Chelsea Grayson says her whole career led to her current job as general counsel of American Apparel Inc. In her first year at the Made-in-America clothing company, her team defeated defamation claims from the company’s ousted CEO, helped file for Chapter 11 and worked on a reorganization plan in which bondholders exchanged their debt for shares in the company.
Through it all, Grayson relied on experience honed clerking for a bankruptcy judge and as a law firm partner advising on distressed mergers and acquisitions. She spoke with The Recorder about jumping into the troubled company in late 2014, and how she is working to right the ship.
Why did you want to take this job? It’s twofold. First, I love a turnaround. I love to roll my sleeves up and participate in a restructuring when I believe that you can actually come out the other end. It seemed like it would be a really cool challenge, and I could see the light at the end of the tunnel for the company. I knew that I could do it, and I could do it right. Second, I wanted to come in and apply my seasoning and apply my experience to this company because the strength of the brand. This is—and our bankruptcy judge in our case alluded to this—this is a culturally significant company. It’s a company that deserves to live. It’s the largest North American apparel manufacturer. We employ over 6,000 U.S. workers, the vast majority of those are manufacturing employees, and they’re all sitting right here in downtown Los Angeles. To be the rare textile U.S. manufacturer and to be at a size that we are, the barriers to entry, if we disappear, are massive. It’s unlikely that anybody fills that gap any time soon, if at all.
We don’t just make clothes. We’re fundamentally a supporter of immigration rights, we do a lot of aggressive advocacy when it comes to [lesbian, gay, bisexual, transgender and queer] issues. Made in the USA is a huge initiative for us and one that we’ll never walk away from. I knew these things made the brand so strong that it was something that could be turned around and it was something that was worth it to turnaround.
What were your priorities as you stepped into the GC role? I knew what was going on, but you never really know until you get inside, and nobody could’ve predicted the kind of year that I’ve had. I parachuted in and we already had a huge number of legacy litigation that was already ongoing. Three weeks later, when [incoming CEO] Paula [Schneider] started, we all of a sudden found ourselves with an additional massive tidal wave of litigation. And there was a labor organizing attempt, there was a proxy contest that we had to battle through and defeat, and then on top of all of that, we had huge management turnover. My job when I came in was very simply to put order to the chaos. There were tons of issues swirling around and I just needed to come in and put some order to the chaos and give people a sense of normalcy and try to impose some rules so that we could get things done in the face of incredible turmoil.
My highest priority when I came in was to draft policies and procedures. Policies and procedures that had never existed here. You name it, we didn’t have it. Or we had it, and it had to be completely overhauled. So, believe it or not, while I’m sort of like an octopus, beating back the litigation over here and working with the board over there, my highest priority was setting out a library of policies and procedures where people could turn to them and know that we have structure and know that we’ve got some rules. By doing that it helped people feel safe, like they had a structured safety net that they could now depend on.
Can you drill down into what policies and procedures you were writing and making? Not to get too specific, but all the policies that one would think normally emanate out of your HR department—we had to put all of those policies in. Policies dictating how people behave, how people treat others. We put in a brand new code of business conduct and ethics, which is really my crowning jewel in terms of all the policies and procedures we put in place. It focuses on incredibly important tenets here, tenets that we live by every day. No bullying. No discrimination. No harassment. It talks about just the fundamentals of how you go through expense reimbursement. There just wasn’t a set of rules in respect of company practices here at all.
Then we put in policies like you have to come to us before you enter into any contract. Nobody can put a wet signature on anything before legal has seen it. And we’re not going to kill it, and we’ll turn it around very quickly, but we have to review it because, frankly, one of my big pushes was, let’s get a uniform set of terms and provisions that we either always need or never want, and let’s get some precedent put together. A standard consulting agreement. A standard nondisclosure agreement. A standard vendor agreement with all the sorts of downstream certifications you’d want and all the protections in respect of your intellectual property that you’d want. Even if these things sort of existed, which many of them didn’t, we had to completely overhaul them to bring them into best practices.
How did you manage the litany of litigation, including the defamation suits that were filed by your former CEO? It’s incredibly time-consuming, even though we were very successful this year vis-à-vis all the litigation that we were hit with. And I don’t want to talk specifically about [former CEO Dov Charney's] litigation, I’ll just sort of generally talk about the litigation that we were hit with, and we were hit with a lot this year. It takes time, because I’m extremely involved in the big cases because I have a lot to add because I know this company so well and I know what matters to us. I now how to structure a good defense or an attack and I care. I care a lot about this company and I cared a lot about winning stuff this year because I just wanted to keep us safe. It took a lot of time but it didn’t at all knock me off of my core mission, which, again, was to impose some healthy structure and to build a healthy legal department. It didn’t knock me off that game at all. You can ask my family. It’s in large part because I work 24/7. I would litigate by day and organize by night. But sure, it’s taxing. You spend a lot of money when you’re defending big cases like that, even if you feel that it’s unmeritorious, you’ve still got to defend it properly. It was a disappointing component to the year, but thank goodness we’ve got all that behind us now, and we’ve come through the bankruptcy and we can focus on the turnaround.
Lead me through the discussions on filing for Chapter 11 and how the company decided to move forward through bankruptcy. There’s a lot I can’t talk about because a lot of it involves boardroom discussions—and there were a lot of boardroom discussions. I had this incredibly spectacular board, who is now my erstwhile board because we’ve got a brand new board with us now. But, it was an incredibly diligent board and very mindful of their fiduciary duties. I’m in every board meeting as general counsel but also acting as corporate secretary, so I was at the every heart of the most intense and intellectually charged conversations and discussions.
After having been outside counsel all my life, you’re in the boardroom for a minute and you walk out after you make your presentation. So, just to be in the trenches from soup to nuts and see how what goes into a decision like that on a business level and how hard it is to make that decision and all the components that go into it … that part of it was fascinating for me.
It was really cool because we did so much work at the front end and we worked so nicely with our bondholders who are now our owners, that it was really nice and gratifying to walk in the first day, linked arms. We filed a plan that they supported and to be able to have them next to us at the podium and say to the judge, “We’re going to get through this, we’re in and we’re out, there’s not going to be any shenanigans here, and we’re telling you how it’s going to happen and we’ve got a good plan and we just want to get out so that we can continue to turn the company around.” To have the process run smoothly and to come out that way, as we committed to do with those folks, and now to be a private company owned by them, now to be partners with them, has been so rewarding and so interesting, and we just did the right thing for the company and they knew it and we knew it. We did exactly what this company needed.
Who do you use for outside counsel? My primary outside counsel is Jones Day. Even though I was a partner there for many years, they’d been here already. It was really nice to get in and work with my people. I’ve since moved them into my primary spot and I generally use them for everything. I use Paul Hastings for my complex, significant litigation and my labor and employment cases. I also work with Sheppard Mullin. They mange my IP portfolio. I will also say that, although we’re not working together anymore, I worked with Skadden. I did a lot of very good and incredibly successful work with Skadden throughout the course of last year. I do always want to mention them because they really are such platinum-level lawyers, and I had a very good experience with them.
What do you do outside of work? I’m a single mom and the first thing I do when I leave work is I mother. I’ve got a 14-year-old daughter and I’ve got a 12-year-old son. We love to travel. Any chance we get we’ll get on a plane. We’ve been through Italy, France, Belgium, Greece, Switzerland together. I love to curl up with a book. I’ve always got my nose in something. I like to sleep. That pretty much brings it full circle.