Dov Charney’s made his move — in California Superior Court — and sued American Apparel Inc. and its chairman, Colleen Brown, for defamation and false light.
The suit, which hinges on a memo Brown sent to employees last month, seeks $20 million plus lawyers fees and is part of Charney’s broader effort to regain control at the company he founded — and to win the hearts and minds of its employees.
It’s a battle that began in June, when Charney was ousted amid allegations that he failed to prevent defamatory blog posts about a former employee and gave significant severance packages to former employees to shield himself from personal liability. The company has said it investigated Charney’s behavior as chief executive officer twice and the Securities and Exchange Commission is also looking into his firing.
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Charney has sought to retake control of the company, holding preliminary talks this January with Jay Schottenstein, head of Schottenstein Stores Corp. Those talks fell through and Charney appeared to start focusing more on American Apparel employees, at least some of whom rallied to his cause.
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It was against that backdrop that Brown sent a letter to employees on April 24, which, according to the suit, makes a number of false claims including:
• “The old way of doing business [under Charney] was not sustainable and brought the company to the edge of financial ruin.”
• “[Charney] agreed in writing…that if he was found to be not suitable by the second investigation, he would not return as ceo.”
• “The board’s second investigation confirmed that Mr. Charney had repeatedly violated the company’s sexual harassment and antidiscrimination policy and used corporate assets for personal, non-business reasons.”
Overall, the suit argues that the false and defamatory characterizations “have caused severe, irreparable harm to [Charney’s] personal and professional reputation, particularly with respect to his ongoing attempts to regain control of his company American Apparel.”
In a regulatory filing, American Apparel said the claims in the suit were “without merit” and that it “intends to vigorously dispute the validity of these claims.”
The stakes are high for the company.
American Apparel said in the filing that it “is unable to predict the financial outcome of this matter at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matter proceeds through its course. Should this matter be decided against the company, it could not only incur liability, but also suffer reputational harm.”
This week, American Apparel posted first-quarter losses that widened to $26.4 million as sales fell 9.4 percent to $124.3 million.
Current ceo Paula Schneider is attempting a multifaceted turnaround touching on infrastructure; operational and financial planning; expense control; design/product development; retail store productivity; e-commerce and wholesale optimization; e-commerce analytics; speed-to-market, and brand-building.
Meanwhile, Charney is on the outside looking in, and vying for advantage. He is contesting his firing of last year in arbitration and has also sued his one-time partner Standard General, which had a hand in appointing most of the board that ultimately dismissed him as ceo.
Charney’s attorney, Keith Fink, said: “Current management does not have support from American Apparel employees, from upper management to the factory workers. The workers are rallying and organizing to have Mr. Charney come back. The company’s efforts to date to stop organizing efforts, which have led to about a dozen [National Labor Relations Board] claims, have been unsuccessful. Ms. Brown’s false and defamatory letter was just the latest in [American Apparel’s] attempt to quell the insurrection from the workforce who are demanding that Mr. Charney return. Her claim that he is somehow legally prevented from returning to the company he founded and successfully built is flat-out false.”