American Apparel Founder Says He's Broke and Can't Afford Lawyer

Dov Charney

Dov Charney.

Photographer: Keith Bedford/Bloomberg

Ex-American Apparel Inc. Chief Executive Officer Dov Charney lives in a Los Angeles mansion with eight bedrooms, but says he can’t scrape together enough cash to keep paying a lawyer.

Charney is now representing himself in a lawsuit by the hedge fund Standard General, a backer of American Apparel. The 46-year-old told a Delaware judge that if he can’t raise money to hire a new lawyer, he’ll continue doing his own legal work.

Since American Apparel’s board ousted him in 2014, Charney has waged a costly legal campaign to regain control of the company he founded. When American Apparel filed for bankruptcy last month, it crushed the value of his remaining stock, which represented much of his net worth. He still has his house, which spans more than 11,000 square feet in the Silver Lake neighborhood of Los Angeles.

“As you may know, I was fired by American Apparel, the company I founded in Montreal over three decades ago, with no severance or otherwise,” Charney said in a letter dated Wednesday to the judge presiding over the case. “All of my shareholder interests have been wiped out, and I have depleted my savings on defending my life’s work and legal rights.”

Delaware Chancery Court Judge Andre Bouchard allowed the law firm of Cross & Simon LLC, which had been defending Charney in the Standard General case, to withdraw Wednesday. The Wilmington, Delaware-based firm said “continued representation would be unreasonably burdensome” because of Charney’s financial situation and litigation costs in his other cases, according to court filings.

Charney declined to comment on the situation, but said he still has lawyers working for him in California where he has filed a handful of lawsuits.

Clash With Board

The American Apparel board first suspended Charney in June 2014 for allegations of misconduct, including misusing funds and violating the sexual-harassment policy. After more investigating, it fired him in December and named a new CEO. A lawyer for Charney has denied the allegations.

Charney’s current predicament represents a sharp decline from his previous post, said Robin Lewis, CEO of the Robin Report, a retail strategy publication. But don’t count him out because he has “been able to wiggle out of more problems than anyone I’ve ever known,” Lewis said.

Charney has said in a lawsuit that he was fired because other American Apparel executives wanted to sell the company and knew he wouldn’t approve. He also alleged that Standard General promised to reinstate him, and was then “betrayed” by the firm. Both American Apparel and Standard General have denied Charney’s allegations.

Sleeping on Couch

This isn’t the first time Charney has said he’s low on funds. About a year ago, he told Bloomberg News that he was down to his last $100,000 and sleeping on a friend’s couch while he stayed in New York. In his last year as CEO, he made a base salary of $832,000.

Charney’s concrete mansion, perched on a hilltop, was built in 1926 by tycoon Frank Garbutt, who helped found aircraft maker Martin Marietta and was one of the pioneers of the U.S. movie industry.

In the Delaware case, Standard General claims Charney violated an agreement with the hedge fund that was part of his effort to regain control of the retailer. He also has sued Standard General for defamation.

A judge ruled last month that Charney wasn’t entitled to have American Apparel’s insurance cover his legal costs in defending the suits. Charney is asking the judge to reconsider this ruling, according to the letter.

This case is Standard General LP v. Dov Charney, CA NO. 11287, Delaware Chancery Court (Wilmington).

Before it's here, it's on the Bloomberg Terminal. LEARN MORE