Contract analysis

I. Introduction and Purpose The purpose of this memorandum is to provide Verimark Hospitality Group Inc. ("Verimark" or the "Company") with a comprehensive update on the status of discovery in the above-captioned litigation against Coastal Palms Franchise Holdings LLC ("Coastal Palms" or "CPFH"), Randall Brecker ("Brecker"), and Suncoast Room Management Inc. ("Suncoast" and, together with Coastal Palms and Brecker, t

II. Discovery Propounded by Verimark A. Written discovery to Coastal Palms Franchise Holdings LLC Plaintiff's First Set of Interrogatories to Defendant Coastal Palms Franchise Holdings LLC. On July 11, 2022, Verimark served its First Set of Interrogatories (Nos. 1–25) on Coastal Palms. These twenty-five interrogatories were designed to establish the factual foundation of Verimark's claims and to compel Coastal Palms

III. Defendants' Productions and Responses A. Initial Production (August 22, 2022) On August 22, 2022, Coastal Palms served its objections and responses to Verimark's First Set of Interrogatories and First Request for Production. In conjunction with those responses, Coastal Palms produced approximately 84,000 documents in electronic format in accordance with the ESI Protocol. The production was processed and hosted b

IV. Key Documents Identified to Date Based on the document review completed to date, Calderwood & Harkness has identified several categories of key documents that strongly support Verimark's claims. The following is a summary of the most significant documents and document categories identified through the initial production, the supplemental production, and Verimark's own internal records. A. Revenue Diversion Eviden

V. Requests for Admission Plaintiff's Requests for Admission to Defendant Coastal Palms Franchise Holdings LLC. Verimark intends to serve forty-eight Requests for Admission on Coastal Palms on January 30, 2023. These requests are being drafted to target admissions on issues that are critical to Verimark's case and that, if admitted, would simplify the issues for trial and support a motion for partial summary judgment

VI. Upcoming Deposition Schedule (January – March 2023) A. Overview. Calderwood & Harkness has scheduled fourteen fact depositions to take place between January 9, 2023 and March 17, 2023. These depositions are a critical component of the discovery process and will serve to build the evidentiary record for both summary judgment proceedings and trial. All depositions will be reported by certified court reporters and v

1. Randall "Randy" Brecker — Managing Member of Coastal Palms (60% Equity); President of Suncoast Room Management Inc. Brecker's deposition is scheduled for two full days on January 9 and 10, 2023. This is the single most critical deposition in the case. Brecker is the central figure in the alleged revenue-diversion scheme — the individual who formed Suncoast Room Management Inc., established gulfcoastrooms.com, and

2. Theresa Brecker — Member of Coastal Palms (15% Equity); Spouse of Randall Brecker Theresa Brecker holds a 15% equity interest in Coastal Palms Franchise Holdings LLC and manages payroll and human resources for the portfolio. Her deposition is scheduled for a date to be determined in late January or February 2023. While Theresa Brecker's involvement in the day-to-day revenue-reporting practices may be more limited

3. Nolan Prescott — Member of Coastal Palms (25% Equity); Passive Investor Nolan Prescott is a retired commercial real estate developer who holds a 25% equity interest in Coastal Palms as a passive investor. His deposition is scheduled for approximately February 2023. Prescott's testimony is relevant because the documentary record includes communications between Brecker and Prescott referencing Suncoast revenue strea

4. Janet Kerrigan — Former Regional Controller, Coastal Palms (Terminated October 2021); Whistleblower Janet Kerrigan served as Regional Controller for Coastal Palms, overseeing financial reporting and accounting for a cluster of franchised properties, until her termination in October 2021. Approximately three weeks after her termination, on November 8, 2021, Ms. Kerrigan contacted Verimark's compliance hotline and r

VII. Expert Engagement Status Verimark has retained Ridgeline Forensic Advisory LLC ("Ridgeline") as its forensic accounting expert in this matter. The engagement was formalized under an expert retention letter dated December 12, 2022. The lead expert is Dr. Sharon Kettlewell, CPA/CFF, CFE, a nationally recognized forensic accountant with extensive experience in franchise-fee disputes, revenue-underreporting cases, a

VIII. E-discovery Metrics and Costs Nexagen Document Solutions LLC is serving as the e-discovery vendor for this matter, providing processing, hosting, analytics, and technology-assisted review ("TAR") services for both the Verimark document universe and the Defendants' productions. The following table summarizes the current e-discovery metrics: Calderwood & Harkness is utilizing technology-assisted review (TAR) to p

IX. Coastal Palms' Counterclaim On April 18, 2022, Coastal Palms filed a counterclaim against Verimark seeking $12 million in damages. The counterclaim alleges that Verimark breached its obligations under the FLAs by failing to maintain brand standards at certain properties, failing to provide adequate marketing support, and over-billing Coastal Palms for technology fees and property-improvement plan ("PIP") costs. V

X. Outstanding discovery Issues and Next Steps A. Immediate Action Items The following action items require attention in the near term:

1. Complete first-pass review of supplemental production. The document review team is currently conducting first-pass review of the 312,000-document supplemental production received on November 18, 2022. Our target for completion of first-pass review is mid-January 2023. Second-pass review and issue coding will follow.

2. Finalize deposition outlines. Deposition outlines for Randall Brecker (Days 1 and 2), Janet Kerrigan, and Nolan Prescott must be finalized in advance of the January depositions. Priya Anand is leading the Brecker outline, Yuki Nakamura is leading the Kerrigan outline, and Carlos Espinoza is leading the Prescott outline.

3. Serve Requests for Admission. Verimark's forty-eight Requests for Admission to Coastal Palms are to be served on January 30, 2023. Drafts will be circulated for Verimark's review in early January.

4. Transmit key documents to Dr. Kettlewell. Suncoast financial data, OTA reconciliation records, PMS booking data, and bank statements must be assembled and transmitted to Dr. Kettlewell at Ridgeline Forensic Advisory LLC for her expert analysis. This transmission is currently being prepared and is expected to be completed by mid-December 2022.

5. Follow up on Ironclad National Bank subpoena compliance. Ironclad's outside counsel indicated that the bank anticipated completing its production by approximately mid-December 2022. If the production has not been received by December 16, 2022, Calderwood & Harkness will follow up with Ironclad's counsel and, if necessary, initiate enforcement proceedings. B. Potential Additional discovery Depending on the document

XI. Budget Update The original Matter Budget Memorandum dated March 10, 2022 established a preliminary estimate of $4.5 million to $7.5 million in total Calderwood & Harkness fees and costs through trial, depending on the scope and complexity of discovery, the extent of dispositive motion practice, and the length of trial. That estimate was based on assumptions that have largely held true, with the notable exception

XII. Conclusion and Recommendations Discovery in Verimark Hospitality Group Inc. v. Coastal Palms Franchise Holdings LLC et al. is proceeding favorably. The Court's October 28, 2022 order granting Verimark's Motion to Compel was a significant procedural and substantive victory. It established that Suncoast Room Management Inc.'s financial records are within the scope of discovery and that Coastal Palms' separate-enti

1. Deposition strategy for the Brecker, Kerrigan, and Prescott depositions;

2. Witness preparation for anticipated defense depositions of Verimark personnel, including Deidre Langston and franchise-compliance staff;

3. Coordination between Calderwood & Harkness and Dr. Kettlewell's team at Ridgeline Forensic Advisory on the data-transmission and GRR-reconstruction workstreams;

4. Status of the Ironclad National Bank subpoena and plan for review of the Ironclad production upon receipt;

5. Any additional information or input Verimark's team can provide to support the ongoing document review and deposition preparation. We are pleased with the trajectory of this case and believe that the evidence developed to date positions Verimark very well for the next phases of this litigation. Please do not hesitate to contact me or Priya Anand if you have any questions or wish to discuss any aspect of this memor