Contract analysis

I. Executive Summary and Recommendation This memorandum sets forth Calderwood & Harkness's assessment of the merits, exposure, and settlement posture in the above-referenced executive employment dispute, and our recommendation concerning settlement authority for the standalone mediation session currently scheduled for December 8, 2023, before the Honorable Patricia Okoro (Ret.) at Westpark Dispute Resolution Inc. in

II. Background and Procedural History A. Employment and Termination Gavin Aldrich was employed by Aurelius Media Americas Inc. from September 5, 2017 through October 14, 2022, holding the title of Senior Vice President of Original Content & Executive Producer. Aldrich reported directly to Jonathan Mercer, President of AMA, and was a member of AMA's Senior Leadership Team throughout his tenure. In this capacity, Aldri

1. Wrongful Termination in Violation of Public Policy. Aldrich contends that his termination was, in substance, retaliatory — that the true motivation for his discharge was his vocal opposition to the AGMG-directed restructuring, which Aldrich characterizes as retaliation for his exercise of protected activity (internal complaints regarding the restructuring's impact on content quality and employee morale).

2. Breach of Contract. Aldrich contests the for cause designation in its entirety, arguing that neither Ground 1 nor Ground 2 constitutes "cause" as defined in § 7.2(b) of the Employment Agreement, and that the cure-period requirements of the Agreement were not satisfied. If the for cause designation is overturned, Aldrich seeks payment of severance in the amount of $970,000 (24 months of base salary), a pro-rata bon

3. Breach of Implied Covenant of Good Faith and Fair Dealing. Aldrich alleges that AMA breached the implied covenant by manufacturing pretextual grounds for a for cause termination in order to avoid its contractual severance and equity obligations.

4. Declaratory Relief. Aldrich seeks a judicial declaration that § 9.1 of the Employment Agreement (the 18-month non-competition provision) is void and unenforceable under California Business & Professions Code § 16600, and that any attempt by AMA to enforce it is unlawful.

5. Expense Reimbursement. Aldrich seeks reimbursement of $28,400 in unreimbursed business expenses incurred during his employment, pursuant to California Labor Code § 2802. On January 20, 2023, AMA, through this firm, filed its Answer and Cross-Complaint. The Answer denied all material allegations of the complaint and asserted 21 affirmative defenses, including after-acquired evidence, unclean hands, failure to mitig

1. Breach of Employment Agreement (§ 9.4 — Confidentiality). AMA alleges that Aldrich's unauthorized transmission of proprietary materials to his personal email account and to Halcyon Creek Productions constitutes a material breach of his confidentiality obligations under § 9.4 of the Employment Agreement.

2. Misappropriation of Trade Secrets. AMA alleges that the show format bibles, pilot sizzle reels, revenue models, and audience analytics transmitted by Aldrich constitute trade secrets within the meaning of the California Uniform Trade Secrets Act ("CUTSA"), California Civil Code § 3426 et seq., and that Aldrich's unauthorized acquisition, disclosure, and use of those materials constitutes misappropriation.

3. Breach of Fiduciary Duty. AMA alleges that Aldrich, as a senior executive with access to the company's most sensitive creative and financial information, owed fiduciary duties to AMA, and that his conduct in transmitting proprietary materials to a competitor breached those duties.

4. Conversion. AMA alleges that Aldrich converted AMA's proprietary materials by transmitting them to unauthorized third parties and retaining copies on personal devices and accounts. On March 22, 2023, the Court partially granted Aldrich's Motion to Strike, striking references to § 9.1 (the non-competition provision) from the caption and body of the First Cause of Action in the Cross-Complaint, on the ground that §

III. Merits Assessment A. AMA's Strengths The following factors support AMA's litigation position and provide leverage in settlement negotiations:

1. Confidential Information Transmission (Ground 1 for Cause). AMA's documentary evidence on the first ground for cause — unauthorized transmission of proprietary information — is strong and, in our assessment, likely to be persuasive to a jury. The evidence establishes that Aldrich forwarded approximately 340 emails from his corporate email account to a personal Northgate Software account (galdrich.private@Northgate

2. Aldrich's Deposition Testimony is Damaging. During his May 22, 2023 deposition, Aldrich attempted to explain his transmissions to Halcyon Creek Productions as part of a purported "co-production opportunity" that he claimed he was exploring on AMA's behalf. This explanation is, in our view, implausible and likely to be viewed skeptically by a finder of fact. No co-production agreement or term sheet exists. No co-pr

3. CUTSA Claim is Strong. AMA's claim for misappropriation of trade secrets under the California Uniform Trade Secrets Act is well-supported. The show format bibles, revenue models, and audience analytics transmitted by Aldrich clearly qualify as trade secrets within the meaning of Civil Code § 3426.1(d) — they derive independent economic value from not being generally known to the public or to competitors, and AMA t

4. Cross-Claims Provide Meaningful Leverage. Even in the absence of quantifiable actual damages from the transmissions (a point discussed further below), AMA's cross-claims serve an important strategic function. They reframe the narrative from one in which Aldrich is a sympathetic figure — a "wrongfully terminated executive" who lost his job and his equity — to one in which Aldrich is an unfaithful officer who stole

1. Cure-Period Deficiency (Ground 2 — Insubordination). Section 7.2(b)(iv) of the Employment Agreement, which governs termination for insubordination, expressly requires that the employee be given a written notice of the alleged insubordinate conduct and a cure period of fifteen (15) business days within which to remedy the deficiency before termination may be effectuated on that ground. AMA's timeline on this point

2. Timeline and Pretext Narrative. The chronology of events leading to Aldrich's termination presents a vulnerability that Aldrich's counsel has been effective in exploiting. The DLP audit findings — the preliminary results identifying Aldrich's anomalous email activity — were first reported to Gregory Tanaka on September 6, 2022, more than five weeks before the insubordination incident on October 10, 2022. Despite b

3. Non-Competition Clause (§ 9.1) is Void. The 18-month non-competition provision in § 9.1 of the Employment Agreement is almost certainly unenforceable under California law. California Business & Professions Code § 16600 provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." The California Supreme Court, in Edwards v.

4. Non-Solicitation of Business Relationships (§ 9.3) is Vulnerable. Section 9.3 of the Employment Agreement prohibits Aldrich for a period of 24 months following termination from soliciting or conducting business with "any network, platform, advertiser, or other client of [AMA] with whom [Aldrich] had contact or about whom [Aldrich] received confidential information during the final 24 months of employment." Given A

IV. Damages and Exposure Analysis A. Aldrich's Aggregate Demand Aldrich's initial pre-suit demand was $4,150,000. The following table presents a component-by-component analysis of Aldrich's claimed damages, alongside AMA's assessment of the realistic exposure for each component based on the current factual record and applicable law: Several observations regarding the exposure assessment merit elaboration. The contrac

V. Cost of Continued Litigation If the Aldrich matter does not settle at the December 8 mediation and proceeds to trial, AMA should anticipate incurring significant additional legal fees and costs. Based on our assessment of the remaining pre-trial proceedings and the anticipated scope of the trial, we estimate the following: These estimates assume a trial date in the second or third quarter of 2024, which is consist

VI. Insurance Coverage AMA maintains an employment practices liability insurance policy with Pemberton Mutual Assurance Co. (Policy No. PMA-EPL-2022-00837). Upon receiving notice of the Aldrich complaint in December 2022, AMA tendered the claim to Pemberton Mutual for defense and indemnity coverage. On December 22, 2022, Pemberton Mutual issued a reservation of rights letter denying coverage for the Aldrich dispute.

1. Insured v. Insured Exclusion (Policy § IV.C). Pemberton Mutual asserted that AMA's cross-claims against Aldrich — a former insured under the EPL policy — constitute "affirmative action by one insured against another insured," triggering the Insured v. Insured exclusion. Under this exclusion, the policy does not cover any claim "brought by, on behalf of, or at the direction of any Insured against any other Insured.

2. Scope of "Defense" Coverage. Pemberton Mutual asserted that AMA's offensive cross-claims — including the CUTSA, breach of fiduciary duty, and conversion claims — fall outside the scope of "defense" coverage under the policy, which is limited to the costs of defending against claims of wrongful employment practices. Pemberton Mutual characterized AMA's cross-claims as affirmative business litigation unrelated to th

3. Proprietary Business Interests Exclusion. Pemberton Mutual asserted that AMA's restrictive covenant and trade secret claims relate to the protection of proprietary business interests — not to "Employment Practices" as that term is defined under the Policy — and therefore fall outside the policy's insuring agreement. AMA did not challenge Pemberton Mutual's coverage denial. After consultation with this firm and an

VII. Proposed Settlement Parameters A. Economic Terms Based on the merits assessment, exposure analysis, and cost-of-litigation considerations discussed above, we recommend the following economic parameters for the December 8 mediation: The cash payment of up to $2,500,000 would be paid as a lump sum to Gavin Aldrich and Whitfield & Associates in trust, with the allocation between attorney fees and client proceeds to

VIII. Negotiation Strategy for December 8 Mediation To maximize the likelihood of achieving a resolution within the recommended authority while preserving AMA's leverage and credibility, we recommend the following negotiation approach for the December 8 mediation session: Opening Position. AMA should open at a cash offer of $1,750,000, plus acceleration of 8,000 RSUs (out of 15,300 unvested). This opening is consiste

IX. Comparison to Class Action Resolution To place the Aldrich settlement recommendation in the context of the broader engagement, a comparison to the class action resolution is instructive. The class action, Fuentes v. Aurelius Media Americas Inc., Case No. 22STCV38214, settled at a gross settlement amount of $14,750,000. Judge Villanueva entered the Preliminary Approval Order on October 18, 2023, and the Final Appr

X. Approval Required Under AMA's Outside Counsel Guidelines (§ 7.4), settlement authority exceeding $5,000,000 in any single matter or related group of matters requires the approv