In September 2014, Neiman Marcus made headlines with news that it would acquire buzzy fashion e-commerce site mytheresa.com. Under the 7-year watch of buying director and menswear street style god (turned brief Brioni creative director) Justin O’Shea, the then-27-year old Munich-based site blossomed into a thriving, globally-focused endeavor with exclusive brand offerings and a valuation that is now an estimated $1 billion.
The acquisition was expected to help Dallas-based Neiman Marcus take a “significant step towards [its] long range international strategy to more broadly serve the affluent customer around the world.” In reality, the deal has landed the 111-year old upscale department store chain in the middle of an ugly legal battle.
Just as 2018 was coming to a close, Neiman Marcus – in the midst of what would turn out to be a grim holiday season, with its sales rising a dismal 0.7% from a year earlier, adding insult to its other financial injuries (i.e., nearly $5 billion in debut, according to Pitchbook) – was hit with an ugly lawsuit.
Marble Ridge Capital, a Neiman Marcus creditor, filed suit against the retailer in a Texas state court, accusing it of fraudulently transferring its European e-commerce division, including MyTheresa, to private equity owners, Ares Management and Canada Pension Plan Investment Board, in September.
The Manhattan-based distressed debt investor called the move an attempt by Neiman Marcus to prevent its domestic creditors from accessing an estimated $1 billion in assets. In particular, Marble Ridge claimed the Neiman Marcus had engaged in a scheme to “hinder, delay and defraud” its creditors in its latest round of debt-restructuring talks. Neiman Marcus maintained that such a move was permitted under the terms of its debt agreements.
Not finished there, Marble Ridge further stated in its complaint that Neiman Marcus is on the hook for more than it is worth
Neiman Marcus responded to Marble Ridge suit, denying that it is “insolvent” and asserting that all of its stores are, in fact, profitable. The retailer asked the court to toss out Marble’s case, and lodged claims of its own, namely for defamation, citing Marble’s practice of "recklessly [making] false statements regarding the company's compliance with its debt documents with the intent of damaging the company."
Last month, Judge Tonya Parker of Dallas County District Court sided with Neiman Marcus and dismissed Marble Ridge’s suit. The court did not strike down the case on the merits, but instead, held that the fund lacked the requisite subject matter jurisdiction to bring such a suit.
The decision comes less than three months after Neiman Marcus argued that Marble Ridge lacked subject matter jurisdiction – and thus, the standing to bring such a lawsuit – because it is neither a “lender” under Neiman Marcus’ loan agreement, nor is it “a creditor based on its alleged holdings of [such] loans.” Still yet, Neiman Marcus asserted that the parties’ contract governing the debt at issue prevents Marble from bringing suit.”
But even with Marble’s claims off the table, the case is far from over. Last week, Judge Parker shot down Marble Ridge’s bid for dismissal of Neiman Marcus’ defamation countersuit, and counsel for Marble Ridge said the company plans to appeal.
Meanwhile, Mytheresa – seemingly hoping to jump on the burgeoning bandwagon for menswear, sales for which are expected to top womenswear within the next several years – recently that it will add menswear to its offering and has appointed Sneakerboy founder Chris Kyvetos to be its new men’s buying director.
*The case is Marble Ridge Capital LP v. Neiman Marcus Group Inc., et al, DC-18-18371 (F-116TH).