It’s a case of a little guy battling the big guy over samples.
SPI Manufacturing LLC, a small supplier of private label sportswear, is suing Pacific Sunwear of California over alleged misappropriated samples and a resulting loss of business, in a $3.5 million lawsuit that includes punitive damages.
The original complaint was filed about a year ago in the Superior Court of the State of California, Orange County. The $1.4 billion Pacific Sunwear tried to get the case thrown out, but a judge ruled last month that SPI stated its claims as required by law and that there is sufficient reason to move forward with the discovery phase.
SPI is an eight-year-old Los Angeles-based firm that is still open for business but not currently producing for retailers. In the past, it has worked with specialty chains and mass merchants, including Pacific Sunwear for about four years.
The relationship with Pacific Sunwear didn’t sour until mid-2005, after the retailer’s management changed, according to SPI. The sportswear company also claims that in May 2005 Pacific Sunwear executives met with SPI in Hong Kong, told SPI that they liked their designs, requested more samples and gave the impression they would work with SPI.
SPI accuses Pacific Sunwear of never returning about 140 to 150 samples that cost roughly $200,000 to produce, deceptively holding out the possibility of orders that potentially could have generated $10 million in retail sales and $1.8 million in profits for SPI and preventing SPI from potentially providing the samples to other retailers.
SPI also claims that Pacific Sunwear went ahead on its own to produce garments from the samples, after misleading SPI into thinking it would produce the garments. Some purchase orders were issued but, according to SPI, were impossible to fill due to a series of changes in the orders involving styles, amounts and delivery dates, that had been requested by Pacific Sunwear. “Ultimately, there was no way for SPI to deliver the orders in the way they wanted, so they canceled the orders,” said Jeffrey S. Wruble, attorney for SPI.
Before the lawsuit, all SPI wanted was for the samples to be returned and some costs to be covered, SPI said. But on a business trip to Cambodia about a year ago, an SPI official discovered that Pacific Sunwear was manufacturing garments that looked suspiciously like SPI samples.
According to Wruble, the judge will ask each side to produce evidence to support their positions, take depositions and set a trial date. It’s possible the case will get settled to avoid a trial, but there have been no serious discussions about settling, Wruble said.
Gar Jackson, director of investor relations for Pacific Sunwear, said his company does not comment on pending litigation.
Disputes over samples between retailers and manufacturers are not unusual in the garment business, but it’s rare when a small manufacturer takes a big retailer to court.