Char­ney claims ouster plot

In law­suit, Amer­i­can Ap­parel’s fired CEO says the re­tailer con­spired with fund.

Los Angeles Times - - BUSINESS - By Sa­man­tha Ma­sunaga

The year­long bat­tle be­tween Amer­i­can Ap­parel Inc. and founder Dov Char­ney has taken another twist, with Char­ney fil­ing a law­suit ac­cus­ing com­pany of­fi­cials and hedge fund Stan­dard Gen­eral of con­spir­ing to push him out of the com­pany last June.

The law­suit, part of a f lurry of le­gal ac­tions by both sides, al­leges fraud and con­spir­acy, among other things. Char­ney is seek­ing dam­ages of $ 100 mil­lion and wants agree­ments re­scinded that gave con­trol of his Amer­i­can Ap­parel stock to Stan­dard Gen­eral and re­moved him from the com­pany’s board.

The com­plaint, f iled Wed­nes­day in Los An­ge­les County Su­pe­rior Court, lays out an ef­fort by cur­rent com­pany board mem­ber Allan Mayer, for­mer Chief Fi­nan­cial Of­fi­cer John Luttrell and for­mer board mem­bers David Danzinger, Robert Greene, Marvin Igel­man and Wil­liam Mauer to trick Char­ney into di­lut­ing his own­er­ship stake in the com­pany and then oust him.

In the law­suit, Char­ney noted that the board f iled a proxy state­ment with se­cu­ri­ties reg­u­la­tors prais­ing his lead­er­ship ahead of last June’s share­holder’s meet­ing.

“Based on these state­ments of con­fi­dence,” the law­suit said, Char­ney voted to re­elect “the very same board mem­bers f il­ing that proxy state­ment, who, im­me­di­ately af­ter the share­hold­ers’ meet­ing, voted to ter­mi­nate him.”

Although Char­ney’s law­suit echoes many of the al­le­ga­tions he has made in pre­vi­ous le­gal doc­u­ments, it presents new de­tails of the ousted CEO’s ver­sion of how events un­folded.

For in­stance, the suit said Stan­dard Gen­eral ap­proached Amer­i­can Ap­parel in March 2014 with a f inanc­ing pro­posal, but com­pany di­rec­tors re­jected the New York in­vest­ment firm’s money in fa­vor of a f inanc­ing ar­range­ment that re­duced Char­ney’s own­er­ship stake to 27% from 43%.

The suit con­tends that Amer­i­can Ap­parel and

Stan­dard Gen­eral sub­se­quently worked to­gether to en­sure that Char­ney would be re­moved from com­pany lead­er­ship and would never re­gain con­trol.

It was Stan­dard Gen­eral that reached out to Char­ney af­ter his June ter­mi­na­tion and promised to help him get back his job and con­trol of the com­pany, the law­suit said. In­stead, the suit said, Stan­dard Gen­eral “fraud­u­lently in­duced” him into giv­ing the hedge fund con­trol over his shares and “re­neged” on its word.

The law­suit said that Stan­dard Gen­eral never in­tended to help Char­ney be­cause its in­vestors wouldn’t tol­er­ate such a re­la­tion­ship. The suit re­counted an ear­ly­morn­ing “emer­gency” meet­ing on June 30, 2014, in New York’s Cen­tral Park be­tween Char­ney and Stan­dard Gen­eral Chief Ex­ec­u­tive Soohyung Kim.

“Kim then made var­i­ous rep­re­sen­ta­tions that he was be­ing ‘ cru­ci­fied’ by his lim­ited part­ner in­vestors who were re­act­ing neg­a­tively to his part­ner­ship with Char­ney ... and that he was on the brink of los­ing his hedge fund. Kim emo­tion­ally pleaded with Char­ney to help him save his hedge fund or they were all ‘ go­ing to die,’” the law­suit stated, adding that Kim was so fran­tic, he scratched him­self un­til he was bleed­ing.

Char­ney felt he had no choice but to go along with Stan­dard Gen­eral’s plan to set­tle with Amer­i­can Ap­parel, rather than stage a hos­tile bid for con­trol, re­ly­ing on Kim’s prom­ises that Char­ney would be re­in­stated at the com­pany within weeks, the suit said. Char­ney agreed to re­lin­quish his board seat as part of that set­tle­ment.

A Stan­dard Gen­eral spokesman said in an email that the fil­ing was “yet another ex­am­ple of the friv­o­lous, mer­it­less law­suits that Mr. Char­ney and his as­so­ci­ates con­tinue to f ile at a break­neck pace.”

He added, “The facts speak for them­selves, and we are con­fi­dent that he will ul­ti­mately be held ac­count­able.”

Ac­cord­ing to the law­suit, Char­ney suf­fered emo­tional dis­tress af­ter he was sus­pended when the board of di­rec­tors started a “neg­a­tive and defam­a­tory media cam­paign against him.” Com­pany rep­re­sen­ta­tives leaked con­fi­den­tial in­for­ma­tion and a video of Char­ney danc­ing nude to drive away po­ten­tial al­lies, the suit said.

The suit also said that Char­ney had amassed hun­dreds of thou­sands of dol­lars in le­gal fees, which Char­ney had ex­pected Amer­i­can Ap­parel to pay, and that those ex­penses had put Char­ney’s “per­sonal f inances in jeop­ardy.”

An Amer­i­can Ap­parel spokes­woman said in an email that Char­ney’s law­suit is “yet another ex­am­ple of the ha­bit­ual nui­sance law­suits that Dov Char­ney and his lawyer con­tinue to f ile, and which we con­tinue to de­feat.”

Amer­i­can Ap­parel f iled court doc­u­ments Fri­day that spelled out Char­ney’s al­leged mis­con­duct at the com­pany. Keith Fink, Char­ney’s at­tor­ney, said Wed­nes­day’s law­suit had noth­ing to do with this re­cent fil­ing.

Among the graphic de- tails de­scribed in the doc­u­ments were al­le­ga­tions that Char­ney stored footage on com­pany equip­ment of him­self hav­ing sex with em­ploy­ees and mod­els and sent sex­u­ally ex­plicit mes­sages to em­ploy­ees. Fink said those were per­sonal mes­sages that were wel­comed by the re­cip­i­ents.

The doc­u­ments were part of an anti- SLAPP mo­tion, in­tended to stanch what the com­pany calls friv­o­lous law­suits.

The com­pany’s Fri­day fil­ing was in re­sponse to a defama­tion suit f iled by Char­ney’s team in May against the com­pany and its chair­woman, Colleen Brown. The defama­tion com­plaint al­leged that Brown falsely in­formed Amer­i­can Ap­parel em­ploy­ees that Char­ney had agreed in writ­ing never to re­turn to the com­pany in any ca­pac­ity.

Char­ney f iled an ad­di­tional defama­tion suit against the com­pany and Danzinger, al­leg­ing that they lied to pre­vent him from win­ning the nec­es­sary votes to re­claim con­trol of the com­pany.

Char­ney’s law­suit is ‘ yet another ex­am­ple of the ha­bit­ual nui­sance law­suits that Dov Char­ney and his lawyer con­tinue to file.’

— An Amer­i­can Ap­parel spokes­woman

Mark Boster Los An­ge­les Times

DOV CHAR­NEY is seek­ing $ 100 mil­lion in dam­ages and wants pact that re­moved him from Amer­i­can Ap­parel’s board re­scinded. Above, the f irm’s L. A. build­ing.

Johannes Kroe­mer Getty I mages

I N HIS SUIT, Dov Char­ney noted that the board f iled a proxy state­ment with reg­u­la­tors prais­ing his lead­er­ship ahead of last June’s share­holder’s meet­ing.

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