CALDERWOOD & HARKNESS LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017
Telephone: (213) 555-7200 Facsimile: (213) 555-7201 www.calderwoodharkness.com
November 8, 2022
C&H Matter No. 1017-00004
VIA EMAIL AND CERTIFIED MAIL
Claims Department Redcliffe Specialty Insurance Ltd. US Branch Office One Liberty Plaza, Suite 4600 New York, NY 10006
Re: Notice of Potential Claim — Directors' and Officers' Liability Policy Policy No.: RSI-DO-2022-04419 Named Insured: Aurelius Global Media Group PLC and Subsidiaries Potential Claim: Employment-Related Litigation Involving Aurelius Media Americas Inc.
Dear Sir or Madam:
I. Introduction
We write on behalf of our client, Aurelius Media Americas Inc. ("AMA"), a wholly owned United States subsidiary of Aurelius Global Media Group PLC ("AGMG"), to provide formal notice of a potential claim under Directors' and Officers' Liability Policy No. RSI-DO-2022-04419 issued by Redcliffe Specialty Insurance Ltd. (the "Policy"). Calderwood & Harkness LLP ("C&H") serves as outside litigation counsel to AMA in connection with employment-related litigation currently pending, and anticipated to be filed, in the Superior Court of the State of California, County of Los Angeles. The purpose of this letter is to provide timely notice of circumstances that may give rise to claims against individual directors and officers of AMA and AGMG, and thereby to preserve all rights of the Named Insured and its subsidiaries under the Policy.
AGMG is a United Kingdom-headquartered public media, entertainment, and e-commerce conglomerate, organized as a public limited company under the laws of England and Wales, registered with Companies House under No. 08412667. AGMG's ordinary shares are listed on the London Stock Exchange under the ticker symbol LSE: AGMG, and the company maintains its global headquarters at 34 Kingsway, London WC2B 6EX, United Kingdom. As of November 1, 2022, AGMG's market capitalization was approximately £3.82 billion (approximately $4.41 billion at prevailing exchange rates). For the fiscal year ended 2022, AGMG reported consolidated revenue of approximately £2.14 billion (approximately $2.47 billion). AGMG employs approximately 18,500 individuals across operations in 14 countries. AGMG's Chief Executive Officer is Sir Edmund Halesworth, its General Counsel is Philippa Cartwright, and its Chief Financial Officer is Malcolm Dunmore.
AMA is a Delaware corporation (Secretary of State File No. 5284731), duly qualified to transact business in the State of California. AMA's principal office is located at 8500 Sunset Boulevard, Suite 1400, West Hollywood, California 90069, and its California registered agent is Pacific Statutory Agents Inc., located at 2901 W. Alameda Avenue, Suite 200, Burbank, California 91505. AMA employs approximately 3,200 individuals in the United States, of whom approximately 2,400 are based in California. For the fiscal year ended 2022, AMA generated United States revenue of approximately $687.4 million. AMA's President is Jonathan Mercer, its Senior Vice President of Human Resources is Lorraine Okafor, and its Vice President of Legal & Compliance is Gregory Tanaka.
The Policy provides a primary limit of liability of $10,000,000, with an effective period running from July 1, 2022 through June 30, 2023. The Policy is further supported by an excess tower with a $25,000,000 aggregate limit of liability issued by Ashford Re Ltd. under Policy No. ARL-EX-2022-01102.
Set forth below is a detailed description of the potential claims and the circumstances giving rise to this notice.
II. Description of Potential Claims Implicating D&O Coverage
A. Class Action — *Fuentes v. Aurelius Media Americas Inc.*, LASC Case No. 22STCV38214
On November 1, 2022, a putative class action complaint was filed in the Superior Court of the State of California, County of Los Angeles, captioned Marisol Fuentes v. Aurelius Media Americas Inc., Case No. 22STCV38214 (the "Fuentes Action"). A true and correct copy of the complaint is enclosed herewith as an enclosure to this letter.
The named plaintiff, Marisol Fuentes, is a former Production Coordinator in AMA's Unscripted Programming Division. Ms. Fuentes was employed by AMA from March 14, 2019 through August 5, 2022, at an hourly rate of $28.50 per hour at the time of her separation from employment. Ms. Fuentes resides at 4227 Los Feliz Boulevard, Apt. 6, Los Angeles, California 90027.
The complaint alleges various wage-and-hour violations under the California Labor Code and related statutes, purportedly affecting approximately 1,850 current and former non-exempt, hourly employees of AMA in the State of California. The putative class, as defined in the complaint, encompasses "all current and former non-exempt, hourly employees of Aurelius Media Americas Inc. who worked in the State of California at any time from November 1, 2018 through the date of preliminary approval of any class settlement or, alternatively, through the date of final judgment following trial."
The complaint asserts seven causes of action, each premised on alleged systemic violations of California employment law. Specifically, the causes of action include: (1) failure to provide compliant meal periods in violation of California Labor Code Sections 226.7 and 512; (2) failure to provide compliant rest periods in violation of California Labor Code Section 226.7; (3) failure to pay overtime compensation in violation of California Labor Code Sections 510 and 1198; (4) failure to pay minimum wage in violation of California Labor Code Sections 1194, 1197, and 1197.1; (5) failure to provide accurate itemized wage statements in violation of California Labor Code Section 226; (6) waiting time penalties under California Labor Code Sections 201–203; and (7) unfair business practices in violation of California Business and Professions Code Section 17200 et seq. (the Unfair Competition Law, or "UCL"). The complaint further references applicable Industrial Welfare Commission Wage Orders, primarily Wage Order 12, which governs the Motion Picture Industry.
Aggregate damages claimed in the Fuentes Action, as calculated by plaintiffs' anticipated expert, are approximately $38.6 million. In addition, Ms. Fuentes served a notice under the California Private Attorneys General Act ("PAGA"), California Labor Code Section 2698 et seq., on the California Labor and Workforce Development Agency ("LWDA") dated September 15, 2022 (a copy of which is also enclosed herewith). The PAGA penalties claimed in that notice total approximately $12.2 million.
AMA operates seven production facilities in California and maintains 14 active show units across its unscripted, scripted, and digital programming divisions. AMA's primary timekeeping system is NovaPay Solutions' "TimeTrack Pro" platform, which utilizes electronic punch-in and punch-out functionality and includes an auto-deduction feature that automatically deducts 30 minutes for meal periods on employee shifts of six hours or greater. The plaintiffs' allegations center, in substantial part, on the contention that this auto-deduction system failed to accurately account for instances in which employees were denied compliant, duty-free meal periods and were not compensated with the required premium pay under California Labor Code Section 226.7.
Of particular relevance to this notice, while the primary claims in the Fuentes Action target AMA as the employer entity, certain allegations in the complaint reference the purported knowledge and directives of AMA's senior officers regarding the company's timekeeping policies. Specifically, the complaint alleges that AMA's President, Jonathan Mercer, and its Senior Vice President of Human Resources, Lorraine Okafor, were personally aware of the deficiencies in the automatic meal-period deduction system and nevertheless directed the continued implementation and use of that system across all California production facilities. To the extent that any individual directors or officers of AMA or AGMG are named in an amended complaint, or to the extent that derivative, shareholder, or securities-related claims arise from or are connected to the underlying employment litigation — including, by way of example, any claim that directors or officers failed to adequately oversee compliance with California employment law, thereby exposing AGMG to material financial liability — the Policy may be implicated.
We further note that a second related action by Derek Halloran, a former Post-Production Assistant in AMA's Unscripted Programming Division (employed from June 1, 2020 through November 30, 2022), is anticipated to be filed imminently. Based on communications received from Mr. Halloran's counsel, it is expected that the Halloran action will assert substantially similar claims on behalf of the same or an overlapping putative class and will likely be consolidated with the Fuentes Action. We will supplement this notice promptly upon the filing of the Halloran action.
Plaintiffs' counsel of record in the Fuentes Action is the firm of Castellano Byrne & Salas LLP, located at 11755 Wilshire Boulevard, Suite 900, Los Angeles, California 90025. The lead attorneys handling the matter are Marco Castellano, Diane Salas, and Trevor Kim. Castellano Byrne & Salas LLP is a plaintiffs' employment litigation firm that specializes in wage-and-hour class actions in the entertainment and hospitality industries and has a substantial track record of prosecuting such claims in the Los Angeles Superior Court.
PAGA co-counsel in the matter is Sandra Higuera of Veltrano Employment Law Group PC, located at 350 South Grand Avenue, Suite 2800, Los Angeles, California 90071.
B. Executive Employment Dispute — Gavin Aldrich
On October 14, 2022, AMA terminated the employment of Gavin Aldrich, its former Senior Vice President of Original Content & Executive Producer, purportedly "for cause" under the terms of his employment agreement with the company. Mr. Aldrich was employed by AMA from September 5, 2017 through October 14, 2022, pursuant to an Employment Agreement dated September 5, 2017, as amended effective August 1, 2020 (collectively, the "Employment Agreement").
At the time of his termination, Mr. Aldrich's base salary was $485,000 per year. His last annual bonus, paid for fiscal year 2021, was $225,000. In addition, Mr. Aldrich held 42,500 AGMG restricted stock units ("RSUs"), of which 15,300 remained unvested at the time of termination. Based on the AGMG share price as of the date of termination (approximately £18.79 per share, converted at an approximate exchange rate of $1.155 per pound sterling, yielding a per-share value of approximately $21.71), the estimated value of the unvested RSUs at termination was approximately $332,200.
AMA's termination of Mr. Aldrich was designated as "for cause" under Section 7.2(b) of the Employment Agreement. The stated bases for the "for cause" termination were twofold. First, AMA determined that Mr. Aldrich violated AMA's Acceptable Use and Confidentiality Policy by transmitting proprietary show concepts, development materials, and revenue data from his AMA corporate email account to his personal email account and, further, by forwarding a subset of those materials to representatives of Halcyon Creek Productions LLC, a California-based competitor of AMA that operates in the unscripted and reality television space. Second, AMA determined that Mr. Aldrich engaged in insubordination by refusing to comply with a direct instruction from AMA President Jonathan Mercer regarding the restructuring of AMA's unscripted programming division, including the reassignment and consolidation of certain show units under Mr. Aldrich's supervision.
Based on communications received from Mr. Aldrich's anticipated counsel, Cameron Whitfield of Whitfield & Associates, located at 9465 Wilshire Boulevard, Suite 320, Beverly Hills, California 90212, Mr. Aldrich is expected to file an individual action challenging his termination in the Superior Court of the State of California, County of Los Angeles, asserting the following claims:
(a) Wrongful termination in violation of public policy, contending that Mr. Aldrich's refusal to implement the division restructuring was motivated by his objection to certain employment practices he believed were unlawful, and that his termination was retaliatory;
(b) Breach of contract, contesting the "for cause" designation under Section 7.2(b) of the Employment Agreement and seeking full severance benefits under Section 7.3 of the Employment Agreement, calculated as $970,000 (representing 24 months of base salary at $485,000 per year), plus a pro-rata annual bonus, plus acceleration of all unvested RSUs;
(c) Breach of the implied covenant of good faith and fair dealing, alleging that AMA manufactured the "for cause" basis for termination in order to avoid payment of severance and acceleration of equity;
(d) Declaratory relief regarding the enforceability of post-employment restrictive covenants contained in the Employment Agreement, specifically the 18-month non-competition clause under Section 9.1 and the 24-month non-solicitation clauses under Sections 9.2 (employee non-solicitation) and 9.3 (client/vendor non-solicitation), which Mr. Aldrich contends are void and unenforceable under California Business and Professions Code Section 16600; and
(e) Violation of California Labor Code Section 2802, seeking reimbursement of $28,400 in allegedly unreimbursed business expenses incurred during the course of his employment.
Mr. Aldrich's aggregate initial demand, as communicated through his anticipated counsel, is $4,150,000. Mr. Aldrich resides at 1140 Tower Road, Beverly Hills, California 90210.
In response to Mr. Aldrich's anticipated claims, AMA intends to assert cross-claims against Mr. Aldrich for breach of the Employment Agreement — including, without limitation, breach of the confidentiality and restrictive covenant provisions contained therein — misappropriation of trade secrets under the California Uniform Trade Secrets Act (CUTSA), California Civil Code Section 3426 et seq., breach of fiduciary duty owed by Mr. Aldrich to AMA by virtue of his senior executive position, and conversion of proprietary digital files and intellectual property belonging to AMA.
The Aldrich matter may implicate D&O coverage under the Policy to the extent that Mr. Aldrich asserts claims directly against individual officers of AMA who participated in or directed the termination decision, including AMA President Jonathan Mercer and AMA Vice President of Unscripted Programming, Dwayne Prescott. Mr. Aldrich's anticipated counsel has indicated in preliminary correspondence that Mr. Aldrich may name Mr. Mercer and Mr. Prescott as individual defendants in any complaint filed. Should such individual claims be asserted, the Policy would be called upon to respond to the defense and indemnification obligations owed to the individually named directors and officers.
III. Nature of This Notice
This notice is provided on a precautionary basis, out of an abundance of caution, and is intended to preserve the rights of AGMG, AMA, and any individual directors and officers who may become the subject of claims arising from or related to the matters described herein.
AMA's primary insurance coverage for employment-related claims of the type described above is the Employment Practices Liability Insurance Policy issued by Pemberton Mutual Assurance Co. under Policy No. PMA-EPL-2022-00837 (the "EPL Policy"), which provides a $15,000,000 aggregate limit of liability, subject to a $5,000,000 self-insured retention. The EPL Policy has been separately tendered to Pemberton Mutual Assurance Co. by companion letter of even date, November 8, 2022, addressing both the Fuentes class action and the anticipated Aldrich individual action.
This notice to Redcliffe Specialty Insurance Ltd. under the D&O Policy is intended to preserve AGMG's and AMA's rights under the Policy in the event that the EPL Policy does not fully respond to the claims described herein, or in the event that claims are asserted directly against individual directors or officers of AMA or AGMG — circumstances in which the D&O Policy, rather than the EPL Policy, may constitute the appropriate or supplementary source of coverage. We note, in particular, that Pemberton Mutual Assurance Co.'s coverage of the Aldrich matter is uncertain. Pemberton may deny coverage for that matter, in whole or in part, on the grounds that AMA's anticipated cross-claims against Mr. Aldrich constitute affirmative litigation action by the insured that falls outside the scope of the EPL Policy's insuring agreement, or on other grounds that Pemberton may assert in the course of its coverage review. We will advise Redcliffe promptly of any coverage position taken by Pemberton.
IV. Contact Information
We respectfully request that all coverage correspondence relating to the matters described in this letter be directed to the following individuals:
Renata Vasquez, Esq. Calderwood & Harkness LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017 Telephone: (213) 555-7200
Email: rvasquez@calderwoodharkness.com
Gregory Tanaka Vice President, Legal & Compliance Aurelius Media Americas Inc. 8500 Sunset Boulevard, Suite 1400 West Hollywood, California 90069
Email: gtanaka@aureliusmedia.com
Samuel Okonkwo Managing Director Kestrel Risk Advisors Ltd. One Broadgate London EC2M 2QS, United Kingdom
Email: sokonkwo@kestrelrisk.co.uk
V. Reservation of Rights
AGMG and AMA expressly reserve all rights under the Policy, including but not limited to all rights to seek defense, indemnity, and advancement of defense costs in the event that claims are asserted against individual directors or officers of AGMG or AMA in connection with the matters described in this letter. This reservation extends to all rights under any and all coverage provisions, endorsements, and extensions of the Policy, and to all rights at law and in equity.
Nothing in this letter shall constitute, nor shall it be construed as, an admission by AGMG or AMA that any of the claims described herein fall outside the scope of the EPL Policy, or that D&O coverage under the Policy is the appropriate primary response to such claims. AGMG and AMA expressly reserve all rights to assert coverage under both the EPL Policy and the D&O Policy, concurrently or in the alternative, as the factual and legal circumstances continue to develop.
We respectfully request that Redcliffe Specialty Insurance Ltd. promptly acknowledge receipt of this notice, confirm the assignment of a claims file number, and identify any coverage counsel or claims adjuster who has been designated to handle this matter. Prompt communication on these points will allow us to ensure the efficient coordination of coverage and defense matters across all relevant insurance programs.
We thank you for your attention to this matter and look forward to your prompt response.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Renata Vasquez Partner
Enclosures:
1. Complaint — Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214 (filed November 1, 2022)
2. PAGA Notice to California Labor and Workforce Development Agency (dated September 15, 2022)
cc: (via email)
Gregory Tanaka, Vice President, Legal & Compliance, Aurelius Media Americas Inc. Philippa Cartwright, General Counsel, Aurelius Global Media Group PLC Samuel Okonkwo, Managing Director, Kestrel Risk Advisors Ltd. Bernard Crawford, Calderwood & Harkness LLP