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BCBG Seeks Early End to Founder's Ch. 11 Contract Fight

04 April 2017

Bankrupt women's apparel company BCBG Max Azria Group Inc. on Monday asked a New York bankruptcy court to end an adversary action brought against it by company founder Max Azria and his wife Lubov, BCBG's former chief creative officer, arguing her employment is not tied to a 2015 restructuring agreement.

While the Azrias claim the employment and restructuring agreements are tied together and one cannot be dissolved without the other, the company argued in its summary judgment motion that Lubov was explicitly excluded from the restructuring agreement’s integration clause and that the agreements differ in parties, termination provisions and governing law.

“Contracts with conflicting terms cannot be integrated,” the company said in its motion.

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 company also argued that unlike the employment agreement, it is not a party to the restructuring agreement and that the agreements have different termination provisions. It also argued the employment agreement calls for disputes to be arbitrated under California law, while the restructuring agreement is expressly governed by New York law.

“This is perhaps the best illustration of why integration of these contracts is impossible. Imagine, for the moment, that a court decided to treat the two contracts as one, how would disputes be resolved; would they be litigated in New York applying New York law or arbitrated in California applying California law?” it said.

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

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.

Joshua A. Sussberg, P.C.

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