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$111M Lawsuit: Fashion CEO Sues New York State Over Broken PPE Promises

A New York women’s fashion startup is suing its home state for refusing to pay $10.45 million for PPE gowns it produced and delivered in the early months of the coronavirus pandemic.

According to Laws of Motion’s suit, filed April 29, state officials rejected the vast majority of the fashion label’s gowns well after the previously agreed upon time period, repeatedly refused to allow it to inspect allegedly unfit gowns and made an “unsubstantiated complaint” to the Food and Drug Administration that prompted the organization to issue a public alert to healthcare providers, leading the brand to lose existing customers and prospective business relationships.

“After 10 months of attempting all avenues of resolution with New York State—despite their continued obstructionist and discriminatory behavior—NYS made it clear that they were unwilling to engage in any good faith settlement, and there was no feasible line of communication without litigation,” CEO Carly Bigi told Sourcing Journal.

The lawsuit lists 11 claims that together seek damages of at least $111 million.

Both Gov. Andrew Cuomo and his administration, which did respond to a request for comment, came under fire earlier this year amid a cascading series of scandals—from accusations of sexual harassment to the revelation that his administration had obscured the number of nursing home deaths at the height of the pandemic.

Though Laws of Motion’s lawsuit doesn’t name Cuomo himself, it paints a scathing picture of his administration, which, like its boss, has been criticized for its practice of bullying perceived adversaries. Given the administration’s “tendencies towards direct and derogatory discrimination” and what Bigi called a “history of bankrupting companies to get out of payables,” Laws of Motion felt it had to take a stand to protect itself and “everyone else they’ve bullied into silence,” she said.

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“This obstructionist and discriminatory behavior by Cuomo’s administration has nearly bankrupt[ed] us—as, I believe, was their intention and an unfortunate part of their playbook.” Bigi said. “We lost contracts, lost opportunity, and this has put our reputation on the line. We will stand up against this attempt at bullying and exploitation not only for Laws of Motion, but for the others who have been intentionally targeted and unfortunately fallen victim to Cuomo’s tactics.”

The single claim seeking the most damages—$33.3955 million—in Laws of Motion’s suit is an allegation of unlawful discrimination. Having previously noted officials’ condescending treatment—including allegedly referring to Bigi as “that woman” rather than by name—it alleges the state discriminated “against Laws of Motion with respect to its compensation as a vendor and contracting party, on the basis of sex.”

Laws of Motion lays out its claims

When the pandemic took root in the U.S., Laws of Motion was one of the many businesses stepping forward to produce PPE for frontline workers.

“Laws of Motion was nine months old when Covid hit,” Bigi told Sourcing Journal. “I was incredibly sick with an extended case of Covid in March [2020] and it was during that time—when the only sounds outside were ambulance sirens, refrigerated trucks lined the streets as temporary morgues and frontline heroes were faced with re-wearing masks and substituting trash bags for gowns—that I told the team that this is when we dig into the ingenuity and innovation that got us here and we do everything we can to help.”

When Laws of Motion realized the danger caused by the critical shortage of PPE, Bigi said the brand decided a pivot “wasn’t only the right decision—it was the only decision.” By March 31, it was talking with a state employee—Michael Pasinkoff, the special counsel for ethics, risk and compliance with the New York State Division of Human Rights—about potentially producing and supplying PPE gowns.

After speaking with the state, Laws of Motion submitted a proposal to produce and supply Class I non-surgical medical gowns. By April 2, it had shipped a pre-production sample gown to a doctor to inspect. That night, Laws of Motion says Pasinkoff called and requested the brand change its proposal to Class II surgical gowns with liquid barrier protection, notwithstanding its lack of FDA certification. He requested the new proposal be submitted the following morning, leaving little time for the startup’s small team to amend the appropriate documents.

Women’s fashion startup Laws of Motion also claims officials made an “unsubstantiated” FDA complaint, possibly costing it $150 million in revenue.
Laws of Motion’s PPE efforts in action. Courtesy

Weeks later, the lawsuit notes, Pasinkoff provided the company with guidance from the FDA stating it did not intend to object to the distribution of moderate-to-high barrier protection surgical gowns that were not in compliance with certain regulatory requirements.

On April 3, the New York State Department of Health (DOH) reportedly placed an order for 1.4 million surgical gowns at a price of $15.4 million, with 50 percent of the bill to be paid up front and 50 percent to be paid upon delivery. Two weeks later, Pasinkoff requested a proposal to supply an additional 1 million gowns. On April 20, the DOH placed an order for a second batch of Laws of Motion PPE, this time for a quantity of 1 million gowns at a price of $11 million. The payment terms required 75 percent be paid up front and 25 percent on delivery.

According to Laws of Motion’s lawsuit, these two contracts stipulated that the state had 14 days after receiving a shipment to inspect the products. Should a disagreement arise over quality issues, the two parties would use a mutually agreed upon third-party quality inspection agency to inspect the product, the contracts stated.

Together, the orders left a total of $10.45 million due to Laws of Motion upon delivery and submission of invoices. Laws of Motion’s lawsuit alleges the state failed to pay all of the five total invoices it submitted between May 12 and June 4. The suit notes that given the “very narrow” potential profit margin it planned to make, requests by the state for the company to expedite its schedule ensured it will make “zero profit,” even if the government pays the invoices in full.

It also claims that, in late May, Sean Carroll, the chief procurement officer for the Office of General Services, “used a bullying and condescending posture to attempt to force Laws of Motion to accept a lower payment amount and/or delay payment” and questioned Bigi’s ability to manage.

The state allegedly first verbally indicated there were potential defects on June 1, but failed to identify the nature or extent of these defects. According to their contracts, the suit notes, the state was required to notify it of any issues in writing.

The lawsuit says this occurred for the first time on June 12—well after the company shipped its final batch on June 3—when the state notified it that inspectors had found “many” gowns with issues and that Laws of Motion had to immediately reclaim all the approximately 1.9 million gowns and either replace them or issue the state a refund. For the vast majority of the 2.4 million gowns Laws of Motion made and shipped, this correspondence fell well outside the two-week window agreed upon in the contract.

The suit claims the state then repeatedly refused to allow the company to inspect the gowns until November, at which point it was given two hours to view pre-selected boxes of gowns. It also asserts that the state failed and refused to document alleged defects or attribute the issues to specific deliveries or quantities of gowns. In its complaint, New York officials had listed issues such as non-conforming fabric, inadequate cuff elasticity and improperly positioned waist straps as issues, but Laws of Motion said it did not tie these claims to any specific shipment. New York reportedly denied attempts to work with a third-party quality inspection agency, the company claims.

Laws of Motion also alleges that, in August, the state made an “unsubstantiated complaint” to the FDA that prompted the agency to issue a public alert to providers and then refused to provide information requested by the FDA, keeping the investigation open. The company said this then led another customer, an oncology center, to cancel a $1.5 million order. Prior to the FDA releasing its letter, Bigi said Laws of Motion had produced and distributed 3.2 million gowns.

Perhaps most consequently, Laws of Motion said it was forced to revoke bids it had made for federal contracts worth $1.2 billion. It estimated that its expected revenue based on the average bid award was approximately $150 million.

Bigi noted that before all the gowns were delivered, Laws of Motion “had a great working relationship” with the state government.

“It was only after the administration had made the decision to refuse payment that they decided to revert to their known method for attacking women and small businesses: first they bully you, then they smear you, then they try to destroy you,” Bigi said. “I think it’s important that small business owners, especially women and minority business owners, speak up when anyone tries to bully them. They assume we won’t fight back. But I’m fighting back. And I won’t stop fighting until justice is served.”