Metropolitan News-Enterprise


Wednesday, March 29, 2017


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Court Rejects American Apparel Founder’s Defamation Suit Against Hedge Fund


By a MetNews Staff Writer


The founder of clothing manufacturer American Apparel was not defamed in a press release announcing his termination as the company’s chief executive, the Court of Appeal for this district ruled yesterday.

Div. Five affirmed Los Angeles Superior Court Judge Terry Green’s ruling that Dov Charney’s action against Standard General L.P. constituted a SLAPP. “I think there’s more likelihood that I’d be the first American astronaut on Mars before this plaintiff wins this lawsuit,” the Law 360 blog quoted Green as saying.

Standard General is a New York-based hedge fund, specializing in distressed debt. It obtained control of American Apparel from Charney in mid-2014, not long after the board suspended him.

He was fired by the board in December of that year. Standard General issued a press release defending the termination, saying Charney was fired for “cause” following an “independent investigation” by a third party.

Charney’s suspension and subsequent termination have led to several suits by him against the clothing company which he founded in 1989, and against Standard General and individual principals and directors of the two companies. In the complaint ruled on yesterday, Charney alleged that the press release defamed him by implying he had engaged in wrongdoing, and because the role of American Apparel’s lawyers, from the firm of Jones Day, in the investigation rendered false the description of the probe as independent.

Charney claimed that after the board of American Apparel told him in June 2014 that it was going to oust him with or without his acquiescence, he agreed to allow Standard General to take over the company, with the understanding that he would be suspended as CEO pending investigation, but would be reinstated absent discovery of egregious misconduct.

He was terminated six months later, he said, after he refused the company’s offer of a severance package and a consulting contract in exchange for his resignation and the end of his fight for control. Media reports and the company’s suspension notice said Charney had made racist, sexist, and homophobic remarks, on multiple occasions, in front of and about the company’s employees.

He was also accused of authorizing severance packages with employees in order to avoid their suing him for his personal misconduct.

A defamation complaint against American Apparel, similar to the one against Standard General, was also stricken on an anti-SLAPP motion. American Apparel has since filed for reorganization under Chapter 11, reportedly wiping out Charney’s equity in the company, once worth more than $8 million.

Los Angeles Superior Court Judge Sanjay T. Kumar, sitting on assignment and writing for the Court of Appeal, said it was undisputed that the action implicated the defendant’s free speech and petition rights in connection with a public issue or a matter of public interest, shifting the burden to Charney to show that his claims have merit.

They don’t, Kumar said, regardless of the defendant’s motivation.

Whether Jones Day’s role in the investigation conducted by FTI Consulting, Inc. compromised the probe’s independence, or not, is a question of opinion, not fact, “and therefore cannot support an action for defamation,” Kumar said. And even if the statement constituted a false assertion of fact, he said, it would not be actionable by Charney because it’s a statement about the probers, not about him.

The allegation that Standard General defamed Charney by saying he was terminated for cause “is also problematic,” Kumar said, because the press release didn’t say why Charney was fired. “The statement cannot be proven false as it does not state that Charney engaged in criminal conduct or that his conduct violated certain standards, or even that there existed any particular conduct that caused his termination,” the jurist wrote.

The appeal was argued by Olaf Muller of Keith A. Fink & Associates for Charney and by John Muller of Munger Tolles & Olson LLP for Standard General.

The case is Charney v. Standard General, L.P., 17 S.O.S. 1659.


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