MIZRAHI SUES CHANEL
Byline: Vicki M. Young / With contributions from Robert Murphy, Paris
NEW YORK — Isaac Mizrahi and his firm, IM Holdings Inc., are embroiled in a $30 million legal dispute against his former partner and financial backer, Chanel Inc. and American Fragrances Inc.
The lawsuit was filed in March in a New York state court in Manhattan. According to court papers, Mizrahi is seeking a declaratory judgment requiring Chanel and American Fragrances, a wholly owned subsidiary of Chanel, to “distribute certain assets of Isaac Mizrahi & Co.” back to Mizrahi, which would include his name and other trademarks that are still held by the partnership.
Even though the partnership business has been shuttered since October 1998, court papers said that Chanel has “unilaterally” continued to maintain the legal and tax-reporting status of the partnership. While details were not spelled out in the court documents, there are still Isaac Mizrahi products in the marketplace, such as a licensed outerwear line with Fairbrooke Enterprises.
Mizrahi, who is now developing a talk show, is additionally alleging three separate damage claims in the amount of $10 million each for breaches of the partnership agreement, fiduciary duty and covenant of good faith and fair dealing. Mizrahi is also seeking an accounting of the partnership. The accounting, the lawsuit said, would clarify whether an alleged $70 million in debt is owed by the partnership to Chanel.
The lawsuit said that the parties entered into a partnership agreement on Dec. 30, 1992, for the creation and launch of a high-end women’s apparel line and a fragrance line. American Fragrances is alleged in the suit to have “consistently and unjustifiably refused to launch” a fragrance line during the partnership’s existence. Court papers also alleged that Chanel disposed of certain assets from the partnership’s offices, but did not provide an accounting of the assets to Mizrahi.
The former designer is also seeking data relating to the disposal of assets or any profit resulting from the disposal of inventories that were pending shipments to such retailers as Bergdorf Goodman, Saks Fifth Avenue, Bloomingdale’s and Barneys.
Chanel said Tuesday in a statement, “We deeply regret that after years of Chanel Inc.’s financial support of Mr. Mizrahi, and years after the business operation was suspended, by mutual agreement, Isaac Mizrahi has decided to file a meritless lawsuit.” The company said it has filed a motion to dismiss the case. Mizrahi is represented by prominent attorney Raoul Felder.
As reported, Mizrahi’s 10-year-old business was dissolved in October 1998. At the time, Chanel, which held a 70 percent stake and had backed the business since 1992, said it was withdrawing its financial backing because Mizrahi’s business volume was not large enough to warrant Chanel’s stake. In December 1997, Mizrahi closed his two-year-old bridge line, Isaac.
Industry sources said Mizrahi’s business generated annual sales of $50 million before the Isaac bridge line was closed, and that Isaac was believed to have accounted for less than half of the business. While Chanel at the time declined to disclose the total amount of its investment in the Mizrahi business, an executive confirmed that Chanel had “lost money” on its overall investment. The business was profitable in the early years of the partnership, the executive said, but had lost money every year since the launch of the bridge line in 1995.