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American Apparel Said to Get Arbitration Notice After Ouster

June 26 (Bloomberg) -- American Apparel Inc., which ousted Chief Executive Officer Dov Charney last week, received notice that its former CEO is seeking arbitration to resolve the matter, a person with knowledge of the situation said.

The American Arbitration Association notified the retail chain’s attorney this morning, according to the person, who asked not to be identified because the information is private. Patricia Glaser, Charney’s lawyer, had warned American Apparel in a letter last week that she would take legal action if the company’s board refused to meet about reinstating him as CEO. The board denied the request, according to the person.

The arbitration is the next step in a weeklong standoff, which began when the controversial CEO refused to resign on June 18. The board then suspended Charney, saying it would fire him after a contractual 30-day waiting period. The company investigated Charney’s actions this year and found a history of misconduct that ranged from sexual harassment and retaliation to misallocation of corporate funds, the person said.

American Apparel also has racked up about $270 million in net losses since the beginning of 2010 and seen its stock price plunge below $1. The shares have lost about two-thirds of their value over the past year, leaving the retailer with a market valuation of about $130 million. The shares rose 9.4 percent to 74 cents today in New York.

Illegal Move?

In her letter on June 19, Glaser said Charney’s abrupt ouster from the company he founded was illegal and violated his contract. She also accused American Apparel of undertaking a publicity campaign to destroy his reputation.

In a separate filing earlier this week, Charney said he has supporters -- including some American Apparel stockholders -- who want him to remain CEO. The 45-year-old has discussed potential changes to the board and management with those parties, the filing said.

Charney declined to comment on the arbitration filing. Glaser -- who has represented entertainers and other public figures, including Paula Deen and Miley Cyrus -- didn’t respond to a request for comment.

In 2011, a woman sued Charney, saying that he sexually assaulted her after she came to his house for a job interview. That same year, a second woman filed a complaint saying he retaliated against her for a previous lawsuit by leaking nude pictures of her and sexually explicit e-mails to the New York Post and the Los Angeles Times. At the time, a California judge agreed with the company that the claims should be resolved through arbitration rather than a trial.

Misuse of money and corporate assets alone wouldn’t have been enough to dismiss Charney, the person said. When added to other findings such as retaliation, the board had no choice, according to the person.

In an interview with the Financial Times this week, Charney said American Apparel’s board was running a “hateful PR campaign” against him.

To contact the reporter on this story: Renee Dudley in New York at rdudley6@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net

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