Item 3. Legal Proceedings
ITEM
3.
LEGAL
PROCEEDINGS
We
are currently involved in, and may in the future be involved in, legal proceedings, claims, and government investigations in the ordinary
course of business. These include proceedings, claims, and investigations relating to, among other things, regulatory matters, commercial
matters, intellectual property, competition, tax, employment, pricing, discrimination, consumer rights, personal injury, and property
rights. These matters also include the following:
●
On
March 21, 2023, a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $43,501. Such
amounts include interest due, and are included in accounts payable, net of payments made to date, in the accompanying consolidated
balance sheets. The Company does not believe it is probable that the losses in excess of such trade payables will be incurred.
●
On
November 16, 2023, a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $345,384,
which represents past due fees and late fees. Such amounts are included in the accompanying balance sheets. The Company does not
believe it is probable that losses in excess of such pay trade payables will be incurred.
● On
December 21, 2023, a former employee from over two years ago filed a wrongful termination
lawsuit against the Company. The Company is disputing this claim and has been awarded arbitration
for this matter.
● On
March 20, 2024, a former employee from over two years ago filed a wrongful termination lawsuit
against the Company. The Company is disputing this claim. This person was not a Company employee
at any time and was temporary worker we used from a third party placement agency.
● On
April 17, 2024, a former employee filed a wrongful termination lawsuit against the Company.
The Company is disputing this claim and has been awarded arbitration for this matter.
This employee was part of the marketing team. The marketing team was let go and the Company
moved to a third-party outsourced marketing solution.
●
A
vendor filed a lawsuit against Bailey 44 related to a retail store lease in the amount of $1.5 million. The Company is disputing
the claim for damages and the matter is ongoing. The vendor has recently updated the claim to now be $450,968 after signing a long-term
lease with another brand for this location. The Company is disputing this new amount after review of the lease.
●
On
November 15, 2023, a vendor filed a lawsuit against Digital Brands Group related to trade payables totaling approximately $582,208,
which represents “double damages.” The amount due to the vendor is $292,604. Such amounts are included in the accompanying
balance sheets. The Company does not believe it is probable that losses in excess of such pay trade payables will be incurred. The
matter was settled for $400,000 and is currently on a monthly payment plan.
All
claims above, to the extent management believes it will be liable, have been included in accounts payable and accrued expenses and other
liabilities in the accompanying consolidated balance sheet as of December 31, 2024.
Depending
on the nature of the proceeding, claim, or investigation, we may be subject to monetary damage awards, fines, penalties, or injunctive
orders. Furthermore, the outcome of these matters could materially adversely affect our business, results of operations, and financial
condition. The outcomes of legal proceedings, claims, and government investigations are inherently unpredictable and subject to significant
judgment to determine the likelihood and amount of loss related to such matters. While it is not possible to determine the outcomes,
we believe based on our current knowledge that the resolution of all such pending matters will not, either individually or in the aggregate,
have a material adverse effect on our business, results of operations, cash flows, or financial condition.
ITEM
4.
MINE
SAFETY DISCLOSURES
Not
applicable.
37
PART
II