Liz Claiborne has won the dismissal of a shareholder lawsuit which accused the brand of misrepresenting its relationships with Macy's and JC Penney, which caused its stock to plunge.

District judge Richard Holwell said on Thursday (29 September) that shareholders did not prove that Liz Claiborne intentionally hid its failing relationship with Macy's after it entered an agreement to design two lower priced brands for JC Penney.

The class action covered shareholders who bought stock in the apparel brand between 16 January 2007 and 30 April 2007, the day before the company booked a 65% decline in quarterly profit and said that Macy's, which at the time accounted for some 16% of Liz Claiborne's sales, was cutting orders in reaction to the launch of Liz & Co and Concepts by Claiborne brands at JC Penney.

The lawsuit argued that Liz Claiborne CEO William McComb knew Macy's CEO Terry Lundgren was "furious" at the company for creating a less expensive line for JC Penney that competed directly with products sold in Macy's stores. Additionally the suit cited a New York Times article where Lundgren had apparently told Liz Claiborne executives that "you have lost your most-favoured nation status".

Shareholders said that Liz Claiborne and McComb should have told them of the problems sooner, and the fact that it suspended its share repurchasing scheme over the period suggested that it knew that its share price would fall. After the retailer released its first-quarter results, which revealed the 65% decline in profit, its share price dropped 17.26% to US$37 a share.

Holwell said he was unable to conclude that Liz Claiborne acted in an "an extreme departure from the standards of ordinary care" and that the plaintiffs cannot bring the lawsuit again as it has amended its case twice.