National Labor Relations Board et al v. Dov Charney

REPLY in Support of NLRB's Application for Order Requiring Compliance with Subpoena

C.D. Cal.March 15, 2016

I 2 3 4 5 6 7 8 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PAUL HASTINGS LLP J. AL LATHAM, JR. (SB# 071605) CAMERON W. FOX (SB# 218116) 515 South Flower Street Twenty-Fifth Floor Los Angeles, CA 90071-2228 Telephone: (213) 683-6000 Facsimile: (213) 627-0705 Attorneys for Relator AMERICAN APPAREL, INC. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA NATIONAL LABOR RELATIONS BOARD, ON RELATION OF AMERICAN APPAREL, INC., Applicant, vs. DOV CHARNEY, Respondent. CASE NO. 2:16-mc-00016-JAK(KKx) RELATOR AMERICAN APPAREL'S REPLY BRIEF IN SUPPORT OF NLRB'S APPLICATION FOR ORDER REQUIRING COMPLIANCE WITH SUBPOENA RELATOR AMERICAN APPAREL'S REPLY BRIEF IN SUPPORT OF APPLICATION FOR ORDER REQUIRING COMPLIANCE WITH SUBPOENA LEGAL US E # 120813336.2 Case 2:16-mc-00016-JAK-KK Document 16 Filed 03/15/16 Page 1 of 9 Page ID #:119 I. INTRODUCTION AND RELEVANT BACKGROUND 2 This subpoena enforcement action stems from the high-profile saga of 3 American Apparel's former CEO Dov Charney, who was suspended and later 4 terminated for personal and financial misconduct. Mr. Charney has used every 5 tactic imaginable to claw his way back to the head of the company--- including 6 organizing workers to demand his return as CEO. In early 2015, Mr. Charney and 7 his personal supporters (including friends, roommates, and members of his former 8 executive team) formed a group that was originally called "Save American 9 Apparel" (using the catch-phrase, "Yo Amo Dov I I • Dov"). The group later 1 o began calling itself a "union," and now goes by the name "the General Brotherhood 11 of Workers of American Apparel" ("GBW AA''). 12 In November 2015, the GBWAA filed an election petition with the National 13 Labor Relations Board, Region 21. American Apparel challenged the petition on 14 the grounds that (1) the GBWAA is not a legitimate labor organization (the 15 statutory term for a union) in that it was created by, and exists for the personal 16 benefit of, Mr. Charney; and (2) Mr. Charney's involvement with the GBWAA has 17 created a fundamental conflict of interest such that the GBW AA could not fairly 18 represent the interests of the workers, even if elected. 19 In preparation for the hearing on these issues, American Apparel requested 20 and served a Board subpoena on Mr. Charney. It required him to testify and 21 produce documents. The first five document requests sought communications 22 between Mr. Charney and five named individuals regarding the GBW AA, its 23 affiliated organizations, or American Apparel. The timeframe for all five requests 24 was June 14, 2014 (the date Charney was suspended as CEO of the company) to the 25 present. The sixth and seventh requests sought documents reflecting Charney's 26 financial support ofthe GBWAA and its affiliated organizations. The eighth, and 27 28 -I- RELATOR AMERICAN APPAREL'S REPLY BRIEF IN SUPPORT OF APPLICATION FOR ORDER REQUIRING COMPLIANCE WITH SUBPOENA Case 2:16-mc-00016-JAK-KK Document 16 Filed 03/15/16 Page 2 of 9 Page ID #:120 1 final, request sought all applications for business licenses Mr. Charney filed since 2 January 1, 2015. 1 3 At the hearing, Mr. Charney petitioned the Regional Director to revoke the 4 subpoena on the same grounds he argues here --- relevance, overbreadth, and 5 privacy. See NLRB Exhibit No. 5.2 The Regional Director considered and rejected 6 all of these arguments, deciding that Mr. Charney's testimony and the documents 7 are necessary for the Regional Director to render a decision in the underlying 8 representation case. See NLRB Exhibit No.9. Rightly so. Mr. Charney's 9 involvement in the formation and activities of the GBWAA is the central issue. It is 10 Mr. Charney's role with the GBWAA that will determine whether the GBWAA is II eligible to represent American Apparel employees as their union under the National 12 Labor Relations Act. There is no substitute for hearing from Dov Charney and 13 inspecting his records. 14 It is well-settled that courts give deference to the Board in its decisions 15 regarding subpoena enforcement. After all, the Regional Director is in the best 16 position to gauge what information is needed to decide whether an election should 17 be held. The Application should be granted. 18 II. ARGUMENT 19 A. The Regional Director's Determination Is Entitled To Deference. 20 It is well-settled that the scope of judicial review in an agency subpoena 21 enforcement proceeding is limited. "The critical questions are: (1) whether Congress 22 has granted the authority to investigate; (2) whether procedural requirements have 23 24 25 26 27 28 1 These documents were requested because the GBW AA solicited employees to commit that they would take jobs with another Dov Charney company if he does not return to American Apparel. 2 All referenced exhibits are attached to the NLRB's Application for Order Requiring Compliance with American Apparel's Administrative Subpoena Duces Tecum, and are referred to as "NLRB Exh. No. " -2- RELATOR AMERICAN APPAREL'S REPLY BRIEF IN SUPPORT OF APPLICATION FOR ORDER REQUIRING COMPLIANCE WITH SUBPOENA Case 2:16-mc-00016-JAK-KK Document 16 Filed 03/15/16 Page 3 of 9 Page ID #:121 been followed; and (3) whether the evidence is relevant and material to the 2 investigation. If the agency establishes these factors, the subpoena should be 3 enforced unless the party being investigated proves the inquiry is unreasonable 4 because it is overbroad or unduly burdensome." NLRB v. North Bay Plumbing, Inc., 5 102 F.3d 1005, 1007 (9th Cir. 1996) (internal citations and quotation marks omitted); 6 NLRB v. International Medication Systems, Ltd., 640 F .2d Ill 0 (9th Cir. 1981 ); 7 NLRB v. Cable Car Advertisers, Inc., 319 F. Supp. 2d 991 (N.D. Cal. 2004). 8 As the Board has established in its Application and supporting brief, all three 9 factors are met here. First, the Board has broad authority under Section 11 of the 10 National Labor Relations Act, which includes the power to subpoena any evidence II "that relates to any matter under investigation or in question."3 29 U.S.C. § 161 (I); 12 NLRB v. North Bay Plumbing, supra; NLRB v. Interstate Material Corp., 930 F.2d 4, 13 6 (7th Cir. 1991) (describing the Board's broad Section II powers). The level of 14 Mr. Charney's involvement with the GBW AA is clearly the central question in the 15 case before the Board, and it needs to be explored for a decision to be rendered. 16 Second, all of the necessary procedures have been followed. The subpoena 17 was properly issued pursuant to 29 C.F.R. § I 02.66(f). Mr. Charney's petition to 18 revoke was properly considered by the Regional Director. See NLRB Exhibit No.8 19 (transcript pages 38:7-39:23), NLRB Exhibit No.9 (fn. I); NLRB Exhibit No. I 0 20 (transcript pages 47:2-57:4); NLRB Exhibit No. II (transcript pages 61:11-63: I 0). 21 22 23 24 25 26 27 28 3 In determining an agency's authority, the district court's role is "strictly limited," as "judicial review of early phases of an administrative inquiry results in interference with the proper functioning of the agency and delays resolution of the ultimate question [of] whether the Act was violated." EEOC v. Federal Exp. Corp., 558 F.3d 842, 848 (9th Cir. 2009) (internal quotation marks omitted). As long as there is some "plausible ground for jurisdiction, or, to phrase it another way, unless jurisdiction is plainly lacking, the court should enforce the subpoena." !d. (internal quotation marks omitted). -3- RELATOR AMERICAN APPAREL'S REPLY BRIEF IN SUPPORT OF APPLICATION FOR ORDER REQUIRING COMPLIANCE WITH SUBPOENA Case 2:16-mc-00016-JAK-KK Document 16 Filed 03/15/16 Page 4 of 9 Page ID #:122 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 And the Board has properly applied to enforce the subpoena pursuant to 29 C.F.R. § 102.31(d). To prove that the Board has not met the procedural requirements for enforcing subpoenas, the challenging party must show that the Board has failed to follow its general procedures for the issuance of subpoenas and petitions to revoke as outlined in 29 C.F .R. § 102.31. NLRB v. North Bay Plumbing, Inc., 102 F .3d 1005, 1008 (9th Cir. 1996); NLRB v. Vista Del Sol Health Servs., Inc., 40 F. Supp. 3d 1238, 1257-58 (C.D. Cal. 2014). Mr. Charney does not make any such showing, or even refer to 29 C.F.R. § 102.31. Instead, he argues (under the guise of "procedure") that he should not be required to testify at the hearing because (a) a sworn affidavit from him should suffice, and (b) subpoenas duces tecum apply only to documents (not testimony). Charney Opposition at pp; 6-7. He also argues that the subpoena is improper because the document requests include the word "all." Charney Opposition at pp. 7-8. Of course, these arguments have nothing to do with whether the Board followed the applicable procedural requirements. These arguments also fail because they are wrong. The Board is certainly not required to accept a sworn affidavit in lieu oflive testimony with cross- examination. To the contrary, the Act specifically provides: For the purpose of all hearings and investigations, which, in the opinion of the Board, are necessary and proper for the exercise of the powers vested in it ... [t]he Board shall issue ... subp[ o ]enas requiring the attendance and testimony of witnesses or the production of any evidence in such proceedings or investigation requested in such application. 25 29 u.s.c. § 161(1). 26 As for Mr. Charney's insistence that subpoenas duces tecum are inherently 27 limited to the production of documents and do not compel testimony, that is absurd. 28 On its face, the subpoena directs Mr. Charney "to appear before a Hearing Officer -4- RELATOR AMERICAN APPAREL'S REPLY BRIEF IN SUPPORT OF APPLICATION FOR ORDER REQUIRING COMPLIANCE WITH SUBPOENA Case 2:16-mc-00016-JAK-KK Document 16 Filed 03/15/16 Page 5 of 9 Page ID #:123 of the National Labor Relations Board ... to testifY in [Case No.] 21-RC- 2 164096[.]" NLRB Exhibit No. 4 (p.l ). And while Mr. Charney argues that the 3 NLRB Case Handling Manual's discussion of subpoenas supports his theory, it 4 does not. The Manual says nothing about a subpoena duces tecum commanding 5 documents only, or that a separate subpoena ad testificandum must also be served to 6 secure live testimony in addition to documents. Indeed, that would be a ridiculous 7 requirement --- it would force parties to prepare and serve redundant subpoenas, 8 and pay witness fees twice to ensure the enforceability of both subpoenas. 9 Furthermore, Mr. Charney's claim that subpoenas cannot be enforced if they 10 use the word "all" is baseless. He cites no authority, instead relying on the NLRB II Case Handling Manual, which simply gives guidance to NLRB staff in drafting 12 their own subpoenas.4 Of course it can be appropriate to request "all" documents of 13 a certain type or from a certain time period, and the Regional Director found it to be 14 appropriate here. Were the word "all" to be deleted, Mr. Charney could easily 15 cherry-pick what he would provide, concealing any damaging documents. 16 Third, the evidence is relevant and material to the case before the Board, and 17 Mr. Charney does not show otherwise. The document requests specifically target 18 communications that are likely to provide important information about 19 Mr. Charney's involvement with the GBWAA, and information about the new Dov 20 Charney businesses that the GBWAA says will hire workers away from American 21 Apparel. The Regional Director has determined that this information is needed to 22 render a decision in this case, and courts largely defer to those decisions. See NLRB 23 v. American Medical Response, Inc., 438 F.3d 188, 193 (2d Cir. 2006) (a "district 24 court defers to 'the agency's appraisal of relevancy, which must be accepted so long 25 as it is not obviously wrong") (internal citations omitted). 26 27 28 4 The NLRB's Case Handling Manual is an internal guide for NLRB staff, not a rule or regulation. -5- RELATOR AMERICAN APPAREL'S REPLY BRIEF IN SUPPORT OF APPLICATION FOR ORDER REQUIRING COMPLIANCE WITH SUBPOENA Case 2:16-mc-00016-JAK-KK Document 16 Filed 03/15/16 Page 6 of 9 Page ID #:124 I 2 B. Mr. Charney Cannot Show That The Subpoena Is Overly Broad And Does Not Argue It Is Unduly Burdensome. 3 Mr. Charney claims that "the subpoena is overbroad because it ignores the 4 Board's actual needs," but provides no explanation. Charney Opposition at 9. He 5 observes that other parties received subpoenas too, suggesting that the Board should 6 try to force his friends and supporters to produce records in response to their 7 subpoenas, before requiring him to do so. But there is no rule requiring the Board 8 to do so, particularly where the Regional Director has already determined that 9 hearing directly from Mr. Charney is critical to the case. 10 c. Mr. Charney's Privacy Claim Is Specious. II Mr. Charney is certainly not entitled to keep his involvement with GBW AA, 12 its "officers," and its related entities, confidential. Where, as here, an individual is 13 suspected of creating a "union" for his own personal gain, the Board has not 14 hesitated to probe into the details of the relationship, including the financial details. 15 In Marina Associates, d/b/a Harrah's Marina Hotel and Casino, 267 NLRB 1007 16 (1983), the full Board unanimously upheld the Regional Director's finding that the 17 petitioner and its parent "federation" were not labor organizations within the 18 meaning of the NLRA. The employer subpoenaed documents "such as financial 19 reports and statements, minutes of meetings, records showing ... [union officers' 20 and employees'] salaries and expense reimbursements, loan documents and rental 21 agreements." The Board, adopting the Regional Director's decision, held these 22 documents to be "unquestionably relevant in this case to the issue of whether the 23 Petitioner and the Federation are labor organizations within the meaning of 24 Section 2(5) of the Act." The failure to produce the subpoenaed documents during 25 the hearing "clearly shows the Petitioner's unwillingness to cooperate in the 26 investigation of its petition and its withholding of necessary evidence in its 27 possession." 267 NLRB at I 012. See also Douglas Oil Co., 197 NLRB 308, 311 28 (1972) (union's certification revoked; the union's refusal to honor subpoena for -6- RELATOR AMERICAN APPAREL'S REPLY BRIEF IN SUPPORT OF APPLICATION FOR ORDER REQUIRING COMPLIANCE WITH SUBPOENA Case 2:16-mc-00016-JAK-KK Document 16 Filed 03/15/16 Page 7 of 9 Page ID #:125 I checks drawn on its checking account contributed to the Board's conclusion that it 2 "is in reality something other than a collective-bargaining representative.") 3 Mr. Charney's claim that his business applications are private fails too. 4 These are documents that have already been provided to the State of California. He 5 has no basis for withholding them here. 6 Finally, Mr. Charney's request that this Court limit disclosure of the 7 subpoenaed documents to the NLRB's own staff is absurd. Such an order would 8 foreclose American Apparel, as the party seeking Mr. Charney's documents and 9 testimony, from litigating the case. Mr. Charney has made no specific showing of 10 legitimate privacy concerns. Should there arise a specific issue with any document II or testimony, the NLRB's hearing officer has plenary authority to address it (for 12 example, by ordering redactions before a document is admitted into evidence). 13 14 15 D. Merely Because Mr. Charney's Personal Lawsuits Against American Apparel Are Stayed Does Not Prevent the Board From Enforcing Its Lawful Subpoena. 16 Finally, Mr. Charney argues that the Court should deny the Board enforcement 17 of its own subpoena (or at least limit what information the Board receives) because 18 Mr. Charney's persona/lawsuits against American Apparel are stayed (as a result of 19 American Apparel's bankruptcy filing last year). Charney Opposition at pp. 10-11. 20 Mr. Charney cites zero authority for this, and it makes no sense anyway. The 21 representation case filed by the GBWAA is pending, and the Board and American 22 Apparel are entitled to obtain the necessary information to litigate and decide the case 23 now. The status of Mr. Charney's lawsuits is irrelevant. 24 25 26 27 28 -7- RELATOR AMERICAN APPAREL'S REPLY BRIEF IN SUPPORT OF APPLICATION FOR ORDER REQUIRING COMPLIANCE WITH SUBPOENA Case 2:16-mc-00016-JAK-KK Document 16 Filed 03/15/16 Page 8 of 9 Page ID #:126 III. CONCLUSION 2 For all of the reasons described above, Relator American Apparel respectfully 3 requests that the Board's Application be granted. 4 s DATED: March 15,2016 PAUL HASTINGS LLP J. AL LA 'I , JR. CAMER N . FOX 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LA'-___ _ J. AL LATHAM, JR. Attorn s for Relator AMERICAN APPAREL, INC. -8- RELATOR AMERICAN APPAREL' S REPLY BRIEF IN SUPPORT OF APPLICATION FOR ORDER REQUIRING COMPLIANCE WITH SUBPOENA Case 2:16-mc-00016-JAK-KK Document 16 Filed 03/15/16 Page 9 of 9 Page ID #:127