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Judge Turns Down Saks In Chargeback Lawsuit

A Manhattan federal district court judge has rejected a request by Saks Inc. to dismiss most of the claims against it in a lawsuit filed two years ago by International Design Concepts Inc. over allegedly improper vendor allowances.

NEW YORK — A Manhattan federal district court judge has rejected a request by Saks Inc. to dismiss most of the claims against it in a lawsuit filed two years ago by International Design Concepts Inc. over allegedly improper vendor allowances.

The decision by Judge Kevin Castel was handed down on Tuesday.

“We’re very pleased with his decision. Our case goes forward and we look forward to trying this case before a jury in a few months,” said Donald Kreindler, an attorney at Phillips Nizer, which represents IDC.

A Saks spokeswoman declined comment.

Before the court this summer will be claims of breach of contract and fraud, and the request for damages.

IDC filed its lawsuit against Saks Inc. and Saks Fifth Avenue in May of 2005, alleging claims for breach of contract and fraud in connection with its chargeback and vendor allowance practices. IDC is the assignee of assets of Apparel Group International, the licensee of Oscar de la Renta for the “Oscar de la Renta” trademarks that AGI used in connection with the women’s sportswear bridge collection at SFA. AGI is no longer in operation, according to court papers filed in the 2005 lawsuit, which alleged that it was “forced out of business by the actions of the Saks defendants.” Essentially, AGI defaulted on royalty payments required under its licensing agreements with Oscar, which canceled the license.

Specifically, the allegations are that Saks, representing 60 percent of AGI’s total sales, received invoices from AGI from 1996 to 2003 totaling $90.2 million for the purchase of licensed products, which Saks accepted. The lawsuit alleged the chargebacks issued and deductions taken by Saks defendants against AGI invoices for claimed vendor allowances totaled $31.3 million, representing nearly 35 percent of AGI’s sales to Saks.

In a related matter to the federal case, Judge Castel granted Oscar its motion to intervene in the federal action. It had filed a state court action against IDC and others seeking about $1 million in royalties owed to it by AGI. The intervention allows Oscar to collect its $1 million from any damages collected by IDC, provided IDC wins in its action against Saks and there is a determination that Oscar is entitled to collect the $1 million.

This story first appeared in the March 29, 2007 issue of WWD.  Subscribe Today.

In March 2005, Saks revealed an internal investigation involving “improper collections of vendor markdown allowances” and said it would pay back, or otherwise compensate, unnamed resources in an amount to total $21.5 million. In addition, it restated earnings from fiscal 1999 to the third quarter of fiscal 2004 as a result of the repayments and accounting errors on leased departments. It was later learned the improper collections were from SFA’s bridge department.

The disclosures also resulted in probes by the Securities and Exchange Commission and the U.S. Attorney’s Office in Manhattan. Those probes are still ongoing, legal sources said.