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With v. Eisaku Noro & Co.

December 19, 2008

THE KNIT WITH, PLAINTIFF,
v.
EISAKU NORO & CO., LTD., KNITTING FEVER, INC., SION ELALOUF, DIANE ELALOUF, AND JAY OPPERMAN, DEFENDANTS.



The opinion of the court was delivered by: Buckwalter, S.J.

MEMORANDUM

Currently before the Court is the second federal action*fn1 brought by Plaintiff The Knit With ("The Knit"), against Defendants Knitting Fever, Inc., Sion Elalouf, Diane Elalouf and Jay Opperman (collecting the "Moving Defendants"). In addition, Plaintiffs have named Eisaku Noro & Co, Ltd. as a defendant in this action.

I. FACTUAL AND PROCEDURAL HISTORY

Plaintiff, The Knit With ("The Knit"), is a small, family owned and operated business, established in 1971, that engages in retail sales to consumers of specialty yarns and accessories, from its location at 8226 Germantown Avenue, Philadelphia, Pennsylvania. (Compl. ¶ 3.) Defendant Knitting Fever, Inc. ("KFI") is a New York corporation, existing since 1980, run by Sion Elalouf as the chief executive officer and either the sole or dominant KFI shareholder. (Id. ¶ 5.) Defendant Eisaku Noro & Co. Ltd. ("Noro") is a closely held corporation, organized under the laws of Japan, that manufactured the wool products at issue, which were ultimately imported and distributed to Plaintiff by Defendant KFI. (Id. ¶ 4.)

Beginning on August 20, 1997, KFI commercially supplied Plaintiff with three cashmere content Noro products: (1) Noro Amagi-sixteen market paks labeled as and represented to be spun of 40% lambswool, 30% cashmere and 30% silk; (2) Noro Cash Iroha-thirty-eight market paks labeled as and represented to be spun of 40% silk, 30% lambswool, 20% cashmere and 10% nylon; and (3) Noro Louts-labeled and represented as spun of 57% rayon, 23% nylon, 12% acrylic, and 8% cashmere. (Id. ¶¶ 14-15.) These Noro yarns had a value of approximately $4,000 and were shipped by KFI from its wholesale warehouse in New York to Plaintiff's retail store in Pennsylvania. (Id. ¶¶ 15-16.)

According to Plaintiff, among the many persons employed by Defendant KFI, only Defendants Sion and Diane Elalouf had access to documents concerning yarns imported and wholesaled by KFI. (Id. ¶¶ 17-18.) As such, they could prevent regular KFI employees from learning (a) the invoiced purchase values of goods imported and resold by KFI; (b) the true source of products imported and resold by KFI; and (c) the fiber content of goods imported and resold by KFI. (Id.) Plaintiff avers that, by August 20, 1997, Defendants Sion Elalouf, Diane Elalouf and Jay Opperman agreed to sell improperly labeled Noro cashmere yarn products to yarn retailers. (Id. ¶ 19.) In furtherance of that scheme, the Defendants caused the labeling of at least two imported Noro yarn products to be changed, adding the Knitting Fever logo to the label. (Id. ¶ 20.)

At the 2006 trade show for the handknitting yarn trade, rumors began to circulate as to whether a "designer" yarn, imported and distributed solely by KFI and labeled as spun with 12% cashmere, actually contained any cashmere. (Id. ¶ 21.) An expert fiber analysis of Debbie Bliss Cashmerino Chunky (another supposedly cashmere-blend yarn imported by KFI), conducted by K.D. Langley Fiber Services for the Cashmere and Camel Hair Manufacturers' Institute ("CCHMI"), disclosed a zero cashmere content in that product. (Id. ¶ 21.)

On July 6, 2006, during a purchasing meeting, "a rumor arrived" at Plaintiff's place of business that a designer yarn, identified only as being labeled with a fiber content of 55% merino wool, 33% microfiber, and 12% cashmere, was found to contain no cashmere. (Id. ¶ 22.) Upon hearing this rumor, Plaintiff (1) recognized the rumored fiber contact to exactly match the fiber content of two Cashmerino yarns sourced from KFI and inventoried by Plaintiff; (2) immediately, upon advice of counsel, removed from sale the two suspect Cashmerino yarns as either defectively manufactured or improperly labeled; (3) identified seven inventoried yarns labeled as spun of cashmere--with five being sourced from KFI; (4) removed from sale a third Cashmerino product, marketed under the KFI brand name, which matched the exact composition of the yarn rumored to have no cashmere; and (5) before the close of business, removed from sale two more yarns--Amagi and Cash Iroha-marketed under the Noro brandname, also labeled as spun with cashmere and supplied by KFI. (Id. ¶ 23.) The following business day, Plaintiff estimated the retail value of the five KFI-sourced yarns removed from sale as approaching $20,000, and decided not to sell these yarns until the fiber content could either by vouched for by the supplier or verified by testing. (Id. ¶ 24.)

On July 9, 2006, Plaintiff requested that KFI and its other vendors of wool yarns furnish a Wool Products Guaranty of Compliance, verifying that their wool yarns complied with labeling laws. (Id. ¶ 25.) Only KFI neither acknowledged nor fulfilled this request. (Id.) Three days later, Plaintiff sent samples of the five yarns to K.D. Langley for fiber content analysis--including the two Noro products, Amagi and Cash Iroha. (Id. ¶ 26.) The testing revealed that the three Cashmerino yarns did not contain cashmere, but that the two Noro yarns had an indeterminate amount of cashmere. (Id.)

Defendant KFI released a three page letter, dated July 20, 2006, which attached four reports of fiber analyses purportedly performed on Debbie Bliss Cashmerino Aran. (Id. ¶ 27.) The letter questioned the reliability of the fiber analyses performed by K.D. Langley, and offered to provide retailers whatever information may be required to satisfy concerns about the cashmere content of yarns it supplied commercially. (Id.) In response, Plaintiff again requested a Guaranty of Compliance. (Id. ¶ 28.) Defendant KFI instead offered to furnish a general letter at some uncertain future date. (Id.) Having obtained no assurance from KFI, Plaintiff employed CNR-ISMAC, in Biella, Italy, to perform secondary testing of the Noro yarns should it become necessary. (Id. ¶ 29.) Shortly thereafter, Plaintiff identified a third Noro product, Lotus, as spun with a minor quantity of cashmere as its fifth constituent fiber. (Id. ¶ 30.) Plaintiff immediately removed this product from sale. (Id.)

Ultimately, the fiber content analyses of the Noro yarns commissioned by Plaintiff revealed the following:

Langley Analysis

1. Amagi is spun of 17.5% cashmere, but labeled to contain 30% cashmere.

2. Cash Iroha is spun of 12.8% cashmere, but labeled to ...


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