USA LLC v. SPSC LLC SARAH CARSON (2025)

This dispute arises from an agreement between plaintiff, Springtex USA, LLC, and defendants, SPSC Design LLC and its chief executive officer, Sarah Carson. In December 2018, the parties entered into an agreement under which SPSC agreed to use plaintiff as the exclusive manufacturer for its clothing lines. (NYSCEF No. 3 at 1.) On the same day, Carson signed an agreement personally guaranteeing SPSC's payments under the exclusivity agreement. (NYSCEF No. 4 at 1.)

Plaintiff claims that defendants manufactured products with other companies and failed to pay certain invoices. (Id. at 4-6.) Plaintiff thus brought this breach-of-contract action against defendants. (NYSCEF No. 2 at 1.) Defendants answered plaintiff's complaint and asserted numerous counterclaims against defendants. (NYSCEF No. 30 at 20-31.) Plaintiff then moved to dismiss defendants' first and second counterclaims for conversion and theft of goods, respectively (motion sequence 001). Defendants also moved, in part, to amend those counterclaims (motion sequence 002). This court granted plaintiff's motion and denied the branch of defendants' motion to amend those counterclaims. (See Springtex USA, LLC v SPSC Design, LLC, 2024 NY Slip Op 50915[U], *7 [Sup Ct, NY County 2024].)

On this motion, defendants move for leave to reargue the motion to dismiss. The motion is denied.

DISCUSSION

A motion for reargument "shall be based upon matters of law or fact allegedly overlooked or misapprehended by the court in determining the prior motion, but shall not include any matters of fact not offered on the prior motion." (CPLR 2221 [d].) A motion for reargument is an improper vehicle for advancing new arguments (see388 Realty Owner LLC v Amtrust Intl. Underwriters Ltd., 192 AD3d 449, 499 [1st Dept 2021]) or raising new questions of law or fact (seeLevi v Utica First Ins. Co., 12 AD3d 256, 258 [1st Dept 2004]).

I. Whether This Court Properly Dismissed Defendants' Second Counterclaim as Duplicative of Defendants' First Counterclaim.

Defendants asserted their first counterclaim for conversion patterns and designs and their second counterclaim for "theft of goods." This court dismissed the conversion counterclaim, holding that defendants had not shown that plaintiff deprived defendants of access to their designs or that defendants owned the physical goods at issue. (Springtex USA, 2024 NY Slip Op 50915[U] at *1-2.) This court also dismissed the theft-of-goods counterclaim as duplicative of defendants' first counterclaim for conversion. (Id. at *2.)

Defendants argue that this court erred in treating the first counterclaim as one for conversion of both designs and goods. According to defendants, these conversion claims are distinct, and this court's failure to treat them as such affected this court's disposition on the motion. (NYSCEF No. 45 at 2.) This court disagrees.

The court concludes that treating the counterclaims as distinct would not have altered the outcome on the motion to dismiss. The court reached the merits on both claims. When it analyzed the first counterclaim, this court addressed both the alleged conversion of designs and the alleged conversion of goods. And in its analysis, this court did not rely on facts unique to the designs-conversion claim. Accordingly, this branch of the motion to reargue is denied.

II. Whether This Court Properly Dismissed the Branch of Defendants' Counterclaim for Conversion of Patterns and Designs

This court dismissed the portion of defendants' claim alleging conversion of SPSC's designs. This court held that defendants had not clarified "what occurs with the paper versions of the designs or whether these paper patterns are still in SPSC Design's possession." (Springtex USA, 2024 NY Slip Op 50915[U] at *2). For that reason, this court held that defendants "insufficiently alleged or represented that plaintiff denied them access to their assertedly proprietary designs." (Id.)

A. Design License

Defendants claim that this court mistakenly described the parties' agreement as a licensing agreement as opposed to a manufacturing agreement. (NYSCEF No. 45 at 4.) Defendants claim that that description led this court to conclude that Springtex had a right to assert possession and control of the patterns and designs. Defendant claims that this error led this court to deny its design-conversion claim. Plaintiff argues that this court's description was correct and, in any event, non-dispositive.

The court agrees with plaintiff that whether the agreement provided a license to plaintiff is not dispositive. This court held that defendants could not sustain their conversion claim because "defendants [had] insufficiently alleged or represented that plaintiff denied them access to their assertedly proprietary designs." (Springtex USA, 2024 NY Slip Op 50915[U] at *2.) Whether plaintiff had licensing rights to the designs differs from the question whether plaintiff denied SPSC access to its designs.

B. Whether SPSC Adequately Pleaded That It Was Denied Access to Its Designs

Defendants allege that plaintiff denied them access to SPSC's designs, which constitutes conversion. Defendants now argue that this court "misconstrued the facts regarding the creation of the patterns, tech packs and garments." (NYSCEF No. 45 at 6.) According to defendants, SPSC creates initial designs for its goods on paper which are then converted into digital copies called "tech packs." (NYSCEF No. 22 at 8.) The tech packs are used to produce patterns printed on roll paper. (NYSCEF Doc. No. 45 at 7; NYSCEF Doc. No. 22 at 8.)

On motion sequences 001 and 002, this court held that defendants failed to state what had happened to the paper copies of their designs and whether these designs remain in defendants' possession. For this reason, the court concluded that defendants had not shown that plaintiff denied them access to the paper designs. (SeeSpringtex USA, 2024 NY Slip Op 50915[U] at *2.)

Defendants characterize the initial paper designs as "small drawings, essentially artistic renderings" that cannot be used for production purposes. (NYSCEF No. 45 at 6-7.) Defendants claim that the designs, even once printed, are SPSC property, and that Springtex has denied SPSC access to these printed designs. (Id.) According to defendants, this court erred by focusing on the initial paper designs when SPSC's conversion claim is about only the printed designs.

Plaintiff argues that "[d]efendant's conversion claim consistently focused on the 'Patterns and Designs' created by SPSC and provided to Springtex, not the [printed designs] thereafter created by Springtex." (NYSCEF No. 50 at 10.) According to plaintiff, defendants are trying to plead a new conversion claim altogether. On reply, defendants insist, however, that they are not pleading new facts and that they are merely explaining their existing claim. (NYSCEF No. 51 at 2.)

This court agrees with plaintiff. Defendants' first counterclaim did not specifically involve SPSC's printed designs. Defendants sought to recover for conversion of SPSC's "designs and patterns" generally. (NYSCEF No. 31 at 18-21 [proposed amended counterclaim].) In their answer, defendants alleged that plaintiff took "from SPSC . . . its patterns and designs, created by SPSC for its apparel items." (Id. at 18.) Defendants further alleged that plaintiff refused to give them access to the designs, although they belong to SPSC, therefore requiring defendants to redevelop the designs. (Id. at 19.) Additionally, on motion sequences 001 and 002, defendants made similar claims; they alleged that Springtex stole" their designs by taking exclusive possession of SPSC specifications and designs. (NYSCEF No. 21 at 5 [memo on mot seq 001]; NYSCEF No. 28 at 4 [memo on mot seq 002].) At no point did defendants identify the printed designs as the focus of their conversion claim.

The court further concludes that defendants' contention that their counterclaim revolves around the printed designs is at odds with their prior arguments on motion sequences 001 and 002. On those motions, defendants argued—with respect to the digital tech packs—that conversion of intangible property is a cognizable cause of action in New York. (See NYSCEF No. 21 at 8-12.) By making this argument, however, defendants' necessarily implied that at least part of their conversion claim involved digital designs.¹

C. Whether Non-Payment of Invoices Pertains to Conversion of the Designs

Defendants finally argue that this court erred in holding that defendants' alleged non-payment of invoices gave plaintiff the right to assert control over SPSC's patterns and designs. But this court referred to the invoices only with respect to defendants' claim for conversion of goods, not designs. (NYSCEF No. 38 at 3.) Accordingly, this branch of defendants' motion to reargue is denied.

The branch of defendants' motion to reargue plaintiff's motion to dismiss defendants' design-conversion counterclaim is denied.

I. Conversion of SPSC's Goods

This court dismissed the portion of defendants' first counterclaim for conversion of SPSC goods due to a provision in the exclusivity agreement. The exclusivity agreement provides that Springtex may withhold shipments of goods if SPSC fails to pay invoices for goods received. (NYSCEF No. 3 at 3.) According to the agreement, "if SPSC did not pay for the disputed orders, it did not own the goods." (Springtex USA, 2024 NY Slip Op 50915[U] at *1.) On motion sequences 001 and 002, plaintiff provided invoices and demand letters suggesting that SPSC had not paid for prior orders. On those motions, defendants acknowledged an accumulated balance due to payment difficulties. This court thus concluded that SPSC had no legal claim to the disputed goods and therefore no actionable conversion claim. (Id.)

Here, defendants have not identified law or facts that would change this court's determination. They neither allege nor show that they paid for the goods. As such, this court adheres to its prior determination.

Defendants argue, though, that this court did not properly consider plaintiff's alleged insurance-fraud scheme. According to defendants, plaintiff submitted false claims for losses on unpaid invoices. Defendants assert that SPSC paid those invoices. According to defendants, plaintiff misapplied these payments to previous invoices, "and on that basis claimed that the paid invoices remained open." (NYSCEF No. 9 at 7.) Defendants claim plaintiff's alleged insurance fraud was perpetrated by misapplication of payments, rather than the falsification of invoice numbers.

This court, however, considered whether the alleged scheme impacts whether defendants legally owned the goods. The court simply found those allegations unpersuasive, because SPSC's motion papers also "suggest[ed] that it did not pay in full for all the orders." (Springtex USA, 2024 NY Slip Op 50915[U] at *1.) Defendants have thus not identified a misapprehension of material facts or law warranting reargument.

Accordingly, it is

ORDERED that defendants' motion for leave to reargue is denied; and it is further

ORDERED that the parties appear for a telephonic preliminary conference on August 4, 2025.

DATE 7/11/2025

GERALD LEBOVITS, J.S.C.

FOOTNOTES

1.   On motion sequences 001 and 002 plaintiff further argued that defendants failed to identify the assertedly converted property and therefore that their conversion claim should be dismissed. Notably, defendants did not identify the printed designs as the property at issue in opposing the motions. Defendants identified the property only generally as "proprietary apparel patterns and designs." (NYSCEF No. 21 at 12.)

Gerald Lebovits, J.