Court Dismisses Lawsuit Against Nordstrom for Canceling Orders Suspected of Forced Labor

The U.S. District Court for the Western District of Washington dismissed a lawsuit from clothing company Smart Apparel (U.S.) that accused Nordstrom of breaching a contract when it canceled orders from Smart Apparel that were suspected of being made with forced labor (Smart Apparel (U.S.) v. Nordstrom, W.D. Wash. # 23-01754).

The suit arose after Nordstrom canceled all purchase orders that hadn't cleared customs as of January 2023 following CBP's detention of merchandise from Smart Apparel's parent company, Zhejiang Sunrise Garment Group Co., on suspicion that Sunrise used North Korean labor to make its goods (see 2212270045). Judge Theresa Fricke identified four valid bases on which Nordstrom canceled the purchase orders after the retailer said it had "reason to believe" that there were violations of the contract's terms and conditions.

The judge said that a "plain reading" of the contract showed that Nordstrom was allowed to refuse delivery if it believed there was a "violation of the 'representation or warranty.'" These breaches may include the use of any forced labor; engagement with a sanctioned entity; and manufacturing of the merchandise "not in compliance with applicable laws, regulations, orders, testing requirements, and ordinances of the country of origin and country of destination."

Smart Apparel argued that it wasn't subject to U.S. sanctions and that CBP's press release announcing the detainment of Sunrise's goods didn't indicate that Smart Apparel had dealings with Sunrise or North Korea. But the judge noted CBP issued a press release saying Sunrise had violated the Countering America's Adversaries Through Sanctions Act, which prohibits the entry of goods mined, produced or manufactured wholly or in part by North Korean citizens anywhere in the world.

"[T]his notification would be sufficient under the plain meaning of the contract to allow Nordstrom to refuse delivery," the judge said. Fricke also said the alleged facts "show that Sunshine's relationship with Smart Apparel was that Sunshine was part of a supply chain for Smart Apparel."

The judge also found that since the contract's terms are "unambiguous" and that CBP's press release gave Nordstrom a reason to believe that the terms had been violated, Smart Apparel failed to sufficiently allege facts plausible to state a claim "for a cause of action that Nordstrom breached the duty of good faith and fair dealing."

Fricke also denied a claim for promissory estoppel -- a doctrine that says a promise is enforceable by law when a promisee reasonably relies on that promise to their detriment. The judge said this claim may not be made in Washington when an express contract is in play.