The designer, who in 2012 launched her eponymous line of luxury eveningwear after more than a decade designing for the likes of Donna Karan, Isaac Mizrahi and Max Mara, claims in a new $1.3 million lawsuit that she was essentially forced out of her company by Robert Basil, her largest investor with an estimated $2 million put into the company personally and through his staffing and management company Artifect over the last three years.
“You always hear about designers losing control of their brands — I used to think ‘How can that even happen?’” Kennedy, who left her brand Jan. 21, told WWD. “You don’t realize until you’re in it how quickly things can go wrong.”
For her brand it took about three years. Kennedy and her former business partner and continued close friend Jayne Harkness were looking in 2015 to grow the business and needed some outside investment. Harkness had worked with Artifect and become friendly with executives there, who said they had connections to investors. Enter Basil, whom Kennedy said didn’t claim to have any particular experience in fashion, but did have financial expertise and allowed her to retain creative control.
“I don’t think he really understood how much money it would take to be profitable and that we would need to continue to raise capital,” Kennedy said. “But the main problem was that there was no one dedicated to managing the finances. We were using [Basil’s] personal accountant to manage the finances and it turned out they were not experts in cash flow.”
This resulted in financial problems almost immediately, according to Kennedy and her lawsuit, filed Tuesday in New York. Basil on multiple occasions allegedly froze the company’s financial accounts, which he controlled under the terms of the financing agreement, leaving Kennedy at one point to borrow $80,000 from her family to finish a collection.
But still, she continued to receive financing from Basil without seeking outside legal counsel, which she also claims in her lawsuit Basil was required to advise her to do as a “conflicted” managing member of the company. Continuing with financing from Basil ultimately proved the brand’s undoing, as each time he handed over more money, he allegedly amended the financing agreement to back the investments with real assets and also increased his percentage of his control in Elizabeth Kennedy LLC, the brand’s sole holding company, while decreasing Kennedy’s.
“Maybe in five years I’ll look back and be thankful that I learned all this when my company was still small, but it’s definitely been a learning experience,” Kennedy said. “If I get a next time around, I’ll definitely approach things a little different.”
The brand was still growing when it shut down soon after Kennedy left — relinquishing her remaining 19 percent stake in the brand in the process and handling complete control to Basil — with the resort 2018 collection, Kennedy’s last, branching out for the first time into fine jewelry. The collection before that added separates as was increasingly popular with the celebrity set. Among the brand’s many red carpet appearances are Lena Dunham at last year’s Met Gala and Oprah Winfrey at the Emmy’s and also on the cover of Vanity Fair, but it wasn’t enough to turn a profit.
That was a sticking point for Basil.
“The company, although putting out wonderful product and getting a lot of tremendous coverage by the press, was never profitable and at some point in time, it just became overwhelming,” Basil said. “The debts were piling up. Although we had revenue, it was the simple matter of spending more than you’re making and eventually running things out.”
Although operating with a deficit is typical for many brands, especially in the early stages, Elizabeth Kennedy does look to have a number of unhappy debtors, with at least four vendors suing in New York for unpaid bills. Patternmaker Nicolas Caito is claiming to be owed about $51,000 for his services; silk fabric producer Taroni is seeking $107,800, and garment manufacturers ANK International and Designs New York are suing for $29,400 and $76,500, respectively.
“We got to the point where, to continue we either had to figure out what was going on [with profitability], or we had to find another investor to put up a substantial amount of money and neither of those happened,” Basil said. “We could no longer afford it — well I guess I could have if I wanted to continue putting money into a company bleeding money, but the decision was made that this could not continue.”
According to Kennedy, that decision was made by Basil about a week after she left the company.
As to Kennedy’s claim that Basil actively prevented an outside infusion of capital, through factoring or other means, he explained that he agreed to start using a factor, but rejected the move when it required a personal guarantee.
“At that point, it might as well be my own money, because that would be cheaper for me,” Basil said. “That was kind of the last gasp.”
Before then, Basil said he didn’t recall any major disagreements about the business with Kennedy, noting discussions about collection size and frequency were typical, but that he wasn’t involved in “nitty gritty” aspects like production and overhead costs.
Kennedy said toward the end, Basil threatened to sue her and accused her of fraud and embezzlement and had been “trashing my name in the industry.”
Kennedy also claims that, after Basil agreed to factoring, he essentially strung her along under the impression that “he would keep his word.” She says that’s why she continued to work, unpaid, for the last several months of her involvement with the company, as did a number of vendors.
“No one was getting paid, but there was nowhere to go and nothing to do at that point,” Kennedy said. “It was starting to hurt my name and my reputation with vendors that I care about.”
All these claims aside, Kennedy is now left to fight with Basil in court, mainly over her right to the trademarks that are her name. Although she filed for trademark protection years before working with Basil, she did so through Elizabeth Kennedy LLC, which he now controls and recently renamed WFT Fashions. The acronym is for his dog, he said, a wire fox terrier.
While financial agreements Kennedy signed do make clear that she still has the right to use her name as she sees fit and New York law tends to go by the trademark rule of first use, she needs to have it reassigned to her or another entity she operates before it’s back under her full control. She’s also accusing Basil of infringement, defamation, and unjust enrichment, and seeking damages of at least $1.3 million.
Meanwhile, Elizabeth Kennedy the brand is now completely “dormant,” according to Basil, and an out of court liquidation of all the company’s assets, from fabric to machinery, is expected in the coming weeks.
“The primary function of the company now is to gather up whatever assets [the company] has to pay creditors,” Basil said. “Those creditors are owed a lot of money and many of those creditors will likely not be paid. But, rather than walk away [from the company], I chose to hang in there and see what could be done to liquidate as best we could.”
As for Kennedy’s allegation that she was “forced out” of her brand, Basil looks at it as more of a “withdrawal,” but he admitted to the power he wielded as a controlling investor.
“I disagree that Elizabeth was forced out, unless you want to say, because we weren’t putting more money in, there was nothing for her to really do anymore,” Basil said. “At first, when she said she wanted to withdraw from the company, I opposed it.”
That purported opposition didn’t last too long.
“I guess I squeezed her out by not putting in more money, if you want to take that view,” he added.
But even an experience like the one Kennedy’s allegedly had with Basil hasn’t dampened her desire to keep going in the industry. The designer said the weeks she’s been away from her work have “felt like an eternity” and that she’s “anxious to get on with my work and my career and my brand” after she secures her trademark. She wants to relaunch a brand within the year, if possible, making good use of the lessons she’s learned from her first solo venture.
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