1017-00004 · Entities. Aurelius Global Media Group · Insurance

letter-pemberton-consent-to-settlement.docx DOCUMENT Finance & Banking

86 / 150 ← → ✕

Contract analysis Extract to table

PRIVILEGED & CONFIDENTIAL

CALDERWOOD & HARKNESS LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017 Tel: (213) 555-7200

Fax: (213) 555-7201

www.calderwoodharkness.com

September 10, 2023

VIA EMAIL AND CERTIFIED MAIL

Claims Department Pemberton Mutual Assurance Co. 3400 Asylum Avenue Hartford, CT 06105

Re: Consent to Settlement and Demand for Policy Contribution Policy No.: PMA-EPL-2022-00837 Named Insured: Aurelius Media Americas Inc. Claim: Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214 (Consolidated)

Dear Claims Department:

We write on behalf of the named insured, Aurelius Media Americas Inc. ("AMA"), to advise Pemberton Mutual Assurance Co. ("Pemberton") that the parties in the above-referenced consolidated class action have reached a tentative settlement following extensive arm's-length negotiations. As set forth in greater detail below, the settlement resolves all claims asserted on behalf of a class of approximately 1,850 current and former non-exempt, hourly employees of AMA and represents a fair, reasonable, and good-faith compromise of the matters at issue.

This letter follows our prior correspondence regarding this claim, including: (a) the initial tender letter dated November 8, 2022, by which AMA tendered the Fuentes class action to Pemberton for defense and indemnity under the Policy; (b) Pemberton's acknowledgment of coverage and reservation of rights letter dated December 22, 2022 (the "Reservation of Rights Letter"), by which Pemberton accepted the tender subject to certain stated reservations; and (c) the updated claim information letter dated August 20, 2023, by which AMA provided Pemberton with supplemental information regarding the status of discovery, class certification proceedings, and mediation efforts.

The purpose of this letter is threefold: (1) to request Pemberton's formal consent to the proposed settlement on the terms described herein; (2) to request Pemberton's authorization of a policy contribution in the amount of $9,250,000 toward the Gross Settlement Amount; and (3) to establish a timeline for Pemberton's response so that AMA may proceed with the anticipated settlement approval process before the Court. We respectfully request Pemberton's prompt attention to these matters in light of the settlement approval timeline set forth below.

I. Settlement Overview

Following two full-day mediation sessions on August 25, 2023 and September 8, 2023, before the Honorable Patricia Okoro (Ret.) of Westpark Dispute Resolution Inc., the parties reached agreement on the material terms of a class-wide settlement. Judge Okoro is a retired Los Angeles Superior Court Judge with over twenty-five years of experience on the bench and extensive experience mediating and resolving employment class actions and wage-and-hour disputes throughout the State of California. Her involvement as mediator lends significant credibility to the settlement and provides additional assurance that the terms reflect a fair and reasonable resolution.

The settlement resolves all claims in the consolidated class action captioned Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214 (consolidated with Case No. 22STCV39501), including claims asserted by named plaintiffs Marisol Fuentes, Derek Halloran, and Yesenia Padilla, on behalf of a class of approximately 1,850 current and former non-exempt, hourly employees of AMA who worked in the State of California during the applicable class period.

Lead class counsel in this matter is the firm of Castellano Byrne & Salas LLP, represented by Marco Castellano and Diane Salas. PAGA co-counsel is Veltrano Employment Law Group PC, represented by Sandra Higuera. These firms are well-regarded in the California plaintiffs' employment bar and have substantial experience prosecuting wage-and-hour class actions of this nature.

The case is assigned to the Honorable Raymond Escobedo, Department 34, Superior Court of the State of California, County of Los Angeles — Central District. Judge Escobedo has presided over this matter since the filing of the initial complaint and has been actively involved in discovery disputes and class certification proceedings throughout the litigation.

II. Material Settlement Terms

The material financial and structural terms of the proposed settlement are as follows:

Gross Settlement Amount (GSA). The total, all-in Gross Settlement Amount is $14,750,000. The GSA is non-reversionary, meaning that any unclaimed funds will be redistributed to participating class members (or, if redistribution is impracticable, paid to a cy pres recipient designated in the Settlement Agreement) rather than reverting to AMA.

Class Definition. The settlement class is defined as all current and former non-exempt, hourly employees of AMA who worked in the State of California at any time from November 1, 2018 through October 31, 2023 (the "Class Period," as modified in the settlement to conform with the applicable statutes of limitations and the scope of the operative claims), who were subject to AMA's automatic meal period deduction policy as implemented in the NovaPay Solutions TimeTrack Pro timekeeping system.

Estimated Class Size. Based on AMA's payroll records and the data analysis performed by both parties' experts, the estimated class size is approximately 1,850 individuals.

Attorneys' Fees (Class Counsel). Class counsel will seek an award of attorneys' fees in the amount of 33.33% of the GSA, or $4,916,175, subject to Court approval. This fee percentage is consistent with the benchmark customarily applied in California class action settlements.

Litigation Costs Reimbursement. Class counsel will seek reimbursement of litigation costs in an amount up to $412,300, subject to Court approval. These costs include, among other things, expert witness fees, deposition costs, e-discovery vendor expenses, filing fees, and mediation fees incurred by class counsel during the prosecution of this action.

Service Awards to Named Plaintiffs. Class counsel will seek Court approval of incentive service awards to the three named plaintiffs in the following amounts:

• Marisol Fuentes: $15,000

• Derek Halloran: $10,000

• Yesenia Padilla: $10,000

• Total Service Awards: $35,000

These awards are subject to Court approval and are intended to compensate the named plaintiffs for their time, effort, and willingness to act as class representatives throughout this litigation.

Settlement Administration. Settlement administration will be performed by Meridian Settlement Services LLC at a cost of $385,000. This amount covers all costs associated with notice dissemination, claim processing, distribution of settlement payments, tax reporting, and related administrative functions.

PAGA Payment. A portion of the GSA in the amount of $750,000 is allocated to the resolution of claims asserted under the California Private Attorneys General Act ("PAGA"), Cal. Lab. Code §§ 2698 et seq. In accordance with the statutory framework, 75% of the PAGA payment ($562,500) will be remitted to the California Labor and Workforce Development Agency ("LWDA"), and 25% ($187,500) will be distributed to the aggrieved employees.

Net Settlement Fund (NSF). After deduction of the foregoing amounts from the GSA, the Net Settlement Fund available for distribution to participating class members is calculated as follows:

Distribution Formula. The NSF will be distributed on a pro rata basis to all class members who do not timely opt out of the settlement. The allocation methodology provides that 60% of each class member's individual settlement share will be calculated based on the number of weeks worked during the Class Period, and 40% will be calculated based on the individual's recorded overtime hours during the Class Period. This allocation formula was developed in consultation with both parties' experts and is designed to reflect the relative weight of the underlying claims.

Release. The settlement provides for a broad release of all class, PAGA, and individual wage-and-hour claims arising from the operative facts alleged in the consolidated action. The release encompasses both certified and non-certified claims, including but not limited to: meal period claims, rest period claims, off-the-clock and overtime claims, minimum wage claims, wage statement claims (Cal. Lab. Code § 226), waiting time penalty claims (Cal. Lab. Code §§ 201–203), and claims under the Unfair Competition Law (Cal. Bus. & Prof. Code § 17200 et seq.). The breadth of this release provides comprehensive finality for all parties and significantly mitigates the risk of future litigation arising from the same facts and circumstances.

No Admission of Liability. AMA admits no liability in connection with the settlement. The settlement constitutes a compromise of disputed claims, and the Settlement Agreement expressly provides that neither the settlement nor any of its terms shall be construed as an admission, finding, or concession of liability, fault, or wrongdoing on the part of AMA.

III. Litigation Context and Basis for Settlement

AMA and its counsel believe that the proposed settlement is fair, reasonable, adequate, and in the best interests of both the class members and AMA. The following context provides the basis for this conclusion.

Class Certification. On August 11, 2023, Judge Escobedo granted partial class certification. Specifically, the Court certified a class on the first meal period automatic deduction claim (i.e., the allegation that AMA's NovaPay Solutions TimeTrack Pro system automatically deducted thirty minutes for meal periods regardless of whether employees received a full, timely, uninterrupted meal break), the derivative wage statement claim under California Labor Code § 226, and the derivative Unfair Competition Law claim under California Business and Professions Code § 17200. The Court denied certification of the rest period claims, the off-the-clock and overtime claims, the minimum wage claims, the second meal period claims, and the waiting time penalty claims, finding that individual issues predominated on those claims. The partial certification order created significant litigation risk for both sides: AMA faced class-wide liability on the certified claims, while Plaintiffs faced the prospect of trying the non-certified claims on an individual or representative basis only.

Plaintiffs' Damages Claim. Plaintiffs' damages expert, Dr. Howard Rennick of Pinnacle Economic Consulting Group LLC, submitted a report dated April 28, 2023 estimating total class-wide damages of approximately $38.6 million. This figure included approximately $12.2 million in PAGA penalties. The Rennick report employed certain assumptions regarding violation rates, penalty stacking, and interest calculations that AMA's counsel and experts believe are aggressive and would likely be subject to significant challenge at trial.

Defense Damages Estimate. AMA's damages expert, Dr. Catherine Lindstrom of Hargrove Analytics Inc., submitted a rebuttal report dated June 9, 2023 estimating class-wide damages in the range of approximately $5.8 million. Dr. Lindstrom's analysis applied different assumptions regarding compliant meal periods, offset credits, and the application of statutory caps on penalties.

Extensive discovery. This litigation involved extensive and costly discovery over a period of approximately ten months. AMA produced 147,832 documents comprising approximately 1.2 million pages of payroll records, timekeeping data, personnel files, corporate policies, training materials, and related documents. Plaintiffs produced 3,412 documents. The parties conducted 18 depositions of current and former AMA employees, corporate designees, and expert witnesses. The parties exchanged expert reports and rebuttal expert reports on both liability and damages issues. Full briefing was completed on Plaintiffs' motion for class certification, including multiple rounds of supplemental briefing requested by the Court.

Reasonableness of Settlement Amount. The settlement of $14,750,000 represents approximately 38.2% of Plaintiffs' total claimed exposure of $38.6 million. This recovery percentage is well within the range of settlements routinely approved by California superior courts in comparable wage-and-hour class actions. California courts have regularly approved settlements in the range of 15% to 50% of maximum exposure, and the 38.2% recovery here reflects the strength of Plaintiffs' claims on the certified issues balanced against the risks and uncertainties of continued litigation.

The settlement was the product of arm's-length, adversarial negotiations facilitated by an experienced and neutral mediator, Judge Okoro. The parties' positions were informed by extensive discovery, expert analysis, and the Court's class certification ruling. AMA and its counsel are satisfied that the settlement represents a reasonable and appropriate resolution of this dispute, and that the terms are well within the range of reasonableness for settlements of this nature.

IV. Request for Consent and Policy Contribution

Pursuant to the Policy (Policy No. PMA-EPL-2022-00837) and consistent with our prior correspondence, AMA hereby formally requests that Pemberton take the following actions:

1. Consent to Settlement. AMA requests that Pemberton consent to the proposed class settlement on the terms described in this letter and as set forth in the Settlement Agreement and Release (the execution version of which will be provided to Pemberton upon execution, currently anticipated for September 15, 2023).

2. Authorize Policy Contribution. AMA requests that Pemberton authorize a policy contribution in the amount of $9,250,000, representing the Policy's share of the GSA above the $5,000,000 self-insured retention ("SIR"), which has been substantially exhausted through defense costs as detailed in Section V below.

3. Confirm Funding Timeline. AMA requests that Pemberton confirm that its contribution of $9,250,000 will be funded within fourteen (14) calendar days of the Court's entry of a Final Approval Order and Judgment in the Fuentes action.

AMA's request for Pemberton's consent and contribution authorization is made in good faith and is consistent with the terms and conditions of the Policy, which provides coverage for "Loss" arising from "Employment Practices Claims," including wage-and-hour class actions of the type at issue here.

V. SIR Exhaustion Analysis

The Policy provides for a self-insured retention of $5,000,000 (the "SIR"), which must be exhausted before Pemberton's indemnity obligations are triggered. AMA has satisfied this requirement, as set forth below.

As of September 2023, AMA has incurred approximately $3,100,000 in defense costs in connection with the Fuentes class action. These defense costs include the following categories of expenditures:

• Fees and expenses of defense counsel, Calderwood & Harkness LLP;

• Expert fees for Dr. Rajesh Makhija of Workforce Dynamics Consulting LLC (liability and policy compliance expert) and Dr. Catherine Lindstrom of Hargrove Analytics Inc. (damages rebuttal expert);

• E-discovery costs incurred through Marlowe Asset Management Litigation Technology Inc. for document collection, processing, hosting, review, and production;

• Mediation fees paid to Westpark Dispute Resolution Inc. for the two full-day mediation sessions;

• Related litigation expenses, including court reporter fees, deposition transcript costs, subpoena service fees, and copying and printing costs.

Detailed invoices and supporting documentation for these defense costs have been provided to Pemberton on a monthly basis throughout the litigation, consistent with the reporting obligations set forth in the Policy and the Reservation of Rights Letter.

When combined with AMA's self-funded share of the settlement — which AMA calculates at $5,500,000 (representing the difference between the total GSA of $14,750,000 and Pemberton's requested contribution of $9,250,000) — AMA's total out-of-pocket expenditure in connection with the Fuentes class action will be approximately $8,600,000. This amount is well in excess of the $5,000,000 SIR, confirming that the SIR has been fully exhausted and that Pemberton's indemnity obligations under the Policy have been triggered.

Pemberton's authorized contribution of $9,250,000 falls well within the Policy's $15,000,000 aggregate limit of liability. After payment of the requested contribution, the remaining available Policy limit would be $15,000,000 minus $9,250,000, or $5,750,000, which would remain available for any future claims made during the policy period.

VI. PAGA Allocation

The proposed settlement allocation attributes the entire Gross Settlement Amount of $14,750,000 to covered wage-and-hour claims, including meal period premiums, wage statement penalties, restitution under the UCL, and related claims. The PAGA component of $750,000 is included within the GSA but is separately identified in the Settlement Agreement, as required by California Labor Code § 2699(l)(2).

AMA acknowledges that Pemberton's December 22, 2022 Reservation of Rights Letter reserved rights regarding coverage for PAGA penalties under the Policy's Penalty Exclusion (Section IV.F), on the grounds that PAGA penalties may constitute "fines or penalties imposed by law" that fall outside the Policy's definition of covered "Loss." AMA does not concede that the Penalty Exclusion applies to PAGA penalties in these circumstances, but recognizes that Pemberton has preserved its position on this issue.

Notwithstanding Pemberton's reservation, AMA respectfully submits that the $750,000 PAGA allocation represents only 5.1% of the total GSA ($750,000 ÷ $14,750,000 = 5.08%). This is a modest allocation that reflects several important considerations:

• The PAGA allocation was negotiated at arm's length as part of the global settlement. The Court retains discretion under California Labor Code § 2699(e)(2) to reduce PAGA penalties, and the $750,000 figure reflects a significant discount from Plaintiffs' asserted PAGA exposure of approximately $12.2 million.

• The PAGA component was a necessary and integral element of the global settlement. Without the inclusion of the PAGA claims in the settlement, PAGA co-counsel (Veltrano Employment Law Group PC) would not have agreed to the resolution, and the class settlement could not have been achieved. The PAGA claims are inextricably intertwined with the class claims, as they arise from the same operative facts and the same alleged policy and practice regarding automatic meal period deductions.

• Excluding the PAGA component from Pemberton's contribution would result in a disproportionate allocation of settlement costs to AMA and would be inconsistent with the spirit of the Policy's coverage for employment practices claims arising from the Fuentes action.

AMA submits that it is reasonable for Pemberton to participate in the full GSA — including the PAGA component — without carving out the PAGA allocation. AMA expresses its willingness to discuss the allocation further with Pemberton if Pemberton disagrees with this position, but urges Pemberton to include the PAGA component in its contribution in the interest of achieving a prompt and efficient global resolution of this matter.

VII. Settlement Approval Timeline

The anticipated timeline for Court approval of the proposed settlement is set forth below:

AMA intends to file the Preliminary Approval Motion on September 22, 2023. It is important that Pemberton's written consent and contribution authorization be received before that filing date so that AMA can confirm to the Court that insurance funding for the settlement has been secured. The Court's willingness to grant preliminary approval may be affected by whether AMA can demonstrate that adequate funding is in place. AMA therefore requests Pemberton's cooperation in meeting this timeline.

VIII. Conditions and Protections

AMA wishes to highlight several conditions and protections built into the proposed settlement that benefit Pemberton and mitigate its risk exposure:

Final Approval Requirement. The settlement is expressly conditioned on the Court's entry of a Final Approval Order granting final approval of the settlement with prejudice, binding on all class members who do not timely opt out. If the Court does not grant final approval, the settlement will be void and the parties will revert to their pre-settlement positions. Pemberton's contribution obligation will not be triggered unless and until the Court enters a Final Approval Order.

Opt-Out Threshold. The Settlement Agreement contains an opt-out threshold provision. If the number of class members who timely request exclusion from the settlement exceeds 5% of the total class (i.e., 93 or more individuals), AMA has the unilateral right to void the settlement. This provision protects AMA and Pemberton against the risk of a disproportionate number of opt-outs that could undermine the finality and value of the settlement.

Broad Release. The settlement release extinguishes all claims — including both certified and non-certified claims — arising from the operative facts alleged in the consolidated action. This includes the rest period, off-the-clock, overtime, and waiting time penalty claims that were not certified for class treatment. The breadth of this release provides comprehensive finality and eliminates the risk of follow-on individual litigation by class members that could generate additional defense costs or indemnity obligations under the Policy. This comprehensive release represents a significant benefit to Pemberton, as it effectively closes out the Fuentes matter in its entirety.

No Admission of Liability. The settlement terms do not include any admission, finding, or concession of liability, fault, willful misconduct, or intentional wrongdoing on the part of AMA. This is significant because it ensures that the settlement does not implicate the Policy's Intentional Acts Exclusion (Section IV.A), which excludes from coverage any Loss arising from deliberate or intentional acts or omissions by the Insured.

Experienced Claims Administrator. Claims administration will be handled by Meridian Settlement Services LLC, an experienced and reputable class action claims administrator. The principal contact at Meridian is Angela Truong, and the firm's offices are located at 1600 E. Fourth Street, Suite 240, Santa Ana, CA 92701. Meridian has administered hundreds of class action settlements in California and will ensure the efficient and accurate processing of claims, notices, and distributions.

IX. Exclusion of Aldrich Executive Dispute

AMA confirms that this request pertains solely to the Fuentes class action settlement and does not seek Pemberton's participation in any other pending matter.

Specifically, AMA notes that the individual action captioned Aldrich v. Aurelius Media Americas Inc., Case No. 22STCV41087 (the "Aldrich Action"), remains pending before the Los Angeles Superior Court and is not part of the Fuentes class settlement. The Aldrich Action involves claims by a former senior executive of AMA and AMA's cross-claims against Mr. Aldrich, and presents factual and legal issues that are distinct from the wage-and-hour class claims at issue in the Fuentes action.

AMA acknowledges that Pemberton's December 22, 2022 Reservation of Rights Letter denied coverage for the Aldrich executive dispute, citing the Insured v. Insured Exclusion (Section IV.C) and the characterization of AMA's cross-claims as offensive litigation outside the scope of "Employment Practices" as defined in the Policy. AMA reserves all rights regarding the Aldrich coverage denial, including the right to contest that denial at a later date, but does not seek Pemberton's participation in the Aldrich matter in connection with this request for consent and contribution in the Fuentes settlement.

X. Request for Prompt Response

In light of the settlement approval timeline set forth above, AMA respectfully requests that Pemberton provide its written consent to the proposed settlement and authorization of the requested $9,250,000 policy contribution at the earliest possible date, and in any event no later than September 20, 2023 — which is two business days before the planned filing of the Preliminary Approval Motion on September 22, 2023.

AMA's ability to represent to the Court that insurance funding for the settlement is secured is an important element of the preliminary approval process, and any delay in Pemberton's response could jeopardize the settlement timeline and require AMA to seek a continuance of the preliminary approval hearing. AMA trusts that Pemberton shares the goal of resolving this matter efficiently and promptly, and appreciates Pemberton's cooperation in meeting this deadline.

All correspondence regarding this matter should be directed to the following individuals:

Bernard Crawford Partner, Calderwood & Harkness LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017 Tel: (213) 555-7214

Email: bcrawford@calderwoodharkness.com

Gregory Tanaka VP 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

XI. Reservation of Rights

AMA reserves all rights under the Policy, including but not limited to the following:

(a) The right to seek reimbursement of defense costs incurred within the SIR to the extent permitted by the Policy and applicable law;

(b) The right to contest Pemberton's reservation of rights regarding PAGA penalties and willful violations in the event that Pemberton declines to participate in the full GSA or seeks to exclude the PAGA component from its contribution;

(c) All rights regarding the Aldrich coverage denial referenced in Section IX above, including the right to challenge the applicability of the Insured v. Insured Exclusion (Section IV.C) and Pemberton's characterization of the Aldrich claims; and

(d) All other rights, remedies, and defenses available to AMA under the Policy, at law, or in equity.

Nothing in this letter is intended to waive, limit, modify, or otherwise affect any of AMA's rights under the Policy, and this letter shall not be construed as a waiver of any such rights. AMA's request for consent and contribution is made without prejudice to any position AMA may take in connection with this or any other claim under the Policy.

We appreciate Pemberton's cooperation throughout the claim process. Pemberton's timely acknowledgment of coverage on December 22, 2022, and its consent to AMA's retention of Calderwood & Harkness LLP as defense counsel, facilitated the efficient prosecution of AMA's defense and contributed to the resolution of this matter on terms that are favorable to all parties. We look forward to Pemberton's continued cooperation in bringing this matter to a final conclusion.

We remain available to discuss any aspect of this request, to answer any questions Pemberton may have regarding the proposed settlement terms, or to provide any additional information or documentation that Pemberton may require in connection with its review of this matter. Please do not hesitate to contact the undersigned directly at your convenience.

Sincerely,

CALDERWOOD & HARKNESS LLP

By: ________

Bernard Crawford Partner

Tel: (213) 555-7214

Email: bcrawford@calderwoodharkness.com

Enclosures:

1. Class Action Settlement Agreement and Release (Execution Version, dated September 15, 2023) — to be provided upon execution

2. Summary of Settlement Terms (chart format)

cc:

Gregory Tanaka, VP Legal & Compliance, Aurelius Media Americas Inc., 8500 Sunset Boulevard, Suite 1400, West Hollywood, CA 90069 (gtanaka@aureliusmedia.com)

Samuel Okonkwo, Managing Director, Kestrel Risk Advisors Ltd., One Broadgate, London EC2M 2QS, United Kingdom (sokonkwo@kestrelrisk.co.uk)

Renata Vasquez, Partner, Calderwood & Harkness LLP (rvasquez@calderwoodharkness.com)

Component	Amount
Gross Settlement Amount (GSA)	$14,750,000
Less: Attorneys' Fees (Class Counsel)	($4,916,175)
Less: Litigation Costs Reimbursement	($412,300)
Less: Service Awards	($35,000)
Less: Settlement Administration	($385,000)
Less: PAGA Payment	($750,000)
Net Settlement Fund (NSF)	$8,251,525
Event	Anticipated Date
Settlement Agreement Execution	September 15, 2023
Preliminary Approval Motion Filed	September 22, 2023
Preliminary Approval Order (anticipated)	Mid-October 2023
Class Notice Mailing	Approximately 30 days after Preliminary Approval
Opt-Out / Objection Deadline	Approximately 60 days after Class Notice
Final Approval Hearing	Approximately 90 days after Preliminary Approval (estimated early February 2024)
Final Approval Order (anticipated)	Within 7 days of Final Approval Hearing
Funding Deadline	14 calendar days after entry of Final Approval Order

PRIVILEGED & CONFIDENTIAL
CALDERWOOD & HARKNESS LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017 Tel: (213) 555-7200
Fax: (213) 555-7201
www.calderwoodharkness.com
September 10, 2023
VIA EMAIL AND CERTIFIED MAIL
Claims Department Pemberton Mutual Assurance Co. 3400 Asylum Avenue Hartford, CT 06105
Re: Consent to Settlement and Demand for Policy Contribution Policy No.: PMA-EPL-2022-00837 Named Insured: Aurelius Media Americas Inc. Claim: Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214 (Consolidated)
Dear Claims Department:
We write on behalf of the named insured, Aurelius Media Americas Inc. ("AMA"), to advise Pemberton Mutual Assurance Co. ("Pemberton") that the parties in the above-referenced consolidated class action have reached a tentative settlement following extensive arm's-length negotiations. As set forth in greater detail below, the settlement resolves all claims asserted on behalf of a class of approximately 1,850 current and former non-exempt, hourly employees of AMA and represents a fair, reasonable, and good-faith compromise of the matters at issue.
This letter follows our prior correspondence regarding this claim, including: (a) the initial tender letter dated November 8, 2022, by which AMA tendered the Fuentes class action to Pemberton for defense and indemnity under the Policy; (b) Pemberton's acknowledgment of coverage and reservation of rights letter dated December 22, 2022 (the "Reservation of Rights Letter"), by which Pemberton accepted the tender subject to certain stated reservations; and (c) the updated claim information letter dated August 20, 2023, by which AMA provided Pemberton with supplemental information regarding the status of discovery, class certification proceedings, and mediation efforts.
The purpose of this letter is threefold: (1) to request Pemberton's formal consent to the proposed settlement on the terms described herein; (2) to request Pemberton's authorization of a policy contribution in the amount of $9,250,000 toward the Gross Settlement Amount; and (3) to establish a timeline for Pemberton's response so that AMA may proceed with the anticipated settlement approval process before the Court. We respectfully request Pemberton's prompt attention to these matters in light of the settlement approval timeline set forth below.
I. Settlement Overview
Following two full-day mediation sessions on August 25, 2023 and September 8, 2023, before the Honorable Patricia Okoro (Ret.) of Westpark Dispute Resolution Inc., the parties reached agreement on the material terms of a class-wide settlement. Judge Okoro is a retired Los Angeles Superior Court Judge with over twenty-five years of experience on the bench and extensive experience mediating and resolving employment class actions and wage-and-hour disputes throughout the State of California. Her involvement as mediator lends significant credibility to the settlement and provides additional assurance that the terms reflect a fair and reasonable resolution.
The settlement resolves all claims in the consolidated class action captioned Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214 (consolidated with Case No. 22STCV39501), including claims asserted by named plaintiffs Marisol Fuentes, Derek Halloran, and Yesenia Padilla, on behalf of a class of approximately 1,850 current and former non-exempt, hourly employees of AMA who worked in the State of California during the applicable class period.
Lead class counsel in this matter is the firm of Castellano Byrne & Salas LLP, represented by Marco Castellano and Diane Salas. PAGA co-counsel is Veltrano Employment Law Group PC, represented by Sandra Higuera. These firms are well-regarded in the California plaintiffs' employment bar and have substantial experience prosecuting wage-and-hour class actions of this nature.
The case is assigned to the Honorable Raymond Escobedo, Department 34, Superior Court of the State of California, County of Los Angeles — Central District. Judge Escobedo has presided over this matter since the filing of the initial complaint and has been actively involved in discovery disputes and class certification proceedings throughout the litigation.
II. Material Settlement Terms
The material financial and structural terms of the proposed settlement are as follows:
Gross Settlement Amount (GSA). The total, all-in Gross Settlement Amount is $14,750,000. The GSA is non-reversionary, meaning that any unclaimed funds will be redistributed to participating class members (or, if redistribution is impracticable, paid to a cy pres recipient designated in the Settlement Agreement) rather than reverting to AMA.
Class Definition. The settlement class is defined as all current and former non-exempt, hourly employees of AMA who worked in the State of California at any time from November 1, 2018 through October 31, 2023 (the "Class Period," as modified in the settlement to conform with the applicable statutes of limitations and the scope of the operative claims), who were subject to AMA's automatic meal period deduction policy as implemented in the NovaPay Solutions TimeTrack Pro timekeeping system.
Estimated Class Size. Based on AMA's payroll records and the data analysis performed by both parties' experts, the estimated class size is approximately 1,850 individuals.
Attorneys' Fees (Class Counsel). Class counsel will seek an award of attorneys' fees in the amount of 33.33% of the GSA, or $4,916,175, subject to Court approval. This fee percentage is consistent with the benchmark customarily applied in California class action settlements.
Litigation Costs Reimbursement. Class counsel will seek reimbursement of litigation costs in an amount up to $412,300, subject to Court approval. These costs include, among other things, expert witness fees, deposition costs, e-discovery vendor expenses, filing fees, and mediation fees incurred by class counsel during the prosecution of this action.
Service Awards to Named Plaintiffs. Class counsel will seek Court approval of incentive service awards to the three named plaintiffs in the following amounts:
•  Marisol Fuentes: $15,000
•  Derek Halloran: $10,000
•  Yesenia Padilla: $10,000
•  Total Service Awards: $35,000
These awards are subject to Court approval and are intended to compensate the named plaintiffs for their time, effort, and willingness to act as class representatives throughout this litigation.
Settlement Administration. Settlement administration will be performed by Meridian Settlement Services LLC at a cost of $385,000. This amount covers all costs associated with notice dissemination, claim processing, distribution of settlement payments, tax reporting, and related administrative functions.
PAGA Payment. A portion of the GSA in the amount of $750,000 is allocated to the resolution of claims asserted under the California Private Attorneys General Act ("PAGA"), Cal. Lab. Code §§ 2698 et seq. In accordance with the statutory framework, 75% of the PAGA payment ($562,500) will be remitted to the California Labor and Workforce Development Agency ("LWDA"), and 25% ($187,500) will be distributed to the aggrieved employees.
Net Settlement Fund (NSF). After deduction of the foregoing amounts from the GSA, the Net Settlement Fund available for distribution to participating class members is calculated as follows:
Distribution Formula. The NSF will be distributed on a pro rata basis to all class members who do not timely opt out of the settlement. The allocation methodology provides that 60% of each class member's individual settlement share will be calculated based on the number of weeks worked during the Class Period, and 40% will be calculated based on the individual's recorded overtime hours during the Class Period. This allocation formula was developed in consultation with both parties' experts and is designed to reflect the relative weight of the underlying claims.
Release. The settlement provides for a broad release of all class, PAGA, and individual wage-and-hour claims arising from the operative facts alleged in the consolidated action. The release encompasses both certified and non-certified claims, including but not limited to: meal period claims, rest period claims, off-the-clock and overtime claims, minimum wage claims, wage statement claims (Cal. Lab. Code § 226), waiting time penalty claims (Cal. Lab. Code §§ 201–203), and claims under the Unfair Competition Law (Cal. Bus. & Prof. Code § 17200 et seq.). The breadth of this release provides comprehensive finality for all parties and significantly mitigates the risk of future litigation arising from the same facts and circumstances.
No Admission of Liability. AMA admits no liability in connection with the settlement. The settlement constitutes a compromise of disputed claims, and the Settlement Agreement expressly provides that neither the settlement nor any of its terms shall be construed as an admission, finding, or concession of liability, fault, or wrongdoing on the part of AMA.
III. Litigation Context and Basis for Settlement
AMA and its counsel believe that the proposed settlement is fair, reasonable, adequate, and in the best interests of both the class members and AMA. The following context provides the basis for this conclusion.
Class Certification. On August 11, 2023, Judge Escobedo granted partial class certification. Specifically, the Court certified a class on the first meal period automatic deduction claim (i.e., the allegation that AMA's NovaPay Solutions TimeTrack Pro system automatically deducted thirty minutes for meal periods regardless of whether employees received a full, timely, uninterrupted meal break), the derivative wage statement claim under California Labor Code § 226, and the derivative Unfair Competition Law claim under California Business and Professions Code § 17200. The Court denied certification of the rest period claims, the off-the-clock and overtime claims, the minimum wage claims, the second meal period claims, and the waiting time penalty claims, finding that individual issues predominated on those claims. The partial certification order created significant litigation risk for both sides: AMA faced class-wide liability on the certified claims, while Plaintiffs faced the prospect of trying the non-certified claims on an individual or representative basis only.
Plaintiffs' Damages Claim. Plaintiffs' damages expert, Dr. Howard Rennick of Pinnacle Economic Consulting Group LLC, submitted a report dated April 28, 2023 estimating total class-wide damages of approximately $38.6 million. This figure included approximately $12.2 million in PAGA penalties. The Rennick report employed certain assumptions regarding violation rates, penalty stacking, and interest calculations that AMA's counsel and experts believe are aggressive and would likely be subject to significant challenge at trial.
Defense Damages Estimate. AMA's damages expert, Dr. Catherine Lindstrom of Hargrove Analytics Inc., submitted a rebuttal report dated June 9, 2023 estimating class-wide damages in the range of approximately $5.8 million. Dr. Lindstrom's analysis applied different assumptions regarding compliant meal periods, offset credits, and the application of statutory caps on penalties.
Extensive discovery. This litigation involved extensive and costly discovery over a period of approximately ten months. AMA produced 147,832 documents comprising approximately 1.2 million pages of payroll records, timekeeping data, personnel files, corporate policies, training materials, and related documents. Plaintiffs produced 3,412 documents. The parties conducted 18 depositions of current and former AMA employees, corporate designees, and expert witnesses. The parties exchanged expert reports and rebuttal expert reports on both liability and damages issues. Full briefing was completed on Plaintiffs' motion for class certification, including multiple rounds of supplemental briefing requested by the Court.
Reasonableness of Settlement Amount. The settlement of $14,750,000 represents approximately 38.2% of Plaintiffs' total claimed exposure of $38.6 million. This recovery percentage is well within the range of settlements routinely approved by California superior courts in comparable wage-and-hour class actions. California courts have regularly approved settlements in the range of 15% to 50% of maximum exposure, and the 38.2% recovery here reflects the strength of Plaintiffs' claims on the certified issues balanced against the risks and uncertainties of continued litigation.
The settlement was the product of arm's-length, adversarial negotiations facilitated by an experienced and neutral mediator, Judge Okoro. The parties' positions were informed by extensive discovery, expert analysis, and the Court's class certification ruling. AMA and its counsel are satisfied that the settlement represents a reasonable and appropriate resolution of this dispute, and that the terms are well within the range of reasonableness for settlements of this nature.
IV. Request for Consent and Policy Contribution
Pursuant to the Policy (Policy No. PMA-EPL-2022-00837) and consistent with our prior correspondence, AMA hereby formally requests that Pemberton take the following actions:
1.  Consent to Settlement. AMA requests that Pemberton consent to the proposed class settlement on the terms described in this letter and as set forth in the Settlement Agreement and Release (the execution version of which will be provided to Pemberton upon execution, currently anticipated for September 15, 2023).
2.  Authorize Policy Contribution. AMA requests that Pemberton authorize a policy contribution in the amount of $9,250,000, representing the Policy's share of the GSA above the $5,000,000 self-insured retention ("SIR"), which has been substantially exhausted through defense costs as detailed in Section V below.
3.  Confirm Funding Timeline. AMA requests that Pemberton confirm that its contribution of $9,250,000 will be funded within fourteen (14) calendar days of the Court's entry of a Final Approval Order and Judgment in the Fuentes action.
AMA's request for Pemberton's consent and contribution authorization is made in good faith and is consistent with the terms and conditions of the Policy, which provides coverage for "Loss" arising from "Employment Practices Claims," including wage-and-hour class actions of the type at issue here.
V. SIR Exhaustion Analysis
The Policy provides for a self-insured retention of $5,000,000 (the "SIR"), which must be exhausted before Pemberton's indemnity obligations are triggered. AMA has satisfied this requirement, as set forth below.
As of September 2023, AMA has incurred approximately $3,100,000 in defense costs in connection with the Fuentes class action. These defense costs include the following categories of expenditures:
•  Fees and expenses of defense counsel, Calderwood & Harkness LLP;
•  Expert fees for Dr. Rajesh Makhija of Workforce Dynamics Consulting LLC (liability and policy compliance expert) and Dr. Catherine Lindstrom of Hargrove Analytics Inc. (damages rebuttal expert);
•  E-discovery costs incurred through Marlowe Asset Management Litigation Technology Inc. for document collection, processing, hosting, review, and production;
•  Mediation fees paid to Westpark Dispute Resolution Inc. for the two full-day mediation sessions;
•  Related litigation expenses, including court reporter fees, deposition transcript costs, subpoena service fees, and copying and printing costs.
Detailed invoices and supporting documentation for these defense costs have been provided to Pemberton on a monthly basis throughout the litigation, consistent with the reporting obligations set forth in the Policy and the Reservation of Rights Letter.
When combined with AMA's self-funded share of the settlement — which AMA calculates at $5,500,000 (representing the difference between the total GSA of $14,750,000 and Pemberton's requested contribution of $9,250,000) — AMA's total out-of-pocket expenditure in connection with the Fuentes class action will be approximately $8,600,000. This amount is well in excess of the $5,000,000 SIR, confirming that the SIR has been fully exhausted and that Pemberton's indemnity obligations under the Policy have been triggered.
Pemberton's authorized contribution of $9,250,000 falls well within the Policy's $15,000,000 aggregate limit of liability. After payment of the requested contribution, the remaining available Policy limit would be $15,000,000 minus $9,250,000, or $5,750,000, which would remain available for any future claims made during the policy period.
VI. PAGA Allocation
The proposed settlement allocation attributes the entire Gross Settlement Amount of $14,750,000 to covered wage-and-hour claims, including meal period premiums, wage statement penalties, restitution under the UCL, and related claims. The PAGA component of $750,000 is included within the GSA but is separately identified in the Settlement Agreement, as required by California Labor Code § 2699(l)(2).
AMA acknowledges that Pemberton's December 22, 2022 Reservation of Rights Letter reserved rights regarding coverage for PAGA penalties under the Policy's Penalty Exclusion (Section IV.F), on the grounds that PAGA penalties may constitute "fines or penalties imposed by law" that fall outside the Policy's definition of covered "Loss." AMA does not concede that the Penalty Exclusion applies to PAGA penalties in these circumstances, but recognizes that Pemberton has preserved its position on this issue.
Notwithstanding Pemberton's reservation, AMA respectfully submits that the $750,000 PAGA allocation represents only 5.1% of the total GSA ($750,000 ÷ $14,750,000 = 5.08%). This is a modest allocation that reflects several important considerations:
•  The PAGA allocation was negotiated at arm's length as part of the global settlement. The Court retains discretion under California Labor Code § 2699(e)(2) to reduce PAGA penalties, and the $750,000 figure reflects a significant discount from Plaintiffs' asserted PAGA exposure of approximately $12.2 million.
•  The PAGA component was a necessary and integral element of the global settlement. Without the inclusion of the PAGA claims in the settlement, PAGA co-counsel (Veltrano Employment Law Group PC) would not have agreed to the resolution, and the class settlement could not have been achieved. The PAGA claims are inextricably intertwined with the class claims, as they arise from the same operative facts and the same alleged policy and practice regarding automatic meal period deductions.
•  Excluding the PAGA component from Pemberton's contribution would result in a disproportionate allocation of settlement costs to AMA and would be inconsistent with the spirit of the Policy's coverage for employment practices claims arising from the Fuentes action.
AMA submits that it is reasonable for Pemberton to participate in the full GSA — including the PAGA component — without carving out the PAGA allocation. AMA expresses its willingness to discuss the allocation further with Pemberton if Pemberton disagrees with this position, but urges Pemberton to include the PAGA component in its contribution in the interest of achieving a prompt and efficient global resolution of this matter.
VII. Settlement Approval Timeline
The anticipated timeline for Court approval of the proposed settlement is set forth below:
AMA intends to file the Preliminary Approval Motion on September 22, 2023. It is important that Pemberton's written consent and contribution authorization be received before that filing date so that AMA can confirm to the Court that insurance funding for the settlement has been secured. The Court's willingness to grant preliminary approval may be affected by whether AMA can demonstrate that adequate funding is in place. AMA therefore requests Pemberton's cooperation in meeting this timeline.
VIII. Conditions and Protections
AMA wishes to highlight several conditions and protections built into the proposed settlement that benefit Pemberton and mitigate its risk exposure:
Final Approval Requirement. The settlement is expressly conditioned on the Court's entry of a Final Approval Order granting final approval of the settlement with prejudice, binding on all class members who do not timely opt out. If the Court does not grant final approval, the settlement will be void and the parties will revert to their pre-settlement positions. Pemberton's contribution obligation will not be triggered unless and until the Court enters a Final Approval Order.
Opt-Out Threshold. The Settlement Agreement contains an opt-out threshold provision. If the number of class members who timely request exclusion from the settlement exceeds 5% of the total class (i.e., 93 or more individuals), AMA has the unilateral right to void the settlement. This provision protects AMA and Pemberton against the risk of a disproportionate number of opt-outs that could undermine the finality and value of the settlement.
Broad Release. The settlement release extinguishes all claims — including both certified and non-certified claims — arising from the operative facts alleged in the consolidated action. This includes the rest period, off-the-clock, overtime, and waiting time penalty claims that were not certified for class treatment. The breadth of this release provides comprehensive finality and eliminates the risk of follow-on individual litigation by class members that could generate additional defense costs or indemnity obligations under the Policy. This comprehensive release represents a significant benefit to Pemberton, as it effectively closes out the Fuentes matter in its entirety.
No Admission of Liability. The settlement terms do not include any admission, finding, or concession of liability, fault, willful misconduct, or intentional wrongdoing on the part of AMA. This is significant because it ensures that the settlement does not implicate the Policy's Intentional Acts Exclusion (Section IV.A), which excludes from coverage any Loss arising from deliberate or intentional acts or omissions by the Insured.
Experienced Claims Administrator. Claims administration will be handled by Meridian Settlement Services LLC, an experienced and reputable class action claims administrator. The principal contact at Meridian is Angela Truong, and the firm's offices are located at 1600 E. Fourth Street, Suite 240, Santa Ana, CA 92701. Meridian has administered hundreds of class action settlements in California and will ensure the efficient and accurate processing of claims, notices, and distributions.
IX. Exclusion of Aldrich Executive Dispute
AMA confirms that this request pertains solely to the Fuentes class action settlement and does not seek Pemberton's participation in any other pending matter.
Specifically, AMA notes that the individual action captioned Aldrich v. Aurelius Media Americas Inc., Case No. 22STCV41087 (the "Aldrich Action"), remains pending before the Los Angeles Superior Court and is not part of the Fuentes class settlement. The Aldrich Action involves claims by a former senior executive of AMA and AMA's cross-claims against Mr. Aldrich, and presents factual and legal issues that are distinct from the wage-and-hour class claims at issue in the Fuentes action.
AMA acknowledges that Pemberton's December 22, 2022 Reservation of Rights Letter denied coverage for the Aldrich executive dispute, citing the Insured v. Insured Exclusion (Section IV.C) and the characterization of AMA's cross-claims as offensive litigation outside the scope of "Employment Practices" as defined in the Policy. AMA reserves all rights regarding the Aldrich coverage denial, including the right to contest that denial at a later date, but does not seek Pemberton's participation in the Aldrich matter in connection with this request for consent and contribution in the Fuentes settlement.
X. Request for Prompt Response
In light of the settlement approval timeline set forth above, AMA respectfully requests that Pemberton provide its written consent to the proposed settlement and authorization of the requested $9,250,000 policy contribution at the earliest possible date, and in any event no later than September 20, 2023 — which is two business days before the planned filing of the Preliminary Approval Motion on September 22, 2023.
AMA's ability to represent to the Court that insurance funding for the settlement is secured is an important element of the preliminary approval process, and any delay in Pemberton's response could jeopardize the settlement timeline and require AMA to seek a continuance of the preliminary approval hearing. AMA trusts that Pemberton shares the goal of resolving this matter efficiently and promptly, and appreciates Pemberton's cooperation in meeting this deadline.
All correspondence regarding this matter should be directed to the following individuals:
Bernard Crawford Partner, Calderwood & Harkness LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017 Tel: (213) 555-7214
Email: bcrawford@calderwoodharkness.com
Gregory Tanaka VP 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
XI. Reservation of Rights
AMA reserves all rights under the Policy, including but not limited to the following:
(a) The right to seek reimbursement of defense costs incurred within the SIR to the extent permitted by the Policy and applicable law;
(b) The right to contest Pemberton's reservation of rights regarding PAGA penalties and willful violations in the event that Pemberton declines to participate in the full GSA or seeks to exclude the PAGA component from its contribution;
(c) All rights regarding the Aldrich coverage denial referenced in Section IX above, including the right to challenge the applicability of the Insured v. Insured Exclusion (Section IV.C) and Pemberton's characterization of the Aldrich claims; and
(d) All other rights, remedies, and defenses available to AMA under the Policy, at law, or in equity.
Nothing in this letter is intended to waive, limit, modify, or otherwise affect any of AMA's rights under the Policy, and this letter shall not be construed as a waiver of any such rights. AMA's request for consent and contribution is made without prejudice to any position AMA may take in connection with this or any other claim under the Policy.
We appreciate Pemberton's cooperation throughout the claim process. Pemberton's timely acknowledgment of coverage on December 22, 2022, and its consent to AMA's retention of Calderwood & Harkness LLP as defense counsel, facilitated the efficient prosecution of AMA's defense and contributed to the resolution of this matter on terms that are favorable to all parties. We look forward to Pemberton's continued cooperation in bringing this matter to a final conclusion.
We remain available to discuss any aspect of this request, to answer any questions Pemberton may have regarding the proposed settlement terms, or to provide any additional information or documentation that Pemberton may require in connection with its review of this matter. Please do not hesitate to contact the undersigned directly at your convenience.
Sincerely,
CALDERWOOD & HARKNESS LLP
By: ________
Bernard Crawford Partner
Tel: (213) 555-7214
Email: bcrawford@calderwoodharkness.com
Enclosures:
1.  Class Action Settlement Agreement and Release (Execution Version, dated September 15, 2023) — to be provided upon execution
2.  Summary of Settlement Terms (chart format)
cc:
Gregory Tanaka, VP Legal & Compliance, Aurelius Media Americas Inc., 8500 Sunset Boulevard, Suite 1400, West Hollywood, CA 90069 (gtanaka@aureliusmedia.com)
Samuel Okonkwo, Managing Director, Kestrel Risk Advisors Ltd., One Broadgate, London EC2M 2QS, United Kingdom (sokonkwo@kestrelrisk.co.uk)
Renata Vasquez, Partner, Calderwood & Harkness LLP (rvasquez@calderwoodharkness.com)
Component | Amount
Gross Settlement Amount (GSA) | $14,750,000
Less: Attorneys' Fees (Class Counsel) | ($4,916,175)
Less: Litigation Costs Reimbursement | ($412,300)
Less: Service Awards | ($35,000)
Less: Settlement Administration | ($385,000)
Less: PAGA Payment | ($750,000)
Net Settlement Fund (NSF) | $8,251,525
Event | Anticipated Date
Settlement Agreement Execution | September 15, 2023
Preliminary Approval Motion Filed | September 22, 2023
Preliminary Approval Order (anticipated) | Mid-October 2023
Class Notice Mailing | Approximately 30 days after Preliminary Approval
Opt-Out / Objection Deadline | Approximately 60 days after Class Notice
Final Approval Hearing | Approximately 90 days after Preliminary Approval (estimated early February 2024)
Final Approval Order (anticipated) | Within 7 days of Final Approval Hearing
Funding Deadline | 14 calendar days after entry of Final Approval Order

PRIVILEGED & CONFIDENTIAL

VIA EMAIL AND CERTIFIED MAIL

CALDERWOOD & HARKNESS LLP

Record

Parties

Dates

Amounts