Category Archives: Partner Defamation

Business Reputation Lawsuit Case Study: Mogul v. Hedge Fund

business reputation defamation lawsuit
Is Dov Charney going to win his defamation lawsuit against a hedge fund?

Can Dov Charney win? The ex-CEO of American Apparel Inc. (“American Apparel”) is suing former hedge fund allies for allegedly killing his business reputation. Does Dov have a strong defamation case? Or is it a shrinking giant’s final act of legal aggression?

It All Began With a Phoenix Plan

Dov Charney makes headlines happen. But the press isn’t always positive. And in 2013, bad Charney buzz was a click-bait staple amongst industry blogs and reputable media outlets, alike. Pundits and passersby publicly wondered: Was the American Apparel boss a profligate louche? Did he really treat employees like Victorian sweat shop workers? Was Dov embezzling corporate dough?

By 2014, American Apparel board members ousted Charney – and his battle-worn reputation – from the company he started.

Tenacious and importunate, soon after the ouster, Charney enlisted the assistance of NY-based hedge fund Standard General. The plan? Reinstate Charney as American Apparel’s head honcho by way of a stock coup. The result? Charney and Standard General wrestled 42% of the controlling interest.

Ostensibly, Charney assumed that controlling interest would mean a Targaryn-esque return to the T-Shirt Throne. But Standard General wanted some facts checked before Dov’s would-be second reign. So, hedge fund executives launched an investigation into Charney.

In Charney’s estimation – and according to the lawsuit – Standard General’s intentions were far from rudimentary, but instead a “sham” and “witch hunt” undertaken to “manufacture” termination justifications and “destroy [Dov’s] character.”

How much does the ex-CEO want for the business reputation slight? A cool $30 million in compensatory and punitive damages.

Business Reputation Accusations

Charney’s main business defamation allegations against Standard General:

  • Standard General threatened to destroy his business reputation if he didn’t step down as CEO and Chairman of American Apparel.
  • Standard General hired outside legal counsel to gin up fake reasons for termination.

Charney’s opponents don’t seem worried about the lawsuit. When asked about the case, Standard General’s lawyers explained:

“Dov Charney and his associates continue to file frivolous, meritless lawsuits at a breakneck pace. We are confident that Mr. Charney will be held accountable for this knowing, intentional abuse of the legal system.”

What Must Charney Prove To Win This Professional Defamation Lawsuit?

The United States has the most defendant-friendly slander (spoken defamation) and libel (written defamation) laws in the world. For U.S. plaintiffs to win a defamation claim, they must meet strict legal threshold tests. At the very least, stateside slander and libel claimants must prove that the defendants:

  • Made unprivileged false statements of fact about the plaintiffs;
  • Made statements that caused material or reputational harm to befall the plaintiffs;
  • Published or otherwise distributed the contested information negligently, with actual malice, or with reckless disregard for the truth.

In the Charney case, evident is the reputational scar incurred by the very public ousting. But what else must Charney prove to win? First, he’d have to nullify – via evidence – the findings against him. Then, his legal team would have to prove – again, via evidence – that Standard General executives purposefully manufactured – or paid for the fabrication of – trumped-up charges against Charney. It’s gonna be an uphill battle.

Kelly / Warner maintains a successful business defamation practice. We’ve guided over 500 entrepreneurs and companies back to respectable reputations, after online attacks – and our attorneys can get defamatory materials removed from many websites. The statute of limitations for online defamation is short. But the damage can last a lifetime. Get in touch today to learn more about your legal options.