NEW YORK — Catherine Malandrino wants her day in court.
This story first appeared in the April 24, 2015 issue of WWD. Subscribe Today.
The designer has sued multiple defendants — including Elie Tahari and Bluestar Alliance LLC — in connection with the sale of her company in 2011 and 2013. The lawsuit containing seven causes of action — such as breach of contract and tortious interference — was filed on Wednesday in a New York State Court in Manhattan. It seeks at least $26.9 million in damages that include $1.3 million for breach of an employment agreement, and failure to pay an incentive bonus of $4.9 million as well as a $2.6 million bonus from income from a diffusion line. Some of the other causes of action each seek $12.7 million in damages based on a similar set of facts connected with the sale of her company.
If Malandrino were to win all the damages sought for each cause of action, the total would hit $65 million.
Named in the lawsuit were defendants ASL Holdings LLC, ASL Operations LLC, Tahari ASL LLC, Elie Tahari, Arthur S. Levine and Lester E. Schreiber, all collectively the Tahari defendants. Also named as defendants were Bluestar and its founders Joseph Gabbay and Ralph Gindi, collectively the Bluestar defendants. Another defendant was CM Brand Holdings, the company set up by Bluestar to acquire the Malandrino brand two years ago from ASL Holdings, formed by the Tahari defendants when they bought the Malandrino brand in 2011.
Malandrino’s suit follows an earlier one filed by CM Collections Inc., the licensee of her brand. Filed a week ago in a Manhattan state court, those defendants include CM Brand Holdings LLC, Bluestar, Gabbay, Gindi, Tahari ASL LLC, Elie Tahari, Levine and Les Schreiber. Seeking a minimum of $5 million in damages, CM Collections alleges that CM Brand Holdings and its principals refused to give the designer, who is not a party to that lawsuit, creative control over future brand collections, and that the principals “never had any intention” of building Malandrino’s Signture brand.
A spokesman for Elie Tahari declined comment on both lawsuits on Thursday. A spokesman for Bluestar said, “We are really disappointed that she’s chosen this course of action. We are confident that the court will agree that her claims against us are meritless.”
In her lawsuit, the designer said she sought an investor and received an offer from Bluestar for $12 million in April 2011. She instead accepted a $6.59 million offer in October 2011 — $4.75 million payment to her company’s then lender and $1.84 million in deferred compensation under an employment contract to run five years, with Malandrino as executive and creative director of ASL Operations, a related ASL company — from Tahari and Levine for her Black and Yellow labels, all trademarks and related intellectual property rights, plus a 25 percent stake in ASL Holdings, according to the filing.
The lawsuit alleges bad faith on multiple levels. Allegations include the creation of a diffusion line — Catherine Catherine Malandrino, or Pink label, launched in February 2013 — when the initial focus was to have been her designer line, as well as Tahari ASL being given the exclusive license. The suit alleged that Malandrino was effectively cut out of her 25 percent share of the profits, while Tahari used its own factories to maximize its profits.
Gross sales for the luxury line were about $20 million, but the designer said she was told expenses were “huge and the line was losing money,” even though she had no way of verifying the information.
The Malandrino company was subsequently sold to Bluestar by ASL Holdings for $7 million in August 2013, giving ASL a 30 percent interest in CM Brand Holdings, with Bluestar as ASL’s partner. The complaint alleged that Malandrino “ended up being left out of the deal with nothing, no brand, no proceeds of sale, no salary, nothing but a number of breached agreements.”
The complaint said Malandrino “pleaded” with the Tahari partners to not sell to Bluestar and that one of the Tahari partners allegedly responded, “You don’t understand. The bank wants us to sell. We’re losing too much money. And the bank won’t lend us anymore.” Malandrino sought time to find an investor and allegedly was given just two weeks to find one.
With the Malandrino business allegedly losing $6 million, the lawsuit claims Levine tried to convince her the sale to Bluestar was a positive because she would remain creative director and her salary would be the same, that she would be partners with Tahari ASL and they would all be partners with Bluestar, “only they would have a smaller piece of the new company.” The Bluestar deal allegedly diluted Malandrino’s stake to 7.5 percent, the lawsuit said.
The suit said Malandrino was “desperate to secure some ownership interest while she negotiated written contracts with defendants” and accepted Bluestar’s option for her to invest $500,000 in the new company for a 7 percent stake, thinking that stake when added to the 7.5 percent promised by Tahari ASL would give her ownership of 14.5 percent in the company. A month later, while working on her September fashion show for her collection, Malandrino was asked to pay one-third of the total $120,000 cost for putting on the show, the bulk of which was advanced by the chief executive officer of CM Collections, the lawsuit alleged. Shortly after Malandrino showed her signature collection, her salary was stopped on Sept. 13, 2013, the complaint alleged.
The lawsuit also referenced a letter said to be written by Levine to Gabbay and Gindi about trying to get Malandrino back into the fold, noting that the “issue with her is not financial, it is vanity” and that giving the designer the “feeling that she is in charge…even though you always have the option and the right to override her…. That is how I treated her and it worked.”