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Tory Burch counterclaim vs Chris Burch

Tory Burch counterclaim vs Chris Burch

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Published by Forbes
Filed November 2012
Filed November 2012

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Published by: Forbes on Nov 26, 2012
Copyright:Attribution Non-commercial

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05/07/2013

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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
 J. CHRISTOPHER BURCH,
et al.
,Plaintiffs,v.TORY BURCH,
et al.
,Defendants.))))))))))))))))))))))))C.A. No. 7921-CSTORY BURCH LLC,Counterclaim Plaintiff,v.J. CHRISTOPHER BURCH, JCBINVESTMENTS, LLC, C. WONDER LLC andRIVER LIGHT VENTURE PARTNERS LLC,Counterclaim Defendants.
COUNTERCLAIMS OF TORY BURCH LLC
Defendant-counterclaim plaintiff Tory Burch LLC (the “company”), by itsundersigned attorneys, alleges the following counterclaims against plaintiffs-counterclaim defendants J. Christopher Burch (“Chris” or “Chris Burch”), JCBInvestments, LLC, C. Wonder LLC and River Light Venture Partners LLC (“RiverLight”), upon knowledge as to itself, and otherwise upon information and belief, asfollows:
EFiled: Nov 05 2012 04:33PM EST
 
 Transaction ID 47555556Case No. 7921-CS
 
 
- 2 -
INTRODUCTION
1.
 
In the two-plus years leading up to the opening of his firstC. Wonder retail store in October 2011, Chris Burch repeatedly asked for and was givenfull and complete access to competitively sensitive information about the company andits best-selling products. Acting under a consulting agreement that paid him in excess of $11 million, Chris claimed that the purpose of these requests was to enable him to assistthe company in identifying factories that could manufacture Tory Burch products.2.
 
While Chris did tell the company that he was developing a new retailbrand, he led the company to believe that the brand would be selling an assortment of diverse products, including home goods, electronics, surfboards, motor scooters,refrigerators, washers and dryers, nondescript basic apparel, coffee makers, and vacuumcleaners. He did not in any way, shape or form reveal that he was copying the ToryBurch brand identity or using the company’s information to enrich himself at thecompany’s expense.3.
 
In October 2011, the company learned that Chris had deceived it asto his true plans and intentions. At that time, Chris revealed his first C. Wonder store inSoHo, located just a short walk from the original Tory Burch store. The store copied theTory Burch brand image — from the lacquered front doors, to the store fixtures, to thefurnishings, area rugs and wall treatments, to the packaging design, to the merchandising.The store was stocked with mass-market versions of the top-selling Tory Burch items thatthe company had identified to Chris pursuant to contracts that required him to keep thatinformation in confidence and use it only to advance the company’s interests and not his
 
- 3 -
own. The trade and popular press and industry observers all recognized C. Wonder forwhat it was: a cheapened, lower-quality version of the Tory Burch brand. Theconfidential information that Chris obtained from the company while serving as Co-Chairperson of its board and while making millions of dollars as a company consultantwas invaluable to his efforts to launch his knockoff brand.4.
 
Chris tried to excuse his actions by invoking Section 3.10 of thecompany’s operating agreement. But that provision does not give directors license toknock off the company’s brand. To the contrary, it expressly states that the right tocompete is qualified and limited by the directors’ other contractual and legal obligations.Chris’s contracts with the company — specifically the operating agreement itself and hisconsulting agreement — prohibit him from using the company’s confidential informationfor his own purposes and provide that any ideas and developments relating to Chris’swork with the company belong to the company. Chris violated all of these contractualobligations, as well as his fiduciary duties of loyalty and candor. As such, he can find noprotection in Section 3.10 of the company’s operating agreement.5.
 
In the months that followed the opening of the first C. Wonder store,the company sought to arrive at a consensual resolution of its dispute with Chris. Duringthat same time, the company continued “Project Amethyst,” an effort to find a newinvestor that would buy half of Chris’s stake in the company at a price that he wouldaccept. Five of the company’s seven directors — Tory and her designee on the board, thetwo designees of the company’s other major equity holder and an independent director jointly selected by all of the other directors (including Chris) — concluded in good faith

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