In the most recent chapter of the legal saga surrounding downtown L.A. garment maker American Apparel Inc., two shareholders claim founder and former Chief Executive Dov Charney was fired last year because he refused to sell the company.

And if shareholders Jan Willem Hubner and Eric Ribner have their way, American Apparel will be forced to oust five of its board members and allow stakeholders to elect replacements at this year’s annual meeting.

At the heart of the dispute is a proxy statement filed with the Securities and Exchange Commission last April, setting the slate of directors to be voted on at the June 18, 2014, shareholders meeting. In it, the board said Charney, chairman and chief executive of the company, “provides our board with an informed perspective on the company and the apparel industry and the perspectives and judgment necessary to guide the company’s strategy and monitor its execution.”

The day of the meeting, however, the board suspended Charney, paving the way for his eventual firing Dec. 16.

Hubner, who owns 39,254 shares in the company, and Ribner, who owns 3,000, allege that the board knew Charney was in jeopardy when it issued the proxy statement and committed fraud because it gave no indication that Charney was under investigation for misconduct, let alone that he would be fired hours after the annual meeting.

Had they known the board members – who were up for re-election – intended to oust Charney, they might have voted differently.

Citing details purportedly coming from Charney, the complaint says that immediately after the annual meeting in June, board member Allan Mayer presented Charney with an ultimatum: resign as chief executive and give up voting rights in exchange for a $4.5 million severance package or be fired.

Mayer, along with the company and board members David Danziger, Robert Greene, Marvin Igelman and William Mauer are all named in the complaint.

Hubner and Ribner, the shareholders, seek to invalidate last year’s re-election of Danziger, Greene and Mayer to the board and replace each of the board members at this year’s annual meeting.

“These claims are completely baseless and we are confident we will succeed on each and every one of these,” an American Apparel spokeswoman said in an e-mail.

For reprint and licensing requests for this article, CLICK HERE.