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.
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.
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.