Court Tells Dov Charney to Pay Nearly $20 Million to Hedge Fund

The Delaware Supreme Court upheld an early court ruling that Dov Charney, the founder of American Apparel, must repay $19.5 million to Standard General, a New York hedge fund.

Court documents said that Standard General extended the loan to Charney to buy more of his company’s stock to regain control of the company that later ousted him as chief executive in 2014 and declared bankruptcy twice. After the last bankruptcy in 2016, the brand’s name was sold for $88 million to Gildan Activewear, a Montreal company that has since shifted most of the label’s T-shirt production from Los Angeles to Honduras.

At its peak, American Apparel’s factories, warehouse and retail stores around the world employed 11,000 people, Charney said. Some 3,500 factory workers in downtown L.A. were laid off after the company’s last bankruptcy.

The Delaware Supreme Court ruling on Sept. 24 upheld a previous ruling from the Delaware Chancery Court in December. In that December ruling, the court ruled that verbal agreements Charney claimed he made with Standard General, in which he said he would hand over additional American Apparel shares he bought with the loan, didn’t overrule written agreements he signed.

Charney, who went on to found Los Angeles Apparel in south Los Angeles, said he doesn’t have that kind of money to repay the loan. “I don’t have any funds. There is nothing to get from me,” he said. “Los Angeles Apparel is controlled by a trust controlled and funded by my family and hundreds of other investors. I am only providing CEO services.”

A Standard General spokesperson declined to comment on the recent court ruling.

Charney said he is currently concentrated on growing his new company, which now has some 400 employees who are mostly former American Apparel workers being paid the $13.25-an-hour minimum wage.

The company manufactures mostly T-shirts and sweatshirts for entertainment brands and the U.S. Army, Charney said. It is expected to generate revenues next year of about $25 million to $30 million. “We are open every day. We have two shifts. We work from 6 a.m. to 1 a.m. We are pulling the rope as hard as we can.”

Still in litigation is a lawsuit filed in 2015 by Dov Charney in Los Angeles County Superior Court against Standard General and former American Apparel executives for fraud and conspiracy. That lawsuit was put on hold while the Delaware courts ruled on the other legal matter.