Midlothian, TX-based Ennis, Inc. (asi/52493), a Top 40 promotional products supplier as recently as 2017, owes Top 40 supplier Gildan Activewear (asi/56842) $2 million to cover a severance payment Gildan made to an Alstyle Apparel (asi/34817) executive that Gildan fired, according to a federal judge’s ruling issued this week.

In 2016, Gildan bought Alstyle from Ennis for $110 million. Subsequently, Gildan fired now former Alstyle executive Irshad Ahmad, who had a severance payment provision of $2 million, records indicate.

Gildan paid the seven-figure sum, but then turned to Ennis for compensation, saying that Ennis had, per terms of the Alstyle sale, agreed to indemnify Gildan for the cash out if the Montreal-based firm fired Ahmad. Ennis had placed $2 million in an escrow account to cover such a so-called “change of control event,” records indicate.

Nonetheless, Ennis felt it wasn’t liable for the payment, and refused to release the funds to Gildan. As part of its arguments, Ennis made the case that the payment provision only would become effective if there was a “change of control event” at Ennis, not Alstyle. The case went to arbitration, and it was a slam dunk for Gildan, with the arbitrator ruling in the Canadian supplier’s favor.

That didn’t sit well with Ennis, and the Texas-based firm appealed the ruling. But in an order issued July 9^th, U.S. District Judge Ed Kinkeade of the U.S. District Court for the Northern District of Texas also sided with Gildan, upholding the arbitrator’s position.

Kinkeade said that Ennis can’t overturn the arbitrator’s order because the record shows it did agree to indemnify Gildan. He further noted that the arbitrator’s decision was in line with applicable case law and issued in fairness. “Ennis fails to demonstrate that the arbitrator’s decision did not draw its essence from the underlying contracts or that the arbitrator manifestly disregarded the law,” Kinkeade wrote in his order.

Bottom line? Ennis is legally bound to pay Gildan $2 million for the Ahmad severance – barring some type of subsequent successful appeal. Ennis could be on the hook for more money, too: Kinkeade left the door open for Gildan to seek restitution for attorney fees and court costs related to Ennis’ appeal of the arbitration ruling.