Court Criticizes Arbitration Panel

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The court went on to say that "the proposed press release is materially misleading -- among other things, no real arbitration of a dispute occurred and [the] plaintiff received $1.3 million in compensation."



  • NOVEMBER 4, 2008

Court Criticizes Arbitration Pact in American Apparel Harassment Case

By NICHOLAS CASEY

Hip clothing retailer American Apparel Inc. earlier this year agreed to pay a former female employee $1.3 million to settle a sexual-harassment claim involving its chief executive. But there was a catch: She had to keep the settlement's existence a secret, and instead participate in an arbitration proceeding, with a preordained outcome that would allow Chief Executive Dov Charney to publicly declare victory.

The unusual move to both settle the case and make it appear that American Apparel had won it on its merits ultimately ran aground, however.

The plaintiff in the harassment case refused to go through with the arbitration, even though American Apparel claims the scheme was her attorney's idea in the first place.

The odd situation is only now coming to light because of a recent California appeals court ruling to resolve the question of whether the plaintiff broke her agreement by refusing to attend the arbitration.

It's the latest chapter in the unorthodox history of American Apparel, a maker of T-shirts and other clothes run by Mr. Charney. The Los Angeles company is known both for its racy advertising and the frank, sexualized comments and actions by Mr. Charney, who has staged provocative photo shoots in the basement of his mansion.

Mr. Charney has faced numerous sexual-harassment allegations, which were either settled, dismissed or are in arbitration.

Last January, the company and Mr. Charney were on the eve of trial in a suit that was originally filed in 2005 by Mary Nelson, a sales manager who claimed Mr. Charney made sexual advances and inappropriate comments to her prior to firing her from the job. The company denied the allegations.

The day before the trial was to begin, according to court documents, the parties struck a deal in which American Apparel agreed to pay Ms. Nelson $1.3 million, without admitting liability.

However, according to the agreement, which was quoted in a recent appeals court opinion, the parties agreed to conduct an arbitration before a retired judge selected by American Apparel. The arbitrator would decide the case solely on one precedent case that American Apparel presumably saw as favorable, and it would result in a decision stating, among other things, that Mr. Charney "never sexualized, propositioned or made any sexual advances of any nature whatsoever towards Mary Nelson."

American Apparel would then be able to issue a press release stating that the arbitrator's decision "puts an end to the sexual harassment claims against Charney and the company" and declaring that the ruling brings "clarity to the role of the First Amendment in the American workplace."

Though Ms. Nelson's attorney, Keith A. Fink, agreed to the arbitration's unusual terms, he and Ms. Nelson later refused to attend the meetings, according to background given in the appeals court finding. The arbitration was aborted and the $1.3 million was never paid, American Apparel says.

American Apparel went to the California appeals court to force the plaintiff to sit down to a new arbitration to determine whether her absence from the first arbitration breached the initial agreement. In a ruling dated Oct. 28, a three-judge panel of California's Second Appellate District in Los Angeles said the alleged breach of the settlement should be reviewed by a third party.

The court compelled Ms. Nelson to attend a new arbitration that would decide whether she had broken her agreement with the company.

In the process, however, the appeals court took issue with what it described as the "potential illegality of the 'arbitration' clause ... with its goal of issuing a press release for the purpose of misleading journalists and the public."

The court went on to say that "the proposed press release is materially misleading -- among other things, no real arbitration of a dispute occurred and [the] plaintiff received $1.3 million in compensation."

News of the court's decision was reported last week on On Point, a legal blog. The court didn't rule on the legality or enforceability of the settlement agreement.

In an interview, American Apparel confirmed the terms of the settlement but took issue with the court's implication that the arbitration was potentially illegal. Company General Counsel Joyce Crucillo said in an interview that the plaintiff's lawyer, Mr. Fink, had contacted the company on the eve of trial "practically begging me to settle this case and not proceed to trial."

But "Dov Charney was very anxious to try to present his side of the case [to a jury] and to be vindicated," Ms. Crucillo said. She told Mr. Fink that the company wasn't open to a settlement.

She says Mr. Fink proposed the idea of an arbitration, in which the plaintiff would be given a sum to "defray legal costs" in exchange for a confession that would clear Mr. Charney's name. The company then changed its mind about settling.

The press release was also Mr. Fink's idea, Ms. Crucillo said. "You want to get paid, we want vindication," she recalls saying to Mr. Fink.

Mr. Fink declined to comment.

The court's opinion said the settlement agreement described the $1.3 million as "emotional distress damages." The court said Mr. Fink refused to participate in the arbitration on the grounds that it was a "sham."

The company's settlement wasn't disclosed to investors or the U.S. Securities Exchange Commission. In a filing March 17, nearly two months after the agreement had been made, the company updated investors on the status of the case: "The trial has been stayed, pending review by the Appellate Court of the State of California of the Superior Court's denial of American Apparel's motion to compel arbitration pursuant to an agreement among the parties." No reference to the aborted payment is made.

American Apparel says the company made all appropriate disclosures to investors. "The monetary amount of the proposed settlement did not meet the threshold of materiality and accordingly was not disclosed. At the time that the disclosure was made, the plaintiff had also already breached key terms of the settlement agreement," said Adrian Kowalewski, the company's corporate finance director.











































































nicholas <DOT> casey <AT> wsj <DOT> com 



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  1. On Point - A New Take On Legal News

    Other Nelson v. American Apparel Sources. On Point (1/21/08) ... If you sue God, you have to - in the legal sense, at least - serve God, a judge has ruled ...
    www.onpointnews.com/index.asp
  2. On Point - A New Take On Legal News

    Oct 28, 2008 ... As On Point reported earlier this week, a confidential settlement ... American Apparel says it agreed to "pay a fraction of the legal fees ...
    www.onpointnews.com/081030.asp -
    More results from www.onpointnews.com »
  3. Chris Blogs At: Oh noooo, American Apparel *-_____-

    Oct 29, 2008 ... so if you didnt know, this is the guy that owns American Apparel...According to legal journal "On Point News", when the latest in a ...
    chrisblogsat.blogspot.com/2008/10/oh-noooo-american-apparel.html 


    so if you didnt know, this is the guy that owns American Apparel. He apparently has had many sexual harassment lawsuits against him and here is the latest one. He's pretty shady.
    link
    http://jezebel.com/5070521/dov-charney-may-be-more-of-a-scumbag-than-anyone-realized

    We didn't think we could still use the words "shocked" and "Dov Charney" in the same sentence, but if true, the latest revelation about American Apparel's Chief Executive Sleaze is truly horrifying. According to legal journal 
    "On Point News",


     when the latest in a string of female employees, Mary Nelson, charged Charney with a battery of sex harrassment offenses ("cock socks" and "reigns of sexual terror" were both convincingly invoked), it Charney tried to get her lawyers to let him settle in secret, but publicly claim her charges had been dismissed in a fake hearing his people had put together.

    Here's what On Point says (they have a link to a PDF of the legal papers, by the way): So, Nelson sues Charney. Charney's legal team suggests they decide the case by arbitration to avoid the publicity of a trial. Fine. In fact, though, there was nothing to "arbitrate." Here's what Charney apparently wanted: to secretly settle, then have a pretend arbitration, which would then be "decided" in Charney's favor... and the case dismissed. At which point AA would release a statement (which they'd already written) proclaiming his triumphant exoneration. Basically, AA would pay the woman to shut up and pretend she was a liar so Charney had one less sexual harassment conviction on the record and could get back to the important business of promoting fair labor practices and half-naked teenagers. Or, as the prefab press release put it, “I am pleased that we have been able to bring clarity to the role of the First Amendment in the American workplace."

    Here's the agreement Charney and his people allegedly wanted, to quoteOn Point:

    According to the settlement agreement, the arbitrator would be chosen only by the defense, would be presented with 'a stipulated record of facts, and would decide that Nelson 'was not subjected to unlawful sexual harassment.' Following the filing of the arbitrator's 'decision,' American Apparel would be allowed to issue the press release.

    On Point's information is said to be based on an unpublished decision from California's 2nd District Court of Appeal. And yes, they allegedly rejected Charney's "compromise." As the appeals court put it, “[T]he proposed press release is materially misleading — among other things, no real arbitration of a dispute occurred and plaintiff received $1.3 million in compensation.”

    According to the article, Nelson's attorneys were predictably appalled. However, since her lawyers reportedly refused to go along with what they called a "sham arbitration," the AA people are using their non-cooperation with the charade as an excuse not to pay her the settlement. Now they're going to arbitration for real, we're told.

    I'd really like this to not be true. Because, if true, it's further proof — albeit irrefutable, revolting proof —of a sense of self-righteous entitlement that would be really terrifying in the head of America's largest manufacturer. What we already know about him for sure is damning enough! While we're likely to learn more about the case, it should be said that a lot of this squares with Charney's sense of grievance against the "selfish" women who are willing to compromise his important work for the sake of their dignity. Even were one prepared to regard the plaintiffs with a cynical eye, there would be no justifying what amounts to fraud, and at best a shocking attempt at public manipulation. Stay posted.

    Fashion Mogul "Fakes" Arbitration In Harassment Case [On Point News]

    //////////////////////////////////////////////////////////////



    Fashion Mogul "Fakes" Arbitration in Harassment Case

    Dov Charney

    The arbitration of a high-profile sexual harassment lawsuit against fashion mogul Dov Charney was in fact part of an elaborate subterfuge designed to misrepresent that he had won the case,On Point has learned.

    An unpublished decision of California's 2nd District Court of Appeal discloses the terms of a confidential settlement agreement that would have allowed Charney, CEO ofAmerican Apparel (AMEX: APP), to proclaim an arbitrator had ruled in his favor –- while concealing from the public that he had agreed to settle former employee Mary Nelson's case for $1.3 million.

    A press release was prepared to announce Charney's absolution, but the settlement unraveled after an attorney for Nelson did not attend the “sham” arbitration. “I am pleased that we have been able to bring clarity to the role of the First Amendment in the American workplace,” the release quoted Charney as saying.

    “[T]he proposed press release is materially misleading -- among other things, no real arbitration of a dispute occurred and plaintiff received $1.3 million in compensation,” the appeals court noted.

    UPDATE

  4. Charney denied responsibility for the phony arbitration, saying it was the idea of a plaintiff's attorney who admitted his client had no case. more

  5. Nelson, who worked as an independent contractor in the American Apparel sales department, alleged in her suit that Charney conducted a “reign of sexual terror” at the company, parading around the workplace in his underwear and even showing up for one meeting at his home in a garment described as a “cock sock.”

    Amid nationwide publicity, the case was scheduled for jury selection Jan. 23 in Los Angeles Superior Court. But lawyers spent the day thrashing out a settlement in which Charney agreed to pay Nelson $1.3 million by Feb. 7 and she agreed to a “confidential arbitration.”

    On Jan. 24, American Apparel attorney Adam Levin announced that the case would be decided by arbitration -- thus avoiding the publicity of a trial -- with both sides to be bound by the decision of the arbitrator or private judge they selected. He said nothing about any settlement.

    The “confidential arbitration” was in fact a charade. One of Nelson's attorneys, the 2nd District said, later described it as “a 'fake arbitration' designed to produce a press release calculated to blunt negative media attention.”

    According to the settlement agreement, the arbitrator would be chosen only by the defense, would be presented with a stipulated record of facts, and would decide that Nelson “was not subjected to unlawful sexual harassment.” Following the filing of the arbitrator's “decision,” American Apparel would be allowed to issue the press release.

    Nelson did not, however, receive her payment by the Feb. 7 deadline. At a hearing that day, American Apparel said plaintiff's counsel Keith A. Fink did not show up for the “arbitration” before a retired judge in San Francisco and, as a result, the judge was unable to rule, leaving the case officially unsettled.

    Since then, the two sides have been litigating whether Nelson breached her obligation under the settlement to participate in the arbitration and violated confidentiality by objecting to the agreement being filed under seal. In its opinion, the 2nd District ordered that dispute into arbitration -– this time, presumably, a real one.

    The irony here is that Charney could have kept things forever under wraps if he had simply agreed to a routine confidential settlement. By making an

     extraordinary attempt to 

    manipulate the media, he has 

    ended up getting the very 

    publicity he sought to avoid.

    For a graphic showing those involved in the "arbitration," clickhere.

    Other Nelson v. American Apparel Sources