Gotcha Says Dispute Forced It to File for Chapter 11

Gotcha International, a pioneering Southern California surf wear company that was once a dominant player in the market, has filed for reorganization under the U.S. Bankruptcy Code amid a bitter legal battle with a business partner.

The company, which filed for Chapter 11 protection Aug. 23, was forced to act because of a dispute with Ederal Sport Inc., Gotcha President Donald Grier said Thursday.

Ederal, which began manufacturing Gotcha brand clothing under license three years ago, sued Gotcha last fall, claiming Gotcha misrepresented its sales when the licensing deal was struck.

Gotcha disputed the allegation and filed a countersuit against Ederal, citing failure to pay royalties and other problems. The issue is still in court, but the dispute made it harder for Gotcha to sell products and deprived it of royalties, Grier said.

Under Chapter 11, Irvine-based Gotcha can remain in business and will have more flexibility in dealing with its debts.

Gotcha, owner of the Gotcha, Gotcha Girl, GirlStar and MCD brands, has since struck new licensing agreements to manufacture its clothing and hopes to emerge from bankruptcy protection in three to five months, Grier said.

“We plan to move very fast,” he said.

The filing is the latest in a series of setbacks for the company, said Joel Cooper, who co-founded Gotcha in a garage with partner Michael Tomson 24 years ago.

Cooper and Tomson are separately suing Gotcha for almost $2 million that they claim is owed them from the sale of the company to Marvin Winkler about five years ago.

“It was our baby, so seeing it go downhill has been sad,” said Cooper, now chief executive of Lost Enterprises, a surfboard and surf wear maker in Irvine.

Gotcha rose to prominence in the 1970s, along with Quiksilver Inc. of Huntington Beach, now the world’s largest surf wear maker. The companies followed a path tread by pioneer brands Hang 10 and Ocean Pacific.

Gotcha hit its pinnacle in 1989 when worldwide sales reached about $160 million and then stumbled badly in the following decade when it put its colorful surf designs on the back burner to respond to the then-burgeoning “street” look.

Gotcha’s fortunes most recently have been steered by Winkler, who with his wife, Sherri, owns 98% of the company, said Grier. Sherri Winkler is currently the chief executive, and Marvin Winkler is no longer involved in the company’s daily operations, Grier said.

The Gotcha name was back in the news last year, when Winkler’s plans to build Gotcha Glacier, an indoor snowboarding, skateboarding and surfing park near Edison International Field, collapsed.

Grier traces the company’s problems to Ederal, also of Irvine, which took over the licensing of Gotcha brands in 1999. He maintains that Ederal failed to pay Gotcha the minimum royalties and advertising payment of more than $1.7 million annually. Disputes also arose over design approval and product distribution.

Grier said Ederal wanted to sell the branded clothing in stores such as Sam’s Club and Costco, which Gotcha felt would damage the brand.

“We didn’t have the ability to relicense the Gotcha, GirlStar and MCD brands due to the litigation, and in the meantime we were not receiving our royalty payments according to the agreements,” Grier said. “With that combination, it put us into a very difficult position.”

Ederal attorney Bryan Friedman said Gotcha misrepresented its annual revenue before the company became the Gotcha licensee, saying its claim of annual sales exceeding $30 million was exaggerated. Since Ederal has been involved with the company, its highest annual sales were $19 million, he said.

Friedman also maintains that Gotcha failed to support the brand with proper marketing and advertising, making it difficult to sell the products to surf shops and some department stores. He also said customers had become less interested in Gotcha products.

Despite the bankruptcy filing and ongoing lawsuits, Grier maintains that Gotcha still has a bright future.

He said Gotcha’s new licensing agreement for its Gotcha brand for boys and young men is with Michael Gerald Ltd., an importer and licensee of sportswear in Cerritos. The Gotcha Girl juniors brand has been licensed to Jerry Leigh Inc. of Van Nuys. Gotcha Girl for younger girls has been licensed to Mamiye Brothers Inc. of New York.

The company has not yet struck licensing agreements for its GirlStar and MCD brands.