American Apparel’s Dov Charney seeks $40 million in damages as chain’s loss widens

New York -- There is no let up of bad news for American Apparel. The company’s founder and ousted CEO, Dov Charney, plans to file a lawsuit claiming $40 million in damages related to breaches of his employment contract.



The disclosure came on the heels of news that the Securities and Exchange Commission has opened an investigation into the circumstances surrounding Charney’s departure.



Meanwhile, American Apparel’s sales continue to slide. Net revenue for its fourth quarter, ended Dec. 31, dropped 9%, to $153.5 million, with both retail and wholesale sales moving downward.



The retailer reported a net loss $28 million for the quarter, compared to a loss of $20.8 million in the year-ago period. (Legal and consulting fees related to the investigation into misconduct accusations involving Charney cost the company $3.8 million in the quarter.) American Apparel has not reported a profit since 2009.



American Apparel has had a tough time of it since last June when the board suspended the long-controversial Charney as chairman and, in December, fired him as CEO, citing misuse of company funds and inappropriate behavior with employees. He was succeeded as chief executive by apparel veteran Paula Schneider, who has been focused on turning around the fortunes of the ailing company.



“We remain focused on putting the right processes and systems in place, such as a rigorous forecasting process and disciplined bottom-up budgeting -- so that we can better leverage American Apparel's strong brand," she said in a statement.

Claims: Charney’s claims include almost $6 million in severance, $1.3 million in vacation-time pay and at least $10 million for emotional distress. And that’s not the end of it, Reuters reported.



"There will be other lawsuits we will be filing against the company, which they are aware of but have not revealed to the media," Dov’s attorney, Keith Fink, told Reuters.



Charney is also seeking 13 million shares of the company, the report said.