BCBG in $220M Suit Over Playboy Condoms

(CN) - Max Azria, the fashion designer who founded BCBG, covered up his company's history of litigation and financial problems when he pledged $10 million and a distribution deal with Wal-Mart in exchange for a 20 percent stake in a line of Playboy condoms, according to the owner of Playboy's licensing group.

Jimmy Esebag, chairman of non-party United Licensing Group, which owns the rights to the Playboy brand, seeks $220 million from Azria and his company for "his insatiable fraud." Azria's gowns have been worn on the red carpet by celebrities like Angelina Jolie, Halle Berry, and Sharon Stone.

In his lawsuit, Esebag called the Tunisian designer is "a narcissistic braggart with a sense of grandeur and self-importance that has little relationship to reality."

Esebag says he told Azria about the deal to make and sell condoms bearing the Playboy name and rabbit logo in 2009 over a Shabbat dinner at Azria's house.

Azria "loved the idea begged Esebag to let him participate," according to the complaint in Los Angeles Superior Court.

Esebag says Azria promised that BCBG would provide $10 million to fund the venture, and would secure worldwide distribution deals through Wal-Mart and European retailer Carrefour, in exchange for a 20 percent ownership stake in the business.

Azria allegedly promised that BCBG's "sterling reputation" and longstanding business relationship with Wal-Mart would guarantee the new venture at least $7 million in condom sales through Wal-Mart during the first year.

No stranger to self-promotion, Azria recently testified in a recent deposition, "I have a relationship with everybody. I am Max Azria. People are happy to have lunch with me. Anybody in America. Even the president of America." He also stated, "I can sell anything to everybody," and testified he is accountable "only to God," the lawsuit states.

Partly based on Azria's assurances, Esebag created plaintiff companies United Medical Devices and Camden Healthcare to administer the condom business. Playboy granted BCBG a temporary, 90-day license to produce a sample of the new condoms.

But formal licensing negotiations with Playboy exposed BCBG's "sordid litigation and credit history," the lawsuit states.

Esebag says he found out that BCBG is "several hundred million dollars" in debt and has a junk credit rating seven steps below investment grade. Azria was unable to put up even the $2,000 needed to buy into the deal, according to the complaint.

And Azria, who has been accused of producing clothing with dangerous levels of lead, and has been banned from Wal-Mart, the lawsuit states.

Azria testified in deposition that only about ten lawsuits have been filed against BCBG in its approximately 20-year history, when in fact BCBG has been named in over 100 different lawsuits in state and federal courts. Azria himself has been named as an individual in 42 different lawsuits, according to the complaint.

BCBG had also agreed to pay $110,000 to the Center for Environmental Health, a California watchdog group, for allegedly violating California's Safe Drinking Water and Toxic Enforcement Act of 1986. Playboy refused to grant a licensing deal as long as Azria and BCBG were involved, Esebag says.

Even then, Azria continued to promise funding and distribution deals that never materialized, according to the complaint.

Esebag says he ultimately secured a license from Playboy, but was forced to obtain financing from other sources.

Esebag eventually launched the Playboy line of condoms was without worldwide distribution agreements with Wal-Mart and Carrefour.

Esebag says Azria's false promises have had a substantial adverse impact on the condom sales. The condoms have a limited degree of worldwide sales because Playboy has been unable to establish the product's presence at Wal-Mart, the world's largest retailer. The condoms are not yet distributed in the retail stores of major pharmacy chains, such as CVS, Walgreens, and Rite Aid, or at general merchandise retailers such as Target or K-Mart. Plaintiffs could have yielded an additional $150 million in revenue if the condoms could have been distributed worldwide by these large chains and retailers.

Esebag demands $220 million from Azria and BCBG Max Azria Group for fraudulent concealment, fraudulent and negligent misrepresentation, breach of fiduciary duty, and breach of contract claims. Plaintiffs also allege intentional interference with prospective economic advantage.

Bryan J. Freedman and Jonathan M. Genish of Freedman & Taitelman in Los Angeles and Michael J. Perry of Marina del Ray, Calif. are representing Esebag and his companies, United Medical Devices and Camden Healthcare.

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