Dov Charnery—the former American Apparel Chief Executive Officer—has accused Standard General LP of falsely claiming, based on the results of an independent investigation, that his termination was for cause, and has sought $30 Million in damages.
Charney claims the investigation was a “sham”, according to a complaint filed in Los Angeles state court. He claimed American Apparel’s board, controlled by Standard General, fired him because he would not relent on his mission to regain control of the retailer and because he refused to release his shareholder claims against American Apparel and Standard General.
“There was no independent, third-party investigation of Charney that led to his termination,” according to the complaint. The investigation was directed by “the very people who wanted to fire Charney, who conspired against him to wrest away control of the company.”
Upon removing Charney, the directors alleged that he had violated American Apparel’s policies against sexual harassment, and had improperly spent company funds on travel for family members. “Charney and his associates continue to file frivolous, meritless lawsuits at a breakneck pace,” New York-based Standard General said in a statement.
In April, two American Apparel shareholders with past ties to Charney sued the company and some board members. They claimed Charney was fired because he would not follow the plan to sell the chain. The company has dismissed the claims in that case as “completely baseless.”
Unfortunately, numerous lawsuits are not the only issues that have plagued American Apparel in past months: sales have dwindled and employee morale has plummeted. American Apparel hopes to overcome its recent woes by hiring Paula Schneider who was installed as CEO of American Apparel in December. She replaced a string of interim CEOs who had taken the reins following Charney’s ouster last June over sexual misconduct.
Regretfully, the turnaround has not happened as quickly as hoped: the company announced a net loss of $26.4 million in the first three months of the year, compared to a net loss of $5.4 million during the same period in 2014. Sales fell 9 percent to $124.3 million year-over-year and followed up consecutive quarters of flat or declining sales.
Schneider cautioned against reading too deeply into recent income reports since the company is in “the initial phase of a multi-year, strategic turnaround plan” that “will require time.” In the first quarter, Schneider said the company focused on “significantly reducing slow-moving merchandise,” taking a temporary hit on sales and margins in the hopes of improving its store merchandising in the months to come. Product development, merchandise planning, operational and financial planning, inventory management, procurement and demand planning are also in the midst of a restructuring.
Schneider has also attempted to update the company’s image. In January, American Apparel strengthened rules to prevent sexual harassment among its employees. Managers and subordinates were prohibited from having romantic relationships, including dating casually, according to the new ethics code. This policy change was in response to Charney’s behavior while CEO, which led to several suits for sexual harassment. One employee reported seeing Charney naked in his factory on several occasions. The cases were either dismissed or sent to private arbitration.
The most obvious signs of change have come from the company’s new advertisements. The new ads display photographs intended to correlate female empowerment with hard work. American Apparel has discarded its former oversexualized ads, and has specifically requested no “Instagram hoes”.
In its quest for a fresh perspective, American Apparel has also hired a new menswear designer, Joseph Pickman. The hope is that Pickman, formerly of Band of Outsiders, could bring a youthful edge by infusing American Apparel with his eccentric preppy style. However, recent news of Band of Outsiders decision to not create a fall line and possibly folding could color the move by Pickman as more of a survival tactic than a belief in the new direction of American Apparel.
On the financial side of its turnaround, American Apparel announced that it plans to sell another $10 million in stock, adding to the $15 million loan it took from Standard General in March.
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