California Apparel News

Los Angeles fast-fashion retailer Forever 21 is suing several jobbers and discount apparel stores in a case that could have resounding effects on the off-price merchandise market.

In a federal case filed in U.S. District Court, Forever 21 is trying to recuperate hundreds of thousands of dollars from David’s Place Off Price Clothing Co., Seven Lions, Damo Textile and Y.M.I. Jeanswear for selling merchandise that had been ordered by Forever 21 and then canceled by Forever 21 after the goods were made by apparel factories. All four companies are located in Los Angeles.

Also named in the lawsuit is Gabriel Brothers, a West Virginia corporation.

Forever 21 maintains that it did not authorize the sale of these goods even though the labels had been cut out of the garments to hide their origin, court papers said.

After settlement meetings and a request for summary judgment, which was denied, the case is now headed to federal court in Los Angeles on May 28.

According to court papers, Forever 21 sent an investigator to a Hi Fashion Inc. store on Dec. 14, 2010, where a denim cutoff skirt was bought bearing a “forever twenty one”–mark waist button and an interior waist tag that had “21” and a “flower design” mark owned by Forever 21. The denim skirt had been sold to Hi Fashion by David’s Place Off Price Clothing.

The same investigator sent to Hi Fashion also purchased a peach-colored strapless dress that had two transparent interior rubber hanging straps that had the “XXI Forever” mark on them and an interior tag with an “xxi” mark that had been marked through.

From invoices acquired by Forever 21, it was determined that Seven Lions sold the dress and more than 900 items to Hi Fashion.

Hi Fashion is a Los Angeles retailer with eight stores in the region. Many of its goods sell for as little as $2.99.

David’s Place, in court papers, said that when it purchases branded clothing, it removes all marks before it places sample garments in its showroom or they are shipped to customers. The company’s sales representative, Cassandra Grundy, said in court papers that when she offers the garments for sale via emails, she informs customers that the merchandise was previous destined for Forever 21 but expressly states in the emails that the labels will be removed.

David’s Place said it makes sure that its off-price customers know they will not be buying or receiving Forever 21–branded garments.

That’s why David’s Place was stunned to be sued by Forever 21, which filed the lawsuit in February 2010. “We were surprised when we got this lawsuit because we thought we did nothing wrong,” said Ran Vaknin, vice president of sales for David’s Place, which is owned by David Vered, who is also the owner of juniors denim company Y.M.I. Jeanswear, which shares a warehouse with David’s Place. “We remove the labels to remove any identification that it was from Forever 21.”

Forever 21 attorney Christopher Pham said the retailer has very vendor-friendly terms and conditions that are contractually binding on the two parties, meaning that if the vendors comply with certain terms dictated and agreed to by the vendors, they can resell Forever 21 goods and items that were ordered and then canceled.

“Vendors can easily resell their items if they obtain authorization through very vendor-friendly terms and conditions. That is the problem with the defendants. They obtained no such authorizations,” Pham said.

The defendants, who are being represented by attorney Mark Brutzkus, said in court papers that Forever 21 requires its vendors to adhere to the provisions on the back of each purchase order. Those provisions stipulate that vendors must seek express written authorization from Forever 21 to resell any goods that had been intended to be sold to Forever 21.

But Forever 21 could not prove that any vendor was aware of Forever 21’s alleged policy requirements to resell canceled goods, let alone signed any such documents, the defendants said in court papers.

The fast-fashion company, whose sales in fiscal 2010 totaled $2.6 billion, said in court papers it was seeking no less than $1 million for trademark infringement and no less than $1 million for false designation of origin and unfair competition. In addition, it wants at least $1 million for trademark dilution.

David’s Place and other defendants argue that when Forever 21 cancels an order for goods that have been branded with its trademarks, it requires its vendors to remove the marks and other information identifying the goods as Forever 21. The defendants claim that Forever 21 does not own any right to the actual canceled goods because they hadn’t paid for them.

This is not the first time Forever 21 has sued an off-price apparel store for trademark infringement. In 2012, the fast-fashion retailer filed court papers against National Stores for trademark infringement. That case is still pending.

And it sued Top Top Clothing Inc., obtaining in 2011 a permanent injunction prohibiting Top Top from selling any Forever 21 merchandise unless it had permission from Forever 21.

Forever 21 is famous for the number of orders it cancels when it sees a certain style is not performing. “Every day you get opportunities to get big orders canceled by Forever 21,” David’s Place’s Vaknin said. “There is stuff flowing all over Los Angeles and New York.”

UPDATE AND CLARIFICATION:

Forever 21 Inc. has dismissed Damo Textile in its case against several jobbers and off price retailers over the resale of cancelled orders for Forever 21 merchandise.

A pretrial conference in the case, filed in U.S. District Court in Los Angeles, is scheduled for June 10 and a settlement conference is also set for June 7.