PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 633 West Fifth Street, Suite 4400 Los Angeles, California 90071
MEMORANDUM
August 27, 2025
FROM: Renata Vasquez, Responsible Partner, Labor & Employment Practice Group, Calderwood & Harkness LLP, 633 West Fifth Street, Suite 4400, Los Angeles, CA 90071
TO:
Priya Nandakumar, General Counsel Vantage Mobility Systems Corp. 4200 Industrial Parkway Auburn Hills, MI 48326
Catherine Hsu, Operating Partner / Board Representative Ashgrove Equity Partners Industrial Partners, LP 200 Renaissance Center, Suite 3100 Detroit, MI 48243
RE: Phased Defense and Settlement Strategy — Gloria Reyes, individually and on behalf of all others similarly situated, and on behalf of the State of California v. Vantage Mobility Systems Corp., Case No. CIVSB-2025-04781, Superior Court of California, County of San Bernardino
C&H MATTER NO.: 1007-00004
COPIES: Bernard Crawford, Billing Partner, Calderwood & Harkness LLP; James Underwood, Lead Associate, Calderwood & Harkness LLP
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I. PURPOSE AND EXECUTIVE SUMMARY
This memorandum sets forth Calderwood & Harkness LLP's ("C&H") recommended phased defense and settlement strategy for the meal-and-rest-break class action filed by Gloria Reyes ("Plaintiff" or "Reyes") against Vantage Mobility Systems Corp. ("VMS" or the "Company"). The purpose of this memorandum is to provide VMS's General Counsel and Ashgrove Equity Partners Industrial Partners, LP ("Ashgrove Equity Partners") with a comprehensive assessment of the litigation, an analysis of VMS's exposure, a recommended defense posture, and a practical framework for resolution that accounts for both the legal merits and the commercial imperatives facing VMS and its majority equity holder.
The complaint was filed on August 1, 2025, in the Superior Court of California, County of San Bernardino, and service was completed on August 12, 2025, via CT Agents, Inc. Accordingly, VMS's responsive pleading deadline falls on September 11, 2025. The matter was opened at C&H on August 4, 2025, and a litigation hold was issued to all relevant VMS custodians on August 5, 2025.
The named plaintiff, Gloria Reyes, is a former Production Associate who worked on Trim Line B, second shift, at VMS's Fontana Plant. Ms. Reyes was employed by VMS from March 12, 2021, through January 19, 2025, and her hourly wage at the time of separation was $22.75 per hour. She brings this action individually, on behalf of a putative class, and in a representative capacity under the Private Attorneys General Act of 2004 ("PAGA").
The putative class encompasses approximately 3,550 current and former non-exempt hourly employees at VMS's manufacturing facility located at 11780 Cherry Avenue, Fontana, California 92337 (the "Fontana Plant"), spanning a four-year class period from August 4, 2021, through the present. The class includes approximately 1,450 current employees and approximately 2,100 former employees across all production lines and both shifts.
The complaint asserts seven causes of action: (1) meal period violations under California Labor Code sections 226.7 and 512; (2) rest period violations under California Labor Code section 226.7; (3) unpaid wages under California Labor Code sections 204 and 1194; (4) inaccurate wage statements under California Labor Code section 226; (5) waiting time penalties under California Labor Code section 203; (6) unfair business practices under California Business and Professions Code section 17200 (the "UCL"); and (7) civil penalties under the Private Attorneys General Act, California Labor Code section 2698 et seq. ("PAGA").
Based on C&H's preliminary analysis, the maximum theoretical exposure across all claims is approximately $65 million. However, after applying appropriate discount factors for certification risk, merits defenses, reduced violation rates in the post-remediation sub-period, and statute of limitations defenses, C&H assesses the realistic settlement range at $8.5 million to $18.7 million, with a midpoint of approximately $13.6 million. We recommend targeting a resolution in the lower half of this range — between $8.5 million and $13.6 million — supported by the strength of VMS's individualized defense arguments, the March 2024 remedial measures, and statistical evidence of significant compliance.
C&H recommends a three-phase defense strategy:
Phase 1 — Aggressive Pre-Certification Defense (August 2025 through Q1/Q2 2026): File comprehensive responsive pleadings, including a demurrer and motion to strike targeting the PAGA, UCL, and rest break class allegations. Conduct targeted discovery, depose the named plaintiff, and engage defense experts for statistical analysis of time-punch data. Prepare and file a vigorous opposition to class certification.
Phase 2 — Early Mediation Following Class Certification Ruling (Q1–Q2 2026): Following the court's ruling on class certification — which will clarify the scope of the litigation and inform both parties' settlement expectations — propose and conduct mediation with an experienced retired jurist. Target a settlement in the range of $8.5 million to $13.6 million.
Phase 3 — Global Resolution or Trial Preparation (Q2 2026 and Beyond): If mediation succeeds, negotiate a global class settlement agreement, obtain court approval, and administer the settlement process. If mediation fails, proceed to trial preparation with a full defense budget or evaluate a second mediation attempt following additional dispositive motion practice.
Critically, this memorandum addresses the strategic importance of timely resolution in light of Ashgrove Equity Partners Industrial Partners, LP's planned 2026 exit or secondary sale process. An unresolved contingent litigation liability of $8.5 million to $18.7 million — or up to $65 million at theoretical maximum — will materially impact VMS's valuation, complicate buyer due diligence, and potentially require escrow or holdback provisions that diminish Ashgrove Equity Partners's realized returns. Resolution of this matter through mediation in Phase 2, ideally by mid-2026, is therefore a commercial priority of the highest order.
The sections that follow provide a detailed analysis of each element of the recommended strategy.
II. CASE POSTURE AND KEY BACKGROUND
A. Procedural Status
The complaint in Reyes v. Vantage Mobility Systems Corp., Case No. CIVSB-2025-04781, was filed on August 1, 2025, in the Superior Court of California, County of San Bernardino. The complaint is brought by Plaintiff Gloria Reyes individually, on behalf of a putative class of all similarly situated current and former non-exempt hourly employees at the Fontana Plant, and in a representative capacity under PAGA.
Plaintiff's counsel is the firm of Nakamura Lozano & Pratt LLP ("NLP"), located at 350 South Grand Avenue, Suite 2800, Los Angeles, California 90071. The lead partner on the matter is Victor Lozano, with Michelle Tran serving as the associate of record. NLP is a well-known and well-resourced plaintiff-side employment class action firm, and its involvement in this matter should be taken seriously by VMS for the reasons discussed further in Section II.D below.
Prior to filing the class action complaint, Plaintiff served a PAGA notice on the California Labor and Workforce Development Agency ("LWDA") on May 22, 2025. The LWDA assigned the notice LWDA No. LWDA-CM-2025-831447. The statutory 65-day cure period under Labor Code section 2699.3(a)(2)(A) expired on July 26, 2025, without the LWDA commencing an investigation or issuing a citation. Accordingly, Plaintiff exhausted the administrative prerequisite for her PAGA claims and was entitled to file the PAGA representative action, which she included as the seventh cause of action in the August 1, 2025, complaint.
VMS was served with the summons and complaint on August 12, 2025, through its registered agent, CT Agents, Inc. Under California Code of Civil Procedure section 430.40 and the applicable time computation rules, VMS's deadline to file a responsive pleading — whether an answer, demurrer, or motion to strike — is September 11, 2025. As discussed in Section IV.A.1 below, C&H recommends filing both an answer with comprehensive affirmative defenses and a demurrer and motion to strike targeting certain claims and allegations.
C&H opened this matter on August 4, 2025, upon receiving notification from VMS's General Counsel. On August 5, 2025, C&H issued a litigation hold directive to VMS, identifying all potentially relevant custodians and data sources, including electronic timekeeping records, payroll data, production schedules, personnel files, and internal communications relating to meal and rest break policies. VMS has confirmed implementation of the litigation hold.
C&H has separately analyzed the viability of removal to federal court under the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d), and under general diversity jurisdiction. Although the amount-in-controversy and minimal diversity requirements of CAFA are satisfied, C&H has concluded — and set forth in a separate memorandum — that removal is not strategically advisable. San Bernardino County Superior Court judges have a mixed but not unfavorable record on class certification in wage-and-hour cases, and state court permits direct appellate review of class certification orders under certain circumstances. Moreover, retention of PAGA claims in state court is mandatory, and bifurcation of the PAGA and class claims between forums would introduce unnecessary procedural complexity. Accordingly, C&H recommends that the case remain in San Bernardino County Superior Court.
Based on local practice and the anticipated procedural schedule, C&H projects the following key dates:
• Case Management Conference: Late October 2025 (anticipated approximately 60–90 days after filing).
• discovery Period: Commencing following Case Management Conference; phased discovery schedule to be proposed.
• Plaintiff's Class Certification Motion: Anticipated Q1 2026 (approximately 6–8 months after filing, consistent with NLP's typical practice).
• Court Ruling on Class Certification: Anticipated Q1–Q2 2026 (approximately 60–120 days after briefing is complete).
B. Proposed Class and Central Allegations
The complaint defines the putative class as "all current and former non-exempt hourly employees employed by Defendant at its Fontana, California manufacturing facility at any time during the period from August 4, 2021, through the date of trial." Based on VMS's internal records, this class definition encompasses approximately 3,550 putative class members, consisting of approximately 1,450 current employees and approximately 2,100 former employees. The annual employee turnover rate at the Fontana Plant during the class period has averaged approximately 38%, which accounts for the substantial number of former employees relative to the current workforce.
The Fontana Plant operates on a two-shift schedule:
• First Shift: 5:00 AM to 1:30 PM, with a scheduled meal period at 9:00 AM.
• Second Shift: 2:00 PM to 10:30 PM, with a scheduled meal period at 6:00 PM.
The plant is organized into six production lines: Body Line A, Body Line B, Trim Line A, Trim Line B, Paint, and Final Assembly/Quality Control ("QC"). Each production line operates semi-independently, with its own line supervisor and, in some cases, distinct scheduling and break protocols. The named plaintiff, Gloria Reyes, worked on Trim Line B during the second shift. Her experience may or may not be representative of employees on other lines or the first shift — a factual question that is central to the class certification analysis.
The central factual allegation in the complaint is that from approximately January 2020 through March 15, 2024, VMS utilized the timekeeping software ApexTime 6.2, provided by Apex Workforce Solutions, Inc., which was configured to automatically deduct 30 minutes for meal periods from each employee's daily time record regardless of whether the employee actually took a full, uninterrupted, off-duty 30-minute meal break. This "auto-deduction" feature is the linchpin of Plaintiff's meal break claims and is the primary basis on which Plaintiff will argue that common questions predominate for class certification purposes.
The complaint further alleges that rest breaks were shortened or denied during "surge" production periods — typically periods of accelerated production to meet customer delivery deadlines — and that VMS's time rounding policy, which rounds employee clock-in and clock-out times to the nearest 6-minute increment (one-tenth of an hour), systematically underpays employees in the aggregate. These additional allegations, while significant, are less susceptible to class-wide proof than the auto-deduction allegation, as they depend heavily on individualized circumstances that vary by production line, shift, supervisor, and employee.
C. Remedial Actions Already Taken
An important element of VMS's defense — and one that substantially mitigates exposure for a significant portion of the class period — is the remedial action taken by VMS in early 2024, well before this litigation was filed or threatened.
On February 8, 2024, Sandra Olsen, VMS's Vice President of Human Resources, authored an internal HR audit memorandum identifying the auto-deduction feature in ApexTime 6.2 as a compliance risk under California's meal period laws. Ms. Olsen's memorandum was prepared as part of a periodic internal compliance review and was addressed to VMS senior management, including Marcus Gutierrez (Plant Manager, Fontana). The memorandum recommended discontinuing the auto-deduction feature and transitioning to a manual punch system for meal period tracking.
On March 10, 2024, VMS issued a corrective action memorandum directing the immediate discontinuation of the auto-deduction feature and the implementation of a mandatory manual clock-out/clock-in protocol for all meal periods at the Fontana Plant.
On March 15, 2024, the auto-deduction feature was formally deactivated in the ApexTime 6.2 system and replaced with a mandatory manual clock-out/clock-in procedure. Since that date, all Fontana Plant employees have been required to manually clock out at the beginning of their meal period and manually clock in at the end, providing an accurate, real-time record of actual meal break duration.
These remedial measures effectively divide the class period into two distinct sub-periods:
(a) Pre-Remediation Sub-Period (August 4, 2021, through March 15, 2024): During this approximately 31-month period, the auto-deduction feature was active. Plaintiff's claims regarding systematic meal break violations are strongest during this sub-period, as the auto-deduction policy provides common proof of a uniform practice that may have resulted in underpayment when employees did not receive a full 30-minute break.
(b) Post-Remediation Sub-Period (March 16, 2024, through the present): During this approximately 17-month period (and continuing), the manual clock-out/clock-in system has been in effect. Plaintiff's ability to demonstrate systematic violations during this sub-period is significantly diminished, as each employee's actual meal break time is recorded individually. Any violations during this period would necessarily be individualized and attributable to specific supervisory failures or employee-specific circumstances, rather than a common policy.
The existence of these two distinct sub-periods is a critical strategic asset for VMS. It provides a basis for arguing that the class should be narrowed to the pre-remediation sub-period only, which reduces both the number of affected workdays and the applicable violation rate. It also supports VMS's narrative of good-faith compliance and proactive remediation — a narrative that resonates with mediators and judges at the settlement approval stage.
However, as discussed in Section VI.C below, the Olsen memorandum is a double-edged sword. While it demonstrates proactive remediation, it also constitutes an internal acknowledgment by a senior VMS executive that the auto-deduction feature posed a compliance risk. Plaintiff will undoubtedly seek to use this document to undercut any "good faith" defense and to argue that VMS was aware of the violation and failed to act promptly.
D. Plaintiff's Counsel Profile
The selection of Nakamura Lozano & Pratt LLP as Plaintiff's counsel is significant and warrants careful attention. NLP is one of the most prominent plaintiff-side employment class action firms in California, with a particular focus on wage-and-hour litigation in the manufacturing, logistics, and distribution sectors. The firm maintains a roster of approximately 25 attorneys and has the financial resources to prosecute protracted class action litigation on a contingency basis.
Victor Lozano, the lead partner on this matter, has over twenty years of experience in California employment class actions. His track record includes multiple eight-figure settlements in meal-and-rest-break cases against manufacturing and logistics companies, including several matters involving auto-deduction timekeeping practices. Mr. Lozano is known for aggressive class certification motions that leverage uniform policies — such as auto-deduction practices — as common proof of systematic violations. He is a skilled and experienced litigator who will push hard for early and broad class certification.
NLP's involvement suggests that Plaintiff's counsel has already conducted a pre-filing investigation of VMS's timekeeping practices and is confident in the class-wide nature of the meal break claims. It also suggests that NLP anticipates a substantial recovery and has committed to financing the litigation through class certification and, if necessary, trial.
We have identified Plaintiff's likely damages expert as Dr. Anita Bhargava, Ph.D., a labor economist with Lakeshore Economic Consulting Group, located at 2120 Oxford Street, Suite 4, Berkeley, California 94704. Dr. Bhargava has served as the damages expert in several of NLP's prior meal-and-rest-break class actions and is experienced in analyzing large datasets of time-punch records to calculate class-wide damages. Her involvement should be anticipated in connection with both class certification and merits proceedings.
Given NLP's track record and resources, VMS should expect an aggressive litigation posture from Plaintiff's counsel. NLP will likely oppose any demurrer or motion to strike, seek expedited class certification, and resist any efforts to narrow the class or delay the proceedings. At the same time, NLP is a pragmatic firm that has demonstrated a willingness to engage in early mediation when the settlement dynamics are favorable. Understanding NLP's litigation style and settlement expectations is essential to calibrating VMS's defense strategy and mediation positioning.
III. EXPOSURE ANALYSIS
A. Breakdown by Claim Category
C&H has prepared a preliminary damages model to estimate VMS's maximum theoretical exposure across all seven causes of action. The model relies on the following assumptions, which are conservative (i.e., plaintiff-favorable) for purposes of establishing upper-bound exposure: an average class size of 3,550 members; an average of 480 workdays per class member during the four-year class period (adjusted for turnover); and an average hourly rate of $21.40 (the blended average across all production lines and both shifts during the class period).
The claim-by-claim exposure is as follows:
1. Meal Period Premiums (Cal. Lab. Code §§ 226.7, 512)
Under California Labor Code section 226.7, an employer that fails to provide a compliant meal period must pay the employee one additional hour of pay at the employee's regular rate of compensation. Assuming a 65% violation rate across the class — a rate consistent with plaintiff-side assumptions in comparable auto-deduction cases — the meal period premium exposure is calculated as follows:
3,550 class members × 480 average workdays × 65% violation rate × $21.40 average hourly rate × 1 hour premium = $23,819,760
This is the single largest component of exposure and reflects the strength of the auto-deduction allegation. The 65% violation rate assumption is aggressive but not unreasonable from a plaintiff's perspective; it assumes that approximately two-thirds of all meal periods during the class period were non-compliant when the auto-deduction feature was active.
2. Rest Period Premiums (Cal. Lab. Code § 226.7)
Rest period claims are subject to a lower assumed violation rate because, unlike meal periods, there was no automatic deduction policy that provides common proof of a systematic violation. The complaint's rest break allegations rely on anecdotal evidence of shortened or missed breaks during "surge" production periods and general allegations of inadequate staffing. Assuming a 30% violation rate:
3,550 class members × 480 average workdays × 30% violation rate × $21.40 average hourly rate × 1 hour premium = $10,993,440
3. Subtotal — Premium Pay Exposure
Meal period premiums + rest period premiums = $34,813,200
4. Waiting Time Penalties (Cal. Lab. Code § 203)
Waiting time penalties apply to former employees who were not paid all wages due at the time of separation. Under section 203, the penalty continues at the employee's daily rate of pay for up to 30 calendar days from the date of separation. Assuming all approximately 2,100 former employees in the class are eligible:
2,100 former employees × 30 days × 8 hours/day × $21.40 average hourly rate = $10,814,400
This calculation assumes the maximum 30-day penalty period and does not account for any good-faith dispute defense, which may reduce the effective penalty period for a substantial number of employees.
5. Wage Statement Penalties (Cal. Lab. Code § 226)
Inaccurate wage statement penalties are $50 per employee for the initial violation and $100 per employee for each subsequent violation, up to a statutory cap of $4,000 per employee. Assuming an average of 20 pay periods with violations per class member and a blended per-violation penalty of $50–$100:
3,550 class members × blended $50/$100 per violation × 20 pay periods = approximately $7,100,000
The statutory cap of $4,000 per employee produces a maximum wage statement penalty exposure of $14,200,000 (3,550 × $4,000), but the per-period calculation yields a lower figure that is more representative of likely exposure.
6. PAGA Penalties (Cal. Lab. Code § 2698 et seq.)
PAGA provides for civil penalties of $100 per employee per pay period for the initial violation and $200 per employee per pay period for each subsequent violation. Of any PAGA penalties recovered, 75% is distributed to the LWDA and 25% to aggrieved employees. Based on the class size, class period, and estimated violation frequency, C&H estimates PAGA penalty exposure at approximately $5,500,000. This figure accounts for some discounting based on the court's discretion to reduce PAGA penalties under the proportionality framework established in recent California Supreme Court authority.
7. UCL Restitution (Cal. Bus. & Prof. Code § 17200)
The UCL cause of action seeks restitution of all wages unlawfully withheld. Because UCL restitution is duplicative of and overlapping with the premium pay claims under Labor Code sections 226.7 and 512, it does not create additional independent exposure. However, the UCL claim carries a four-year statute of limitations (compared to three years for certain Labor Code claims), which may extend the recoverable period for some class members.
8. Maximum Theoretical Aggregate Exposure
This figure represents the upper bound of Plaintiff's theoretical recovery and assumes maximum violation rates, no individualized defenses, and no offset for the post-remediation sub-period. It is the number that NLP will use in settlement demands and class certification briefing to frame the magnitude of the case. It does not, however, reflect the realistic range of outcomes.
B. Realistic Settlement Range Assessment
The maximum theoretical exposure of $65 million must be discounted for a number of significant factors that reduce VMS's actual risk. C&H has applied the following discount factors to arrive at a realistic settlement range:
Certification Risk. As discussed in Section IV.A.3 below, there is a meaningful probability (20–25%) that class certification will be denied entirely, and a significant probability (30–35%) that the class will be narrowed. Denial of certification would reduce VMS's exposure to individual and PAGA claims only. Narrowing of the class — for example, to meal break claims only, or to the pre-March 15, 2024 sub-period — would substantially reduce the class size and/or the number of compensable violations.
Merits Defenses. VMS has viable defenses on the merits, including individualized break patterns demonstrating that many employees consistently received compliant breaks, voluntary meal period waivers executed by certain employees, and the neutral or employee-favorable net effect of the rounding policy. These defenses reduce the effective violation rate below the 65% and 30% assumptions used in the maximum exposure calculation.
Post-Remediation Sub-Period. The elimination of the auto-deduction feature on March 15, 2024, means that for approximately 17 months of the class period (and counting), there is no uniform policy-based violation. Violations during this sub-period, if any, are individualized and cannot be proven through common evidence. This reduces the effective class period for the strongest claims by approximately 35%.
Statute of Limitations. Certain claims are subject to a three-year statute of limitations rather than the four-year period applicable under the UCL. This may exclude some violations from recovery for a portion of the class.
After applying these discount factors, C&H assesses the realistic settlement range as follows:
Realistic Settlement Range: $8,500,000 to $18,700,000
Midpoint of Realistic Range: $13,600,000
C&H recommends that VMS target a settlement in the lower half of this range — that is, $8.5 million to $13.6 million — based on the following considerations:
• The March 15, 2024, remedial measures substantially reduce the effective class period for auto-deduction claims and demonstrate good-faith compliance.
• Dr. Proulx's statistical analysis is expected to show that a significant percentage of employees consistently took compliant meal and rest breaks, reducing the assumed violation rates.
• Rest break claims are weaker than meal break claims because they lack the common proof of a uniform policy violation; the 30% assumed violation rate is likely overstated.
• If class certification is narrowed or denied in Phase 1, VMS's settlement posture improves further.
C. Insurance Coverage Considerations
VMS maintains an Employment Practices Liability ("EPL") insurance policy with Ridgeway National Insurance Company, Policy No. EPL-VMS-2024-07821, for the policy period July 1, 2024, through July 1, 2025. The relevant coverage terms are as follows:
• Per-Occurrence Limit: $10,000,000
• Aggregate Limit: $20,000,000
• Self-Insured Retention ("SIR"): $500,000 (eroding; defense costs apply against the SIR first)
On August 18, 2025, Neil Pemberton, Assistant Vice President — Complex Claims at Ridgeway National, issued a Reservation of Rights ("ROR") letter to VMS. The ROR letter reserves Ridgeway's rights to deny coverage on the following grounds:
(i) Wage-and-hour exclusion: The policy contains an exclusion for claims "arising out of or relating to wages, hours, or compensation," which Ridgeway contends may apply to the meal and rest break premium pay claims;
(ii) PAGA penalty coverage: Ridgeway reserves the position that PAGA civil penalties are not "damages" within the meaning of the policy and are not insurable under California law;
(iii) "Knowing" violation / intentional acts exclusion: Ridgeway reserves based on the auto-deduction policy, arguing that VMS's use of a system that automatically deducted meal periods regardless of actual break time may constitute a "knowing" or intentional violation excluded from coverage.
PAGA penalties, estimated at approximately $5.5 million, are likely uninsurable under California law. Multiple California appellate decisions have held that civil penalties imposed under PAGA are not "damages" for insurance purposes and cannot be indemnified through insurance. This component of any settlement or judgment will therefore be VMS's sole responsibility.
Defense costs erode the SIR first (at $500,000) and then apply against the per-occurrence limit. Given estimated total defense costs of $2.5 million to $3.8 million (through trial, if necessary) and a realistic settlement range of $8.5 million to $18.7 million, the combined defense costs and settlement amount could exceed the $10 million per-occurrence limit. This is particularly true if the wage-and-hour exclusion is not ultimately applied (i.e., if Ridgeway provides coverage for premium pay claims but not PAGA penalties).
C&H has prepared a separate, detailed insurance coverage analysis memorandum. For present purposes, VMS should note the following key takeaways:
• VMS should budget for potential out-of-pocket exposure above the $10 million per-occurrence limit. Depending on coverage determinations and the ultimate settlement amount, VMS's out-of-pocket exposure could range from approximately $3 million to $10 million.
• In structuring any settlement, VMS should seek to maximize the allocation to meal/rest break premium pay (which is more defensible for coverage purposes) and minimize the allocation to PAGA penalties (which are likely uninsurable) and wage statement penalties.
• VMS should promptly respond to Ridgeway National's ROR letter, preserving all coverage arguments and requesting that Ridgeway fund defense costs during the SIR erosion period and beyond.
IV. PHASED DEFENSE STRATEGY
A. Phase 1: Pre-Certification Aggressive Defense (August 2025 – Q1/Q2 2026)
The objective of Phase 1 is to build the strongest possible defense record prior to the court's ruling on class certification. A strong pre-certification defense posture accomplishes two goals: first, it maximizes the likelihood of a favorable certification ruling (denial or narrowing of the class); and second, even if the class is certified, it establishes the factual and legal predicates necessary to achieve a favorable settlement in Phase 2.
1. Responsive Pleadings (September 2025). C&H recommends filing the following responsive pleadings by the September 11, 2025, deadline:
Answer to Complaint. C&H will prepare and file a comprehensive answer to the complaint, including specific denials of the material factual allegations and the following affirmative defenses:
• Statute of limitations: Certain claims are time-barred to the extent they seek recovery for violations occurring more than three years (or one year, for PAGA) prior to the filing of the PAGA notice or the complaint.
• Good-faith compliance: VMS maintained a written meal and rest break policy (Employee Handbook, Section 4.3) that facially complied with California law and was communicated to all employees. VMS made a good-faith effort to comply with its legal obligations.
• Voluntary meal period waivers: Certain employees executed voluntary meal period waivers for shifts of six hours or less, as permitted by California Labor Code section 512(a).
• Individualized variations: The alleged violations, to the extent they occurred, are attributable to individualized circumstances (e.g., employee choice, specific supervisor practices, production line variations) rather than a uniform company-wide policy, and therefore cannot be proven on a class-wide basis.
• Remedial measures: VMS identified and remediated the auto-deduction practice effective March 15, 2024, more than 16 months before this lawsuit was filed, demonstrating good faith and substantially eliminating the alleged violation for a significant portion of the class period.
• Neutral rounding policy: VMS's time rounding policy, which rounds to the nearest 6-minute increment, is facially neutral and, in the aggregate, does not systematically favor VMS over employees.
• Exhaustion of administrative remedies: To the extent required, Plaintiff has failed to exhaust applicable administrative remedies.
• PAGA standing: Plaintiff lacks standing to pursue PAGA claims on behalf of employees whose alleged violations differ from the violations she personally experienced.
• Safe harbor defense: VMS cured the alleged violations through its March 2024 remedial measures, entitling it to the safe harbor defense under applicable provisions.
Demurrer and Motion to Strike. Contemporaneously with the answer, C&H will file a demurrer and motion to strike targeting the following causes of action and allegations:
(a) PAGA Cause of Action (Seventh Cause of Action): C&H will demur to the PAGA cause of action on the ground that Plaintiff lacks standing to pursue representative PAGA claims for alleged violations that she did not personally experience. To the extent the complaint asserts PAGA claims for violations on production lines or shifts where Plaintiff never worked, Plaintiff cannot establish that she is an "aggrieved employee" with respect to those violations. While this argument faces headwinds under recent California Supreme Court authority, it is worth preserving and may result in a narrowing of the PAGA claims.
(b) UCL Cause of Action (Sixth Cause of Action): C&H will demur to the UCL cause of action on the ground that the complaint fails to allege facts sufficient to state a claim under the "unfair" or "unlawful" prongs of the UCL independent of the underlying Labor Code violations. To the extent the UCL claim is entirely derivative of the meal and rest break claims, it adds nothing to Plaintiff's case and should be stricken as duplicative and unnecessarily burdensome.
(c) Class Allegations on Rest Break Claims: C&H will move to strike the class allegations in the second cause of action (rest period violations) on the ground that the complaint fails to allege a uniform policy or practice with respect to rest breaks. Unlike the auto-deduction allegation (which pertains to meal periods), the rest break allegations are based on anecdotal evidence of sporadic violations during "surge" periods that vary by production line, shift, and supervisor. These allegations are inherently individualized and cannot support class treatment.
C&H has engaged Whitfield Garza LLP (contact: Elena Garza), located at 290 North D Street, Suite 510, San Bernardino, California 92401, as local counsel for San Bernardino County Superior Court filings and appearances. Ms. Garza will handle all filings, attend routine court appearances, and coordinate with C&H on substantive motions.
2. Discovery Strategy. C&H recommends an aggressive, targeted discovery strategy in Phase 1 designed to develop the factual record necessary to oppose class certification and prepare for mediation.
Named Plaintiff Deposition. The deposition of Gloria Reyes should be a priority. C&H will seek to depose Ms. Reyes as early as possible following the Case Management Conference. The deposition will focus on the following areas:
• Ms. Reyes's specific break patterns during her employment on Trim Line B, second shift, including whether she regularly took meal and rest breaks, the duration and timing of those breaks, and any occasions on which she voluntarily shortened or skipped breaks.
• Her interactions with her shift supervisor regarding break scheduling, including whether breaks were affirmatively denied or merely not taken.
• Whether she signed a voluntary meal period waiver at any point during her employment.
• Her familiarity (or lack thereof) with break policies and practices on other production lines and shifts, which is relevant to typicality and adequacy arguments.
• The circumstances of her separation from VMS in January 2025, including whether she received all final wages due and whether she made any complaints about break violations during her employment.
A successful Reyes deposition can undermine typicality and adequacy arguments and generate evidence of individualized circumstances that support VMS's opposition to class certification.
ApexTime 6.2 Data Analysis. C&H will request and analyze the complete time-punch data from the ApexTime 6.2 system for the entire class period. This data is electronic, voluminous, and central to both sides' case. It includes clock-in times, clock-out times, auto-deduction records (pre-March 15, 2024), manual meal break punch records (post-March 15, 2024), and rounding adjustments. VMS will need to coordinate with Apex Workforce Solutions, Inc. to obtain the complete dataset.
The time-punch data will be analyzed to identify:
• The percentage of employees who consistently took compliant 30-minute meal breaks even during the auto-deduction period (i.e., employees whose actual clock records show they took full breaks, regardless of the auto-deduction);
• Variation in break patterns across the six production lines and two shifts;
• The net effect of the rounding policy (whether it systematically favored VMS, favored employees, or was neutral in the aggregate); and
• Patterns of rest break compliance and non-compliance during "surge" and non-surge periods.
Production Line-Specific Data. C&H will obtain production schedules, shift assignments, supervisor rosters, and break scheduling protocols for each of the six production lines. This data is necessary to demonstrate the variability across lines and shifts that undermines the commonality and typicality requirements for class certification.
Defense Expert Engagement. C&H recommends retaining Dr. Kenneth Proulx of Veltrano Analytics LLC, located at 155 South Lake Avenue, Suite 800, Pasadena, California 91101, as VMS's defense expert for statistical analysis. Dr. Proulx is a statistician with extensive experience in wage-and-hour class action litigation and has previously been retained to analyze time-punch datasets in comparable meal-and-rest-break cases.
Dr. Proulx will be tasked with the following:
(a) Conducting a statistical analysis of the ApexTime time-punch data to demonstrate that a significant percentage of employees consistently took compliant meal and rest breaks during the class period, including during the auto-deduction sub-period;
(b) Analyzing variation across production lines, shifts, and supervisors to demonstrate that compliance varied significantly based on individualized factors and that class-wide proof of a uniform violation is not possible;
(c) Analyzing the rounding policy to determine whether it has a neutral or employee-favorable net effect, thereby rebutting Plaintiff's rounding claims; and
(d) Preparing a declaration or expert report suitable for submission in connection with the class certification opposition.
Dr. Proulx's analysis is critical to the Phase 1 strategy. If the data supports VMS's position — as preliminary indications suggest it may — it will provide powerful ammunition for opposing class certification and for reducing settlement demands at mediation.
3. Oppose Class Certification (Anticipated Q1 2026). The class certification motion is the pivotal event in this litigation. If certification is denied or significantly narrowed, VMS's settlement posture improves dramatically and the case may be resolved at a fraction of the realistic settlement range. If the class is certified as pled, the litigation enters a different posture in which settlement becomes more urgent.
C&H anticipates that Plaintiff will file a class certification motion in Q1 2026, approximately six to eight months after the Case Management Conference, consistent with NLP's typical litigation timeline. C&H will prepare a comprehensive opposition brief. A detailed class certification opposition outline is being prepared separately; the key arguments are summarized here.
Key Arguments Against Certification:
Under California Code of Civil Procedure section 382 and the framework established in Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, certification requires a showing of an ascertainable class, a well-defined community of interest (commonality, typicality, and adequacy), and that common questions predominate over individual issues. C&H will argue:
Individualized inquiries predominate. Notwithstanding the existence of the auto-deduction policy during the pre-March 15, 2024, sub-period, compliance with meal and rest break requirements varied significantly by production line, shift, supervisor, and individual employee choice. Many employees consistently took compliant breaks; others voluntarily shortened or skipped breaks for personal reasons. Determining which employees were actually harmed — and the extent of any harm — requires individualized inquiry that cannot be resolved on a class-wide basis.
Named plaintiff is atypical. Gloria Reyes worked exclusively on Trim Line B during the second shift. Her experience is not representative of employees who worked on Body Line A, Body Line B, Trim Line A, Paint, or Final Assembly/QC, or of employees who worked the first shift. Different production lines have different break scheduling protocols, different supervisors, and different workflow pressures. Ms. Reyes cannot adequately represent a class encompassing such diverse experiences.
Two distinct sub-periods require separate analysis. The class period encompasses two fundamentally different policy regimes: the auto-deduction period (August 4, 2021, through March 15, 2024) and the manual punch period (March 16, 2024, through the present). These sub-periods involve different factual questions, different evidence, and different liability theories. Class treatment of the combined period is unmanageable and inappropriate.
Statistical evidence demonstrates significant compliance. Dr. Proulx's analysis of the time-punch data will demonstrate that a substantial percentage of putative class members — potentially a majority — consistently received compliant meal and rest breaks during the class period. This evidence undercuts Plaintiff's claim that common issues predominate and suggests that liability cannot be determined without individualized inquiry.
Manageability concerns. A class of approximately 3,550 members spanning four years and six production lines, with annual turnover of 38%, presents significant manageability challenges. Individual issues of break compliance, voluntary waivers, and supervisor practices will overwhelm any common questions.
C&H recognizes that the auto-deduction policy is a significant obstacle on the certification question — courts have routinely found that auto-deduction policies support commonality on meal break claims — and that certification of at least some portion of the meal break claims during the pre-March 15, 2024, sub-period is a realistic possibility. However, a vigorous opposition that raises credible individualized defense arguments can result in a narrowed class (e.g., limited to meal break claims only, limited to the pre-March 15, 2024 sub-period, or limited to specific production lines) that substantially reduces VMS's exposure.
A separate, detailed class certification opposition outline is being prepared and will be circulated for client review in advance of the filing deadline.
4. Phase 1 Budget. The estimated cost of Phase 1 — encompassing responsive pleadings, the demurrer and motion to strike, discovery, expert engagement, and class certification opposition — is $800,000 to $1,200,000. This estimate includes C&H attorney fees, local counsel fees (Whitfield Garza LLP), and expert costs (Dr. Proulx, Veltrano Analytics LLC).
C&H's standard hourly billing rates for this matter are as follows:
Defense costs erode VMS's $500,000 self-insured retention first. Once the SIR is exhausted, defense costs apply against Ridgeway National's $10 million per-occurrence limit. At current billing rates, the SIR will likely be exhausted during Phase 1, after which Ridgeway National will be responsible for defense costs (subject to the reservation of rights).
B. Phase 2: Early Mediation (Post–Class Certification Ruling, Q1–Q2 2026)
1. Timing. C&H recommends that mediation be proposed following the court's ruling on class certification, which is anticipated in Q1–Q2 2026. This timing is strategic: the certification ruling is the single most significant event in class action litigation, and it will materially affect both parties' settlement expectations. Mediating before the certification ruling introduces unnecessary uncertainty; mediating after the ruling allows both sides to bargain from a position informed by the court's assessment of the case.
The mediation timing should be calibrated to the following certification scenarios:
If class certification is denied entirely: Mediation becomes an opportunity to resolve the remaining individual claims and PAGA representative claims on highly favorable terms. With no class vehicle, Plaintiff's leverage is dramatically reduced, and VMS's exposure drops to approximately $5.5 million in PAGA penalties plus Plaintiff's individual claims (likely valued at less than $100,000). In this scenario, VMS should still pursue mediation to achieve a final resolution — a global settlement of the individual and PAGA claims, including a PAGA release, would be far preferable to continued litigation — but the settlement target would be in the range of $1 million to $3 million.
If class certification is granted as pled (full class on all claims): Mediation becomes critical and urgent. A fully certified class of 3,550 members with meal break, rest break, wage statement, waiting time, and PAGA claims represents the full exposure of $8.5 million to $18.7 million. In this scenario, VMS should pursue mediation promptly to resolve the matter before trial preparation costs escalate and before the litigation risk compounds. The target settlement range in this scenario is $8.5 million to $13.6 million.
If the class is narrowed (e.g., limited to meal break claims only, or to the pre-March 15, 2024 sub-period, or to specific production lines): A narrowed class reduces both the scope of claims and the number of compensable violations. VMS should leverage the narrowing to reduce Plaintiff's settlement demand. In this scenario, the target settlement range may drop to $5 million to $10 million, depending on the extent of the narrowing.
C&H notes that NLP may itself propose early mediation — plaintiff-side firms frequently do so in meal-and-rest-break class actions to accelerate fee recovery. If NLP proposes mediation before the certification ruling, C&H recommends that VMS agree to mediation only after the court has ruled on certification, explaining that both parties will benefit from having the court's certification analysis to inform settlement discussions. If the court denies or defers ruling on Plaintiff's motion, VMS should reassess the timing of mediation in light of the procedural posture.
2. Selection of Mediator. For a case of this size and complexity, C&H recommends retaining a retired California Superior Court judge with substantial experience mediating meal-and-rest-break class actions in the manufacturing sector. The mediator should be familiar with Brinker jurisprudence, PAGA settlement requirements, and the class settlement approval process.
C&H will identify two to three qualified mediator candidates through the San Bernardino County Superior Court's mediation panel, private mediation organizations such as JAMS and Judicate West, and referrals from colleagues in the employment litigation bar. Candidates will be presented to Priya Nandakumar and Catherine Hsu for approval before engagement.
A mediator who is respected by both defense and plaintiff-side counsel, and who has credibility with the court for purposes of settlement approval, is essential. The mediator's role will extend beyond the initial mediation session; an experienced mediator can facilitate continued negotiations after the session and, if the case settles, can provide a declaration in support of preliminary approval that carries weight with the court.
3. Pre-Mediation Preparation. Thorough pre-mediation preparation is essential to achieving a settlement in VMS's target range. C&H will prepare a detailed, confidential mediation brief addressing the following:
(a) Factual Summary Emphasizing Remedial Measures. The mediation brief will lead with the narrative of VMS's proactive remediation: the February 2024 internal audit, the March 2024 corrective action, and the deactivation of the auto-deduction feature on March 15, 2024. This narrative positions VMS as a responsible employer that identified a compliance risk and corrected it — a narrative that resonates with mediators and supports a lower settlement value.
(b) Statistical Analysis from Dr. Proulx. Dr. Proulx's analysis demonstrating significant compliance will be a centerpiece of the mediation brief. If the data shows that, for example, 40–50% of employees consistently took compliant meal breaks even during the auto-deduction period, this evidence substantially reduces the effective violation rate and, by extension, the damages calculation.
(c) Arguments for Reduced Violation Rates. The mediation brief will present a detailed argument that the assumed violation rates used in Plaintiff's damages model are overstated. The brief will address the impact of the post-March 15, 2024 remediation, the evidence of individualized compliance, and the weakness of the rest break claims.
(d) Comparable Settlements. C&H will compile and analyze comparable settlements in California meal-and-rest-break class actions in the manufacturing sector. These comparable settlements will provide benchmarks for the mediator and Plaintiff's counsel, anchoring the negotiation in market reality rather than theoretical exposure.
Plaintiff's Likely Demand. Based on NLP's track record of eight-figure settlements in comparable manufacturing cases and the theoretical maximum exposure of $65 million, C&H anticipates that Plaintiff's initial demand at mediation will be in the range of $25 million to $35 million. This demand will be framed as a percentage of theoretical exposure (approximately 40–55%) and will be supported by Dr. Bhargava's damages analysis. VMS should be prepared for this initial demand and should not treat it as an indication of the ultimate settlement value. NLP is a sophisticated firm that understands the dynamics of mediation negotiation; their opening demand is a starting point, not a bottom line.
Opening Offer and Negotiation Range. C&H will develop a recommended opening offer and negotiation strategy for VMS's approval in advance of the mediation. The specific figures will be determined closer to the mediation date, informed by the certification ruling and the state of the evidence. As a general framework, C&H recommends an opening offer in the range of $4 million to $6 million, with authority to negotiate up to the target range of $8.5 million to $13.6 million.
4. Settlement Target Range. C&H recommends a settlement target range at mediation of $8.5 million to $13.6 million, representing the lower half of the realistic settlement range. The justification for targeting the lower half includes the following:
• The March 15, 2024, remedial measures reduce the effective class period for auto-deduction claims by approximately 18 months (approximately 35% of the total class period), which should proportionally reduce the damages calculation.
• Individualized defense evidence, including Dr. Proulx's statistical analysis, reduces the assumed violation rates. If the effective violation rate for meal breaks is 45% rather than 65%, the meal period premium exposure drops from $23.8 million to approximately $16.4 million — a reduction of over $7 million at the theoretical level.
• Rest break claims are weaker than meal break claims because they lack the auto-deduction policy as common proof. The assumed 30% violation rate for rest breaks is likely overstated, and rest break claims may not survive certification. If rest break claims are excluded from the settlement, the exposure drops by approximately $11 million at the theoretical level.
• If the class was narrowed at the certification stage — a scenario C&H assesses as 30–35% likely — the denominator of class members or claims is reduced, further supporting a lower settlement value.
Allocation Strategy. In structuring any settlement, VMS should seek to maximize the allocation to meal and rest break premium pay under California Labor Code section 226.7, which is the category most likely to be covered by Ridgeway National's EPL policy (notwithstanding the reservation of rights on the wage-and-hour exclusion). Conversely, VMS should seek to minimize the allocation to PAGA penalties, which are likely uninsurable, and to wage statement penalties under section 226, which may also face coverage challenges. A well-structured settlement allocation can maximize insurance recovery and reduce VMS's out-of-pocket exposure.
C. Phase 3: Post-Mediation — Global Resolution or Trial Preparation (Q2 2026 and Beyond)
1. If Mediation Succeeds. If mediation produces a settlement within VMS's target range, C&H will proceed to negotiate a comprehensive global class settlement agreement. The settlement agreement will include the following key components:
(a) Monetary Payment. A non-reversionary gross settlement fund in the agreed amount, from which class counsel fees (typically 25–33% of the gross settlement), class representative enhancement payment (typically $5,000–$15,000), settlement administration costs, and PAGA penalties will be deducted, with the net remainder distributed to class members on a pro rata basis based on the number of workweeks during the class period.
(b) Injunctive Relief. VMS will agree to formalize and maintain the manual clock-out/clock-in system for meal periods; implement enhanced supervisor training on meal and rest break compliance; and conduct periodic compliance audits (e.g., quarterly for 24 months) to ensure ongoing compliance. Injunctive relief provisions add value to the settlement from the court's perspective and support a finding that the settlement is fair, adequate, and reasonable.