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BCBG Says Court Can Quickly Resolve Azria Contract Feud

Bankrupt women's apparel company BCBG Max Azria Group Inc. Wednesday again pushed for a quick resolution of its contract dispute with founder Max Azria and his wife Lubov, once again arguing the company’s 2015 restructuring agreement and Lubov’s employment agreement are two separate contracts.
While the Azria’s have fought BCBG’s attempt to cancel Lubov’s contract with the argument it can’t be canceled while leaving the restructuring agreement intact, BCBG argued again that the contracts are unambiguously separate and a summary judgment should be granted.
“No one is arguing that the two contracts were not entered into as part of the broader restructuring. No one is arguing that the two agreements were unimportant,” it said. “Instead, the question here is ‘Are they one contract entered into at the same time, or two contracts effective as of different dates?’The answer is clearly the latter.”
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.
In their latest argument the Azrias claimed they would not have agreed to the restructuring without the employment contract, but BCBG argued this was immaterial to the fact the agreements have inconsistent terms, including different parties, effective dates and dispute resolution forums.
“There are two primary undisputed facts that Mrs. Azria cannot contest: (1) the employment agreement contains an integration provision to which Mrs. Azria is a party; and (2) the contribution agreement contains an integration provision to which Mrs. Azria is not expressly a party,” it said.
Counsel for the Azrias and BCBG did not immediately respond to requests for comment Friday.
Also on Wednesday Judge Shelley C. Chapman approved BCBG’s request to enter into a $2 million trademark licensing agreement with Global Brands Group.
The agreement will allow GBG USA Inc. to use some of the fashion house’s iconic marks for the manufacture, marketing, and distribution of products like footwear, jewelry and home products for its 2017 collections. The initial term of the license agreement, which contemplates a minimum royalty fee of $2 million, extends until Feb. 3, 2018.
Under the agreement, BCBG will allow the branding company to use its marks on an array of products sold across the world, except in Korea. During the annual period, GBG must produce and sell two seasonal collections of products, and provide the debtors with an additional percentage of sales revenue once it recoups all of its upfront minimum royalty payment.
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.