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The Rise of Empire

Sandra Miranda remembers the little warehouse on Lamar Street, near the San Antonio Winery in downtown Los Angeles. Empire Cleaning Supply started there as a mom-and-pop operation that sold floor stripper and mops and the like to the city since the Great Depression. As a custodian at the Department of Water and Power since 1985, Miranda was familiar with Empire. To Miranda, and others who cleaned for a living, Empire products were nothing special and maybe even less than average.

One day, however, after ownership passed to Jerry Elkind and Robert Cronyn, aspiring businessmen and relatives of the company’s founders, Empire landed a multimillion-dollar contract with the city. Soon the DWP became one of Empire’s biggest clients. Then the Airport Authority, and the Harbor Authority. Cronyn and Elkind became a small-business success story. “We were just a couple of guys selling brooms and mops,” Elkind says. These days, Elkind personally handles the city accounts, having won the lucrative contract during an unusual second round of bidding.

Miranda and her staff soon found it troubling to be supplied with caustic solvents, no-name garbage bags that fell apart in their hands, $2 bottles of glass cleaner they could find at Big Lots for a buck, and random cleaning agents such as Our Brand and Diamond Brite — products made by obscure companies in the Empire supply chain. Miranda found that in spite of generic packaging and noxious smells, such products were marked up, then offered at a “discount,” but were still more expensive than other available brands. And why, she asked, should she buy a $470 vacuum cleaner from Empire that didn’t meet health and safety requirements when she could buy a better one for $350 elsewhere? She did not like what Empire was selling.

Trouble really began, however, when Miranda and eight other custodians voiced preference for ordering supplies from companies they felt were more reliable than Empire, despite its sole-source contract with the city, even after a mandate that they buy exclusively from Empire. Since then, Miranda and her colleagues can barely remember what it was like to come to work each day and simply worry about cleaning 7 million square feet of city property. Instead, they worry about being interrogated by their bosses and followed and videotaped by private investigators — tactics that have harassed and intimidated dozens of workers and led to the threatened firing of five custodians and suspension of two others.

“How can we work under these conditions?” Miranda says. First the DWP cut back on staff and asked custodians to double their efforts, she says. Then managers started looking for reasons to discipline the remaining employees, apparently to force more staff reductions. Miranda had fought against the DWP’s efforts to outsource labor in 2001. Resisting an exclusive contract with Empire gave management a new excuse to punish them — this time for allegedly abusing their purchasing authority — and to suggest they were being too cozy with small vendors, she says. As a result, custodians are looking over their shoulders, breaking out in hives, going on stress leave and taking medication, Miranda says. Some are intimidated. Others are devastated. Miranda is demanding that city officials review the Empire contract and investigate treatment of the DWP’s custodians. “If they think we are taking [gratuities], that is ludicrous,” Miranda says. “This is based on power and greed.”

Miranda led 30 custodians and small vendors of cleaning supplies to City Hall on October 26 for the fourth time in three months to protest the Empire contract. The mega-contract, as it is called, is part of a citywide effort to streamline purchasing that began in 2000 following a private accounting study. The city claims it has saved millions and cut warehouse staff by consolidating supply contracts, but what it has really accomplished has been to shift responsibility for dealing with supply vendors to mega-contract holders like Empire.

Now, minority vendors say Empire has cut them out of the loop or offered them terms they cannot afford. Meanwhile, custodians and the DWP’s storekeepers — supply agents for what functions like a company store — say Empire is selling low-quality goods at above-market prices, and that the DWP managers are retaliating against employees and minority vendors who complain. “No one is listening to us,” Miranda says. “We know our jobs. We know what it takes to do them. When we speak up, we get treated like criminals.”

The controversy surrounding the Empire contract comes amid the so-called pay-to-play allegations in City Hall, and is just the latest in a series of employee-relations issues roiling at the DWP. Enrique Martinez, the Department of Water and Power’s acting general manager, says the DWP hasn’t thrived for 100 years by wasting public money and retaliating against its own workers. He insists that the recent firing of five custodial supervisors was for reasons such as “failure to follow orders, violations of working rules and inconsistencies in job performance.” Martinez responds to allegations of retaliation against custodians for their protest by saying, “There is always rumor and innuendo.” He answers questions about whether the recent surveillance and summary discharge of numerous employees are in proportion to their alleged job violations by saying, “We don’t comment on specific cases.”

Discontent at the DWP has inspired some city officials to probe deeper. A typical DWP response to scrutiny is illustrated by a recent appearance by Assistant General Manager Thomas Hokinson and Materials Manager Arnie Netka before the Commerce Energy and Natural Resources Committee of the City Council. In August, City Councilman Tony Cardenas asked Hokinson to respond to complaints about the Empire contract within 60 days. A month later, in a letter from Martinez to Cardenas, the DWP reported that Empire is beating the prices of its closest competitor and including 33 percent of the minority business community as subcontractors on the mega-contract. When Cardenas asked for proof, he hit a brick wall, according to one of his staff. When he asked for a response to allegations of retaliation by a local vendor who criticized Empire and then lost his bid on an unrelated contract, Hokinson and Netka fudged their rationale for denying the bid.

Last week, Cardenas sent a letter to DWP Board President Dominick Rubalcava demanding an explanation. “It makes us wonder what else the DWP managers have not been straight about,” says a spokesperson for Cardenas, adding that employee complaints appear linked to contracting disputes. “We’re concerned the situation is systemic, that one thing is leading to another.” Which is why Miranda and her colleagues asked the City Council last week to look deeper as well. “Management is notorious for giving bogus reports,” Miranda said in a tearful speech that forced members to halt their sidebar conversations and take heed. “We want the truth to be told to our city’s leaders. We are afraid of our managers, what great lengths they have gone to, to protect one sole source vendor.”

 

Empire Cleaning Supply has a long history. Founded in 1936 by David Levan and Frank Malet, a Russian immigrant who moved to Los Angeles in 1933 from the Catskills in New York, Empire dominated the cleaning-supply market during the 1940s. Malet and Levan founded the Southern California Sanitary Supply Association, expanded into real estate and gave generously to charity, says Robert Cronyn, president of Empire. Cronyn and Jerry Elkind, distant relatives of Empire’s founders, met while working for the company in the 1980s. Elkind swept floors; Cronyn was a receptionist. In 1991, Cronyn and Elkind, who along with his wife acquired a 16 percent share of Empire in 1979, bought the company. They struggled at first, Cronyn says, adding that the cleaning-supply business is notorious for unscrupulous competitors known as “specialty chemical companies.” When the city’s mega-contract came along, however, they rose above that grind.

In October 1999, the city’s General Services Department put a cleaning-supply mega-contract out to bid under the Purchasing, Receiving, Inventory Management and Accounts Payable program, or PRIMA. A Deloitte Touche study had found that the city was losing out on discounts and spending too much on transaction costs by maintaining too many small contracts, according to Ken Desowitz, director of purchasing services. Under PRIMA, the mega-contract for cleaning supplies covered 37 city departments and had no spending limit, he says. Empire did not submit the lowest bid, he says, but after the city disclosed all the bids and ordered a second round of bidding, Empire emerged as low bidder and was awarded a multimillion-dollar contract from 2000 to 2007.

Once Empire had the mega-contract, the city’s three proprietary departments — airport, harbor and the DWP — “piggybacked” on it, meaning they contracted with Empire without comparing other companies’ bids. By 2001, after all three piggyback contracts were in place, Empire was rolling. “The contract with Empire has been good for the city,” Desowitz says, pointing to savings of $2 million and cuts in inventory and warehouse staffing as a result of all PRIMA contracts.

The cleaning-supply contract has been even better for Empire, which has sold the city $8.65 million in supplies since 2000. Elkind estimates the contract is worth a total of $25 million. Last December, the DWP approved $5 million to be spent over three one-year periods, with an annual review set for this December. (The airport and harbor authorities did not release contract amounts for this story.) Their success has allowed Elkind and Cronyn to leave their little warehouse on Lamar Street for an industrial park off South Figueroa Street, near El Segundo Boulevard. Sitting in their wood-paneled office with a stocked bar built into the wall, a burgundy Hummer out front, a portrait of Frank Malet hanging in the foyer and a framed photograph of the race car they sponsor ready to be hung, Elkind and Cronyn marvel at their good fortune. “We earned every sale we got,” says Elkind.

Vendors and city employees question the manner in which the city awarded the mega-contract and complain about the effect it has had on minority businesses. John LeDay, of Southend Janitorial Supply, saw it coming. He predicted to city officials that the lowest bidder would get the contract, that prices would be driven down so low that the prime vendor would pass its costs on to the city, and that smaller businesses would not be able to compete. “I’ve done business with the city for 43 years,” he says. “This is not in the city’s best interest, and it definitely hurts minority businesses.” Says another vendor, also critical of the process, “In 20 years in this business, I’ve never seen bids disclosed, then canceled to allow a second round. If the main factor is price, you are not entitled to hear everyone’s price and then do it over.”

Mario Marin, of Mayor Jim Hahn’s Office of Small Business Services, defends the process. He says Elkind and Cronyn have reached out to small businesses. “Mega-contracts can make it difficult for small companies to compete, but Empire has tripled its efforts in that area,” Marin says. According to Marin, the Mayor’s Office has received no complaints from small businesses about Empire, which contributed $1,000 to the Hahn for Mayor campaign in 1999 and 2000. However, when reminded of a recent meeting in City Hall between Hahn and 25 unhappy minority business owners, Marin backpedals and attributes the dissent to jealousy. “Some of them are crying over spilled milk,” he says.

LeDay recalls his offer to do business with Empire: “They wanted me to buy from this company called the Darron Co. at these ridiculous low prices and sell to them so they could sell to the city,” he says. “I manufacture my own product, so I don’t need to be doing business like that. I couldn’t make a profit off what they wanted me to do.”

According to State Franchise Tax Board records, the Darron Co., in Vernon, went on suspended status in 1993. A supplier of Empire for decades, it nevertheless continued to supply borax hand cleansers, bleach and ammonia to sell to the DWP. In 2001, Darron changed its name to Southern California Soap Co. Inc. It is located in Anaheim, next to a company called Private Label Labs. Cronyn says they hardly do business with the company anymore. “We have hundreds of manufacturers and suppliers,” he says, shrugging off questions about the quality of Empire’s supply network, acknowledging that many suppliers are so small, they operate out of people’s garages.

Citing Empire as an example, an area business consultant with expertise in purchasing says the legacy of the PRIMA program will be preferential treatment for large vendors and a lack of accountability in the contracting process. The more immediate concerns of employees and other vendors are symptoms of a bad system, the consultant says. “The system of tracking these contracts does not tell you enough about the bidder, such as how they run their company, who they buy from and who their investors are,” the consultant says. “That kind of lack of transparency allows some companies to fall back on connections. And we have seen what that has done to business in this town.”

Elkind says he and Cronyn are the only two investors in Empire. (Empire sued the Malets and the Levans in 1993 over contaminated soil cleanup costs at the Lamar Street warehouse. Elkind and Cronyn lost, dampening the possibilities for future financial goodwill among relatives.) Veteran city employees say that Elkind is friends with Arnie Netka, the DWP’s manager in charge of the Empire contract. Netka also used to work in purchasing at the harbor. Sources formerly with the airport say Elkind also is friends with Jerry Olaya, a purchasing manager there. Elkind denies this. “We have no lobbyists or inside connections,” he says.

 

Custodians and storekeepers say the city should look into plastic bags that rip from the bottom, generic absorptive compounds for cleaning oil spills that contain sand for filler, and disposable towels that Empire sells at a third less volume but at $10 more per case than competitors. “They are always substituting their own brand,” says one storekeeper. “Supervisors started taking some of their products off display, as if they were trying to hide that we carry it.” Armed with photographs, purchase orders and Empire’s catalog, custodians are eager to show city officials what the public is paying for. The vehicle for selling high-priced but lower-quality items is a contract provision known as Line 36, they say. Line 36 allows Empire to sell items not identified on the price list that it submitted to win the contract. Line 36 is where DWP employees insist Empire is making up for what Elkind and Cronyn claim are tight profit margins.

Cronyn and Elkind are outraged by the complaint. Elkind has acquired DWP purchasing information on other vendors in an effort to discredit Sandra Miranda. “Line 36 accounts for less than 10 percent of our sales,” he says. “We use Line 36 because [Miranda] refuses to buy from the contract.” He produces a spreadsheet he designed with information a DWP supply supervisor gave him. The spreadsheet shows Miranda buying from competitors at eye-popping 3,000 percent markups. “This is what she is doing,” he says with a huff. Elkind’s figure of 10 percent is contradicted by a letter from Martinez to Cardenas in September that states, “93 percent of supplies bought from the DWP’s Empire contract are from Line 36.” Elkind insists he and Cronyn are victims of a smear campaign. “The city should do a complete investigation,” he says. “There is no gray area.” As for claims of those who stock and use Empire’s products that they are inferior, Cronyn says, “Who is better educated to decide what’s best? It sounds like employees are being insubordinate. I would like to sue [Miranda]. But it sounds as if the DWP is taking care of the matter internally.”

Cronyn is referring to charges of insubordination and misconduct the DWP is heaping on its custodians. Oddly, Miranda has not been targeted — yet. But others who have resisted the Empire contract are feeling the sting of retaliation.

Custodial supervisors and storekeepers say that for years, based on both the contract and a directive from Business Support Services Manager Gary Wong, they had the flexibility to obtain products other than Empire’s that met their needs, as long as they compared prices. After the mega-contract was awarded, the DWP even asked Empire at one point to subcontract with a company called Zep Manufacturing because of complaints about the quality of Empire’s supplies. “We do what the city asks us to do,” Cronyn says. “We work for them.”

A recent memo from Arnie Netka to supply manager Lou Feldmeier clamped down on custodial supervisors’ ability to use discretion to buy non-Empire products. “In light of the current political atmosphere, and the number of audits by the Controller’s Office looking into the expenditure of the taxpayer’s money, it is critical that we all do our part to insure adherence to both legal requirements and operating rules, regulations and procedures,” Netka wrote. His memo led to other directives. On June 24, Alfred Sosa, superintendent of construction and maintenance, instructed all custodial supervisors that they must purchase supplies only from the Empire contract and the “Empire Cleaning Supply Catalogue, available under Line 36.” In August, Albert Stephens, supply-chain manager, announced disciplinary measures against custodial supervisors who had used credit cards to obtain supplies elsewhere.

Discipline took a bizarre turn recently when five custodians received notice that they were going to be fired. Two
others were suspended. Accompanying the firing notices were copies of surveillance videos taken without the custodians’ knowledge — sometimes for up to a year. Harry Venable, a private investigator with Amko Investigations; Charles Kim, the owner of Amko; William Garcia, a chief special agent for the DWP; and DWP special agents William Jones, Arnold Esqueda and Richard Austin had been following them, according to DWP documents obtained by the Weekly. “Let me follow them around with a video camera for months without them knowing and see if I can catch them doing something wrong,” Miranda says sarcastically. (Gonzalo Cureton, director of security services, who reports to Thomas Hokinson, requested authority from Albert Stephens to hire the private dicks. Amko Investigations has earned close to $1 million working for the DWP on workers’-compensation claims since 1989. The custodial surveillance cost the DWP $56,000.)

Some of the targeted employees say they might be drawing attention for resisting forced attrition, and other union activities — in addition to their criticism of a dubious single-source contract. “They can follow me all they want downtown,” says one custodian, who looked out his window one day and saw agents in two SUVs watching his house. “But if you follow me home, that is straight Gestapo tactics, man.” Although department guidelines call for progressive discipline for those in violation of working rules, says a lawyer for two of the custodians caught on tape, “Instead of telling people, ‘Hey, we know you’ve been off the job,’ they launched this sting operation and went straight to discharge. It’s way over the top.”

Hokinson and Martinez deny specific knowledge of the DWP’s surveillance of its custodians. Yet a well-known small-business leader recalls telling Martinez what he thought of such tactics, and a witness for the DWP at a discharge hearing for one of the custodians testified that Hokinson gave the firing orders. Hokinson has sought to crush dissent in other ways, according to DWP employees who are angry about his mandate that they take personal leave to attend Board of Water and Power Commissioner meetings or City Council meetings. Perhaps the mood was summed up best recently by Rafael Valdez, a head groundskeeper at the DWP and veteran of three decades of service to the city. In an October 8 memo to Martinez, Hokinson and Sosa, Valdez wrote, “In my 30 years working for the city of Los Angeles, I have never found a need or a desire to attend either one of these meetings. I find it disturbing, indeed, to have this directive imposed upon my group. It seems designed to put up a roadblock to prevent my people from attending . . . I believe the time to attend has come.”

No obstacle will keep DWP workers from showing up at City Council meetings. “Look deep into our eyes,” Miranda told council members last week. “We are the American workers, the backbone of this country. We make up the city and the DWP. We also are taxpayers. And as individual city workers we did what was right. We bought from all vendors — minorities, small business and women-owned — not to monopolize and only buy from one. We treated all vendors fairly. We are here to tell our story of retaliation.”

By the time the procession of employees and small vendors had finished, they had consumed the public-comment period, plus an additional six minutes and 49 seconds. Council chair Alex Padilla had nervously shuffled the public-comment cards and tried gently to move the group along. Cardenas had stood up and promised he would be holding more meetings in his office and in committee. Councilman Antonio Villaraigosa, a candidate for mayor, had held his head in one hand as Miranda spoke, his eyes blinking rapidly, perhaps contemplating what he would do to clean up the DWP. Afterward, Councilman Tom LaBonge, a former DWP employee, vowed to take a closer look at the matter.

“It takes a lot to come to that microphone and put yourself on the line like that, to stand up to the massive agency you work for,” says an aide to Cardenas. “Sandra Miranda has shown a lot of courage. Sometimes it’s people like her, with the courage to speak up, that lead to change.”


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