Part 6: Anger (Season 4, Episode 9)
December 16, 2016
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In the spring of 2014, the American Apparel board offered Dov Charney two options: forfeit your position as CEO and stay on as a creative consultant or be removed from the company entirely. Charney chose the latter, and it became big news.
It’s a story that has followed Charney as he starts his new business. But there are two accounts of what happened at American Apparel: Dov’s and the board’s. In this episode, we explore the moments that led up to Charney’s ousting, and the fallout from a founder’s firing.
Andrew Dunn and Martin Peralta mixed the episode.
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LISA: From Gimlet Media, this is Startup. I’m Lisa Chow.
If you've been listening to our series following Dov Charney as he launches his new startup, you know that last week's episode ended with a confrontation between me and Dov. It was late summer, we were sitting on a bench outside, and I was telling him that we would need to talk, on tape, about the sexual harassment lawsuits filed against him when he was CEO of American Apparel. The conversation started to get heated, and at that point, he went off the record and basically went into a rage. After it ended, he left. And my producer Kaitlin Roberts and I talked about what had just happened.
LISA: Oh my God. Well, I have never cried with anyone that I was reporting on. Like, I have been moved by people, by a story they were telling me. But I have… I don't think I have… well I definitely, like, no subject has ever made me cry because of how they were talking to me. Are you okay?
KAITLIN: I'm… I'm not you. I was just watching it.
LISA: What was it like to watch it?
KAITLIN: It was disturbing. It happened fast, and it was shocking.
LISA: Yeah. When he was taking his bottle and he was like twisting it.
KAITLIN: You were sitting on the bench—like, you couldn't move anywhere and he was right in front of you. It really felt scary.
LISA: Yeah. I think actually the crying was really the thing that really toned him down.
KAITLIN: How do you feel about Dov right now?
LISA: I don't know. It's so clear that he is in a lot of pain. And I know that, you know, it's totally inappropriate the way he is expressing that pain with us… How do you feel about Dov?
KAITLIN: I… think he has… some anger issues…
LISA: Coming into this story, I knew about the sexual harassment allegations against Dov. But I hadn’t really heard about his anger… and I had never seen anger like that before.
One second Dov was talking in a normal tone. The next second he was shouting, and his voice was guttural and quavering. It was as if he was half-yelling and half-crying.
And I know this might be surprising, but my first reaction to the confrontation was guilt. Dov had lost American Apparel, the company he'd spent more than two decades building. And I was asking questions that were forcing him to look back at that. I knew I was poking at a very deep wound.
But how could I not. The startup he’s building now was born out of losing his first startup—American Apparel. And Dov talks about losing his company constantly. When he meets with potential investors, or vendors, or customers.
Once we went along with Dov when he was pitching a screenprinter on some tshirts. And in that meeting, Dov looked the guy in the eye. And told his version of what happened at American Apparel.
He talks about it because it’s on his mind and because he wants to get in front of whatever ideas people have about who he is and what kind of company he’s building now. It’s clearly part of what’s driving him as he starts his new company.
And as a journalist and someone who has talked to other people about their versions of what went down at American Apparel, I needed to challenge Dov on certain points of his story.
When I did, his anger was extreme. And I wanted to understand his reaction better. Did this anger have something to do with Dov losing his company, or was it always part of him? So I started asking former employees: had they ever seen him get really, really mad? Had they ever seen him just lose it? It turned out that just about everyone had a story.
AMY: The temper, it’s, it’s unfiltered. It’s raw. It’s in your face. His voice trembles in your bones. You know, like, it’s a voice that resonates really deeply with you and you don’t understand why or how. It does. And it can be scary.
RYAN: On one level, it’s so intense, you’re worried that he might literally die. Like it’s, it’s animalistic. Like have a heart attack and die animalistic.
MARK: There were a couple of times that I remember, like, we’d be in a meeting or on a horrible phone call and I would walk out to the parking lot and get in my car and just sob for like five minutes.
LISA: Over the months I’ve spent reporting on Dov, I’ve dealt with his anger only a handful of times. But I learned that his employees experienced it a lot more than that. And during tense periods at the company, people were dealing with it daily.
I've interviewed a lot of people about Dov… people who hate him and people who dedicated their lives to working for him, and say they still adore him. And one thing they agree on is that Dov is a person of extremes. He’s charismatic, driven, loyal—and all of that made him exciting to work for. But his anger was part of that mix, too.
Today on the show, we look at a period when Dov’s feelings about his company were extremely raw and intense. And we find out why Dov got fired from his position as CEO of American Apparel—according to the people who fired him and according to Dov.
A warning, this episode includes very strong language and some sexual content. So if you have kids around, I would advise listening another time.
When Dov was CEO of American Apparel, every week, on Tuesday, hundreds of retail employees around the world—whether they were in New York, or Seoul, or Mexico City, no matter the time zone—would dial into a conference call with Dov. It was a chance for him to connect with the employees who were closest to his customers, and who were also some of the youngest and least experienced in his workforce.
Dov used these calls to inspire people. He often told entry level sales clerks they could work their way up at American Apparel. That they could model, or manage stores, or travel to Europe and help improve the retail operation there.
Dov also used the calls to drive employees to work harder. One former American Apparel employee told us how it worked. He didn’t want us to identify him, so we’ve altered his voice and we’ll call him Mark. Mark said Dov would call on people at specific stores. Each store had a number, so New York's stores went by NY1, NY2, NY3…
MARK: So, he’d be like “Okay, NY4, who’s the manager of that store? Are you on the call?” And they’d be like, unmute their phone like “Hi, Dov.” “Why did you sell only three lamé leggings yesterday? I don’t understand! How can you only sell three? You’re in Times Square!” “Well, it’s raining, Dov. No one wants to buy leggings when it’s raining.” He’d just called people out.
LISA: Mark says these retail conference calls were also a chance for Dov to talk about the business. He’d talk about sales numbers and hot styles, or how to merchandise clothes better. And Mark says the calls could be pretty entertaining because of who Dov was.
MARK: He’d say, “Oh you’re… this must be the stupid hour right now. Who are you? Who is this? Why are you so stupid?” But he was joking. He’d always like … if he tore someone down, by the end he was, like, bringing someone back up in a nice way.
LISA: That was Dov's management style. Tear someone down, bring them back up. But sometimes the tear downs could be so intense, there was no building back up afterwards.
Several former employees told us that when Dov thought something was going wrong at American Apparel, he would round people up and then he’d single someone out and unleash his anger.
During especially stressful periods, when a new project wasn’t going well, or the company was in financial turmoil, Dov was very prone to outbursts. A lot of times, these outbursts would happen over the phone. He would call up an employee to yell at them, and then he’d add more and more people to the call.
We got a recording of one of those calls. One of the people who’d been added didn’t actually pick up, and the call went to voicemail. You’ll hear we’ve bleeped out a name in this tape.
DOV: Do it or take a salary decrease. Honorably. Do it. Don’t give me bullshit. [BEEP] you fucking failed! You fuckbag. You couldn’t do it. I know. I know you don’t want to do it. But you know I got you. You know I got you. Don’t fuck up my company. I won’t fucking let you take it away. Okay? Today you told me, “I fucked up.” Okay? So take it in the stomach, a kick! ‘Cause you lied! You fucked up! You didn’t do it. Failed!
LISA: Dov is yelling about a few delayed orders. On a scale of 1 to 10, with 10 being the worst anger ever witnessed from Dov, the employee who shared the voicemail said it was a 7.
Former employees told us many stories of Dov's anger. On one conference call, Dov said he wasn't going to fire an employee but torture her. Dov once threw a bottle of ibuprofen, striking an employee in the face. Another employee accused Dov of trying to strangle him in a fit of rage.
People say Dov has called employees losers, sluts, whores, fuckers, assholes, cunts, and Filipino pigs.
Many of these accounts are backed up by a court document—a declaration submitted by the chairman of the board after Dov’s firing, which was found to be credible by a judge. Dov told us that, not knowing the context, he can’t say whether he used some of those words. But he strongly denies calling his employees Filipino pigs.
And when former employees describe Dov’s fits of anger, they describe him using images like: A cornered animal. The Hulk. Out of control. Utterly transformed.
So what did people do when this kind of thing happened, and why did they stay on and keep working for Dov?
A lot of people I’ve talked to said they got used to Dov’s anger, and rationalized it. They processed it as the flipside of his passion. And if there’s one thing that was clear to everyone at American Apparel, it’s that the company was Dov’s life.
This is what one former employee said when I asked him why he stayed. We’re calling this guy David, and again, we’ve altered his voice.
DAVID: I can tell you a lot of people told me to quit, you know, my parents, my girlfriend, you know, etc, etc. But, I saw a lot of opportunity there, so, I can suck it up a little bit of it, in that regard, right? But then there's also sort of a narrative that everybody says, like, "Look, this is just what Dov does. He's insane. He yells at people." So you just don't take offense to it. You're gonna get yelled at. He's gonna tell you you're a loser. There's really no clear directive there. There's no necessarily, like, way to operate in your role. Right, so you just accept it as part of the day to day, everybody gets yelled at, so who gives a shit sort of thing. You know?
LISA: The other employee, Mark, told us another reason he and other employees stayed. After Dov made you feel awful, he could come back the next day and make you feel special and brilliant and essential to the company. Mark found this out when he tried to quit one time … because of all the verbal abuse he was receiving from Dov.
MARK: I sent him a text that said, "I need to talk to you privately." And I was going to say to him, I'm resigning, I was just ready to go. And he knew that's what I was going to say, because he knew how mad he'd been making me lately, and he called me immediately and was like a super gentleman, he was like, "What can I do for you? Are you okay? Are you—?" And he convinced me to stay!
LISA: And how did he convince you to stay?
MARK: You know, one of the things he's good at it, the reason that he's so successful is that he can be a complete charmer. He can make you feel like the world's best, most talented person, or the complete, you know, waste of pond scum, within the same day. He knows what he's doing, “I know I've been real hard on you, it's because I'm trying to help you grow, I'm trying to help the company get better.” And I guess I just got charmed into staying.
LISA: I’ve experienced this from Dov myself. The calm after the storm, the charm, the sudden rationality. Of course I’ve never worked for Dov, and so the words are different. But after a heated exchange—typically brought on by my attempts to talk to Dov about the sexual harassment allegations made against him over the years—he’d come back and tell me he has deep respect for my profession, and thinks I’m doing a great job.
It’s a strange experience to be yelled at, and then told you’re a star.
Even the people closest to Dov could be targets. Like Amy Talebizadeh who dated Dov during her time at American Apparel.
AMY: It used to get to the point where Dov used to yell at me all the time. In the beginning I would cry. Like, I can't believe you said that. Oh god that was so harsh. That was so awful! And by the end of, like, toward the six years I remember I used to be on the phone with him as he was shouting at me. Yelling at me. And I would calmly write what he was really trying to tell me and I would never hear him yell at me anymore. It's just, oh that's what you're trying to say? Okay thank you. Bye. Often times when I needed information or help from Dov, you have to call him, you have to deal with him. He's not going to be in the best of moods all the time. But you gotta go in there like… like, get what you need to and get out. It's like ripping off the bandaid fast. But yeah, him yelling at me wouldn't get to me anymore. It's just a person talking in a loud tone. And then you start to see, that was nothing. It's just Dov being Dov.
LISA: Dov knows he has a problem with anger, and he’s actually pretty upfront about it. In fact we had a conversation about it before I’d ever seen this side of him. It was in an interview pretty early on, when I asked him about his weaknesses.
LISA: What do you think your handicap is?
DOV: Truthfully, I'm very passionate. I'm very reactionary. I get… I, I’m an extrovert, but I'm also an extrovert with my temper, I show my colors. You know, I'm impatient. That's good. I want to get it done right away. So there's a small scratch on a piece of furniture, and I want to just buff it out and I end up breaking the furniture, you understand? It’s like… a few times when my phone didn't work and I wanted to call someone and tell them off, or somehow I couldn't get a hold of them. And hours went by, four, five, or eight hours went by. I found that when I was delayed by force, or by some act of God, that I actually did a better job in handling the situation, by delaying it, by delaying my reaction. So that's something I need to work on.
LISA: Dov’s outbursts and his instinct to micromanage were especially on display in 2013—the year before Dov was fired—in a town 18 miles outside of LA. A place called La Mirada.
For many years before and after the company went public, American Apparel sorted, packed and shipped its clothes out of a building in downtown LA, right next to its factory. Several consulting firms concluded that for American Apparel to take its business to the next level, it had to cut distribution costs, which were well above the industry average. That meant investing in a new facility with more sophisticated technology. A place where distribution would be more automated, less manual.
Now by this point, American Apparel had survived the 2008 financial crisis and a 2009 immigration audit that decimated the company's workforce. And it weathered all of that by borrowing more and more money, at increasingly high interest rates. But by 2012, there were glimmers of hope. The company saw its first profitable quarter since 2009. And Dov and the company’s senior management had just enough confidence to embark on a new project. That's how the La Mirada distribution center was born.
The transition to the new facility turned out to be a nightmare. There were lots of problems. Different software programs didn’t communicate with each other, orders got messed up, arriving late or not at all. People who were there at the time said Dov was freaking out, and he thought he was the only person who could fix the problems. And so he decamped from American Apparel’s corporate headquarters to the distribution center.
DOV: I slept at the distribution center one hundred days straight. I walked in, I said, “Build a shower over there.” And so men came in and they built a shower that night. There was a faucet and they hitched up a jimmy rigged shower, put in a bed, and I never, ever, ever left the facility for any reason. It was a mess. We had a million garments in mountains and we had to look at them and identify them visually and put them back in a box where they belonged. No board member came to check it out or really understood it. They had no idea.
KAITLIN: What was that like on your psyche being in there for a hundred days?
LISA: This is producer Kaitlin Roberts.
DOV: I’m a mercenary. It’s like being in Vietnam. It’s like Apocalypse Now. You know? It’s like going upriver.
LISA: Everyone agreed that La Mirada was a nightmare. But two stories began to emerge about who was responsible for what happened there.
One is Dov's version of what happened. He says he saved the distribution center, and the company, from collapse.
With the automation systems not working right, Dov decided the only way to do things was to pull in a huge number of workers, people from all over, and get orders out manually. That was his focus. Getting things to customers. And he blames the problems on the company’s CFO at the time.
Then there's the other version of what went down at La Mirada—and it paints Dov in a far less heroic light.
Employees we’ve talked to who worked at the La Mirada distribution center said Dov made the technology problems even harder to sort out and ultimately created more chaos.
DAVID: Oh, it was the worst experience of my life. It was awful, you just wonder if you're gonna break.
LISA: This is David
DAVID: You try to go home and it's like, no you're not allowed to go home. You've got to stay here. You've got to fix this. I'm gonna be here. It's not fair that I have to sleep here. Why are you leaving, and I'm going to stay here. You know, I couldn't leave for lunch, couldn't leave for breakfast, couldn't get a cup of coffee, couldn't sit down at your desk. And… You know that, along, along with, along with people just getting berated every day and people getting yelled at and people being, you know, screamed at until they cried, I mean, there's just a multitude of things that made it an unreal experience, you know. And then it would go from that to him like, riding around in a scooter, doing wheelies. And, you know, a truck hit a fire hydrant at one point, and he ran outside in his shirt and his pants, and like, stood in the water raining down on this fire hydrant, and people took pictures, and everybody was cheering. So you get these extreme highs, because he's crazy and exciting and funny to be around and then you know, immediately it turns around to these extreme lows that, are you know, unfathomable depths. It's pretty crazy.
LISA: These two versions of the story—the one that makes Dov out to be the savior, and the one that paints him as more of an impassioned meddler, prioritizing short-term fixes over long-term solutions—are important.
Because, even though Dov couldn’t have known it at the time, this was the beginning of the end for him.
The difficult transition to La Mirada cost American Apparel 15 million dollars. In 2013, the year the company transitioned to the La Mirada distribution center, American Apparel had a net loss of more than 100 million dollars. And for at least one board member, the problems there were the last straw. That board member was Robert Greene.
ROBERT: It was just like a petri dish of all of his flaws and mistakes. So that was, to me, the turning point.
How Dov lost the company he spent his life building—that’s coming up after the break.
LISA: Welcome back to StartUp.
For American Apparel’s Board of Directors, the La Mirada distribution center was one problem in a long series of problems the company faced. American Apparel had warned a couple of times that it might have to declare bankruptcy. It had a lot of debt. And then there were all the sexual harassment allegations against Dov, which had done serious damage to the company’s reputation. By early 2014 the board was questioning whether Dov should continue as CEO.
Allan Mayer, who doubted his own qualifications when Dov asked him to serve on American Apparel’s board years earlier, was by this time the board’s lead director.
ALLAN: We hadn't had a board meeting since October, and we were really concerned about what was going on and we weren't being properly informed. It was time to have a come to Jesus talk with Dov.
LISA: The story of how Dov finally came to be fired is the subject of a lot of dispute, and what follows comes mostly from the board’s active members at the time of Dov’s firing. Dov has a different version, one that’s laid out in lawsuits he filed after his firing was final. We’ll get into that a little later this episode.
The come to Jesus talk that Allan Mayer mentioned was a key moment. The board wanted to let Dov know they were doubting him. They wanted to pressure him to bring in experienced managers, people who really knew sales and HR and finance. So they came up with a list of demands, and they decided that Allan and another board member, Robert Greene, would make the board’s case to Dov. Here’s Robert.
ROBERT: In February, Allen and I had a dinner with him in which we were trying to basically signal to him that we were really getting worried. We were trying to say, “Look you gotta do this, you gotta do that, you gotta hire people, you gotta stop the sexual stuff.” And it had zero effect.
ALLAN: Dov was very agreeable. You know, and said yes, absolutely right, no I get it. And no, La Mirada, we’re getting it all sorted out. Robert and I came away from that dinner not at all being reassured.
LISA: Dov denies that Allan and Robert talked to him about his personal life at this dinner.
Robert and Allan—who had defended Dov in the past—now believed the board might need to intervene. And then, not long after that, something else happened that really kicked them into gear. They found out about a development in a long-standing legal suit.
The suit had a complicated backstory. In 2011, five women came forward accusing Dov of sexual harassment, and in some cases, violent sexual assault. One of them was Marissa Wilson, who you heard from last episode. Another one of the women said Dov kept her in his apartment for hours, and forced her to perform sexual favors in order to keep her job.
Shortly after those suits were filed, a pretty shocking thing happened. Nude and partly-nude photos of four of the five women who had just sued Dov and American Apparel appeared online.
TONI: It was their precise names, um, pictures. Their, their photos—
LISA: This is Toni Jaramilla, an employment lawyer who represented several of the women.
She says there was something even more shocking. The photos were embedded in blogs that had been made to seem like the personal blogs of the women suing Dov.
TONI: It made them appear to be blogging about their employment at American Apparel, and saying that they were going to extort money from the company through a lawsuit, basically.
LISA: The blogs have been taken down, but we’ve seen what one of them looked like. There were short entries, written to seem like they were from the woman herself, bragging about finding a lawyer and concocting a scheme to get money. “I’m expecting my billions,” one entry read.
In one of the photos on the blog, the woman is dancing with a friend. The friend isn’t identifiable, but the woman’s face is clear. She’s turned toward the camera, and she’s completely naked. Another photo shows her lying on top of a rumpled white sheet. In this one she’s topless, wearing only underwear, and her legs are spread. She’s biting one finger.
Some of the photos were private, taken after modeling shoots. Toni, the lawyer, says that when she saw the blogs, she had a pretty good idea of what was going on. This was retaliation.
All of the women who had filed suits had signed arbitration agreements as part of their work at American Apparel. Because of that, their cases—even the new claims they filed in response to the blogs—were funneled into a private legal process, because of that we can’t know exactly how all of them unfolded. But we do know that eventually, on the issue of the blogs, the women prevailed.
TONI: The arbitrator looked at the information and evidence and concluded that the defendants were liable for the creation of these fake and false blogs that created significant harm to our clients.
LISA: An American Apparel employee—someone who many people told us had a long-term romantic relationship with Dov—was found liable. And the company was found vicariously liable for her actions.
According to an account that emerged in a court document later, after Dov was fired, it was this employee who created the blogs, and she did it with Dov’s encouragement. The document quotes testimony in which Dov said he was proud of the employee, and said he didn’t discipline her for the blogs because she, quote, “...made an effort to protect my honor. The word discipline is not in the realm. What’s in the realm is a hug and a thank you.” End quote.
That document we’re pulling from, it’s from that declaration by the chairman of the board. The one that I mentioned earlier that was found to be credible by a judge.
The woman who appeared in the photos dancing naked and lying on the bed was awarded more than 1.8 million dollars.
We’ve asked Dov about this. He says he never saw the blogs. But separately, he does acknowledge releasing private photos and email exchanges he had with some of the women who sued. He says a company lawyer advised him to do that to try and show that the relationships were consensual.
And in fact some of the information he released did raise questions. In texts and emails, the woman who said Dov held her in his apartment is shown asking for money and presents, and promising oral sex.
But Allan Mayer, says for him, learning more about the blogs was a turning point.
ALLAN: Dov had always maintained he had no knowledge and knew nothing about this website. And it turned out that while they couldn't prove that he had directed this employee to create this website. He did acknowledge that he knew about it in advance, and in fact he even said he thought it was a great idea. And you know, once we heard that, we realized, you know, that alone should disqualify someone from being the CEO of a public company, the fact that they would think something like that was a good idea.
LISA: The board was ready to move against Dov, and it was the right time to do it. Dov had always been American Apparel’s largest shareholder, but after the company sold stock to raise money early that year, he exercised far less control over the company.
But still, to get rid of Dov as CEO, the board would have to meet a high bar.
Dov had renegotiated his employment contract in 2012, and the new contract made it really hard to fire him. If he was fired without cause, he’d be entitled to a big payout. About five million dollars—not including stock benefits—a potentially crippling amount of money for a company with a chronic cash flow problem.
So the board would have to fire him with cause. And because of the way Dov’s contract was written, that would be tough to do. If Dov pleaded guilty to a felony or if he was abusing drugs, they’d have a clear case. But basically anything short of that wasn’t guaranteed. They’d have to gather all the evidence they could.
ALLAN: A number of us knew enough people at the company that we could start asking around, and, you know, compiling information in a more organized fashion. And it was, you know, it may sound like an obvious thing to do, and in some ways a relatively easy thing to do. But it's actually quite a big step for a board member to start calling employees at a company, going around management and asking questions like that.
LISA: We’ve talked to someone who’s an expert on boards and corporate governance. And he agrees that investigating the CEO is a big step to take. Boards presume a relationship of transparency and honesty. Directors aren’t meant to become detectives, digging up dirt on the CEO.
ALLAN: And it's, um, something that you have to do very delicately. And it has… we knew it had enormous implications. The best case is we would ask around and find that everything was fine. But the worst case was that we would ask around and find out that things were worse than we thought. Which is exactly what happened.
LISA: So when you say it's worse than you thought, what did you learn or discover that was worse than what you had thought?
ALLAN: That the problems were more systemic. That it wasn't a question of just a few unfortunate incidents. As far as he was concerned, there was no such thing as an inappropriate relationship. He did not view as what he was doing as harassing. He thought he was being romantic, and sexy, and attractive. He could not understand that a 45-year-old CEO sleeping with a 19-year-old sales clerk—that situation, no matter what the young woman might say to him, cannot possibly be a consensual relationship. That the power imbalance is so vast, that that's why we consider a relationship like that inappropriate. And and he would argue very, you know, eloquently and at great length why that's not true and that's an outdated and, you know, uptight morality and… the kind of conversation that would be terrific if you were college sophomores and it was three in the morning. But when you are officers of a public company and you are talking about your own employees it's not quite so, um, philosophically flexible. So that part of Dov, I knew that there were bound to be issues that might be difficult for him to explain away, but, I don't think I was prepared for the scope.
LISA: In the spring of 2014, the board was aware of a number of sexual relationships between Dov and American Apparel employees. But ultimately, many more would come out.
ALLAN: In the end, what we discovered is there were dozens, and dozens, and dozens of women he was had been involved with at the company.
LISA: According to the declaration filed after Dov’s firing there was graphic evidence of many of Dov’s sexual interactions—photos and videos stored on the company server. They were of Dov receiving oral sex from multiple young women who modeled for the company, and performing other sex acts with company employees. At least one of the encounters appeared to have taken place in Dov’s office. There were also graphic texts and emails.
In the weeks leading up to the firing, the board moved quietly, behind Dov’s back. Again, Robert Greene.
ROBERT: We had to be very careful and keep everything under wraps. We had legal counsel who was uncovering more things about the sexual harassment suits that we weren’t getting. We had to be very secretive. We were having a lot of board meetings, phone calls, that he was not gonna know about.
LISA: In its termination letter to Dov, the board accuses him of using company money to pay for things like personal legal expenses and property rentals. It also says he gave big severance packages to employees without the board’s approval, to protect himself from getting sued. Dov denies these allegations.
Robert says the board hoped the information they gathered gave them a case for firing Dov. But they were never totally sure.
ROBERT: In fact, to this day, we don’t really even know whether we did have a legitimate case for firing Dov with cause. We came to the conclusion that we did, but the lawyer said, you know, “It’s not cut and dry.”
LISA: The board of directors decided they would confront Dov at the company’s annual meeting in June. Allan says he and the other board members felt they needed to be together for the conversation, all in the same room. And the annual meeting was the next time that would happen.
It was in New York, and the night before, the members of the board and the lawyer they’d hired all made their way to a restaurant in Manhattan.
ROBERT: It was at I think a Chinese restaurant, or a fish restaurant. It was midtown, like on the second floor, like in a private room.
ALLAN: It was this restaurant, not a very good restaurant that we picked partly because we wanted to be in a place where we knew we wouldn't be recognized.
ROBERT: You know we were tense, we were nervous because um, we were going, we were heading into the lion’s den and the gate was gonna close behind us.
ALLAN: None of us were looking forward to it in the sense that everybody, I think, appreciated that Dov had put his heart and soul into the company. And the fact that it might wind up that we would have to take it away from him was not something that anyone looked forward to or relished. And I think we were all hoping against hope that we wouldn’t have to do that.
LISA: They talked through the plans for the next day. They would present Dov with two options: he could accept a severance package, resign as CEO, sign over his voting rights, and stay on at the company as a highly paid creative consultant, or they would suspend him for a month, then fire him with cause. They had two press releases waiting.
The next day came. It began with a meeting with company shareholders, in a fluorescent-lit room at the offices of a law firm that represented the company. There weren’t that many investors there, maybe 10 or 15, according to an investor who did go that day. He says he remembers it feeling sort of strange and solemn.
After that, it was time for Dov to sit down with the board. The meeting was down the hall from where the shareholder meeting had taken place. By the time Dov arrived, all the directors were assembled, seated around a table, waiting for him.
ALLAN: As the lead director, I was delegated to sort of deliver the message to Dov. And he clearly had no clue that we had any concerns about anything. And—
LISA: How could you tell?
ALLAN: Well, because he was in a very chipper, upbeat mood. He wanted to, he often brought new products that he wanted to show us, and there were some sneakers or something that he wanted to introduce to the stores, and he wanted to start showing us, telling us all about the sneaker. And so I cut him off, and I said, "Look, there's something we need to talk to you about before we conduct any more business." And he sort of pulled up short, and he had no idea, clearly, what I was going to say. And what I told him was that the board, the independent directors had some serious concerns about, uh, his behavior, and we needed to talk it out with him, because we felt that the situation as it stood was untenable. And he thought, we were acting because we were unhappy with the numbers. And he was fixated on that, he kept trying to say "Well no, what are you talking about? Everything's fine, yes I know we're a little below but we're going to come back, everything's going to be great." And I kept saying, "No, no, that's not what this is about."
LISA: Dov was totally caught off guard. He remembers the board saying, “Look, here’s what’s happening.”
DOV: We’re going to fire you with cause and it’s going to be a huge ordeal. It’s going to be a public firing. And here’s a bad press release. Or, here’s a good press release saying that you’ve been a wonderful, wonderful contributor to this wonderful company and we look forward to you staying on with the company as a creative consultant. Okay? Oh, you also have to—one little hitch—you have to sign a support agreement which allows us to vote your shares in future elections. So you no longer… you have the economic power of your shares. But you don’t have the voting power on your shares. And naturally, I couldn’t sign that.
LISA: Allan Mayer says the board laid out their problems; told Dov all the reasons why they were concerned.
ALLAN: We had agreed that we would give Dov as much opportunity to talk on his own behalf as he wanted, because, you know, he had put his life into this company, and that was the least we could do for him under the circumstances. And we laid out all of the issues, and all of the concerns… and, he argued vehemently that this was nonsense, that he never sexually harassed anyone. And, you know we said “No, that's clearly not the case.” And we talked about finding an appropriate role for him. And he wouldn't register that.
LISA: Sometime early on in the meeting, one of Dov's long-time creative directors Iris Alonzo showed up. Iris had started as Dov’s assistant when she was 24. She says she was supposed to arrive earlier, for the shareholder’s meeting, but she was running late and she missed it.
IRIS: I just popped in to let Dov know that I was there and I waved to everybody and I said hi. And they were like, shut the door, you can't be in here and I was like, “God! God, jeez guys!” And it's like, “Hi, hello to you too.” They've even let me sit in on board meetings, like, it wasn't a big deal. But this time it's like everybody was all uptight, it was really crazy. So I just went outside in the hallway, I was sending emails, making calls. And then I get a text from Dov saying, “Stay close, emergency.”
LISA: Eventually Dov came out into the hallway and motioned for Iris to follow him to an empty room.
IRIS: And I follow him down the hallway, I'm like chasing after him and he shuts the door and he's like, "They just fired me. They just fired me." And I'm like, “What are you talking about, they just fired you?” And he's like, "They're trying to fuckin' fire me!" And I was like, "What are you talking about? What do you mean fire you, that's crazy." And he's like, "No, I swear to god." And then he, uh, he made some phone calls. I think he first called his mother or his dad. And everyone's just like "What? What?" And… And then it was like, okay. We're sitting in this room alone and it's like, “What are we gonna do?”
LISA: Dov goes back down the hall to talk to the board again. He comes back and confirms to Iris. They’re serious about firing him. Iris says that at this point they started making a lot more phone calls.
She says everyone they talked to was completely stunned. What was happening? How could the company run without Dov?
IRIS: Those guys in suits sitting in that office down the hallway have spent cumulatively, maybe what, two hours in the factory in their entire lives and they're so cavalier that they're just gonna fire Dov just because… I don't know why, but they're gonna fire Dov and they’re gonna replace him? So, I was like, “I'm gonna go talk to them.” So I went into the room and they're sitting around this table laughing. One of them’s leaning back throwing almonds into his mouth the other one's eating, he's like, “Ooh, more chocolate chip cookies?” And I'm just like, you gotta be fucking kidding me. You're… this is somebody who has been building this company, for the better part of 30 years and you're in here throwing fucking almonds into your mouth. Like, you pricks. It was like, and I just went off on them. It was like, what's gonna happen? You're just gonna replace him tomorrow? You got some guy in a suit that's gonna come in and run American Apparel? It doesn't work like that! It's not that kind of company.
LISA: According to Allan Mayer, Iris never actually came into the room. He says he left the room to talk to her. But Iris says she told the board: you’re going to destroy the biggest factory in America.
Whatever hope the board had of persuading Dov to stay on in a reduced role, Allan Mayer says it pretty much vanished. The meeting was off the rails.
ALLAN: Became apparent that this wasn't going to go anywhere, that he was not going to engage in any of the issues that we wanted to discuss. And he kept saying the same things over and over again it was this circular thing, and he was sitting there with this jar of instant coffee which he would pour into water and would just—I mean, he was so wired…
ROBERT: He had this plastic container of water and a little bottle of Nescafe instant coffee, and through the whole meeting, hour after hour he was taking teaspoons of Nescafe and putting it in his glass, in that bottle of water and drink—guzzling it, more Nescafe, more—and then he would start, like, eating the Nescafe straight. I was like whoa! What is… that is… something’s not right there.
The hours passed, and evening came. The board knew that at some point. before the markets opened the next morning, they’d have to put out an announcement. So they gave Dov a deadline.
ALLAN: We finally said to him at some point late in the evening—look, we've got to call an end to this. And it was around nine in the evening, and we didn't hear from him, and we actually gave him some extra time, and we attempted to reach out to him, and didn’t connect, and we decided: "Okay, he's made his decision." And so, uh, we pulled the trigger, metaphorically, and issued the announcement that he was suspended and no longer chairman.
LISA: Robert Greene, the board member who was probably most like a friend to Dov, remembers the feeling he had as he and the other board members finally left the building that night.
ROBERT: I felt justified this was the right thing to do, but I also felt quite guilty.
LISA: Can you explain a little bit more, when you say guilty, what do you mean by that?
ROBERT: It’s like you know, you’re pushing your mother in a wheelchair over a cliff. You know, like. It’s an old friend who spent his whole life building a company. He’s befriended you, he’s been very generous with you, he’s been very open with you. And you’re essentially firing him. And it came down to Allan and I. If Allan and I had said, ‘no, we don’t want to fire you.’ We could have stopped it. So it was like, you know I’m kinda the one who coulda stopped this and I didn’t. As I said, there was a mix, on the one hand I felt justified—a cause, he has to go, mismanaged, fucked up. On the other hand, you know, close friend, I don’t know anything analogous to that.
LISA: That long day was hardly the end of it. For the next week, Dov holed up at an apartment in Hell’s Kitchen, barely sleeping, strategizing about how to get the company back. Iris Alonzo was there, too. She remembers Dov calling the company’s largest shareholders, rounding up support, trying to persuade them to partner with him. But then one of the company’s biggest shareholders did not come through.
In the days following his firing, Dov also talked with a couple guys from a New York-based hedge fund called Standard General. They said they wanted to help him, and they worked out a deal. They would quietly buy up 20 million dollars worth of American Apparel stock for Dov. His collateral for the loan would be his existing stock plus the new shares. And Dov and Standard General would have to come to an agreement before voting those shares.
Iris says Dov had a lawyer reviewing the paperwork for him, but at the very last minute the lawyer bailed. So after barely sleeping for days, Dov wound up going over it himself.
IRIS: He's in their conference room and he has the last draft that they gave him and he's supposed to be like reading it I guess, proofing it before he signs it. And he just, like, lays down on the floor and like falls asleep. I walk in and he's laying on the floor on top of this contract that's worth 20 million dollars and control of his company and he's got no one. He’s got no one! And I'm like… He can't sign this! They're like fine. Walk out and see if you can go find somebody else. Go ahead, walk out and see if you can find someone else who's gonna give this guy 20 million dollars. Look at him!
LISA: Dov says Standard General promised to reinstate him as CEO of American Apparel—a claim the hedge fund denies. In fact, instead of putting him back in control of the company he founded, the deal with Standard General ultimately resulted in Dov losing everything.
Here’s how that happened. Standard General bought up stock for Dov, like it said it would. But when American Apparel found out, it resisted the hedge fund’s takeover and convinced Standard General to start talking to them.
This kicked off months of uncertainty at American Apparel. There was an investigation into the board’s claims against Dov, and for a while Dov thought he had a chance of returning as CEO. Dov now says that investigation was bogus, and that its purpose from the outset was to bury him. Six months after he was ousted by the board, Dov was let go from the company once and for all.
Less than a year later, American Apparel declared bankruptcy. And when it came out of bankruptcy, its shareholders were wiped out, including Dov. He no longer owns any part of the company he founded. American Apparel is now a private company controlled by its bondholders—including Standard General.
As I mentioned earlier, Dov’s version of all of this is wildly different from the one we’ve heard from former directors. The way he sees it, he started a business. It was stolen from him. And now he has to start over and build it from scratch. And the company he’s building now, it looks a lot like the old company. Just like the last time, he’s making clothes in Los Angeles. He’s trying to reinvent the basic t-shirt. He’s hiring many of the same garment workers and employees.
Even the name of his new company is strikingly similar to American Apparel. He’s telling customers his new business is called Los Angeles Apparel.
But Dov doesn’t want his new company to end the same way as his old company. And the story of how he lost American Apparel is something Dov talks about all the time.
DOV: This is a hijacking. They hijacked… they hijacked my company. It was a corporate raid. This was a highly sophisticated transfer of wealth from Main Street… Main Street shareholders, Main Street workers. Main Street vendors, okay? A mainstreet entrepreneur. To Wall Street hedge funds, their law firms, and their advisors.
LISA: Dov’s account of what happened is most clearly laid out in a lawsuit he filed in June of last year. The suit is against a hedge fund, Standard General, as well as American Apparel, the board members who ousted Dov, including Allan Mayer and Robert Greene, and American Apparel’s CFO at the time of Dov’s firing, a man named John Luttrell.
The lawsuit alleges a complicated conspiracy between Luttrell, the board members, and the hedge fund. According to the suit, Luttrell and some of the directors wanted to sell the company. And step one toward doing that was conspiring to reduce Dov’s ownership stake in American Apparel, making him vulnerable.
At the beginning of 2014, the year Dov was fired, Dov owned 43 percent of American Apparel’s shares. It was enough that if the board wanted to move against him, he could easily go out and get enough votes to overrule the board. Basically, he controlled the company.
But just three months before Dov was fired, American Apparel decided to raise money by issuing stock, as I mentioned earlier, and this diluted Dov’s ownership to just 27 percent.
Dov claims that he agreed to being diluted on the condition that he would be given a chance to recapture his shares. He also claims he talked to board member Allan Mayer about it, and Allan agreed to his terms—something Allan denies.
Another main contention in the lawsuit has to do with a statement that was filed ahead of the company’s annual meeting. It’s what’s called a proxy statement, and it’s meant to allow public company shareholders to make informed decisions when they vote.
In 2014, when Dov was fired, the proxy statement included language praising Dov. The board gave no indication that they had any doubts about Dov’s leadership.
At the annual meeting, shareholders re-elected three directors—Allan Mayer, Robert Greene, and another board member named David Danziger. Dov was still the company’s largest shareholder, and he voted to keep the directors on the board. This is a story Dov repeats often when talking to people about how he lost American Apparel.
DOV: They put out—they put out a proxy for the annual meeting where you vote for board members and said, “We think Dov should be the CEO and the Chairman and we trust his judgment.” I then voted for these three guys thinking they supported me, because that’s what the disclosure said, right? And within 20 minutes they fired me.
LISA: When I hear Dov’s side of the story, this is the part where his outrage makes sense to me. To him, the board betrayed him.
And it was not only Dov who was outraged by the board’s move. We’ve talked to an investor who held a lot of American Apparel stock at the time of Dov’s firing. He didn’t want to talk on tape, but he told us that he was really unhappy about the board’s move. The board was supposed to represent shareholders’ interests. But this shareholder said he wanted Dov to run the company. And if he’d known what the board planned to do, he wouldn’t have voted for them.
I raised all of this with Allan Mayer.
ALLAN: I understand the concern that has been raised about the proxy statement. And there is a very simple reason for why it was done that way. At the time the board approved it, we had no reason to think Dov was going anywhere. And even going into the meeting, we did not go into the meeting with anything approaching certainty that we would fire him or suspend him. So the question is we should have been more forthcoming with investors, what would we have said? Because we hadn't come to any decisions. There was nothing to disclose ahead of the meeting because no conclusions had been come to, we didn't know what was going to happen. As soon as we had something to disclose we disclosed it.
LISA: This dispute between Dov and the board is still not resolved. And other lawsuits have come out of Dov’s firing: Dov has another suit against a board member. Standard General is suing Dov. Dov is suing one of his lawyers. After Dov’s firing, the Securities and Exchange Commission also opened an investigation. It could be a long time before this all gets untangled.
But some things are clear. Like the fact that American Apparel is in shambles. The company declared bankruptcy for a second time last month. Its manufacturing operations and headquarters are being sold off. And the company has told nearly 3,500 workers in California that they could lose their jobs early next year.
Looking back at it all, board member Robert Greene sees mistakes. He thinks maybe Dov never should have taken American Apparel public in the first place. He thinks running a public company put a lot of pressure on Dov and changed him in some ways. Exacerbated his bad qualities.
Robert says part of him wishes the board had been able to let Dov stay on as CEO. He says it might have been better than taking all the steps they did, only to have the company struggle.
ROBERT: In the end, it probably would’ve been better just to let Dov sail the ship into the iceberg.
LISA: Are you saying that it would’ve been better to just not fire Dov?
ROBERT: Well, you have the sexual harassment stuff. So, once you learned what we learned, etc. It was our duty as board members. So I don’t regret that. But in a kind of parallel universe, or in another world, if those pressures weren’t on, it would’ve been better just to let Dov sail the Titanic into the iceberg. It’s his baby, he created it, he… he’s the genius behind it. To let him destroy it—then he wouldn’t have any excuses. Now he has the people like me who turned against, who betrayed him. And he’s not gonna learn—hopefully he will—but he may not learn the lesson because he has other people to blame.
LISA: After losing the company he spent his life building, what lessons has Dov learned? How differently is he doing things as he gets his new business off the ground?
We’ll get into those questions in our final episode of this season.
That’s coming up next week on StartUp.
StartUp is hosted by me, Lisa Chow. Our show is produced by Bruce Wallace, Luke Malone, Molly Messick, and Simone Polanen. Our Senior Producer is Kaitlin Roberts. We are edited by Alex Blumberg and Alexandra Johnes.
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