Charney……..Unhinged – American Apparel, Inc. (APP) Fight

American Apparel – At this point one can say without reservation Dov is his own worst enemy…..

LOS ANGELES–(BUSINESS WIRE)– American Apparel, Inc. (NYSE MKT: APP), a vertically-integrated manufacturer, distributor, and retailer of branded fashion basic apparel, today filed suit in the Delaware Court of Chancery against Dov Charney, the former Chief Executive Officer, for violations of his Standstill Agreement with the Company.

Now, it is impossible not to feel bad for the guy. Most of cannot fathom what it must be like to build a $300Mcompany from scratch and then have it ripped away from you. However, that does not change the fact he without a doubt deserved to have it ripped away. His behavior is unacceptable by any standard in today’s work environment.

Now Dov has violated the terms of the Standstill Agreement he signed. I’ve felt this way for some time and after reading through the filing (below) I think it is plain as day for anyone to see.

Take this gem for instance:

In addition, on April 29, 2014, American Apparel employee Stephanie Santos sent an email from her Company email account “on behalf of shareholders Jan Willem Hubner and Eric Riber” to other American Apparel employees describing the Hubner California Action, indicating that the litigation’s “outcome could dramatically alter the composition of the board of directors . . . .”American Apparel’s Chief Information Officer traced the origin of this email to Mr. Charney’s home address. Thus, it is reasonable to infer that Mr. Charney, either himself or acting through an employee visiting his home, breached Sections 3(c) and 3(h) of the Standstill Agreement by sending an email promoting the Hubner California Action, the purpose of which is to remove American Apparel directors elected at the 2014 annual meeting.

It is almost comical, welcome to 2015 Ms Santos. It’s hard to believe Dov had nothing to do with this….he’ll of course say he didn’t but common sense says otherwise.  This is especially true when one reads the weight of the other evidence.

So, what’ll happen?

From the standstill:

The parties acknowledge and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that in addition to other remedies the other party shall be entitled to at law or equity, the other party shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement exclusively in the Court of Chancery or other federal or state courts of the State of Delaware.

The company will win this because I’m sure none of those folks are gonna perjure themselves under oath for Dov when asked if he had anything to do with their actions. Helping out a buddy is one thing, committing perjury is quite another. I’m of the opinion the company has been sitting back watching him dig a hole he can never get out of.  Assuming he loses, what does the company want if, as the agreement above says “monetary damages would not be an adequate remedy”?

His shares……

Dove still technically owns ~27% of the company (although Standard has his votes) and my bet is that they will only be satisfied when they have them.

Good for them if that is how they go…….enough of this circus…..

American Apparel v Charney

One more thought: If the company gets a slug of shares as compensation, does that put the company back on the block? Dov assuredly would be under an injunction(making company “safer” for any potential acquirer) and Standard would have a much larger share position to benefit from any possible buyout ……who knows but it does beg the question.

American Apparel
American Apparel