WOODBRIDGE, ON - IKEA is being sued for $25 million by a now shuttered Canadian furniture manufacturer for breach of contract.
Woodbridge, ON-based Zsemba Apron and Upholstery Ltd. claims it was one of the largest North American manufacturers of upholstered furniture for IKEA before the RTA giant "unilaterally and substantially" reduced the prices paid to its manufacturing suppliers.
Zsemba Apron and Upholstery told the Toronto Star the price cutback caused it to lose $5.5 million in profits between 2010 and 2013. At the time, 75% of Zsemba Apron and Upholstery Ltd.'s production was for IKEA. In some U.S. court cases, suppliers have successfully argued that contracts requiring dedicated or tailored production facilities for a single client create obligations on the buyer's side.
Zsemba Apron and Upholstery Ltd.'s lawsuit also alleges "IKEA unreasonably demanded" changes in production, resulting in the plant's shutdown for two months, and that it "took steps to delay the approval" of a loan that Zsemba Apron and Upholstery Ltd. sought to cover the increase in expenses, according to The Star. The news article also states IKEA planned to decrease its program with Zsemba Apron and Upholstery Ltd. from $25 million to $17 million.
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Zsemba Apron and Upholstery Ltd. had been a supplier to the furniture giant since 1988. IKEA told The Star that Zsemba terminated its contract as a supplier in March 2014 and filed for bankruptcy in May 2014.
Founded in 1983, Zsemba Apron and Upholstery, operated by George Zsemba, had employed more than 175 people at its 300,000-square-foot facility, according to its website.