California Apparel News

J Brand Inc., a chic line of blue jeans that pioneered the skinny-leg concept, is embroiled in a legal squabble that could place 40 percent of the Los Angeles–based company in the hands of its original investors.

Industry veterans Colin Dyne and Todd Kay, who loaned J Brand $130,000 two years ago, have gone to court to get a chunk of the blue-jeans venture that has become a popular label selling for $150 to $255 a pair.

Dyne, recently named chief executive and co-chairman of the Los Angeles–based blue-jeans company People’s Liberation, and Kay, vice chairman of Los Angeles industry giant Tarrant Apparel Group, filed a lawsuit in October charging J Brand founder Jeff Rudes with fraud. Also named in the lawsuit were J Brand partners Susan Crippen—a one-time celebrity stylist and now creative director— and Ken and Keeson Choi.

After a flurry of legal papers were exchanged by both sides, a trial date was set for Sept. 11 in Los Angeles County Superior Court.

The dispute started around May 2005 when Dyne and Kay, who run a private investment company called Forte Venture Partners, loaned Rudes and his budding enterprise $130,000 at 5 percent interest, to be repaid by the end of June 2005, court documents said.

Rudes’ label debuted in spring 2005 as an exclusive item at Ron Herman’s jeans bar on Melrose Avenue. The pant quickly caught on with its simple and sophisticated look and styling that was much cleaner than the heavily embellished blue jeans found on many store shelves at the time.

J Brand’s jeans got lots of press in a number of national fashion magazines.

But by May 2006, Rudes had not repaid the loan, court papers said. According to the loan agreement, if the funds were unpaid, Dyne and Kay could convert the loan into a 40 percent equity share of J Brand.

But Rudes told the two investors his company was financially strapped and wouldn’t be a good investment for the creditors, according to the lawsuit.

So the two sides hammered out a settlement agreement in which Rudes would repay the investors $145,000, or $15,000 over the original loan amount, by the end of December 2006.

Rudes made two payments on the loan, totaling $80,000, and cut a check for a third payment when Dyne and Kay, according to court documents, said they learned that J Brand was far from penniless. They maintain the company had made a $10 million profit in fiscal 2006.

“When they found out how well the company was doing, they were very upset,” said Dyne and Kay’s attorney, Jeffrey Gersh, who added that he and his clients are requesting J Brand’s financial records to verify the company’s profits. “Jeff [Rudes] fraudulently induced my clients to give up their interest in the company for the repayment of the note.”

Dyne and Kay estimate they are owed at least $4 million of that $10 million profit as well as punitive damages, Gersh said.

“The lawsuit is absolutely meritless,” said Robert Esensten, representing J Brand.

The attorney said Dyne and Kay failed to comply with an agreement they had a couple of years ago to invest in the company. In the settlement agreement signed in 2006, Rudes released them from the obligation to invest in the company, Esensten said. “They failed to come up with the funds and failed to make the investment. So when we returned their money and they received their money, they have now sued us believing J Brand has done very well since that time,” he said.

Disputes surrounding start-up blue-jeans companies are familiar territory in Los Angeles. In 2004, a judge awarded designer Jerome Dahan and marketing man Michael Glasser, partners in the 7 For All Mankind venture, $56 million. In 2002, Dahan and Glasser filed a lawsuit maintaining that their partner and financial backer Peter Koral shortchanged them profits from the highly successful blue-jeans label the three launched in 2000.—Deborah Belgum