American Apparel Sued Over Charney Firing

American Apparel image
Source: courtesy of American Apparel image
Late last month Dov Charney, the former CEO of American Apparel Inc. (NYSEMKT: APP), filed a $40 million lawsuit against the company seeking $40 million for breaches of contract and other damages. On Wednesday two shareholders, one a former executive with the company, filed a lawsuit alleging that Charney was fired in December because he refused to sell the company.

Charney’s firing was attributed to misuse of funds and for allowing nude photos of a former company employee to be posted on the Internet after she accused him of sexual harassment.

The lawsuit filed Wednesday alleges that some shareholders, including Charney, were not aware that he was under investigation by the company for misconduct at the time of American Apparel’s annual shareholders’ meeting on June 18. Because the proxy statements issued before the meeting did not mention the investigation or the company’s intent to remove Charney, the lawsuit claims that amounts to proxy fraud.

The suit further alleges that American Apparel’s former chief financial officer, John Luttrell, talked with Charney about selling the company. When Charney refused, Luttrell set in motion the investigation and eventual firing of the founder and CEO.

In a statement from the company cited by Bloomberg, American Apparel calls the lawsuit’s claims completely baseless and said, “We are confident we will succeed on each and every one of these.”

The list of claims against American Apparel appears endless: a former employee just sued the company claiming religious discrimination; three employees recently sued claiming they were laid off without sufficient notice; and, of course, Charney’s own claims.

It is difficult to see how American Apparel survives all these claims. The company’s market cap as of Wednesday’s close is just $115 million, and the share price is $0.65 in a 52-week range of $0.50 to $1.30. The stock traded at around $15 a share in December of 2007 and first dropped below $1 a share in the summer of 2010.

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