Jan Willem Hubner & Eric Ribner vs. Allan Mayer, David Danziger, Robert Greene, Marvin Ingelman, William Mauer, and American Apparel / Case No. 2:15-cv-02965-MWF (JEMx) / June 1, 2015 / Hon. Michael W. Fitzgerald

Case 2:15-cv-02965-MWF-JEM Document 15 Filed 05/01/15 Page 1 of 28 Page ID #:183
1 Patrice L. Bishop (182256)

service@ssbla.com
2 STULL, STULL & BRODY
9430 West Olympic Boulevard
3 Suite 400
Hills, CA 90212
4 Beverly
Tel: (310) 209-2468
5 Fax: (310) 209-2087
6 Michael J. Klein (admitted pro hac vice)
mklein@ssbny.com
7 Stull, Stull & Brody
6 East 45th Street
8 New York, NY 10017
Tel: (212) 687-7230
9 Fax: (212) 490-2022
10 Counsel for Plaintiffs
11
12
UNITED STATES DISTRICT COURT
13
CENTRAL DISTRICT OF CALIFORNIA
14
WESTERN DIVISION
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16
17
JAN WILLEM HUBNER and ERIC

RIBNER,
Plaintiffs,
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27
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v.
ALLAN MAYER, DAVID
DANZIGER, ROBERT GREENE,
MARVIN IGELMAN, WILLIAM
MAUER, AND AMERICAN
APPAREL, INC.,
Defendants.
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Case No. 2:15-cv-02965-MWF (JEMx)

[CORRECTED] MEMORANDUM
OF POINTS AND AUTHORITIES
IN SUPPORT OF MOTION FOR
PRELIMINARY INJUNCTION
Date:
Time:
Judge:
Ctrm:
June 1, 2015
10:00 a.m.
Hon. Michael W. Fitzgerald
1600-16th Floor, Spring St.
TABLE OF CONTENTS
2 I.
INTRODUCTION ............................................................................................. 1
3 II.
STATEMENT OF FACTS................................................................................ 2
4 III.
ARGUMENT .................................................................................................... 6
A.
Standard for Granting Preliminary Injunction ........................................ 6
B.
Plaintiffs are Likely to Succeed on Their Exchange Act Claims ........... 7
1.
Omissions ..................................................................................... 8
2.
10
The Proxy Statements Material Misrepresentations and

Omissions Caused the Plaintiff Injury ........................................ 13
11
3.
12
13
The Proxy Statement Contained Material Misrepresentations and
The Solicitation Material was an Essential Link in Ousting

Charney from the Company ....................................................... 15
C.
Plaintiffs are Likely to Succeed on Their Claims for Breach of the Duty
14
of Candor/Disclosure ............................................................................ 17
15
1.
The Individual Defendants did not Disclose Fully and Fairly all
16
Material Information within its Control While Seeking
17
Shareholder Action ..................................................................... 17
18
19
2.
D.
20
The Undisclosed Information Was Material .............................. 18
Plaintiffs are Likely to Suffer Irreparable Harm Absent Preliminary

Relief ..................................................................................................... 18
21
E.
The Balance of Equities Sharply Favors Plaintiffs ............................... 21
22
F.
Plaintiffs Seek Narrowly Tailored Relief Which will Serve the Public
23
24 IV.
Interest ................................................................................................... 23
CONCLUSION ............................................................................................... 24
25
26
27
28
i
TABLE OF AUTHORITIES
2 Cases
3 Allergan, Inc. v. Valeant Pharms. Intl, Inc., SACV 14-1214 DOC(ANx),
4
2014 U.S. Dist. LEXIS 156227 (C.D. Cal. Nov. 4, 2014) .............................. 19, 23
5 Bender v. Jordan, 439 F. Supp. 2d 139 (D.D.C. 2006) ....................................... 20, 21

6 Berkman v. Rust Craft Greeting Cards, Inc., 454 F. Supp. 787 (S.D.N.Y.
7
1978) ...................................................................................................................... 17
8 Blasius Indus., Inc. v. Atlas Corp., Del. Ch., 564 A.2d 651 (1988) .................... 18, 21
9 Burks v. Lasker, 441 U.S. 471 (1979) ....................................................................... 16
10 Calamore v. Juniper Networks Inc., 364 Fed. Appx. 370 (9th Cir. Cal. 2010) ........ 20
11 Dent v. Ramtron Intl Corp., No. 7950-VCP, 2014 Del. Ch. LEXIS 110 (Del.
12
Ch. June 30, 2014) ................................................................................................. 17
13 Desaigoudar v. Meyercord, 223 F.3d 1020 (9th Cir. Cal. 2000) .............................. 13
14 Dupont v. Wyly, 61 F.R.D. 615 (D. Del. 1973) ................................................... 14, 15
15 Durham v. County of Maui, 08-00342 JMS/RLP, 2011 U.S. Dist. LEXIS
16
72068 (D. Haw. June 23, 2011) ............................................................................. 10
17 EMAK Worldwide, Inc. v. Kurz, 50 A.3d 429 (Del. 2012)........................................ 14

18 Gilder v. PGA Tour, Inc., 936 F.2d 417 (9th Cir. 1991) ............................................. 7
19 Gladwin v. Medfield Corp., No. 74-169 Civ. (TH), 1975 U.S. Dist. LEXIS
20
14080 (M.D. Fla. 1975) ........................................................................................... 8
21 In Re Anderson, Clayton Litigation, Del. Ch., 519 A.2d 669 (1986)........................ 18

22 In re Bay Area Material Handling, No. 94-15815, 1996 U.S. App. LEXIS
23
2272 (9th Cir. Jan. 25, 1996) ................................................................................. 10
24 In re FoxHollow Techs., Inc., No. C 06-4595 PJH, 2008 U.S. Dist. LEXIS
25
52363 (N.D. Cal. May 27, 2008) ........................................................................... 16
26 In re J.P. Morgan Chase & Co. Sholder Litig., 906 A.2d 808 (Del. Ch. 2005),
27
affd, 906 A.2d 766 (Del. 2006) ............................................................................ 20
28 In re MONY Group Inc. Sholder Litig., 853 A.2d 661 (Del. Ch. 2004) .................. 22
ii
1 Issen v. GSC Enterprises, Inc., 522 F. Supp. 390 (N.D. Ill. 1981) ........................... 15
2 J.I. Case Co. v. Borak, 377 U.S. 426 (1964) ................................................. 13, 15, 21
3 Jewelcor, Inc. v. Pearlman, 397 F. Supp. 221 (S.D.N.Y. 1975) ............................... 16
4 Lane v. Page, 581 F. Supp. 2d 1094 (D.N.M. 2008)........................................... 12, 16
5 Lewis v. Leaseway Transp. Corp., No. 8720, 1990 Del. Ch. LEXIS 69 (Del.
6
Ch. May 16, 1990) ................................................................................................. 18
7 Mills v. Elec. Auto-Lite Co., 396 U.S. 375 (1970) .................................... 8, 14, 20, 23
8 MM Cos. v. Liquid Audio, Inc., 813 A.2d 1118 (Del. 2003) ..................................... 14
9 Mony Group, Inc. v. Highfields Capital Mgmt., L.P., 368 F.3d 138 (2d Cir.
10
2004) ...................................................................................................................... 18
11 New York City Emples. Ret. Sys. v. Jobs, 593 F.3d 1018 (9th Cir. Cal. 2010) .......... 7
12 OTR Wheel Engg, Inc. v. West Worldwide Servs., No. 14-35563, 2015 U.S.
13
App. LEXIS 4384 (9th Cir. Mar. 18, 2015) ........................................................ 6, 7
14 Polaroid Corp. v. Disney, 862 F.2d 987 (3d Cir. 1988) ............................................ 19
15 SEC v. Keating, CV 91-6785 (SVW), 1992 U.S. Dist. LEXIS 14630 (C.D.
16
Cal. July 23, 1992) ................................................................................................. 16
17 St. Louis Police Ret. Sys. v. Severson, No.: 12-CV-5086 YGR, 2012 U.S. Dist.
18
LEXIS 152392 (N.D. Cal. Oct. 23, 2012) ............................................................. 19
19 Totten v. Merkle, 137 F.3d 1172 (9th Cir. 1998)....................................................... 10

20 TSC Indus. v. Northway, 426 U.S. 438 (1976) ............................................................ 8
21 Statutes
22 15 U.S.C. 78n................................................................................................... passim
23 Rules
24 Federal Rule of Evidence 801 ............................................................................... 9, 10
25 Regulations
26 17 C.F.R. 240.14a-9.................................................................................. 2, 7, 13, 16
27
28
iii
Plaintiffs Jan Willem Hubner and Eric Ribner (Plaintiffs) hereby submit this
2 Memorandum of Points and Authorities in support of their Motion for Preliminary

3 Injunction (the Motion).
4 I.
INTRODUCTION
This is a straightforward case and this Motion presents one issue: Were
6 Defendants actions of June 18, 2014, irreconcilable with their solicitations of April
7 28, 2014 through June 17, 2014, such that Defendants disenfranchised the record
8 holders entitled to vote at the 2014 Annual Meeting?
As more fully detailed infra and in Plaintiffs Complaint,1 the Board of
10 Directors (the Board) of Defendant American Apparel, Inc. (American Apparel

11 or the Company)2 solicited proxies via an April 28, 2014 definitive proxy
12 statement filed with the Securities and Exchange Commission (SEC) on Form
13 DEF 14-A (the Proxy Statement).3 Among other things, the Proxy Statement
14 stated that:
15
Dov Charney (Charney) continuing to serve as Chairman and CEO
16
following the election of directors was in the best interest of the
17
Company;
18
Charney was intimately connected to American Apparels brand
19
identity and was the principal driving force behind American Apparels
20
core concepts and designs, and;
21
22
Complaint for Violation of the Federal Securities Laws and Breach of Fiduciary
23 Duty (Dkt. No. 1) (the Complaint), filed on April 21, 2015. All references to
24 __ mean and refer to the Complaint.
25
26
American Apparel is a Delaware Corporation headquartered in Los Angeles.
See Exhibit 1 to the Declaration of Patrice L. Bishop (the Bishop Decl.) filed
27 concurrently herewith. All references to Ex. __ mean and refer to exhibits
attached to the Bishop Decl.
28
1
Charneys combined role promoted unified leadership and direction for
the Board and executive management and allowed for a single, clear
focus for the Companys operational and strategic efforts.
These representations, among others, were part of continuing representations
5 that expired sixteen hours before the Companys June 18, 2014 Annual Meeting (the
6 2014 Annual Meeting) regarding the election of three directors, appointment of
7 independent auditors, and executive compensation.
Immediately after the 2014
8 Annual Meeting, the Board held a separate meeting (the June 18 Board Meeting),
9 and within minutes of its start, the Individual Defendants4 told Charney that if he did
10 not immediately resign he would be terminated for cause.
11
As more fully outlined below, Defendants admit that the decision to terminate
12 Charney was not sudden, but well-planned. This admission is irreconcilable with
13 Defendants statements in the Proxy Statement regarding Charney and his
14 importance to the Company, and demonstrates that Defendants solicitation of
15 proxies via the Proxy Statement violated Section 14(a) (Section 14(a)) of the
16 Securities Exchange Act of 1934 (the Exchange Act), 15 U.S.C. 78n, Rule 14a-9
17 promulgated thereunder by the SEC, and the Individual Defendants fiduciary duty
18 of disclosure/candor.
19 II.
STATEMENT OF FACTS
20
The Proxy Statement was a solicitation by the Board . . . of proxies for use at
21 the 2014 Annual Meeting to be held on Wednesday, June 18, 2014, at 11:00 a.m.,
22 Eastern Time, for the purposes set forth in th[e] Proxy Statement and in the
23 accompanying Notice of Annual Meeting of Stockholders. Ex. 1 at 006. The
24 Proxy Statement allowed shareholders to vote until 7:00 p.m., Eastern Time, on
25 June 17, 2014. Ex. 1 at 056. All proxies were revocable until their exercise at the
26
27
The Individual Defendants are Allan Mayer (Mayer), David Danziger

(Danziger), Robert Greene (Greene), Marvin Igelman and William Mauer.
28
2
1 meeting on Wednesday, June 18, 2014, at 11:00 a.m, Eastern Time, or any
2 adjournments or postponements thereof[.]
Id.
Plaintiffs were record holders
3 (Record Holders) of American Apparels stock on April 21, 2014, the Proxy
4 Statements record date (the Record Date). See Declaration of Jan Willem Plaintiff
5 Hubner and Declaration of Plaintiff Eric Ribner, filed concurrently herewith.
6
Defendants solicitations in the Proxy Statement advised Record Holders that
7 Charney serves as both our Chief Executive Officer and Chairman of the Board,
8 [and] leads and provides strategic guidance to the Companys management
9 team[,which senior management team supervise[s] all aspects of the Companys
10 business, in particular the design and production of merchandise, the operation of
11 our stores and our financial reporting function.] Ex. 1 at 024. According to the
12 Proxy Statement, [t]he Board of Directors has determined that the combination of
13 these roles held singularly by Mr. Charney is in the best interests of all stockholders
14 given that Mr. Charney founded the Company, is considered intimately connected to
15 American Apparels brand identity and is the principal driving force behind
16 American Apparels core concepts and designs. Id. Defendants also represented
17 that they had given careful consideration to separating the roles of Chairman of the
18 Board and [CEO] but determined that Charneys combined role promotes
19 unified leadership and direction for the Board and executive management and allows
20 for a single, clear focus for the Companys operational and strategic efforts. Id.
21 (emphasis added).
22
Defendants solicitations also advised Record Holders that pursuant to an
23 employment agreement Charney will serve as the Companys Chief Executive

24 Officer for a term ending on March 31, 2015 and provided how much Charney
25 would be paid. Ex. 1 at 042-43. Defendants recommended that Record Holders vote
26 in favor of Proposal 3, an advisory vote to approve the compensation of Charney
27 and the Companys other named executive officers, and for the re-election of
28 Danziger, Greene and Mayer to the Board. Ex. 1 at 056. As the Companys June
3
1 23, 2014 Form 8-K shows, Proposal 3 passed by an overwhelming majority, with
2 54,774,328 votes for it, 13,458,923 votes against it, 108,190 abstentions, and
3 41,001,033 Broker non-votes. Ex. 2 at 063.
4
The Proxy Statement also solicited and recommended shareholders vote, inter
5 alia, to approve, on an advisory basis, the compensation of Charney and other

6 named executive officers for the next year, and it informed shareholders that [t]he
7 Company and Dov Charney are parties to an employment agreement effective as of
8 April 1, 2012, pursuant to which Mr. Charney will serve as the Companys Chief
9 Executive Officer for a term ending on March 31, 2015 and that [t]his term will
10 automatically extend for successive one-year periods unless either party provides
11 written notice of non-renewal. Ex. 1 at 042.
12
The only other items of business for the meeting were to ratify the
13 appointment of the independent auditors and [t]o consider and transact such other
14 business as may properly come before the Annual Meeting. Ex. 1 at 007. There is
15 no indication that any such other business came before the 2014 Annual Meeting.
16 Ex. 2.
17
Pursuant to the Companys Bylaws, the Board met immediately after and at
18 the same place as the meeting of the stockholders at which it is elected[,] without
19 notice having been required. Ex. 3 at 071-72, 3.4. At the June 18 Board meeting,
20 among other things, the Board: (a) notified Charney of its intent to terminate his
21 employment for cause under Mr. Charneys employment agreement; (b) removed
22 Mr. Charney as Chairman of the Board of Directors, effective immediately, and
23 appointed Allen Mayer and David Danziger as Co-Chairmen of the Board; and (c)
24 appointed John J. Luttrell (Luttrell) as Interim CEO while having Luttrell stay
25 Chief Financial Officer (CFO) of the Company and announced that Mr. Luttrells
26 monthly base salary will be increased from $36,750 to $62,500 for as long as he
27 serves as Interim [CEO]. Ex. 4 (Each of these details, except for Luttrells salary,
28 was also included in Ex. 5, the June 18, 2014 press release).
4
The Companys June 19, 2014 Form 8-K further: (d) recognized that
2 Charneys termination may have triggered a default under one credit agreement,
3 defined as the Lion Facility in the Companys disclosure, which would in turn
4 trigger a default under another credit agreement, defined as the Capital One
5 Facility in the disclosure; (e) recognized that the Company was already in the
6 process of notifying Lyon and Capital One about Charneys suspension, and; (f)
7 incorporated by reference a news release of June 18, 2014 announcing Charneys
8 suspension and Luttrells appointment as Interim CEO. Ex. 4.
9
The press release incorporated by reference into the Companys June 19, 2014
10 Form 8-K stated, among other things:

11
We take no joy in this, but the Board felt it was the
12
right thing to do, Mr. Mayer said. Dov Charney created
13
American Apparel, but the Company has grown much
14
larger than any one individual and we are confident that its
15
greatest days are still ahead.
16
The Board is working with a search firm to identify
17
candidates for the job of permanent CEO and, based on our
18
initial discussions with the search firm, we expect the list
19
of possible successors will be impressive, said Mr.
20
Danziger, who has chaired the Boards Audit Committee
21
since 2011.
22
We have one of the best known and most relevant
23
brands in the world, with employees who are second to
24
none; I believe we have a very exciting future, said Mr.
25
Luttrell. Our core business-designing, manufacturing, and
26
selling American-made branded apparel-is strong and
27
continues to demonstrate great potential for growth, both
28
5
in the U.S. and abroad. This new chapter in the American
Apparel story will be the most exciting one yet.
3 Ex. 5 at 092 (emphasis added).

4
The press release was issued no later than 10:32 p.m. on June 18, 2014. Ex. 6
5 at 098. The Companys June 19, 2014 Form 8-K was accepted by the SEC at
6 8:41:52 a.m. Ex. 7 at 103. The public revelation that Charney had been terminated
7 was therefore less than 27 and 38 hours, respectively, after the conclusion of
8 Defendants solicitation of the Record Holders proxies via statements, among other
9 things, regarding how the Board carefully considered and determined that Charney
10 should be Chairman and CEO.
11
The Individual Defendants also presented Charney with an approximately five
12 page, single-spaced termination letter and a positive press release which would
13 have announced that Charney had entered into a consulting agreement with the
14 Company.
See Declaration of Charney (Charney Decl.), filed concurrently
15 herewith. Had Charney agreed to resign from his positions with the Company,
16 among other things, the Individual Defendants informed him that they intended to
17 issue the positive press release on June 18, instead of Ex. 5. Id., see also Exs. 5-6.
18 III.
ARGUMENT
19
A.
20
There are two ways by which plaintiffs may satisfy the test to receive a
Standard for Granting Preliminary Injunction
21 preliminary injunction. First, [a] plaintiff who seeks a preliminary injunction must
22 show [1] that he is likely to succeed on the merits, [2] that he is likely to suffer
23 irreparable harm in the absence of preliminary relief, [3] that the balance of equities
24 tips in his favor, and [4] that an injunction is in the public interest. OTR Wheel
25 Engg, Inc. v. West Worldwide Servs., No. 14-35563, 2015 U.S. App. LEXIS 4384,
26 at *2 (9th Cir. Mar. 18, 2015) (citations omitted).
27
Alternatively, If the balance of equities tips sharply in the plaintiffs favor,
28 then a court may issue a preliminary injunction upon a showing that there are
6
1 serious questions going to the merits a lesser showing than likelihood of success
2 on the merits. Id. at *2 (citations omitted). Serious questions are those which
3 cannot be resolved one way or the other at the hearing on the injunction and as to
4 which the court perceives a need to preserve the status quo lest one side prevent
5 resolution of the questions or execution of any judgment by altering the status quo.
6 Gilder v. PGA Tour, Inc., 936 F.2d 417, 422 (9th Cir. 1991) (quotations and
7 citations omitted). Serious questions need not promise a certainty of success, nor
8 even present a probability of success, but must involve a fair chance of success on
9 the merits. OTR Wheel Engg, Inc., 2015 U.S. App. LEXIS 4384, at *2 (citations
10 omitted).
11
As detailed below, Plaintiffs satisfy this standard and the requested
12 preliminary injunction is appropriate.

13
B.
14
Section 14(a) applies to any person who solicit[s] or to permit[s] the use of
Plaintiffs are Likely to Succeed on Their Exchange Act Claims
15 his name to solicit any proxy or consent or authorization in respect of any security
16 with inapplicable exceptions. 15 U.S.C. 78n(a). The Proxy Statement was a
17 solicitation by the Company and the Board. Ex. 1 at 014, 058. Thus the Defendants
18 solicited proxies pursuant to Section 14(a).
19
To state a claim under Section 14(a) and Rule 14a-9 promulgated thereunder,
20 17 C.F.R. 240.14a-9, a plaintiff must establish that (1) a proxy statement

21 contained a material misrepresentation or omission which (2) caused the plaintiff
22 injury and (3) that the proxy solicitation itself, rather than the particular defect in the
23 solicitation materials, was an essential link in the accomplishment of the
24 transaction. New York City Emples. Ret. Sys. v. Jobs, 593 F.3d 1018, 1021 (9th
25 Cir. Cal. 2010) (citations omitted) (revd on other grounds).
26 demonstrate each of these elements.
27
28
7
Plaintiffs can
1.
The Proxy Statement Contained Material Misrepresentations

and Omissions
2
3
For purposes of proxy fraud, [a]n omitted fact is material if there is a
4 substantial likelihood that a reasonable shareholder would consider it important in

5 deciding how to vote. TSC Indus. v. Northway, 426 U.S. 438, 449 (1976). As
6 described below, the misrepresentations in the Proxy Statement were neither so
7 trivial, or so unrelated to the transaction for which approval is sought, that correction
8 of the defect or imposition of liability would not further the interests protected by
9 14 (a). Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 384 (1970). Defendants
10 misrepresentations were directly contrary to the exact reasons shareholders vote: to
11 determine the Companys future path. Moreover, even without Defendants strong
12 statements regarding Charneys importance to the Company, the Defendants should
13 have disclosed a known intent to replace the CEO while soliciting proxies for the re14 election of directors. See Gladwin v. Medfield Corp., No. 74-169 Civ. (TH), 1975
15 U.S. Dist. LEXIS 14080, at *16-17 (M.D. Fla. 1975).
16
Rather than disclose their true intentions, Defendants solicitations (as
17 described above) could only have been accurate at the end of the solicitation period
18 if, during the 27 hours following the solicitation period, Defendants had:
19
All revisited and changed their carefully considered determination of
20
Charneys importance as both Chairman and CEO, decided that he
21
should no longer serve as either Chairman or CEO, and decided to
22
terminate his contract;
23
Agreed upon who among them would be co-Chairmen of the Board;
24
Determined who should be the Companys interim CEO, and appointed

him;5
25
26
5
27
Additionally, between 10:30 p.m. and 8:30 a.m. Defendants negotiated a

compensation agreement with the interim CEO if they had not already done so.
28
8
Had multiple discussions and began working with a search firm to
identify candidates for the job of permanent CEO, which discussions
had advanced to the point where Defendants had an expectation that
the list of possible successors will be impressive;
Reviewed the Companys credit agreement and recognized that
Charneys termination may have triggered two specific defaults, and
had already began the process of notifying Lyon and Capital One
about Charneys suspension, and;

Issued a press release disclosing the above, which had already
9
10
presumably been review by counsel before disclosure.
11 Exs. 4-5.6
12
As implausible as the above is, the Individual Defendants also presented
13 Charney with a five page (single spaced) termination letter and a positive press
14 release announcing that Charney had entered into a consulting agreement with the
15 Company. The Individual Defendants informed Charney that they were ready to
16
17
18
19
20
21
22
23
24
25
26
27
The Companys SEC filings are admissible as business records pursuant to Fed. R.
Evid. 803(6). [V]irtually all forms 10-K filed with the SEC are admissible so
long as [they are] properly authenticated because they assuredly [were] prepared
by people with personal knowledge, at or near the time of the events, who were just
doing their ordinary jobs. SEC v. Jasper, 678 F.3d 1116, 1122-23 (9th Cir. Cal.
2012); see also McGhee v. Joutras, No. 94 C 7052, 1996 U.S. Dist. LEXIS 18019
(N.D. Ill. Dec. 4, 1996). SEC filings may be introduced by an opponent as
admissions of the party that filed them, see Fed. R. Evid. 801(d)(2), [but] they are
hearsay when offered by the party that prepared them. In re Magnesium Corp. of
Am., 460 B.R. 360, 377 n.67 (Bankr. S.D.N.Y. 2011); accord Lifescan Scotland, Ltd.
v. Shasta Techs., LLC, No.: 5:11-CV-04494 EJD, 2012 U.S. Dist. LEXIS 100549, at
*17 n.1 (N.D. Cal. July 19, 2012) (To the extent that Instacare or Pharmatech argue
that the statements contained within the SEC reports are hearsay, they are
incorrect.)
28
9
1 issue the positive press release on June 18 if Charney agreed to, among other
2 things, resign as CEO and Chairman. See Charney Decl.
3
Yet, hours after soliciting shareholder proxies via a Proxy Statement declaring
4 that they had given careful consideration to separating the roles of Chairman of the
5 Board and [CEO] and determined that Charneys combined role promotes
6 unified leadership and direction for the Board and executive management and allows
7 for a single, clear focus for the Companys operational and strategic efforts[,] Ex. 1
8 at 16 (emphasis added), Defendants stated, contrarily, that the Company has grown
9 much larger than any one individual[.] Ex. 5 at 092. Not only was Charney
10 stripped of his CEO and Chairman positions, he was excommunicated from the
11 Company.
12
Defendants did not suddenly change their minds about Charneys value to the
13 Company. Their briefing in In re American Apparel, Inc. Shareholder Derivative

14 Litigation, Lead Case No. 14-CV-5230-MWF (the Related Derivative Action),
15 functionally admits that they committed proxy fraud and violated their fiduciary
16 duty of candor in connection with the Proxy Statement.7 Defendants wrote that
17 [o]n June 18, 2014, the Company suspended Charney, pending completion of an
18 investigation into alleged recent misconduct. At the conclusion of that investigation,
19 on December 15, 2014, Charney was terminated for cause. Unlike the process
20 undertaken by the Company, however, Plaintiffs did not wait for a careful review of
21 the facts. Exs. 8 at 110, n.1 (joining the Companys motion); 9 at 143:14-16.
22
7
23
24
25
26
27
Briefing filed on Defendants behalf in the Related Derivative Action is generally

admissible. See Totten v. Merkle, 137 F.3d 1172, 1176 (9th Cir. 1998). Factual
statements made by attorneys fall within the hearsay exception of Fed. R. Evid.
801(d)(2)(C) and (D). In re Bay Area Material Handling, No. 94-15815, 1996 U.S.
App. LEXIS 2272, at *7-8 (9th Cir. Jan. 25, 1996); accord Durham v. County of
Maui, 08-00342 JMS/RLP, 2011 U.S. Dist. LEXIS 72068, at *45-53 (D. Haw. June
23, 2011) (relevant factual allegations in an amended pleading in a related action
were not hearsay and deemed admitted as to plaintiffs).
28
10
Defendants also recognized a crucial distinction between knowledge that
2 misconduct has been alleged, and knowledge that the allegations are true. The
3 briefing states that the Board did act when, in its protected business judgment, it
4 believed it had sufficient information concerning Charney the Board suspended,
5 investigated, and then terminated Charney. Exs. 8 at 110, n.1; 9 at156:11-12,
6 157:8-11.
The Individual Defendants asserted that they did not, and [n]o
7 conscientious board would terminate Mr. Charney based merely on allegations[,]

8 rather the Board had to ensure that sufficient credible information warranted Mr.
9 Charneys termination[.] Ex. 10 at 170.
10
Indeed, the Individual Defendants assert that the Board faced complex and
11 difficult choices with respect to Mr. Charney because [a]ny attempt to remove Mr.
12 Charney prematurely could have been disruptive to the Companys operations,
13 including the possibility that Mr. Charney would have used his substantial stock
14 ownership to interfere with the ongoing investigation into his conduct. Ex. 8 at
15 111:13-19. It was crucial, therefore, that any decision to terminate Mr. Charney be
16 grounded in established facts and not simply rumor and innuendo, because Mr.
17 Charney could have used (and did use) his position to interfere with the investigation
18 and ultimately challenge his termination. Ex. 8 at 111:21-24
19
In other words, while it is unclear when Defendants specifically began
20 seriously considering terminating Charney, the Individual Defendants represented

21 that their decision was well thought out and considered over a period of time, Ex. 8
22 at 124,8 and that the Boards considerations included Charneys contributions to the
23
24
8
Plaintiffs appear to believe that terminating Mr. Charney was an easy call that the
Board should have made much earlier. But plaintiffs own allegations show that the
26 issue was never so simple. There were business, contractual, and procedural
27 complications that militated against terminating Mr. Charney, or taking final action
without a sufficient factual record. Weighing these risks against the risks of retaining
28
25
11
1 Company. Ex. 8 at 126.9 This lengthy consideration cannot be reconciled with the
2 concurrent statements made in the Proxy Statement.
3
The Individual Defendants further stated that [i]t was likely that if he were
4 terminated, Mr. Charney could seek to influence control of the Board and possibly
5 interfere with the ongoing investigation of his conduct and that for the derivative
6 plaintiffs who complained Mr. Charney was fired too late, the prospect of a board
7 Mr. Charney controlled would have been disastrous. The timing of the Boards
8 decision to remove Mr. Charney was crucial, and the Board got it right. Ex. 8 at
9 125:14-21 (emphasis added). However, it is evident that such a large difference
10 between the actual events after the 2014 Annual Meeting and the Proxys
11 expression of the directors intent gives rise to a fair inference that either something
12 occurred to change the minds of several directors between the issuance of the Proxy
13 and the voting, which would be an event that needed to be disclosed, or else the
14 directors never intended to [keep Charney in his position] and the Proxy was false
15 from the start. Lane v. Page, 581 F. Supp. 2d 1094, 1122-23 (D.N.M. 2008) (Just
16 as directors and officers are not required to divulge their secret motives to
17 shareholders, so too should plaintiffs not be required to be mind-readers who must
18 be able to know exactly why something happened, especially at this early stage in
19 proceedings.)
20
21
Mr. Charney as CEO is a quintessential exercise of business judgment that the Board
22 was positioned uniquely to make. Ex. 8 at 124:11-17.
23 9
Mr. Charney undeniably had made positive contributions to the Company over
24 time. Plaintiffs . . . ignore the fact that Mr. Charney had and continues to have
25 supporters who believe that he has something to contribute to the Company, and
stand to lose money if they are wrong.. . . . The Board had to weigh Mr. Charneys
26 potential contributions to the Company against the risks to the Company and its
27 employees of him remaining involved. This was a difficult decision, and plaintiffs
have not shown why it must have been made earlier. Ex. 8 at 126:8-18.
28
12
1
2
3
2.
The Proxy Statements Material Misrepresentations and

Omissions Caused the Plaintiff Injury
As the Supreme Court has held:
The purpose of 14(a) is to prevent management or
others from obtaining authorization for corporate action by
means of deceptive or inadequate disclosure in proxy
solicitation. The section stemmed from the congressional
belief that fair corporate suffrage is an important right
that should attach to every equity security bought on a
10
public exchange.
11
conditions under which proxies may be solicited with a
12
view to preventing the recurrence of abuses which . . .
13
[had] frustrated the free exercise of the voting rights of
14
stockholders. Too often proxies are solicited without
15
explanation to the stockholder of the real nature of the
16
questions for which authority to cast his vote is sought.
It was intended to control the
17 J.I. Case Co. v. Borak, 377 U.S. 426, 431 (1964) (citations omitted). The Ninth
18 Circuit has similarly recognized that Section 14(a) and Rule 14a-9 . . . require that
19 officials divulge all known material facts so that shareholders can make informed
20 choices. Desaigoudar v. Meyercord, 223 F.3d 1020, 1024 (9th Cir. Cal. 2000).
21
The right of shareholders to make informed choices is reflected by Delaware
22 law, which recognizes that:

23
The most fundamental principles of corporate
24
governance are a function of the allocation of power within
25
a corporation between its stockholders and its board of
26
directors. The stockholders power is the right to vote on
27
specific matters, in particular, in an election of directors.
28
The power of managing the corporate enterprise is vested

13
in the shareholders duly elected board representatives.
Accordingly, while these fundamental tenets of Delaware
corporate law provide for a separation of control and
ownership,
characterized as the ideological underpinning upon
which the legitimacy of the directors managerial power
rests.
the
stockholder
franchise
has
been
8 MM Cos. v. Liquid Audio, Inc., 813 A.2d 1118, 1126 (Del. 2003) (footnotes
9 omitted). Following-up on MM Cos., the Delawares Supreme Court held that
10
Shareholder voting rights are sacrosanct. The
11
fundamental governance right possessed by shareholders is
12
the ability to vote for the directors the shareholder wants to
13
oversee the firm. Without that right, a shareholder would
14
more closely resemble a creditor than an owner.
15
Shareholders have limited opportunities to exercise their
16
right to vote.
17 EMAK Worldwide, Inc. v. Kurz, 50 A.3d 429, 433 (Del. 2012) (footnotes omitted).
18
Perhaps because of the deprivation of this sacrosanct right, the Supreme Court
19 has declared there to be an objective test to demonstrate an injury:

20
Where there has been a finding of materiality, a
21
shareholder has made a sufficient showing of causal
22
relationship between the violation and the injury for
23
which he seeks redress if, as here, he proves that the
24
proxy solicitation itself, rather than the particular defect in
25
the solicitation materials, was an essential link in the
26
accomplishment of the transaction.
27 Mills, 396 U.S. at 385 (emphasis added). As held in Dupont v. Wyly, 61 F.R.D. 615
28 (D. Del. 1973):
14
The theory of corporate democracy which underlies
the private right to enforce Section 14(a), [J. I. Case Co. v.
Borak, 377 U.S. 426], is incompatible with the notion that
a shareholder has an enforceable federal right to honest
proxy materials only when transactions approved by a
shareholder vote in which he was misled has resulted in
economic injury to him.
8 Id. at 629; accord Issen v. GSC Enterprises, Inc., 522 F. Supp. 390, 396 (N.D. Ill.
9 1981) (plaintiff may show an injury to their corporate suffrage rights to state a
10 claim for relief under Section 14(a).)
11
Here, it is clear that Record Holders were deprived of their sacrosanct right to
12 choose directors, rendering them closer to creditors than owners. That deprivation
13 of rights was a clear injury. As recognized by Defendants, Charney undeniably had
14 made positive contributions to the Company over time and had and has supporters,
15 which supporters presumably included shareholders. Ex. 8 at 126:8-18. It was not
16 within the Individual Defendants bailiwick as directors to paternalistically decide to
17 entrench themselves before disclosing their intention to oust Charney.
Record
18 Holders should have been, at the very least, provided information as to the reasons
19 the Defendants wanted to oust Charney so the Record Holders could cast an
20 informed vote for the directors they wanted to oversee the Company: a pro-Charney
21 slate or an anti-Charney slate. That the Defendants clandestinely made the decision
22 for the shareholders is, standing alone, injury.
23
24
25
3.
The Solicitation Material was an Essential Link in Ousting

Charney from the Company
The Individual Defendants recognized in briefing to this Court that [i]t was
26 likely that if he were terminated, Mr. Charney could seek to influence control of the
27 Board and possibly interfere with the ongoing investigation of his conduct and that
28 for the derivative plaintiffs who complained Mr. Charney was fired too late, the
15
1 prospect of a board Mr. Charney controlled would have been disastrous. The timing
2 of the Boards decision to remove Mr. Charney was crucial, and the Board got it
3 right. Ex. 8 at 125:14-21 (emphasis added). That may be true from a business
4 judgment rule standpoint with respect to actions . . . to enjoin corporate acts or to
5 seek damages from directors based on the actions taken by the directors[,] but it
6 [is] impermissible to allow the business judgment rule, a creation of state law, to
7 supersede the requirements, prohibitions, and policies of the federal securities laws.
8 A state business judgement rule cannot permit action otherwise prohibited by the
9 federal securities laws. SEC v. Keating, CV 91-6785 (SVW), 1992 U.S. Dist.
10 LEXIS 14630, at *11-12 (C.D. Cal. July 23, 1992) (citing Burks v. Lasker, 441 U.S.
11 471, 479 (1979)).
12
Defendants patently could not, relying upon their business judgment, mislead
13 shareholders into voting for directors who had, contrarily to their solicitations, and
14 for re-election of certain directors to ensure that they would maintain a majority of
15 the Board and be able to oust Charney, tout Charneys virtues (see supra at 3) to
16 solicit votes while simultaneously and carefully plotting his ouster (see supra at 817 12). Even if the solicitation became duplicitous after its issuance, Defendants had a
18 duty to update their representations because Rule 14a-9 requires updating of all
19 proxy solicitations to correct any statement in any earlier communication with
20 respect to the solicitation of a proxy for the same meeting or subject matter which
21 has become false or misleading. Jewelcor, Inc. v. Pearlman, 397 F. Supp. 221,
22 249 (S.D.N.Y. 1975); Lane, 581 F. Supp. 2d at 1122-23.
23
Moreover, and in addition to having a duty to update statements that became
24 misleading when viewed in the context of subsequent events[,]10 Defendants

25
26
10
In re FoxHollow Techs., Inc., No. C 06-4595 PJH, 2008 U.S. Dist. LEXIS 52363,
27 at *45-46 (N.D. Cal. May 27, 2008) (citations omitted).
28
16
1 continued soliciting votes while publicly supporting Charney and clandestinely

2 plotting his ouster. As another court succinctly summarized, [t]here can be no
3 doubt that the proxy solicitation was an essential link in electing the slate of
4 directors. The stock holdings of board members[], taken together, [we]re insufficient
5 to constitute a quorum to elect the board. Thus, the solicitation was necessary if the
6 proposed corporate action [wa]s to be effected. Berkman v. Rust Craft Greeting
7 Cards, Inc., 454 F. Supp. 787, 793 (S.D.N.Y. 1978). Only by not allowing informed
8 shareholders the option to choose a pro-Charney slate could they effectuate their
9 plan to oust Charney.
10
C.
11
12
Plaintiffs are Likely to Succeed on Their Claims for Breach of the

Duty of Candor/Disclosure
The duty of candor/disclosure is a specific application of corporate directors
13 fiduciary duties of care and loyalty, requiring directors to disclose fully and fairly
14 all material information within the boards control when it seeks shareholder action.
15 An omitted fact is material if there is a substantial likelihood that a reasonable
16 shareholder would consider it important in deciding how to vote. Dent v. Ramtron
17 Intl Corp., No. 7950-VCP, 2014 Del. Ch. LEXIS 110, at *28 (Del. Ch. June 30,
18 2014).
19
There can be no reasonable argument that the Individual Defendants, as
20 directors, were not fiduciaries of the Company. See, e.g., Berkman, 454 F. Supp. at
21 793 (citations omitted) (It is clear, however, the director defendants stand in a
22 fiduciary position in relation to the shareholders and owe the highest duty of
23 absolute good faith and full disclosure.)
24
1.
The Individual Defendants did not Disclose Fully and Fairly
25
all Material Information within its Control While Seeking
26
Shareholder Action
27
Delaware recognizes that [t]he shareholder franchise is the ideological
28 underpinning upon which the legitimacy of directorial power rests. Blasius Indus.,
17
1 Inc. v. Atlas Corp., Del. Ch., 564 A.2d 651, 659 (1988). By misleading shareholders
2 as to their intentions, as discussed above in Section III.B.1., the Individual
3 Defendants abused their directorial power.
4
While the Individual Defendants are correct in their representations in the
5 Related Derivative Action that Delaware law leaves decisions of how to deal with
6 such matters [as the termination of a CEO] to in the hands of the Board, Ex. 8 at
7 122:28-123:1, the business judgment rule has no applicability to the question
8 whether shareholders have been provided with appropriate information to make an
9 informed choice because the underlying duty (candor) does not concern the
10 management of business and the affairs of the corporation. Lewis v. Leaseway
11 Transp. Corp., No. 8720, 1990 Del. Ch. LEXIS 69, at *16 (Del. Ch. May 16, 1990)
12 (citing In Re Anderson, Clayton Litigation, Del. Ch., 519 A.2d 669, 675 (1986)).
13 For the same reasons described above with respect to the Section 14(a) claims,
14 shareholders were disenfranchised by Defendants firing of Charney after soliciting
15 votes by representing that Charneys combined role [as CEO and Chariman]
16 promoted unified leadership and direction for the Board and executive management
17 and allowed for a single, clear focus for the Companys operational and strategic
18 efforts[,] among other things. Ex. 1 at 024.
19
20
2.
The Undisclosed Information Was Material
As discussed above in Section III.B.1., the undisclosed information of
21 Defendants plot to oust Charney was clearly material to their solicitations which
22 praised Charneys contributions to the Company.
23
24
25
D.
Plaintiffs are Likely to Suffer Irreparable Harm Absent

Preliminary Relief
It is well-established that a transactionparticularly a change-of-control
26 transactionthat is influenced by noncompliance with the disclosure provisions of

27 the various federal securities laws can constitute irreparable harm Mony Group,
28 Inc. v. Highfields Capital Mgmt., L.P., 368 F.3d 138, 147 (2d Cir. 2004); see also
18
1 Polaroid Corp. v. Disney, 862 F.2d 987, 1006 nn.9 & 11 (3d Cir. 1988) (recognizing
2 that, at least with respect to the Williams Act portions of Section 14, [t]he
3 inadequacy of a remedy at law and the importance that Congress has attached to
4 accurate disclosure of material information establishes irreparable harm and that in
5 light of the clear congressional intent of Section 14(a), we see no practical
6 distinction between the harms inherent in these two situations.) Indeed, [a]n
7 uninformed shareholder vote is often considered an irreparable harm, particularly
8 because the raison detre of many of the securities laws is to ensure that shareholders
9 make informed decisions. Allergan, Inc. v. Valeant Pharms. Intl, Inc., SACV 1410 1214 DOC(ANx), 2014 U.S. Dist. LEXIS 156227, at *50 (C.D. Cal. Nov. 4, 2014)
11 (citations omitted).
12
While it is too late to prevent[] an uninformed shareholder vote through
13 corrective disclosures once the inadequate disclosure is discovered which is

14 preferable to sorting out post-vote remedies for uninformed shareholders[,] id.
15 (citations omitted), there was never a time where that would have been possible
16 because the vote was consummated before Defendants intentions were disclosed.
17 Because, [g]enerally, disclosure deficiencies cannot be remedied effectively by an
18 after-the-fact damages case[,] [i]t is appropriate for the court to address material
19 disclosure problems through the issuance of a preliminary injunction that persists
20 until the problems are corrected. St. Louis Police Ret. Sys. v. Severson, No.: 1221 CV-5086 YGR, 2012 U.S. Dist. LEXIS 152392, at *16-17 (N.D. Cal. Oct. 23, 2012)
22 (citations omitted).
Because Defendants clandestinely ousted of Charney their
23 inadequate disclosures were never cured. On June 27, 2014, Charney sought to call
24 a special meeting of stockholders to replace the Board. Ex. 12 at 210. Soon
25 thereafter, a July 9, 2014 Nomination, Standstill and Support Agreement (the
26 SAS) was entered into by American Apparel, certain Standard General funds, and
27 Charney. Ex. 12. The SAS resulted in a suitability committee which was supposed
28 to complete its investigation within 30 days. Id. at 213. It was not until December
19
1 14, 2014, that the Board voted to terminate Charney in connection with the
2 suitability committees vote. Ex. 13.
3
The Court of Appeals has recognized that [d]irect proxy disclosure claims, if
4 made promptly, may support equitable relief such as an order to amend a proxy
5 solicitation and require a re-vote. See In re J.P. Morgan Chase & Co. Sholder
6 Litig., 906 A.2d 808, 825 (Del. Ch. 2005), affd, 906 A.2d 766 (Del. 2006).
7 However, when the eggs have been irretrievably scrambled[,] . . . there is no
8 possibility of effective equitable relief. Id. (referring to a claims status one year
9 after a corporate merger). Calamore v. Juniper Networks Inc., 364 Fed. Appx. 370,
10 372 (9th Cir. Cal. 2010). Similarly, the Supreme Court held retrospective relief is
11 available for Section 14(a) violations and [i]n selecting a remedy the lower courts
12 should exercise the sound discretion which guides the determinations of courts of
13 equity, keeping in mind the role of equity as the instrument for nice adjustment and
14 reconciliation between the public interest and private needs as well as between
15 competing private claims. Mills, 396 U.S. at 386 (citations omitted). When the
16 Supreme Court reversed and remanded Mills for consideration of retrospective
17 relief after the [annual] meeting ha[d] been held it held that to foreclose
18 retrospective relief would allow the stockholders to be bypassed and would
19 subvert the congressional purpose of ensuring full and fair disclosure to
20 shareholders. Id. at 381.
21
This harm is compounded where, as here, an uninformed election has come
22 to pass, and another election is imminent. Bender v. Jordan, 439 F. Supp. 2d 139,
23 177 (D.D.C. 2006). In this action, Plaintiffs anticipate that the next election could
24 happen in the very near future. In the last three years, the Company has issued a
25 proxy statement regarding the election of directors in late April, with the election
26 and Annual Meeting going forward (in the last four years) in mid-to-late June. See,
27 e.g. Ex. 1. Allowing the second election to go forward, where there is a substantial
28 likelihood that the prior one was at best tainted, at worst void, would helplessly
20
1 complicate matters, perhaps making it impossible to unscramble the eggs should

2 the post-hoc reorganization of a standing board prove necessary. Bender, 439 F.
3 Supp. 2d at 177 (finding no adequate remedy at law, [t]he persuasive force of this
4 reasoning is undiminished by the fact that the misinformed vote has already
5 occurred. In view of the impending second election, which if allowed to proceed
6 may hopelessly jumble the Boards membership, injunctive relief remains the
7 preferred remedy here, and is necessary to protect investors and effectuate the
8 purposes of the Exchange Act.).
9
The eggs here have not been irretrievably scrambled because there is no
10 corporate merger to disentangle. While Greene, one of the directors re-elected

11 because of the solicitations of the Proxy Statement, resigned pursuant to the SAS,
12 the other two (Mayer and Danziger) remain on the Companys Board today. Ex. 12
13 at 208.
The directorate has been otherwise completely revamped by the SAS, but
14 the eggs will be further scrambled by another vote on directors while the Record
15 Holders remain disenfranchised.
16
In short, if the anticipated 2015 annual meeting goes forward it will become
17 more difficult to put the Record Holders in the position they would have been in had
18 Defendants complied with securities laws.
19
E.
20
As recognized by the Supreme Court, Section 14(a) was intended to prevent
The Balance of Equities Sharply Favors Plaintiffs
21 directors from obtaining authorization for corporate action by means of deceptive

22 or inadequate disclosure in proxy solicitation. J.I. Case Co., 377 U.S. at 431.
23 Delaware similarly recognizes that the Individual Defendants directorial power
24 rests upon the shareholder franchise. Blasius, 564 A.2d at 659. Moreover, it is also
25 well settled that where legal rights have been invaded, and a federal statute provides
26 for a general right to sue for such invasion, federal courts may use any available
27 remedy to make good the wrong done. J. I. Case Co., 377 U.S. at 433.
28
21
There is significant evidence that the Companys shareholder base, in large
2 part, sold their shares upon learning that Mr. Charney had been terminated.11
3 Whatever their motivations, the shareholders now are a largely different body than
4 the Record Holders. But the Record Holders are the only persons who were
5 disenfranchisedthey are the victims of Defendants misstatements. Allowing a
6 different set of record holders to place a different vote for different directors will
7 make the resolution of this case more difficult. The status quo should be preserved
8 in the interim, especially given Plaintiffs chance of success, as demonstrated above.
9 If the Company is allowed to hold its 2015 annual meeting, it will be even harder to
10 put Plaintiffs and the Record Holders where the federal securities laws envision
11 themthat meaning that they be given fair corporate suffrage without deceptive or
12 inadequate disclosure in proxy solicitation.
13
Notably, as recognized by In re MONY Group Inc. Sholder Litig., 853 A.2d
14 661 (Del. Ch. 2004), when shares trade in the market, they generally trade without
15 a proxy, so that the person acquiring the shares does not obtain the right to vote
16 those shares on [solicitations sought]. Instead, the power to vote remains with the
17 seller who was the record date holder. Id. at 669. Record Holders thus generally
18
19
20
21
22
23
24
25
26
27
11
According to trading data from Google Finance, the eleven trading days following
Charneys ouster (June 19 to June 30), the announcement of Charneys termination
(December 16, 2014), and the days after its disclosure through the SEC (December
18, 19 and 22, 2014) are the 1st, 2nd, 3rd, 6th, 7th, 9th, 10th, 12th, 13th, 15th, and
17th largest volume days ever for trading in Company stock. As of April 22, 2015,
the 196,870,133 shares traded on those eleven days represented just over 14.56% of
the Companys shares traded within four years, and just over 11.8% of the shares
traded since its March 7, 2006 IPO. The three days after the July 9, 2014 Standstill
and Support Agreement was announced are the 4th, 5th, and 8th largest volume days
ever for trading in Company stock, and round out all of the top ten days, and 14 of
the 17 largest volume days ever for trading in Company stock. More shares traded
on those 14 days than traded on the 175 trading days between August 12, 2014 and
April 22, 2015, even when including the December dates with the total. See Ex. 14.
28
22
1 maintain the right to vote upon the matters brought up at the 2014 Annual Meeting,
2 but with the benefit of accurate information to ensure they are not disenfranchised.
3 That is the only cure for Defendants wrongdoing. Moreover, American Apparels
4 directors serve staggered three year terms. Ex. 1 at 015. This functionally provides
5 for consistency and allows historical shareholders limited continued control over
6 who will serve as directors for up to three years even if they sell their shares. The
7 Record Holders were the only persons entitled to elect the Class A directors who
8 would serve three year terms and shape the Companys future, two of whom still
9 serve on the Board despite their materially misleading statements in the Proxy
10 Statements. The Record Holders were the persons entitled to know the Class A
11 directors true intentions for the Companys future. The Record Holders were the
12 shareholders who were essentially rendered creditors.
13
14
15
F.
Plaintiffs Seek Narrowly Tailored Relief Which will Serve the

Public Interest
The relief Plaintiffs seek is to prevent Defendants from further scrambling the
16 egg, have them correct their prior disclosures, and restore to the Record Holders the
17 rights guaranteed to them by the Exchange Act and Delaware common law. If
18 further proxy voting is allowed it will be significantly more difficult to make
19 Plaintiffs and other Record Holders whole. Given Plaintiffs chance of success on
20 the merits, as discussed above, Defendants should be foreclosed from further
21 complicating whatever the Court may determine is appropriate retrospective relief
22 under Mills, 396 U.S. at 386, and subsequent Section 14(a) jurisprudence.
23
In finding that [a]n injunction ordering corrective disclosures is also in the
24 public interest, as it prevents an uninformed shareholder vote the Allergan Court

25 recognized that that the potential threat of an uninformed vote in this case presents
26 an irreparable harm, that the balance of equities tips in Plaintiffs favor, and that the
27 proposed injunction to make corrective disclosures is in the public interest. 2014
28 U.S. Dist. LEXIS 156227, at *51. The same is true here. The broad policies behind
23
1 Section 14(a) and Delaware Corporate will be thwarted if the Record Holders are
2 allowed to be effectively disenfranchised by the Defendants misstatements. See
3 Section III.A.2, above.
4 IV.
CONCLUSION
For foregoing reasons, Plaintiffs respectfully request that the Court grant this
6 Motion and issue the requested preliminary injunction

7
8
9 May 1, 2015
10
11
12
13
14
15
16
17
18
Patrice L. Bishop
STULL, STULL & BRODY
s/ Patrice L. Bishop
Patrice L. Bishop
9430 West Olympic Boulevard
Suite 400
Beverly Hills, CA 90212
Tel: (310) 209-2468
Fax: (310) 209-2087
service@ssbla.com
Michael J. Klein
Stull, Stull & Brody
6 East 45th Street
New York, NY 10017
Tel: (212) 687-7230
Fax: (212) 490-2022
mklein@ssbny.com
Counsel for Plaintiffs
19
20
21
22
23
24
25
26
27
28
24

Jan Willem Hubner &amp; Eric Ribner vs. Allan Mayer, David Danziger, Robert Greene, Marvin Ingelman, William Mauer, and American Apparel / Case No. 2:15-cv-02965-MWF (JEMx) / June 1, 2015 / Hon. Michael W. Fitzgerald

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Jan Willem Hubner &amp; Eric Ribner vs. Allan Mayer, David Danziger, Robert Greene, Marvin Ingelman, William Mauer, and American Apparel / Case No. 2:15-cv-02965-MWF (JEMx) / June 1, 2015 / Hon. Michael W. Fitzgerald

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Case 2:15-cv-02965-MWF-JEM Document 15 Filed 05/01/15 Page 1 of 28 Page ID #:183

1 Patrice L. Bishop (182256)

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

JAN WILLEM HUBNER and ERIC

Case No. 2:15-cv-02965-MWF (JEMx)

Case 2:15-cv-02965-MWF-JEM Document 15 Filed 05/01/15 Page 2 of 28 Page ID #:184

Standard for Granting Preliminary Injunction ........................................ 6

Plaintiffs are Likely to Succeed on Their Exchange Act Claims ........... 7

The Proxy Statements Material Misrepresentations and

The Proxy Statement Contained Material Misrepresentations and

The Solicitation Material was an Essential Link in Ousting

Material Information within its Control While Seeking

Shareholder Action ..................................................................... 17

The Undisclosed Information Was Material .............................. 18

Plaintiffs are Likely to Suffer Irreparable Harm Absent Preliminary

The Balance of Equities Sharply Favors Plaintiffs ............................... 21

Case 2:15-cv-02965-MWF-JEM Document 15 Filed 05/01/15 Page 3 of 28 Page ID #:185

5 Bender v. Jordan, 439 F. Supp. 2d 139 (D.D.C. 2006) ....................................... 20, 21

Ch. June 30, 2014) ................................................................................................. 17

72068 (D. Haw. June 23, 2011) ............................................................................. 10

17 EMAK Worldwide, Inc. v. Kurz, 50 A.3d 429 (Del. 2012)........................................ 14

14080 (M.D. Fla. 1975) ........................................................................................... 8

21 In Re Anderson, Clayton Litigation, Del. Ch., 519 A.2d 669 (1986)........................ 18

2272 (9th Cir. Jan. 25, 1996) ................................................................................. 10

52363 (N.D. Cal. May 27, 2008) ........................................................................... 16

affd, 906 A.2d 766 (Del. 2006) ............................................................................ 20

Case 2:15-cv-02965-MWF-JEM Document 15 Filed 05/01/15 Page 4 of 28 Page ID #:186

Ch. May 16, 1990) ................................................................................................. 18

App. LEXIS 4384 (9th Cir. Mar. 18, 2015) ........................................................ 6, 7

Cal. July 23, 1992) ................................................................................................. 16

LEXIS 152392 (N.D. Cal. Oct. 23, 2012) ............................................................. 19

19 Totten v. Merkle, 137 F.3d 1172 (9th Cir. 1998)....................................................... 10

Case 2:15-cv-02965-MWF-JEM Document 15 Filed 05/01/15 Page 5 of 28 Page ID #:187

2 Memorandum of Points and Authorities in support of their Motion for Preliminary

10 Directors (the Board) of Defendant American Apparel, Inc. (American Apparel

Dov Charney (Charney) continuing to serve as Chairman and CEO

following the election of directors was in the best interest of the

Charney was intimately connected to American Apparels brand

core concepts and designs, and;

American Apparel is a Delaware Corporation headquartered in Los Angeles.

Case 2:15-cv-02965-MWF-JEM Document 15 Filed 05/01/15 Page 6 of 28 Page ID #:188

Charneys combined role promoted unified leadership and direction for

focus for the Companys operational and strategic efforts.

These representations, among others, were part of continuing representations

Immediately after the 2014

The Individual Defendants are Allan Mayer (Mayer), David Danziger

Case 2:15-cv-02965-MWF-JEM Document 15 Filed 05/01/15 Page 7 of 28 Page ID #:189

Plaintiffs were record holders

Defendants solicitations in the Proxy Statement advised Record Holders that

Defendants solicitations also advised Record Holders that pursuant to an

23 employment agreement Charney will serve as the Companys Chief Executive

Case 2:15-cv-02965-MWF-JEM Document 15 Filed 05/01/15 Page 8 of 28 Page ID #:190

5 alia, to approve, on an advisory basis, the compensation of Charney and other

Case 2:15-cv-02965-MWF-JEM Document 15 Filed 05/01/15 Page 9 of 28 Page ID #:191

10 Form 8-K stated, among other things:

We take no joy in this, but the Board felt it was the

right thing to do, Mr. Mayer said. Dov Charney created

American Apparel, but the Company has grown much

greatest days are still ahead.

The Board is working with a search firm to identify

candidates for the job of permanent CEO and, based on our

initial discussions with the search firm, we expect the list

of possible successors will be impressive, said Mr.

Jan Willem Hubner & Eric Ribner vs. Allan Mayer, David Danziger, Robert Greene, Marvin Ingelman, William Mauer, and American Apparel / Case No. 2:15-cv-02965-MWF (JEMx) / June 1, 2015 / Hon. Michael W. Fitzgerald

Jan Willem Hubner & Eric Ribner vs. Allan Mayer, David Danziger, Robert Greene, Marvin Ingelman, William Mauer, and American Apparel / Case No. 2:15-cv-02965-MWF (JEMx) / June 1, 2015 / Hon. Michael W. Fitzgerald