Guess and Jordache Jeans Settle War Over Ownership

In a surprise ending to a vicious and far-reaching legal brawl, the warring owners of the Guess and Jordache jeans empires reached a settlement Wednesday that restores full ownership of Guess to the Marciano brothers of Beverly Hills.

The Marcianos’ longtime foes--brothers Joe, Avi and Ralph Nakash of New York, owners of Jordache--in return won an undisclosed share of $106 million in Guess profits set aside in a frozen account. The Nakashes also regained the trademark and ownership of a currently inactive Guess subsidiary, Gasoline.

In marked contrast to the 6 1/2-year feud that led to a host of federal investigations, a dozen lawsuits and an estimated $80 million in legal expenses, the scene at Los Angeles Superior Court at lunchtime Wednesday was one of jubilation.

As Superior Court Judge Norman L. Epstein approved the settlement, the courtroom broke into applause. Lawyers for both sides and the four North African-born Marciano brothers--Georges, Maurice, Paul and Armand--exchanged hugs and shook each other’s hands.

Paul Marciano, the family’s spokesman, credited the lawyers for “accomplishing everything that people said would be impossible to accomplish.”

“A lot of people said it would never settle, that it was a blood fight,” he added.

“It has not been a picnic for us. The company is doing well, and we wanted to go back to work.”

Said Howard L. Weitzman, the chief lawyer for the Nakashes: “Both sides wanted to get on with their lives and they believed the litigation had gone on long enough.” The Nakashes themselves were unavailable for comment.

The dispute stems from a deal cut by the Marciano and Nakash brothers in July, 1983, about 18 months after Guess was founded.

The Marcianos--eager for capital and business know-how--sold a half-interest in Guess to the Israeli-born Nakashes, whose Jordache operation then was the far bigger of the two jeans companies. The Marcianos got contracts to run Guess, and the Nakashes were to operate Gasoline, which sold cheaper versions of Guess products.

Within six months, however, the partnership was falling apart, giving way to the brutal family feud.

The Nakashes said that the Marcianos tried to provoke a break, having developed seller’s remorse after realizing that the stake they sold for nearly $5 million was worth many times more. The Nakash family also accused the Marcianos of secretly diverting funds from the business.

The Marcianos contended that the Nakashes tricked them into the Guess sale. They argued that the Nakashes intended all along to steal Guess and Gasoline designs for Jordache, whose success was fading.

The Marcianos scored a key legal victory in March, 1989, when a Los Angeles Superior Court jury found that the Nakashes took their partners’ ideas and used them in making Jordache jeans.

A second phase of that suit, intended to determine damages owed to the Marcianos, began in February and jurors had been deliberating the case since Thursday.

The Marciano-Nakash dispute spread from the courts to Capitol Hill last year when a congressional subcommittee declared that the Marcianos had exerted “improper influence” over the Los Angeles office of the Internal Revenue Service. The panel charged, among other things, that the Marcianos manipulated the IRS into launching an investigation of Jordache, a probe that eventually was dropped.

Meanwhile, a federal grand jury in Los Angeles investigated alleged tax evasion by the Marcianos, who were implicated by the Nakashes.

On Wednesday, lawyers for both sides said all of the investigations appear to have been dropped. They also said that all 12 pending suits related to the Guess-Jordache feud, filed in courts from the East Coast to Los Angeles to Hong Kong, will be settled by the agreement between the families.

The settlement was reached after 12 days of negotiations, with lawyers for both sides working in shifts. The talks were launched after the Marcianos brought in new lawyers to handle negotiations--Los Angeles attorneys Pierce O’Donnell, who also represents columnist Art Buchwald in his case against Paramount Pictures, and Richard Coleman.

Paul Marciano said the new lawyers were retained after Marshall Grossman, the Los Angeles lawyer who had been Guess’ chief counsel, tried to block a settlement. He noted that Grossman was entitled to a $10-million bonus if he succeeded in restoring the Marcianos’ full ownership of Guess, and said that Grossman was pushing for a jury verdict to gain an undisputed claim to that bonus.

Grossman denied that he ever opposed a deal. He also said it was a routine matter for a new team of lawyers to be retained in a case when new issues arise and a large number of parties are involved. Sources said later in the day, however, that Grossman has filed a lien for $17 million from the Marcianos, and Grossman declined to comment on the action.

One source familiar with the talks said the negotiations were motivated by concerns among the Nakashes that their insurers would not cover their losses if they were ordered to pay a major award to the Marcianos. Nakash attorney Weitzman denied that the insurance issue played a role in the settlement.

But a hefty judgment in the Marcianos’ favor appeared likely, according to a juror in the second phase of the Guess-Marciano case. The juror, Victor M. Herrera of East Los Angeles, said it looked as though the jury would award the Marcianos $40 million or more, on a finding that the Nakashes conspired “to cheat Guess out of the patterns (for jean designs) and out of trade secrets.”

Herrera said 10 of the jurors favored awarding Guess a big settlement, and two opposed giving the Marcianos any of the $100 million in damages being sought. Herrera said he was “pretty sure” that Jordache lawyers knew the case was going against them.

“That’s why they settled out of court,” he said.

Herrera said the Jordache side was hurt by the videotaped testimony of the Nakash brothers, who did not appear in court for the second phase of the Superior Court suit. He said: “Every time a Guess lawyer would ask them a question, they would answer with a, ‘I don’t remember. I don’t know.’ ”

Representatives for both sides insisted, however, that their motivation for settling was simply that they had grown weary of fighting.

“When I was advised that the case could go on another four years even after this verdict (in Superior Court), I was very uncomfortable,” Paul Marciano said.

Guess was one of the apparel industry’s phenomenal success stories of the 1980s. The firm, started with an investment of $170,000, in late 1981, by last year sold an estimated $500 million in jeans, men’s and women’s casual wear, swimsuits, shoes, watches, eyeglasses and children’s clothing. Its well-known logo is a triangle with “Guess?” inscribed within.

The firm is the biggest apparel maker based in Los Angeles, employing about 1,000 people here. It also provides work for several thousand employees of Los Angeles contracting firms that perform sewing and other jobs for Guess.

Guess, which has come under fire from feminists for some of its racy magazine ads, sells its jeans mainly in high-end department stores to fashion-conscious teen-agers and young adults. Jordache, on the other hand, appeals mainly to inner-city youths and blue-collar workers and typically sells at discount stores.

YET ANOTHER DISPUTE--Just as the Marciano brothers settled one dispute, they got involved in another over a $10-million bounty for their superstar lawyer. D1