XML 26 R20.htm IDEA: XBRL DOCUMENT v3.19.3
Contingencies
9 Months Ended
Sep. 30, 2019
Commitments And Contingencies Disclosure [Abstract]  
Contingencies

11. Contingencies

 

In May 2016, Supply Company, LLC, (“Supply”), a former licensee of the Ed Hardy trademark, commenced the action against the Company and its affiliate, Hardy Way, LLC, (“Hardy Way”, and, together with the Company, the “Iconix Defendants”) seeking damages of $50 million, including punitive damages, attorneys’ fees and costs.  Supply alleges that Hardy Way breached the parties’ license agreement by failing to reimburse Supply for markdown reimbursement requests that Supply received from a certain retailer.  Supply also alleges that the Company is liable for fraud because it made purported misstatements about the Company’s financials and the viability of the Ed Hardy trademark in order to induce Supply to enter into the license agreement and to induce Supply to enter into a separate agreement with a certain retailer.  The Iconix Defendants are vigorously defending against the claims, and have filed a motion to dismiss the Complaint, which is awaiting Court decision.  At this time, the Company is unable to estimate the ultimate outcome of this matter.

Two shareholder derivative complaints captioned James v. Cuneo et al, Docket No. 1:16-cv-02212 and Ruthazer v. Cuneo et al, Docket No. 1:16-cv-04208 have been consolidated in the United States District Court for the Southern District of New York, and three shareholder derivative complaints captioned De Filippis v. Cuneo et al. Index No. 650711/2016, Gold v. Cole et al, Index No. 53724/2016 and Rosenfeld v. Cuneo et al., Index No. 510427/2016 have been consolidated in the Supreme Court of the State of New York, New York County.  The complaints name the Company as a nominal defendant and assert claims for breach of fiduciary duty, insider trading and unjust enrichment against certain of the Company's current and former directors and officers arising out of the Company's restatement of financial reports and certain employee departures.  At this time, the Company is unable to estimate the ultimate outcome of these matters.

 

As previously disclosed, the Company received a formal order of investigation from the SEC staff in December 2015 and was contacted by the U.S. Attorney’s office for the Southern District of New York (the “SDNY”) in December 2018 regarding the same matters underlying the SEC’s investigation (together, the SDNY and SEC investigations, the “Government Investigations”). The Company has cooperated fully with the SEC and SDNY regarding this matter. On October 25, 2019, the Company reached an agreement in principle with the SEC staff to resolve the investigation. The SEC staff has not yet presented the proposed settlement to the SEC and no assurances can be given that the SEC will approve the proposed settlement that would require the Company to pay $5.5 million or that the settlement amount estimated will not change. The Company, in accordance with ASC 450, “Contingencies”, has recorded a $5.5 million charge within selling, general and administrative expenses in the Company’s condensed consolidated statement of operations for the Current Quarter and Current Nine Months.

 

As previously disclosed, on September 16, 2019, the Company entered into a Stipulation of Settlement (the “Stipulation”) with the lead plaintiff in the securities class action lawsuit pending against it in the United States District Court for the Southern District of New York, In re Iconix Brand Group, Inc., et al., Docket No. 1:15-cv-04860 (the “Class Action”). The proposed settlement releases all claims asserted against the Company and the other named defendants party to the Stipulation in the Class Action without any liability or wrongdoing attributed to them.  The proposed settlement provides for a total settlement payment of $6.0 million, inclusive of administrative fees and fees for lead plaintiff’s counsel. The Company expects that substantially all of the settlement will be covered by the Company’s directors and officers liability insurance. The proposed settlement remains subject to court approval and other customary conditions.

 

As discussed above, the Company has been subject to Governmental Investigations, as well as the Class Action and shareholder derivative complaints (the “2015 Matters”).   Pursuant to the terms of its articles and bylaws, the Company is obligated to advance legal and other fees related to the 2015 Matters to certain of its current and former directors, officers and employees.   During the Current Quarter, as a result of the expenses related to the 2015 Matters, the Company’s insurance coverage related to the 2015 Matters has been exhausted.  As such, the Company will not be reimbursed for any further expenses incurred related to the 2015 Matters, including by certain of its former directors, officers and employees.

 

As previously disclosed, on November 12, 2019, the Company entered into a settlement agreement (the “Roc Parties Settlement”) to resolve all disputes relating to the following legal proceedings: (i) Iconix Brand Group, Inc., et al. v. Roc Nation Apparel Group, LLC et al., No. 17-cv-3096 (S.D.N.Y.); (ii) S. Carter Enterprises, LLC, et al. v. Iconix Brand Group, Inc., et al., No. 653858/2019 (N.Y. Sup. Ct., N.Y. Cnty.); and (iii) Iconix Brand Group, Inc., et al. v. Shawn C. Carter, et al., Arbitration No. 01-18-0003-6487.  In connection with the Roc Parties Settlement, the Company sold certain intellectual property assets to Roc Nation LLC and membership interests in Marcy Media Holdings LLC to MM Holdings Acquisition LLC in exchange for $15.0 million and mutual releases of all existing claims between the parties. The Roc Parties Settlement was reached without admission of any wrongdoing or unlawful conduct by either party.

 

From time to time, the Company is also made a party to litigation incurred in the normal course of business. In addition, in connection with litigation commenced against licensees for non-payment of royalties, certain licensees have asserted unsubstantiated counterclaims against the Company.  While any litigation has an element of uncertainty, the Company believes that the final outcome of any of these routine matters will not, individually or in the aggregate, have a material effect on the Company’s financial position or future liquidity.