The yearlong battle between American Apparel Inc. and founder Dov Charney has taken another twist, with Charney filing a lawsuit accusing company officials and hedge fund Standard General of conspiring to push him out of the company last June.
The lawsuit, part of a flurry of legal actions by both sides, alleges fraud and conspiracy, among other things. Charney is seeking damages of $100 million and wants agreements rescinded that gave control of his American Apparel stock to Standard General and removed him from the company’s board.
The complaint, filed Wednesday in Los Angeles County Superior Court, lays out an effort by current company board member Allan Mayer, former Chief Financial Officer John Luttrell and former board members David Danzinger, Robert Greene, Marvin Igelman and William Mauer to trick Charney into diluting his ownership stake in the company and then oust him.
In the lawsuit, Charney noted that the board filed a proxy statement with securities regulators praising his leadership ahead of last June’s shareholder’s meeting.
“Based on these statements of confidence,” the lawsuit said, Charney voted to reelect “the very same board members filing that proxy statement, who, immediately after the shareholders’ meeting, voted to terminate him.”
Although Charney’s lawsuit echoes many of the allegations he has made in previous legal documents, it presents new details of the ousted CEO’s version of how events unfolded.
For instance, the suit said Standard General approached American Apparel in March 2014 with a financing proposal, but company directors rejected the New York investment firm’s money in favor of a financing arrangement that reduced Charney’s ownership stake to 27% from 43%.
The suit contends that American Apparel and Standard General subsequently worked together to ensure that Charney would be removed from company leadership and would never regain control.
It was Standard General that reached out to Charney after his June termination and promised to help him get back his job and control of the company, the lawsuit said. Instead, the suit said, Standard General “fraudulently induced” him into giving the hedge fund control over his shares and “reneged” on its word.
The lawsuit said that Standard General never intended to help Charney because its investors wouldn’t tolerate such a relationship. The suit recounted an early-morning “emergency” meeting on June 30, 2014, in New York’s Central Park between Charney and Standard General Chief Executive Soohyung Kim.
“Kim then made various representations that he was being ‘crucified’ by his limited partner investors who were reacting negatively to his partnership with Charney ... and that he was on the brink of losing his hedge fund. Kim emotionally pleaded with Charney to help him save his hedge fund or they were all ‘going to die,’” the lawsuit stated, adding that Kim was so frantic, he scratched himself until he was bleeding.
Charney felt he had no choice but to go along with Standard General’s plan to settle with American Apparel, rather than stage a hostile bid for control, relying on Kim’s promises that Charney would be reinstated at the company within weeks, the suit said. Charney agreed to relinquish his board seat as part of that settlement.
A Standard General spokesman said in an email that the filing was “yet another example of the frivolous, meritless lawsuits that Mr. Charney and his associates continue to file at a breakneck pace.”
He added, “The facts speak for themselves, and we are confident that he will ultimately be held accountable.”
According to the lawsuit, Charney suffered emotional distress after he was suspended when the board of directors started a “negative and defamatory media campaign against him.” Company representatives leaked confidential information and a video of Charney dancing nude to drive away potential allies, the suit said.
The suit also said that Charney had amassed hundreds of thousands of dollars in legal fees, which Charney had expected American Apparel to pay, and that those expenses had put Charney’s “personal finances in jeopardy.”
An American Apparel spokeswoman said in an email that Charney’s lawsuit is “yet another example of the habitual nuisance lawsuits that Dov Charney and his lawyer continue to file, and which we continue to defeat.”
American Apparel filed court documents Friday that spelled out Charney’s alleged misconduct at the company. Keith Fink, Charney’s attorney, said Wednesday’s lawsuit had nothing to do with this recent filing.
Among the graphic details described in the documents were allegations that Charney stored footage on company equipment of himself having sex with employees and models and sent sexually explicit messages to employees. Fink said those were personal messages that were welcomed by the recipients.
The documents were part of an anti-SLAPP motion, intended to stanch what the company calls frivolous lawsuits.
The company’s Friday filing was in response to a defamation suit filed by Charney’s team in May against the company and its chairwoman, Colleen Brown. The defamation complaint alleged that Brown falsely informed American Apparel employees that Charney had agreed in writing never to return to the company in any capacity.
Charney filed an additional defamation suit against the company and Danzinger, alleging that they lied to prevent him from winning the necessary votes to reclaim control of the company.
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