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Salon supplier claims companies diverted products from casinos
Wednesday, Aug. 12, 2009 | 3:13 p.m.
Related Document (.pdf)
Beauty salon supplier L'Oreal USA claims high-end hair care products intended for sale to Las Vegas hotel-casinos instead were diverted without authorization through a nationwide gray market to mass marketers like Target and CVS Pharmacies.
L'Oreal, based in New York, filed a lawsuit Monday in U.S. District Court in Las Vegas against two Las Vegas companies it claims were involved in the alleged scheme: Hair Casino Venture LLC and Nevada Hair Ventures LLC.
Neither of the defendants could be reached for comment Wednesday.
L'Oreal says it sells products through distributors under the Matrix brand for the professional hair care market. These include colorings, dyes, shampoos, conditioners and styling products and are generally sold to professional salons.
L'Oreal charges in its lawsuit that the Las Vegas defendants and others illegally diverted Matrix products to Cadeau Express Inc., a Las Vegas company headed by Ramon DeSage.
Cadeau is described in the lawsuit as a wholesaler of gifts and specialty items -- including exclusive hair products -- to hotels, casinos and other hospitality venues around Las Vegas. The hotels provide Cadeau products to selected guests as gifts and complimentary room amenities, the lawsuit says.
In 2005, a company called Armstrong McCall, LP (AMLP) and Cadeau negotiated a "covert distribution agreement" for Cadeau to acquire Matrix and other products from AMLP for resale to casinos and other hospitality venues, the lawsuit charges.
A company called Hair of Nevada LLC -- sharing common ownership with the defendants -- was AMLP's Las Vegas-area franchise and was involved in the deal, the suit says.
Cadeau paid kickbacks to executives of AMLP and Hair of Nevada in exchange for the deal involving deep discounts on Matrix products, the suit charges.
Millions of dollars of Matrix products were sold to Cadeau by L'Oreal through AMLP, Hair of Nevada and related company Hair Casino Venture, the suit charges.
"Substantially all of the Matrix products sold by AMLP, Hair of Nevada and defendants to Cadeau were diverted into the gray market for resale by mass-market retailers," the suit charges.
L'Oreal says it later approved a casino distribution deal and was assured by AMLP that Cadeau would supply products under the casino contract only to casinos and that the products would only consist of travel-size 4.2-ounce bottles appropriate for hotel-room distribution.
"AMLP concealed from L'Oreal the fact that it had already sold millions of dollars worth of Matrix products, including full-size bottles, to Cadeau," the lawsuit charges, adding AMLP and Hair of Nevada officials concealed the alleged cash kickbacks from Cadeau.
Believing Cadeau was selling products strictly to casinos, L'Oreal says it later agreed to sell $3.2 million of Matrix products to Cadeau including 110,000 full-size bottles of Color.smart shampoo and conditioner and more than 42,000 travel-size bottles of various Matrix products. These goods were shipped to Cadeau's warehouse on East Sunset Road, the lawsuit alleges.
"Cadeau unlawfully resold the Matrix products that it obtained under the guise of the casino deal" to a San Antonio wholesaler and they later ended up on the gray market, finally being sold to mass-market merchandisers such as Target and CVS Pharmacies, the lawsuit charges.
Through August 2008, L'Oreal repurchased 1,081 bottles of Color.smart conditioner and, using coding techniques, traced them back to the Cadeau casino deal program, the suit says. L'Oreal bought the products at 24 "gray-market" retailers, including 182 Target stores in 32 states, the lawsuit says.
Those 1,081 bottles were just a small portion of tens of thousands of bottles that were diverted into the gray market by the defendants, Cadeau, AMLP and Hair of Nevada, the lawsuit charges.
The lawsuit alleges conspiracy to commit fraud that has "damaged L'Oreal by causing a loss of goodwill and injury to the Matrix brand name" as well as lost sales.
The suit seeks unspecified damages and an injunction against the defendants blocking them from violating the terms of L'Oreal sales contracts.
Armstrong McCall and Cadeau Express are not named as defendants in the lawsuit.
But Cadeau Express was sued over similar allegations in Clark County District Court in Las Vegas in March.
California-based Sexy Hair Concepts LLC charged in that suit that Cadeau Express violated an agreement to sell Sexy Hair products solely to the hospitality industry and primarily to casinos.
But attorneys for Cadeau said a Sexy Hair official was aware that there may be circumstances where Cadeau would sell products to entities other than casinos and the official had permitted and participated in such sales in the past.
DeSage added in an affidavit: "Cadeau does not sell, nor has it ever, sold to over-the-counter retail outlets such as CVS, Rite-Aid, Walgreens or Walgreens.com."
That suit is pending.
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For Heaven's sake, IT'S JUST SOAP!
Yesterday I read the Nevada Unfair Trade Practices Act, cover to cover. It is, in essence, a state antitrust law. I also read, cover to cover, the Nevada Deceptive Trade Practices Act, which is a very strong consumer protection law if ever enforced by the very sleepy and understaffed office of Nevada Attorney General. I was doing that reading on an issue entirely separate from the L'Oreal lawsuit described above.
As a result, I was curious to speed read the Complaint posted by The Sun, which was filed on behalf of L'Oreal. It looks to me like large parts of the agreement L'Oreal is trying to enforce are unlawful under those two Nevada antitrust and consumer protection laws. Yet, it looks like L'Oreal's lawyer forgot about the existence of those laws, or wished they didn't exist, when he drafted his complaint.
As a result, I don't have high hopes about anything other than L'Oreal's lawyers having a nice, steady income stream prosecuting their case in Federal Court, and dancing around the Nevada laws.
by the very sleepy and understaffed office of Nevada Attorney General.
*****
How do you know the AG's office is understaffed?
Armstrong McCall has been suspect of diversion for quite a while and has placed the exclusive rights to distribute L'Oreal lines in jeopardy. Matrix most likely represents a large portion of the accused suppliers total volume and could portend difficult consequences for Armstrong in the future.
One should know that L'Oreal owns the professional distributor in Las Vegas as well as most other states. In LV it operates/owns Maly's. Armstrong McCall is a franchise of Sally Beauty Supply company's Beauty Systems Group, Loreal's largest competitor for distribution.
Maly's will be the beneficiary of Armstrong McCall losing any L'Oreal prof products line. It should be noted that L'Oreal has had court decisions rule against them in NY regarding their knowledge and ability to curb diversion. (see Loreal v Quality King)
Katie said: How do you know the AG's office is understaffed?
Because I went on their website two days ago, to look at their Consumer Protection division, and the A.G.'s office had posted a notice saying that the Governor had cut their budget and they wouldn't be able to help consumers until their budget is restored.
I sure hope the bad guys don't see that notice.
Cynical:
I think you might be missing something here. L'Oreal has filed a civil complaint against defendants in FEDERAL District Court, alleging (among other things) that defendants breached the terms of its distribution agreement. As a result, the District Court will consider FEDERAL statutes and case precedent in adjudication.
You refer to Nevada "antitrust" and "consumer protection" laws. This is completely irrelevant to the complaint, which alleges "civil conspiracy to commit fraud", "intentional interference with contract", "intentional interference with prospective economic advantage", and "unjust enrichment".
BTW, I sure hope that Voticky and Riemer didn't forget to declare their alleged kickbacks to the IRS as income. Otherwise, I would hate to be standing in their shoes if the U.S. Attorney's Office picks up this civil complaint and pursues a criminal investigation!
Comment removed by staff.
Mr. Desage is the most honorable man you can ever find. These allegations are nonsense. He is a well respected businessman in Las Vegas for the last 32 years and any libelous or slanderous comments against him should be removed and are unfounded. I know of his reputation in this town and it is impeccable. His Chocolates and Nuts says the success story of this man.
How can an article like this be published, as well as the slanderous comments by sueann. It seems that the big corporations are using the press to win their court cases and smearing successful and contributing organizations to Las Vegas to help win their case. It is clear that the press allowed itself to be used in this scenario and is perputrating lies against DeSage and his company Cadeau Express who has done nothing but work hard and grow within the Las Vegas gaming community through his support, philanthropy, and growing support of the casinos, its employees, and its economy. Of what I know of Ramon DeSage, he is a very generous man to everyone he meets, has a great reputation in town, and always finds ways to support the local economy and do good things for people and the community.
Diversion is not illegal...show me a law. If he purchased the products and paid for them, he has the right to do whatever he wants with them. Diversion is a term used by manufacturers to claim that there products ended up in a place they normally don't sell. This is nonsense, the manufacturers just want there money and turn a blind eye whenever they need to make there numbers. Does anyone remember Ollie North and the Iran Contra affair, if the government did it, then what's the big deal about a bottle of soap and water. Big Corporations...get over yourself! Is this is an important issue to discuss in the newspaper-shampoo...get some priorities Steve Green, you are the puppet of L'Oreal, they diverted you from reporting on real news, maybe you should sue them!! What a joke!
This is outrageous. I have known Desage for over 27 years. He is a total gentleman and everybody loves him in this town. He is one of the founder of Las Vegas and whoever wrote this article should be ashamed of himself because he has no clue about what he is writing.
las vegasboy, georgem, lawrebellion, lvlocal. obviously one person wrote the above comments..
I read the whole lawsuit and i agree the diversion is not illegal but wait a minute. Kickbacks, unjust enrichment, civil conspiracy to commit fraud are 100% opposite to legal..
Kickbakcs in millions!!! The ROI should be unbelievable".
Nothing personal but spending millions on strippers is not an act of honor "