April 23, 2015 / 10:04 AM / 3 years ago

Two shareholders sue American Apparel over CEO's ouster

(Reuters) - Two American Apparel APP.A shareholders have filed a lawsuit against the clothing and accessories retailer, alleging its founder and former Chief Executive Dov Charney was fired because he refused to sell the company.

The American Apparel factory headquarters is pictured in Los Angeles, California July 7, 2014. REUTERS/Jonathan Alcorn

Some shareholders, including Charney, who voted at an annual meeting on June 18 last year were not aware the CEO was under investigation for misconduct, which amounted to a proxy fraud as he was suspended later that day, complainants Jan Hubner and Eric Ribner alleged in the petition.

Charney was fired in December, six months after he was suspended for allegedly misusing funds and for allowing the posting on the Internet of nude photos of a former female employee who had accused him of sexual harassment.

Hubner and Ribner cited information they received from Charney and a former unnamed board member to allege American Apparel’s then Chief Financial Officer John Luttrell was behind the firing of the former CEO on charges of misconduct.

Luttrell resigned from American Apparel in September and was replaced by Hassan Natha.

Charney had one takeover discussion with Luttrell who asked him if he would accept $100 million for his stake in the company. Charney responded that he had no intention of selling the company, according to the lawsuit filed in the U.S. District Court in the Central District Of California.

The lawsuit also alleges Luttrell ignored an offer from bondholders to negotiate an interest payment to avoid a default and instead sold shares, which diluted Charney’s stake.

“These claims are completely baseless and we are confident we will succeed on each and every one of these,” a company representative said in an email response.

On Luttrell, the representative said the company does not comment on “personnel matters, especially those that precede the current management team.”

The lawsuit names American Apparel and board members Allan Mayer, David Danziger, Robert Greene, Marvin Igelman and William Mauer as defendants.

Mayer, Danziger and Greene were re-elected to the board at the June 18 meet, shortly before it voted to remove Charney.

In an email to Reuters in March, Charney’s attorney said multiple lawsuits were planned against American Apparel, including a $40 million claim for breach of contract.

The company is also under investigation by the U.S. Securities and Exchange Commission for a potential legal violation related to Charney’s firing.

American Apparel’s shares were up 3.2 percent at 67 cents on the American Stock Exchange in late morning trade.

Reporting by Ismail Shakil in Bengaluru; Editing by Anupama Dwivedi

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