Metropolitan News-Enterprise


Wednesday, November 5, 2008


Page 1


Court Grants American Apparel’s Request to Compel Arbitration


By a MetNews Staff Writer


This district’s Court of Appeal has granted clothing manufacturer American Apparel Inc.’s petition to compel arbitration under a settlement with a former sales manager who alleged she was sexually harassed by the company’s president.

Rejecting Mary Nelson’s claims that the settlement proposed a “sham” arbitration to be conducted with foreordained facts and a predetermined award, followed by the issuance of a misleading press release, because the potentially illegal provision was severable and because American Apparel was not seeking enforcement of the provision, Div. Five last Tuesday in an unpublished opinion reversed a trial judge’s order denying the petition.

Nelson filed suit in 2005 against American Apparel, Chief Executive Officer Dov Charney and Vice President Martin Bailey, alleging that Charney subjected her to a hostile work environment based on her gender by regularly making unwelcome, inappropriate comments, and suggestive non-verbal gestures, and ultimately wrongfully terminating her employment.

After the matter was set for trial, the parties in January of this year agreed to a settlement whereby American Apparel would pay Nelson $1.3 million without admitting liability, and the parties would submit to arbitration before an arbitrator selected by the company.

Specified Award

However, the settlement agreement’s seventh paragraph also provided that the arbitrator would enter a specified award in American Apparel’s favor based on a stipulated record, and that the company could then issue a press release stating that the arbitrator had ruled in its favor, and  Nelson’s attorney declined to participate in an arbitration subsequently scheduled before retired San Francisco Superior Court Judge Daniel Weinstein, characterizing the proceeding as a “fake arbitration.”

Los Angeles Superior Court Judge John P. Shook denied American Apparel’s subsequent petition to compel arbitration, but Presiding Justice Paul Turner wrote that reversal was required because the arbitration provisions in the settlement agreement were otherwise enforceable, and because the provision requiring foreordained facts and a predetermined award was severable by the agreement’s own terms.

“Much of plaintiff’s brief is dedicated to arguing the improper nature of the ‘arbitration’ before Retired Judge Weinstein and that such can serve as a bar to an order compelling the parties to arbitrate…,” he explained.

“If this appeal involved a petition to compel the resumption of the ‘arbitration’ before Retired Judge Weinstein or any other provision of paragraph 7, the issue would be different. Then there would be considerations of illegality, injustice, and fraud which would affect our powers as a court of equity to enforce the “arbitration” contemplated by paragraph 7.

Other Provisions

But Turner said a different result was required because American Apparel’s petition was expressly directed only at the other arbitration provisions in the agreement.

“If defendants were seeking to enforce a duty to arbitrate under the paragraph 7 ‘arbitration’ provision which was designed to lead to the issuance of a press release whose purpose was to mislead journalists and the public, then the result of this appeal would be materially different,” he wrote.

Justices Orville A. Armstrong and Sandy R. Kriegler joined Turner in his opinion.

The case is Nelson v. American Apparel, Inc., B205937.


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