Atateks Foreign Trade, LTD. v. Private Label Sourcing, LLC and Second Skin, LLC

In 2002 Atateks Foreign Trade, Ltd., and Atateks Dis Ticaret A.S. (collectively, Atateks) (plaintiffs) began selling its manufactured clothing to Private Label Sourcing, LLC, and Second Skin, LLC (collectively, Private) (defendants). The business relationship between the parties was not documented in an overall contract. Instead, the parties used purchase orders. The parties’ business dealings included chargebacks, by which Private charged some of Private’s costs to Atateks. The chargebacks were a standard practice in the garment-manufacturing industry and in the parties’ business dealings. The purchase orders stated that Atateks assumed responsibility for all claims from Private due to shipment delays, quality, and workmanship of goods. Large chargebacks were negotiated and agreed to between the parties before Private charged Atateks. After November 2006, Atateks refused all chargebacks from Private. Atateks sued Private Label for breach of contract due to unpaid transactions, and Private Label countersued for breach of contract. The disputed chargebacks included charges for defective merchandise, improper packaging, new-store discounts, and freight. The new-store discount and freight chargebacks were both large. Private delayed issuing the new-store discount chargebacks for nine months. Atateks’s invoices specified that Private was responsible for freight charges. Private argued that Atateks’s refusal of the chargebacks was inconsistent with their past business practices and contrary to industry-wide practices.