Esprit Principals Say They Plan to Countersue : Retail: A minority owner has accused the clothing company of illegally diverting profit and assets overseas.
The principal owners of Esprit de Corp., the San Francisco-based clothing maker, plan to contest a lawsuit that accuses them of illegally diverting more than $250 million in assets and profit to an overseas affiliate.
Bruce Katz, who owns 25% of the company, filed two related lawsuits Wednesday in U.S. District Court in San Francisco against Esprit co-founder Susie Tompkins and Michael Ying. Tompkins owns 42% of Esprit and Ying owns 33%. Ying heads the affiliate that is also named as a defendant: Hong Kong-based Esprit Far East Ltd., a purchasing agent.
Also named as defendants are John Short, a former director at Esprit Far East, and Isaac Stein, a current director at the Hong Kong firm.
In the lawsuits, Katz accuses Tompkins and Ying of allowing Esprit Far East to overcharge U.S.-based Esprit for clothing orders, which “had a ruinous impact” on Esprit, “increasing its costs of goods sold and significantly reducing its profit margin.”
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The court documents claim that the arrangement was designed to artificially depress Esprit’s financial value and was part of a scheme to prompt Katz to sell his shares to Tompkins and Ying cheaply, giving the two full control of the company.
Tompkins, however, said in a statement Wednesday that Katz was making “reckless allegations” after having tried and narrowly failed to negotiate the sale of his stake to the other owners. Tompkins’ statement said she is “nevertheless hopeful that a purchase will occur.”
“It is clear that he (Katz) initiated litigation to improve his leverage in negotiations,” Dan Titelbaum, Tompkins’ attorney, said Thursday.
In the meantime, Tompkins and Ying are planning to bring counterclaims against Katz to court, Titelbaum said.
One of the Katz suits seeks at least $36 million in damages--the estimated value of his investment if he had not put his money into Esprit.
The other, a shareholder suit on behalf of Esprit, seeks at least $300 million from the defendants for damages allegedly resulting from the company’s dealings with Esprit Far East.
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Katz also claims that Tompkins broke a promise not to interfere with day-to-day management of the company.
He claims that Esprit’s top officers were not allowed to operate independently and solve the company’s financial problems. He says such interference led to much turnover in recent years.
Esprit has had four chief executives during the last two years. The latest change came Tuesday, when Esprit announced that David Folkman had replaced Fritz Ammann as the company’s president and chief executive.
Katz, founder of Rockport Shoe Co. of Boston, was among the group of investors who acquired Esprit in 1990. He invested $30 million at the time.
