Dov Charney Faces Setback in Defamation Suits Against American Appar...

Less than a week before American Apparel filed for bankruptcy protection, the company and big backer Standard General LP handed ousted Chief Executive Dov Charney a setback in defamation lawsuits he brought against them in California.

The suits stand out among the flurry of legal action spawned by Mr. Charney’s relationship with the clothing company. The litigation triggered the release of a mother lode of sexually explicit emails and texts, allegedly proof American Apparel was justified in forcing its founder out for misconduct.

The proof has yet to be tested in court, but it impressed Judge Terry Green, who blocked Mr. Charney’s defamation action against American Apparel under laws meant to safeguard speech against frivolous lawsuits.

The judge was called on to evaluate Mr. Charney’s complaints of defamation against the backdrop of the texts and emails.

“No rational company would hire this guy,” Judge Green said at the Sept. 30 hearing, describing the arguments that would be made if Mr. Charney’s case went to trial. “It would be insane. This is sexual harassment. This is the mother of all sexual harassment cases. I mean, this is so far over the top, that you can’t see the top anymore. I mean, it’s just…”

Mr. Charney has disputed claims that he acted improperly and said his privacy has been invaded as part of a campaign to drive him out of American Apparel. “As we allege in several of his pending legal actions against American Apparel, Standard General, and others, these defendants collectively bamboozled Charney out of his position as CEO and committed very serious shareholder and proxy fraud to do so,” Olaf Muller, lawyer for Mr. Charney, wrote in an email.

Standard General and American Apparel deny wrongdoing.

Mr. Muller said this week Mr. Charney will appeal his defeat in the defamation actions. American Apparel’s Monday decision to seek chapter 11 protection will likely shield the company from continued legal action. Standard General, a big shareholder, big lender and one of the proposed financiers of the company’s turnaround effort, has other court fights involving Mr. Charney.

American Apparel has paid millions of dollars to women who say they were his victims. Mr. Charney’s counter-accusations that he was improperly terminated are in arbitration.

In court on Sept. 30, Mr. Muller argued that American Apparel’s insurers agreeing to settle with some of Mr. Charney’s accusers isn’t proof that he misbehaved.

Unless Judge Green’s ruling is overturned on appeal, it means the defamation suit is one less worry for American Apparel’s creditors.

Details haven’t been spelled out yet, but early statements from the distressed manufacturer and retailer indicate unsecured creditors will have to count on the proceeds of lawsuits for their recovery in the chapter 11 case.

Write to Peg Brickley at [email protected]