American Apparel suit
The firm’s leaders are accused of plotting to oust Dov Charney in order to sell it.
The Los Angeles retailer’s leaders are accused in a lawsuit of plotting to oust Dov Charney from the company he founded after he resisted efforts to sell it.
A former American Apparel employee and two shareholders have accused the company’s leaders of plotting to oust Dov Charney from the company he founded after he resisted efforts to sell it.
David Nisenbaum, who was hired in 2012 to upgrade the accounting and finance departments at American Apparel Inc., said in a lawsuit that he was fired for complaining about mismanagement under John Luttrell, the Los Angeles retailer’s chief financial officer who took over as interim chief executive after Charney was removed from his positions as chief executive and chairman.
At the time, the company said an internal investigation found evidence of personal and professional misconduct by Charney, which he has denied.
Nisenbaum’s suit accused Luttrell of orchestrating his firing and that of Charney so that Luttrell could arrange a sale of American Apparel, which Charney opposed, and to cover up “fraud in running a publicly traded company.”
After Charney was suspended as CEO and fired as chairman on June 18, Nisenbaum said he filed a complaint with the board of directors accusing Luttrell of violating accounting and disclosure requirements under federal Sarbanes-Oxley rules. The next day, he was fired, Nisenbaum said in the lawsuit, which was filed Monday in Los Angeles County Superior Court.
The lawsuit said that Luttrell, who left American Apparel in September, fumbled a bond financing round and mishandled the opening of a distribution center in La Mirada, costing the company millions of dollars.
Nisenbaum’s suit also alleged that three embezzlement rings operated at the company involving “several hundred thousand dollars of vendor kickbacks.” In addition, Nisenbaum claimed in the suit that he was discriminated against and fired partly because he is Jewish.
A separate lawsuit filed Tuesday in U.S. District Court in Los Angeles by two shareholders echoed some of Nisenbaum’s allegations in accusing American Apparel and several of its directors of violations of federal securities laws and breach of fiduciary duty.
The suit contended that the directors — Allan Mayer, David Danziger, Robert Greene, Marvin Igelman and William Mauer — “abused the underpinning upon which their directorial power rested” by declaring in securities filings in April and May 2014 that Charney played a key role at American Apparel and that his loss would harm the company. But, the lawsuit said, American Apparel and the five directors failed to disclose plans to oust Charney, which happened the same day that three directors were reelected at the company’s annual meeting.
The directors removed Charney, who then owned 27% of the company’s stock, because he wouldn’t agree to sell American Apparel, the lawsuit said, citing information provided by Charney and an unidentified director.
American Apparel has since reorganized its board, and of those named in the lawsuit only Danziger and Mayer remain directors. The suit was filed by Jan Willem Hubner, who owned 39,254 shares in April 2014, and Eric Ribner, who owned 3,000 shares. Both men are longtime friends of Charney.
The shareholders seek to remove Mayer and Danziger from the board and hold a new election for directors.
American Apparel called the allegations in the suits “completely baseless.” Of Nisenbaum’s termination, the company said it doesn’t comment on personnel matters, “especially those that precede the current management team.”
Luttrell couldn’t be reached for comment.
Charney has filed a petition with the American Arbitration Assn. alleging wrongful termination, breach of contract and retaliation.