A little story somehow fell through the cracks a few months ago. It's a reprise of Tiffany's (NYSE:TIF) tiff with Overstock.com (NASDAQ:OSTK) for allegedly selling counterfeit copies of the fine jeweler's bling. And that was itself a reprise of Microsoft's (NASDAQ:MSFT) complaint against Overstock over similar issues. Back in April, yet another closeout merchandise liquidator, Tuesday Morning (NASDAQ:TUES), was sued for pretty much the same alleged offense. Allegedly, Chicago-area wholesaler Consumer Product Recovery LLC bought up a passel of costume jewelry, slapped designer name brands on the pieces (Monet, Napier, and Nine West), and sold them to Tuesday Morning in bulk for about $4 million.

Tuesday Morning then resold the pieces under the impression that they were genuine. Somebody complained, and before you could say "50% off, one day only," Tuesday Morning had a lawsuit on its hands. Liz Claiborne (NYSE:LIZ), which owns the Monet brand, sued both wholesaler Consumer Product Recovery LLC and retailer Tuesday Morning for trademark infringement, demanding $30 million in damages.

As recently as July, when Tuesday Morning filed its 10-Q, the company's position on the allegations was uncertain, as it was not admitting that the products were counterfeit, suggesting they might have just been old merchandise. For all we know, that might be true. After all, Jones Apparel (NYSE:JNY), which according to Yahoo! (NASDAQ:YHOO) owns the Nine West and Napier brands, has apparently not filed suit against Tuesday Morning over the matter. This is all still currently being looked into, though, as discovery in the lawsuit was ongoing as of July.

Monday TheWall Street Journal and Chicago Tribune reported that Cook County, Ill., police arrested the president of Consumer Product Recovery LLC on felony charges of possessing and manufacturing counterfeit trademarks. Consumer Product Recovery LLC has "ceased operations" (of course), leaving Tuesday Morning to endure the financial pain alone -- if it loses the lawsuit. The good news for Tuesday Morning is that Cook County police have not charged the company. While far from dispositive, that fact is likely to bolster the company's defense against Liz's lawsuit.

Fool contributor Rich Smith has no interest in any of the companies mentioned in this article. The Fool has a disclosure policy .