People's Liberation Settles Lawsuit With Charlotte Russe

After more than a year of litigation and accusations, Los Angeles–based People’s Liberation said it has received an undisclosed amount of money to settle its contract dispute with mall-based retailer Charlotte Russe Inc.

In regulatory papers filed Feb. 8, People’s Liberation said the two sides signed a separation agreement for a three-year contract where People’s Liberation was to exclusively provide its People’s Liberation label of clothing and accessories to the San Diego–based chain of 560 stores, which caters to women ages 15 to 35. The value of the three-year contract, signed Dec. 15, 2008, was originally pegged at $65 million.

While no amount was named in the settlement, People’s Liberation last August sold half of the net proceeds it was hoping to receive from any settlement in the case to two parties for $750,000, according to documents filed with the Securities and Exchange Commission. As a result of the recent settlement agreement, Colin Dyne, the chief executive of People’s Liberation, received a $275,000 cash bonus.

Neither Dyne nor attorneys for both parties returned calls to comment about the settlement. But court documents paint a contentious relationship between the two sides, resulting in a designer being locked out of her office.

Two top-level executives have left the company and signed consulting agreements to provide the same services they did as full-time employees. The agreements expire at the end of the year.

Darryn Barber, the company’s president and chief financial officer, left at the end of 2010. Thomas Nields, who had been the company’s chief operating officer, left the company on Feb. 3. Rick Spielberg—who has worked at Los Angeles denim companies Dylan George, Hudson and Blue Holdings—has been named president of wholesale. People’s Liberation also makes clothing under the William Rast and J. Lindeberg USA labels.

The People’s Liberation legal dispute started shortly after Charlotte Russe was acquired in October 2009 by private investment firm Advent International Corp. in San Francisco. A whole new set of executives took over.

The three-year contract with the retailer called for People’s Liberation to exclusively design, source and deliver a line of value-based apparel that would appeal to the young female shopper who frequented Charlotte Russe stores throughout the United States. People’s Liberation made its first delivery of clothing in June 2009.

People’s Liberation was to design premium-denim jeans that would sell for $88 to $98, knit tops that would go for $30 to $35 and graphic T-shirts that would fetch $18 to $25. During the first year of the contract, Charlotte Russe was committed to buying $15 million in merchandise. During the second and third year of the contract, the retailer was to purchase $25 million in merchandise each year.

Marcella Lindeberg, who with then-husband Johan Lindeberg had been designing the William Rast line, was signed on for $170,000 a month to be the creative director for the now-exclusive People’s Liberation line. She sat in on some pitch meetings and was one of the major reasons Charlotte Russe said it agreed to the three-year commitment after she promised to be part of the line’s creative team until the end of 2010, court filings showed.

Even before People’s Liberation made its first deliveries to Charlotte Russe in June, it was having its differences with Marcella Lindeberg, court filings showed. Charlotte Russe said in court documents that it felt Lindeberg’s input into the creative process was sporadic and minimal. Her participation ended in late May when People’s Liberation executives locked Lindeberg and her team out of the People’s Liberation offices, prompting her to pack up her family and move back to New York, court papers said.

Before Lindeberg’s departure, People’s Liberation had hired another designer, Angela Furlong, to assume creative responsibilities for the line being sold to Charlotte Russe, legal documents show. Yet, Furlong didn’t attend any meetings with the retailer and became so frustrated about being the hidden designer that she wrote People’s Liberation’s director of sales asking him when she might come out of the closet, legal papers showed.

By July, Charlotte Russe was pressuring People’s Liberation’s Dyne to have Lindeberg show up at a meeting, the retailer said in court filings. Dyne then contacted Lindeberg in New York and signed her to another contract, for $20,000 a month, with reduced responsibilities, court documents showed. Soon after, Lindeberg showed up for a launch event in New York for Charlotte Russe’s new product line. Court documents show that Lindeberg made one more trip to Los Angeles to hand over her general concepts for the People’s Liberation line and then returned to the East Coast. Charlotte Russe said it didn’t discover that Furlong had been designing the line until August 2009.

At the same time, the retailer was complaining about the quality of merchandise it was receiving. In court filings, it said that in an August meeting, it told People’s Liberation it felt the merchandise was substandard and asked People’s Liberation to take it back. People’s Liberation refused and said the merchandise was fine.

Between June and October 2009, according to court documents, People’s Liberation shipped $6 million in goods to Charlotte Russe, which were paid for by the retailer.

Meanwhile, Charlotte Ruse, then a publicly traded company, hired Cowen & Co. to look for a buyer after a hostile-takeover bid by investment company Karp & Reilly. On Oct. 14, 2009, Advent International acquired Charlotte Russe for $380 million.

Nearly two weeks after the purchase, Charlotte Russe, under the leadership of its new chief executive, Jenny Ming, sent People’s Liberation a termination notice saying it had been “fraudulently induced” to enter into the contract and was rescinding the agreement. On Oct. 26, Charlotte Russe filed a lawsuit in Los Angeles County Superior Court against People’s Liberation for fraud and breach of contract. The following day, People’s Liberation filed a lawsuit against Charlotte Russe for breach of contract and fraudulent misrepresentation. People’s Liberation was seeking $59 million in compensatory damages as well as punitive damages.

The case was scheduled to go to trial on Jan. 24, but the two parties agreed to an out-of-court settlement on Jan. 20.