-based manufacturer of what it calls “American-made, eco-friendly, spiritually uplifting, positive-energy jewelry” — could sue BJ’s Wholesale Club over allegedly unauthorized sales of merchandise, a federal judge has ruled in a “bewildering ballad of bungled bangle banditry.”
Alex and Ani claimed that a number of defendants conspired to obtain jewelry at heavily discounted prices, purportedly to be placed in promotional packages at high-profile events, including the Austin Film Festival and the Wellington Classic Fall Challenge, a prestigious dressage competition in Florida. In a helpful footnote for “those whose sporting interests tend more toward games with balls, bats, racquets and the like, and less toward dancing horses,” U.S. District Court Judge William E. Smith explained that dressage is a competitive equestrian sport in which horse and rider walk, trot and canter their way through a prescribed pattern of movements. “In other words, it’s ‘horse ballet,” he elucidated.
Despite assurances to Alex and Ani that its product would be used for promotional purposes only and would, in no event, be resold, it was soon discovered that merchandise had been conveyed to BJ’s for resale to the public.
Alex and Ani filed a complaint for conversion.
Claiming to be a good faith purchaser for value, BJ’s contended that the conversion claim must be dismissed.
Smith pointed out, however, that Alex and Ani sent BJ’s a copy of a demand letter on October 18, 2013, stating unequivocally Alex and Ani’s belief that the co-defendants had committed fraud in obtaining the jewelry. Nevertheless, three days later, BJ’s placed yet another order with one of those co-defendants for additional pieces.
“The Court concludes that the October 18 letter was sufficient to place BJ’s on notice that the jewelry in question had been procured through fraud,” the judge stated.
BJ’s went on to argue that the value of the single additional order that BJ’s placed after that date does not exceed the $75,000 threshold for federal jurisdiction.
“This argument, while compelling, overlooks the fact that Alex and Ani has pled not only financial loss, but reputational harm as well,” Smith responded. “Though the Amended Complaint does not put a dollar figure on the reputational harm allegedly resulting from the sale of Alex and Ani’s ‘distinctive fine-quality’ jewelry at BJ’s, it is conceivable that this harm, in addition to the monetary damages, would exceed $75,000.
