American Apparel Seeks to Clear Name of CEO

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American Apparel Inc. is demanding an exoneration from a former employee who has accused Chief Executive Dov Charney of sexual harassment. In return, the Los Angeles company would pay her $1.3 million to make her lawsuit disappear.

That’s the broad outline of a tentative deal between Charney and perhaps his chief tormentor. However, that would-be settlement blew up last January, and last week court documents spilled into public that illustrated the tension between former American Apparel sales manager Mary Nelson and the company.

Charney, the founder of the edgy L.A. clothing manufacturer and retailer, has garnered at least as much attention for the accusations about his behavior as he has for the success of his company which is the largest apparel company that still manufactures in the United States.

Nelson’s lawsuit is one of two outstanding sexual harassment charges. American Apparel and Charney are seeking an arbitrator’s ruling that would clear him and the company of any wrongdoing.

However, according to court documents, the plaintiff’s attorney didn’t accept that condition as part of a deal struck in January to avoid trial.

Details of the dispute became public last week, with the release of an appellate court decision in the matter.

In her suit, which was filed in L.A. Superior Court in 2005 and was set to go to trial Jan. 24, Nelson claims that Charney subjected her to “unwelcome and inappropriate sexual comments and suggestive non-verbal signals.” The settlement was hammered out on the eve of the trial.

Other suits have also detailed allegations of sexual harassment by the 39-year old Charney. Five female employees filed four different lawsuits two filed jointly against him after a 2004 article in the now-defunct Jane magazine alleged unprofessional behavior, which Charney later denied.

One of the four suits was settled on condition of confidentiality, and one was dropped. The remaining two Nelson’s suit and an employment discrimination case filed in May by Jeneleen Floyd remain pending.

Upon reaching the settlement with Nelson, American Apparel expected an arbitration ruling that would exonerate Charney. However, Nelson’s attorneys did not attend the arbitration because they didn’t believe it was necessary, according to court documents.

American Apparel then asked L.A. Superior Court Judge John P. Shook to take action on what it called breach of the settlement. The judge declined and American Apparel appealed the decision.

The appellate court ruled in American Apparel’s favor last week. That means Nelson must go to arbitration. Additionally, the ruling provided details of American Apparel’s settlement negotiations with Nelson.

American Apparel provided a statement to the Business Journal that said the company’s original intention was to pursue a trial and get an acquittal. The statement also said that Nelson and her attorney, Keith Fink, wanted to settle the case.

“American Apparel viewed the proposed settlement from the plaintiff, which would effectively exonerate the company of the erroneous allegations, as a preferable outcome to additional months of litigating the matter in court,” the statement said.

Charney declined to comment beyond the company’s statement.

Fink, of L.A. firm Keith A. Fink & Associates, did not return calls seeking comment. Fink’s partner Sarah Hernandez, who also represents Nelson in the case, declined to comment on American Apparel’s statement.


Public details

The documents state that Hernandez “described the arbitral process as a ‘fake arbitration’ designed to produce a press release calculated to blunt negative media attention.”

American Apparel, in its statement, placed the blame on Fink.

“It wasn’t our idea to stage a sham arbitration hearing. The idea was proposed by Mary Nelson’s lawyer, Kevin Fink,” American Apparel said in its statement to the Business Journal. “Since we were not prepared to settle the case without a public admission from Ms. Nelson that her accusations were completely untrue, we agreed to his plan.”

Charney apparently sees Nelson as his main nemesis.

This month’s Portfolio magazine features Charney on its cover. The article states: “Charney says she (Nelson) was the mastermind of the suits, and he even drew a diagram of how three of the four women went to the factory roof to conspire to file them.”

According to the court documents released last week, Nelson never received the $1.3 million.

Charney and his attorneys are also preparing for a second arbitration proceeding with Floyd, the former marketing placement employee who filed suit in May.

American Apparel denied to comment on that suit, which was scheduled to go to trial next April. But two weeks ago, an L.A. state court judge granted American Apparel’s request to have the case moved to a private arbitration.

High-profile attorney Gloria Allred’s firm, Allred Maroko & Goldberg LLP, is representing Floyd in the case.

“American Apparel does not want to face a jury on our case and they have moved the court to compel arbitration,” Allred said. “But this will not get American Apparel or Dov Charney off the hook. He will still have to face an arbitrator and he will be held accountable for his behavior.”

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