(Reuters) - Dov Charney, the ousted chief executive of American Apparel Inc APP.A, has filed a $30 million defamation lawsuit against a New York hedge fund that controls a large stake in the clothing company he founded, and which refused to support his return.
The lawsuit filed Thursday in Los Angeles Superior Court is
one of several arising from Charney’s suspension last June and
dismissal six months later.
American Apparel attributed the suspension to Charney’s alleged misuse of company funds and failure to stop a subordinate from posting false blog entries about former employees.
In the defamation case, Charney said that Standard General, through its alleged control of American Apparel’s board, paid outside law firm Jones Day millions of dollars to “manufacture” reasons to show he was not fit to be chief executive in a “sham” probe into his conduct that would justify his removal.
He alleges Standard General then defamed him by telling media it respected the board’s decision to fire him for cause based on the imprimatur from the “independent, third party” probe, which Charney said was actually a “witch hunt” and a “whitewash.”
Standard General called the lawsuit frivolous. “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,” the New York-based hedge fund said in a statement.
An agreement last July let Standard General nominate three people for American Apparel’s nine-person board.
American Apparel and Jones Day are not defendants in Charney’s defamation lawsuit.
In a statement on Friday, an American Apparel spokeswoman said Charney’s claims in his latest lawsuit were without merit. Jones Day did not immediately respond to requests for comment.
Standard General and Charney control the latter’s more than 42 percent stake in American Apparel, a regulatory filing shows.
The hedge fund had helped Charney boost his stake following his suspension as part of Charney’s effort to reclaim his job.
Charney is separately engaged in arbitration in which he seeks $40 million in damages for breach of contract tied to his dismissal, including damages for emotional distress, his lawyer Keith Fink said.
The case is Charney v. Standard General LP et al, Superior Court of California, Los Angeles County, No. BC581130.
Reporting by Jonathan Stempel and Jeffrey Dastin in New; Editing by Alan Crosby