Wet Seal Denied Injunction

In another blow to Wet Seal Inc., a Superior Court judge Monday denied the struggling retailer’s request for a preliminary injunction that it claimed was needed to protect its trade secrets and stem the flow of workers to competitor Bebe Stores Inc.

The hearing is just one skirmish in a legal battle that is underway involving the two retail rivals and Bebe Chief Executive Greg Scott, who until January was president of Wet Seal’s Arden B. division.

Foothill Ranch-based Wet Seal has sued Scott and Bebe, contending that they used information that Scott was privy to as the divisional president to lure key employees from Arden B., its most successful apparel chain.

At Monday’s hearing, Wet Seal asked for a preliminary injunction that would extend an existing temporary restraining order against Scott. The retailer also sought an injunction against Bebe.

Appealing to Judge David A. Thomson, Wet Seal attorney Joanna Kim said that Scott already had “gutted” a large part of Arden B. but that it didn’t mean he was finished recruiting workers.

“That is the division that was doing extremely well,” Kim said. “It’s very important for the company to keep Arden B. alive.”

“We’re talking about trying to stabilize a company,” she added.

Though Wet Seal’s fortunes are tied largely to its struggling namesake chain for teenagers, the more successful Arden B. division -- which caters to young women with more sophisticated clothing -- accounts for about 20% of the retailer’s annual revenue of $500 million.

But Judge Thomson denied Kim’s request, saying Wet Seal hadn’t sufficiently demonstrated a threat that Arden B. employees would be unlawfully recruited in the future.

“It looks to me like the key people have gone,” he said.

Wet Seal maintained in its lawsuit that Scott left the company without “good reason” and took with him priority information that he did not return.

As president of Arden B., the lawsuit contends, he had access to fashion concepts, designs for future seasons and information about the compensation of other employees, among other things.

Meanwhile, other key division workers left to take jobs at Bebe, including the vice president of production and design, a former project manager and two other design team members.

Neither Wet Seal nor Bebe executives were available for comment Monday.

After the lawsuit was filed, Bebe said in a statement that it “believes that its actions have been lawful and it will continue to defend itself vigorously.”

The lawsuit comes at a difficult time for Wet Seal, which has been struggling for two years to boost sales.

In March, Wet Seal logged its 21st straight month of same-store sales declines. Same-store sales are a key indicator of a retailer’s health because they include only sales from stores open at least a year.

Conversely, Bebe, based in Brisbane, Calif., in March posted its 15th straight month of positive results.

Wet Seal’s stock, which has lost 21% of its value over the last year, hit a 52-week low in trading Monday before closing at $7, down 91 cents, on Nasdaq.

Bebe’s stock, which has more than doubled in the last year, closed at $33.52, up 31 cents, also on Nasdaq.