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BCBG Founder, Wife Fight Bid to End Contract Dispute

Bankrupt women's apparel company BCBG Max Azria Group Inc. founder Max Azria and his wife Lubov on Saturday asked a New York bankruptcy court to keep their adversary action against the company alive, arguing her employment agreement and the company’s 2015 restructuring are inextricably linked.

The pair claimed in their motion opposing summary judgment in the case that they only agreed to the  restructuring agreement with the understanding Lubov’s employment was tied to it, and that canceling the employment agreement as BCBG has proposed would leave so many undefined terms and missing provisions as to “eviscerate” the restructuring agreement.

“In other words, without the employment agreement there would have been no contribution agreement, and without the contribution agreement there would have been no employment agreement. The two are inextricably intertwined and, as a matter of form and substance, constitute the parties’ agreement,” they said.

The fashion house, founded by Max Azria in 1989, filed for Chapter 11 protection in New York late last month with the hope of restructuring more than $500 million worth of debt. As part of its efforts to cut costs while continuing to operate, BCBG fired Lubov Azria on March 8, and two weeks ago moved to reject her employment agreement, saying it is in the best interest of the debtors' estates. The agreement provides for an approximately $7 million golden parachute payment that the debtors aim to have rejected.

In an effort to block the move, the Azrias filed an objection and an adversary complaint on March 24, saying Lubov Azria's contract is integrated with a 2015 out-of-court restructuring agreement that ensured the couple's long-term employment and a measure of continued control as part of giving up sole equity ownership to an outside investor. They claim that the employment agreement cannot be rejected unless the entire restructuring agreement is as well.

The company, which believes that the contract in question contains an integration provision reflecting that the employment agreement stands alone, said it is seeking to resolve the dispute before a May 19 deadline for potential purchasers to bid on the company's assets. The company argued the restructuring agreement explicitly states Lubov Azria is not a party to its integration clause, and that the employment agreement expressly states it is the entire agreement between Azria and BCBG.

The Azrias argued the signature block specifications in the agreement stating the Arizas are parties to specified sections of the restructuring agreement are there to protect the Azrias from personal liability in certain specified areas.

“The effect of these specifications is to negate any argument that a general, unqualified signature could make the Azrias personally liable as to matters over which they have no control,” they said.

The Azrias argued the two agreements “substantially” cross reference each other and that the restructuring agreement contains terms that are only defined in the employment agreement and refers to the employment contract for such basic provisions as the amendment process and choice of forum, rendering one incomplete and meaningless without the other..

The motion also includes declarations from both Azrias in which they claim they would not have agreed to the restructuring if Lubov Azria’s contract was not part of the deal.

“Max and I gave up a lot in the February 2015 restructuring, including 80 percent of our business. The most important thing I received in exchange was the employment agreement, which guaranteed that I would have a livelihood and some measure of protection (in the form of severance) if the new majority owners of the company decided to part ways with me,” Lubov Azria said in her statement.

Counsel for the Azrias declined comment. Counsel for BCBG did not immediately respond to requests for comment late Monday.

Over the past three decades, the high-end purveyor of women's clothing grew to more than 550 stores across the U.S., Canada, Europe and Japan. Though the company has enjoyed years of success, it has seen a downturn in net sales over the past few years, declining more than 20 percent since 2014, from $785 million to approximately $615 million in the most recent fiscal year, according to Chief Restructuring Officer Holly Felder Etlin.

BCBG is represented by Joshua A. Sussberg, Christopher J. Marcus, James H.M. Sprayregen and Benjamin M. Rhode of Kirkland & Ellis LLP.

The Azrias are represented by Thomas E. Patterson, Robert J. Pfister and Sasha M. Gurvitz of Klee Tuchin Bogdanoff & Stern LLP, and Martin D. Singer and Todd S. Eagan of Lavely & Singer PC.

The case is In re: BCBG Max Azria Global Holdings LLC, et al., case number 1:17-bk-10466, in the U.S. Bankruptcy Court for the Southern District of New York.