Up Against the Wall's Sale Has Collapsed. And It Faces a Legal Dispute, Too.
By David S. Hilzenrath
Washington Post Staff Writer
Monday, October 23, 2006
After 37 years of catering to the counterculture, the owners of the Georgetown-based fashion chain Up Against the Wall were poised for a $32 million payday.
Instead, the proposed sale of their company has wafted away, and the firm is embroiled in a legal dispute with its former controller. In court papers, the company said he was fired for doing a poor job. He said he was fired for refusing to manipulate the company's books, and in pressing his case, he attempted to subpoena the prospective buyer while the deal was pending.
The retailer's owners -- co-founders Charles Rendelman and Stuart "Izzy" Ezrailson, and Los Angeles Lakers general manager Mitchell Kupchak -- had planned to merge their 25-store chain into California designer jeansmaker Blue Holdings Inc., headed by Paul Guez, who popularized Sasson jeans more than a generation ago.
But Blue Holdings announced Oct. 10 that the cash-and-stock deal was off, saying both sides had decided it was no longer in their interests.
"It just didn't work," Ezrailson said, noting that the price of Blue Holdings stock had declined. The shares, which were trading above $5 when the merger plan was announced in June, closed at $4.14 on the day the companies agreed to cancel it.
Up Against the Wall operates several stores in the Washington area and others in such cities as Miami, San Francisco and Los Angeles. The merger would have included the Commander Salamander store on Wisconsin Avenue in Georgetown, also owned by Up Against the Wall parent company Long Rap Inc. The longtime punk emporium last week displayed such novelties as vinyl "naughty nurse" costumes, toilet paper bearing President Bush's picture, High Times magazine for marijuana aficionados ("Beginner's Guide to Harvesting") and a Marie Antoinette action figure ("Press button on back for Ejector Head Action!").
Up Against the Wall targets a different niche. Its wares include $320 Prps jeans with pre-shredded knees, $115 Ed Hardy rhinestone-studded baseball caps and $775 Parajumpers parkas with fur-lined hoods -- not to mention Blue Holdings brands Antik Denim and Taverniti So Jeans.
The stores have been Georgetown fixtures since soon after a young Ezrailson gave up a job guessing people's weights and ages at Glen Echo amusement park to go into retail. The company became a family affair as Ezrailson's wife, Wendy, joined in the hunt to stay ahead of the fashion curve, riding trends from hippie to hip-hop.
In recent days, Ezrailson said he was out observing styles at Howard University's homecoming and at New York's Penn Station. He spoke by phone while meeting with a top executive of Rocawear, the clothing company co-founded by rapper Jay-Z.
"He really has his pulse on what's cool, what's happening, what's edgy," said Rocawear's Ronnie DeMichael said of Ezrailson. "He lives and breathes it."
The merger could have enabled the owners of Up Against the Wall to cash in their stakes, while providing capital for expansion of the chain.
Being a closely held business can be a disadvantage, Ezrailson said. "Narrow-held means narrow mind," he said.
Blue Holdings has been part of a career comeback for Guez, whose Sasson Jeans Inc. landed in bankruptcy in the 1980s. He overcame a series of legal problems, including charges that he assaulted federal marshals and threatened to kill the judge overseeing Sasson's bankruptcy reorganization. After spending time in jail and going into drug rehab, he was acquitted of those charges in 1988, according to news reports.
The merger collapsed while Long Rap was in court trading accusations with its former controller, Michael R. Rosella, who was fired in April.
In May, an attorney for Rosella sent Long Rap a letter alleging that Rosella was fired for refusing to go along with financial improprieties at the company. The letter, which threatened legal action, spelled out conditions for a settlement, including $210,000, which represented two years' salary, "and a representation by Long Rap to all inquiries that Mr. Rosella works for Long Rap, until he finds comparable employment."
On June 1, Rosella's attorney, Lynne Bernabei, sent attorneys for Long Rap a draft of a potential lawsuit.
Several days later, Long Rap sued Rosella for more than $1 million in D.C. Superior Court, alleging that he "failed to adequately perform his duties." The suit claimed that, as of his firing in April, Rosella had not provided a package of financial information to Long Rap's outside accountants for the fiscal year that ended Jan. 28 -- an accusation Rosella denied in an interview.
Rosella countered in July with a lawsuit against Long Rap, Rendelman and Ezrailson. He alleged that the company fired him "because he refused to manipulate Long Rap's financial statements to make Long Rap's finances look better than they actually were" and "repeatedly insisted that Long Rap and Messrs. Rendelman and Ezrailson comply with federal tax and criminal laws."
Rosella subpoenaed records from a subsidiary of Blue Holdings. In a court filing, a subsidiary -- represented by lawyer Dale Cooter, who also represents Long Rap -- a lawyer representing both Long Rap and the subsidiary called the subpoena "a transparent attempt by Plaintiff to interfere with the proposed" merger.
"As far as I'm concerned, Mr. Rosella's complaint is frivolous and a transparent attempt to shake down the principals of Up Against the Wall," said Dale Cooter, an attorney for Long Rap.
"As far as I was concerned, the threat of this lawsuit was the legal equivalent of an act of terrorism, and we don't negotiate with terrorists. We shoot them," Cooter said.
In a court filing, Long Rap confirmed that Rosella expressed concerns to Ezrailson about the postdating of checks and that he protested directions to make personal income tax payments for Rendelman and Ezrailson out of the company payroll. The company denied that Rosella was directed to do anything illegal.
Long Rap's financial records were in such a "shambles" that the company had to spend time and money putting them in order for an audit associated with the planned merger, Cooter said.
"Our inability to produce records . . . may well have caused the due diligence to take so long the contract expired" for the merger, Cooter said. The audit was "clean," Cooter said, citing a draft opinion from the auditor.
Andrew Greenebaum, a spokesman for Blue Holdings, said the merger was called off because "the timing was not ideal." He said that as far as he knew the litigation was not a factor.
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