Tom Gildred believes his laundry is the “most innovative and environmentally responsible commercial healthcare laundry facility in the United States.”
  • Tom Gildred believes his laundry is the “most innovative and environmentally responsible commercial healthcare laundry facility in the United States.”
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On June 13 of last year, Tom Gildred, chief executive officer of Emerald Textiles, got one of six San Diego “Entrepreneur of the Year” awards from the accounting firm of Ernst & Young. The honor goes to executives “who demonstrate excellence and extraordinary success in such areas as innovation and personal commitment to their businesses and communities.”

Emerald “operates the most innovative and environmentally responsible commercial healthcare laundry facility in the United States,” boasted a company news release, saying that in just two years, Emerald had corralled 70 percent of the hospital market in the county. This year, it claims it has 80 percent and is getting business in Los Angeles and Riverside counties and elsewhere.

Rave reviews piled up from fawning local media: “Gildred and his business partner, Bob Payne, decided to get into the health care laundry line after seeing what the current laundry landscape was like, and realizing what could be done with new equipment,” enthused the San Diego Business Journal.

“With a background as an entrepreneur, [Gildred’s] interest was piqued, and two years ago he began looking into the healthcare linen business and didn’t like what he saw — heavy use of water, energy and chemicals; old, inefficient equipment,” gushed his hometown Rancho Santa Fe Review. Emerald started “with a blank piece of paper in March 2010 — no customers, no facility,” he told the publication.

Bob Payne partnered with Gildred in the Emerald laundry venture.

Bob Payne partnered with Gildred in the Emerald laundry venture.

The Gildred family has been prominent in San Diego since 1925. Tom Gildred is an official of the family-owned Gildred Companies, which is in real estate; he founded FMT Consultants and has been a director of Sharp HealthCare and the San Diego Museum of Art. His partner in Emerald, Bob Payne, is equally prominent: he has headed the Holiday Bowl and Super Bowl Task Force, and his name adorns the L. Robert Payne School of Hospitality and Tourism Management at San Diego State.

Gildred and Payne are San Diego luminaries. But — whoa, Nelly. Are they really the innovators who conceived the highly successful Emerald Textiles?

An October decision by the Fourth Appellate District of California tells a different story. The case is Angelica Textile Services, Inc., vs. Jaye Park et al. Before Emerald built its revolutionary plant, Angelica “controlled 90 percent of the hospital linen and laundry market in San Diego,” says the appellate court.

Emerald’s chief operator Jaye Park helped start Emerald while working for competitor Angelica, who later sued him.

Emerald’s chief operator Jaye Park helped start Emerald while working for competitor Angelica, who later sued him.

Jaye Park began working for Angelica in 1982. In 2008, Park, who had climbed to market vice president, went to Sharp HealthCare and Scripps Health and proposed that the two hospitals jointly run a new linen and laundry enterprise that would serve themselves and other Angelica customers. “Park prepared a business plan for the joint venture” that criticized Angelica’s “limited” and “aged facilities,” explains the appellate court.

In September of 2008, Sharp’s board decided not to pursue the venture, but “two members of the Sharp board, Tom Gildred and Bob Payne, became very interested in the opportunity to compete in the laundry service business in San Diego and began discussing with Park the possibility of starting an independent competing laundry service in the area,” says the appellate court.

“While still employed by Angelica, Park worked with Gildred and Payne throughout 2009 as the latter two organized a competing laundry business [Emerald],” explains the court.

And here’s the kicker: “There is no dispute Gildred and Payne used the business plan Park had prepared in support of the proposed Sharp/Scripps joint venture in promoting their new enterprise, consulted with him, and used him in attempting to obtain financing.” Indeed, Park went to a bank with photos showing that Angelica’s equipment was old. During 2009, while still working for Angelica, Park arranged new contracts with Angelica’s San Diego customers, permitting them to break off with Angelica on 90 days’ notice.

So much for that “blank piece of paper” in 2010.

After more than two years of planning with Park, Emerald built the new $20 million laundry in 2010 and Park quit Angelica to become chief operating officer at Emerald.

Trouble is, explains the appellate court, while he was at Angelica, Park had signed a noncompetitive agreement promising to devote his skill and attention to Angelica. He also promised that he would not “become interested, directly or indirectly, as a partner, officer, director, stockholder, advisor, employee, independent contractor or in any other form or capacity, in any other business similar to Company’s business.”

Not surprisingly, Angelica sued Park for breach of contract, breach of fiduciary duty, unfair competition, and interference with business relations. The case wound up being heard in two separate phases by two different superior court judges, Timothy Taylor and Joan Lewis. In essence, the trial court’s decision was that the charges such as breach of contract were tied to whether Park had stolen trade secrets, and a jury decided he had not. Thus, Angelica lost the whole suit.

Angelica appealed, although not challenging the jury’s decision. The company argued that the other charges, such as breach of fiduciary duty, should not have been tied to the trade-secrets theft question. The appellate court agreed, saying those theories do not depend on the misappropriation of trade secrets decision, and the trial court should retry that part of the case.

After the victory at the superior court level, Emerald’s law firm, Cooley LLP, had proudly sent out a news release saying the court had ordered Angelica to pay $1.6 million in attorney’s fees because the case had been brought “in bad faith.” However, the appellate court declared that Angelica can recover its costs of the appeal.

Seth Rafkin, attorney representing Emerald, says the appellate court’s decision will be taken to the California Supreme Court. Among several things, Rafkin says that the decision is in conflict with decisions by other appellate courts.

Rafkin did say that Emerald got the business of Sharp and Scripps through competitive bidding among four firms, and Angelica’s bid was the worst. Other than that, however, he did not want to talk about any of the working relationships among Park, Gildred, and Payne.

I spoke with two of Gildred’s assistants several times, and they said they would ask him to call me. He never did. I left three messages with Payne that went unanswered.

Such is innovation.

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Comments

Visduh Dec. 11, 2013 @ 9:47 a.m.

Gee, and here I thought that non-competition agreements were enforceable. The court didn't enforce that one. But it is hard to feel great sympathy with some local operation that was, in fact, a monopolist of the particular business. These claims about "trade secrets" are often amusing. Sheesh, what trade secrets are there in doing laundry? Those who have such secrets often fail to realize that their insight doesn't confer much real advantage, and that none of it is secret.

So, the point I take from this is that the awardee, Gildred was not any sort of innovator, and that it was the turncoat from Angelica, Park, was the brains behind the concept. Then it would appear that all the innovation may have been simply using newer technologies that, among other things, use less water, detergents, and other chemicals. What I'm taking away from this is that there may have been precious little real innovation, only a desire to compete with the established vendor.

Finally, Gildred may have been selected, not for innovation, but for being socially prominent, and part of a San Diego "old money" family.

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Don Bauder Dec. 11, 2013 @ 10:34 a.m.

Visduh: The appellate court did, essentially enforce the non-competition agreement. It overturned the trial court on the issue.

You are correct. The appellate court's decision makes clear that Park was the innovator. Gildred and Payne used his idea and business plan. He had originally tried to sell his concept to the two hospitals. Gildred and Payne did put up money, though, and that counts for something.

Yes, Angelica did have a monopoly, and now it belongs to Emerald, which has a better mousetrap, thanks to Park -- not Gildred or Payne. Best, Don Bauder

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Visduh Dec. 12, 2013 @ 8:52 p.m.

Whenever a supplier appears upon the scene and captures a huge market share from the previous dominant player, the matter of kickbacks arises in my (sometimes) cynical mind. A very few hospital purchasing agents and their bosses are doling out $ millions a month in this little known and little understood industry. Upping the ante of favors and other consideration can work wonders in such closed markets. It would be so nice to think that all is on the up and up, and at arm's length, but I'm suspicious.

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Don Bauder Dec. 13, 2013 @ 7:34 a.m.

Visduh: I would not call you a cynic. I would call you a realist. The genius of capitalism is innovation. But there is a river of money flowing under tables that isn't recorded on company books or in company histories.

Walk through a grocery store and ask yourself how certain products get on the shelves and others do not. You have a lot of experience in retailing. I'll bet you could tell some great stories. Best, Don Bauder

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Burwell Dec. 12, 2013 @ 9:51 p.m.

It looks like Angelica had a monopoly in the hospital segment of the laundry market and did not see any competitors on the horizon who were willing to invest the money needed to compete with it. So Angelica wrung every dollar it could out of the San Diego operation, investing as little as possible in capital improvements and repairs. Angelica likely did not care how much water or gas was wasted: it merely passed the costs on to the hospitals with a mark up for profit. I think starting Emerald was a good idea, no matter who gets the credit.

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Don Bauder Dec. 13, 2013 @ 7:40 a.m.

Burwell: Excellent point. I think San Diego is better off with Emerald as monopolist and not Angelica. But several questions arise: 1. Did Park go to his then-employer, Angelica, and present his ideas for modernization? 2. Was he turned down by Angelica? 3. Why couldn't he have quit Angelica and then made his pitch to the hospitals and private investors such as Gildred? Then the deal would have been clean.

Best, Don Bauder

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Burwell Dec. 13, 2013 @ 2:04 p.m.

I think Park probably violated the noncompete provision in his employment agreement and he and Emerald are going to be hit with a big judgment. It's not clear if Emerald can pay the judgment. I think Gildred and Park may have to "sell" Emerald to Angelica to get out of this mess. Gildred and Park may wind up with a million or two for their efforts. This is just my conjecture.

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Don Bauder Dec. 13, 2013 @ 4:35 p.m.

Burwell: Your conjectures are invariably sound, and I never gainsay them. The case goes back to Superior Court for a retrial on the noncompete provision that was clearly violated. It will be interesting to see what happens. Best, Don Bauder

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JustWondering Dec. 14, 2013 @ 2:19 p.m.

Seems the spin cycle wrung out some of the dirt on this deal, but not all. As the court re- washes this load it will be interesting to see who ends up going down the drain.

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Don Bauder Dec. 14, 2013 @ 6:16 p.m.

JustWondering: It's hard to tell where it's going. Emerald will attempt to take the case to the Supreme Court of California. If it doesn't take it, it goes back to the trial level.

One if the many questions I wanted to ask Gildred (who wouldn't talk) is whether, when taking the ideas and business model from Park, he (Gildred) considered the possible consequences of Park having a no-compete contract with his then-employer, Angelica. Best, Don Bauder

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