In American Apparel’s ongoing legal saga, this time it’s Dov Charney, the company’s founder and fired CEO, who’s under attack.
The plaintiff is Standard General, the hedge fund that Charney brought in last year to keep American Apparel from defaulting on its debt, and which now effectively controls the company. Until now, it’s been relatively silent amid the imbroglio of lawsuits, hard stances on pubic hair, and accusations that have surrounded American Apparel since Charney’s ouster. Finally, it’s wading into the mess itself.
On July 13, it filed a suit against Charney for breach of contract, saying he failed to fulfill promises he made and seeking unspecified damages. It also requested an injunction to halt his ”destructive” actions against the firm.
Those promises relate back to the deal Charney struck with Standard General last June as he tried to regain control of the company after his firing. Standard General purchased shares of American Apparel, and then sold them to Charney, increasing his total ownership from 27% to around 43%. But Charney bought those shares on a loan from Standard General, and according to Standard General, he put up his original stake in the company as collateral and also promised to turn over any new shares he acquired.
Standard General’s suit says Charney hasn’t met his loan obligations, and also accuses him of not disclosing circumstances that came up after the deal that would keep him from paying back the loan, including a regulatory investigation into his conduct as American Apparel’s CEO.
If true, it’s no shock that Charney isn’t rushing to meet the loan terms. He now claims that the whole deal was part of a conspiracy between Standard General and American Apparel to remove him from the company. The terms of the deal let Charney increase his stake, which he still owns, but he ceded his voting rights. Standard General, he says, was supposed to help reinstate him as an executive as part of their agreement, only it never did. He says he was tricked, and he’s been fighting both American Apparel and Standard General since.
Charney’s lawyer, Keith Fink, says the whole thing is a ploy. ”The lawsuit is a smoke screen to distract attention from our detailed, 110 page lawsuit against Standard General and a number of board members to disenfranchise and defraud Mr. Charney as a shareholder,” he said in a statement.
American Apparel has thrown its own punches, suing Charney for what it says is a ”scorched earth campaign” he’s running against it and getting a restraining order preventing him from disparaging the company publicly.
Standard General, though it’s always denied Charney’s claims, has mostly remained on the sidelines. Not anymore.