LOS ANGELES — The last time Kitson turned heads was in January with 70 percent off liquidation signs in its stores, but Fraser Ross aims to have the last word in the retailer’s story.
The founder of the boutique chain, synonymous with celebrity and L.A. cool, filed a lawsuit late Friday in Los Angeles Superior Court against his former law firm Jeffer Mangels Butler & Mitchell LLP and one of the firm’s partners, Jeffrey Sultan, alleging legal malpractice and breach of fiduciary duty.
Debt and ambitious growth plans to scale the chain were blamed for the demise of Kitson when the company revealed in December that it planned to shutter its 17 stores. In the midst of all that, Ross has been cast by some as a less-than-savvy entrepreneur who ran his own business into the ground and has been blamed for bringing tacky to the once-hot Robertson Boulevard in Los Angeles, where the first Kitson opened in 2010.
He’s now swinging back in his lawsuit, which demands a jury trial with an award estimated to be more than $120 million before punitive damages are factored in, according to Ross’ Canadian counsel Glenn J. Feldman.
Ross, who in late May unveiled a new retail concept on Robertson Boulevard called Kitross, is now leading what he hopes to be a resurgence on the street while also distancing himself from the events that unfolded at Kitson last year. A framed notice at his store addressed to shoppers and suppliers states operation and management of Kitson occurred under Spencer Spirit Holdings Inc. “Mr. Ross had since left Kitson’s management in May 2015 and had no involvement in its operations, its winding down and assignment process in December 2015,” the in-store letter states. Ross declined comment for this story.
Friday’s complaint alleges conflict of interest during the time when the law firm Jeffer Mangels was representing not only Ross but also former Kitson chief executive officer Chris Lee, the former Forever 21 Inc. senior vice president who joined the company in 2011, along with Kitson itself.
In 2012, Ross “sustained a life-threatening injury which required a lengthy hospitalization and recovery, the effects of which continue to plague and affect” him, the complaint said.
Offers came to Ross the following year to sell some or part of his stake in the company. Jeffer Mangels and Lee, according to the suit, secured a $15 million loan though Salus Capital Partners, the Massachusetts lender that has made loans to distressed companies such as RadioShack. The lawsuit called the loan “not necessary” and was done without consulting Ross. The complaint goes on to state Salus does not have a lenders license in the state of California and that the $15 million loan proved “detrimental to [Ross] and contributed to the ultimate demise of Kitson.”
The Salus deal, at the time, was seen as a way to buoy the struggling company. Ross then agreed in January 2015 to lend Kitson $2 million “based on Lee’s representation that Kitson needed a cash infusion to attract potential investors or buyers and that the loan would be fully secured by the assets of Kitson,” the complaint said.
The lawsuit goes on to say that in April 2015, Ross and Lee met at the office of Jeffer Mangels to talk about Ross’ resignation from the company and Lee’s purchase of Ross’ 100 percent stake in Kitson. It was ultimately agreed Lee would buy it for $300.
Feldman contends that, at the time, Jeffer Mangels prepared a waiver of conflict of interest for Lee to give Ross to sign and said the document — which must be signed to indicate acknowledgement of a conflict of interest — came back to the firm with a forged signature that did not belong to Ross. The document related to share transfer from Ross to Lee occurred when Ross was in the hospital and he was persuaded to sign because he was told there was a $26 million offer on the table for Kitson, according to Feldman.
Ross in May of last year signed on as a consultant to the company but his lawsuit said that deal “buried provisions” in the consulting agreement that essentially tossed out his right to be repaid the $2 million loan. That same day, according to the lawsuit, the company struck its loan deal with Spencer Spirit Holdings Inc., which happened to require Ross to remain on as a consultant.
“His company gets charged tons of money to divest him of his own shares in the company and then they vest Chris Lee with all the powers to be able to assign the company to its creditors,” Feldman said. “So Fraser got bilked out of $2 million just before the company closed, all as a result of these false representations and the fact that Chris Lee had the power to do what he wanted with the company.”
Lee could not be reached for comment. Calls and emails to Salus Capital’s spokesman and Mitchell at Jeffer Mangels were not immediately returned on Saturday.
Feldman said Friday’s complaint will be followed by lawsuits against Lee in the coming weeks, as well as Salus.
It’s also plausible Kitson could stage a comeback as Ross works to get his equity stake back, Feldman said.
“He’s back in business full force [with Kitross],” Feldman said. “Deep down in his heart, he would love to see Kitson come back to life and claim back his reputation and his honor towards creditors and suppliers that believe it was him at fault for not paying them.”