Blue Cop in the Red

Cathay Bank seizes assets of Blue Cult’s manufacturing division

The bad news just keeps coming for Blue Cult.

Cathay Bank has taken possession of all the present and future assets of Blue Cop, the manufacturing arm of denim maker Blue Cult.

The seized items, which include everything from inventory and equipment to accounts receivable and software, will be sold to cover Blue Cop’s debt. Cathay Bank filed a promissory note and collections suit against Blue Cop on Jan. 30 in Los Angeles Superior Court. According to court documents, as of Jan. 24, Vernon, Calif.–based Blue Cop owed Cathay Bank more than $2 million.

Robb Evans & Associates LLC is the court-appointed receiver that will marshal the liquidation of Blue Cop’s collateral. According to the court order, Robb Evans will take possession of Blue Cop’s headquarters at 2305 E. 52nd St. and seize, manage and control all of Blue Cop’s assets. Blue Cop denies it is headquartered at 2305 E. 52nd Street, saying it is actually located at 2315 E. 52nd St. It is unclear if Blue Cop owns the properties, which together total 38,000 square feet. Blue Cult, which is in the process of relaunching its premium-denim offerings, is headquartered at 2305 E. 52nd St.

Mark Boutros, an associate at the Los Angeles–based Grubb & Ellis real estate firm, which specializes in industrial properties, said buildings of similar size in Vernon have sold for up to $143 per square foot.

No word on what, if anything, has been sold. According to court documents, Blue Cop owes Cathay Bank approximately $2 million plus nearly $14,000 in interest and $50,000 in legal fees.

Hal Goldflam of Frandzel Robins Bloom & Csato, part of Cathay Bank’s legal team, declined to comment on the case.

The news comes amid rumors that Blue Cult cofounders David Mechaly and Caroline Athias have separated and persistent reports that the jeans company’s business is seriously foundering. As previously reported in California Apparel News, Blue Cult has laid off up to 50 percent of its work force in the last year and has struggled with production and slumping sales. According to Michael Mechaly, Blue Cult’s new president, the denim maker is hoping to bring its distribution back in-house. The brand, which had its heyday in the early days of the premium-denim craze, has lost significant market share in the last several years. Several offshoot brands, including Sacred Blue, Sacred, Blue Cult Knits and Blue Cult Elite, have been discontinued. Blue 2, the company’s junior denim line, is licensed to Irvine, Calif.–based manufacturer and distributor nZania.

David Mechaly didn’t respond to a request for comment. It is unclear how Blue Cop’s troubles will affect Blue Cult, though in an earlier interview, Michael Mechaly indicated the brand was using local contractors to manufacture its denim.

Future hearings on this matter are scheduled for June 6 and July 10.