A judge on Tuesday threw out Todd Oldham’s breach of contract lawsuit against his former employer Old Navy.

This story first appeared in the January 20, 2010 issue of WWD. Subscribe Today.

U.S. District Court Judge Denny Chin ruled that Oldham’s suit didn’t sufficiently show that Old Navy, the largest unit of Gap Inc., had failed to live up to the parties’ employment agreement.

The retailer hired Oldham as “design creative director” in September 2007. According to the ruling, the parties had a side plan to enter into a separate licensing deal for a Todd Oldham signature line by October 2008.

Negotiations over the trademark collection deteriorated and Oldham’s L-7 Designs Inc. filed its suit against the retailer in February. Old Navy terminated their creative services agreement two days later. Among other allegations, the designer accused Old Navy of breaching the contract by failing to negotiate in good faith on the line.

In granting Old Navy’s motion to dismiss Tuesday, Chin found the retailer had made good faith efforts to strike a deal and did not breach the contract by failing to do so. Instead, Chin wrote that the two sides had negotiated for 10 months and that in January 2009, Old Navy had provided Oldham with a term sheet, which the designer rejected.

“Moreover, L-7 was making extraordinarily high demands,” Chin wrote. “At one point during the discussions, L-7 demanded (through outside counsel) $75 million in compensation for lost royalties and reputational damages. It later demanded a minimum guarantee of $37.5 million in royalties for a three-year-term, which it then later reduced to $20 million for a two-year term.…It is not surprising that Old Navy resisted these demands.”

Oldham on Tuesday vowed to fight the ruling. Tony Longoria, vice president of Todd Oldham Studio, said, “While we are disappointed in Judge Chin’s opinion, we are filing an appeal as soon as possible.”

The judge gave the retailer three days to decide whether it wants to go forward with its counterclaims in the case, which include allegations that L-7 breached its own obligations under the creative services agreement.

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