A WIN FOR WACHNER: NINE OF WARNACO’S COUNTERCLAIMS STAND
Byline: Vicki M. Young
NEW YORK — Great news for Linda. So-so news for Calvin.
In a further refining of the legal issues over which Warnaco and Calvin Klein Inc. will do battle early next year, U.S. District Court Judge Jed S. Rakoff in Manhattan Tuesday issued a ruling that allows nine of 10 Warnaco’s counterclaims against Calvin Klein Inc. to stand.
CKI could claim one victory, as its motion to dismiss Warnaco’s claim breach of fiduciary duty was granted, but all other components of the Warnaco counterclaim remain intact.
Tuesday’s ruling means that Warnaco’s breach of contract and tortious interference claims — as well as those for defamation and trade libel — against CKI and the designer personally can proceed to trial. In allowing Warnaco’s counterclaims to continue, Judge Rakoff’s decision subjects CKI and the designer to potentially millions in liability for compensatory and punitive damages. In addition, the designer is likely to have to testify in connection with the interference and defamation allegations lodged against him.
A Warnaco spokesman said, “We’re pleased with the progress of the case and look forward to a trial on the merits of our claims in January.”
A Calvin Klein spokesman said, “We are very pleased that Judge Rakoff has dismissed Warnaco’s breach of fiduciary duty counterclaim and required Warnaco to specify its conclusory contract claims.”
Tuesday’s ruling allows CKI to seek clarification and specifics regarding Warnaco’s counterclaims in connection with the jeanswear license and the men’s accessories license.
The CKI spokesman continued, “Once the evidence is presented regarding Warnaco’s remaining claims, we believe that they too will be found to be without merit. We continue to believe that Warnaco filed these counterclaims as a diversion from the real issues of the case: Warnaco’s deliberate breach of its obligations to protect the integrity and value of the CKI trademarks. We are moving forward with our lawsuit to protect the Calvin Klein name and we are confident that we will prevail in that effort.”
The ruling mirrored an August decision by Judge Rakoff in connection with a Warnaco motion to dismiss a similar CKI claim against the apparel manufacturer. Both fiduciary duty claims, now dismissed, arose from agreements between the parties dating back to 1994, when Warnaco purchased the CKI underwear business.
As reported, the legal jousting between the parties began with the original Calvin Klein trademark infringement lawsuit that was filed on May 30 against Warnaco, its chief executive officer Linda Wachner and other Warnaco affiliates. Warnaco fired some salvos of its own four weeks later, filing counterclaims for breach of contract, breach of fiduciary duty and defamation. A trial date has been set for Jan. 16.
In a separate matter, Warnaco said last week that it completed the $2.56 billion financing facility previously announced. The arrangement provides Warnaco with additional liquidity for operations, with no material debt maturing until August 2002. The amended facilities are secured by assets owned by Warnaco and its subsidiaries.
Meanwhile, CKI and Warnaco will be gearing up for their fight. While some industry veterans have speculated that the parties will eventually settle, sources close to both sides have told WWD that the parties are planning a full-scale battle in court.
The CKI/Warnaco dispute is worth millions to the winning side. Warnaco is Klein’s largest licensee, and the Warnaco licenses produce about $60 million in licensing income for CKI and is responsible for over $1 billion in revenue through the jeans and underwear businesses.
Although CKI is seeking unspecified damages, it is also requesting the termination of the Calvin Klein licenses held by Warnaco. Warnaco in its counterclaims is seeking at least $500 million for breach of different licensing agreements and at least another $50 million in damages against CKI and Calvin Klein personally for defamation and trade libel. Even though Warnaco’s 10 causes of action involve overlapping issues and claims, together they seek a total of $1 billion in damages.
CKI complained in its lawsuit that Wachner and Warnaco have damaged the Calvin Klein brand by distributing through mass channels.
At issue are disputes involving several agreements, including the jeanswear and men’s accessories licenses. While CKI has complained about the issue of selling the underwear to J.C. Penney, that dispute is not part of the lawsuit. Instead, the question of underwear distribution is covered by an arbitration agreement.
Warnaco’s countersuit alleged that Klein failed to live up to his design responsibilities, damaged the brand by publicly attacking the quality of the jeanswear product and by producing offensive advertisements.
On Aug. 29, Judge Rakoff dismissed some of CKI’s general claims against Warnaco and its affiliates. He also granted Wachner’s motion to dismiss her from four breach of contract claims — those involving the quality assurance, jeanswear, accessories and outlet store agreements. However, the main thrust of the complaint involving claims of trademark infringement continues against Warnaco and Wachner.
In addition to the CKI dispute, Warnaco is embroiled in a series of shareholder lawsuits seeking class-action status. The first of those suits was filed on Aug. 22 in Manhattan, alleging federal securities law violations.
While tending to its legal concerns, Warnaco also will have its hands full fixing its ailing business. The firm is expected to report third-quarter results around Nov. 2.
Shares of Warnaco closed Tuesday at $2.69, down 6 cents, in trading on the New York Stock Exchange. The 52-week high is $19.13 and the low $2.19.
The Warnaco Group is a manufacturer of intimate apparel, men’s wear, jeanswear, swimwear, men’s and women’s sportswear, better dresses, fragrances and accessories. In addition to Calvin Klein, Warnaco manufactures product under such brand names as Warner’s, Olga, Fruit of the Loom bras, Van Raalte, Lejaby, Weight Watchers, Bodyslimmers, Izka, Chaps by Ralph Lauren, Speedo/Authentic Fitness, Polo by Ralph Lauren, Oscar de la Renta, Anne Cole Collection, Cole of California, Catalina and ABS.