Dov Charney accuses American Apparel of defamation in new lawsuit

Dov Charney says American Apparel and chairwoman defamed him

The lawsuits against American Apparel just keep coming: This time, ousted CEO Dov Charney is suing the Los Angeles company and its chairwoman for more than $20 million.

Charney is accusing American Apparel and Colleen Brown, the chairwoman, of defamation and false light, according to the lawsuit filed Tuesday in Los Angeles County Superior Court.

Many of the allegations involve a letter Brown wrote to all American Apparel employees claiming that Charney had agreed in writing to never return in any capacity to the company. The lawsuit alleges that Charney never signed any agreement.

"Charney did not agree to never seek reemployment with American Apparel," the lawsuit said, "nor is American Apparel otherwise contractually or legally precluded from re-hiring him in any fashion."

The lawsuit is one of several filed recently accusing American Apparel and Standard General, a hedge fund, alleging violations of securities laws and fiduciary duty before and after Charney was ousted. American Apparel removed him as chairman and suspended him as chief executive in June, citing evidence of inappropriate behavior with employees and misuse of company funds.

The most recent lawsuit echoes one filed last week against Standard General, which helped Charney buy additional stock as he attempted a return to the retailer. As result of the agreement between Charney and Standard General, the hedge fund and the former CEO both control Charney's 42% stake. The hedge fund later did not back his return as CEO.

As in the previous suit, Charney says the investigation into his conduct was a "sham" designed to gin up fraudulent reasons to fire him.

"Charney's termination was part of the board's then-secret plan to wrest control of the company away from Charney," the lawsuit said.

American Apparel shot back and said the lawsuits are merely "public relations opportunities" which will "fail the test when put before a judge."

The claims "are wrong on the facts and wrong on the law," the company said. "American Apparel’s new management is focused on restoring the financial health of the company and does not intend to waste time addressing each of these meritless claims in the court of public opinion. We are confident we will succeed on every one of these in the proper venue.”

However, the company warned in a filing with the Securities and Exchange Commission that it "is unable to predict the financial outcome of this matter at this time."

"Should this matter be decided against the company," the filing said, "it could not only incur liability but also suffer reputational harm."

In the lawsuit, Charney also struck back at critics -- including Brown -- who said the company was operating badly and struggling to stay afloat under his reign.

"American Apparel in no way stood on 'the edge of financial ruin' in the months leading up to Charney's" original ouster in June, the lawsuit said.

The company has been struggling for years. As of June, the company had amassed nearly $270 million in net losses in the previous four years.

Its latest quarter brought more bad news. The company reported a net loss of $26.4 million, or 15 cents a share, in its first quarter ended March 31. That's compared with a loss of $5.5 million, or 5 cents a share, in the same period a year earlier. Sales fell 9% to $123.4 million.

Paula Schneider, who has been chief executive since January, said the drop in profits came in part because of efforts to clear out old inventory using steep discounts. She said the company was starting to implement its turnaround plan.

Follow Shan Li on Twitter @ByShanLi

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