                                           COURT OF CHANCERY
                                                 OF THE
                                           STATE OF DELAWARE
MORG AN T. ZURN
  MASTER IN C HANCERY                                                         LEONARD L. WILLIAMS J USTICE C ENTER
                                                                             500 N ORTH KING STREET , SUITE 11400
                                                                                 WILMINGTON, DE 19801-3734



                                           December 12, 2016

        Raymond J. DiCamillo, Esquire
        Matthew D. Perri, Esquire
        Richards Layton & Finger
        902 North King Street
        Wilmington, DE 19801

        Mr. Dov Charney
        1809 Apex Avenue
        Los Angeles, CA 90026
        DovCharneyPersonal@gmail.com

                  Re:   Standard General L.P., et al. v. Dov Charney
                        C.A. No. 11287-CB
                        Date Submitted: December 9, 2016

        Dear Mr. Charney and counsel:
                  This letter serves as my final report and recommendations pursuant to

        Chancellor Bouchard’s November 7, 2016, Order appointing me as a special

        master in this case. It is based on the parties’ submissions and four teleconferences

        between November 21 and December 9. I write for the parties and Chancellor

        Bouchard, who are familiar with the underlying facts as alleged. I address each of

        the Order’s delegated topics in turn.
C.A. No. 11287-CB
December 12, 2016
Page 2




       I.     The End Date of the Relevant Period for Discovery

       Litigation on the issues raised by Mr. Charney’s pleadings began when he

sued Standard General in California in June 2015. Standard General initiated this

Delaware action in July 2015. Mr. Charney’s June 2016 Answer and

Counterclaims in this case comprise his California allegations and some additional

allegations of events that occurred after June 2015, mostly in the context of Mr.

Charney’s theory that Standard General failed to mitigate damages. 1

       Mr. Charney seeks discovery through the present regarding Standard

General’s overarching strategy with regard to American Apparel and whether it

was successful. He asserts Standard General’s role in American Apparel through

American Apparel’s first bankruptcy, which ended in January 2016, and the second

bankruptcy, which began in November 2016 and is still pending, demonstrates

Standard General’s unclean hands in their dealings with Mr. Charney. He asserts

the bankruptcy court did not fully develop those issues. Standard General argues a

discovery cutoff of June 2015 represents the date this litigation essentially started,

allows efficient privilege determinations, and encompasses the relevant facts.

1
 E.g., Ans. ¶ 77 (referencing an October 2015 text message Charney alleges exemplified
Standard General’s “effort to gag him in public”); id. ¶ 81 (“[F]rom September, 2014 until the
company entered bankruptcy in October 2015, Charney continuously attempted to buy out
Standard General’s interests in American Apparel.”); id. ¶ 87 (alleging Standard General’s
nominees voted against considering a December 2015 buyout offer); id. ¶ 89 (alleging Standard
General refused Charney’s third party financing during the first bankruptcy).
C.A. No. 11287-CB
December 12, 2016
Page 3

Standard General argues its role in the first bankruptcy was adjudged in those

proceedings.

       I recommend a discovery cutoff of June 22, 2016, the date of Mr. Charney’s

Answer in this case. I agree with Standard General that a cutoff at the date

litigation began provides an efficient metric for determining privilege and

relevance. This is particularly the case for Standard General’s claims, which are

based on the enforceability of contracts dated June 2014. However, adopting a

June 2015 cutoff would be tantamount to striking allegations in Mr. Charney’s

Answer of events that occurred after June 2015. I see no basis for doing that at this

juncture.

       A June 22, 2016, cutoff confines discovery to the claims and defenses

alleged in the pending action, which mostly center on the 2014 agreements. It also

permits Mr. Charney to seek discovery (where otherwise proper) regarding

Standard General’s continued involvement in American Apparel nearly two years

after the 2014 agreements and Mr. Charney’s June 2014 ouster, including through

the first bankruptcy.2

       Mr. Charney did not provide any specific support for his theory that

Standard General’s actions after June 2016 are relevant. His theory of a long con

2
 I believe determining the first bankruptcy’s preclusive effect on this case requires a more
developed record and a more formal, nuanced application of preclusion principles than has been
presented to date. I make no recommendation on that issue.
C.A. No. 11287-CB
December 12, 2016
Page 4

as pled ends with the first bankruptcy, which was resolved before June 2016.

Counsel for Standard General explained that in the second bankruptcy, Standard

General is an unsecured lender without a presence on the board. I see no basis to

conclude that discovery after June 22, 2016, is reasonably calculated to lead to the

discovery of admissible evidence. I also note the burden of ongoing rolling

discovery of electronically stored information, given Standard General’s continued

involvement in American Apparel such that search terms would continue to

generate hits and privileged documents. Finally, I believe June 22, 2016, is an

equitable compromise between the parties’ suggested cutoffs.

         II.    The Identity of Custodians

         The parties agreed to four custodians for Standard General’s documents.

Mr. Charney requested two additional custodians. The first, Stephen Usher, is a

Standard General partner and head of external relations. Mr. Charney asserted Mr.

Usher was responsible for Standard General’s fundraising and communications

with limited partners. Mr. Charney’s Answer alleges Standard General’s Soo Kim

fraudulently induced Mr. Charney to enter into the Standstill Agreement at issue by

explaining it was necessary to appease Standard General’s investors, who were

upset with the investment in American Apparel.3 Mr. Charney alleges that in fact,

Standard General was executing a long con to take over American Apparel and

3
    See Ans. ¶¶ 29-41.
C.A. No. 11287-CB
December 12, 2016
Page 5

advance Standard General’s interests at the cost of sending American Apparel into

bankruptcy.4 Mr. Charney contended that Mr. Usher’s documents would show

whether Mr. Kim’s statements regarding investor pressure were true or whether

Standard General had other motivations. Mr. Charney’s Answer does not name

Mr. Usher.

          Standard General responded that Mr. Usher was unlikely to have any unique

nonduplicative documents, as the agreed-upon custodians (including Mr. Kim)

would have evidence of Mr. Usher’s discussions with other Standard General

employees regarding limited partners’ concerns. In response to that argument, Mr.

Charney explained he specifically sought Mr. Usher’s communications with

limited partners and investors. Standard General replied generally that such

communications are not relevant and that adding Mr. Usher as a custodian would

add time, cost, and burden.

          Court of Chancery Rule 26(b)(1) permits broad discovery into “any matter,

not privileged, which is relevant to the subject matter involved in the pending

litigation.” Mr. Charney’s allegations as to why he agreed to the Standstill

Agreement are sweeping but specific, and his contention as to the relevance of Mr.

Usher’s unique documents to those allegations is also specific. Mr. Charney is at

this point entitled to take discovery regarding whether Mr. Kim’s statements were

4
    See, e.g., id. ¶¶ 7-12.
C.A. No. 11287-CB
December 12, 2016
Page 6

false, the defendant’s knowledge of or belief as to that falsity or reckless

indifference to the truth of the representation, and the defendant’s intent to induce

Mr. Charney.5 I agree with Standard General that if Mr. Kim communicated with

Mr. Usher on this topic – e.g., if Mr. Usher related investor pressure to Mr. Kim –

those communications would be captured in Mr. Kim’s documents. But Mr.

Charney has specifically requested Mr. Usher’s communications with investors to

prove or disprove the truth of Mr. Kim’s statements about investor pressure that

allegedly induced Mr. Charney to enter into the Standstill Agreement. Standard

General’s protestations as to general irrelevance and burden fail to overcome Mr.

Charney’s specific contentions and allegations under Rule 26’s broad terms. I

recommend adding Mr. Usher as a custodian.

         Mr. Charney also sought documents from Joseph Mause, Standard General’s

Chief Financial Officer. Mr. Charney’s argument for adding Mr. Mause as a

custodian was based wholly on Mr. Charney’s assumption and hope that Mr.

Mause would have relevant documents as a consequence of his title and position.

Mr. Charney provided no specific basis for concluding Mr. Mause would have

relevant documents. To the extent Mr. Mause is Mr. Kim’s “right hand man,” as

Mr. Charney asserted, Mr. Kim would have responsive communications between



5
    See Haase v. Grant, 2008 WL 372471, at *2 (Del. Ch. Feb. 7, 2008).
C.A. No. 11287-CB
December 12, 2016
Page 7

the two. I recommend denying Mr. Charney’s request to include Mr. Mause as a

custodian.

       III.   The Search Terms for Standard General’s Documents

       The parties have been conferring on search terms since September 2016.

During that process, Mr. Charney repeatedly submitted additional search terms for

Standard General’s consideration, culminating in an October 7 proposal that

contained 129 search topics, many of which included multiple terms (e.g., a name

and an email address) and as-yet-unidentified variants thereof.6 Mr. Charney

suggested further conferring based on hit reports for his proposed search terms.

       Standard General provided two proposals, A and B. Proposal A contained

American Apparel, Dov Charney, and their variants, but only in conjunction with

several other narrowing terms. Proposal A was associated with a more compressed

proposed scheduling order. Proposal B was simply: “‘American Apparel’ OR

APP OR americanapparel,” and “Dov OR Charney OR

dovcharneypersonal@gmail.com.”7 Proposal B requires significantly more review

to cull the hits to responsive documents, and was therefore associated with a more

relaxed proposed scheduling order.



6
 Docket Item Nos. 104-105.
7
 I assume Standard General adopted this syntax with knowledge of how their process handles
metadata and I therefore reviewed it unmodified even though it may be redundant, i.e., “dov”
may hit in “dovcharneypersonal@gmail.com.”
C.A. No. 11287-CB
December 12, 2016
Page 8

      The parties’ extensive history in conferring on search terms, and the high

number of search terms and undefined variants in Mr. Charney’s proposal, made

me doubt that additional conferring with hit reports on all of Mr. Charney’s terms

would be efficient or helpful. At the same time, I found myself unable to gauge

the relative relevance and burden of Mr. Charney’s proposed terms, or whether the

subset of those terms in Standard General’s Proposal A was optimal. For example,

Standard General’s Proposal A included Mr. Charney’s name in conjunction with a

number of last names. Mr. Charney’s proposal included over one hundred names.

I concluded it would not be constructive, or perhaps even possible, for me to learn

each proposed person’s relevance (or lack thereof) and evaluate the propriety and

burden of search terms targeting that person.

      I therefore told the parties on November 21 that I would recommend

Standard General’s Proposal B, under which Standard General’s production

obligations would be governed more by Mr. Charney’s document requests and less

by search terms. I recognized that proposal’s greater burden on Standard General’s

review team and its sacrifice of search terms’ technological efficiencies. It also

heightened the need for Mr. Charney’s document requests to be well tailored. But

Standard General did make that proposal, and as explained below, I recommend an

even more relaxed schedule than Standard General proposed in conjunction with

Proposal B.
C.A. No. 11287-CB
December 12, 2016
Page 9

       After I informed the parties of my recommendation on November 21, we

spoke again on November 23. Mr. Charney expressed his concern that Proposal

B’s small number of search terms would not capture relevant Standard General

documents on discrete issues that did not mention American Apparel or Mr.

Charney by name.8 I permitted Mr. Charney to submit by December 2 five

additional search terms designed to generate discoverable material without any

mention of American Apparel or Mr. Charney’s name. Mr. Charney submitted the

names “or variants thereof,” email addresses, and phone numbers of three

American Apparel board members (Sullivan, Mayer, and Danzinger), the

American Apparel CEO Standard General hired in 2015 (Schneider), and the

public relations professional for Standard General and American Apparel (Cohen)

and her firm (Weber Shandwick).

       On December 6, Standard General objected to Mr. Charney’s proposal.

Standard General asserted it was not confined to relevant issues that might not

mention of American Apparel or Mr. Charney, as we had discussed. Standard

General also asserted it would generate a high volume of irrelevant documents: for

example, both Mr. Sullivan and Ms. Cohen were affiliated with Standard General

not only through American Apparel, but also through other, entirely separate


8
  As examples, Mr. Charney referenced a “dot sale,” a “$15 million loan,” the “SC committee” or
“suitability committee,” and the retention of “Moelis,” an investment banker.
C.A. No. 11287-CB
December 12, 2016
Page 10

Standard General investments. Standard General also argued that to the extent the

individuals’ names and contact information appeared on relevant documents, those

documents would also mention American Apparel or Mr. Charney and therefore

would have been hits under Proposal B.

         After this exchange, Mr. Charney requested another conference call, which

was scheduled for December 8. Minutes before that call, Mr. Charney provided to

me a revised proposal for all the search terms to be applied to Standard General's

custodians, which the parties had been discussing.9 The parties and I discussed this

submission and came to agreement on most of it, with the exception of search

terms representing several individuals and firms that Mr. Charney wished to be run

as standalone terms, i.e., without being coupled to the American Apparel and Dov

Charney terms in Standard General’s Proposal B. Standard General asserted those

standalone searches would generate an inappropriate volume of false hits. I

directed Standard General to provide hit reports on Mr. Charney’s desired

standalone terms and scheduled another conference call for December 9.

         On December 9, the parties informed me they agreed that several of the

individuals could be targeted with standalone search terms, as those individuals

were affiliated with Standard General only in the context of American Apparel.

The remaining individuals and firms were involved with Standard General in other

9
    Docket Item 121.
C.A. No. 11287-CB
December 12, 2016
Page 11

contexts as well, and their search terms run as standalone terms totaled around

5,000 hits. The parties and I discussed the relevance and hit reports for each of

those entities, which Standard General provided for the first time on the call.

Standard General’s hit reports were based on the June 2015 cutoff that they

proposed, and Standard General explained that a longer discovery period would

result in higher hit reports. My recommendations for the remaining disputed terms

follow.10

       a. Weber Shandwick and Liz Cohen

       Standard General and American Apparel retained Weber Shandwick as their

public relations firm after the agreements at issue were executed. Liz Cohen was

their primary contact at Weber Shandwick. Standard General also retained Weber

Shandwick and Ms. Cohen on other projects during this time, guaranteeing false

hits. Search terms targeting Weber Shandwick email addresses generated 3,323

documents, 1,664 of which did not contain American Apparel or Dov Charney

search terms. Standard General contended that nearly all communications with

Weber Shandwick, as a third party service provider, would have indicated that the

communication pertained to American Apparel to distinguish it from a different

matter on which Weber Shandwick was also retained. Mr. Charney read an email


10
   My descriptions of these people and firms are not findings of fact, and are based on unrefuted
statements during our calls that the parties explicitly reserved the right to refute at a later date.
C.A. No. 11287-CB
December 12, 2016
Page 12

from Liz Cohen to him into the record that confirmed this was likely the case.11 In

light of the guaranteed and burdensome false hits, I conclude the Proposal B terms

would capture nearly all the relevant communications and recommend not using

Weber Shandwick terms as standalone terms.

       b. Moelis

       Standard General hired Moelis & Company, an investment bank, on

September 1, 2014, after the agreements at issue were executed. Standard General

also retained Moelis on other Standard General projects during this time,

guaranteeing false hits. Moelis as a search term generated 1,290 documents, 1,000

of which did not contain American Apparel or Dov Charney search terms. As with

Weber Shandwick, Standard General contended that nearly all communications

with Moelis would have indicated the communication pertained to American

Apparel, and I agree. In light of the guaranteed and burdensome false hits, I

conclude the Proposal B terms would capture nearly all the relevant

communications and recommend not using Moelis as a standalone term.




11
  This conclusion is based on my assumption that email families will be kept together from
collection to production, so that – as I mentioned in the December 9 call – an attachment from
Weber Shandwick referring to American Apparel would draw an entire email family into the
review, even if the cover email did not contain any Proposal B search term. Standard General
should advise me if my assumption is incorrect.
C.A. No. 11287-CB
December 12, 2016
Page 13

      c. Cooper and PJSC

      Peter J. Solomon Company (“PJSC”), an investment banking advisory firm,

worked with American Apparel during the period of Mr. Charney’s ouster and

negotiated with Standard General during the key July 2014 timeframe. Mr.

Charney proposed “PJSC” as a metadata search term (to be applied to the

to/from/cc/bcc fields) as he believes that is the email domain used by PJSC

employees. Standard General ran PJSC as a search term in document content and

generated 750 hits; a little over one hundred of those did not mention American

Apparel or Mr. Charney. Standard General did not provide a hit report for PJSC as

a metadata search term. Mr. Charney’s December 8 submission included the term

“Cooper” because he believed a Mr. Cooper was the PJSC representative on the

American Apparel matter, but on December 9 Mr. Charney agreed

communications with the representative would be covered by a metadata search for

PJSC. I must assume that the proportion of standalone hits for PJSC as a metadata

term would be comparable to the proportion of standalone hits as a content term:

approximately 100 out of 750, which Standard General described as “incremental.”

Given this incremental increase in documents and the relevance to both parties’

claims, I recommend running PJSC in the email metadata fields as a standalone

search term.
C.A. No. 11287-CB
December 12, 2016
Page 14

       d. Thomas Sullivan’s email address 12

       Standard General appointed Mr. Sullivan as a board member of American

Apparel after the agreements at issue.13 He was also a board member of Media

General, a concurrent Standard General investment; this guarantees false hits.

Running Mr. Sullivan’s email address in the email metadata fields as a standalone

term resulted in over one thousand additional documents that did not mention

American Apparel or Mr. Charney. Unlike communications with Weber

Shandwick or Moelis, I am not convinced that Standard General communications

including Mr. Sullivan would necessarily have specified the project (i.e., Media

General or American Apparel). His internal role on the board, as compared to the

third party status of an outside service provider, might mean his communications

were less formal, and the context might have been apparent from other sources,

such as the communication’s other recipients. The burden of reviewing the

additional 1,000 documents is relatively low, particularly since relevance hinges on

the binary issue of whether the document pertains to American Apparel or Media

General. I recommend running his email address in metadata fields as a standalone

search term.

12
   On the December 9 call, I concluded that Standard General had agreed to run Mr. Sullivan’s
email address as a standalone term. A review of that call, particularly in the context of Standard
General’s December 6 written objection to doing so, indicates my conclusion may have been
inaccurate. My recommendation for Mr. Sullivan is therefore not based on any agreement by
Standard General.
13
   See Ans. ¶ 57.
C.A. No. 11287-CB
December 12, 2016
Page 15

          e. Magnacca

          Standard General appointed Mr. Magnacca to American Apparel’s board in

August 2014, after the agreements at issue, and he remained on the board through

American Apparel’s first bankruptcy, until around January 2016.14 Mr. Magnacca

also served as the CEO of Radio Shack, a concurrent Standard General investment;

this guaranteed false hits. Running his name as a standalone term resulted in 1,523

documents, 853 of which did not contain American Apparel or Dov Charney

search terms. As with Mr. Sullivan, I am not convinced that Standard General

communications including Mr. Magnacca would necessarily have specified the

project (i.e., Radio Shack or American Apparel). His internal role on the board, as

compared to the third party status of an outside service provider, might mean his

communications were less formal, and the context might have been apparent from

other sources, such as the communication’s other recipients. The burden of

reviewing the additional 850 documents is relatively low, particularly since

relevance hinges on the binary issue of whether the document pertains to American

Apparel or Radio Shack. I recommend running his last name in email metadata

fields as a standalone search term.




14
     See Ans. ¶ 57.
C.A. No. 11287-CB
December 12, 2016
Page 16

        f. Search Terms

        The search terms to be applied to Standard General’s custodians, resulting

from my discussions with the parties and my recommendations here, are as

follows:15

     1. Dov OR Charney OR dovcharneypersonal@gmail.com

     2. “American Apparel” OR APP OR americanapparel

     3. (terminat* OR fire* OR firing OR oust* OR investigat* OR suspen* OR
        misconduct OR wrongdoing OR harassment) AND (Dov OR Charney OR
        dovcharneypersonal@gmail.com OR “American Apparel” OR APP OR
        americanapparel).

       This search string is subsumed within items 1 and 2, but the parties agreed to
it and I believe it may aid in focusing review.

     4. To, From, CC, or BCC field contains any of:

            any of three email addresses for Colleen Brown
            Mintz
            Danziger
            Mayer
            Lasha Lee’s email address
            either of two email addresses for Linden Lea
            either of two email addresses for Paula Schneider
            Chang’s email address
            Grayson
            Sbrubaker and his email address
            PJSC
            Thomas Sullivan’s email address
            Magnacca


15
  The parties and I spoke several times about how the search terms would apply to text
messages, but tabled that issue for a time when the issue might be more crystallized.
C.A. No. 11287-CB
December 12, 2016
Page 17

       I do not know the relevant email addresses but I do not believe they are
disputed. The parties agreed to all of these standalone terms except for PJSC, Mr.
Sullivan’s email address, and Magnacca, which I recommend.

   5. (Dov OR Charney OR dovcharneypersonal@gmail.com OR “American
      Apparel” OR APP OR americanapparel) AND the To, From, CC, or BCC
      field contains Moelis OR Shandwick OR Liz Cohen’s email addresses.

   This search string is subsumed within items 1 and 2, but I believe it will aid in
focusing review. I do not know Ms. Cohen’s email addresses but I do not believe
they are disputed.

   6. (“Irving Place” OR Guggenheim OR “Goldman Sachs” OR “Capital One”
      OR Monarch OR Coliseum OR Pentwater) AND (Dov OR Charney OR
      dovcharneypersonal@gmail.com OR “American Apparel” OR APP OR
      americanapparel).

   This search string is subsumed within items 1 and 2, but the parties agreed to it
and I believe it may aid in focusing review.

      IV.    A Proposed Scheduling Order

      Each party provided a proposed scheduling order. Mr. Charney’s proposed

trial in July, 2018, while the more relaxed of Standard General’s two proposals

anticipated trial in June, 2017. Accordingly, Mr. Charney’s proposal built in much

more time for document production, document review, and depositions. On

November 21, I began the discussion by repeating the Chancellor’s earlier

suggestion of a fall 2017 trial date. Mr. Charney explained that he is litigating this

case alone, with only sporadic, casual legal assistance from acquaintances, and that

he has dyslexia. He suggested he needed three to five months to review documents
C.A. No. 11287-CB
December 12, 2016
Page 18

prior to taking depositions, and generally needed more time for each phase than a

fall 2017 trial date would permit.

          I appreciate Mr. Charney’s situation, and it is just to afford him the time he

requires to review the discovery he receives and prepare his case. At the same

time, I am mindful of the simultaneous goal of a speedy and inexpensive

determination of this action, which I do not think is served by a July 2018 trial

date.16

          Based on those considerations, and subject to the Chancellor’s availability, I

recommend a December 2017 trial date. I make no recommendation as to the

length of the trial. During the November 21 teleconference, I stated I would

recommend that updated discovery requests, which Mr. Charney has been

discussing for several weeks, would be due on December 16, 2016. My full

scheduling recommendation is attached in a recommended scheduling order based

on Standard General’s form. As discussed with the parties, I dedicated the extra

time over and above Standard General’s proposed timeline to review of produced

documents and completion of fact discovery.




16
     See Del. Ct. Ch. R. 1.
C.A. No. 11287-CB
December 12, 2016
Page 19

      Conclusion

      I gratefully share my impression that the parties participated in this process

in good faith. Please recall that pursuant to the Chancellor’s Order, exceptions to

this report must be filed within five business days of the date of the report.

                                        Sincerely,

                                        /s/ Morgan T. Zurn
                                        Master in Chancery

Exhibit Attached
