Dov Charney's Court Case Is Totally ComplicatedOn Wednesday, we read a report that Dov Charney was basically railroading an employee who was accusing him of sexual harassment, setting up a fake arbitration hearing to publicly clear him while in fact they secretly paid her off. No, says American Apparel! He, Dov Charney, immigrant entrepreneur, is the victim here! As two anonymous AA employees — and a statement by American Apparel spokesman Ryan Holiday — claim, whatever you think about Dov Charney and his practices (and we do think a few things!) he's kind of getting the shaft here. Or, as one female employee wrote us, "Dov's obviously a crazy boss but this one is crazy not from him."While I doubt we've heard the last of this case, in which both plaintiff Mary Nelson and defendant Charney are acting like they're angelic victims facing manipulative, evil foes, if you believe the latest, American Apparel may only be guilty of stupidity. In any event, here's their side of the story (if you can't bear to read the super convoluted details, scroll down to the bottom for the short version): So — and this, at least, is uncontested — a California appelate court released a decision this week about the latest sexual harassment lawsuit against Charney, in which Mary Nelson alleged she'd been subject to workplace harassment and AA said she'd just been a bad employee who cursed all the time and is disgruntled at being fired. What we read Wednesday is that Charney settled but in exchange forced the woman to claim she'd lied to save the company's rep. According to American Apparel, the shoe is on quite the other foot. Here's what they allege: -They were totally ready to go to trial because they knew the plaintiff, Mary Nelson, had no case. -The night before the trial, Nelson's lawyer called AA "to plead with them not to go to trial" and said Mary Nelson had admitted that she'd made everything up and would rather have an arbitration hearing instead of a trial. (Allegedly, they said they couldn't just drop the case because Ms. Nelson had spent too much in legal fees and was in over her head.) -American Apparel agreed, but only if Nelson would, at said hearing, admit that she'd fabricated the charges. Said arbitration would involve a judge of American Apparel's hearing, who would then rule in AA's favor, as pre-arranged by both parties. In return for doing the arbitration on these terms, American Apparel would help foot Nelson's legal fees (hence the $1.3 million.) American Apparel would then publicize the forementioned press release, clearing Charney's name and talking about First Amendment rights. (Her legal team said okay.) To quote the AA statement:
In response, Ms. Nelson's lawyer, Mr. Fink, devised a settlement agreement whereby his client would agree to certain stipulations amounting to a confession that her charges of sexual harassment were bogus, and that she had never been subject to any harassment or a hostile work environment. This confession would then be presented in an arbitration proceeding, and following American Apparel prevailing in arbitration, the company would issue a press release announcing the resolution of the matter. In exchange for this, American Apparel would pay a fraction of the legal fees that had been incurred by Ms. Nelson to date. American Apparel refused to entertain any potential settlement arrangement that would not result in a complete public vindication and an admission by Ms. Nelson that she had not been subjected to any wrongdoing, as the company has maintained over the past several years, preferring instead to be eventually vindicated in court
But it didn't really work out that way. Apparently Nelson's lawyer didn't show up to the arbitration hearing; as a result, the arbitrator couldn't rule, which meant AA couldn't issue its press release. Which in turn meant that, in the company's view, Nelson had breached her part of the bargain and had forfeited her $1.3m. In response, Nelson's lawyers declared the arbitration a sham and a fraud and why should they have to show when everyone knew what the verdict was anyway? Our presence wasn't part of the bargain; pay up! Result? No one was happy and the case ended up back in court, with both sides filing for action — Nelson to get the money and AA to compel the original arbitration. Cut to the latest: When the court was reviewing everything, they obviously wanted to see the settlement agreement. Nelson's lawyers said, sure; the settlement agreement should not be under seal because California judicial proceedings are public. Since part of the settlement was confidentiality, AA calls this position a breach of confidentiality. Still with us? The first court ruled that American Apparel can't compel Nelson back to arbitration over the breach of settlement. So AA appealed — and that's what we're all reading about now. The latest court has ruled that, yes, AA can compel arbitration on these two points. However you slice it, apparently there was indeed what Portfolio refers to as "a bizarre piece of theater concocted as part of the settlement proposal." Whoever initiated it, if there was indeed a sham arbitration, and the court wasn't feeling it, and said, "There would be considerations of illegality, injustice, and fraud which would affect our powers as a court of equity to enforce the 'arbitration' contemplated" by the settlement, were they to go through with it. However absurd the farce, though — what Portfolio calls "a sham arbitration to issue a press release" — nothing about it, with its foregone conclusion, would technically have been illegal. Stephen Gillers, an ethics professor at New York University School of Law, tells Portfolio, "The lawyers had no duty to insure that the public got the facts or that the issues were resolved based on a real trial before a real tribunal with real evidence. Arbitration is private and contractual and if the parties were prepared to agree to fool the rest of the world, that's their business even if foolish. People have a right to be fools so long as they break no law." Since this is a right Dov Charney has long exercised, it's certainly plausible! We said when we heard about this case that we kind of hoped the initial allegations were not true, and while there's nothing thrilling about finding out a woman fabricated claims, either, it's certainly less distressing than knowing a huge company was throwing its weight around at the cost of an innocent person's reputation. It's weird that they're making such a big deal out of the case - why bother to appeal and bring so much attention to the case? Is it really about clearing their name, or is there more at stake? Fine print says that the $1.3 million wasn't just for legal fees; the appeal court decisions says it was for "alleged emotional distress damages," which sounds murky. In any event, it sounds like there's a lot of grey area still waiting to come out, so stay tuned. Layman's Timeline: -Woman accuses Dov Charney of sexual harassment. -Right before the case goes to trial, her lawyers call American Apparel and withdraw all charges. Can they skip a trial and just take the case to arbitration, since they're in so deep? -AA says, okay, but if we agree to drop the trial, you have to really make sure Nelson takes the rap to undo the damage to our rep; Nelson has to say she lied. The judge will rule in our favor. We'll make it public with a press release. In return, we'll pay $1.3 million of her legal fees. -They have the hearing. Nelson's lawyers don't show. Their position? Um, why do we need to be there for a farce? AA's position? Well, actually, you do, so the judge can formally clear us and we can do our press release! So, we're not paying her $1.3 m. -Things get ugly; both sides want to go back to court. They do. The judge wants to see the weird initial, fake arbitration agreement. Nelson says sure; AA says no, it's private. They accuse Nelson of breaking the confidentiality agreement; the first judge overturns the case; a second gives AA the go-ahead. -Docs hit the media. It looks like AA was trying to pay Nelson off while lying about the outcome. Maybe not true, but still really, weird/confusing. Playing Dress Up [Conde Nast Portfolio] Earlier: Dov Charney May Be More Of A Scumbag Than Anyone Realized