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Tuesday, May 21, 2024 | Back issues
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Fraud Claim Over Fatal Slide Holds On This Time

(CN) - Toys R Us, already on the hook for millions after a woman broke her neck on a waterslide it sold, must face fraud claims from the item's Chinese designer, a federal judge ruled.

When Robin Aleo, 29, was sliding head-first down a Banzai Falls inflatable pool slide in 2006, it bottomed out, so she hit her head on the pool, broke her neck, and died the next day.

The slide was recently purchased via Amazon from Toys R Us, which had entered a vendor agreement with the item's Hong Kong-based designer, Manley Toys, two years prior.

A jury reportedly ordered Toys R Us to pay Aleo's survivors $18 million in punitive damages, plus $2.6 million for lost income and pain and suffering, in 2011, after finding that it failed to ensure the slide complied with federal safety standards.

Amazon.com and the manufacturer SLB Toys USA, however, both settled before trial.

Toys R Us meanwhile withheld over $1 million it owed Manley under the vendor agreement.

The American retailer ultimately agreed to deposit $1.7 million into an offset account, plus 5 percent of its purchases from Manley, until finalization of the judgment.

But when Toys R Us later allegedly failed to pay for $5 million worth of goods sold and delivered by Manley, the Chinese designer filed suit for breach of contract in New Jersey.

Earlier this year, U.S. District Judge Katharine Hayden refused to dismiss or to enter a writ of attachment against $5 million of the retailer's property in New Jersey.

Manley later amended its fraud claim and asked the court to reconsider ordering a writ of attachment.

Upholding the fraud claim in a more recent ruling, Hayden found it plausible that Toys R Us "lacked the intent to abide by its promise to pay it for goods shipped after execution of the holdback agreement."

"The identical terms that TRU sought prior to the execution of the holdback agreement, which Manley refused and were expressly excluded from the agreement, are the ones that TRU used as a basis to withhold $5 million just a few months after the execution of the agreement," the unpublished ruling continues, abbreviating Toys R Us. "The complaint does not indicate that circumstances changed in the interim. Moreover, Manley has plausibly alleged that TRU was increasingly concerned about getting a line of products as soon as possible, permitting the inference that TRU had an incentive to take steps to fulfill its business needs. TRU's unexplained about-face and motive are sufficient circumstantial evidence (in the context of a pleading) that TRU fraudulently promised to pay Manley for future shipments solely to obtain the spring product line." (Parentheses in original.)

Statements allegedly made by Toys R Us CEO Gerald Storch shortly after execution of the holdback agreement may indicate fraud, according to the Sept. 30 ruling.

"According to the amended complaint, he said that 'he looked forward to working together with Manley pursuant to the terms of the holdback agreement,'" Hayden wrote. "He also 'wanted to confirm that Manley would ship the "spring product line" to TRU as quickly as possible.' And it was in 'reliance upon Storch's representation that Manley would be paid for the products' that Manley confirmed it would ship the products. It is reasonable to infer that Storch's statements were offered to induce Manley to ship products quickly to TRU."

The judge declined to alter her previous ruling, however, since "Manley has not challenged TRU's financial ability to satisfy the judgment or provided any other reason why attachment is appropriate."

Toys R Us, a Fortune 500 company, reported nearly $14 billion in revenue in 2012.

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