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Designers Take Action Against Jake

Phillip Lim, Lutz & Patmos, and Costello Tagliapietra file lawsuit against specialty retailer Jake in Chicago for alleged unpaid orders.

Inside the Jake store.

A band of 28 designers has rallied together to take legal action against the Chicago specialty store Jake for alleged unpaid orders, and their newfound brotherhood has unexpectedly turned into a support system in the turbulent economy.

This story first appeared in the September 2, 2009 issue of WWD.  Subscribe Today.

The designers, who hail from New York, Los Angeles, Paris, London and Sydney, have filed an involuntary bankruptcy petition seeking $516,000. Phillip Lim, Lutz & Patmos, Behnaz Sarafpour, Chris Benz, Band of Outsiders, Costello Tagliapietra, Erin Fetherston and Loeffler Randall are among the companies trying to reclaim what ranges from $860 to $48,000 for alleged losses to individual firms.

Costello Tagliapietra co-founder Jeffrey Costello said he and his business partner Robert Tagliapietra are out more than $20,000 because of Jake. Costello said, “I know that sounds small, but to a company like ours, that’s a big chunk of change.”

Phillip Lim’s brand director Maria Vu said there is more at hand than a retailer shorting a group of designers, and the whole ordeal has wound up being somewhat empowering. “Obviously, we would like to see a financial victory, but there is also a moral victory whether we win or not. This is a matter of principle,” she said. “Being able to have this network that lets people know ‘You are not alone’ has been really good for a lot of people.”

During a telephone interview Tuesday, Jake co-founder Lance Lawson insisted the designers’ crusade will be in vain. “The old company doesn’t exist anymore,” said Lawson. “It’s bad debt. At the end of the day, there is no money to pay anyone. The bank didn’t recover the money owed to them as a lender.”

In May 2004, Lawson established Price Allen Inc. with Jim Wetzel, which operated three freestanding Jake stores in Chicago and an online business. Price Allen was disbanded after MB Financial called in a $1.6 million loan and credit line, when Jake did not meet profit quotas for the second quarter of last year, Lawson said. At the end of last year, Jake’s owners closed their Southport neighborhood store after the lease expired. A group of silent investors then purchased what were Price Allen’s assets and hired the founding partners to run the new company, Jake Retail Group, but they did not assume any of the debt, he said. That “bad debt” is in effect what the designers are trying to recoup, according to Lawson, who claimed he and Wetzel personally lost $1 million. “As incredulous as these designers are about not being paid, I am not going to be paid either,” Lawson said.

He claimed that 60 percent of the labels involved in the legal action were not profitable in Jake stores. “The emerging designer business is a nightmare. We are moving more to selling lower-priced products,” noting this fall’s dresses start at retail at $300 compared with $1,200 as was the case last fall, and knits now open at $200, compared with $800 last year.

Lawson also insisted the new business model is a moneymaking one for the company, but declined to name any of the collections that are currently carried. The company’s Web site, shopjake.com, however, lists Philosophy di Alberta Ferretti, Ports 1961, Eva Franco, Adam, Jay Godfrey and A.C.N.E. Jeans among its resources.

Dan Zazove, the attorney representing the designers, plans to be in court Sept. 15 for a status hearing, and he said he will urge the court-appointed trustee to pursue the assets that are now being used to operate the Jake Retail Group. “It appears as if all the assets of Price Allen were sold to the new company for $80,000, which seems a little unreal because the average inventory was estimated to be $1.5 million and sales were [estimated] to be in excess of $5 million annually,” Zazove said.

In the meantime, the jilted designers are trying to learn from this experience. Tagliapietra noted some stores have openly said they are having trouble paying their bills, and his company has agreed to payment plans. “It’s an honorable way to work things out. It’s not great that we’re not getting the money all at once, but we are getting some of the money,” he said.

In keeping up with any developments about their ongoing dispute with Jake, designers said there is an upside in that they now have an international network of fellow business owners they can check in with to inquire about the financial solvency of a retailer they may be considering working with for the first time, or to provide a warning if a store starts bouncing checks.

While the New York contingent has met twice to discuss the situation — most recently at Phillip Lim’s showroom a few weeks ago — the discussions inevitably wound up encompassing other timely issues affecting young designers. “Jake has been part of the conversation but it also has led to bigger conversations about fashion and where the business is going. The last meeting was right after the one the CFDA had [at the Fashion Institute of Technology in July] so a lot of people talked about what had been discussed there,” said Tina Lutz, co-founder of Lutz & Patmos. “You feel like you are part of a community and have a support chain, which is so important especially now when it is so difficult to get paid by stores. You could spend your whole day chasing money.”

In terms of Jake, Lutz said the fallout “hurt,” since the company had extended itself in ways it doesn’t typically. She and her co-founder, Marcia Patmos, flew out to Chicago for a two-day trunk show at Jake at their own expense. “It would be nice to see some of our money [paid], but what is coming out of this is much more powerful in some way,” she said.

Tagliapietra agreed, “Good things can come from all this drama — for lack of a better word. Having this dialogue with all these designers can be very helpful.”