Investor Sues to Inspect American Apparel Records

Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...

By Michael Greene

Sept. 14 — An investor has filed a books and records action against American Apparel Inc. for the purposes of investigating whether its officers and directors breached their fiduciary duties while the company continues to struggle financially.

In a Sept. 11 complaint, stockholder Kenneth Vaughan claimed that the company improperly rejected his demand to inspect certain documents “to investigate actions of the Board related to the management of the Company and its apparent disregard for maximizing stockholder value.”

The stockholder alleged that the company “stonewalled” his attempts “to obtain any information or documents about its performance.”

Ongoing Litigation

American Apparel has reported more than $300 million in losses since 2010.

The company also has been embroiled in several lawsuits with its former chief executive officer and founder Dov Charney.

In June 2014, the company's board voted to suspend Charney and later fired him for alleged misconduct. The Charney-related lawsuits include an action filed by the company alleging that the ousted CEO breached a “Standstill Agreement” by launching a campaign to retake control of the company. 

Most recently, the chancery court ruled that Charney was not entitled to an advancement of legal expenses incurred in the “Standstill Agreement” litigation.

Documents Sought

In his complaint, Vaughan claimed that the company has experienced deteriorating results since 2013, which took a steeper decline after Charney's ouster. Among other documents, he seeks records related to:

• board attempts to address the low trading price of company stock;

• proposals for the sale or acquisition of the company and the board’s responses to those proposals;

• who actually manages the company; and

• the facts and circumstances surrounding Charney’s termination.

 

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

The complaint is available at http://www.bloomberglaw.com/public/document/Kenneth_Vaughan_vs_American_Apparel_Inc_Docket_No_11500_Del_Ch_Se