case-assessment-aldrich.docx

1017-00004 · Entities. Aurelius Global Media Group · Case Assessment & Strategy

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CALDERWOOD & HARKNESS LLP 1999 Avenue of the Stars, 27th Floor Los Angeles, California 90067 Telephone: (310) 555-8200

CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT This memorandum is protected from disclosure by the attorney-client privilege and the attorney work product doctrine. It is intended solely for the use of the addressees and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.

MEMORANDUM

TO: Gregory Tanaka, Vice President, Legal & Compliance, Aurelius Media Americas Inc.; Philippa Cartwright, General Counsel, Aurelius Global Media Group plc

FROM: Renata Vasquez, Partner, and Devon Archer, Senior Associate, Calderwood & Harkness LLP

DATE: December 15, 2022

RE: Preliminary Case Assessment — Aldrich Individual Action (Aldrich v. Aurelius Media Americas Inc., LASC Case No. 22STCV41087)

Matter No.: 1017-00004

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I. Executive Summary

On December 9, 2022, Gavin Aldrich, the former Senior Vice President of Original Content & Executive Producer at Aurelius Media Americas Inc. ("AMA"), filed a complaint in the Superior Court of the State of California, County of Los Angeles (Case No. 22STCV41087) against AMA. The complaint asserts the following causes of action: (1) wrongful termination in violation of public policy under the Tameny doctrine; (2) breach of contract arising from AMA's designation of his October 14, 2022 termination as "for cause" under § 7.2(b) of his Employment Agreement; (3) breach of the implied covenant of good faith and fair dealing; (4) declaratory relief regarding the enforceability of the post-employment restrictive covenant provisions contained in § 9 of his Employment Agreement; and (5) violation of California Labor Code § 2802 for alleged failure to reimburse approximately $28,400 in business expenses.

Aldrich is represented by Cameron Whitfield of Whitfield & Associates, located at 9465 Wilshire Boulevard, Suite 320, Beverly Hills, California 90212. Whitfield & Associates has a well-established reputation and significant specialization in executive employment disputes and entertainment-industry talent and producer agreements. The associate assigned to the Aldrich team is Julia Nazarian. Whitfield's involvement signals that Aldrich intends to litigate this matter aggressively and seek a substantial recovery. The case has been assigned to the Honorable Catherine Villanueva, Department 52, who is generally regarded as a capable and fair jurist with experience in complex employment matters.

This memorandum provides a preliminary assessment of each of Aldrich's claims, evaluates AMA's exposure, recommends specific cross-claims that AMA should assert against Aldrich, addresses the enforceability of the restrictive covenants at issue, discusses insurance considerations, and outlines recommended next steps. As discussed in greater detail below, we believe that AMA's overall exposure, while significant, can be effectively managed through the assertion of strong cross-claims arising from Aldrich's unauthorized transmission of confidential and proprietary materials to a competitor. The preliminary settlement range, taking into account all claims and cross-claims, is estimated at $1,500,000 to $3,000,000.

We note at the outset that AMA's Employment Practices Liability ("EPL") insurer, Pemberton Mutual Assurance Co., has denied coverage for this dispute. Accordingly, the entire cost of defense and any potential settlement will be self-funded by AMA. This reality should inform AMA's litigation strategy, including the timing and approach to settlement discussions.

II. Background — Aldrich Employment and Termination

A. Employment History

Gavin Aldrich was employed by AMA from September 5, 2017 through October 14, 2022, a period of approximately five years and one month. His employment was governed by an Employment Agreement originally dated September 5, 2017 (the "Employment Agreement"), as subsequently modified by a First Amendment dated August 1, 2020 (the "First Amendment").

Aldrich was initially hired as Vice President of Original Content, reporting to Jonathan Mercer, President of AMA. In this role, Aldrich was responsible for developing and overseeing AMA's pipeline of original unscripted and reality television content for domestic and international distribution. Aldrich brought with him significant industry experience and relationships, and during his first two and a half years at AMA, he played a material role in expanding the company's unscripted programming portfolio.

Effective January 1, 2020, and in connection with the execution of the First Amendment on August 1, 2020, Aldrich was promoted to the position of Senior Vice President of Original Content & Executive Producer. This promotion reflected both Aldrich's expanded responsibilities within the organization and the increased commercial success of several programs under his supervision. In his elevated role, Aldrich continued to report directly to Jonathan Mercer and oversaw AMA's entire Unscripted Programming Division, including multiple show units spanning development, production, and post-production operations.

At the time of his termination, Aldrich's compensation package included the following material components:

• Base Salary: $485,000 per annum.

• Discretionary Annual Bonus: Aldrich was eligible for an annual performance bonus at the discretion of AMA management. His most recent bonus, for fiscal year 2021, was $225,000. There was no contractual guarantee of any minimum bonus amount; however, Aldrich had received a bonus in each year of his employment with AMA, with amounts ranging from $150,000 to $225,000.

• Equity Compensation: Aldrich held 42,500 restricted stock units ("RSUs") in Aurelius Global Media Group plc ("AGMG"), AMA's UK-domiciled parent company. At the time of termination, 15,300 of these RSUs remained unvested and subject to continued employment vesting conditions. Based on the AGMG closing share price on the London Stock Exchange as of October 14, 2022 (£18.79 per share), and using the approximate GBP/USD exchange rate of $1.155 per pound sterling, the per-share value in U.S. dollars was approximately $21.71. Accordingly, the estimated value of the unvested RSUs at termination was approximately $332,200 (15,300 units × $21.71 per unit).

Aldrich resided at 1140 Tower Road, Beverly Hills, California 90210, throughout his employment with AMA. He performed substantially all of his duties and services from AMA's offices in Los Angeles and from locations in the greater Los Angeles area, with periodic travel to production sites and industry events throughout the United States.

B. Termination — "For Cause" Under § 7.2(b)

AMA terminated Aldrich's employment "for cause" on October 14, 2022, pursuant to § 7.2(b) of the Employment Agreement. The termination was based on two stated grounds, each of which is discussed below.

Ground 1: Unauthorized Transmission of Confidential Information (Policy Violations)

In September 2022, AMA's internal IT security team, operating under the direction of Gregory Tanaka, Vice President of Legal & Compliance, discovered anomalous email forwarding activity from Aldrich's AMA corporate email account during the course of a routine data loss prevention ("DLP") audit. The DLP audit had been initiated in August 2022 as part of AMA's regularly scheduled information security review cycle, and was not prompted by any specific suspicion regarding Aldrich or any other employee. This chronological fact — that the audit predated the subsequent insubordination events — is of critical importance to AMA's defense of Aldrich's retaliation theory, as discussed in detail in Section III.A below and in the recommended next steps outlined in Section VIII.

The DLP audit and subsequent forensic investigation revealed the following:

Personal Email Forwarding. Over an approximately 14-month period spanning from July 2021 through September 2022, Aldrich forwarded approximately 340 emails containing proprietary and confidential AMA information from his corporate email account (galdrich@aureliusmedia.com) to his personal Northgate Software account (galdrich.private@Northgate Software.com). The content of the forwarded emails included, but was not limited to, proprietary show concepts and development materials, pilot scripts and treatments, audience analytics reports, revenue projections and financial models, and the terms of talent and producer agreements. This volume and pattern of forwarding far exceeded what might be attributable to incidental or inadvertent activity and constituted a sustained and systematic extraction of proprietary data from AMA's information systems.

Transmission to Halcyon Creek Productions LLC. More significantly, forensic analysis of Aldrich's AMA-issued laptop computer revealed that a subset of the confidential materials had also been transmitted to an email address associated with Halcyon Creek Productions LLC ("Halcyon Creek") — specifically, the address info@halcyoncreekprod.com. Halcyon Creek is a California-based production company that operates as a competitor to AMA in the unscripted and reality television production space. The specific materials transmitted to Halcyon Creek included:

(a) Three unscripted show format "bibles" — comprehensive development documents containing detailed creative, structural, and commercial information — for concepts titled "Apex Endurance," "The Remix," and "Untamed West";

(b) Two pilot sizzle reels — professionally produced promotional presentations used to pitch programming concepts to networks and platforms — for the "Apex Endurance" and "The Remix" concepts; and

(c) A detailed revenue model for AMA's top-performing unscripted franchise, "Summit Challenge," which generates approximately $42 million in annual revenue and is one of AMA's most valuable programming assets.

Halcyon Creek Productions LLC is owned and operated by Nina Castellanos, a former AMA development executive who departed AMA in January 2022. (We note that Ms. Castellanos is not related to any member of Aldrich's legal team or any other party to this litigation.) Halcyon Creek was formed as a California limited liability company on February 14, 2022, approximately one month after Castellanos's departure from AMA. Aldrich and Castellanos have a long-standing professional relationship that predates their respective periods of employment at AMA, having previously worked together at a prior employer in the entertainment industry. The formation of Halcyon Creek shortly after Castellanos's departure from AMA, combined with Aldrich's transmission of proprietary materials to the company, raises significant questions about whether Aldrich and Castellanos may have been planning a competing venture while both were still employed by AMA.

These transmissions constitute clear violations of § 9.4 (Confidentiality) of the Employment Agreement, which imposes ongoing obligations on Aldrich to maintain the confidentiality of AMA's proprietary information and prohibits disclosure to third parties without authorization. The transmissions also violate AMA's Acceptable Use and Confidentiality Policy, which was last revised in March 2021 and for which Aldrich signed a written acknowledgment of receipt and understanding on April 12, 2021.

Ground 2: Insubordination

In early October 2022, AMA President Jonathan Mercer directed Aldrich to restructure the Unscripted Programming Division by consolidating two show units and reducing headcount by approximately 15%. The restructuring directive was driven by legitimate business considerations, including budgetary constraints, operational efficiency objectives, and strategic realignment of AMA's programming priorities.

The following sequence of events ensued:

• October 10, 2022: Aldrich sent an email to Mercer explicitly refusing to comply with the restructuring directive. In his email, Aldrich characterized the directive as "creatively bankrupt and commercially idiotic" and stated that he would "not participate in dismantling [his] division." The tone and content of this communication reflected a direct and unequivocal refusal to follow the instructions of his direct supervisor and the president of the company.

• October 11, 2022 (morning): Mercer issued a formal written warning to Aldrich, reiterating the restructuring directive and directing Aldrich's compliance. The written warning specifically advised Aldrich that continued refusal to comply with legitimate management directives could result in disciplinary action, up to and including termination of employment.

• October 11, 2022 (later that day): Rather than complying with the directive or engaging in further dialogue with Mercer, Aldrich forwarded the entire email chain — including both his own refusal and Mercer's written warning — to six of his subordinates, consisting of three show-runners and two division heads within the Unscripted Programming Division. Aldrich's forwarding email included the following comment: "For your awareness — the London suits are gutting our operation." This dissemination of internal management communications to subordinate employees, accompanied by a derisive characterization of senior leadership, represented a significant escalation of Aldrich's insubordination and was plainly intended to undermine the restructuring directive and to foment opposition among division personnel.

• October 14, 2022: AMA terminated Aldrich's employment "for cause," citing both the DLP audit findings regarding unauthorized transmission of confidential information and the insubordination described above.

III. Aldrich's Claims — Analysis

A. Wrongful Termination in Violation of Public Policy (Tameny Doctrine)

Summary of the Claim

Aldrich's first cause of action alleges wrongful termination in violation of public policy under the framework established by the California Supreme Court in Tameny v. Tarrant Holdings (1980) 27 Cal.3d 167. Aldrich alleges that his termination was not, in fact, motivated by the stated grounds of unauthorized transmission of confidential information and insubordination, but was instead retaliatory. Specifically, Aldrich characterizes his October 10, 2022 refusal to implement the restructuring directive as a protected act of objecting to a scheme by AMA management to misclassify certain hourly employees as salaried/exempt for the purpose of reducing overtime costs in violation of California's wage-and-hour laws. Aldrich contends that his termination was causally connected to this objection and that the stated grounds were pretextual.

Legal Standard. To prevail on a Tameny claim, Aldrich must establish four elements: (1) an employer-employee relationship existed; (2) the employer terminated the employee; (3) the termination was substantially motivated by a violation of public policy; and (4) the discharge caused the employee damages. The public policy relied upon must be "(1) delineated in either constitutional or statutory provisions; (2) 'public' in the sense that it inures to the benefit of the public rather than serving merely the interests of the individual; (3) well established at the time of the discharge; and (4) substantial and fundamental." Stevenson v. Superior Court (1997) 16 Cal.4th 880, 894. Importantly, an employee who is terminated for refusing to participate in an unlawful act, or for reporting unlawful conduct, may state a Tameny claim.

Assessment. This claim is relatively weak on the current evidentiary record, but it cannot be dismissed entirely.

Aldrich's burden is to establish that his objection to the restructuring was motivated by a specific, clearly articulated public policy — in this case, California's wage-and-hour statutes prohibiting the misclassification of non-exempt employees. The restructuring directive issued by Mercer, however, was facially a legitimate business decision to consolidate operations and reduce headcount. It did not, on its face, involve or contemplate the reclassification of any employee's exempt or non-exempt status. Aldrich's characterization of the directive as a "misclassification scheme" is, at present, unsupported by the available documentary evidence. His October 10 email to Mercer objects to the restructuring on creative and commercial grounds — describing it as "creatively bankrupt and commercially idiotic" — not on the grounds that it would violate wage-and-hour laws. There is no contemporaneous documentary evidence that Aldrich raised any wage-and-hour concern to anyone at AMA prior to his termination.

However, we must acknowledge two sources of risk on this claim. First, if Aldrich can produce evidence — whether through his own testimony, the testimony of other witnesses, or internal AMA communications — linking the restructuring directive to an intent by AMA management to convert hourly positions to salaried/exempt status in order to avoid overtime obligations, this claim becomes significantly more dangerous. Aldrich will have the opportunity in discovery to probe the underlying business rationale for the restructuring and to seek communications among AMA management discussing the potential reclassification of employees.

Second, and of particular concern, this claim acquires a dangerous resonance when considered alongside the concurrent class action, Fuentes v. Aurelius Media Americas Inc., which alleges systematic wage-and-hour violations across AMA's production operations. If Aldrich can establish even a colorable connection between the restructuring directive and the type of misclassification practices alleged in Fuentes, the Tameny claim could prove difficult to dispose of on summary judgment and could be highly sympathetic to a jury.

Notwithstanding these risks, we believe that AMA has a strong factual defense. The DLP audit findings constitute an independent and well-documented basis for termination, and the timeline of the audit (initiated in August 2022, with preliminary findings reported on September 6, 2022) predates the insubordination events of October 2022. This chronology substantially undermines Aldrich's retaliation narrative. To preserve this defense, it is critical that AMA take the steps outlined in Section VIII.7 below to establish the DLP audit timeline through sworn declarations.

B. Breach of Contract — Wrongful "For Cause" Designation

Summary of the Claim

Aldrich's second cause of action alleges that the "for cause" designation applied to his termination was wrongful and that the underlying facts do not satisfy the contractual definition of "Cause" as set forth in § 7.2(b) of the Employment Agreement. If Aldrich prevails on this claim, the termination would be re-characterized as a termination "without cause," entitling Aldrich to the full severance benefits specified in the Employment Agreement.

Severance Benefits if Termination is "Without Cause"

Under the terms of the Employment Agreement, if Aldrich's termination is deemed to be "without cause" (rather than "for cause"), Aldrich would be entitled to the following severance benefits:

(a) Salary Continuation: Twenty-four (24) months of base salary continuation, calculated at Aldrich's annualized rate of $485,000, for a total of $970,000;

(b) Pro-Rata Bonus: A pro-rata portion of his annual bonus for fiscal year 2022, based on the most recent bonus paid ($225,000 for FY 2021) and the number of completed months of employment during FY 2022 (approximately 9.5 months), resulting in an estimated pro-rata bonus of approximately $168,750 (calculated as $225,000 × 9.5/12);

(c) COBRA Subsidy: Continued employer-subsidized health insurance coverage under COBRA for a period of eighteen (18) months following termination;

(d) RSU Acceleration: Accelerated vesting of all unvested RSUs held at the time of termination — specifically, 15,300 units with an estimated aggregate value of approximately $332,200, based on the per-unit value of approximately $21.71 as calculated above.

Assessment. This is Aldrich's strongest claim, and it presents AMA's most significant litigation risk.

We have conducted a preliminary analysis of the contractual definition of "Cause" under § 7.2(b) of the Employment Agreement as applied to both stated grounds for termination. A detailed analysis is provided in a separate memorandum (Document 15 of this matter file). Our preliminary conclusions are summarized here.

Insubordination Ground — Cure Period Deficiency. Section 7.2(b)(iv) of the Employment Agreement permits termination for cause based on "willful refusal or failure to follow a lawful directive of the Board or the Executive's direct supervisor, provided that such refusal or failure continues after written notice and a cure period of not less than fifteen (15) business days." AMA's termination timeline is fatally compressed with respect to this requirement. Mercer issued the formal written warning on October 11, 2022, and AMA terminated Aldrich on October 14, 2022 — a span of only three calendar days, or approximately one business day. This is far short of the contractually mandated 15-business-day cure period. Aldrich's counsel will almost certainly argue — with considerable force — that AMA failed to comply with its own contractual prerequisites for a "for cause" termination on the insubordination ground. This argument is well-founded and constitutes a significant vulnerability for AMA.

We anticipate that AMA may seek to argue that Aldrich's conduct on October 11 (forwarding the email chain to subordinates with a disparaging commentary) constituted a further act of insubordination or that it demonstrated that any cure period would have been futile. However, the contractual language does not include a futility exception, and California courts generally enforce contractual cure-period provisions strictly. The risk of this argument prevailing is, at best, moderate.

Confidential Information Ground — Stronger but Subject to Pretext Attack. Section 7.2(b)(i) of the Employment Agreement permits termination for cause based on "fraud, embezzlement, misappropriation, or other act of material dishonesty," and § 7.2(b)(vi) permits termination for "material breach of any provision of this Agreement." Aldrich's unauthorized transmission of confidential materials to his personal email account and to Halcyon Creek Productions constitutes a strong factual basis for termination under both of these provisions. The documentary evidence is objective and compelling: IT forensic logs, email records, and laptop analysis establish the transmissions occurred, and Aldrich does not appear to dispute that the transmissions took place.

However, Aldrich will vigorously attack this ground as pretextual. His theory will be that AMA was aware of the DLP audit findings by September 6, 2022, but did not act on them until October 14, 2022 — after the insubordination events. Aldrich will argue that the confidential information ground was elevated to a termination-level offense only after Aldrich refused to comply with the restructuring directive, and that the true motivation for the termination was retaliation for his objection. To counter this pretext argument, AMA must establish a credible explanation for the approximately five-week delay between the September 6 preliminary findings and the October 14 termination. As discussed in Section VIII.7, we recommend securing declarations from Gregory Tanaka and the IT security team establishing that the delay was attributable to the completion of the forensic review and consultation with counsel, not to any retaliatory motive.

In sum, while the confidential information ground is factually strong, the cure-period deficiency on the insubordination ground creates a substantial risk that a court or jury could conclude that the overall "for cause" determination was procedurally defective or pretextual. The potential financial consequence — full severance benefits totaling in excess of $1.47 million — makes this claim the primary driver of AMA's exposure in this litigation.

C. Breach of the Implied Covenant of Good Faith and Fair Dealing

Summary of the Claim

Aldrich's third cause of action alleges that AMA breached the implied covenant of good faith and fair dealing by manufacturing the "for cause" termination for the purpose of avoiding its contractual obligation to pay severance benefits and to trigger the forfeiture of Aldrich's unvested RSUs. Aldrich contends that AMA acted in bad faith by seizing upon the DLP audit findings and the insubordination as pretextual justifications for a termination decision that was, in reality, motivated by a desire to deny him the benefits to which he was contractually entitled.

Assessment. This claim rises or falls with the breach of contract claim. Under California law, the implied covenant of good faith and fair dealing is read into every contract and prohibits one party from doing anything that would deprive the other party of the benefits of the agreement. However, the implied covenant claim does not create an independent cause of action separate from the underlying contract. Rather, it provides a theory through which the breach of contract claim can be framed as one involving bad faith and intentional deprivation of contractual benefits, which could support enhanced or consequential damages beyond the face value of the severance provisions.

If the "for cause" designation is sustained, the implied covenant claim fails because AMA would have acted within its contractual rights. Conversely, if the "for cause" designation is overturned — particularly if the evidence supports a finding that AMA deliberately manufactured or exaggerated the stated grounds to avoid paying severance — the implied covenant claim adds a layer of bad faith that could expand the scope of available damages, including potential tort damages for emotional distress.

Standing alone, the implied covenant claim does not create meaningful independent exposure beyond what is already captured in the breach of contract analysis. However, it provides Aldrich's counsel with a narrative framework that, if presented effectively, could influence a jury's perception of AMA's conduct and motivations.

D. Declaratory Relief — Restrictive Covenant Enforceability

Summary of the Claim

Aldrich's fourth cause of action seeks a judicial declaration that the restrictive covenant provisions in § 9 of the Employment Agreement are void and unenforceable under California Business and Professions Code § 16600. This claim targets three specific provisions:

§ 9.1 — Non-Competition. This provision imposes an 18-month post-termination restriction prohibiting Aldrich from working for any "Competing Enterprise," defined as any entity deriving 25% or more of its revenue from unscripted/reality television content production, licensing, or distribution in North America.

§ 9.2 — Non-Solicitation of Employees. This provision imposes a 24-month post-termination restriction prohibiting Aldrich from soliciting, recruiting, or inducing any AMA employee with whom Aldrich worked within the preceding 12 months to leave AMA's employment.

§ 9.3 — Non-Solicitation of Business Relationships. This provision imposes a 24-month post-termination restriction prohibiting Aldrich from soliciting or diverting business from any network, platform, advertiser, or other business relationship with whom Aldrich had material contact during the preceding 24 months of his employment.

The Employment Agreement also contains a New York choice-of-law clause (§ 14.3), which provides: "This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws principles." Aldrich argues that, notwithstanding this provision, California law governs the enforceability analysis because he was based in California, performed all of his services in California, and California has the most significant relationship to the employment relationship and the restrictive covenant provisions at issue.

Assessment. Detailed analyses of the enforceability of the restrictive covenants and the choice-of-law question are provided in separate memoranda (Documents 13 and 14 of this matter file). Our summary conclusions are as follows:

§ 9.1 — Non-Competition: Almost Certainly Void. California Business and Professions Code § 16600 broadly provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." The California Supreme Court in Edwards v. Kraft Quill CPAs LLP (2008) 44 Cal.4th 937 emphatically rejected the "narrow restraint" or "reasonableness" exception to § 16600, holding that § 16600 applies to any contractual provision that restrains an employee from pursuing his or her profession, regardless of how narrowly the restraint is drawn. The only recognized exceptions are those expressly enumerated in §§ 16601–16602 (sale of a business; dissolution of a partnership), none of which apply here. Accordingly, § 9.1 is almost certainly void and unenforceable under California law, and AMA should not attempt to enforce this provision. Attempting to do so would risk sanctions, damage AMA's credibility with the court, and undermine AMA's position on the other restrictive covenant provisions where AMA has stronger arguments.

§ 9.2 — Non-Solicitation of Employees: Likely Enforceable. Most California courts have distinguished employee non-solicitation provisions from non-competition clauses, holding that a narrowly drawn prohibition on soliciting former colleagues does not constitute an impermissible restraint on engaging in a profession. The provision at issue here is reasonably narrow in scope: it is limited to a 24-month period and applies only to employees with whom Aldrich had a direct working relationship within the preceding 12 months. However, we note that the Court of Appeal's decision in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923 introduced some uncertainty by suggesting that employee non-solicitation provisions may, in some circumstances, run afoul of § 16600. The AMN Healthcare decision has not been universally followed, and its reasoning has been questioned by subsequent courts, but it represents a potential source of risk. On balance, we believe § 9.2 is likely enforceable but should be asserted with awareness of this developing area of law.

§ 9.3 — Non-Solicitation of Business Relationships: Vulnerable. This provision is more problematic. Unlike the narrower employee non-solicitation clause, § 9.3 prohibits Aldrich from soliciting or diverting business from any "network, platform, advertiser, or other business relationship" with whom Aldrich had "material contact" during the preceding 24 months. Given the scope of Aldrich's role as SVP of the Unscripted Programming Division, this provision could encompass dozens of major media companies, streaming platforms, and advertising partners — effectively precluding Aldrich from engaging in meaningful work in the unscripted television industry. Broader customer and client non-solicitation clauses of this type have been struck down by California courts as de facto non-competes that violate § 16600. The 24-month duration and the breadth of covered relationships further exacerbate this vulnerability. AMA should be prepared to narrow or abandon this provision in settlement discussions.

§ 9.4 — Confidentiality: Fully Enforceable. The confidentiality provision in § 9.4 imposes an indefinite obligation on Aldrich to maintain the confidentiality of proprietary AMA information, including proprietary content, show formats, revenue data, and talent agreement terms. This provision is fully enforceable under California law. Confidentiality provisions are not subject to § 16600, and the trade secret protections provided by the California Uniform Trade Secrets Act ("CUTSA"), Cal. Civ. Code § 3426 et seq., independently support AMA's right to protect the confidentiality of the materials at issue. Section 9.4 is AMA's strongest restrictive covenant provision and forms the foundation for AMA's recommended cross-claims.

§ 14.3 — Choice of Law (New York): Unlikely to Be Enforced. Aldrich argues that the New York choice-of-law clause should not be applied to save the non-competition provision, and we agree that this argument is likely to prevail before a California court. Under the Restatement (Second) of Conflict of Laws § 187(2), a contractual choice-of-law provision will not be enforced if (a) the chosen state has no substantial relationship to the parties or the transaction, or (b) application of the chosen state's law would be contrary to a fundamental public policy of the state with the most significant relationship to the issue. California's prohibition on non-competition agreements is uniformly regarded as a fundamental public policy of the state, and its application cannot be circumvented by contractual choice-of-law provisions for California-based employees performing services in California. This result is consistent with the Court of Appeal's analysis in Application Group, Inc. v. Hunter Group, Inc. (1998) 61 Cal.App.4th 881, which held that California's strong public policy against restraints on employment override a Virginia choice-of-law provision. We do not recommend that AMA rely on the New York choice-of-law clause to defend the enforceability of § 9.1; doing so would carry a very high litigation risk and could undermine AMA's credibility with the court on other issues.

E. Expense Reimbursement (Cal. Lab. Code § 2802)

Summary of the Claim

Aldrich's fifth cause of action alleges that AMA failed to reimburse him for approximately $28,400 in business expenses incurred during fiscal year 2022. The claimed expenses include travel costs, client entertainment expenses, and the business use of Aldrich's personal cell phone.

Assessment. If documented, this claim is likely valid. California Labor Code § 2802 imposes a strict obligation on employers to reimburse employees for "all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties." The statute applies regardless of any contrary company policy or the employee's failure to submit timely reimbursement requests. If Aldrich can substantiate the claimed expenses with reasonable documentation, AMA will have limited defenses.

We recommend that AMA promptly review its internal expense records to determine whether any of the claimed amounts were, in fact, submitted and processed or, conversely, whether Aldrich's reimbursement requests were denied or remain pending. This is a relatively small-dollar item in the context of the overall litigation, and it should be resolved — either by demonstrating that the expenses were already reimbursed, or by accounting for the amount in any settlement — to avoid providing Aldrich with an easy statutory claim and potential attorneys' fee recovery.

IV. Recommended Cross-Claims

We recommend that AMA file a cross-complaint against Aldrich asserting the following causes of action. The cross-complaint will serve multiple strategic purposes: providing leverage in settlement negotiations, establishing AMA's "for cause" narrative, deterring aggressive litigation tactics by Aldrich, and seeking affirmative relief — including injunctive relief — for Aldrich's misconduct.

A. Breach of Employment Agreement (§§ 9.1, 9.2, 9.3, 9.4)

Aldrich's unauthorized transmission of confidential and proprietary AMA information to his personal email account and, more critically, to Halcyon Creek Productions LLC constitutes a clear and well-documented breach of § 9.4 (Confidentiality) of the Employment Agreement. As described in Section II.B above, the transmitted materials include show format bibles, pilot sizzle reels, and a detailed revenue model for AMA's highest-grossing unscripted franchise, all of which are expressly covered by the confidentiality obligations in § 9.4.

Depending on the outcome of the choice-of-law analysis discussed in Section III.D above and in the separate memoranda (Documents 13 and 14), the same conduct may also constitute a breach of other restrictive covenant provisions, particularly § 9.2 (Non-Solicitation of Employees) to the extent Aldrich's relationship with Nina Castellanos — a former AMA employee — facilitated the formation of and transfer of materials to Halcyon Creek, and § 9.3 (Non-Solicitation of Business Relationships) if Halcyon Creek used the transmitted materials to solicit business from AMA's existing network and platform partners.

The documentary evidence supporting this cross-claim is strong. The IT forensic evidence — including email logs, laptop analysis records, and DLP audit reports — is objective, digitally timestamped, and independently verifiable. Aldrich does not appear to dispute that the transmissions occurred; rather, his defense is expected to focus on the characterization of the transmitted materials (i.e., whether they constitute truly confidential or proprietary information) and on the argument that the transmissions were made for legitimate business purposes. Both of these defenses are weak on the current facts.

B. Misappropriation of Trade Secrets (Cal. Civ. Code § 3426 et seq. — CUTSA)

The materials transmitted by Aldrich to Halcyon Creek Productions — specifically, the three show format bibles, the two pilot sizzle reels, and the "Summit Challenge" revenue model — constitute trade secrets within the meaning of the California Uniform Trade Secrets Act. Under CUTSA, a "trade secret" is defined as information that "derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use" and "is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." Cal. Civ. Code § 3426.1(d).

The materials at issue plainly satisfy both elements. Show format bibles and sizzle reels contain detailed creative, structural, and commercial information that has substantial independent economic value to AMA and would have significant value to a competitor in the unscripted television space. The "Summit Challenge" revenue model contains proprietary financial data regarding a franchise that generates approximately $42 million in annual revenue. None of these materials are publicly available, and AMA took reasonable measures to maintain their secrecy, including: requiring employees to execute confidentiality agreements; implementing and enforcing the Acceptable Use and Confidentiality Policy; restricting access to sensitive materials through access controls and permissions; and applying watermarking to certain documents to track distribution.

Aldrich's transmission of these materials to Halcyon Creek — a competitor — constitutes "misappropriation" under CUTSA, specifically the "disclosure or use of a trade secret of another without express or implied consent by a person who ... at the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was ... derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use." Cal. Civ. Code § 3426.1(b)(2).

The remedies available under CUTSA include: (1) injunctive relief to prevent further disclosure or use; (2) actual damages, including both the actual loss caused by the misappropriation and any unjust enrichment not captured by the actual loss calculation; and (3) exemplary damages of up to two times the actual damages award if the misappropriation is found to have been "willful and malicious." Cal. Civ. Code § 3426.3(c). Additionally, CUTSA provides for the recovery of reasonable attorneys' fees in cases of willful and malicious misappropriation or bad-faith claims. Cal. Civ. Code § 3426.4.

C. Breach of Fiduciary Duty

As Senior Vice President of Original Content & Executive Producer, Aldrich occupied a senior executive position within AMA and owed fiduciary duties of loyalty and care to the company. These duties are well established under California law and arise both from the employment relationship and from Aldrich's status as an officer of the corporation entrusted with significant authority over AMA's business operations, creative assets, and personnel.

Aldrich breached his fiduciary duty of loyalty by engaging in the unauthorized disclosure of AMA's confidential and proprietary information to a competitor for purposes that were adverse to AMA's interests and, upon information and belief, for Aldrich's personal benefit or the benefit of Halcyon Creek Productions. The sustained, systematic nature of Aldrich's conduct — spanning approximately 14 months and involving approximately 340 emails — is inconsistent with an inadvertent or isolated lapse in judgment and strongly suggests a deliberate course of action undertaken in disregard of Aldrich's fiduciary obligations.

D. Conversion

AMA held proprietary ownership rights in the digital files constituting the show format bibles, pilot sizzle reels, and revenue model that Aldrich transmitted without authorization. Under § 10.1 of the Employment Agreement, all work product created by Aldrich in connection with his employment — including creative materials, business documents, and financial analyses — is the exclusive property of AMA. Aldrich's unauthorized appropriation and transmission of these proprietary digital files to his personal email account and to a third-party competitor constitutes conversion under California law.

While the damages flowing from the conversion claim may overlap substantially with those available under the breach of contract and CUTSA claims, the conversion cause of action provides an independent basis for relief and supports AMA's request for the return or destruction of all proprietary materials in Aldrich's possession or control.

V. Preliminary Exposure and Risk Assessment

A. AMA's Exposure on Aldrich's Claims

The following table summarizes AMA's estimated exposure on each component of Aldrich's claims:

We note that several of these components — particularly the emotional distress, lost future compensation, and punitive damages claims — represent Aldrich's demand-side projections and are significantly inflated relative to the likely range of actual exposure. The emotional distress claim is available only if the Tameny tort claim succeeds, which we assess as unlikely. The lost future compensation claim assumes that Aldrich was unable to secure comparable employment within a two-year period, which is speculative at this stage and subject to Aldrich's duty to mitigate. The punitive damages placeholder reflects a limited basis for punitive recovery on the current claims. Accordingly, AMA's realistic exposure is likely concentrated in the contractual severance components (salary continuation, pro-rata bonus, RSU acceleration, and COBRA subsidy), which total approximately $1,521,350.

B. AMA's Recovery on Cross-Claims

The value of AMA's cross-claims is primarily strategic, injunctive, and reputational rather than compensatory. Specifically:

• Actual Damages: The actual monetary damages flowing from Aldrich's transmission of materials to Halcyon Creek are difficult to quantify at this stage. Unless and until AMA can establish that Halcyon Creek developed competing programming or otherwise commercially exploited the stolen materials, the direct financial harm to AMA remains speculative. An investigation into Halcyon Creek's activities is ongoing, and discovery in this litigation may reveal additional information.

• Settlement Leverage: The cross-claims provide significant leverage in settlement negotiations by shifting the narrative from one in which AMA is a defendant accused of wrongful termination to one in which Aldrich is a disloyal executive who systematically misappropriated his employer's most valuable trade secrets and delivered them to a competitor. This narrative reframing is one of the most important strategic functions of the cross-complaint.

• Establishing the "For Cause" Narrative: The cross-claims reinforce AMA's position that the "for cause" termination was justified and that Aldrich's conduct constituted genuine misconduct — not pretext.

• Deterrence: Filing the cross-complaint signals to Aldrich and his counsel that AMA will not passively defend this litigation but will pursue affirmative claims that expose Aldrich to potential liability and reputational harm.

• Injunctive Relief: The cross-complaint supports a request for injunctive relief requiring Aldrich to return or destroy all proprietary AMA materials in his possession or control, including those stored on his personal email account, personal devices, and any materials in the possession of Halcyon Creek Productions.

• CUTSA Exemplary Damages: If AMA can establish that Aldrich's misappropriation was willful and malicious — which the sustained, systematic nature of the transmissions strongly suggests — AMA may be entitled to exemplary damages of up to two times actual damages under Cal. Civ. Code § 3426.3(c), as well as attorneys' fees under § 3426.4.

C. Preliminary Settlement Range

Based on our preliminary assessment of the claims and cross-claims, and taking into account the various risk factors and strategic considerations discussed in this memorandum, we estimate a preliminary settlement range of $1,500,000 to $3,000,000.

This range accounts for the following factors:

1. Litigation Risk on the "For Cause" Determination. The cure-period deficiency on the insubordination ground represents a significant vulnerability that substantially increases the probability of an adverse outcome on the breach of contract claim. The confidential information ground is factually stronger, but it will be subject to a vigorous pretext attack. On balance, we assess the probability of the "for cause" designation being sustained as moderate — approximately 40-55%.

2. California Public Policy on Non-Competes. Section 9.1 of the Employment Agreement is almost certainly void under California law, which eliminates one potential basis for AMA's cross-claims and one source of leverage.

3. Offsetting Leverage from AMA's Cross-Claims. The cross-claims for breach of contract, CUTSA misappropriation, breach of fiduciary duty, and conversion provide meaningful offsetting leverage. The documentary evidence is strong, and the narrative of a disloyal executive transmitting trade secrets to a competitor is compelling.

4. Cost of Continued Litigation vs. Early Resolution. The estimated cost of litigating the Aldrich matter through trial is approximately $465,000 in fees and expenses (per Phase 9 of the preliminary budget, Document 6 of this matter file). A settlement within the estimated range would likely be less expensive, on an all-in basis, than the combined cost of trial preparation, trial, and the risk-adjusted expected value of an adverse judgment.

5. Self-Funded Defense. As discussed in Section VII below, AMA's EPL carrier has denied coverage for this dispute. The entire cost of defense and any settlement will be borne by AMA, which increases the importance of cost-effective resolution.

We do not recommend engaging in settlement discussions at this early stage. AMA's leverage will improve once the cross-complaint is filed and once discovery has been pursued regarding Halcyon Creek's use of the transmitted materials.

VI. Restrictive Covenant Enforceability — Summary

Detailed analyses of the enforceability of the individual restrictive covenant provisions, and of the choice-of-law question, are provided in separate memoranda (Documents 13 and 14 of this matter file). The following table summarizes our conclusions:

Recommendations on Restrictive Covenant Strategy

Based on the foregoing analysis, we recommend the following approach to the restrictive covenant issues in this litigation:

1. Do not attempt to enforce § 9.1 (Non-Competition). The non-compete provision is almost certainly void under California law, and any attempt to enforce it would be counterproductive. We recommend that AMA affirmatively acknowledge its unenforceability in settlement discussions. Doing so will build credibility with opposing counsel and with the court, and will demonstrate that AMA is taking a measured and principled approach to the restrictive covenant issues.

2. Assert § 9.2 (Non-Solicitation of Employees) and § 9.4 (Confidentiality) as primary restrictive covenant bases for the cross-claims. These provisions represent AMA's strongest contractual protections and are likely to be enforced by a California court. Section 9.4, in particular, is directly supported by the factual record of Aldrich's unauthorized transmissions and provides a clear basis for injunctive relief.

3. Assert CUTSA trade secret claims as an independent cause of action. The CUTSA claim is not dependent on the enforceability of any contractual provision and provides an independent statutory basis for injunctive relief, damages, and exemplary damages.

4. Be prepared to narrow or abandon § 9.3 (Non-Solicitation of Business Relationships) in settlement. The breadth of this provision makes it vulnerable to challenge, and insisting on its full enforcement could undermine AMA's overall position. In settlement discussions, AMA may benefit from offering to narrow § 9.3 in exchange for concessions on other issues.

5. Do not rely on the New York choice-of-law clause (§ 14.3) to save the non-compete. The litigation risk of this argument is very high, and it is unlikely to succeed before a California court. More importantly, advancing this argument could undermine AMA's credibility with the court on issues where AMA has stronger legal and factual positions.

VII. Insurance Considerations

AMA maintains two insurance policies potentially relevant to the Aldrich dispute, neither of which is likely to provide meaningful coverage.

Employment Practices Liability (EPL) Policy — Pemberton Mutual Assurance Co. AMA's EPL policy is underwritten by Pemberton Mutual Assurance Co. (Policy No. PMA-EPL-2022-00837). Pemberton has denied coverage for the Aldrich dispute. On December 22, 2022, Pemberton issued a reservation of rights letter setting forth three grounds for its coverage denial:

(1) Insured v. Insured Exclusion (§ IV.C). Pemberton contends that AMA's cross-claims against Aldrich constitute offensive litigation by the insured against a former insured person, triggering the Insured v. Insured exclusion.

(2) Individual Dispute Limitation. Pemberton takes the position that Aldrich's claims arise from an individual employment dispute rather than a "pattern or practice" of employment practices, and therefore fall outside the scope of covered "Employment Practices" as defined in the policy.

(3) Proprietary Business Interests. Pemberton argues that the restrictive covenant and trade secret claims at the core of the dispute relate to AMA's proprietary business interests rather than to "Employment Practices" within the meaning of the policy.

Directors' & Officers' (D&O) Policy — Redcliffe Specialty Insurance Ltd. AMA also maintains a D&O liability policy underwritten by Redcliffe Specialty Insurance Ltd. (Policy No. RSI-DO-2022-04419). A precautionary notice was filed with Redcliffe on November 8, 2022, in anticipation of the Aldrich litigation. The D&O policy could potentially provide coverage if Aldrich amends his complaint to name individual officers as defendants — for example, Jonathan Mercer, in his capacity as the individual who directed the restructuring and authorized the termination. However, Aldrich has not yet named any individual defendants, and it is uncertain whether he will do so.

Implication for Litigation Strategy. The denial of EPL coverage means that AMA should budget for the full cost of defending the Aldrich dispute and funding any settlement as a self-funded obligation. This reality increases the importance of cost-effective litigation management and reinforces the value of early, strategic resolution when the timing is appropriate.

We do not recommend challenging Pemberton's coverage denial at this time. The cost of coverage litigation — which would involve separate counsel, potentially in a different jurisdiction, and significant legal fees — would likely exceed the potential recovery, particularly given the relatively narrow scope of the Aldrich dispute and the arguable applicability of the stated exclusions. We will continue to monitor the situation and will revisit this recommendation if circumstances change — for example, if Aldrich's claims expand in scope or if the EPL policy's coverage provisions are interpreted favorably in connection with the Fuentes class action.

VIII. Next Steps — Recommended Actions

Based on the preliminary assessment set forth above, we recommend the following actions:

1. File Answer and Cross-Complaint. We recommend a target filing date of January 20, 2023, for AMA's answer to Aldrich's complaint and the simultaneous filing of AMA's cross-complaint. The answer should include the following affirmative defenses, among others: unclean hands; justified "for cause" termination under the Employment Agreement; failure to mitigate damages; waiver and estoppel; and setoff and recoupment (based on AMA's cross-claims). The cross-complaint should assert causes of action for breach of the Employment Agreement (§§ 9.1, 9.2, 9.3, and 9.4, with appropriate caveats regarding the enforceability of § 9.1), misappropriation of trade secrets under CUTSA, breach of fiduciary duty, and conversion.

2. Prepare Supporting Declarations. We recommend preparing declarations from the following individuals in support of AMA's answer and cross-complaint:

(a) Jonathan Mercer, President of AMA — addressing the circumstances of Aldrich's termination, the business rationale for the restructuring directive, and the timeline of events in October 2022.

(b) Dwayne Prescott — addressing the proprietary value of the show format bibles, the "Summit Challenge" revenue model, and the unauthorized nature of Aldrich's transmissions. Prescott should speak to the commercial significance of the transmitted materials and the competitive harm that could result from their disclosure to a competitor.

3. Preserve Forensic Evidence. AMA must ensure that all DLP audit findings, email forwarding logs, laptop forensic analysis reports, and associated chain-of-custody documentation are preserved, securely stored, and maintained in a condition suitable for authentication and introduction as evidence. We recommend that AMA engage a qualified digital forensics firm, if it has not already done so, to create verified forensic images of all relevant systems and to prepare a chain-of-custody declaration.

4. Discovery Strategy. We recommend pursuing an aggressive discovery strategy focused on Aldrich's communications with Halcyon Creek Productions LLC. The central question for AMA's cross-claims — and for the quantification of any damages — is whether Halcyon Creek used or commercially exploited the materials transmitted by Aldrich. Discovery should include: (a) document requests targeting all communications between Aldrich and Nina Castellanos and/or Halcyon Creek Productions; (b) interrogatories regarding Halcyon Creek's programming development activities, particularly any projects that bear similarity to the transmitted show concepts ("Apex Endurance," "The Remix," "Untamed West"); and (c) if Aldrich does not produce fully, consideration of a third-party subpoena directed to Halcyon Creek Productions LLC.

5. Complete "For Cause" Analysis. We are preparing a detailed analysis of the contractual definition of "Cause" under § 7.2(b) of the Employment Agreement as applied to both stated grounds for termination. This analysis (to be issued as Document 15 of this matter file) will address the cure-period deficiency on the insubordination ground, the strength of the confidential information ground under §§ 7.2(b)(i) and (vi), and the interaction between the two grounds. This analysis should be completed by January 10, 2023, to inform the preparation of the answer and cross-complaint.

6. Complete Restrictive Covenant Analyses. We are preparing detailed memoranda on the enforceability of the restrictive covenants under California Business and Professions Code § 16600 (Document 13) and the choice-of-law question under Restatement (Second) of Conflict of Laws § 187(2) (Document 14). These memoranda should be completed by January 10, 2023.

7. Establish DLP Audit Timeline. This step is critical to AMA's defense of Aldrich's retaliation and pretext narratives. We recommend securing sworn declarations from Gregory Tanaka, Vice President of Legal & Compliance, and from the member(s) of AMA's IT security team who conducted the DLP audit, establishing the following facts:

(a) The DLP audit was a routine, calendar-driven review initiated in August 2022 as part of AMA's regular information security review cycle. It was not prompted by any specific suspicion regarding Aldrich or any other individual employee, and it was not initiated in response to the October 2022 insubordination events (which had not yet occurred).

(b) The preliminary findings of the DLP audit, including the discovery of anomalous email forwarding activity from Aldrich's account, were reported to Gregory Tanaka on September 6, 2022 — more than one month before the October 10, 2022 email from Aldrich refusing to comply with the restructuring directive.

(c) The delay between the September 6, 2022 preliminary findings and the October 14, 2022 termination is attributable to the time required to complete the forensic review of Aldrich's laptop, analyze the scope and nature of the transmitted materials, and consult with legal counsel regarding appropriate next steps. The delay was not motivated by any retaliatory intent.

These declarations will be essential to defeating Aldrich's claim that the DLP audit findings were a pretext for a retaliatory termination, and they should be prepared with care and precision.

8. Coordinate with Class Action. AMA must ensure that its positions and representations in the Aldrich individual action are fully consistent with those in the Fuentes v. Aurelius Media Americas Inc. class action. Both matters involve the same defendant (AMA), are pending in the same court (Los Angeles Superior Court), and implicate overlapping issues regarding AMA's HR policies, corporate culture, and management practices. Any inconsistency between AMA's positions in the two matters could be exploited by opposing counsel in either case. We recommend regular coordination between the litigation teams handling the two matters, including joint review of any substantive filings, deposition preparation, and discovery responses.

9. Mediation. We do not recommend engaging in pre-suit or early settlement discussions at this time. AMA's leverage in any negotiation will improve materially once the cross-complaint has been filed and once AMA has pursued initial discovery regarding Halcyon Creek's activities. We recommend planning for mediation in late 2023, potentially in conjunction with any mediation scheduled in the Fuentes class action. A joint mediation could provide opportunities for a global resolution that addresses both matters, although the strategic and confidentiality implications of such an approach would need to be carefully evaluated.

10. Budget. The Aldrich phase of this litigation is estimated at $465,000 in fees and expenses, as set forth in Phase 9 of the preliminary budget (Document 6 of this matter file). As discussed in Section VII above, this amount will be entirely self-funded by AMA, given Pemberton Mutual Assurance Co.'s denial of coverage under the EPL policy. We will provide updated b

CALDERWOOD & HARKNESS LLP 1999 Avenue of the Stars, 27th Floor Los Angeles, California 90067 Telephone: (310) 555-8200 | Facsimile: (310) 555-8201
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT This memorandum is protected from disclosure by the attorney-client privilege and the attorney work product doctrine. It is intended solely for the use of the addressees and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
MEMORANDUM
TO: Gregory Tanaka, Vice President, Legal & Compliance, Aurelius Media Americas Inc.; Philippa Cartwright, General Counsel, Aurelius Global Media Group plc
FROM: Renata Vasquez, Partner, and Devon Archer, Senior Associate, Calderwood & Harkness LLP
DATE: December 15, 2022
RE: Preliminary Case Assessment — Aldrich Individual Action (Aldrich v. Aurelius Media Americas Inc., LASC Case No. 22STCV41087)
Matter No.: 1017-00004
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I. Executive Summary
On December 9, 2022, Gavin Aldrich, the former Senior Vice President of Original Content & Executive Producer at Aurelius Media Americas Inc. ("AMA"), filed a complaint in the Superior Court of the State of California, County of Los Angeles (Case No. 22STCV41087) against AMA. The complaint asserts the following causes of action: (1) wrongful termination in violation of public policy under the Tameny doctrine; (2) breach of contract arising from AMA's designation of his October 14, 2022 termination as "for cause" under § 7.2(b) of his Employment Agreement; (3) breach of the implied covenant of good faith and fair dealing; (4) declaratory relief regarding the enforceability of the post-employment restrictive covenant provisions contained in § 9 of his Employment Agreement; and (5) violation of California Labor Code § 2802 for alleged failure to reimburse approximately $28,400 in business expenses.
Aldrich is represented by Cameron Whitfield of Whitfield & Associates, located at 9465 Wilshire Boulevard, Suite 320, Beverly Hills, California 90212. Whitfield & Associates has a well-established reputation and significant specialization in executive employment disputes and entertainment-industry talent and producer agreements. The associate assigned to the Aldrich team is Julia Nazarian. Whitfield's involvement signals that Aldrich intends to litigate this matter aggressively and seek a substantial recovery. The case has been assigned to the Honorable Catherine Villanueva, Department 52, who is generally regarded as a capable and fair jurist with experience in complex employment matters.
This memorandum provides a preliminary assessment of each of Aldrich's claims, evaluates AMA's exposure, recommends specific cross-claims that AMA should assert against Aldrich, addresses the enforceability of the restrictive covenants at issue, discusses insurance considerations, and outlines recommended next steps. As discussed in greater detail below, we believe that AMA's overall exposure, while significant, can be effectively managed through the assertion of strong cross-claims arising from Aldrich's unauthorized transmission of confidential and proprietary materials to a competitor. The preliminary settlement range, taking into account all claims and cross-claims, is estimated at $1,500,000 to $3,000,000.
We note at the outset that AMA's Employment Practices Liability ("EPL") insurer, Pemberton Mutual Assurance Co., has denied coverage for this dispute. Accordingly, the entire cost of defense and any potential settlement will be self-funded by AMA. This reality should inform AMA's litigation strategy, including the timing and approach to settlement discussions.
II. Background — Aldrich Employment and Termination
A. Employment History
Gavin Aldrich was employed by AMA from September 5, 2017 through October 14, 2022, a period of approximately five years and one month. His employment was governed by an Employment Agreement originally dated September 5, 2017 (the "Employment Agreement"), as subsequently modified by a First Amendment dated August 1, 2020 (the "First Amendment").
Aldrich was initially hired as Vice President of Original Content, reporting to Jonathan Mercer, President of AMA. In this role, Aldrich was responsible for developing and overseeing AMA's pipeline of original unscripted and reality television content for domestic and international distribution. Aldrich brought with him significant industry experience and relationships, and during his first two and a half years at AMA, he played a material role in expanding the company's unscripted programming portfolio.
Effective January 1, 2020, and in connection with the execution of the First Amendment on August 1, 2020, Aldrich was promoted to the position of Senior Vice President of Original Content & Executive Producer. This promotion reflected both Aldrich's expanded responsibilities within the organization and the increased commercial success of several programs under his supervision. In his elevated role, Aldrich continued to report directly to Jonathan Mercer and oversaw AMA's entire Unscripted Programming Division, including multiple show units spanning development, production, and post-production operations.
At the time of his termination, Aldrich's compensation package included the following material components:
• Base Salary: $485,000 per annum.
• Discretionary Annual Bonus: Aldrich was eligible for an annual performance bonus at the discretion of AMA management. His most recent bonus, for fiscal year 2021, was $225,000. There was no contractual guarantee of any minimum bonus amount; however, Aldrich had received a bonus in each year of his employment with AMA, with amounts ranging from $150,000 to $225,000.
• Equity Compensation: Aldrich held 42,500 restricted stock units ("RSUs") in Aurelius Global Media Group plc ("AGMG"), AMA's UK-domiciled parent company. At the time of termination, 15,300 of these RSUs remained unvested and subject to continued employment vesting conditions. Based on the AGMG closing share price on the London Stock Exchange as of October 14, 2022 (£18.79 per share), and using the approximate GBP/USD exchange rate of $1.155 per pound sterling, the per-share value in U.S. dollars was approximately $21.71. Accordingly, the estimated value of the unvested RSUs at termination was approximately $332,200 (15,300 units × $21.71 per unit).
Aldrich resided at 1140 Tower Road, Beverly Hills, California 90210, throughout his employment with AMA. He performed substantially all of his duties and services from AMA's offices in Los Angeles and from locations in the greater Los Angeles area, with periodic travel to production sites and industry events throughout the United States.
B. Termination — "For Cause" Under § 7.2(b)
AMA terminated Aldrich's employment "for cause" on October 14, 2022, pursuant to § 7.2(b) of the Employment Agreement. The termination was based on two stated grounds, each of which is discussed below.
Ground 1: Unauthorized Transmission of Confidential Information (Policy Violations)
In September 2022, AMA's internal IT security team, operating under the direction of Gregory Tanaka, Vice President of Legal & Compliance, discovered anomalous email forwarding activity from Aldrich's AMA corporate email account during the course of a routine data loss prevention ("DLP") audit. The DLP audit had been initiated in August 2022 as part of AMA's regularly scheduled information security review cycle, and was not prompted by any specific suspicion regarding Aldrich or any other employee. This chronological fact — that the audit predated the subsequent insubordination events — is of critical importance to AMA's defense of Aldrich's retaliation theory, as discussed in detail in Section III.A below and in the recommended next steps outlined in Section VIII.
The DLP audit and subsequent forensic investigation revealed the following:
Personal Email Forwarding. Over an approximately 14-month period spanning from July 2021 through September 2022, Aldrich forwarded approximately 340 emails containing proprietary and confidential AMA information from his corporate email account (galdrich@aureliusmedia.com) to his personal Northgate Software account (galdrich.private@Northgate Software.com). The content of the forwarded emails included, but was not limited to, proprietary show concepts and development materials, pilot scripts and treatments, audience analytics reports, revenue projections and financial models, and the terms of talent and producer agreements. This volume and pattern of forwarding far exceeded what might be attributable to incidental or inadvertent activity and constituted a sustained and systematic extraction of proprietary data from AMA's information systems.
Transmission to Halcyon Creek Productions LLC. More significantly, forensic analysis of Aldrich's AMA-issued laptop computer revealed that a subset of the confidential materials had also been transmitted to an email address associated with Halcyon Creek Productions LLC ("Halcyon Creek") — specifically, the address info@halcyoncreekprod.com. Halcyon Creek is a California-based production company that operates as a competitor to AMA in the unscripted and reality television production space. The specific materials transmitted to Halcyon Creek included:
(a) Three unscripted show format "bibles" — comprehensive development documents containing detailed creative, structural, and commercial information — for concepts titled "Apex Endurance," "The Remix," and "Untamed West";
(b) Two pilot sizzle reels — professionally produced promotional presentations used to pitch programming concepts to networks and platforms — for the "Apex Endurance" and "The Remix" concepts; and
(c) A detailed revenue model for AMA's top-performing unscripted franchise, "Summit Challenge," which generates approximately $42 million in annual revenue and is one of AMA's most valuable programming assets.
Halcyon Creek Productions LLC is owned and operated by Nina Castellanos, a former AMA development executive who departed AMA in January 2022. (We note that Ms. Castellanos is not related to any member of Aldrich's legal team or any other party to this litigation.) Halcyon Creek was formed as a California limited liability company on February 14, 2022, approximately one month after Castellanos's departure from AMA. Aldrich and Castellanos have a long-standing professional relationship that predates their respective periods of employment at AMA, having previously worked together at a prior employer in the entertainment industry. The formation of Halcyon Creek shortly after Castellanos's departure from AMA, combined with Aldrich's transmission of proprietary materials to the company, raises significant questions about whether Aldrich and Castellanos may have been planning a competing venture while both were still employed by AMA.
These transmissions constitute clear violations of § 9.4 (Confidentiality) of the Employment Agreement, which imposes ongoing obligations on Aldrich to maintain the confidentiality of AMA's proprietary information and prohibits disclosure to third parties without authorization. The transmissions also violate AMA's Acceptable Use and Confidentiality Policy, which was last revised in March 2021 and for which Aldrich signed a written acknowledgment of receipt and understanding on April 12, 2021.
Ground 2: Insubordination
In early October 2022, AMA President Jonathan Mercer directed Aldrich to restructure the Unscripted Programming Division by consolidating two show units and reducing headcount by approximately 15%. The restructuring directive was driven by legitimate business considerations, including budgetary constraints, operational efficiency objectives, and strategic realignment of AMA's programming priorities.
The following sequence of events ensued:
• October 10, 2022: Aldrich sent an email to Mercer explicitly refusing to comply with the restructuring directive. In his email, Aldrich characterized the directive as "creatively bankrupt and commercially idiotic" and stated that he would "not participate in dismantling [his] division." The tone and content of this communication reflected a direct and unequivocal refusal to follow the instructions of his direct supervisor and the president of the company.
• October 11, 2022 (morning): Mercer issued a formal written warning to Aldrich, reiterating the restructuring directive and directing Aldrich's compliance. The written warning specifically advised Aldrich that continued refusal to comply with legitimate management directives could result in disciplinary action, up to and including termination of employment.
• October 11, 2022 (later that day): Rather than complying with the directive or engaging in further dialogue with Mercer, Aldrich forwarded the entire email chain — including both his own refusal and Mercer's written warning — to six of his subordinates, consisting of three show-runners and two division heads within the Unscripted Programming Division. Aldrich's forwarding email included the following comment: "For your awareness — the London suits are gutting our operation." This dissemination of internal management communications to subordinate employees, accompanied by a derisive characterization of senior leadership, represented a significant escalation of Aldrich's insubordination and was plainly intended to undermine the restructuring directive and to foment opposition among division personnel.
• October 14, 2022: AMA terminated Aldrich's employment "for cause," citing both the DLP audit findings regarding unauthorized transmission of confidential information and the insubordination described above.
III. Aldrich's Claims — Analysis
A. Wrongful Termination in Violation of Public Policy (Tameny Doctrine)
Summary of the Claim
Aldrich's first cause of action alleges wrongful termination in violation of public policy under the framework established by the California Supreme Court in Tameny v. Tarrant Holdings (1980) 27 Cal.3d 167. Aldrich alleges that his termination was not, in fact, motivated by the stated grounds of unauthorized transmission of confidential information and insubordination, but was instead retaliatory. Specifically, Aldrich characterizes his October 10, 2022 refusal to implement the restructuring directive as a protected act of objecting to a scheme by AMA management to misclassify certain hourly employees as salaried/exempt for the purpose of reducing overtime costs in violation of California's wage-and-hour laws. Aldrich contends that his termination was causally connected to this objection and that the stated grounds were pretextual.
Legal Standard. To prevail on a Tameny claim, Aldrich must establish four elements: (1) an employer-employee relationship existed; (2) the employer terminated the employee; (3) the termination was substantially motivated by a violation of public policy; and (4) the discharge caused the employee damages. The public policy relied upon must be "(1) delineated in either constitutional or statutory provisions; (2) 'public' in the sense that it inures to the benefit of the public rather than serving merely the interests of the individual; (3) well established at the time of the discharge; and (4) substantial and fundamental." Stevenson v. Superior Court (1997) 16 Cal.4th 880, 894. Importantly, an employee who is terminated for refusing to participate in an unlawful act, or for reporting unlawful conduct, may state a Tameny claim.
Assessment. This claim is relatively weak on the current evidentiary record, but it cannot be dismissed entirely.
Aldrich's burden is to establish that his objection to the restructuring was motivated by a specific, clearly articulated public policy — in this case, California's wage-and-hour statutes prohibiting the misclassification of non-exempt employees. The restructuring directive issued by Mercer, however, was facially a legitimate business decision to consolidate operations and reduce headcount. It did not, on its face, involve or contemplate the reclassification of any employee's exempt or non-exempt status. Aldrich's characterization of the directive as a "misclassification scheme" is, at present, unsupported by the available documentary evidence. His October 10 email to Mercer objects to the restructuring on creative and commercial grounds — describing it as "creatively bankrupt and commercially idiotic" — not on the grounds that it would violate wage-and-hour laws. There is no contemporaneous documentary evidence that Aldrich raised any wage-and-hour concern to anyone at AMA prior to his termination.
However, we must acknowledge two sources of risk on this claim. First, if Aldrich can produce evidence — whether through his own testimony, the testimony of other witnesses, or internal AMA communications — linking the restructuring directive to an intent by AMA management to convert hourly positions to salaried/exempt status in order to avoid overtime obligations, this claim becomes significantly more dangerous. Aldrich will have the opportunity in discovery to probe the underlying business rationale for the restructuring and to seek communications among AMA management discussing the potential reclassification of employees.
Second, and of particular concern, this claim acquires a dangerous resonance when considered alongside the concurrent class action, Fuentes v. Aurelius Media Americas Inc., which alleges systematic wage-and-hour violations across AMA's production operations. If Aldrich can establish even a colorable connection between the restructuring directive and the type of misclassification practices alleged in Fuentes, the Tameny claim could prove difficult to dispose of on summary judgment and could be highly sympathetic to a jury.
Notwithstanding these risks, we believe that AMA has a strong factual defense. The DLP audit findings constitute an independent and well-documented basis for termination, and the timeline of the audit (initiated in August 2022, with preliminary findings reported on September 6, 2022) predates the insubordination events of October 2022. This chronology substantially undermines Aldrich's retaliation narrative. To preserve this defense, it is critical that AMA take the steps outlined in Section VIII.7 below to establish the DLP audit timeline through sworn declarations.
B. Breach of Contract — Wrongful "For Cause" Designation
Summary of the Claim
Aldrich's second cause of action alleges that the "for cause" designation applied to his termination was wrongful and that the underlying facts do not satisfy the contractual definition of "Cause" as set forth in § 7.2(b) of the Employment Agreement. If Aldrich prevails on this claim, the termination would be re-characterized as a termination "without cause," entitling Aldrich to the full severance benefits specified in the Employment Agreement.
Severance Benefits if Termination is "Without Cause"
Under the terms of the Employment Agreement, if Aldrich's termination is deemed to be "without cause" (rather than "for cause"), Aldrich would be entitled to the following severance benefits:
(a) Salary Continuation: Twenty-four (24) months of base salary continuation, calculated at Aldrich's annualized rate of $485,000, for a total of $970,000;
(b) Pro-Rata Bonus: A pro-rata portion of his annual bonus for fiscal year 2022, based on the most recent bonus paid ($225,000 for FY 2021) and the number of completed months of employment during FY 2022 (approximately 9.5 months), resulting in an estimated pro-rata bonus of approximately $168,750 (calculated as $225,000 × 9.5/12);
(c) COBRA Subsidy: Continued employer-subsidized health insurance coverage under COBRA for a period of eighteen (18) months following termination;
(d) RSU Acceleration: Accelerated vesting of all unvested RSUs held at the time of termination — specifically, 15,300 units with an estimated aggregate value of approximately $332,200, based on the per-unit value of approximately $21.71 as calculated above.
Assessment. This is Aldrich's strongest claim, and it presents AMA's most significant litigation risk.
We have conducted a preliminary analysis of the contractual definition of "Cause" under § 7.2(b) of the Employment Agreement as applied to both stated grounds for termination. A detailed analysis is provided in a separate memorandum (Document 15 of this matter file). Our preliminary conclusions are summarized here.
Insubordination Ground — Cure Period Deficiency. Section 7.2(b)(iv) of the Employment Agreement permits termination for cause based on "willful refusal or failure to follow a lawful directive of the Board or the Executive's direct supervisor, provided that such refusal or failure continues after written notice and a cure period of not less than fifteen (15) business days." AMA's termination timeline is fatally compressed with respect to this requirement. Mercer issued the formal written warning on October 11, 2022, and AMA terminated Aldrich on October 14, 2022 — a span of only three calendar days, or approximately one business day. This is far short of the contractually mandated 15-business-day cure period. Aldrich's counsel will almost certainly argue — with considerable force — that AMA failed to comply with its own contractual prerequisites for a "for cause" termination on the insubordination ground. This argument is well-founded and constitutes a significant vulnerability for AMA.
We anticipate that AMA may seek to argue that Aldrich's conduct on October 11 (forwarding the email chain to subordinates with a disparaging commentary) constituted a further act of insubordination or that it demonstrated that any cure period would have been futile. However, the contractual language does not include a futility exception, and California courts generally enforce contractual cure-period provisions strictly. The risk of this argument prevailing is, at best, moderate.
Confidential Information Ground — Stronger but Subject to Pretext Attack. Section 7.2(b)(i) of the Employment Agreement permits termination for cause based on "fraud, embezzlement, misappropriation, or other act of material dishonesty," and § 7.2(b)(vi) permits termination for "material breach of any provision of this Agreement." Aldrich's unauthorized transmission of confidential materials to his personal email account and to Halcyon Creek Productions constitutes a strong factual basis for termination under both of these provisions. The documentary evidence is objective and compelling: IT forensic logs, email records, and laptop analysis establish the transmissions occurred, and Aldrich does not appear to dispute that the transmissions took place.
However, Aldrich will vigorously attack this ground as pretextual. His theory will be that AMA was aware of the DLP audit findings by September 6, 2022, but did not act on them until October 14, 2022 — after the insubordination events. Aldrich will argue that the confidential information ground was elevated to a termination-level offense only after Aldrich refused to comply with the restructuring directive, and that the true motivation for the termination was retaliation for his objection. To counter this pretext argument, AMA must establish a credible explanation for the approximately five-week delay between the September 6 preliminary findings and the October 14 termination. As discussed in Section VIII.7, we recommend securing declarations from Gregory Tanaka and the IT security team establishing that the delay was attributable to the completion of the forensic review and consultation with counsel, not to any retaliatory motive.
In sum, while the confidential information ground is factually strong, the cure-period deficiency on the insubordination ground creates a substantial risk that a court or jury could conclude that the overall "for cause" determination was procedurally defective or pretextual. The potential financial consequence — full severance benefits totaling in excess of $1.47 million — makes this claim the primary driver of AMA's exposure in this litigation.
C. Breach of the Implied Covenant of Good Faith and Fair Dealing
Summary of the Claim
Aldrich's third cause of action alleges that AMA breached the implied covenant of good faith and fair dealing by manufacturing the "for cause" termination for the purpose of avoiding its contractual obligation to pay severance benefits and to trigger the forfeiture of Aldrich's unvested RSUs. Aldrich contends that AMA acted in bad faith by seizing upon the DLP audit findings and the insubordination as pretextual justifications for a termination decision that was, in reality, motivated by a desire to deny him the benefits to which he was contractually entitled.
Assessment. This claim rises or falls with the breach of contract claim. Under California law, the implied covenant of good faith and fair dealing is read into every contract and prohibits one party from doing anything that would deprive the other party of the benefits of the agreement. However, the implied covenant claim does not create an independent cause of action separate from the underlying contract. Rather, it provides a theory through which the breach of contract claim can be framed as one involving bad faith and intentional deprivation of contractual benefits, which could support enhanced or consequential damages beyond the face value of the severance provisions.
If the "for cause" designation is sustained, the implied covenant claim fails because AMA would have acted within its contractual rights. Conversely, if the "for cause" designation is overturned — particularly if the evidence supports a finding that AMA deliberately manufactured or exaggerated the stated grounds to avoid paying severance — the implied covenant claim adds a layer of bad faith that could expand the scope of available damages, including potential tort damages for emotional distress.
Standing alone, the implied covenant claim does not create meaningful independent exposure beyond what is already captured in the breach of contract analysis. However, it provides Aldrich's counsel with a narrative framework that, if presented effectively, could influence a jury's perception of AMA's conduct and motivations.
D. Declaratory Relief — Restrictive Covenant Enforceability
Summary of the Claim
Aldrich's fourth cause of action seeks a judicial declaration that the restrictive covenant provisions in § 9 of the Employment Agreement are void and unenforceable under California Business and Professions Code § 16600. This claim targets three specific provisions:
§ 9.1 — Non-Competition. This provision imposes an 18-month post-termination restriction prohibiting Aldrich from working for any "Competing Enterprise," defined as any entity deriving 25% or more of its revenue from unscripted/reality television content production, licensing, or distribution in North America.
§ 9.2 — Non-Solicitation of Employees. This provision imposes a 24-month post-termination restriction prohibiting Aldrich from soliciting, recruiting, or inducing any AMA employee with whom Aldrich worked within the preceding 12 months to leave AMA's employment.
§ 9.3 — Non-Solicitation of Business Relationships. This provision imposes a 24-month post-termination restriction prohibiting Aldrich from soliciting or diverting business from any network, platform, advertiser, or other business relationship with whom Aldrich had material contact during the preceding 24 months of his employment.
The Employment Agreement also contains a New York choice-of-law clause (§ 14.3), which provides: "This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws principles." Aldrich argues that, notwithstanding this provision, California law governs the enforceability analysis because he was based in California, performed all of his services in California, and California has the most significant relationship to the employment relationship and the restrictive covenant provisions at issue.
Assessment. Detailed analyses of the enforceability of the restrictive covenants and the choice-of-law question are provided in separate memoranda (Documents 13 and 14 of this matter file). Our summary conclusions are as follows:
§ 9.1 — Non-Competition: Almost Certainly Void. California Business and Professions Code § 16600 broadly provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." The California Supreme Court in Edwards v. Kraft Quill CPAs LLP (2008) 44 Cal.4th 937 emphatically rejected the "narrow restraint" or "reasonableness" exception to § 16600, holding that § 16600 applies to any contractual provision that restrains an employee from pursuing his or her profession, regardless of how narrowly the restraint is drawn. The only recognized exceptions are those expressly enumerated in §§ 16601–16602 (sale of a business; dissolution of a partnership), none of which apply here. Accordingly, § 9.1 is almost certainly void and unenforceable under California law, and AMA should not attempt to enforce this provision. Attempting to do so would risk sanctions, damage AMA's credibility with the court, and undermine AMA's position on the other restrictive covenant provisions where AMA has stronger arguments.
§ 9.2 — Non-Solicitation of Employees: Likely Enforceable. Most California courts have distinguished employee non-solicitation provisions from non-competition clauses, holding that a narrowly drawn prohibition on soliciting former colleagues does not constitute an impermissible restraint on engaging in a profession. The provision at issue here is reasonably narrow in scope: it is limited to a 24-month period and applies only to employees with whom Aldrich had a direct working relationship within the preceding 12 months. However, we note that the Court of Appeal's decision in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923 introduced some uncertainty by suggesting that employee non-solicitation provisions may, in some circumstances, run afoul of § 16600. The AMN Healthcare decision has not been universally followed, and its reasoning has been questioned by subsequent courts, but it represents a potential source of risk. On balance, we believe § 9.2 is likely enforceable but should be asserted with awareness of this developing area of law.
§ 9.3 — Non-Solicitation of Business Relationships: Vulnerable. This provision is more problematic. Unlike the narrower employee non-solicitation clause, § 9.3 prohibits Aldrich from soliciting or diverting business from any "network, platform, advertiser, or other business relationship" with whom Aldrich had "material contact" during the preceding 24 months. Given the scope of Aldrich's role as SVP of the Unscripted Programming Division, this provision could encompass dozens of major media companies, streaming platforms, and advertising partners — effectively precluding Aldrich from engaging in meaningful work in the unscripted television industry. Broader customer and client non-solicitation clauses of this type have been struck down by California courts as de facto non-competes that violate § 16600. The 24-month duration and the breadth of covered relationships further exacerbate this vulnerability. AMA should be prepared to narrow or abandon this provision in settlement discussions.
§ 9.4 — Confidentiality: Fully Enforceable. The confidentiality provision in § 9.4 imposes an indefinite obligation on Aldrich to maintain the confidentiality of proprietary AMA information, including proprietary content, show formats, revenue data, and talent agreement terms. This provision is fully enforceable under California law. Confidentiality provisions are not subject to § 16600, and the trade secret protections provided by the California Uniform Trade Secrets Act ("CUTSA"), Cal. Civ. Code § 3426 et seq., independently support AMA's right to protect the confidentiality of the materials at issue. Section 9.4 is AMA's strongest restrictive covenant provision and forms the foundation for AMA's recommended cross-claims.
§ 14.3 — Choice of Law (New York): Unlikely to Be Enforced. Aldrich argues that the New York choice-of-law clause should not be applied to save the non-competition provision, and we agree that this argument is likely to prevail before a California court. Under the Restatement (Second) of Conflict of Laws § 187(2), a contractual choice-of-law provision will not be enforced if (a) the chosen state has no substantial relationship to the parties or the transaction, or (b) application of the chosen state's law would be contrary to a fundamental public policy of the state with the most significant relationship to the issue. California's prohibition on non-competition agreements is uniformly regarded as a fundamental public policy of the state, and its application cannot be circumvented by contractual choice-of-law provisions for California-based employees performing services in California. This result is consistent with the Court of Appeal's analysis in Application Group, Inc. v. Hunter Group, Inc. (1998) 61 Cal.App.4th 881, which held that California's strong public policy against restraints on employment override a Virginia choice-of-law provision. We do not recommend that AMA rely on the New York choice-of-law clause to defend the enforceability of § 9.1; doing so would carry a very high litigation risk and could undermine AMA's credibility with the court on other issues.
E. Expense Reimbursement (Cal. Lab. Code § 2802)
Summary of the Claim
Aldrich's fifth cause of action alleges that AMA failed to reimburse him for approximately $28,400 in business expenses incurred during fiscal year 2022. The claimed expenses include travel costs, client entertainment expenses, and the business use of Aldrich's personal cell phone.
Assessment. If documented, this claim is likely valid. California Labor Code § 2802 imposes a strict obligation on employers to reimburse employees for "all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties." The statute applies regardless of any contrary company policy or the employee's failure to submit timely reimbursement requests. If Aldrich can substantiate the claimed expenses with reasonable documentation, AMA will have limited defenses.
We recommend that AMA promptly review its internal expense records to determine whether any of the claimed amounts were, in fact, submitted and processed or, conversely, whether Aldrich's reimbursement requests were denied or remain pending. This is a relatively small-dollar item in the context of the overall litigation, and it should be resolved — either by demonstrating that the expenses were already reimbursed, or by accounting for the amount in any settlement — to avoid providing Aldrich with an easy statutory claim and potential attorneys' fee recovery.
IV. Recommended Cross-Claims
We recommend that AMA file a cross-complaint against Aldrich asserting the following causes of action. The cross-complaint will serve multiple strategic purposes: providing leverage in settlement negotiations, establishing AMA's "for cause" narrative, deterring aggressive litigation tactics by Aldrich, and seeking affirmative relief — including injunctive relief — for Aldrich's misconduct.
A. Breach of Employment Agreement (§§ 9.1, 9.2, 9.3, 9.4)
Aldrich's unauthorized transmission of confidential and proprietary AMA information to his personal email account and, more critically, to Halcyon Creek Productions LLC constitutes a clear and well-documented breach of § 9.4 (Confidentiality) of the Employment Agreement. As described in Section II.B above, the transmitted materials include show format bibles, pilot sizzle reels, and a detailed revenue model for AMA's highest-grossing unscripted franchise, all of which are expressly covered by the confidentiality obligations in § 9.4.
Depending on the outcome of the choice-of-law analysis discussed in Section III.D above and in the separate memoranda (Documents 13 and 14), the same conduct may also constitute a breach of other restrictive covenant provisions, particularly § 9.2 (Non-Solicitation of Employees) to the extent Aldrich's relationship with Nina Castellanos — a former AMA employee — facilitated the formation of and transfer of materials to Halcyon Creek, and § 9.3 (Non-Solicitation of Business Relationships) if Halcyon Creek used the transmitted materials to solicit business from AMA's existing network and platform partners.
The documentary evidence supporting this cross-claim is strong. The IT forensic evidence — including email logs, laptop analysis records, and DLP audit reports — is objective, digitally timestamped, and independently verifiable. Aldrich does not appear to dispute that the transmissions occurred; rather, his defense is expected to focus on the characterization of the transmitted materials (i.e., whether they constitute truly confidential or proprietary information) and on the argument that the transmissions were made for legitimate business purposes. Both of these defenses are weak on the current facts.
B. Misappropriation of Trade Secrets (Cal. Civ. Code § 3426 et seq. — CUTSA)
The materials transmitted by Aldrich to Halcyon Creek Productions — specifically, the three show format bibles, the two pilot sizzle reels, and the "Summit Challenge" revenue model — constitute trade secrets within the meaning of the California Uniform Trade Secrets Act. Under CUTSA, a "trade secret" is defined as information that "derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use" and "is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." Cal. Civ. Code § 3426.1(d).
The materials at issue plainly satisfy both elements. Show format bibles and sizzle reels contain detailed creative, structural, and commercial information that has substantial independent economic value to AMA and would have significant value to a competitor in the unscripted television space. The "Summit Challenge" revenue model contains proprietary financial data regarding a franchise that generates approximately $42 million in annual revenue. None of these materials are publicly available, and AMA took reasonable measures to maintain their secrecy, including: requiring employees to execute confidentiality agreements; implementing and enforcing the Acceptable Use and Confidentiality Policy; restricting access to sensitive materials through access controls and permissions; and applying watermarking to certain documents to track distribution.
Aldrich's transmission of these materials to Halcyon Creek — a competitor — constitutes "misappropriation" under CUTSA, specifically the "disclosure or use of a trade secret of another without express or implied consent by a person who ... at the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was ... derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use." Cal. Civ. Code § 3426.1(b)(2).
The remedies available under CUTSA include: (1) injunctive relief to prevent further disclosure or use; (2) actual damages, including both the actual loss caused by the misappropriation and any unjust enrichment not captured by the actual loss calculation; and (3) exemplary damages of up to two times the actual damages award if the misappropriation is found to have been "willful and malicious." Cal. Civ. Code § 3426.3(c). Additionally, CUTSA provides for the recovery of reasonable attorneys' fees in cases of willful and malicious misappropriation or bad-faith claims. Cal. Civ. Code § 3426.4.
C. Breach of Fiduciary Duty
As Senior Vice President of Original Content & Executive Producer, Aldrich occupied a senior executive position within AMA and owed fiduciary duties of loyalty and care to the company. These duties are well established under California law and arise both from the employment relationship and from Aldrich's status as an officer of the corporation entrusted with significant authority over AMA's business operations, creative assets, and personnel.
Aldrich breached his fiduciary duty of loyalty by engaging in the unauthorized disclosure of AMA's confidential and proprietary information to a competitor for purposes that were adverse to AMA's interests and, upon information and belief, for Aldrich's personal benefit or the benefit of Halcyon Creek Productions. The sustained, systematic nature of Aldrich's conduct — spanning approximately 14 months and involving approximately 340 emails — is inconsistent with an inadvertent or isolated lapse in judgment and strongly suggests a deliberate course of action undertaken in disregard of Aldrich's fiduciary obligations.
D. Conversion
AMA held proprietary ownership rights in the digital files constituting the show format bibles, pilot sizzle reels, and revenue model that Aldrich transmitted without authorization. Under § 10.1 of the Employment Agreement, all work product created by Aldrich in connection with his employment — including creative materials, business documents, and financial analyses — is the exclusive property of AMA. Aldrich's unauthorized appropriation and transmission of these proprietary digital files to his personal email account and to a third-party competitor constitutes conversion under California law.
While the damages flowing from the conversion claim may overlap substantially with those available under the breach of contract and CUTSA claims, the conversion cause of action provides an independent basis for relief and supports AMA's request for the return or destruction of all proprietary materials in Aldrich's possession or control.
V. Preliminary Exposure and Risk Assessment
A. AMA's Exposure on Aldrich's Claims
The following table summarizes AMA's estimated exposure on each component of Aldrich's claims:
We note that several of these components — particularly the emotional distress, lost future compensation, and punitive damages claims — represent Aldrich's demand-side projections and are significantly inflated relative to the likely range of actual exposure. The emotional distress claim is available only if the Tameny tort claim succeeds, which we assess as unlikely. The lost future compensation claim assumes that Aldrich was unable to secure comparable employment within a two-year period, which is speculative at this stage and subject to Aldrich's duty to mitigate. The punitive damages placeholder reflects a limited basis for punitive recovery on the current claims. Accordingly, AMA's realistic exposure is likely concentrated in the contractual severance components (salary continuation, pro-rata bonus, RSU acceleration, and COBRA subsidy), which total approximately $1,521,350.
B. AMA's Recovery on Cross-Claims
The value of AMA's cross-claims is primarily strategic, injunctive, and reputational rather than compensatory. Specifically:
• Actual Damages: The actual monetary damages flowing from Aldrich's transmission of materials to Halcyon Creek are difficult to quantify at this stage. Unless and until AMA can establish that Halcyon Creek developed competing programming or otherwise commercially exploited the stolen materials, the direct financial harm to AMA remains speculative. An investigation into Halcyon Creek's activities is ongoing, and discovery in this litigation may reveal additional information.
• Settlement Leverage: The cross-claims provide significant leverage in settlement negotiations by shifting the narrative from one in which AMA is a defendant accused of wrongful termination to one in which Aldrich is a disloyal executive who systematically misappropriated his employer's most valuable trade secrets and delivered them to a competitor. This narrative reframing is one of the most important strategic functions of the cross-complaint.
• Establishing the "For Cause" Narrative: The cross-claims reinforce AMA's position that the "for cause" termination was justified and that Aldrich's conduct constituted genuine misconduct — not pretext.
• Deterrence: Filing the cross-complaint signals to Aldrich and his counsel that AMA will not passively defend this litigation but will pursue affirmative claims that expose Aldrich to potential liability and reputational harm.
• Injunctive Relief: The cross-complaint supports a request for injunctive relief requiring Aldrich to return or destroy all proprietary AMA materials in his possession or control, including those stored on his personal email account, personal devices, and any materials in the possession of Halcyon Creek Productions.
• CUTSA Exemplary Damages: If AMA can establish that Aldrich's misappropriation was willful and malicious — which the sustained, systematic nature of the transmissions strongly suggests — AMA may be entitled to exemplary damages of up to two times actual damages under Cal. Civ. Code § 3426.3(c), as well as attorneys' fees under § 3426.4.
C. Preliminary Settlement Range
Based on our preliminary assessment of the claims and cross-claims, and taking into account the various risk factors and strategic considerations discussed in this memorandum, we estimate a preliminary settlement range of $1,500,000 to $3,000,000.
This range accounts for the following factors:
1. Litigation Risk on the "For Cause" Determination. The cure-period deficiency on the insubordination ground represents a significant vulnerability that substantially increases the probability of an adverse outcome on the breach of contract claim. The confidential information ground is factually stronger, but it will be subject to a vigorous pretext attack. On balance, we assess the probability of the "for cause" designation being sustained as moderate — approximately 40-55%.
2. California Public Policy on Non-Competes. Section 9.1 of the Employment Agreement is almost certainly void under California law, which eliminates one potential basis for AMA's cross-claims and one source of leverage.
3. Offsetting Leverage from AMA's Cross-Claims. The cross-claims for breach of contract, CUTSA misappropriation, breach of fiduciary duty, and conversion provide meaningful offsetting leverage. The documentary evidence is strong, and the narrative of a disloyal executive transmitting trade secrets to a competitor is compelling.
4. Cost of Continued Litigation vs. Early Resolution. The estimated cost of litigating the Aldrich matter through trial is approximately $465,000 in fees and expenses (per Phase 9 of the preliminary budget, Document 6 of this matter file). A settlement within the estimated range would likely be less expensive, on an all-in basis, than the combined cost of trial preparation, trial, and the risk-adjusted expected value of an adverse judgment.
5. Self-Funded Defense. As discussed in Section VII below, AMA's EPL carrier has denied coverage for this dispute. The entire cost of defense and any settlement will be borne by AMA, which increases the importance of cost-effective resolution.
We do not recommend engaging in settlement discussions at this early stage. AMA's leverage will improve once the cross-complaint is filed and once discovery has been pursued regarding Halcyon Creek's use of the transmitted materials.
VI. Restrictive Covenant Enforceability — Summary
Detailed analyses of the enforceability of the individual restrictive covenant provisions, and of the choice-of-law question, are provided in separate memoranda (Documents 13 and 14 of this matter file). The following table summarizes our conclusions:
Recommendations on Restrictive Covenant Strategy
Based on the foregoing analysis, we recommend the following approach to the restrictive covenant issues in this litigation:
1. Do not attempt to enforce § 9.1 (Non-Competition). The non-compete provision is almost certainly void under California law, and any attempt to enforce it would be counterproductive. We recommend that AMA affirmatively acknowledge its unenforceability in settlement discussions. Doing so will build credibility with opposing counsel and with the court, and will demonstrate that AMA is taking a measured and principled approach to the restrictive covenant issues.
2. Assert § 9.2 (Non-Solicitation of Employees) and § 9.4 (Confidentiality) as primary restrictive covenant bases for the cross-claims. These provisions represent AMA's strongest contractual protections and are likely to be enforced by a California court. Section 9.4, in particular, is directly supported by the factual record of Aldrich's unauthorized transmissions and provides a clear basis for injunctive relief.
3. Assert CUTSA trade secret claims as an independent cause of action. The CUTSA claim is not dependent on the enforceability of any contractual provision and provides an independent statutory basis for injunctive relief, damages, and exemplary damages.
4. Be prepared to narrow or abandon § 9.3 (Non-Solicitation of Business Relationships) in settlement. The breadth of this provision makes it vulnerable to challenge, and insisting on its full enforcement could undermine AMA's overall position. In settlement discussions, AMA may benefit from offering to narrow § 9.3 in exchange for concessions on other issues.
5. Do not rely on the New York choice-of-law clause (§ 14.3) to save the non-compete. The litigation risk of this argument is very high, and it is unlikely to succeed before a California court. More importantly, advancing this argument could undermine AMA's credibility with the court on issues where AMA has stronger legal and factual positions.
VII. Insurance Considerations
AMA maintains two insurance policies potentially relevant to the Aldrich dispute, neither of which is likely to provide meaningful coverage.
Employment Practices Liability (EPL) Policy — Pemberton Mutual Assurance Co. AMA's EPL policy is underwritten by Pemberton Mutual Assurance Co. (Policy No. PMA-EPL-2022-00837). Pemberton has denied coverage for the Aldrich dispute. On December 22, 2022, Pemberton issued a reservation of rights letter setting forth three grounds for its coverage denial:
(1) Insured v. Insured Exclusion (§ IV.C). Pemberton contends that AMA's cross-claims against Aldrich constitute offensive litigation by the insured against a former insured person, triggering the Insured v. Insured exclusion.
(2) Individual Dispute Limitation. Pemberton takes the position that Aldrich's claims arise from an individual employment dispute rather than a "pattern or practice" of employment practices, and therefore fall outside the scope of covered "Employment Practices" as defined in the policy.
(3) Proprietary Business Interests. Pemberton argues that the restrictive covenant and trade secret claims at the core of the dispute relate to AMA's proprietary business interests rather than to "Employment Practices" within the meaning of the policy.
Directors' & Officers' (D&O) Policy — Redcliffe Specialty Insurance Ltd. AMA also maintains a D&O liability policy underwritten by Redcliffe Specialty Insurance Ltd. (Policy No. RSI-DO-2022-04419). A precautionary notice was filed with Redcliffe on November 8, 2022, in anticipation of the Aldrich litigation. The D&O policy could potentially provide coverage if Aldrich amends his complaint to name individual officers as defendants — for example, Jonathan Mercer, in his capacity as the individual who directed the restructuring and authorized the termination. However, Aldrich has not yet named any individual defendants, and it is uncertain whether he will do so.
Implication for Litigation Strategy. The denial of EPL coverage means that AMA should budget for the full cost of defending the Aldrich dispute and funding any settlement as a self-funded obligation. This reality increases the importance of cost-effective litigation management and reinforces the value of early, strategic resolution when the timing is appropriate.
We do not recommend challenging Pemberton's coverage denial at this time. The cost of coverage litigation — which would involve separate counsel, potentially in a different jurisdiction, and significant legal fees — would likely exceed the potential recovery, particularly given the relatively narrow scope of the Aldrich dispute and the arguable applicability of the stated exclusions. We will continue to monitor the situation and will revisit this recommendation if circumstances change — for example, if Aldrich's claims expand in scope or if the EPL policy's coverage provisions are interpreted favorably in connection with the Fuentes class action.
VIII. Next Steps — Recommended Actions
Based on the preliminary assessment set forth above, we recommend the following actions:
1. File Answer and Cross-Complaint. We recommend a target filing date of January 20, 2023, for AMA's answer to Aldrich's complaint and the simultaneous filing of AMA's cross-complaint. The answer should include the following affirmative defenses, among others: unclean hands; justified "for cause" termination under the Employment Agreement; failure to mitigate damages; waiver and estoppel; and setoff and recoupment (based on AMA's cross-claims). The cross-complaint should assert causes of action for breach of the Employment Agreement (§§ 9.1, 9.2, 9.3, and 9.4, with appropriate caveats regarding the enforceability of § 9.1), misappropriation of trade secrets under CUTSA, breach of fiduciary duty, and conversion.
2. Prepare Supporting Declarations. We recommend preparing declarations from the following individuals in support of AMA's answer and cross-complaint:
(a) Jonathan Mercer, President of AMA — addressing the circumstances of Aldrich's termination, the business rationale for the restructuring directive, and the timeline of events in October 2022.
(b) Dwayne Prescott — addressing the proprietary value of the show format bibles, the "Summit Challenge" revenue model, and the unauthorized nature of Aldrich's transmissions. Prescott should speak to the commercial significance of the transmitted materials and the competitive harm that could result from their disclosure to a competitor.
3. Preserve Forensic Evidence. AMA must ensure that all DLP audit findings, email forwarding logs, laptop forensic analysis reports, and associated chain-of-custody documentation are preserved, securely stored, and maintained in a condition suitable for authentication and introduction as evidence. We recommend that AMA engage a qualified digital forensics firm, if it has not already done so, to create verified forensic images of all relevant systems and to prepare a chain-of-custody declaration.
4. Discovery Strategy. We recommend pursuing an aggressive discovery strategy focused on Aldrich's communications with Halcyon Creek Productions LLC. The central question for AMA's cross-claims — and for the quantification of any damages — is whether Halcyon Creek used or commercially exploited the materials transmitted by Aldrich. Discovery should include: (a) document requests targeting all communications between Aldrich and Nina Castellanos and/or Halcyon Creek Productions; (b) interrogatories regarding Halcyon Creek's programming development activities, particularly any projects that bear similarity to the transmitted show concepts ("Apex Endurance," "The Remix," "Untamed West"); and (c) if Aldrich does not produce fully, consideration of a third-party subpoena directed to Halcyon Creek Productions LLC.
5. Complete "For Cause" Analysis. We are preparing a detailed analysis of the contractual definition of "Cause" under § 7.2(b) of the Employment Agreement as applied to both stated grounds for termination. This analysis (to be issued as Document 15 of this matter file) will address the cure-period deficiency on the insubordination ground, the strength of the confidential information ground under §§ 7.2(b)(i) and (vi), and the interaction between the two grounds. This analysis should be completed by January 10, 2023, to inform the preparation of the answer and cross-complaint.
6. Complete Restrictive Covenant Analyses. We are preparing detailed memoranda on the enforceability of the restrictive covenants under California Business and Professions Code § 16600 (Document 13) and the choice-of-law question under Restatement (Second) of Conflict of Laws § 187(2) (Document 14). These memoranda should be completed by January 10, 2023.
7. Establish DLP Audit Timeline. This step is critical to AMA's defense of Aldrich's retaliation and pretext narratives. We recommend securing sworn declarations from Gregory Tanaka, Vice President of Legal & Compliance, and from the member(s) of AMA's IT security team who conducted the DLP audit, establishing the following facts:
(a) The DLP audit was a routine, calendar-driven review initiated in August 2022 as part of AMA's regular information security review cycle. It was not prompted by any specific suspicion regarding Aldrich or any other individual employee, and it was not initiated in response to the October 2022 insubordination events (which had not yet occurred).
(b) The preliminary findings of the DLP audit, including the discovery of anomalous email forwarding activity from Aldrich's account, were reported to Gregory Tanaka on September 6, 2022 — more than one month before the October 10, 2022 email from Aldrich refusing to comply with the restructuring directive.
(c) The delay between the September 6, 2022 preliminary findings and the October 14, 2022 termination is attributable to the time required to complete the forensic review of Aldrich's laptop, analyze the scope and nature of the transmitted materials, and consult with legal counsel regarding appropriate next steps. The delay was not motivated by any retaliatory intent.
These declarations will be essential to defeating Aldrich's claim that the DLP audit findings were a pretext for a retaliatory termination, and they should be prepared with care and precision.
8. Coordinate with Class Action. AMA must ensure that its positions and representations in the Aldrich individual action are fully consistent with those in the Fuentes v. Aurelius Media Americas Inc. class action. Both matters involve the same defendant (AMA), are pending in the same court (Los Angeles Superior Court), and implicate overlapping issues regarding AMA's HR policies, corporate culture, and management practices. Any inconsistency between AMA's positions in the two matters could be exploited by opposing counsel in either case. We recommend regular coordination between the litigation teams handling the two matters, including joint review of any substantive filings, deposition preparation, and discovery responses.
9. Mediation. We do not recommend engaging in pre-suit or early settlement discussions at this time. AMA's leverage in any negotiation will improve materially once the cross-complaint has been filed and once AMA has pursued initial discovery regarding Halcyon Creek's activities. We recommend planning for mediation in late 2023, potentially in conjunction with any mediation scheduled in the Fuentes class action. A joint mediation could provide opportunities for a global resolution that addresses both matters, although the strategic and confidentiality implications of such an approach would need to be carefully evaluated.
10. Budget. The Aldrich phase of this litigation is estimated at $465,000 in fees and expenses, as set forth in Phase 9 of the preliminary budget (Document 6 of this matter file). As discussed in Section VII above, this amount will be entirely self-funded by AMA, given Pemberton Mutual Assurance Co.'s denial of coverage under the EPL policy. We will provide updated b

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