Dov Charney (Bloomberg/Getty Images)
Avant-garde T-shirt manufacturer American Apparel filed for bankruptcy Monday, tapping Jones Day to steer its corporate reorganization amid a spate of litigation over the 2014 ouster of company founder and former CEO Dov Charney.
The troubled retailer’s debts include at least $5.9 million in legal fees owed to Skadden, Arps, Slate, Meagher & Flom, White & Case and Paul Hastings, among others, according to documents filed in American Apparel’s Chapter 11 case in Delaware. The debtor lists about $199 million in assets against more than $397 million in liabilities.
Jones Day restructuring partners Richard “Rick” Wynne in Los Angeles and Scott Greenberg in New York are serving as lead bankruptcy counsel to American Apparel, while Laura Davis Jones, a name partner at national bankruptcy boutique Pachulski Stang Ziehl & Jones, is serving as local Delaware counsel to the company.
In conjunction with Monday’s bankruptcy filing, Los Angeles-based American Apparel also announced a restructuring plan approved by 95 percent of the company’s secured creditors, which it expects to reduce its overall debt to no more than $135 million. The planned reorganization would convert more than $200 million in bonds to equity in the restructured American Apparel.
Jones Day’s role as lead bankruptcy counsel is just the firm’s latest connection to American Apparel. The retailer’s current general counsel, Chelsea Grayson, joined the company in November 2014 from Loeb & Loeb, although she had previously spent more than a decade as a Jones Day partner. American Apparel hired Grayson as a replacement for its prior in-house legal chief, Tobias Keller, a former Pachulski Stang and Jones Day restructuring partner now serving as a name partner at San Francisco’s Keller & Benvenutti.
Jones Day, alongside Washington, D.C.-based advisory firm FTI Consulting, also spearheaded a lucrative internal probe of mismanagement and sexual harassment allegations against Charney, which led to the American Apparel founder’s suspension as CEO in June 2014, and his eventual separation from the company.
In November 2014, American Apparel noted in its third-quarter financial results that it had spent $5.3 million during the previous three months on consulting and legal fees connected to the internal investigation of Charney. The retailer’s fourth quarter financial results for 2014 listed another $3.8 million in fees flowing from the same internal probe.
But as revealed by Monday’s bankruptcy filing, American Apparel’s recent legal expenses don’t stop with Jones Day. Three other large firms—Skadden, White & Case and Paul Hastings—made a list of the retailer’s top 30 unsecured creditors. American Apparel owes $3.83 million to Skadden; $1.43 million to White & Case; and more than $679,144 to Paul Hastings, according to court records.
Skadden, for its part, has taken a lead role for the company in a wave of litigation that followed its suspension and termination of Charney, a divisive figure who’s long faced accusations of misconduct. Charney’s litigation campaign over his ouster from the company he founded has been widespread—making its way into state and federal courts in California and Delaware—but also mostly unsuccessful.
Among other claims, Skadden has helped the retailer fend off a suit in Delaware Chancery Court in which Charney sought to recoup legal fees. The firm also defended American Apparel against a pair of Charney allies who claimed that the company and its directors issued allegedly misleading proxy statements shortly before Charney was suspended.
Paul Hastings has also had a hand in court disputes stemming from Charney’s firing. On Sept. 30, for instance, one of the firm’s partners, global complex litigation and arbitration chair Dennis Ellis, defended the company at a hearing in a defamation suit Charney filed in California state court against Standard General LP, a hedge fund that holds a stake in American Apparel. At that hearing, Los Angeles Superior Court Judge Terry Green suggested that Charney’s chance of winning was worse than Green becoming “the first American astronaut stranded on Mars,” as noted by sibling publication The Litigation Daily.
Although that suit didn’t name American Apparel as a defendant, the complaint leveled allegations that implicated the company and its directors, as well as Jones Day. Among other claims, Charney alleged that the Jones Day-led internal investigation was nothing more than an expensive hatchet job meant to drum up excuses for firing him.