Forever 21 Faces Lawsuit For Allegedly Using False Sales Data

bankruptcy, creditor

Retail chain Forever 21, now in the final stages of bankruptcy, was sued by an Alabama mall owner who said the company misrepresented critical sale projections, according to published reports Tuesday  (Jan. 7).

According to court documents filed Nov. 22 of last year, Allied Development claims the clothing store signed a contract that promised revenue of $6 million or more annually but only delivered approximately $1.6 million in its first year of the lease, said Bloomberg.

Forever 21 inked a deal with Allied Development in 2017 that allowed the apparel retailer to connect its rent arrangement in Alabama’s Eastern Shore Mall to monthly gross sales. The store would concede to Allied Development 5 percent of its monthly sales, according to the agreement, in addition to a bonus of 1 percent of annual sales in excess of $7 million.

The company allegedly used false information, however, to boost incorrect financing it submitted as part of the contract. Forever 21 based the agreement on what it claimed were $6 million in sales at another store in nearby Mobile, Alabama.

That store, however, generated only $2 million in gross sales during 2017, according to the lawsuit.

Forever 21 has asked for a dismissal, according to court papers filed Dec. 26. Allowing the lawsuit to proceed, it argued, “could potentially open the floodgates to holders of prepetition claims who are similarly unwilling to wait their turn through the claims reconciliation process.” The retailer added the filing violates an automatic stay halting certain actions by creditors during a bankruptcy filing.

Allied Development seeks financial damages of at least $2.1 million, plus at least $6 million in punitive damages.

On Sept. 9 of last year, facing challenges in a new retail landscape, Forever 21 filed for bankruptcy. The pre-trial conference is currently scheduled for Jan. 27 in U.S. Bankruptcy Court in Wilmington, Delaware.