PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP Attorneys at Law 633 West Fifth Street, Suite 4400 Los Angeles, California 90071 Telephone: (213) 555-8200
MEMORANDUM
Date: August 29, 2025
To: Priya Nandakumar, General Counsel, Vantage Mobility Systems Corp. Catherine Hsu, Operating Partner / Board Representative, Ashgrove Equity Partners Industrial Partners, LP
From: Renata Vasquez, Partner, and James Underwood, Associate, Calderwood & Harkness LLP
Re: Monthly Status Update — Reyes v. Vantage Mobility Systems Corp., Case No. CIVSB-2025-04781, Superior Court of California, County of San Bernardino
C&H Matter No.: 1007-00004
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I. Executive Summary
Calderwood & Harkness LLP provides this initial monthly status report on the defense of 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, currently pending in the Superior Court of California, County of San Bernardino. This memorandum is privileged and confidential and is provided for the sole use of in-house counsel and the designated Board representative in connection with the defense of this matter.
The action is a putative wage-and-hour class action alleging systematic meal and rest break violations at the Company's Fontana Plant facility located at 11780 Cherry Avenue, Fontana, California 92337. As pled, the proposed class encompasses approximately 3,550 putative class members, consisting of approximately 1,450 current and approximately 2,100 former non-exempt hourly employees who worked at the Fontana Plant during a four-year class period beginning August 4, 2021. The complaint further asserts representative claims under the California Private Attorneys General Act ("PAGA") on behalf of all aggrieved employees.
The named plaintiff, Gloria Reyes, is a former Production Associate who was assigned to Trim Line B on the second shift. Ms. Reyes was employed by Vantage Mobility Systems Corp. ("VMS" or the "Company") from March 12, 2021 through January 19, 2025. She alleges that the Company maintained policies and practices that resulted in systematic denials of meal and rest breaks, unlawful automatic deductions of meal periods from employee time records, and related pay violations.
The complaint was filed on August 1, 2025 by the law firm of Nakamura Lozano & Pratt LLP, with Partner Victor Lozano serving as lead counsel and Associate Michelle Tran as co-counsel. Service of the complaint was perfected on VMS on August 12, 2025 through its registered agent, CT Agents, Inc., in Sacramento, California. The responsive pleading deadline is September 11, 2025.
The complaint sets forth 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 the Unfair Competition Law, California Business and Professions Code Section 17200 et seq.; and (7) civil penalties under the Private Attorneys General Act, California Labor Code Section 2698 et seq.
Based on our preliminary exposure analysis, the realistic settlement exposure range for this matter is between $8.5 million and $18.7 million, with a midpoint of approximately $13.6 million. The maximum theoretical aggregate exposure, calculated using the most aggressive assumptions and statutory penalty caps, is approximately $65 million. We emphasize that the theoretical maximum is unlikely to be realized in full, given the substantial individualized defenses available and the significant remedial measures the Company implemented in March 2024. Nonetheless, the realistic exposure range represents a material contingent liability that warrants careful attention, particularly in light of Ashgrove Equity Partners Industrial Partners' anticipated 2026 exit timeline.
Our current strategic recommendation is to pursue a phased defense approach focused on building a strong record to oppose class certification before exploring mediation or settlement. This approach is designed to maximize the Company's leverage, preserve coverage arguments with the insurance carrier, and position the matter for resolution at the lowest achievable cost.
This memorandum provides a comprehensive summary of the following: the case background and parties; procedural history and current status; completed tasks during August 2025; insurance coverage status and coordination with Ridgeway National Insurance Company; a detailed exposure analysis; expert witness retention; strategic recommendations; the defense budget; and action items for the coming weeks.
II. Case Background and Parties
A. Defendant — Vantage Mobility Systems Corp.
Vantage Mobility Systems Corp. is a Delaware corporation, registered and authorized to conduct business in both California and Michigan. The Company maintains its corporate headquarters at 4200 Industrial Parkway, Auburn Hills, Michigan 48326. The facility at issue in this litigation is the Fontana Plant, located at 11780 Cherry Avenue, Fontana, California 92337, which is dedicated to specialty vehicle modifications, including wheelchair-accessible van conversions and fleet vehicle upfitting for commercial and government customers.
For fiscal year 2024, VMS reported company-wide revenue of approximately $640 million. The Fontana Plant accounted for approximately $185 million of that total, representing approximately 28.9% of the Company's consolidated revenue. The Fontana Plant is therefore a significant revenue-generating facility within the VMS operational footprint and a critical asset in the Company's overall valuation.
VMS is a wholly owned portfolio company of Ashgrove Equity Partners Industrial Partners, LP, a private equity firm headquartered at 200 Renaissance Center, Suite 3100, Detroit, Michigan 48243. Ashgrove Equity Partners, led by Managing Partner Douglas Fielding, acquired VMS in 2019 in a leveraged transaction valued at approximately $510 million. We understand that Ashgrove Equity Partners is currently evaluating a potential exit through a secondary sale process targeted for 2026, which makes the resolution of this litigation a matter of particular significance from both a financial and transactional perspective.
The Fontana Plant workforce consists of approximately 1,450 non-exempt hourly production employees, who work across two shifts (first shift and second shift), and approximately 120 exempt salaried and management employees. The plant operates six primary production lines: Body Line A, Body Line B, Trim Line A, Trim Line B, Paint, and Final Assembly / Quality Control. The annual employee turnover rate at the Fontana Plant is approximately 38%, which is material to the composition of the proposed class and the identification of putative class members.
The key client personnel with whom we are coordinating on this matter are as follows:
• Priya Nandakumar, General Counsel, Vantage Mobility Systems Corp. — primary legal contact and engagement signer;
• Sandra Olsen, Vice President of Human Resources, Vantage Mobility Systems Corp. — primary contact for employment records, HR policies, and workforce data;
• Marcus Gutierrez, Fontana Plant Manager — primary contact for plant operations, production schedules, and on-site practices.
We have established a regular communication protocol with each of these individuals and anticipate scheduling additional interviews and document collection sessions as the case progresses.
B. Named Plaintiff — Gloria Reyes
The named plaintiff, Gloria Reyes, is a former Production Associate who was assigned to Trim Line B on the second shift (2:00 PM to 10:30 PM) at the Fontana Plant. Ms. Reyes was employed by VMS from March 12, 2021 through January 19, 2025, a period spanning approximately three years and ten months. At the time of her separation from the Company, Ms. Reyes's hourly wage was $22.75 per hour. She is a resident of Rancho Cucamonga, California, in San Bernardino County.
In her complaint, Ms. Reyes alleges that she was routinely required to remain at her workstation during meal periods due to production quotas and line speed requirements on Trim Line B. She further alleges that rest breaks were shortened or entirely denied during so-called "surge" periods when the plant was operating at elevated production volumes, typically in response to large fleet orders or end-of-quarter delivery targets. Critically, Ms. Reyes alleges that the Company maintained an automatic deduction policy in its timekeeping system (ApexTime 6.2) that deducted a 30-minute meal period from employee time records regardless of whether the employee actually received an uninterrupted, duty-free meal period. This auto-deduction allegation is the central factual predicate of the complaint and represents the most significant area of potential liability, as discussed further in the exposure analysis below.
Ms. Reyes's employment history and specific work assignment to Trim Line B on the second shift will be relevant to our typicality and commonality arguments in opposing class certification, as her experience may not be representative of the broader workforce across all six production lines and both shifts.
C. Proposed Class
The class definition as set forth in the complaint encompasses:
All current and former non-exempt hourly employees of Vantage Mobility Systems Corp. who worked at the Fontana Plant, located at 11780 Cherry Avenue, Fontana, California 92337, at any time during the period from August 4, 2021 through the date of trial.
Based on our preliminary analysis of workforce data provided by Ms. Olsen's office, we estimate the proposed class to include approximately 3,550 putative members, of whom approximately 1,450 are current employees and approximately 2,100 are former employees who separated from the Company during the class period. The four-year class period is derived from the statute of limitations applicable to the UCL cause of action under California Business and Professions Code Section 17200. The PAGA component carries a one-year lookback period, which extends from approximately August 1, 2024 to the present.
The size of the proposed class is substantial and, if certified, will present significant logistical and financial considerations for the defense. However, the breadth of the class definition also presents opportunities for the defense, as we intend to argue that the diversity of work assignments, shift schedules, supervisor practices, and production line conditions across six lines and two shifts renders classwide adjudication unmanageable and inappropriate.
D. Plaintiff's Counsel — Nakamura Lozano & Pratt LLP
Plaintiff is represented by Nakamura Lozano & Pratt LLP, with offices at 350 South Grand Avenue, Suite 2800, Los Angeles, California 90071. The lead attorney on the matter is Victor Lozano, a name partner at the firm, with Associate Michelle Tran serving as co-counsel.
Nakamura Lozano & Pratt is a prominent California plaintiff-side employment class action firm with a well-established track record in wage-and-hour litigation, particularly in the meal-and-rest-break context. The firm has secured multiple eight-figure settlements in class actions against manufacturing and logistics companies in California. Mr. Lozano is a skilled litigator with significant experience in class certification proceedings and in leveraging discovery to build settlement pressure. We regard plaintiff's counsel as formidable adversaries and have staffed and budgeted this matter accordingly.
Notably, Mr. Lozano's prior settlements suggest a litigation strategy that typically involves filing a detailed complaint, pursuing early class certification, and then using a favorable certification ruling to drive settlement negotiations. We anticipate that plaintiff's counsel will seek to move this case toward class certification as expeditiously as possible.
E. Defense Team
The defense team for this matter is as follows:
Calderwood & Harkness LLP:
• Renata Vasquez, Partner — Responsible Partner; overall case strategy, key briefing, client relationship management, and court appearances.
• Bernard Crawford, Partner — Billing Partner; supervisory oversight and billing administration.
• James Underwood, Associate — Lead Associate; day-to-day case management, pleadings, discovery, and deposition preparation.
• Devon Archer, Associate — Working Associate; legal research, document review, discovery assistance, and expert coordination.
Local Counsel — Whitfield Garza LLP:
• Elena Garza, Contact Partner — 290 North D Street, Suite 510, San Bernardino, California 92401. Whitfield Garza LLP serves as local counsel for purposes of filings and appearances in the San Bernardino County Superior Court and is available to assist with local procedural requirements and, if needed, to make appearances on the Company's behalf when scheduling does not permit C&H's attendance.
III. Procedural History and Current Status
A. Key Procedural Events to Date
The following table summarizes the key procedural events that have occurred since the inception of this matter:
The case has been assigned to the San Bernardino County Superior Court, but no specific judicial assignment has been made to date. We expect a department assignment to occur in connection with the Case Management Conference, which will be scheduled by the court following the filing of responsive pleadings.
B. Anticipated Upcoming Milestones
The following table sets forth the key upcoming milestones that we anticipate over the next several months:
We will update the procedural timeline in each monthly status report as new events occur and as dates are set by the court.
IV. Completed Tasks — August 2025
The following is a detailed summary of all tasks completed by the defense team during the month of August 2025:
A. Engagement Formalized
The formal engagement of Calderwood & Harkness LLP as defense counsel for VMS in this matter was completed promptly upon receipt of the complaint. The engagement letter was executed by Priya Nandakumar, in her capacity as General Counsel of Vantage Mobility Systems Corp., and the matter was opened under C&H Matter No. 1007-00004. The engagement letter sets forth the scope of the representation, which is limited to the defense of the meal-and-rest-break class action and PAGA claims asserted in Reyes v. Vantage Mobility Systems Corp., Case No. CIVSB-2025-04781.
The following staffing has been assigned to the matter:
• Renata Vasquez — Responsible Partner, responsible for overall case strategy, key briefing, significant client communications, and court appearances.
• Bernard Crawford — Billing Partner, providing supervisory oversight and billing administration.
• James Underwood — Lead Associate, responsible for day-to-day case management, preparation of pleadings and motions, discovery management, deposition preparation, and coordination with local counsel and experts.
• Devon Archer — Working Associate, providing legal research, document review support, discovery assistance, and expert coordination.
The billing arrangement is on a standard hourly rate basis, with the following rates applicable to this matter: Partner — $1,150 per hour; Senior Associate — $825 per hour; Associate — $675 per hour. Invoices are generated on a monthly cycle and submitted to VMS General Counsel for payment. The engagement letter also addresses the coordination of defense costs with Ridgeway National Insurance Company, including the submission of invoices to the carrier for reimbursement under the EPL policy, subject to the terms of the Reservation of Rights and any applicable litigation management guidelines.
B. Litigation Hold Issued
On August 5, 2025, James Underwood prepared and issued a privileged litigation hold memorandum directed to Priya Nandakumar, Sandra Olsen, and Marcus Gutierrez. The litigation hold memorandum instructed all recipients to take immediate steps to identify, preserve, and prevent the destruction, alteration, or loss of all documents and electronically stored information ("ESI") potentially relevant to the claims and defenses in this matter. The scope of the preservation obligation encompasses, without limitation, the following categories of documents and data:
• ApexTime 6.2 time-punch records and configuration data, including but not limited to all auto-deduction settings, rounding configurations, and audit logs, for the period from January 2020 through March 15, 2024, and all time-punch records from January 2020 through the present;
• Payroll records maintained by the Company's third-party payroll provider, Apex Workforce Solutions, Inc., for all non-exempt hourly employees at the Fontana Plant during the class period;
• Shift schedules for all production lines and both shifts during the class period;
• Overtime authorization logs and any related approval or denial records;
• Employee Handbook (Fontana Plant), including specifically Section 4.3 (Meal & Rest Break Policy), all versions in effect during the class period;
• Supervisor training materials related to meal and rest break compliance, last updated in September 2023;
• Internal HR audit memorandum dated February 8, 2024, authored by Sandra Olsen, concerning meal and rest break compliance at the Fontana Plant;
• Corrective action memorandum dated March 10, 2024, documenting the Company's decision to discontinue the auto-deduction policy and implement a manual clock-out/clock-in requirement for meal periods;
• Personnel files for Gloria Reyes and all putative class members;
• Email and electronic communications (including text messages, instant messages, and other digital communications) relating to meal and rest break policies, practices, and compliance at the Fontana Plant.
Written compliance confirmations were received from Sandra Olsen and Marcus Gutierrez within five business days of the issuance of the hold memorandum. In addition, the VMS Information Technology department was separately notified of the ESI preservation requirements and has confirmed that automated deletion routines and data retention schedules have been suspended for all relevant data categories.
We will continue to monitor compliance with the litigation hold throughout the pendency of this action and will issue supplemental hold notices as needed to address additional custodians or data sources identified during the course of discovery.
C. Preliminary Case Assessment Completed
A privileged attorney-client case assessment memorandum was prepared by Renata Vasquez, with assistance from James Underwood and Devon Archer, and circulated to Priya Nandakumar on August 22, 2025. That memorandum, which is protected by the attorney-client privilege and the work product doctrine and is not reproduced in full here, provides a comprehensive analysis of each of the seven causes of action asserted in the complaint:
1. Meal period violations (Cal. Lab. Code §§ 226.7, 512): The complaint alleges that VMS maintained a policy and practice of failing to provide lawful meal periods to non-exempt hourly employees, including through the use of an automatic 30-minute meal period deduction in the ApexTime 6.2 timekeeping system regardless of whether employees actually took uninterrupted, duty-free meal breaks. Under California law, employers are required to "provide" meal periods of not less than 30 minutes for employees who work more than five hours in a workday. The auto-deduction policy, which was in effect from approximately January 2020 through March 15, 2024, is the central liability driver for this cause of action. Our assessment identified this claim as presenting the greatest exposure risk.
2. Rest period violations (Cal. Lab. Code § 226.7): The complaint alleges that VMS failed to authorize and permit employees to take 10-minute rest periods for every four hours worked, or major fraction thereof. The complaint specifically references the alleged practice of shortening or denying rest breaks during "surge" production periods. This claim presents a secondary exposure risk, although the evidence of systematic denial is less clear than for the meal period claim.
3. Unpaid wages (Cal. Lab. Code §§ 204, 1194): This derivative claim alleges that the failure to properly compensate employees for missed or shortened meal and rest periods constitutes a failure to pay all wages due. Liability on this claim is largely derivative of the underlying meal and rest break claims.
4. Inaccurate wage statements (Cal. Lab. Code § 226): The complaint alleges that VMS's wage statements were inaccurate because they failed to reflect the premium pay owed for meal and rest break violations, and because the auto-deduction policy resulted in inaccurate reporting of hours worked. Statutory penalties under Section 226 are $50 for the initial violation and $100 for each subsequent violation, per employee, per pay period, subject to a statutory cap of $4,000 per employee.
5. Waiting time penalties (Cal. Lab. Code § 203): This claim is asserted on behalf of approximately 2,100 former employees who separated from the Company during the class period and were allegedly not paid all wages owed, including meal and rest break premiums, within the time required by statute. Waiting time penalties accrue at the employee's daily rate of pay for up to 30 calendar days from the date of separation.
6. Unfair business practices (Cal. Bus. & Prof. Code § 17200): The UCL claim is predicated on the same underlying conduct alleged in the Labor Code causes of action and seeks restitutionary relief. The four-year statute of limitations under the UCL provides the longest applicable limitations period and defines the class period. Remedies under the UCL are largely duplicative of the premium pay recoverable under the Labor Code claims, but the UCL's broader equitable reach and longer limitations period give it independent strategic significance.
7. PAGA penalties (Cal. Lab. Code § 2698 et seq.): The PAGA claim seeks civil penalties of $100 per employee per pay period for initial violations and $200 per employee per pay period for subsequent violations. Seventy-five percent of any PAGA penalties recovered are payable to the LWDA, with the remaining twenty-five percent distributed to aggrieved employees. The PAGA claim is not subject to class certification requirements and proceeds as a representative action.
The case assessment memorandum identified the auto-deduction policy in ApexTime 6.2, which was operative from approximately January 2020 through March 15, 2024, as the central liability driver for this matter. Under the auto-deduction configuration, the timekeeping system automatically deducted 30 minutes from each employee's daily time record on the assumption that the employee had taken a compliant meal break. This practice is problematic under California law because it creates a record of meal periods taken even when individual employees may not have actually received uninterrupted, duty-free breaks, and it shifts the burden of proof to the employer to demonstrate that breaks were in fact provided.
A secondary exposure factor was also identified: the Company's rounding policy, under which clock-in and clock-out times were rounded to the nearest 6-minute (0.1 hour) increment. While California law generally permits neutral rounding policies, the interaction between the rounding policy and the auto-deduction system may have compounded the impact on employee compensation in certain circumstances.
The memorandum also identified significant remedial measures that the Company implemented effective March 15, 2024, including the discontinuation of the auto-deduction policy and the implementation of a manual clock-out/clock-in requirement for all meal periods. These remedial measures are important both as a defense on the merits (demonstrating good faith) and as a factor that bifurcates the class period into two distinct sub-periods with materially different factual and legal considerations.
The following affirmative defenses were identified and analyzed in the memorandum:
(a) Statute of limitations (varying by cause of action);
(b) Good-faith compliance through the Company's written meal and rest break policy as set forth in Section 4.3 of the Employee Handbook (Fontana Plant), as revised in June 2022;
(c) Voluntary meal period waivers executed by employees;
(d) Individual variations in employee experiences that preclude class treatment;
(e) Remedial measures implemented effective March 15, 2024;
(f) Neutral rounding policy that, over time, neither favors nor disadvantages employees;
(g) Failure to exhaust administrative remedies (applicable to certain claims);
(h) PAGA standing challenges (questioning whether Ms. Reyes's individual claims are sufficient to support representative standing for all categories of alleged violations);
(i) Safe harbor defense (the Company's adoption of a compliant written policy and its efforts to enforce that policy in good faith).
The detailed exposure analysis prepared in connection with the case assessment is set forth in Section VI of this memorandum.
D. Federal Removal Analysis Completed
An internal privileged memorandum was prepared by James Underwood and reviewed by Renata Vasquez analyzing whether this action should be removed to federal court under the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d).
The analysis confirmed that the jurisdictional prerequisites for CAFA removal are satisfied in this case:
(i) The aggregate amount in controversy exceeds $5,000,000, as demonstrated by the exposure analysis;
(ii) Minimal diversity of citizenship exists, as the plaintiff Gloria Reyes is a citizen of California, while VMS is a Delaware corporation with its principal place of business in Michigan;
(iii) The proposed class consists of more than 100 members.
Notwithstanding the availability of CAFA removal, our recommendation is to decline removal and retain the case in the San Bernardino County Superior Court. This recommendation is based on the following strategic considerations:
(i) Judicial approach to class certification. San Bernardino County Superior Court judges have generally been less receptive to expansive class certification than federal judges in the Central District of California, particularly in wage-and-hour cases involving individualized factual inquiries. Retaining the case in state court provides a more favorable forum for our anticipated class certification opposition.
(ii) State court familiarity with California wage-and-hour law. The claims in this action are exclusively creatures of California statute. California Superior Court judges have deep familiarity with the nuances of the California Labor Code and the evolving case law governing meal and rest break claims, which may work to the Company's advantage on both the pleadings and at the class certification stage.
(iii) PAGA claim complications. PAGA claims are not removable to federal court and would remain in the Superior Court even if the class action claims were removed. Removal of the class claims alone would create parallel proceedings in state and federal court involving substantially overlapping factual issues, increasing litigation costs and creating the risk of inconsistent rulings. Maintaining all claims in a single forum is both more efficient and strategically preferable.
The Company's right to remove the action has been preserved, and we will continue to evaluate whether changed circumstances — such as an unfavorable judicial assignment or an unexpectedly aggressive class certification ruling — warrant revisiting this decision.
E. Responsive Pleadings in Preparation
As of the date of this memorandum, the responsive pleadings are in advanced stages of preparation for filing by the September 11, 2025 deadline. The following pleadings are being prepared:
Verified Answer with Affirmative Defenses. James Underwood and Devon Archer have prepared a draft verified answer that responds paragraph-by-paragraph to each of the factual allegations in the complaint and to each of the seven causes of action. The draft answer includes the following nine affirmative defenses: (1) statute of limitations; (2) good-faith compliance; (3) voluntary meal period waivers; (4) individualized issues precluding class treatment; (5) remedial measures; (6) neutral rounding policy; (7) failure to exhaust administrative remedies; (8) PAGA standing; and (9) safe harbor defense. The answer is currently under review by Renata Vasquez and will be finalized for filing during the first week of September.
Demurrer. A draft demurrer is being prepared challenging the legal sufficiency of two of the seven causes of action. First, the demurrer challenges the PAGA cause of action on the ground that Ms. Reyes's individual claims are insufficient to support representative standing for the full breadth of violations alleged on behalf of all aggrieved employees, particularly in light of recent California appellate authority tightening PAGA standing requirements. Second, the demurrer challenges the UCL cause of action (seventh cause of action) on the ground that the complaint fails to allege facts sufficient to state a claim under either the "unfair" or "unlawful" prong of the UCL that is independent of and not entirely duplicative of the Labor Code causes of action.
Motion to Strike. A companion motion to strike is being prepared targeting the rest break class allegations. The motion will argue that the complaint's rest break allegations lack the specificity necessary to support commonality and typicality, given the substantial variation in shift lengths, production line assignments, and supervisor practices across the six production lines (Body Line A, Body Line B, Trim Line A, Trim Line B, Paint, and Final Assembly/QC) and two shifts at the Fontana Plant. The motion will argue that the rest break claim, as pled, is not suitable for class treatment and that the class allegations pertaining to rest breaks should be stricken.
We are coordinating with Whitfield Garza LLP and Elena Garza regarding local filing requirements in the San Bernardino County Superior Court, including formatting, filing procedures, and any local rules that may affect the timing or form of the responsive pleadings.
V. Insurance Coverage Status
A. Ridgeway National EPL Policy
VMS maintains an Employment Practices Liability ("EPL") insurance policy with Ridgeway National Insurance Company. The relevant policy details are as follows:
The claim was timely reported to Ridgeway during the active policy period. The SIR of $500,000 erodes first (i.e., the Company is responsible for the first $500,000 in defense costs and/or indemnity payments) before the carrier's obligation to fund defense costs or indemnity is triggered. Once the SIR is exhausted, defense costs and indemnity obligations are funded by the carrier up to the per-occurrence limit of $10,000,000.
B. Reservation of Rights
Ridgeway National issued a Reservation of Rights ("ROR") letter dated August 18, 2025. The ROR letter acknowledges Ridgeway's receipt of the claim and agrees to provide a defense of the action, subject to the following three reservation bases:
(i) Wage-and-hour exclusion. Ridgeway reserves the right to deny coverage on the ground that the policy's wage-and-hour exclusion may apply to bar coverage for the meal and rest break premium pay claims. This is a standard reservation in EPL policies, and the applicability of the exclusion will depend on the specific policy language and the characterization of the premium payments under California law (i.e., whether they constitute "wages" or "penalties").
(ii) PAGA civil penalties. Ridgeway reserves the right to deny coverage for PAGA civil penalties on the ground that such penalties may be uninsurable as a matter of California public policy. This reservation is well-founded; there is substantial authority under California law supporting the position that civil penalties imposed under PAGA are not insurable and cannot be indemnified through insurance.
(iii) Intentional acts exclusion. Ridgeway reserves the right to assert the policy's intentional acts exclusion, contending that VMS's maintenance of the auto-deduction policy may constitute a "knowing" violation that triggers the exclusion. This reservation is potentially the most aggressive of the three and is one that we believe can be contested, as the Company's adoption of the auto-deduction policy was a timekeeping configuration choice rather than a deliberate scheme to deprive employees of meal breaks.
Notwithstanding these reservations, Ridgeway has agreed to fund defense costs under the ROR, subject to the SIR eroding first and then the per-occurrence limit applying. This is a critical commitment that will substantially offset the Company's defense costs in the near term.
C. Defense Cost Coordination
Calderwood & Harkness LLP has submitted an initial defense cost budget and litigation plan to Neil Pemberton at Ridgeway National by letter dated August 27, 2025. The budget outlines the anticipated defense activities through class certification and provides estimated costs for each phase of the defense. We have also requested written confirmation from Ridgeway of its ongoing commitment to fund defense costs and have requested a copy of Ridgeway's litigation management guidelines, which will govern the format and content of monthly invoices, staffing requirements, and any pre-approval requirements for significant expenditures (such as expert retention and deposition costs).
Monthly invoices will be submitted to Ridgeway with task-based billing codes conforming to the Uniform Task-Based Management System ("UTBMS") or such other coding system as Ridgeway may require. All invoices will be simultaneously submitted to Priya Nandakumar at VMS.
A separate privileged insurance coverage analysis memorandum has been prepared by Renata Vasquez and Devon Archer for Priya Nandakumar. That memorandum analyzes the ROR letter in detail, evaluates the coverage risks associated with each of the three reservation bases, and addresses the SIR erosion strategy. Key conclusions of the coverage analysis include the following:
• The PAGA penalties component of the exposure (estimated at approximately $5.5 million) is likely uninsurable under California law and will therefore fall outside the scope of the EPL policy regardless of the resolution of Ridgeway's other reservations.
• The realistic settlement range of $8.5 million to $18.7 million, when combined with estimated defense costs, may exceed the per-occurrence limit of $10 million, creating a potential coverage gap of $3.6 million to $8.7 million or more when the uninsured PAGA penalties are factored in.
• We recommend that VMS respond to the ROR letter in writing, preserving all coverage arguments and objecting to Ridgeway's reservations to the extent they are not supported by the policy language or applicable law.
• Depending on the trajectory of the case and Ridgeway's coverage positions, we recommend that VMS consider retaining dedicated insurance coverage counsel to represent its interests vis-à-vis the carrier, separate from the defense of the underlying action.
We will continue to coordinate with Ridgeway throughout the pendency of this matter and will report on the status of coverage issues in each monthly update.
VI. Exposure Analysis — Updated
The following exposure analysis reflects our current assessment of the Company's potential liability in this matter. The analysis is based on the allegations in the complaint, our preliminary review of the Company's records and policies, and our experience in similar California wage-and-hour class actions. We caution that this analysis is preliminary and subject to revision as additional information becomes available through discovery.
A. Damages Breakdown
The following table sets forth the estimated damages exposure by category, calculated using the assumptions identified in the complaint and adjusted based on our preliminary assessment of the available evidence:
Several important notes regarding this analysis:
The meal period premium calculation assumes an average of 480 workdays per class member across the four-year class period, a 65% violation rate (reflecting the period during which the auto-deduction policy was in effect and the allegation that employees were routinely denied compliant breaks), and an average hourly wage of $21.40 (reflecting the range of hourly rates across the class period, from $14.00 at the lower end during 2021 to $22.75 or higher at the upper end in 2025). The 65% violation rate is an aggressive assumption but is within the range that plaintiff's counsel may assert, particularly for the sub-period during which the auto-deduction policy was in effect.
The rest period premium calculation uses a lower 30% estimated violation rate, reflecting our preliminary assessment that the evidence of systematic rest break denials is weaker than the evidence of meal break violations. Rest break practices appear to have varied more significantly by production line, shift, and supervisor, which both reduces the estimated aggregate exposure and provides a basis for opposing class certification on the rest break claim.
The waiting time penalties are calculated for the approximately 2,100 former employees who separated from the Company during the class period. Under California Labor Code Section 203, waiting time penalties accrue at the employee's daily rate of pay (calculated as the hourly rate multiplied by eight hours) for each day that wages remain unpaid after separation, up to a maximum of 30 calendar days.
The wage statement penalties are calculated using a blended per-violation penalty of $50 (initial) and $100 (subsequent), multiplied by approximately 20 pay periods per employee (reflecting the bi-weekly pay schedule). The statutory cap of $4,000 per employee limits the maximum per-employee recovery, yielding an aggregate cap of approximately $14,200,000 for the full class.
The PAGA penalties are calculated at $100 for the initial violation and $200 for each subsequent violation, per employee, per pay period. Seventy-five percent of PAGA penalties are payable to the LWDA, and only twenty-five percent are distributed to aggrieved employees.
The UCL restitution claim is largely duplicative of the premium pay recoverable under the meal and rest break causes of action and is therefore not separately quantified. However, the UCL's broader statute of limitations (four years) is the basis for the class period, and the equitable relief available under the UCL (including injunctive relief) may have independent practical significance.
B. Realistic Settlement Assessment
While the maximum theoretical aggregate exposure is approximately $65 million, our assessment is that a realistic settlement would fall in the range of $8,500,000 to $18,700,000, with a midpoint of approximately $13,600,000. This realistic range reflects the application of standard litigation discounts for certification risk, merits defenses, individualized issues, and the practical dynamics of class action settlement negotiations.
Factors Supporting the Lower End of the Realistic Range (depressing exposure from theoretical maximum):
• Significant individualized defense arguments. The Company's operations across six production lines and two shifts, with varying supervisor practices, production quotas, and employee schedules, present substantial individualized issues that may preclude or narrow class certification and that create meaningful defenses to liability on an individual basis.
• Bifurcated class period. The discontinuation of the auto-deduction policy on March 15, 2024 effectively splits the class period into two distinct sub-periods. For the period after March 15, 2024, the Company can demonstrate that it implemented compliant timekeeping practices, significantly reducing the violation rate and exposure for the most recent approximately seventeen months of the class period.
• Evidence of compliant break practices. Our preliminary review of the available data indicates that a substantial percentage of employees consistently took compliant meal and rest breaks during the class period, including during the period when the auto-deduction policy was in effect. The auto-deduction policy created a recordkeeping problem, not necessarily a break-denial problem, and our expert analysis will be designed to distinguish between the two.
• Neutral rounding policy. The Company's rounding policy (nearest 6-minute / 0.1 hour increment) is facially neutral and, when analyzed over time, may be shown to have neither systematically favored nor disadvantaged employees. Under California law, a neutral rounding policy is permissible, and evidence of neutrality would undermine the rounding-based component of the plaintiff's damages theory.
• Remedial measures. The Company's voluntary implementation of remedial measures in March 2024 demonstrates good faith and may support a finding that the Company acted reasonably to comply with California law, mitigating exposure on the penalty claims.
Factors Supporting the Higher End of the Realistic Range:
• Duration of the auto-deduction policy. The auto-deduction policy was in place for over four years, from approximately January 2020 through March 15, 2024. This extended duration creates a substantial volume of potentially affected time records and a correspondingly large aggregate damages figure for the pre-March 2024 sub-period.
• Internal HR audit memorandum. The internal HR audit memorandum dated February 8, 2024, authored by Sandra Olsen, identified compliance risks associated with the Company's meal and rest break practices. While the memorandum is privileged, it represents a potentially adverse document that, if disclosed in discovery, could be used by plaintiff's counsel to argue that the Company was aware of the compliance issues and failed to act promptly. The fact that remedial measures were not implemented until approximately five weeks after the audit memorandum was issued may be characterized as an unreasonable delay.
• Opposing counsel's track record. Nakamura Lozano & Pratt LLP has a well-documented history of obtaining eight-figure settlements in comparable meal-and-rest-break class actions against manufacturing and logistics companies. Mr. Lozano's reputation and litigation experience will lend credibility to the plaintiff's claims and settlement demands.
• Average hourly wage and California minimum wage increases. The average hourly wage of $21.40 across the class period reflects the impact of California's minimum wage increases during the relevant period (from $14.00 per hour in 2021 to $16.50 per hour in 2025 for most employers). Higher hourly wages translate directly to higher premium pay calculations, generating substantial per-employee damages that aggregate to significant amounts across a class of this size.
C. Insurance Coverage Gap Risk
The intersection of the exposure analysis and the available insurance coverage presents a significant financial risk that must be carefully managed:
• The EPL policy provides a per-occurrence limit of $10,000,000, which must cover both defense costs and indemnity (settlement or judgment).
• The PAGA penalties component of the exposure (estimated at approximately $5,500,000) is likely uninsurable under California law and will therefore constitute an out-of-pocket liability for the Company regardless of the outcome of coverage negotiations with Ridgeway.
• A settlement at the midpoint of the realistic range ($13,600,000), when combined with defense costs (estimated at $800,000 to $1,200,000 through class certification), could exceed the per-occurrence limit by a substantial margin. Specifically, the potential gap — defined as the amount by which total exposure exceeds the combined SIR and per-occurrence limit — ranges from approximately $3,600,000 to $8,700,000 or more, depending on the ultimate settlement amount and the portion attributable to uninsured PAGA penalties.
• This potential coverage gap is particularly relevant in light of Ashgrove Equity Partners's planned 2026 exit or secondary sale process. An unresolved contingent liability of this magnitude will require disclosure to prospective acquirers and may affect the Company's valuation, deal structure, or the terms of any representation and warranty insurance obtained in connection with the transaction. Ashgrove Equity Partners should evaluate the potential impact on transaction timing and pricing as this matter progresses.
VII. Expert Retention
A. Defense Expert — Dr. Kenneth Proulx
We have retained Dr. Kenneth Proulx of Veltrano Analytics LLC as the defense's primary expert witness. Dr. Proulx holds a Ph.D. in Statistics and Econometrics and is based at the firm's offices at 155 South Lake Avenue, Suite 800, Pasadena, California 91101. Dr. Proulx has extensive experience in labor and employment class action litigation, with a particular focus on the statistical analysis of timekeeping data in wage-and-hour matters.
The retention letter was executed in August 2025, and Dr. Proulx's scope of engagement includes the following areas:
(i) Statistical analysis of ApexTime 6.2 time-punch data for approximately 3,550 putative class members across the full class period (August 4, 2021 to present). This analysis will examine patterns in clock-in, clock-out, and meal break data to determine the actual incidence of meal and rest break violations on an employee-by-employee and shift-by-shift basis.
(ii) Individualized variation analysis. Dr. Proulx will analyze whether the alleged violations are uniform across the Fontana Plant workforce or, as we anticipate, are highly individualized and variable depending on the specific production line (Body Line A, Body Line B, Trim Line A, Trim Line B, Paint, or Final Assembly/QC), shift assignment (first shift or second shift), supervisor, and employee behavior. This analysis will be central to our class certification opposition.
(iii) Rounding policy analysis. Dr. Proulx will evaluate the net impact of the Company's rounding policy (nearest 6-minute / 0.1 hour increment) on employee compensation over the class period, testing whether the rounding policy operated in a neutral manner or systematically favored or disadvantaged employees.
(iv) Rebuttal report. Dr. Proulx will prepare a rebuttal report responding to the anticipated expert report of plaintiff's retained expert, Dr. Anita Bhargava of Lakeshore Economic Consulting Group.
Dr. Proulx's analysis will be critical to our opposition to class certification. We expect his work to demonstrate significant variability in meal and rest break compliance across employees, production lines, and shifts, which will directly undermine the commonality and predominance requirements that plaintiff must satisfy under California Code of Civil Procedure Section 382 and the standards articulated in Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004 and its progeny.
Data collection and transfer from the ApexTime system will be coordinated with Sandra Olsen, Marcus Gutierrez, and Apex Workforce Solutions, Inc. during September 2025, with the goal of providing Dr. Proulx with a complete dataset for analysis as early as practicable.
B. Plaintiff's Expert — Dr. Anita Bhargava
The complaint identifies Dr. Anita Bhargava, Ph.D., as plaintiff's retained damages expert. Dr. Bhargava is a labor economist affiliated with Lakeshore Economic Consulting Group, located at 2120 Oxford Street, Suite 4, Berkeley, California 94704. Lakeshore Economic Consulting Group is a well-known plaintiff-side consulting firm that frequently provides expert testimony in California wage-and-hour class actions.
We anticipate that Dr. Bhargava will submit a damages model assuming uniform violation rates across the class and relying on aggregate, classwide calculations to generate a single damages figure for the entire class. This methodology, while commonly employed by plaintiff's experts, is vulnerable to challenge if the underlying time-punch data reveals significant variability in employee experiences. Dr. Proulx's analysis is being specifically designed to rebut Dr. Bhargava's expected methodology by demonstrating that a one-size-fits-all damages model is not supported by the actual data.
VIII. Strategic Recommendations
A. Phased Defense Approach
We recommend a phased defense strategy that prioritizes building a strong factual and legal record through the class certification stage, preserving the Company's leverage for settlement negotiations while maintaining readiness for trial if necessary.
Phase 1: Responsive Pleadings and Class Certification Defense (Current – Q2 2026)
This phase encompasses the immediate responsive pleading obligations and all activities through the resolution of the class certification motion. The key activities in this phase are as follows:
• File answer and demurrer/motion to strike by September 11, 2025, as described in Section IV.E above.
• Attend the Case Management Conference (anticipated for late October 2025). At the CMC, we will seek a discovery schedule that provides adequate time for class certification-related discovery and briefing. We will advocate for a schedule that sequences class certification discovery before merits discovery, consistent with the standard practice in California wage-and-hour class actions.
• Conduct targeted discovery on class certification issues. The discovery plan will focus on the following priorities: (a) obtaining and analyzing the complete ApexTime 6.2 time-punch dataset for the class period; (b) deposing named plaintiff Gloria Reyes on the specific facts of her employment experience, break practices, and the basis for her claims; (c) deposing plaintiff's expert Dr. Bhargava on her methodology, assumptions, and data sources; and (d) developing Dr. Proulx's statistical analysis of the time-punch data to demonstrate individualized variation across the workforce.
• Oppose class certification. We anticipate that plaintiff will file a motion for class certification in Q1 2026. Our opposition will emphasize the following themes: (a) the need for individualized inquiries across six production lines, two shifts, and multiple supervisors renders classwide adjudication unmanageable; (b) Gloria Reyes is not a typical class representative because her experience on Trim Line B, second shift, is not representative of the broader workforce; (c) the class period is naturally bifurcated into two distinct sub-periods (pre- and post-March 15, 2024) that present materially different factual and legal issues; (d) the proposed class of approximately 3,550 members presents significant manageability concerns; and (e) Dr. Proulx's statistical analysis demonstrates that the alleged violations are not susceptible to common proof. Dr. Proulx's expert analysis will be the centerpiece of the class certification opposition.
Estimated Phase 1 costs: $800,000 – $1,200,000. This estimate includes C&H fees, Whitfield Garza LLP local counsel fees, and Dr. Proulx / Veltrano Analytics expert costs through the class certification ruling.
Phase 2: Mediation / Settlement Exploration (Post-Class Certification Ruling)
The outcome of the class certification motion will determine the Company's strategic position and the appropriate path forward.
• If class certification is denied or substantially narrowed: A favorable ruling on class certification will provide significant leverage for the Company. If the class is decertified entirely, we will seek voluntary dismissal of the class claims and negotiate the resolution of Ms. Reyes's individual claims and the PAGA claim on favorable terms. If the class is narrowed (e.g., to a single production line, a single shift, or the pre-March 2024 sub-period only), we will use the reduced class size and narrowed scope to negotiate a settlement at the lowest achievable value.
• If class certification is granted: A certification ruling in plaintiff's favor will substantially increase settlement pressure but does not eliminate the Company's defense options. In this scenario, we recommend proposing early mediation before a retired California Superior Court judge with experience in wage-and-hour class actions. Our target for mediation would be to achieve a settlement in the lower half of the realistic range ($8.5 million to $13.6 million), leveraging the Company's remedial measures, individualized defense arguments, and the bifurcated class period to reduce the settlement demand from the theoretical maximum.
• Ashgrove Equity Partners exit timeline. The timing of any settlement should be coordinated with Ashgrove Equity Partners's anticipated 2026 exit / secondary sale process. Resolving this contingent liability prior to the commencement of a sale process is strongly preferred, as an unresolved class action of this magnitude will complicate the transaction, create valuation uncertainty, and may lead to purchase price adjustments or indemnification demands from a prospective buyer. Conversely, a final, fully resolved settlement — particularly one at or below the midpoint of the realistic range — will remove a significant source of deal risk and enhance transaction certainty.
Phase 3: Trial Preparation (If No Settlement Reached)