By  on December 12, 2005

NEW YORK — Bankrupt Adamson Apparel Inc. has filed a federal lawsuit against Saks Inc. alleging breach of contract for various forms of improper chargebacks.

The lawsuit said that the charges for late payments, offsets and improper discounts resulted in "tens of millions of dollars in ill-gotten revenue" for Saks, and that the retailer "used the offsets and discounts as a source of extra profit in their operations.'' The suit was filed Thursday in U.S. District Court in Birmingham, Ala., where the luxury retailer is based.

Adamson Apparel is seeking class-action status for all vendors selling goods to Saks and due payment from Dec. 8, 1999, until a judge issues class-action certification. The plaintiff also is seeking compensatory damages, restitution and court-related costs.

Saks Inc. officials did not return telephone calls seeking comment on the suit by press time.

Saks is under investigation by the Securities and Exchange Commission and the U.S. Attorney's Office in Manhattan after it undertook an internal probe on excessive allowances for markdowns on unsold goods. Saks' inquiry was subsequently expanded to include chargebacks, the practice of seeking payment from vendors for late deliveries, damaged merchandise and other logistical problems. The retailer already has been hauled into federal court in Manhattan in two separate lawsuits over excessive markdown allowances and chargebacks at its Saks Fifth Avenue division. The legal action filed by Onward Kashiyama on markdowns has been settled and the second by International Design Concepts is pending.

"Our investigation has determined that the practices alleged in the complaint are common among all vendors, particularly in the apparel and soft-goods areas," said attorney Mark D. Brutzkus, who represents Adamson Apparel.

The claims by Adamson Apparel involve goods shipped in 2002 and 2003 to Saks' department store group, including the Carson Pirie Scott and Parisian nameplates, Brutzkus said.

Saks in July sold the Proffitt's and MacRae's chains, its Southern department store group, to Belk Inc. for more than $620 million. The sale of the Carson Pirie Scott operation, the bulk of its northern department store group business, to Bon-Ton Stores Inc. for $1.185 billion is expected to close in the first fiscal quarter of 2006. Saks has decided to retain its Parisian operation.The lawsuit filed Thursday said Adamson sold apparel to Saks under the XOXO and Baby Phat trademarks in 2002 and 2003. The company filed for a voluntary Chapter 11 bankruptcy court petition in a Los Angeles bankruptcy court on Sept. 28, 2004. Brutzkus said Adamson is liquidating its assets.

Court documents said each purchase order represented a separate contract, and that the retailer agreed to purchase the goods at "agreed-upon prices." It also said the contracts/purchase orders were drafted exclusively by Saks and presented to all vendors on a "take-it-or-leave-it basis."

Essentially, the retailer took the so-called chargebacks and "offset the charges against monies owed to vendors for the goods" it accepted, the lawsuit said.

Court documents charged Saks with a "standard pattern and practice" of reviewing the goods for conformity with floor-ready requirements, assessing a charge or charges for nonconformity and then putting the product on the sales floor before the vendor had an opportunity to inspect the allegedly nonconforming merchandise. Along the same lines, the lawsuit charged that there was also a standard pattern and practice of failing to notify the vendor of the alleged nonconformities.

The contracts also provided for a specified discount if Saks paid for the goods on time. However, the lawsuit alleged that Saks typically made late payments on the goods it had accepted. Moreover, Saks' "standard practice was to take the timely payment discount even when paying after expiration of the specified payment due date," the court papers said.

The costs to return goods, even those that are refused or canceled, are charged to the vendor, the lawsuit said.

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