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American Apparel Founder Sues Over "Show Trial" That Ousted Him

Dov Charney's efforts to return to the company he founded continue with a new lawsuit filed against Standard General, the hedge fund overseeing American Apparel.

Posted on May 8, 2015, at 6:10 p.m. ET

American Apparel / Via Facebook: AmericanApparel

American Apparel founder Dov Charney is suing the hedge fund running his former company for defamation, as the back-and-forth between the former executive and American Apparel's new management escalates.

In a lawsuit filed Thursday in Los Angeles, Charney alleged that the internal investigation that resulted in his December termination wasn't "independent" or conducted by a "third party," and that the company's board paid millions to its outside general counsel Jones Day "to manufacture various ex post facto excuses" for firing him. Charney also claimed in the lawsuit that hedge fund Standard General forced him to sign his voting rights over to the firm last summer by threatening to "destroy his character."

In Charney's telling, Standard General's characterization that he was fired following an independent third-party investigation are "false, defamatory, and libelous" because they imply he engaged in "illegal and criminal" and "improper and immoral" conduct.

The suit is of note because it follows a slew of other complaints from former employees and shareholders close to Charney, pushing the narrative that he was the victim of a conspiracy led by American Apparel's board and Standard General to commandeer the clothing company from his control and milk it for profits.

But until now, Charney had not filed his own lawsuit against the group. It was brought by the same lawyer, Keith Fink, who filed many of the other recent complaints from workers, and who once worked against Charney on sexual harassment lawsuits involving American Apparel and the ex-CEO. (Charney referred to Fink as a "racketeering attorney" in a 2010 Village Voice interview.)

American Apparel and Standard General dismissed the complaint in statements today.

"Dov Charney and his associates continue to file frivolous, meritless lawsuits at a breakneck pace," a spokesperson for Standard General said in an emailed statement. "The facts speak for themselves, and we are confident that Mr. Charney will be held accountable for this knowing, intentional abuse of the legal system."

Claims in this lawsuit and others from people close to Charney are "wrong on the facts and wrong on the law," an American Apparel spokesperson said in an emailed statement. "Each of these claims is rooted in the same exact agenda. These meritless claims serve as public relations opportunities now, but they will each will fail the test when put before a judge. 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."

Charney, former employees, and current staff have been rattling American Apparel's new management team and pushing for the ex-CEO's return through email campaigns and worker rallies since his dismissal. His supporters even leaked sensitive nonpublic internal sales data to BuzzFeed News last month in an effort to show that recent turnaround efforts aren't taking hold. The group has claimed that Standard General and the management team it installed at American Apparel don't have the workers' best interests at heart and don't know how to run the "Made in the USA" clothing manufacturer.

Standard General and American Apparel's new executives, for their part, have said that the retailer was a money-losing entity that wasn't run properly under Charney and that there were sufficient grounds to terminate the executive.

Charney cut a deal with Standard General last summer, after he was first served with a termination letter from American Apparel. The hedge fund lent Charney money to boost his stake in the company to 43%, and in exchange he essentially handed over his voting rights to Standard General. He told the New York Times in July that he gave his ownership control to Standard General "so they could protect the company and all of its stakeholders, particularly the employees." He added: "The least important thing was me. I know that will be dealt with fairly later." At that time, Standard General told the newspaper that an investigation into Charney's conduct would be key in determining his future at the company.

Charney alleged in yesterday's complaint that Standard General partners Soo Kim and David Glazek "promised Charney that he would be reinstated as CEO unless the investigation revealed something profoundly egregious of which Standard General was unaware." Later, the lawsuit claims, Charney discovered that the investigation "was to be a sham, a show-trial without the trial, and ultimately a means of reinforcing Charney's exit from the company and entrenching Standard General's control over the same, to Charney's and minority shareholders' detriment."

Charney is seeking at least $20 million, alleging he has "suffered and will continue to suffer loss of his personal and professional reputation, shame, mortification, and emotional distress all to his general damage."

American Apparel's shares have declined to 65 cents each today from $1.21 in July, valuing the company at about $111 million.

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