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American Apparel Sues After Reaching Breaking Point With Founder

The company is so mad at founder Dov Charney.

Posted on May 18, 2015, at 6:15 p.m. ET

Mat Szwajkos / Getty Images

American Apparel's new management is deeply fed up with ousted founder Dov Charney's attempts to regain control of the company.

It even called them "lame."

The company expressed its fury through a lawsuit against Charney filed late Friday in the Delaware Court of Chancery. American Apparel says Charney has repeatedly violated the July agreement he made with the company and hedge fund Standard General, and is asking the court to issue an injunction against him to prevent future breaches, while also requiring him to comply with provisions of the agreement.

It's rare to see a company sue its own founder, but everything about American Apparel has been unique, to say the least, since the edgy brand was created. American Apparel's battle with Charney, who was suspended in June and officially fired in December, has largely played out in the press, as illustrated by the fact that the complaint is peppered with links to articles from outlets including Jezebel, Gawker, the New York Post, Bloomberg News, Fashionista and BuzzFeed News.

"In an unprecedented effort to disrupt and harm the company, Mr. Charney has launched a scorched earth campaign that exceeds all bounds of propriety," lawyers for American Apparel wrote in the complaint.

"He is attempting in many respects to act as the 'man behind the curtain,' manipulating friends and company employees behind the scenes in a lame effort to obfuscate the fact that he is violating the Standstill Agreement in order to regain control of the company," the lawyers wrote.

Keith Fink, Charney's lawyer, called American Apparel's suit "a weak public relations move to try and deflect attention away from the two defamation actions that Mr. Charney has filed in the past ten days against the company and Standard General."

Earlier this month, Charney filed a lawsuit of his own against Standard General, the hedge fund now overseeing American Apparel, seeking $30 million in damages. Charney's suit alleged he was ousted from the company following a "show trial" arranged by Standard General, which he claims promised to help him regain control of the business but instead double crossed him.

American Apparel's suit "doesn't faze me in the slightest bit," Fink said. "It will be dismissed quickly." A spokesperson for American Apparel declined to comment on the suit.

American Apparel says that the agreement from last summer compels Charney to wait until the 2015 annual meeting to try to regain control of the company and prevents him from making disparaging comments about American Apparel. It also keeps him from serving as an employee, lawyers for the company wrote.

The complaint says Charney was officially fired in December for a number of reasons, including verbally and physically assaulting employees, using American Apparel electronic storage media to "graphically document his liaisons with current and former American Apparel employees and models" and using company funds without authorization for personal expenses. It also referenced Charney's conduct in relation to "Impersonation Blogs," linking to this Jezebel story about a lawsuit that alleged Charney and another employee set up fake blogs with nude photos of women who accused Charney of sexual harassment to discredit them.

The complaint alleges that Charney is "orchestrating" some of the lawsuits against the company, citing those filed by his college roommate and "a woman with whom he has had a relationship." American Apparel's chief information officer traced a mass internal email from an employee promoting one of those lawsuits back to Charney's home address, according to the complaint.

"Mr. Charney has gone too far," the company said in the complaint.

American Apparel "cannot and should not be in the business of constantly responding to Mr. Charney's disruption, disparagement and lawsuits, much less any takeover attempt," lawyers for the company wrote. "Blocking and preempting Mr. Charney's efforts to disrupt the governance of the company and its corporate operations in an effort to regain control is precisely the benefit for which the company bargained when it entered into the Standstill Agreement with Mr. Charney back in July 2014. This benefit is precisely what the company has not received and will not receive absent judicial intervention."

The war with Charney was apparently unanticipated by Standard General and the company's new management based on the July agreement, as per the complaint.

American Apparel's stock has tumbled 50% since July and closed today at 60 cents a share.

Full complaint against Dov Charney:

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