Ex-American Apparel CEO seeks $40M in damages
The breakup between American Apparel and Dov Charney keeps getting messier — and could get a lot more expensive, too.
The struggling clothing company’s controversial founder is claiming more than $40 million in damages stemming from his surprise ouster last year, even as the retailer this week disclosed a probe by securities regulators into the affair.
Los Angeles lawyer Keith Fink — who, in a twist, had formerly represented American Apparel employees suing Charney for harassment — said in a letter last week that the retailer is liable for $20 million to $25 million in damages for Charney’s loss of employment.
That includes Charney’s claim to 13 million American Apparel shares, nearly $6 million in severance and $1.3 million in unpaid vacation for the ex-CEO, who was a notorious workaholic, Fink said.
“I still have not received Mr. Charney’s priceless art,” Fink added, referring to art and furniture left behind at the company’s offices following the abrupt dismissal last June.
“While someone may be able to pencil the value of the art Mr. Charney accumulated over the years in the tens of millions of dollars, the sentimental value is priceless to him.”
Among other claims Fink outlined in the March 19 letter, which was first reported by Bloomberg News, is that Charney is entitled to an additional $10 million or more in damages for “emotional distress.”
American Apparel disclosed in a filing this week it has been notified of Charney’s arbitration claims, although it didn’t put a dollar figure on them.
“These claims are baseless, and we are confident that Dov will lose on each and every one of these,” an American Apparel spokeswoman said in a written statement Thursday.
The high-dollar demand comes at a bad time as the cash-strapped retailer scrambles to turn around its money-losing operations.
On Wednesday, American Apparel disclosed it was forced to borrow $15 million from New York hedge fund Standard General LP in order to make a $13.7 million interest payment on debt that is due next month.
The retailer had just $8.3 million on its balance sheet as of Dec. 31 after its sales tumbled 9.2 percent during the crucial fourth quarter.
American Apparel said this week it believes it has sufficient funding for the next 12 months.
Separately, American Apparel disclosed in its annual report Wednesday that the Securities and Exchange Commission on Feb. 5 began a formal investigation into the board’s review of Charney.
“The company intends to cooperate fully with the SEC in its investigation,” American Apparel said in the filing.
In December, Charney’s lawyers argued that the board, after suspending Charney last June, “denied Mr. Charney any reasonable opportunity to respond to the so-called charges against him” before firing him for cause in December.
Among the allegations were that Charney allowed a blogger to post naked pictures of former employee Irene Morales, who had alleged he made her his “sex slave” — a charge Charney’s attorneys have called “baseless.”