Ousted American Apparel Ex-CEO Accused of Violating Agreement and Disparaging Company

photo - Dov Charney disparagementDov Charney has generated a lot of controversy and a lot of lawsuits. He is the former chairman and CEO of American Apparel. The company’s board removed him chairman and suspended him as CEO a year ago, citing evidence of inappropriate behavior with employees and misuse of company funds. He’s now the subject of a temporary restraining order, preventing him from criticizing the company or removing board members, reports the Los Angeles Times.

After his suspension as CEO, Charney joined with hedge fund Standard General to purchase company shares as he tried to make a comeback. Part of a standstill agreement (one that stops a hostile takeover process where the target firm either offers to buy the shares of the hostile bidder at a profit or asks the bidder to limit its holdings) reached with both companies, Charney resigned as a company board member and agreed to other restrictions, including not disparaging American Apparel.

Charney’s attempt at a takeover failed and he was fired from his CEO position in December. Not disparaging American Apparel or trying to remove board members were terms of the standstill agreement.

A number of legal actions have been filed by Charney and his allies in recent months, including his own defamation lawsuits against American Apparel and Standard General. American Apparel got into the action too by filling its own suits, accusing Charney of running a “scorched earth campaign” to regain control of the company. Charney’s lawyer is quoted in the Times as saying Charney intends to comply with the order which should have no effect on the other legal actions filed against American Apparel.

In California, disparagement,

  • Can include the publication of matters derogatory to the plaintiff’s business in general.
  • Is an injurious falsehood the specifically refers to the derogated product or service expressly or by reasonable implication.

Non-disparagement clauses are very common when lawsuits are settle or as part of a separation agreement between an employee and an ex-employer. Normally the agreement binds both parties, preventing either side from disparaging each other.

If you would like to have a non-disparagement agreement drafted, or you’re the subject of such an agreement and you have questions or concerns about your situation, contact my office so we can discuss the issues and what’s in your best interests.