When Guadalupe Hernandez added her name to a lawsuit against Forever 21 Inc. three years ago, she was fired from her job at a downtown sewing factory and hasn't worked in the garment industry since.

"All of the factory owners communicate with each other and I was put on a blacklist," said Hernandez, 29, of Highland Park, describing in Spanish how she earned $4 an hour working 10 hours a day, six days a week, in a factory with no running water and one bathroom.

After three years of picketing Forever 21 stores on weekends and trying to organize other garment workers, Hernandez faces this: despite a recent victory, the prolonged legal battle against Forever 21 has gone virtually nowhere in three years.

Earlier this month, an appeals panel for the Ninth Circuit Court of Appeals overturned a lower court ruling that had thrown out the garment workers' lawsuit two years ago.

That ruling paves the way for the garment workers to file their lawsuit again--this time in state court.

"It's a very slow and arduous process," said Julia Figueira-McDonough, a lawyer with the Asian Pacific American Legal Center of Southern California, which represents the garment workers.

"Some of the workers have been concerned because Forever 21 is such a force in the industry, they've been unable to get jobs because they've been branded as troublemakers," she said.

The lawsuit sought to hold Forever 21, a retailer with 125 stores, jointly responsible for the practices at sweatshops that make its private-label clothes.

Figueira-McDonough said the center will file a new lawsuit in Los Angeles Superior Court in the next few months refocusing on California's unfair business practices statute, and alleged violations by Forever 21 in hiring sweatshops.

"Forever 21 contracts with these entities knowing full well that the contract prices are not enough to allow them to pay legal wages," she said. "It's a very conscious strategy to insulate the company from liability."

Forever 21 and its co-founders, Don Chang and Jin Sook Chang, have maintained they are not responsible for the working conditions at garment factories. The retailer does not own or operate the factories but rather hires contractors and vendors that oversee the piecework.

"A federal trial judge said the case has no merit," said Wayne Flick, a partner at Latham & Watkins LLP, who represents Forever 21. "The 9th Circuit didn't disagree but decided it should be in state court. If their allegations are the same as they were in federal court, then they have no more merit in state court than they did in federal court. We will attack them in the same way."

Before the original lawsuit was dismissed, two of the garment factories agreed to settle claims and paid $175,400 in back wages and overtime to seven workers. Four of the six factories went out of business or changed names and owners.

Because of that, Forever 21 remained the only defendant in the federal case, even though the remaining claims against the retailer were primarily state claims.

Sowing resentment

The lawsuit has sown further resentment between Korean-owned garment factories and retailers, and Hispanic garment workers and a handful of anti-sweatshop groups that have tried to support them.

During the long-running legal battle, garment workers not only picketed in front of Forever 21 stores, they urged a boycott of the chain and even demonstrated in front of the owners' home in Beverly Hills.

Just two days after their lawsuit was dismissed in 2002, Forever 21 filed a defamation suit against the 19 workers, three activists and three anti-sweatshop groups, claiming that the retailer was unfairly targeted in a public smear campaign that led to lost business.

"They were suing people who are destitute and who claimed they were working in sweatshop conditions," said Carol Sobel, a lawyer for one of the activists. "To turn around and sue them reflected extreme callousness."

Though the defamation claims against the 19 workers were later dropped, three activists and three watchdog groups are anxiously waiting for an appeals court decision within the next 90 days.

The three activists are: Kimi Lee, director of Garment Worker Center; the center's organizer, Joann Lo; and Victor Narro, a former co-director of Sweatshop Watch who also worked at the Coalition for Humane Immigrant Rights in Los Angeles.

Narro, who is now project director at UCLA's downtown Labor Center, said the suit has hung over his head for the past two years.

"They saw me carrying workers in a van and they went after me because I was able to get the permits that allowed the workers to march," he said.

Others in the garment industry believe that the defamation suit has had its intended effect-to silence garment workers.

Hernandez, who works part-time organizing at the Garment Worker Center, sees little change in the three years she's been struggling to improve labor conditions.

"If anything, it's become worse," she said. "Due to NAFTA, a lot of factories are moving and usually the owners that contract with Forever 21 pay workers even less now."

Amanda Bronstad contributed to this story.