SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
March 7, 1997
-------------
(Date of Report) (Date of earliest event reported)
NANTUCKET INDUSTRIES, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
1-8509 58-09626(99)
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(Commission File Number) (I.R.S. Employer
Identification No.)
105 Madison Avenue, New York, NY 10016
-------------------------------- -----
(Address of principal executive offices) (Zip Code)
(212) 889-5656
--------------
Registrant's telephone number, including area code
----------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Item 5. Other Events.
- ---------------------
On March 7, 1997, Nantucket Industries, Inc. (the "Company") filed a
Complaint in the Superior Court of California, County of San Francisco, against
Levi Strauss & Co. and its wholly owned subsidiary, Brittania Sportswear Limited
("Brittania"), seeking compensatory damages estimated to be in excess of
$37,000,000. In addition, the Company is seeking injunctive relief and an
undisclosed amount of punitive damages.
The Company has been a licensee of Brittania since 1988 and currently,
the Company manufactures and distributes men's underwear under the trademarks,
"Brittania" and "Brittania from Levi Strauss". A new License Agreement was
entered into as of January 1, 1997 and on January 22, 1997, Levi Strauss
announced that it was putting its Brittania subsidiary up for sale. The
Company's customers include K-Mart, the nation's largest retailer of "Brittania"
clothing and the Company has been advised by K-Mart that it is reviewing its
on-going commitment to the trademark "Brittania from Levi Strauss & Co." in
light of the action announced by Levi Strauss. Nantucket estimates that its
sales of Brittania from Levi Strauss & Co. for the nine months ended November
30, 1996 were $11,600,000. A decision by K-Mart to cease selling underwear under
this trademark could have a material adverse effect on the Company. In light of
these events, the Company filed its lawsuit.
A copy of the Complaint and the Press Release issued by the Registrant
are filed herewith.
The above discussion is qualified in its entirety by reference to the
Complaint and Press Release discussed, copies of each of which are attached
hereto as Exhibits and incorporated herein by this reference.
Item 7
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(c) Exhibits
Exhibits which, in their entirety, are incorporated by reference to any
report, exhibit or other filing previously made with the Securities and Exchange
Commission are designated by an asterisk (*) and the location of such material
is included in its description.
<TABLE>
<CAPTION>
Exhibit No Description Page No.
- ---------- ----------- --------
<S> <C> <C>
99(q) Complaint filed on March 7, 1997 with the Filed Herewith
Superior Court of California for the County of
San Francisco C.A. No.985160, Nantucket
Industries, Inc. v. Levi Strauss & Co., and
Brittania Sportswear Limited.
99(r) Press Release dated March 10, 1997 Filed Herewith
</TABLE>
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NANTUCKET INDUSTRIES, INC.
By: /s/ Ronald S. Hoffman
---------------------------------
Ronald S. Hoffman, Chief Financial
Officer
Dated: March 11, 1997
3
INDEX TO EXHIBITS
Filed Herewith
<TABLE>
<CAPTION>
Exhibit No Description Page No.
- ---------- ----------- --------
<S> <C> <C>
99(q) Complaint filed on March 7, 1997 with the
Superior Court of California for the County of
San Francisco C.A. No.985160, Nantucket
Industries, Inc. v. Levi Strauss & Co., and
Brittania Sportswear Limited.
99(r) Press Release dated March 10, 1997
</TABLE>
PRESS RELEASE
Nantucket Industries, Inc. (ASE-NAN), filed a $37 million lawsuit on
Friday against Levi Strauss & Co. in state court in San Francisco, California.
The lawsuit arises out of Levi's announcement on January 22, 1997, that
it was putting its Brittania Sportswear, Ltd. subsidiary up for sale. Nantucket
manufactures and markets men's fashion undergarments under the licensed
trademark "Brittania from Levi Strauss & Co." Nantucket has been a licensee of
Brittania's since 1988. The parties entered into a new license agreement
effective January 1, 1997, only three weeks before Levi's surprise announcement.
Nantucket's complaint alleges that it was defrauded into entering into
the new license agreement by Levi's decision last year to link Brittania's
marketing program with Levi. Prior to last year, Nantucket was licensed to
market only under the trademark Brittania. Nantucket alleges that Levi last year
convinced Nantucket and other licensees and retailers to concentrate their
marketing effort on the new trademark, "Brittania from Levi Strauss & Co." In
reliance on this new trademark, Nantucket claims that it severed its long-term
relationship with a competing brand. Nantucket also has alleged other claims
against Levi and Brittania, including breach of contract, negligent
misrepresentation and unfair competition. In addition to an award of damages,
Nantucket's complaint seeks injunctive relief and punitive damages in an
unspecified amount.
Nantucket's customers include K-mart, the nation's largest retailer of
"Brittania" clothing. The Company has been advised by K-Mart that it is
reviewing its on-going commitment to the trademark "Brittania from Levi Strauss
& Co." in light of the action announced by Levi Strauss. Nantucket estimates
that its sales of Brittania from Levi Strauss & Co. for the nine months ended
November 30, 1996 were $11,600,000. A decision by K-Mart to cease selling
underwear under trademark could have a material adverse effect on the Company.
Stephen Samberg, Chairman of the Board of Nantucket Industries, Inc.
stated that, "It is obvious that Levi's new management has reneged on its
commitment to abide by the Code of Ethics that has caused Levi to be viewed as
one of the premier corporate citizens in the business world."
Nantucket Industries, Inc. is a manufacturer of men's underwear and
ladies intimate apparel sold under many national brand names.
DANIEL RAPAPORT (Bar No. 67217)
DAVID GOLDMAN (Bar No. 76551)
WENDEL, ROSEN, BLACK & DEAN, LLP
ATTORNEYS AT LAW
P.O. BOX 2047
OAKLAND, CALIFORNIA 94604-2047
(510) 834-6600
JOSEPH P. DAVIS III
(Pro Hac Vice Admission Following)
LANE ALTMAN & OWENS LLP
101 Federal Street
BOSTON, MASSACHUSETTS 02110
(617) 345-9800
Attorneys for Plaintiff
Nantucket Industries, Inc.
SUPERIOR COURT OF CALIFORNIA
COUNTY OF SAN FRANCISCO
NANTUCKET INDUSTRIES, INC. a No. 985160
Delaware corporation,
COMPLAINT FOR DAMAGES AND
Plaintiff, DECLARATORY RELIEF
vs. DEMAND FOR JURY TRIAL
-------------------------
LEVI STRAUSS & CO., a Delaware
corporation, and BRITTANIA
SPORTSWEAR LIMITED, a California
corporation,
Defendants.
- ---------------------------------
INTRODUCTION
The plaintiff, Nantucket Industries, Inc., a clothing manufacturer for
nearly five decades, extended its long-term relationship with defendants by
entering into a contract with the defendant, Brittania Sportswear, Ltd., a
wholly-owned subsidiary of the defendant, Levi Strauss & Co., as of January 1,
1997, to manufacture and distribute men's underwear with
the licensed trademarks "Brittania" and "Brittania from Levi Strauss & Co."
Three weeks later, Levi Strauss & Co. publicly announced - to the complete
surprise of the plaintiff - that it was putting Brittania up for sale. Almost
immediately thereafter, K-Mart, retailer of 80% of the Brittania line of
clothing and virtually all of the men's underwear manufactured and sold by the
plaintiff, predictably declared that it would cease selling clothes bearing the
Brittania label. This callous and calculated decision by Levi Strauss & Co. has
jeopardized the continued existence of the plaintiff. Nantucket Industries, Inc.
alleges, among other things, that the defendants defrauded the plaintiff into
becoming an exclusive licensee, willfully breached the letter and spirit of the
License Agreement and committed acts of unfair competition. In addition to an
award of punitive damages, the plaintiff seeks injunctive and declaratory relief
and compensatory damages estimated to be in excess of $37 million.
THE PARTIES
1. The plaintiff, Nantucket Industries, Inc. ("Nantucket"), is a
Delaware corporation with a principal place of business in New York City, New
York.
2. The defendant, Levi Strauss & Co. ("Levi"), is a Delaware
corporation with a principal place of business in San Francisco, California.
3. The defendant, Brittania Sportswear Limited ("Brittania"), is a
California corporation with a principal place of business in Renton, Washington.
Brittania is a wholly-owned subsidiary of Levi.
JURISDICTION AND VENUE
4. Jurisdiction and venue in this Court are appropriate because the
principal place of business of defendant Levi is in this county.
5. The parties also agreed in the contract that gave rise to this
litigation that any disputes arising out of that contract must be adjudicated in
a state or federal court located in the State of California.
2
THE FACTS
THE PARTIES ENTERED INTO A LICENSE AGREEMENT.
6. Nantucket is a reputable manufacturer of men's and women's
underwear. It has been in the business of manufacturing and distributing
garments for a half-century. Nantucket currently has over 200 employees at its
manufacturing and distribution facility in Cartersville, Georgia.
7. Levi is one of the largest and most renowned manufacturers and
retailers of clothing in the world. Consumers around the globe associate the
name "Levi" with quality, durability and good value. Levi is among the most
recognizable names in the casual clothing industry. Although best known for its
trademarked denim jeans, Levi also manufactures and sells, by itself or through
licenses to others, a variety of other clothing. Through Brittania, a
wholly-owned subsidiary, Levi sells, or licenses others to sell, a distinctive
line of moderately-priced clothing, including men's underwear, in national and
regional discount channels.
8. In 1988, Nantucket and Brittania entered into a license agreement,
pursuant to which Nantucket was granted the exclusive license to manufacture,
market and distribute Brittania underwear in the United States. The relationship
proved to be profitable and mutually-beneficial. The parties entered into a
second license agreement in 1991, which they extended until the end of 1996.
9. Throughout the period from 1988 through mid-1996, Nantucket
continued to manufacture and distribute Brittania underwear in the United States
under this exclusive license. With full disclosure to Levi, Nantucket also
manufactured and sold underwear under several different trademarks pursuant to
contractual arrangements with other parties. During this same time period,
Nantucket was licensed to manufacture men's underwear from a competitor of
Brittania for distribution in national and regional discount channels. Levi was
aware of this arrangement and nothing in Nantucket's previous license agreements
3
with Brittania prevented it from doing so.
10. In early-1996, Levi changed its marketing of the Brittania line to
emphasize the relationship between Brittania and Levi. At the MAGIC industry
trade show in February, 1996, Levi unveiled its new marketing strategy.
Licensees, including Nantucket, were authorized and encouraged to display
Brittania's new logo, "Brittania from Levi Strauss & Co.", to existing and
potential accounts. Nantucket and other licensees were informed that Brittania's
"logo identity standards" now authorized licensees to use the new logo. "The
identification of Brittania Sportswear Ltd.'s connection with Levi Strauss &
Co.," Brittania informed its licensees, "is approved for use on printed
advertising only. Printed, in store materials, such as point of sale
advertising, as well as print advertising distributed to consumers, such as
Sunday circulars, are examples of acceptable uses." Nantucket was instructed by
Brittania that the logo, "Brittania from Levi Strauss & Co.," was "authorized
for print advertising involving all Brittania products" (emphasis in original).
11. The emphasis by Brittania of the close affiliation with Levi caused
Nantucket to re-evaluate its marketing strategy. In reliance on Nantucket's
authorized use of the logo, "Brittania from Levi Strauss & Co.," Nantucket
agreed to become an exclusive licensee to Brittania and to phase-out its
fifteen-year licensing relationship with one of its other major underwear
licensors. This decision was communicated to Levi's, where the news was
enthusiastically received.
12. In the late-spring and summer of 1996, K-Mart, during the transition period
from marketing Brittania clothes to clothes labeled "Brittania from Levi Strauss
& Co.", stopped ordering new shipments of men's five-pack fashion underwear
until it had sold off its inventory of underwear bearing the Brittania label.
Cash flow problems at Nantucket resulted from this transition. During this same
time period, Nantucket was in the process of negotiating a $3.5 million
financing. As a material contingency to this financing,
4
Nantucket's investor required assurances from Brittania that Nantucket's license
would be renewed for at least two years on terms comparable to the license
agreement that was in existence at the time. On information and belief,
Brittania provided such assurances to Nantucket's investor. Based on these
assurances, this financing with Nantucket was closed in September of 1996.
13. Negotiations over the terms of a new license agreement continued
throughout the spring and summer of 1996. The negotiations for Brittania were
conducted by Levi's Director of Licensing. During the course of the
negotiations, Levi never stated, or even suggested, that it was contemplating
selling the Brittania clothing line and licenses. On the contrary, Levi went out
of its way to emphasize the trademark connection between Brittania and Levi. As
a material inducement for Nantucket to enter into the new licensing agreement,
Levi encouraged Nantucket to rely on the considerable goodwill and value that
resulted from the trademark affiliation between Levi and Brittania. Nantucket so
relied.
THE LICENSE AGREEMENT
14. In September of 1996, Nantucket and Brittania entered into the
License Agreement, with an effective date of January 1, 1997. Pursuant to the
terms of the License Agreement, Brittania granted to Nantucket the exclusive
right "to use the Trademarks on and in connection with the manufacture, sale,
distribution and advertising" of men's underwear and loungewear throughout the
United States. The term of the License Agreement was from January 1, 1997, until
December 31, 1999, "unless sooner terminated by the mutual agreement of both"
Brittania and Nantucket. The License Agreement further granted Nantucket the
option to extend the agreement for up to two years if certain sales goals were
met during the second year of the License Agreement.
15. The trademarks licensed to Nantucket included the trademarks
"Brittania" and "Brittania from Levi Strauss & Co."
16. Brittania further represented and warranted that it would "not take
any action
5
with regard to the Trademarks so as to interfere with the manufacture, sale,
distribution and advertising of" the licensed products. It also agreed to assist
in the marketing and advertising of the licensed products.
17. Brittania required Nantucket to act as an exclusive licensee and
prohibited Nantucket from entering into any new licensing agreements with any
competing brands of men's apparel during the course of the License Agreement.
According to Article 7 of the License Agreement, "Licensee [Nantucket] agrees
that during the term of this Agreement it will not enter into new license
agreements with other producers of men's branded casual apparel that are
marketed and sold in national and regional discount channels and that in
Licensor's reasonable judgment compete in the marketplace with Licensor's line
of BRITTANIA(R) products." There was no such contractual prohibition in their
earlier license agreements. Prior to entering into this License Agreement, Levi
was aware that Nantucket manufactured and marketed clothing from competing
brands.
18. Brittania also required Nantucket to adopt Levi's Code of Ethics.
In fact, Brittania insisted that Levi's Code of Ethics be incorporated into the
License Agreement as a material element of the contract. Pursuant to the terms
of the Levi Code of Ethics, Brittania and Levi made Nantucket a binding
"commitment" to conduct themselves in a manner "which is not only legal but fair
and morally correct in a fundamental sense."
19. In exchange for this valuable license, Nantucket agreed to pay
royalties of four (4%) percent of the net sales price of all licensed goods.
LEVI'S DECEPTIVE CONDUCT AND
SURPRISE DECISION TO DUMP THE BRITTANIA LINE
20. Since the decision by Levi to link its name with that of Brittania,
Nantucket has made significant expenditures to replace existing packaging with
new packaging bearing the brand name, "Brittania from Levi Strauss & Co."
6
21. During this same time period, Nantucket's financial fortunes have
become increasingly dependent on its marketing of the "Brittania from Levi
Strauss & Co." line of men's underwear. As was reported in Nantucket's 10-K
filings with the Securities and Exchange Commission for the fiscal year ended
March 2, 1996, the sale of men's underwear constitutes eighty-six (86%) percent
of Nantucket's gross revenue. The manufacture and sale of men's underwear is a
critical part of Nantucket's business plan. Once Nantucket dropped its other
major longtime licensor of men's underwear - with the full knowledge and
enthusiastic approval of Levi - Nantucket's ability to maintain the line of
clothing accounting for most of its gross profits became substantially reliant
on the marketing link with Brittania and Levi. As reported in Nantucket's 10-K
filing for fiscal 1996, the sale of Brittania underwear accounted for
approximately fifty (50%) percent of all men's underwear sales.
22. In December of 1996, Brittania convened in Seattle a marketing
meeting for all of its licensees. Nantucket attended. Brittania was represented
by its president, Lewis Kurtzman, and a vice-president, Jim Phillips. At the
meeting, Brittania reported that it had yet to finalize a marketing strategy to
combat a drop in prices by a major competitor, but it assured licensees that it
was developing a combative strategy. It also announced that it had developed a
new logo from "Brittania from Levi Strauss & Co." for Brittania's "Sevens" line
of clothing for juniors. Brittania stressed the significance of this new updated
logo. It explained to licensees that the new logo was designed by a premier
designer and consequently was quite expensive.
23. At the Seattle marketing meeting, Brittania was asked directly by
several licensees, including Nantucket, whether Levi was going to continue to
operate the Brittania line of clothing. In response, Brittania acknowledged that
it was reviewing its future business plan, but it did not disclose or indicate
that Levi either had decided to put, or was considering putting, Brittania up
for sale. Nor did it reveal that its intention to stop
7
supporting Brittania was imminent. On the contrary, the presentation by
Brittania and Levi was designed to assure licensees that the future of Brittania
and "Brittania from Levi Strauss & Co." was bright.
24. Despite Levi's public stance to embrace the Brittania clothing
line, privately its assessment of Brittania was quite different. On information
and belief, at the same time that Levi was imposing contractual restrictions on
Nantucket's right to enter into new license agreements to manufacture and
distribute men's underwear from Levi's competitors, quietly Levi was exploring
selling Brittania and disassociating itself from Nantucket's licensor.
25. On January 22, 1997 - a mere three weeks after the effective date
of the License Agreement - Levi issued a press release announcing its decision
to sell Brittania. In its press release, Gordon G. Shank, president of Levi,
admitted that Levi had been planning to sell Brittania during the same time
period that it entered into the License Agreement with Nantucket. "We've been
assessing the Brittania business for several months," said Mr. Shank, "and have
decided to sell it in order to focus our resources on our core premium brands:
Levi's jeans, Dockers khakis and our newest brand, Slates dress pants." At the
same time that Levi induced Nantucket to become substantially reliant on the
sale of Brittania products by changing its marketing strategy to highlight the
Levi-Brittania relationship, Levi secretly planned to unload Brittania.
26. Levi's decision to sell Brittania and abandon Levi's marketing
affiliation with it caught Nantucket - and Brittania's other licensees -
completely by surprise. At no time prior to issuing the January 22 press release
did Levi even suggest to Nantucket that it was intending to end its relationship
with Brittania.
27. The January 22 press release was widely reported. Influential
publications such as THE WALL STREET JOURNAL and WOMEN'S WEAR DAILY, printed it.
Under the headline, "Levi's Vacates Mass, Puts Brittania Brand on the Selling
Block," the January 23 edition of
8
Women's Wear Daily reported that "Levi Strauss & Co. is getting out of the mass
market."
THE DESTRUCTION OF THE GOODWILL
ASSOCIATED WITH THE BRITTANIA NAME
28. The negative effect of the Levi announcement has been swift and
devastating. K-Mart, the primary retailer of Brittania clothes - on information
and belief, responsible for over three-fourths of Brittania's sales - has
refused to continue selling Brittania clothing without the Levi affiliation. On
information and belief, K-Mart instead has entered into negotiations with Levi
seeking recompense for the Brittania inventory it already has acquired from
Levi/Brittania.
29. Meanwhile, Levi has not communicated with Nantucket about the
spiraling situation. Since Levi's issued the press release on January 22,
Nantucket's chairman of the board and chief executive officer has sent letters
to the president and the Director of Marketing of Levi requesting assurances
from Levi that it would honor the terms of the License Agreement. Levi failed to
send any such assurance.
30. The situation for Nantucket foreseeably worsened on February 4,
1997, when K-Mart canceled a large order. In a cryptic message sent by
facsimile, and later confirmed in a telephone conversation, K-Mart instructed
Nantucket to halt production of four-pack men's fashion underwear. K-Mart
subsequently orally informed Nantucket of its intention to discontinue its sale
of Brittania four-pack men's fashion underwear and instead to retail four-pack
men's fashion underwear bearing the label of a different manufacturer. On
information and belief, K-Mart's decision to cancel future orders of Brittania
four-pack men's fashion underwear has been directly and proximately caused by
Levi's decision to abandon the Brittania clothing line. The four-pack men's
fashion underwear represents 52% of Nantucket's projected sales to K-Mart for
the fiscal year ending in February, 1998.
31. The goodwill associated with the Brittania name has lost most, if
not all, of its value. Without a commitment from K-Mart, the Brittania trademark
has little or no value. And without the Levi affiliation, it is apparent that
K-Mart will make no
9
commitment to providing shelf space for clothes bearing the Brittania label.
32. Nantucket's substantial investment in licensing the Brittania and
"Brittania from Levi Strauss & Co." trademarks appears to be a total loss.
Levi's precipitous decision to sell the Brittania business without first
obtaining a commitment from K-Mart to continue to sell Brittania clothes has led
to the annihilation of the goodwill previously associated with the trademarks.
It also resulted in the cancellation of existing contracts and anticipated
future orders.
33. On information and belief, Morgan Stanley, the investment banker
retained by Levi to sell Brittania, has been unable to find any serious buyers.
FIRST CAUSE OF ACTION
(FRAUD)
34. The allegations contained in paragraphs 1 through 33 are hereby
incorporated by reference.
35. The defendants fraudulently induced Nantucket to enter into, and
perform under, the License Agreement by making false representations and
omissions of material fact.
36. The defendants induced Nantucket to enter into and go forward with
the License Agreement and terminate the relationship with its other long-term
licensor by making false representations of material fact, including:
a. that Nantucket was licensing the trademark, "Brittania
from Levi Strauss & Co.", for the term of the License
Agreement;
b. that Nantucket could rely on a new marketing strategy that
promoted the close tie between Brittania and Levi;
c. that Levi would support the marketing of clothing from
Nantucket licensed by Brittania;
d. that Levi and Brittania would act in accordance with
Levi's Code of Ethics;
10
e. that Levi and Brittania had a commitment to conduct that
was not only legal but fair and morally correct in a
fundamental sense; and
f. that Levi and Brittania would protect the goodwill of the
trademarks, Brittania and "Brittania from Levi Strauss &
Co."
37. The defendants created a duty to disclose the truth to plaintiff by
making the representations to plaintiff listed above. The dissemination of these
statements created a duty to fully disclose all material facts. However, to
induce plaintiff to execute the License Agreement, defendants intentionally
failed to disclose to Nantucket material facts, including:
a. that Levi intended to put Brittania up for sale soon
after the effective date of the License Agreement;
b. that Levi intended to make the goodwill associated with
the trademark, "Brittania from Levi Strauss & Co.",
valueless by selling Brittania and ending Levi's support
of Brittania;
c. during the time period up to the effective date of the
License Agreement, that Levi had decided to relinquish its
marketing support for the licensees of Brittania,
including Nantucket; and
d. during the time period up to the effective date of the
License Agreement, that Levi had decided to get out of the
mass consumer market despite its commitment to licensees
such as Nantucket.
38. The defendants intended Nantucket to rely on these false
representations and to deceive plaintiff through the omissions of material fact,
and Nantucket did so reasonably rely by, among other things, terminating the
relationship with its other, long-term licensor, entering into the License
Agreement and expending funds to promote products under the licensed trademarks.
39. By their conduct, the defendants' breached their duty to Nantucket.
As a foreseeable and foreseen consequence, Nantucket has suffered, and is
continuing to suffer, substantial harm and damage proximately caused by the
defendants' unlawful conduct in an
11
amount currently unknown but in excess of the jurisdictional threshold of this
Court.
40. By reason of the foregoing malicious and fraudulent acts and
intentional misconduct by defendants, plaintiff should be entitled to an award
of punitive and exemplary damages in an amount to be proven at trial.
SECOND CAUSE OF ACTION
(NEGLIGENT MISREPRESENTATION)
41. The allegations contained in paragraphs 1 through 33 and 36-40 are
hereby incorporated by reference.
42. The defendants induced Nantucket to enter into, and perform under,
the License Agreement by making false representations and omissions of material
fact. The false statements and omissions of material fact made by defendants,
even if not made with the intent to defraud, were made negligently in that when
made, the defendants knew or reasonably should have known that the statements
were inaccurate or incomplete and created a foreseeable and substantial risk of
harm and damage to plaintiff. As a foreseeable and foreseen consequence,
Nantucket has suffered, and is continuing to suffer, substantial harm and
damage.
THIRD CAUSE OF ACTION
(BREACH OF CONTRACT)
43. The allegations contained in paragraphs 1 through 33 and 36-40 are
hereby incorporated by reference.
44. By their conduct, the defendants have breached and repudiated the
License Agreement with Nantucket. As a foreseeable and foreseen consequence,
Nantucket has suffered, and is continuing to suffer, substantial harm and
damage.
FOURTH CAUSE OF ACTION
(BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING)
45. The allegations contained in paragraphs 1 through 33 and 36-40 are
hereby incorporated by reference.
46. Implied in every contract is a covenant of good faith and fair
dealing. In
12
addition to the implied covenant, Exhibit 1 to the License Agreement, which is
incorporated therein, contains a mutual commitment by the parties to refrain
from undertaking conduct which, though "legal", is not "fair and morally correct
in a fundamental sense." These covenants impose on the parties to this agreement
the mutual obligation to take all steps reasonably necessary to effect the
objectives of the agreement and to refrain from acting in any manner which
damages or destroys the objectives of the agreement. The objective of the
License Agreement between plaintiff and defendants was to provide plaintiff with
the ability to manufacture and market specific apparel products which contain
the trademarks and distinctive features of Licensor, and specifically allowed
for use of the Brittania and "Brittania from Levi Strauss & Co." logos on these
products.
47. Defendants had a duty to take no action which would diminish or
destroy the value of the License Agreement, the applicable licensed trademarks
or the relationship between plaintiff and its customers, including but not
limited to K-Mart. These duties are imposed by the covenant of good faith and
fair dealing and the code of ethics incorporated in the License Agreement.
48. By announcing on January 22, 1997, that Levi was selling its
Brittania business, which would necessarily eliminate plaintiff's ability to
sell Brittania products containing the Levi trademarks, defendants destroyed the
benefit of the bargain to which plaintiff was entitled by virtue of the License
Agreement and caused plaintiff to lose a substantial portion of its market for
mens underwear, threatening the continued viability of plaintiff. As a
foreseeable and foreseen consequence, Nantucket has suffered, and is continuing
to suffer, substantial harm and damage.
FIFTH CAUSE OF ACTION
(DETRIMENTAL RELIANCE)
49. The allegations contained in paragraphs 1 through 33, 36-40 and
46-48 are hereby incorporated by reference.
50. The defendants knew and intended that Nantucket would rely on their
13
representations, including representations that Brittania's new marketing
program featured promoting Levi's relationship to Brittania, that the defendants
would provide marketing support to Nantucket, that the defendants would not take
any actions to diminish the goodwill or value of the licensed trademarks, and
that the defendants would act in an ethical manner that was fair and morally
correct in a fundamental sense. Nantucket relied on the representations of the
defendants to its detriment and, as a result, has suffered, and will continue to
suffer, substantial harm and damage.
SIXTH CAUSE OF ACTION
(SPECIFIC PERFORMANCE)
51. The allegations contained in paragraphs 1 through 33 are hereby
incorporated by reference.
52. In the License Agreement, Brittania agreed to license to Nantucket
the trademark, "Brittania from Levi Strauss & Co." The term of this license is
for three years, with an option to Nantucket to extend the license for an
additional two years if certain performance benchmarks were achieved during the
second year of the contract. By the nature of this contract, Nantucket is unable
to procure a substantially similar license, or the delay, expense and
difficulties incidental to procuring such a similar license will entail serious
inconvenience, loss or hardship, or Nantucket stands in such relation to the
license that manifest injustice will be done to Nantucket unless performance is
decreed.
SEVENTH CAUSE OF ACTION
(INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE)
53. The allegations contained in paragraphs 1 through 33, 36-40 and
46-48 are hereby incorporated by reference.
54. Economic relations existed between Nantucket and others, including
but not limited to K-Mart, containing a probable future economic benefit or
advantage to Nantucket. The defendants knew of these relationships and
intentionally engaged in acts or conduct that interfered with or disrupted these
relationships, and Nantucket's advantageous
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relationships were actually interfered with or disrupted. As a foreseeable and
foreseen consequence, Nantucket has suffered, and is continuing to suffer,
substantial harm and damage.
EIGHTH CAUSE OF ACTION
(INTENTIONAL INTERFERENCE WITH CONTRACTUAL RELATIONS)
55. The allegations contained in paragraphs 1 through 33, 36-40 and
46-48 are hereby incorporated by reference.
56. Nantucket had contractual relationships with investors, suppliers,
sub-contractors and retailers, including K-Mart. Levi intentionally engaged in
acts or conduct that interfered with Nantucket's contractual rights under these
contracts. As a foreseeable and foreseen consequence, Nantucket has suffered,
and is continuing to suffer, substantial harm and damage.
NINTH CAUSE OF ACTION
(NEGLIGENT INTERFERENCE WITH ECONOMIC RELATIONSHIPS)
57. The allegations contained in paragraphs 1 through 33, 36-40 and
46-48 are hereby incorporated by reference.
58. For a period of approximately eight years preceding the License
Agreement effective January 1, 1997, plaintiff was a licensee of Brittania, a
subsidiary of Levi. During most of the year preceding the effective date of the
License Agreement, Nantucket was entitled to utilize the trademark "Brittania
from Levi Strauss & Co." in its sale of wearing apparel. This relationship was
known and understood to be beneficial to plaintiff in that with the ability to
use the trademark bearing the Levi name, plaintiff was able to sell its
manufactured apparel products to third parties, including but not limited to
K-Mart, a major national retailer. This was an extremely advantageous economic
relationship for plaintiff and was well known to defendants.
59. The parties' entry into the License Agreement effective January 1,
1997, was the latest manifestation of the relationship between plaintiff
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and defendants whereby plaintiff was entitled to undertake advantageous economic
transactions with third parties such as K-Mart. These facts were well known to
defendants, which knew and understood that the license of the Levi Strauss
trademarks enabled plaintiff to continue its favorable economic relationship
with K-Mart and others. Defendants even encouraged plaintiff to eliminate its
dependency on other licensors and to exclusively sell products licensed by them.
60. Defendants well knew that the termination of the License Agreement
or the termination of the right to use the "Brittania from Levi Strauss & Co."
trademark would seriously harm plaintiff's economic relationship with K-Mart and
other retailers. Defendants knew at the time they entered into the License
Agreement that any breach of this agreement would subject plaintiff to
destruction of the goodwill of the business due to its inability to sell
products to K-Mart and others.
61. Despite the existence of a duty of due care in favor of plaintiff,
and knowledge of the foreseeability of the risk of harm to plaintiff's economic
relationship if defendants did not perform under the License Agreement,
defendants nevertheless negligently failed to take steps to continue to allow
plaintiff to use the Levi Strauss trademark by its careless and negligent
decision and the dissemination to the public of its determination to sell its
Brittania subsidiary, which was intended to have the effect of making it
impossible for plaintiff to continue to advertise its products as having
affiliation with Levi.
62. As a proximate result of defendants' negligence, plaintiff's
largest customer, K-Mart, has canceled all future orders of manufactured apparel
licensed by defendants resulting in economic hardship and damage to plaintiff's
business in an amount currently unknown, but far exceeding the threshold for
jurisdiction of this court.
TENTH CAUSE OF ACTION
(DECLARATORY RELIEF)
63. The allegations contained in paragraphs 1 through 33, 36-40 and
46-48 are hereby incorporated by reference.
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64. There presently exists an actual and justiciable controversy
between Nantucket and the defendants with respect to the rights and obligations
between and among the parties under the License Agreement. Accordingly,
Nantucket seeks declaratory relief pursuant to Code of Civil Procedure ss. 1060,
and asks the Court to determine the respective rights and obligations of the
parties. Specifically, Nantucket asks the Court to determine:
a. that Article 1(D), Schedule A and Article 2 of the License
Agreement, conveying to Nantucket the trademark,
"Brittania from Levi Strauss & Co.", are valid and
enforceable;
b. that Article 3 of the License Agreement, conveying to
Nantucket the licensed trademark from January 1, 1997
until December 31, 1999, unless sooner terminated by
the mutual agreement of both Nantucket and Brittania,
is valid and enforceable;
c. that Article 14 of the License Agreement, granting to
Nantucket exclusively the option to renew the License
Agreement for an additional two years, is valid and
enforceable;
d. as a consequence of the defendants' conduct, that the
provision of Article 14 conditioning Nantucket's option
to renew the License Agreement on achieving net sales
during 1998 of at least nine million dollars
($9,000,000), is not valid and enforceable;
e. as a consequence of the defendants' conduct, that
Nantucket be declared the prevailing party pursuant to
Article 26 of the License Agreement.
ELEVENTH CAUSE OF ACTION
(UNFAIR COMPETITION)
65. The allegations contained in paragraphs 1 through 33, 36-40 and
46-48 are hereby incorporated by reference.
66. At the time plaintiff and defendants entered into the License
Agreement, defendants had no intention of honoring the terms of the agreement.
At the very time defendants were negotiating the License Agreement, and advising
plaintiff that it should cut
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its ties with other licensors and solely manufacture merchandise pursuant to the
License Agreement, they were simultaneously considering the sale of Brittania,
and the elimination of any further ability of plaintiff to use the "Brittania
from Levi Strauss & Co." trademark. These acts amounted to unfair competition by
reason of an unlawful, unfair, or fraudulent business act or practice in
violation of California Business and Professions Code ss.17200.
67. In reliance on the unlawful, unfair, and fraudulent business acts
by defendants, plaintiff terminated its agreements with other licensors and
entered into the License Agreement. Thereafter, on January 22, 1997, a mere
three weeks after the effective date of the License Agreement, defendants
advised the public that Levi was selling Brittania, leaving plaintiff
effectively without the right to use the Levi name.
68. As a proximate result of these actions by defendants, the License
Agreement became valueless, plaintiff's business and goodwill was substantially
damaged, plaintiff was and is unable to continue to sell manufactured apparel
products in the marketplace, and the viability of plaintiff's business was
threatened, together with the jobs of those it employs.
69. As a result of these fraudulent and dishonest practices, plaintiff
may face the complete loss of its business, absent equitable relief from this
Court. Plaintiff has no adequate remedy at law and faces irreparable injury.
Plaintiff therefore requests that this court enjoin defendants from engaging in
these acts of unfair competition pursuant to the authority of Business and
Professions Code ss.17203. Plaintiff requests that defendants be preliminarily
and permanently enjoined from selling its Brittania subsidiary during the term
of the License Agreement. Plaintiff further requests that the court order
restitution of the amounts of money paid as licensing fees by plaintiff to
defendants pursuant to ss.17203.
70. Levi's acts of unfair competition were aggravated by that kind of
willfulness, wantonness and malice for which California law allows the
imposition of exemplary damages. That is, Levi's activities were intentional,
willful, wanton, fraudulent and without justification or excuse, and were taken
with gross indifference to the rights of
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Nantucket.
71. Alternatively, if Levi's acts of unfair competition were not
aggravated by such willfulness, wantonness and malice, then their acts were
characterized by gross negligence in that Levi's acts involved such an entire
want of care as could only have resulted from actual conscious indifference to
the rights and welfare of Nantucket.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff Nantucket Industries, Inc. prays for judgment
against defendants as follows:
1. That on each Cause of Action of this Complaint, judgment be
entered against each defendant and in favor of plaintiff for
damages in accordance with proof at trial;
2. That on the Sixth Cause of Action of the Complaint, the Court
order the specific performance requested in paragraph 52;
3. That on the Tenth Cause of Action of the Complaint, the Court
order the declaratory relief requested in paragraph 64 (a) through
(e);
4. That on the Eleventh Cause of Action of the Complaint, an order to
show cause be issued to compel Levi to appear and show cause as to
why it should not be preliminarily and permanently enjoined from
selling or otherwise disposing of Brittania during the term of the
License Agreement;
5. That on the Eleventh Cause of Action of the Complaint, the Court
order restitution of the amounts paid or owed as licensing fees by
plaintiff to defendants;
6. For interest on all amounts awarded, as allowed by law;
7. That the plaintiff be awarded punitive damages in accordance with
proof at trial;
8. That the plaintiff be awarded, pursuant to Article 26 of the
License
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Agreement, the amount of its reasonable attorneys' fees and all
costs incurred in enforcing the License Agreement; and
9. For such other, further or alternative relief as the Court may
deem appropriate.
Dated: March 7, 1997 WENDEL, ROSEN, BLACK & DEAN, LLP
By /s/ David Goldman
------------------------------------
David Goldman
Attorneys for Plaintiff Nantucket
Industries, Inc.
DEMAND FOR JURY
Plaintiff hereby demands a trial by jury.
Dated: March 7, 1997 WENDEL, ROSEN, BLACK & DEAN, LLP
By /s/ David Goldman
------------------------------------
David Goldman
Attorneys for Plaintiff Nantucket
Industries, Inc.
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