Nautica and Brooks Brothers Use October 7 As Pretext to Terminate Israeli Rights

Nautica and Brooks Brothers are being sued for taking advantage of the circumstances after the October 7, 2023 Hamas attack on Israel to illegally terminate their licensing agreement covering Israel and the Palestinian Territories.

A copy of the complaint and exhibits can be downloaded here.

In a civil complaint filed on September 18, 2024 by Royal Linen Ltd. and Royal Linen Capital (collectively referred to as “Plaintiffs” or “Licensees”) against Nautica Apparel, Inc., ABG International, Inc., and BB IPCO, LLC (collectively referred to as “Defendants” or “Licensors”). The Plaintiffs allege that the Defendants improperly attempted to terminate licensing agreements granting the Plaintiffs exclusive rights to market Nautica and Brooks Brothers products in Israel and the Palestinian territories. The Plaintiffs seek declaratory judgments affirming the validity of the licensing agreements, as well as monetary damages for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, tortious interference, fraud, fraudulent inducement, and business defamation. The Plaintiffs claim they have suffered damages exceeding $13 million due to the Defendants’ actions.

Defendants are accused of acting in bad faith, especially during the Israel-Gaza conflict, which caused business disruptions and limited Plaintiffs’ ability to meet certain contractual obligations. Plaintiffs argue that Defendants used this situation as a pretext to terminate the agreements.

The complaint outlines several facts suggesting that the defendants allegedly exploited the Hamas attacks on Israel to create a pretext for terminating the agreements:

Employee Military Service: After the attacks, many of Plaintiffs’ employees, including their Chief Financial Officer, were drafted for military service. Defendants were aware of this disruption but allegedly continued demanding immediate compliance with financial and operational obligations.

Interrupted Business Operations: Plaintiffs were in the process of constructing a new Nautica store, which stalled due to workforce shortages as employees were mobilized for military duty. Despite these extraordinary circumstances, Defendants proceeded with breach notices and termination letters.

False Assurance to Suspend Collections: Defendants reportedly assured Plaintiffs they would halt collection efforts due to the uncertain conditions but later continued these efforts, issuing delinquency notices despite prior promises to pause collections.

Timing of Termination Notices: Defendants issued the Notices of Breach and Termination shortly after the attacks, allegedly using the conflict’s disruption to claim breaches by Plaintiffs that were beyond their control due to the war. Plaintiffs contend that Defendants had already been creating barriers to compliance but used the conflict as an excuse for termination​

Unjust Enrichment and Fraud: Defendants allegedly retained substantial prepayments from Plaintiffs while simultaneously obstructing Plaintiffs’ contract performance and negotiating with other parties, amounting to unjust enrichment and fraudulent conduct.

Defendants have not yet responded to the allegations, but must do so by October 31, 2024, according to a docket entry.