In a complaint filed Thursday in Los Angeles Superior Court, the ousted CEO alleges the firm released false statements to the press and general public stating his December dismissal was the result of a third-party investigation into his behavior. According to Charney, the inquiry was conducted by Jones Day, American Apparel’s law firm, and not FTI Consulting as publicized.
“Nothing could be further from the truth,” the 21-page suit states. “In reality, the Standard General-controlled American Apparel board of directors paid millions of dollars of the cash-strapped company’s funds to American Apparel’s outside general counsel Jones Day to manufacture various ex post facto excuses for the board’s termination of Charney.”
Furthermore, he claims he was conned into receiving a loan from Standard General in July that would boost his ownership of the LA-based company to 43 percent; he gave up his voting rights as collateral and in exchange the hedge fund promised to support him in his quest to be reinstated as CEO. Ultimately, Standard General pushed American Apparel to replace most of its board members, including Charney, and the firm was later quoted as saying its deal with the former executive was not “an endorsement of him.”
Charney, who founded American Apparel in 1998, has been trailed by sexual harassment suits for years, which led to the company’s board ousting him as CEO in June. He served as a consultant until December when he was fired for “cause” and industry veteran Paula Schneider was hired as CEO.
Charney is now seeking a minimum of $10 million in general and compensatory damages and at least $20 million in punitive damages. Standard General and American Apparel have both dismissed his claims as “meritless.”
“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,” said a Standard General spokesperson. A representative from American Apparel echoed, “These meritless claims serve as public relations opportunities now, but they will each fail the test when put before a judge.”
This is the latest in a string of lawsuits against American Apparel. Three former employees who were among the nearly 200 workers fired last month by the retailer filed a complaint claiming the company didn’t give them sufficient notice as required by the Worker Adjustment and Retraining Notification (WARN) Act. A few days later, another worker claimed he was wrongfully terminated last June after he complained about religious discrimination from then-CFO John Luttrell. The following week, two American Apparel shareholders filed a lawsuit alleging that Charney was fired because he refused to sell the company.
Lawsuits aside, American Apparel is struggling. According to internal documents reviewed by Buzzfeed, the retailer’s Q1 sales plummeted by almost 11 percent versus the same period the previous year.