Stay current on changes and developments in corporate law with a wide variety of resources and tools.
Sept. 11 — Former American Apparel Inc. chief executive Dov Charney is not entitled to an advancement of his expenses incurred in defending against a lawsuit filed by the company, the Delaware Chancery Court ruled Sept. 11.
In May, the company sued its former CEO accusing him of violating a “Standstill Agreement” by launching a campaign to retake control of the company he founded. Subsequently, Charney June 4 filed a complaint in the chancery court claiming that the company had wrongfully denied his demand for an advancement of his litigation costs.
Siding with the retailer, Chancellor Andre G. Bouchard concluded that Charney is not entitled to an advancement under either the company's charter or his indemnification agreement.
The advancement provision in Charney's indemnification agreement mandates advancement for events or occurrences “related to the fact” that he was an officer or director of the company.
Bouchard reasoned that this phrase is equivalent to “‘by reason of the fact' found in Section 145 of the Delaware General Corporation Law, which requires a nexus or causal connection between the claims in the underlying proceeding and one’s official corporate capacity to obtain advancement.”
“Construed as such, Charney is not entitled to advancement for the claims asserted in the Standstill Proceeding because none of them implicate his use or abuse of corporate power as a fiduciary of American Apparel,” the judge wrote.
The court also found that Charney was not entitled to advancement under the company's charter because it only mandated advancement for current officers or directors and he held neither of these roles at the time he was sued.
In June 2014, American Apparel's board voted to suspend Charney and later fired him for alleged misconduct.
In doing so, the directors alleged that he violated the chain's policies against sexual harassment and improperly used company funds. In May, the former CEO filed a defamation lawsuit against the company and investor Standard General LP in California state court over his ouster. Subsequently, the company fired back by filing its own lawsuit alleging that Charney violated the “Standstill Agreement.”
Charney only sought advancement for the “Standstill Agreement” costs.
To contact the reporter on this story: Michael Greene in Washington at email@example.com
To contact the editor responsible for this story: Yin Wilczek at firstname.lastname@example.org
The opinion is available at http://www.bloomberglaw.com/public/document/DOV_CHARNEY_Plaintiff_v_AMERICAN_APPAREL_INC_Defendant_No_11098CB/1.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)