Family Fashions, Inc. v. Sterling Jewelers, Inc.

Background

Family Fashions, a California corporation, supplied custom jewelry to Sterling Jewelers, a Delaware corporation, under a series of agreements. The dispute concerned three alleged contract breaches: Sterling’s 2% deductions from invoice payments between March 2017 and August 22, 2017; Sterling’s failure to return jewelry display units after the business relationship ended; and Sterling’s alleged improper return of jewelry, including returns outside a claimed 60-day period and failures to track customer purchases and returns.

Family Fashions and Sterling had entered into a 2016 Vendor Buying Agreement requiring payment within 60 days and providing no early-payment discount. Sterling later sent a January 2017 letter announcing new discount terms and began taking a 2% discount for invoices paid within 30 days. Family Fashions objected. The parties later signed a 2017 agreement that allowed the 2% discount going forward.

Family Fashions had paid for 1,575 display units used in Sterling’s affiliate stores. After Sterling notified Family Fashions that it was ending their relationship, Sterling directed its affiliates to return the displays. Only 564 were returned, and many lacked sample jewelry. The parties also negotiated a 2017 “Clean Slate” Agreement concerning jewelry returns and disputed chargebacks. The court had previously dismissed Family Fashions’ fraud and New York General Business Law claims, leaving the contract claims for decision.

Summary-Judgment Standard

The court applied the summary-judgment standard, under which judgment is appropriate when there is no genuine dispute about a material fact and the moving party is entitled to judgment as a matter of law. The court viewed the evidence in the light most favorable to the party opposing each motion.

2% Payment Discounts

The court held that the 2016 Vendor Buying Agreement governed payments until the parties changed it. That agreement required payment within 60 days and did not permit an early-payment discount. Sterling’s January 2017 letter could not unilaterally modify the agreement because contract modification requires mutual agreement. Family Fashions did not formally accept the letter, did not sign it, and objected when Sterling began taking the discounts. Its later signing of the 2017 agreement established the discount only going forward.

The court therefore granted Family Fashions summary judgment on Sterling’s liability for improperly discounting payments from March 2017 through August 22, 2017. The court denied without prejudice Family Fashions’ motion concerning damages because its calculation included discounts taken after August 22, 2017, when the 2017 agreement allowed such discounts. The court found that the submitted information did not adequately isolate the amount improperly deducted during the relevant period.

Display Units

The court granted Sterling summary judgment on the display-unit claim. Agreements before 2016 discussed the cost of display units but did not state who owned them or require Sterling to return them. The 2016 and 2017 Master Supplier Manuals stated that property rights in newly provided display units transferred to Sterling, but the court found that the earlier agreements did not definitively resolve ownership.

The court then examined the parties’ conduct. Sterling had not historically returned display units, and there was no evidence that Family Fashions had requested their return before the relationship ended. The court viewed Sterling’s partial return of the units in 2018 as a gesture of goodwill rather than recognition of a contractual duty. The court concluded that Family Fashions had not established that it retained ownership or that Sterling was obligated to return the displays. The court also stated that Family Fashions’ damages calculations lacked a reliable basis because they did not account for deterioration of the displays and sample jewelry or the cost of returning them.

Jewelry Returns

The court granted Sterling summary judgment on the jewelry-return claims. It found that the 2017 Clean Slate Agreement resolved the parties’ earlier disputes and established the return process going forward. Under that agreement, Sterling could return all silver products for any reason and could return gold products for any reason, subject to a limitation for future gold-product returns. The court found that both sides confirmed the agreement and that Family Fashions waived disputes covered by its terms.

The court also rejected Family Fashions’ interpretation of the earlier contracts. The 2010 Fulfillment Agreement governed online products, or web products, and its return period applied to customer returns of those products. It did not control all returns, including in-store purchases or returns based on Sterling’s determination that jewelry was defective. Later agreements gave Sterling additional return rights, and none required Sterling to return jewelry to Family Fashions within a set period. Family Fashions did not provide evidence showing that the challenged returns fell outside the applicable contractual conditions.

The court further rejected Family Fashions’ claim that Sterling’s failure to return items within 60 days breached the 2010 Fulfillment Agreement. Applying that period to Sterling’s own processing and shipment of returned items would be impractical and inconsistent with a reasonable reading of the agreement. The court also found that Family Fashions provided no evidence supporting its claim that Sterling failed to track customer purchase and return information.

Finally, the court granted Sterling summary judgment on Family Fashions’ indemnification claim. The indemnification provision applied to third-party claims against Family Fashions and did not require Sterling to pay attorney’s fees or other losses in a lawsuit brought by Family Fashions against Sterling.

Disposition

The court granted in part and denied in part Family Fashions’ motion for partial summary judgment. It granted the motion on liability for Sterling’s improper payment discounts, denied without prejudice the motion concerning damages for those discounts, and denied the motion concerning the display units and jewelry returns. The court granted in part and denied in part Sterling’s motion for summary judgment: it granted the motion on the display-unit and jewelry-return claims and denied it on the improper-discount claim. The court directed the clerk to close the pending motions.