When John Varvatos filed for bankruptcy in May, the style model’s largest creditor was not the proprietor of any of its respective brick-and-mortar retailer’s real property, such as its outpost in East Hampton, New York, its retailer in Caesar Palace in Las Vegas or its store in Malibu Country Mart. It equally was not any of its suppliers that provide the required textiles that the model uses to make its rock-n-roll inspired jackets or distressed denim. No, it was a bunch of class-action lawsuit claimants, who’re collectively seeking $5.2 million of the greater than $100 million that Varvatos owes to collectors.
Because it turns out, the cash is owed to the group of ladies that stems from the category motion sex discrimination lawsuit that former John Varvatos worker Tessa Knox filed towards the model in a New York federal court docket in February 2017 on behalf of herself and similarly-situated female sales associates. Knox and almost 70 different current and former John Varvatos staff accused the brand of pay discrimination on the premise of gender because of the truth that its clothes allowance considerably favors male staff at the expense of feminine staff. To be precise, Varvatos had a practice of offering male staff with a $12,000 clothes allowance so they might put on the model’s attire whereas working (in accordance with firm policy), whereas feminine staff would receive a 50% discount when shopping at Varvatos’s sister brand, AllSaints, the worth of which was capped at $5,000 per yr.
In late March, on the heels of a jury trial centering on the gender discrimination claims, Judge Gabriel Gorenstein, a federal magistrate judge for the U.S. District Court for the Southern District of New York, ordered that Varvatos pay over $5.2 million in damages and authorized charges to the class of feminine workers.
Inside a few months of the jury verdict and subsequent attorney’s fees award, Varvatos had filed for Chapter 11 with out paying the multi-million $ sum it owed to the plaintiffs. Consequently, Knox sought to achieve an upper hand by way of the $5.2 million by asking the Delaware bankruptcy court to basically downgrade the secured claim held by Varvatos’ current non-public equity backer Lion Hendrix Cayman Ltd. (“Lion”). In an inter-bankruptcy grievance filed in June, Knox argued that she and the opposite class action plaintiffs are entitled to “equitable subordination,” a bankruptcy mechanism that will protect their right to proper payment by reordering their claim and that of secured creditor Lion Capital.
Lion, as a secured creditor, has precedence over Knox and the opposite class action plaintiffs, which is an issue, she argued, given that Lion “fully understood that [Varvatos] engaged in intentional and unlawful sex discrimination by way of its [employee] clothes allowance policy.” As a result of this, “Lion currently controls the [Varvatos’] Board of Directors, and subsequently controls the company,” it “not only encouraged [Varvatos] to continue that discrimination, but facilitated it,” Knox argued.
In opposition to that background and in light of the truth that Varvatos has “disclosed that its proposed sale [to Lion] would all but extinguish [Varvatos’] unsecured collectors,” Knox argued that equitable subordination – or a reordering of the relative precedence of claims because of the misconduct of 1 creditor that causes harm to others – is warranted right here since with a purpose to make sure that she and other plaintiffs are paid before Lion acquires Varvatos and thereby, forgives some $76 million in current debt.
Sadly for Knox, the U.S. Bankruptcy Court for the District of Delaware didn’t agree. In a decision dated July 10, Chapter Judge Mary F. Walrath dismissed the grievance after asserting in a virtual hearing that the plaintiffs did not make their case as to Lion’s involvement in Varvatos’ discriminatory clothes allowance policy. Unhappy with the end result, counsel for Knox has since appealed the court’s choice, and within the meantime, Knox has joined various different unsecured collectors of Varvatos which might be searching for to block the Lion deal by submitting a motion on July 11 to “join the objection of the Official Committee of Unsecured Creditors” on the premise that “she is entitled to equitable subordination of the asserted liens of the proposed credit bidder, Lion Hendrix Cayman Ltd. as requested in [her previous] adversary continuing.”
The pool of unsecured collectors is taking situation with Varvatos’ movement for an order approving the sale of its property to Lion “free and away from claims, liens, and encumbrances.”
*The case is Tessa Knox v. Lion/Hendrix Cayman Limited, 20-50623 (U.S. Bankruptcy Court for the District of Delaware).