American Apparel CEO Dov Is Back, Back Again… by Todd Sullivan ValuePlays

This reminds me of the chorus in  Eminem’s “Guess Who’s Back” :

Guess who’s back, back again
Shady’s back, tell a friend
Guess who’s back, guess who’s back,
Guess who’s back. Guess who’s back?

Just substitute Dov for Shady….commentary at the end

(Bloomberg) — Former American Apparel Inc. Chief Executive Officer Dov Charney, who was ousted last year from the company he founded, is seeking $40 million in damages stemming from the termination.

“We are moving forward with Mr. Charney’s employment claims,” Keith Fink, a lawyer for Charney, said in an e-mail.

After he was initially suspended as CEO in June, Charney made claims for breach of his employment contract that went into arbitration in California, where the company is based. He then agreed to put them on hold until a final decision was made on his future at the retailer. Following an investigation, the board fired him in December for alleged misconduct.

The legal threat comes as the Los Angeles-based company struggles to pull out of a slump. Sales sank 9.2 percent in the fourth quarter, the worst performance in four years, and it had just $8.3 million in cash at the end of the year.

The chain said yesterday that it borrowed $15 million from hedge fund Standard General — part of $25 million in total financing — most of which will help it make an interest payment of about $14 million due in three weeks. American Apparel expects to have enough cash for the next 12 months.

In moving to fire Charney last year, the board alleged that he violated sexual-harassment policies and misused funds. At the time, a lawyer for Charney called the charges “baseless” and said his termination was illegal.

Severance, Vacation

Charney’s claims include almost $6 million in severance, $1.3 million in vacation-time pay, at least $10 million for emotional distress and 13 million shares of American Apparel, according to a letter sent to a law firm representing American Apparel that Fink provided.

American Apparel disclosed in a filing yesterday that it had been told that Charney would reinstate his demand for arbitration. The chain didn’t say how much its potential liability might be.

“These claims are baseless, and we are confident that Dov will lose on each and every one of these,” American Apparel said in an e-mailed statement.

Charney declined to comment.

Since Charney’s suspension, he has been pushing to get his job back. His efforts included a deal last year with Standard General that Charney later said backfired. He borrowed funds from the firm to increase his American Apparel stake to 43 percent of outstanding shares, agreeing to share voting rights in the process. Standard General pledged to pump the $25 million into American Apparel as part of the arrangement.

SEC Probe

But Standard General didn’t reinstate Charney at the clothing chain. Although the board offered him a deal to stay on as an adviser, he turned down the proposal because of concerns that Standard General had too much sway over the company, people familiar with the matter have said.

American Apparel said yesterday that the U.S. Securities and Exchange Commission has begun a probe into the events surrounding Charney’s exit.

The company also has hired an investment bank to consider strategic options, including a sale. Talks with one potential bidder, Irving Place Capital, have stalled, people familiar with the matter said last week.

Fink, Charney’s lawyer, told American Apparel that the ex-CEO also hasn’t gotten back his “priceless art,” which adorns the company’s offices.

“I am very concerned about this,” he said in the letter. “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.”

This lawsuit is a non-starter. It has been reported Dov is running out of cash and probably wants the art back so he can sell it….who cares, give it to him. As far as the rest of the claims, they are meritless and only further pull into question whether or not Dov wants the company back or wants it to fail without him. That the suit was filed the day after the company revealed the SEC is investigating his handling of company funds when CEO is, let’s call it curious? I have no comment on the validity or not of any of the fiduciary claims, only on the timing of this lawsuit.

Why are the claims meritless? Dov walked away. He was offered a position there and turned it down. One can argue all day over whether or not it was the role he should have had, wanted, deserved, etc etc but the fact remains he walked away essentially because he wanted to be on the Board and Standard, rightly so given the history of lawsuits he brought on the company, said no.   If he could not remain there on his own terms, he was going to leave and he did.  Dov signed the original agreement with Standard, he was not forced to. If he has a beef with anyone, it is with his lawyers who if they reviewed the Standard agreement did not do nearly enough to protect their client. If he did not have them review it, he has no one to blame but himself.

We know Dov has been riling up workers against management and now there are rumblings of a union vote. We should note that American Apparel had more than its share of union and employee troubles under Dov’s reign, this isn’t something new and an indication of a flaw of current management. The hypocrisy here is that when the union came knocking on American Apparel door when Dov was in charge he felt is was his responsibility to “protect his workers” from organized labor. Now that he is out at American Apparel, he is in concert with the group, Hermandad Mexicana, trying to unionize American Apparel factory workers.  How does he look workers in the face and tell them “I know I said unions were bad for you when I was CEO but now that I’m not, I’m telling you they are good for you”…seriously?

This is the last thing current management needs is trying to turn around the company. Now, Dov will claim he loves the company and its workers, but his every action refutes that. His actions indicate he’d rather see it collapse into rubble than see it run by anyone other than himself, especially Standard who he feels betrayed him.  Watching it burn would give him the “last word” in saying “I told you they couldn’t run this without me”….. Great…but what about all those factory workers who will be out of a job? The ones he professes to care so much about? It would be a pyrrhic victory and its cost would be born by those who can least afford to bear it.  BuzzFed noted of the March rally:

It’s unclear how organizing a workforce coalition will help Charney win back his place atop a company that currently won’t even allow him to set foot on the factory floor. But the former executive told his troops on Saturday that it would be in their interest to have him reinstated as the head of American Apparel. He

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