CALDERWOOD & HARKNESS LLP 1900 Avenue of the Stars, Suite 2800 Los Angeles, California 90067 Telephone: (310) 553-4000 Facsimile: (310) 553-4001
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
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, Calderwood & Harkness LLP
DATE: November 28, 2023
RE: Settlement Authority Recommendation — Gavin Aldrich Executive Dispute (Aldrich v. Aurelius Media Americas Inc., LASC Case No. 22STCV41087)
C&H Matter No.: 1017-00004
I. Executive Summary and Recommendation
This memorandum sets forth Calderwood & Harkness's assessment of the merits, exposure, and settlement posture in the above-referenced executive employment dispute, and our recommendation concerning settlement authority for the standalone mediation session currently scheduled for December 8, 2023, before the Honorable Patricia Okoro (Ret.) at Westpark Dispute Resolution Inc. in Los Angeles.
Based on a comprehensive analysis of the factual record, the litigation posture, AMA's strengths and vulnerabilities at trial, the cost of continued litigation, the absence of insurance coverage for this dispute, and the overall resolution framework in the broader November 2022 engagement, we recommend that Aurelius Media Americas Inc. ("AMA") authorize settlement of the Aldrich executive dispute at the upcoming mediation session within the following parameters:
Cash Payment: A lump sum cash payment of up to $2,500,000, payable to Gavin Aldrich and Whitfield & Associates in trust, structured in accordance with the tax allocation recommendations set forth in Section VII.C below.
RSU Acceleration: Acceleration of vesting of up to 10,200 restricted stock units ("RSUs") of Aurelius Global Media Group PLC ("AGMG") common stock out of the 15,300 RSUs that remained unvested at the time of Aldrich's termination, with the remaining 5,100 RSUs to be irrevocably forfeited by Aldrich as a term of the settlement.
Total Estimated Economic Value: Approximately $2,746,636, comprising the $2,500,000 cash payment plus approximately $246,636 in accelerated equity value (calculated as 10,200 RSUs × approximately $24.18 per share at the current November 2023 exchange rate of approximately £19.50 per share × approximately $1.24 per British pound sterling).
In addition to the foregoing economic terms, we recommend that AMA authorize acceptance of the following modifications to the restrictive covenants contained in Aldrich's Employment Agreement:
•  Section 9.1 (Non-Competition, 18 months): Voided in its entirety. The provision is almost certainly unenforceable under California Business & Professions Code § 16600 as interpreted by the California Supreme Court in Edwards v. Kraft Quill CPAs LLP (2008) 44 Cal.4th 937, and continued insistence on its enforcement would undermine AMA's credibility in the mediation.
•  Section 9.2 (Non-Solicitation of Employees, currently 24 months): Reduced from 24 months to 12 months post-settlement.
•  Section 9.3 (Non-Solicitation of Business Relationships, currently 24 months): Reduced from 24 months to 12 months post-settlement.
•  Section 9.4 (Confidentiality, indefinite): Retained in full force and effect with no modification. This is AMA's most critical ongoing protection and should not be negotiated away under any circumstances.
It should be noted that any settlement of the Aldrich dispute will be entirely self-funded by AMA. Pemberton Mutual Assurance Co., AMA's employment practices liability carrier under Policy No. PMA-EPL-2022-00837, denied coverage for the Aldrich dispute in its December 22, 2022 reservation of rights letter. AMA did not challenge the denial, and the cost of coverage litigation would likely exceed any potential recovery. The coverage denial and its implications are discussed in greater detail in Section VI below.
We believe the recommended settlement authority provides AMA with sufficient room for productive negotiation at the December 8 mediation while maintaining appropriate fiscal discipline, and that resolution within these parameters represents a favorable outcome relative to the risks and costs of continued litigation through trial.
II. Background and Procedural History
A. Employment and Termination
Gavin Aldrich was employed by Aurelius Media Americas Inc. from September 5, 2017 through October 14, 2022, holding the title of Senior Vice President of Original Content & Executive Producer. Aldrich reported directly to Jonathan Mercer, President of AMA, and was a member of AMA's Senior Leadership Team throughout his tenure. In this capacity, Aldrich had primary creative oversight responsibility for original unscripted programming across AMA's portfolio of cable and streaming properties, including development, production, and scheduling of approximately 18 to 22 series per programming cycle.
Aldrich's employment was governed by an Employment Agreement dated September 5, 2017 (the "Employment Agreement"), which was subsequently amended on August 1, 2020 (the "First Amendment") to reflect a promotion, salary increase, and supplemental equity grant. At the time of his termination, Aldrich's compensation consisted of the following material components:
•  Base Salary: $485,000 per annum.
•  Annual Performance Bonus: Target of $225,000, based on a combination of individual performance metrics and AMA divisional EBITDA targets. Aldrich's last annual bonus, for fiscal year 2021, was paid at target ($225,000).
•  Restricted Stock Units: Aldrich received a cumulative total of 42,500 RSUs in AGMG common stock over the course of his employment, consisting of an initial grant of 25,000 RSUs (September 2017) and a supplemental grant of 17,500 RSUs (August 2020). Of these, 27,200 RSUs had vested prior to termination, leaving 15,300 RSUs unvested at the time of his departure.
•  Benefits: Standard executive benefits package, including health, dental, and vision insurance; 401(k) matching contribution; executive long-term disability coverage; and an annual car allowance of $18,000.
On October 14, 2022, AMA terminated Aldrich's employment "for cause" under Section 7.2(b) of the Employment Agreement. The termination letter, signed by Jonathan Mercer and reviewed by Gregory Tanaka prior to issuance, cited two grounds for the for cause designation:
(i) Unauthorized Transmission of Proprietary Information (§ 7.2(b)(i) and § 7.2(b)(vi)). AMA's Data Loss Prevention ("DLP") system, which had been implemented across the organization in July 2022, flagged a series of anomalous outbound email transmissions originating from Aldrich's corporate email account (galdrich@aureliusmedia.com). A subsequent investigation by AMA's Information Security team, supervised by Chief Information Security Officer Rebecca Prescott, identified approximately 340 emails that Aldrich had forwarded from his corporate account to a personal Northgate Software account (galdrich.private@Northgate Software.com) between August 2022 and October 2022. More significantly, the investigation revealed that Aldrich had transmitted seven emails containing highly sensitive proprietary materials — including show format bibles for three programs in active development ("Apex Endurance," "The Remix," and "Untamed West"), pilot sizzle reels for those programs, and the Summit Challenge revenue model — to an email address associated with Halcyon Creek Productions LLC (info@halcyoncreekprod.com), a California-based production company owned and operated by Nina Castellanos, a former associate of Aldrich's and a direct competitor of AMA in the unscripted programming space. AMA cited these transmissions as constituting a material breach of § 9.4 of the Employment Agreement (confidentiality obligations), a violation of AMA's Acceptable Use and Confidentiality Policy (which Aldrich acknowledged in writing on April 12, 2021), and grounds for termination under § 7.2(b)(i) (material breach of agreement) and § 7.2(b)(vi) (violation of company policy).
(ii) Insubordination (§ 7.2(b)(iv)). On October 10, 2022, Aldrich refused to implement a content restructuring directive issued by President Jonathan Mercer. The directive, which called for the consolidation of two development teams and the elimination of four positions within Aldrich's division, was part of a broader cost-reduction initiative mandated by AGMG's London headquarters. Aldrich not only refused to implement the directive in a meeting with Mercer on October 10, but subsequently disseminated an email to his direct reports and other subordinates characterizing the restructuring as misguided and including disparaging commentary directed at AGMG's leadership, stating in relevant part: "The London suits are gutting our operation and don't have the first clue what makes great television." On October 11, 2022, AMA issued a written warning to Aldrich regarding his insubordination and failure to comply with the restructuring directive. Three calendar days later, on October 14, 2022, AMA terminated his employment for cause.
As a consequence of the for cause termination, AMA declined to pay Aldrich any severance (which, under § 7.3 of the Employment Agreement, would have been 24 months of base salary, or $970,000, in the event of a without cause termination), pro-rata bonus for fiscal year 2022, or COBRA subsidy. All 15,300 unvested RSUs were also forfeited upon termination in accordance with the terms of the AGMG equity incentive plan.
B. Litigation Posture
On December 9, 2022, Aldrich filed a verified complaint in the Superior Court of the State of California, County of Los Angeles, captioned Aldrich v. Aurelius Media Americas Inc., Case No. 22STCV41087. The matter was assigned to the Honorable Catherine Villanueva, Department 52. Aldrich is represented by Cameron Whitfield and Julia Nazarian of Whitfield & Associates, located at 9465 Wilshire Boulevard, Suite 320, Beverly Hills, California 90212.
Aldrich's complaint asserts the following causes of action:
1.  Wrongful Termination in Violation of Public Policy. Aldrich contends that his termination was, in substance, retaliatory — that the true motivation for his discharge was his vocal opposition to the AGMG-directed restructuring, which Aldrich characterizes as retaliation for his exercise of protected activity (internal complaints regarding the restructuring's impact on content quality and employee morale).
2.  Breach of Contract. Aldrich contests the for cause designation in its entirety, arguing that neither Ground 1 nor Ground 2 constitutes "cause" as defined in § 7.2(b) of the Employment Agreement, and that the cure-period requirements of the Agreement were not satisfied. If the for cause designation is overturned, Aldrich seeks payment of severance in the amount of $970,000 (24 months of base salary), a pro-rata bonus for fiscal year 2022 in the amount of $168,750 (calculated as $225,000 × 9.5/12), acceleration of all 15,300 unvested RSUs (valued at approximately $332,200 based on AGMG's share price at the time of termination), and COBRA premium subsidy.
3.  Breach of Implied Covenant of Good Faith and Fair Dealing. Aldrich alleges that AMA breached the implied covenant by manufacturing pretextual grounds for a for cause termination in order to avoid its contractual severance and equity obligations.
4.  Declaratory Relief. Aldrich seeks a judicial declaration that § 9.1 of the Employment Agreement (the 18-month non-competition provision) is void and unenforceable under California Business & Professions Code § 16600, and that any attempt by AMA to enforce it is unlawful.
5.  Expense Reimbursement. Aldrich seeks reimbursement of $28,400 in unreimbursed business expenses incurred during his employment, pursuant to California Labor Code § 2802.
On January 20, 2023, AMA, through this firm, filed its Answer and Cross-Complaint. The Answer denied all material allegations of the complaint and asserted 21 affirmative defenses, including after-acquired evidence, unclean hands, failure to mitigate, and comparative fault. The Cross-Complaint asserted the following affirmative claims against Aldrich:
1.  Breach of Employment Agreement (§ 9.4 — Confidentiality). AMA alleges that Aldrich's unauthorized transmission of proprietary materials to his personal email account and to Halcyon Creek Productions constitutes a material breach of his confidentiality obligations under § 9.4 of the Employment Agreement.
2.  Misappropriation of Trade Secrets. AMA alleges that the show format bibles, pilot sizzle reels, revenue models, and audience analytics transmitted by Aldrich constitute trade secrets within the meaning of the California Uniform Trade Secrets Act ("CUTSA"), California Civil Code § 3426 et seq., and that Aldrich's unauthorized acquisition, disclosure, and use of those materials constitutes misappropriation.
3.  Breach of Fiduciary Duty. AMA alleges that Aldrich, as a senior executive with access to the company's most sensitive creative and financial information, owed fiduciary duties to AMA, and that his conduct in transmitting proprietary materials to a competitor breached those duties.
4.  Conversion. AMA alleges that Aldrich converted AMA's proprietary materials by transmitting them to unauthorized third parties and retaining copies on personal devices and accounts.
On March 22, 2023, the Court partially granted Aldrich's Motion to Strike, striking references to § 9.1 (the non-competition provision) from the caption and body of the First Cause of Action in the Cross-Complaint, on the ground that § 9.1 is likely unenforceable under California law and that AMA's attempt to enforce it in the context of the cross-claims was improper. AMA filed an Amended Cross-Complaint on April 5, 2023, removing § 9.1 from the First Cause of Action.
Discovery in this matter has been extensive. AMA produced documents from the DLP audit, the IT forensic review conducted by Rebecca Prescott and her team, Aldrich's personnel file, performance evaluations, compensation records, internal communications regarding the restructuring directive, and the termination decision-making process. Aldrich produced limited documents responsive to AMA's discovery requests, prompting AMA to file a Motion to Compel on April 14, 2023, directed at Requests for Production Nos. 8, 11, 12, 13, and 14, which sought all communications between Aldrich and Halcyon Creek Productions, Nina Castellanos, and any entity or individual to whom Aldrich forwarded or disclosed AMA proprietary materials. That motion remains partially resolved — the Court ordered production of responsive non-privileged documents on June 2, 2023, but certain categories of documents remain in dispute.
Key depositions have been completed. Aldrich was deposed on May 22, 2023, for seven hours. During his deposition, Aldrich offered what he described as a "co-production opportunity" explanation for his transmissions to Halcyon Creek Productions — an explanation that, for reasons discussed in Section III below, we believe is implausible and potentially damaging to his credibility. AMA's key witnesses, including Jonathan Mercer (President) and Rebecca Prescott (CISO), have also been deposed.
The trial date has not yet been set, as the matter was stayed in part during the pendency of the class action mediation. A trial setting conference is currently scheduled for January 19, 2024.
C. Prior Settlement Discussions
Settlement discussions in the Aldrich dispute have been ongoing, though intermittent, since before the filing of the complaint. The history of those discussions is summarized below:
Pre-Suit Demand (October 28, 2022). On October 28, 2022, two weeks after Aldrich's termination, Cameron Whitfield sent a demand letter to Gregory Tanaka asserting that the for cause termination was pretextual and retaliatory. The letter demanded payment of $4,150,000, consisting of severance, bonus, RSU acceleration, emotional distress damages, lost future compensation, and anticipated attorneys' fees. AMA, through this firm, responded on November 18, 2022, denying the allegations and declining the demand. The complaint was filed on December 9, 2022.
Mediation Session #1 (May 5, 2023). The parties participated in a first mediation session before Hon. Patricia Okoro (Ret.) at Westpark Dispute Resolution. The session focused primarily on procedural and framing issues, as certain key depositions had not yet been completed. No substantive offers were exchanged. The mediator encouraged the parties to reconvene after depositions were completed and the class action posture was clarified.
Mediation Session #2 (September 8, 2023). The parties participated in a second mediation session before Hon. Okoro. This session was conducted jointly with the class action (Fuentes v. AMA, Case No. 22STCV38214), as the mediator believed that addressing both matters simultaneously might facilitate a global resolution. The class action component reached a resolution in principle at this session (subsequently formalized as the $14,750,000 gross settlement amount), but the Aldrich component did not settle. At the close of the session, the parties' positions on the Aldrich dispute remained apart: Aldrich's closing demand was $3,200,000, while AMA's closing offer was $2,000,000. The parties were also unable to reach agreement on three non-economic issues: RSU acceleration (Aldrich insisted on full acceleration of all 15,300 RSUs; AMA offered acceleration of 8,000), release of confidentiality obligations (Aldrich sought to void § 9.4; AMA refused), and non-disparagement duration (Aldrich sought unlimited mutual non-disparagement; AMA proposed a 3-year term).
Standalone Session Scheduled (December 8, 2023). Following the September 8 session, Hon. Okoro recommended that the parties schedule a standalone mediation session devoted exclusively to the Aldrich dispute, without the complexity of the concurrent class action negotiations. That session is now scheduled for December 8, 2023, at Westpark Dispute Resolution.
III. Merits Assessment
A. AMA's Strengths
The following factors support AMA's litigation position and provide leverage in settlement negotiations:
1. Confidential Information Transmission (Ground 1 for Cause). AMA's documentary evidence on the first ground for cause — unauthorized transmission of proprietary information — is strong and, in our assessment, likely to be persuasive to a jury. The evidence establishes that Aldrich forwarded approximately 340 emails from his corporate email account to a personal Northgate Software account (galdrich.private@Northgate Software.com) over a period of approximately two months. More critically, the evidence demonstrates that Aldrich transmitted seven emails containing highly sensitive proprietary materials to info@halcyoncreekprod.com, the email address associated with Halcyon Creek Productions LLC. These materials included the complete show format bibles for three programs in active development — "Apex Endurance," "The Remix," and "Untamed West" — as well as pilot sizzle reels for each program and the Summit Challenge revenue model, which documents projected annual revenue of approximately $42 million from AMA's single most commercially successful franchise. The format bibles contained detailed creative blueprints, casting criteria, production schedules, and budget projections for programs that had not yet been publicly announced or produced. The Summit Challenge revenue model contained confidential financial projections, advertiser rate cards, platform licensing terms, and audience demographic analyses that would be of significant competitive value to any rival in the unscripted programming space.
Aldrich signed an acknowledgment of AMA's Acceptable Use and Confidentiality Policy on April 12, 2021. That Policy expressly prohibits the transmission of proprietary materials to personal email accounts or to any third party without prior written authorization from an officer of the company. Aldrich did not obtain any such authorization. His conduct constitutes a clear violation of § 9.4 of the Employment Agreement (confidentiality obligations) and provides grounds for termination under both § 7.2(b)(i) (material breach of the Employment Agreement) and § 7.2(b)(vi) (violation of company policy).
2. Aldrich's Deposition Testimony is Damaging. During his May 22, 2023 deposition, Aldrich attempted to explain his transmissions to Halcyon Creek Productions as part of a purported "co-production opportunity" that he claimed he was exploring on AMA's behalf. This explanation is, in our view, implausible and likely to be viewed skeptically by a finder of fact. No co-production agreement or term sheet exists. No co-production discussion was ever documented in any internal communication. Aldrich never notified Jonathan Mercer, Rebecca Prescott, or AMA's Business Affairs department of any proposed co-production arrangement with Halcyon Creek. Aldrich admitted during his deposition that he knew the transmitted materials were proprietary and confidential. He further admitted that he did not seek or obtain authorization before transmitting them. The "co-production opportunity" narrative appears to be a post hoc justification that will be difficult for Aldrich to sustain at trial.
3. CUTSA Claim is Strong. AMA's claim for misappropriation of trade secrets under the California Uniform Trade Secrets Act is well-supported. The show format bibles, revenue models, and audience analytics transmitted by Aldrich clearly qualify as trade secrets within the meaning of Civil Code § 3426.1(d) — they derive independent economic value from not being generally known to the public or to competitors, and AMA took reasonable steps to maintain their secrecy, including requiring confidentiality agreements from all employees with access to such materials, implementing data loss prevention systems, watermarking sensitive documents, and storing proprietary materials on a secure content management system with role-based access controls. Aldrich's unauthorized transmission of these materials to a competitor constitutes misappropriation under Civil Code § 3426.1(b)(2) (disclosure or use of a trade secret without express or implied consent).
4. Cross-Claims Provide Meaningful Leverage. Even in the absence of quantifiable actual damages from the transmissions (a point discussed further below), AMA's cross-claims serve an important strategic function. They reframe the narrative from one in which Aldrich is a sympathetic figure — a "wrongfully terminated executive" who lost his job and his equity — to one in which Aldrich is an unfaithful officer who stole proprietary information from his employer and transmitted it to a competitor. This narrative shift is particularly important in the context of settlement negotiations, where the mediator and opposing counsel must assess the likely jury reaction to the competing stories. The cross-claims provide AMA with both defensive leverage (reducing the perceived value of Aldrich's claims) and affirmative leverage (creating downside risk for Aldrich that did not exist before AMA filed its cross-complaint).
B. AMA's Vulnerabilities
Notwithstanding the strengths outlined above, AMA faces several significant vulnerabilities that must be factored into the settlement analysis:
1. Cure-Period Deficiency (Ground 2 — Insubordination). Section 7.2(b)(iv) of the Employment Agreement, which governs termination for insubordination, expressly requires that the employee be given a written notice of the alleged insubordinate conduct and a cure period of fifteen (15) business days within which to remedy the deficiency before termination may be effectuated on that ground. AMA's timeline on this point is problematic. The written warning regarding Aldrich's insubordination was issued on October 11, 2022. Aldrich was terminated three calendar days later, on October 14, 2022 — well short of the required fifteen-business-day cure period. This is a significant procedural deficiency that Aldrich's counsel will exploit at trial. While AMA can argue that Aldrich's conduct was not curable (the insubordinate email to subordinates had already been sent and could not be "unsent"), the contractual language does not contain an exception for non-curable breaches, and the failure to comply with the cure-period requirement undermines AMA's ability to rely on insubordination as an independent ground for cause.
2. Timeline and Pretext Narrative. The chronology of events leading to Aldrich's termination presents a vulnerability that Aldrich's counsel has been effective in exploiting. The DLP audit findings — the preliminary results identifying Aldrich's anomalous email activity — were first reported to Gregory Tanaka on September 6, 2022, more than five weeks before the insubordination incident on October 10, 2022. Despite being aware of these findings, AMA did not take any action against Aldrich based on the DLP audit until after the conflict between Aldrich and Mercer over the restructuring directive. Jonathan Mercer admitted during his deposition on June 14, 2023 that he did not review the DLP audit findings in detail until October 13, 2022 — three days after the insubordination incident and one day before the termination. Aldrich argues that this timeline demonstrates that AMA was looking for a pretext to terminate him after his public opposition to the restructuring, and that the DLP audit findings were retroactively seized upon as a "fishing expedition" to manufacture for cause grounds. While we believe the DLP findings independently justify the for cause termination regardless of the timeline, the chronological sequence creates an unfavorable optic that a jury may find persuasive.
3. Non-Competition Clause (§ 9.1) is Void. The 18-month non-competition provision in § 9.1 of the Employment Agreement is almost certainly unenforceable under California law. California Business & Professions Code § 16600 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, confirmed that § 16600 invalidates non-competition agreements except in narrow statutory exceptions (sale of a business or dissolution of a partnership) that are not applicable here. Although the Employment Agreement contains a New York choice-of-law provision (§ 14.3), California courts have consistently held that § 16600 represents a fundamental public policy of the State of California that cannot be circumvented through choice-of-law provisions where the employee is a California resident working in California. See Application Group, Inc. v. Hunter Group, Inc. (1998) 61 Cal.App.4th 881. AMA has effectively conceded this point by removing § 9.1 references from its Amended Cross-Complaint following the Court's March 22, 2023 ruling, and should not expend settlement capital defending a provision that is legally untenable.
4. Non-Solicitation of Business Relationships (§ 9.3) is Vulnerable. Section 9.3 of the Employment Agreement prohibits Aldrich for a period of 24 months following termination from soliciting or conducting business with "any network, platform, advertiser, or other client of [AMA] with whom [Aldrich] had contact or about whom [Aldrich] received confidential information during the final 24 months of employment." Given Aldrich's senior position and the breadth of his client relationships, this provision effectively prohibits him from working in the unscripted television industry — a result that California courts are likely to view as a de facto non-competition clause subject to invalidation under § 16600. Recent California appellate decisions have shown increasing skepticism toward broad non-solicitation provisions that function as restraints on trade. This vulnerability weighs in favor of offering a reduction in the non-solicitation period as part of the settlement package.
C. Probability Assessment
Based on the foregoing analysis, the discovery record, and our experience with similar cases before the Los Angeles Superior Court, we assess the probability of success on the key disputed issues as follows:
The 60% probability assigned to the for cause defense reflects our view that Ground 1 (confidential information transmission) is strong but that the cure-period deficiency on Ground 2 and the pretext narrative create a meaningful risk that the finder of fact will view the entire for cause determination as tainted. The relatively low 25% probability on the wrongful termination claim reflects the weakness of Aldrich's public policy theory — internal opposition to a restructuring directive does not clearly implicate a fundamental public policy protected by California's wrongful termination doctrine. The CUTSA claim is assessed at 65% because the trade secret elements and misappropriation conduct are well-established, though the damages question (discussed below) is uncertain.
D. Overall Assessment
AMA's for cause defense is defensible, but its strength rests primarily on Ground 1 — the unauthorized transmission of proprietary information, which satisfies § 7.2(b)(i) (material breach) and § 7.2(b)(vi) (policy violation). Ground 2 — insubordination — is significantly weakened by the failure to observe the contractual cure period, and should be viewed as a secondary argument rather than a primary defense at trial.
If the for cause designation is overturned at trial, AMA's contractual exposure is substantial. Under the terms of the Employment Agreement, Aldrich would be entitled to severance of $970,000, a pro-rata bonus of $168,750, acceleration of unvested RSUs valued at approximately $332,200 (based on the share price at termination; the current value would be higher at approximately $370,000 based on the November 2023 share price), and COBRA premium subsidy of approximately $50,400. In addition, a jury could award emotional distress damages, lost future compensation, and Aldrich could seek recovery of attorneys' fees under applicable California statutes. AMA's total trial exposure, in a worst-case scenario, could approach or exceed $2.5 million exclusive of AMA's own defense costs.
AMA's cross-claims provide meaningful leverage but yield limited quantifiable damages. As discussed more fully in Section IV.B below, there is no evidence to date that Halcyon Creek Productions commercially exploited any of the proprietary materials transmitted by Aldrich. In the absence of such evidence, AMA's actual damages from the misappropriation are difficult to establish, and the primary value of the cross-claims lies in their effect on settlement dynamics rather than in their independent recovery potential.
Taking all of these factors together, we believe that a settlement in the range of $2,000,000 to $2,500,000, combined with partial RSU acceleration and reasonable restrictive covenant modifications, represents a fair and appropriate resolution of this dispute that reflects AMA's litigation strengths while accounting for its vulnerabilities and the cost of continued litigation.
IV. Damages and Exposure Analysis
A. Aldrich's Aggregate Demand
Aldrich's initial pre-suit demand was $4,150,000. The following table presents a component-by-component analysis of Aldrich's claimed damages, alongside AMA's assessment of the realistic exposure for each component based on the current factual record and applicable law:
Several observations regarding the exposure assessment merit elaboration. The contractual components — severance, pro-rata bonus, RSU acceleration, and COBRA subsidy — are essentially binary: if the for cause designation is overturned, they are owed in full under the terms of the Employment Agreement. There is no middle ground on these components, which together total approximately $1,521,350. The emotional distress component is assessed conservatively; while Aldrich will testify to the personal impact of his termination, the absence of medical or psychological treatment evidence limits the likely award. The lost future compensation claim is subject to mitigation — our investigation indicates that Aldrich has been employed in a consulting capacity since approximately March 2023, though the details and compensation level of that engagement are not fully known. Punitive damages are assessed at zero because Aldrich's wrongful termination claim does not support a punitive award absent a showing of malice, oppression, or fraud, and the factual record does not support such a finding.
The expense reimbursement claim of $28,400 under California Labor Code § 2802 warrants separate mention. Based on our review of the supporting documentation produced by Aldrich, the claimed expenses appear to be legitimate business expenditures for which Aldrich was not reimbursed prior to termination. This is a relatively small component, but it represents a near-certain liability for AMA that should be resolved as part of any settlement. California's statutory framework for expense reimbursement is employee-protective, and a failure to reimburse can give rise to additional penalties and attorneys' fees.
B. AMA's Cross-Claim Recovery Value
AMA's cross-claims against Aldrich, while strategically important, have limited independent monetary recovery value based on the current state of the evidence. Specifically:
Actual Damages. AMA's actual damages from Aldrich's unauthorized transmissions are difficult to quantify at this stage. There is no evidence in the record that Halcyon Creek Productions produced or broadcast any programming based on the transmitted materials, or that any competitor obtained a commercial advantage from the disclosure. AMA's investigation into Halcyon Creek's use of the materials is ongoing, but to date has not yielded evidence of exploitation. The show concept development costs for the three format bibles — estimated at approximately $120,000 for "Apex Endurance," $85,000 for "The Remix," and $95,000 for "Untamed West," totaling approximately $300,000 — represent AMA's investment in developing those concepts, but this figure reflects sunk development costs rather than cognizable damages in the traditional sense.
Summit Challenge Revenue Model. The disclosure of the Summit Challenge revenue model — which projects annual revenue of approximately $42 million from AMA's most commercially successful franchise — poses a reputational and competitive risk to AMA, particularly if the model's detailed financial projections, advertiser rate cards, and platform licensing terms were to become available to competitors. However, translating this risk into a dollar figure for damages purposes is extremely challenging, particularly in the absence of evidence that the model was actually used by Halcyon Creek or any other third party.
Primary Value of Cross-Claims. In our assessment, the primary value of AMA's cross-claims lies in three areas: (a) injunctive relief — obtaining a court order (or, in the settlement context, a contractual obligation) requiring Aldrich to return or certify deletion of all AMA proprietary materials; (b) settlement leverage — the cross-claims are estimated to reduce Aldrich's expected net recovery by approximately $500,000 to $1,000,000 by creating downside risk for Aldrich and shifting the negotiation dynamic; and (c) narrative preservation — the cross-claims reinforce the for cause narrative and support AMA's position that Aldrich was not an innocent victim but an unfaithful officer who violated his duties to his employer.
Exemplary Damages. Exemplary damages under CUTSA § 3426.3 are theoretically available if AMA can demonstrate that the misappropriation was willful and malicious. Such damages are capped at two times actual damages. However, because actual damages must first be established — and, as noted, are difficult to quantify on the current record — the exemplary damages theory does not add significant monetary value to the cross-claims at this time.
C. Net Exposure After Cross-Claim Offset
Taking into account both AMA's exposure on Aldrich's claims and the leverage provided by AMA's cross-claims, we assess the net expected settlement range as follows:
•  Risk-adjusted gross exposure on Aldrich's claims: $1,500,000–$2,500,000
•  Cross-claim leverage (estimated reduction in Aldrich's expected recovery): approximately $500,000–$1,000,000
•  Net expected settlement range: $1,500,000–$2,500,000
The net settlement range is, in practical terms, similar to the gross exposure range because the cross-claim leverage is already reflected in the risk-adjusted exposure figures. Put differently, without the cross-claims, AMA's expected settlement cost would be materially higher — likely in the $2,000,000 to $3,200,000 range. The cross-claims effectively compress Aldrich's recovery expectations, and the recommended settlement authority of $2,500,000 (plus partial RSU acceleration) captures the upper end of the range within which we believe a reasonable resolution can be achieved.
V. Cost of Continued Litigation
If the Aldrich matter does not settle at the December 8 mediation and proceeds to trial, AMA should anticipate incurring significant additional legal fees and costs. Based on our assessment of the remaining pre-trial proceedings and the anticipated scope of the trial, we estimate the following:
These estimates assume a trial date in the second or third quarter of 2024, which is consistent with the current procedural posture and the January 19, 2024 trial setting conference. The estimates include fees for associate and partner time, paralegal support, expert witness fees and preparation, trial exhibits, demonstrative aids, and courtroom technology. They do not include costs associated with any post-trial motions or appellate proceedings, which could add an additional $100,000 to $250,000 depending on the outcome and the scope of any appeal.
In addition to the direct litigation costs, continued prosecution of this matter imposes indirect costs on AMA in the form of management time and attention. Jonathan Mercer, Rebecca Prescott, and Gregory Tanaka — all of whom are likely to be required to testify at trial — would need to devote substantial time to trial preparation, witness preparation sessions, and attendance at trial. These demands would necessarily divert their attention from ongoing business operations during a period in which AMA is implementing the restructuring that gave rise to this dispute in the first instance.
Total Aldrich defense costs incurred through November 2023, within the overall Calderwood & Harkness engagement for the AMA employment matters, stand at approximately $428,100 based on the Phase 9 actual-to-budget billing reconciliation. This figure includes attorney fees, costs, and expenses specifically attributable to the Aldrich dispute, allocated from the broader engagement in accordance with the phase-based billing structure established in the engagement letter.
Settlement at the December 8 mediation would eliminate both the direct litigation costs of $400,000 to $675,000 and the indirect management costs described above. When the cost savings from settlement are considered alongside the risk of an adverse verdict, the economic case for resolution within the recommended authority is compelling. A settlement at $2,500,000 represents a total all-in cost for the Aldrich dispute (including defense fees already incurred) of approximately $2,928,100 — a figure that compares favorably to the total potential exposure at trial (risk-adjusted range of $1,500,000 to $2,500,000 in damages, plus $400,000 to $675,000 in additional defense costs, for a total of $1,900,000 to $3,175,000) without any of the uncertainty and reputational risk associated with a public trial.
VI. Insurance Coverage
AMA maintains an employment practices liability insurance policy with Pemberton Mutual Assurance Co. (Policy No. PMA-EPL-2022-00837). Upon receiving notice of the Aldrich complaint in December 2022, AMA tendered the claim to Pemberton Mutual for defense and indemnity coverage.
On December 22, 2022, Pemberton Mutual issued a reservation of rights letter denying coverage for the Aldrich dispute. The denial was predicated on three independent grounds:
1. Insured v. Insured Exclusion (Policy § IV.C). Pemberton Mutual asserted that AMA's cross-claims against Aldrich — a former insured under the EPL policy — constitute "affirmative action by one insured against another insured," triggering the Insured v. Insured exclusion. Under this exclusion, the policy does not cover any claim "brought by, on behalf of, or at the direction of any Insured against any other Insured." Pemberton Mutual took the position that AMA's decision to file affirmative cross-claims against Aldrich, rather than merely defending against his complaint, brought the entire dispute within the scope of the exclusion.
2. Scope of "Defense" Coverage. Pemberton Mutual asserted that AMA's offensive cross-claims — including the CUTSA, breach of fiduciary duty, and conversion claims — fall outside the scope of "defense" coverage under the policy, which is limited to the costs of defending against claims of wrongful employment practices. Pemberton Mutual characterized AMA's cross-claims as affirmative business litigation unrelated to the defense of an employment practices claim.
3. Proprietary Business Interests Exclusion. Pemberton Mutual asserted that AMA's restrictive covenant and trade secret claims relate to the protection of proprietary business interests — not to "Employment Practices" as that term is defined under the Policy — and therefore fall outside the policy's insuring agreement.
AMA did not challenge Pemberton Mutual's coverage denial. After consultation with this firm and an independent review by AMA's coverage counsel, AMA determined that the cost of coverage litigation — including the fees associated with filing a coverage action, conducting discovery on coverage issues, and potentially litigating the scope of the Insured v. Insured exclusion and the "Employment Practices" definition — would likely exceed the potential recovery, particularly given the uncertainty of the outcome on the Insured v. Insured exclusion issue.
It should be noted that Pemberton Mutual did provide coverage for the class action component of the broader engagement. Pemberton Mutual contributed $9,250,000 of the $14,750,000 class settlement in Fuentes v. AMA, reflecting the carrier's assessment that the class action claims (primarily wage and hour and misclassification claims) fell squarely within the policy's insuring agreement and were not subject to the same exclusions that barred coverage for the Aldrich dispute.
AMA also maintains a Directors & Officers liability insurance policy with Redcliffe Specialty Insurance Ltd. (Policy No. RSI-DO-2022-04419). That policy has not been triggered because Aldrich has not named any individual officers or directors as defendants in the litigation. If Aldrich were to amend his complaint to add individual defendants, the D&O policy could potentially be implicated, but we do not believe this is a realistic risk at this stage of the proceedings.
Conclusion on Coverage: The Aldrich settlement will be entirely self-funded by AMA. This fact underscores the importance of achieving a cost-effective resolution at the December 8 mediation, as every dollar paid in settlement or continued defense costs will come directly from AMA's operating budget.
VII. Proposed Settlement Parameters
A. Economic Terms
Based on the merits assessment, exposure analysis, and cost-of-litigation considerations discussed above, we recommend the following economic parameters for the December 8 mediation:
The cash payment of up to $2,500,000 would be paid as a lump sum to Gavin Aldrich and Whitfield & Associates in trust, with the allocation between attorney fees and client proceeds to be determined by Aldrich and his counsel. The payment would be structured in accordance with the tax allocation recommendations set forth in Section VII.C below. The partial RSU acceleration — 10,200 of 15,300 unvested RSUs — represents a meaningful concession that provides Aldrich with approximately two-thirds of the equity he would have received had his termination been designated as without cause, while preserving AMA's position that the for cause designation was justified and saving AMA the cost of full acceleration.
B. Non-Economic Terms
In addition to the economic terms, we recommend that AMA seek the following non-economic provisions in the settlement agreement:
Mutual General Release. The settlement agreement should contain a full mutual general release of all claims and cross-claims arising out of or related to Aldrich's employment with AMA, the termination of that employment, and all matters pleaded in the complaint, cross-complaint, and amended cross-complaint. The release should expressly include a waiver of rights under California Civil Code § 1542, which provides that a general release does not extend to claims that the releasing party does not know or suspect to exist at the time of executing the release. Both parties should execute the § 1542 waiver to ensure finality.
Restrictive Covenant Modifications. The following modifications to the restrictive covenants in Aldrich's Employment Agreement should be incorporated into the settlement terms:
•  Section 9.1 (Non-Competition, 18 months): Voided in its entirety. The parties should agree that § 9.1 is unenforceable pursuant to California Business & Professions Code § 16600 and is of no further force or effect. AMA should not attempt to preserve or enforce a provision that is almost certainly void under California law, and agreeing to void it costs AMA nothing while providing Aldrich with a meaningful non-economic concession.
•  Section 9.2 (Non-Solicitation of Employees, currently 24 months): Reduced from 24 months to 12 months measured from the date of settlement. This modification reflects a reasonable balance between AMA's legitimate interest in protecting its workforce from targeted solicitation by a former senior executive and California's strong public policy against restraints on trade.
•  Section 9.3 (Non-Solicitation of Business Relationships, currently 24 months): Reduced from 24 months to 12 months measured from the date of settlement. As noted in Section III.B.4 above, the current 24-month provision is vulnerable to challenge as a de facto non-compete, and the reduction to 12 months reduces AMA's litigation risk while maintaining a reasonable protective period.
•  Section 9.4 (Confidentiality, indefinite): Retained in full force and effect, with no modification whatsoever. Section 9.4 is AMA's most critical ongoing protection and represents the company's most important objective in the settlement negotiations. The provision prohibits Aldrich from using or disclosing any confidential information of AMA, including show concepts, revenue models, audience analytics, business strategies, and financial information, in perpetuity. Given the nature and sensitivity of the materials that Aldrich had access to during his five years as SVP of Original Content, the indefinite duration of § 9.4 is essential to protecting AMA's competitive position. This provision should not be negotiated away under any circumstances.
Return and Deletion of Materials. Aldrich must be required to return or certify the deletion of all AMA proprietary materials in his possession, custody, or control — including any materials stored on personal devices, cloud storage accounts, email accounts, or external hard drives — within ten (10) business days of the execution of the settlement agreement. The certification should be in the form of a sworn declaration, and the settlement agreement should provide that a material breach of this obligation constitutes grounds for injunctive relief and recovery of AMA's attorneys' fees incurred in enforcement.
Neutral Reference Agreement. AMA will agree to provide a neutral employment reference for Aldrich, limited to confirmation of dates of employment (September 5, 2017 through October 14, 2022), title (SVP of Original Content & Executive Producer), and eligibility for rehire (neutral). All reference inquiries will be directed to AMA's Human Resources department, and no AMA officer, director, or employee will provide any substantive commentary regarding Aldrich's performance or the circumstances of his departure.
Non-Disparagement. The settlement agreement should contain a mutual non-disparagement provision with a three (3) year term. The provision should prohibit both parties from making any disparaging statements about the other in any public or private forum, with a standard exception for truthful statements made in the context of legal proceedings, regulatory inquiries, or in response to a lawful subpoena.
Confidentiality of Settlement Terms. The financial terms of the settlement agreement, including the cash payment amount and the RSU acceleration terms, shall remain confidential. Neither party shall disclose the financial terms to any third party except as required by law, regulation, or court order, or to the party's attorneys, accountants, tax advisors, or (in the case of AMA) officers, directors, insurers, and auditors who have a legitimate need to know.
No Admission of Liability. The settlement agreement should contain a standard provision stating that neither party admits liability or wrongdoing by entering into the settlement, and that the settlement is made solely for the purpose of resolving disputed claims and avoiding the expense and uncertainty of continued litigation.
C. Tax Allocation
We recommend that the cash settlement payment be allocated as follows for tax purposes:
•  Approximately 45% Wages ($1,125,000 based on $2,500,000 settlement): This component covers the severance equivalent and partial bonus that Aldrich would have been entitled to receive had his termination been designated as without cause. Amounts allocated to wages are subject to W-2 withholding and reporting, including federal and state income tax withholding and FICA (Social Security and Medicare) contributions. AMA should issue a Form W-2 for this component.
•  Approximately 55% Non-Wage Damages ($1,375,000 based on $2,500,000 settlement): This component covers emotional distress, general settlement consideration, and other non-wage damages. Amounts allocated to non-wage damages are not subject to withholding and should be reported on a Form 1099-MISC issued to Aldrich.
The RSU acceleration component should be handled separately through AGMG's equity compensation plan and reported in accordance with the plan's existing tax treatment provisions. We recommend coordinating with CFO Malcolm Dunmore and AGMG's tax advisors to ensure that the accelerated RSUs are properly valued, reported, and withheld upon vesting.
A detailed tax treatment memorandum, addressing the specific withholding obligations, reporting requirements, and potential issues related to the allocation (including the interplay between the wage and non-wage components), will be prepared upon agreement on the final settlement terms. The tax allocation should be incorporated into the settlement agreement as a binding term to ensure consistency between the parties' reporting positions.
VIII. Negotiation Strategy for December 8 Mediation
To maximize the likelihood of achieving a resolution within the recommended authority while preserving AMA's leverage and credibility, we recommend the following negotiation approach for the December 8 mediation session:
Opening Position. AMA should open at a cash offer of $1,750,000, plus acceleration of 8,000 RSUs (out of 15,300 unvested). This opening is consistent with AMA's closing position at the September 8 mediation session and signals that AMA is prepared to continue negotiations from the point where the last session ended, rather than retreating to a lower number. An opening below the prior session's closing offer would likely be counterproductive, as it would suggest bad faith and could prompt the mediator to question AMA's seriousness.
Expected Movement. Over the course of the mediation session, we anticipate that AMA will need to increase its offer from the opening position of $1,750,000 to a range of $2,000,000 to $2,350,000 in order to reach a zone of possible agreement with Aldrich. Based on our experience with Hon. Okoro and our assessment of Aldrich's likely movement from his closing position of $3,200,000 at the prior session, we believe a landing zone of approximately $2,200,000 to $2,400,000 is most likely if the matter is to resolve.
Reserve. The recommended authority of $2,500,000 cash should be maintained as a firm ceiling — the maximum amount that AMA's negotiation team is authorized to offer without returning to the client for revised authority. This ceiling should not be disclosed to the mediator or to opposing counsel. If the mediator's proposal falls at or below $2,500,000, AMA should accept. If the mediator proposes a figure above $2,500,000, AMA should explain that it has reached the limit of its authority and request time to consult with the client before proceeding.
Key Concessions to Make Strategically During the Session. The following concessions should be deployed at appropriate moments during the mediation to create momentum and demonstrate AMA's good faith:
•  RSU Acceleration (from 8,000 to 10,200 RSUs). The increase from 8,000 to 10,200 RSUs represents a significant gesture that costs AMA relatively little in absolute terms — the difference in equity value between 8,000 and 10,200 RSUs is approximately $53,000 (2,200 RSUs × ~$24.18/share). This concession should be made in the middle to late stages of the session, when it can be presented as a meaningful move that demonstrates AMA's desire to reach agreement.
•  Non-Solicitation Period Reduction (from 24 months to 12 months). Agreeing to reduce the non-solicitation periods in §§ 9.2 and 9.3 from 24 months to 12 months is a reasonable concession given California's hostility to restrictive covenants, and the reduction was anticipated in our initial strategy memorandum (Document 19 in the matter file). This concession has high perceived value to Aldrich and his counsel — it addresses one of Aldrich's core non-economic demands — while costing AMA relatively little, given that the 24-month period is likely unenforceable in any event.
•  Voiding § 9.1 (Non-Competition). AMA should concede early in the session that § 9.1 is void under California law and that AMA does not intend to enforce it. This concession should not be presented as a major sacrifice — it is not — but rather as a reflection of AMA's good faith recognition of California law. Spending negotiation capital defending an untenable legal position would be counterproductive and could undermine AMA's credibility with the mediator.
Lines Not to Cross. The following positions represent AMA's non-negotiable terms, and the negotiation team should be prepared to walk away from the mediation if Aldrich insists on crossing them:
•  Do not release or modify § 9.4 (Confidentiality). This is AMA's most important ongoing protection. Aldrich had access to AMA's most sensitive creative, financial, and strategic information for five years, and the indefinite confidentiality obligation is essential to protecting AMA's competitive position. If Aldrich demands that § 9.4 be voided, modified, or time-limited as a condition of settlement, AMA should decline and prepare for trial.
•  Do not agree to unlimited non-disparagement. A perpetual mutual non-disparagement provision is inappropriate in this context. Aldrich's demand for unlimited non-disparagement is likely motivated by a desire to prevent AMA from ever discussing the circumstances of his departure, even in internal settings. A three-year term is appropriate and provides adequate protection for both parties. Extending the term beyond three years, or eliminating the time limit entirely, would be an unnecessary concession that could have unintended consequences for AMA's ability to discuss the matter internally or with future employers of Aldrich.
•  Do not exceed $2,500,000 cash without returning to the client for revised authority. The $2,500,000 ceiling represents the maximum amount that, in our assessment, is justified by the merits and exposure analysis. If the mediation produces a proposal above $2,500,000, AMA's team should request a recess to consult with Gregory Tanaka and, if necessary, Philippa Cartwright before responding.
Contingency. If Aldrich insists on a cash payment in excess of $2,500,000, or if he demands release of the § 9.4 confidentiality obligations as a condition of settlement, we recommend adjourning the mediation and commencing preparation for trial. In that event, we will proceed with the trial setting conference on January 19, 2024 and prepare a revised litigation budget for the trial phase.
IX. Comparison to Class Action Resolution
To place the Aldrich settlement recommendation in the context of the broader engagement, a comparison to the class action resolution is instructive.
The class action, Fuentes v. Aurelius Media Americas Inc., Case No. 22STCV38214, settled at a gross settlement amount of $14,750,000. Judge Villanueva entered the Preliminary Approval Order on October 18, 2023, and the Final Approval Hearing is scheduled for February 2, 2024. Of the $14,750,000 gross settlement amount, Pemberton Mutual Assurance Co. contributed $9,250,000 pursuant to the EPL policy, reflecting Pemberton Mutual's determination that the class action claims (primarily wage and hour, misclassification, and meal and rest period violations) fell within the policy's insuring agreement. AMA self-funded the remaining $5,500,000 of the class settlement.
If the Aldrich dispute settles at the recommended maximum authority of $2,500,000, the total matter resolution for the combined class and executive disputes would be approximately $17,250,000 ($14,750,000 class action + $2,500,000 Aldrich). AMA's total self-funded settlement contributions would be $8,000,000 ($5,500,000 class action + $2,500,000 Aldrich).
AMA's total all-in cost for the combined matters — including both self-funded settlement contributions and defense fees and expenses incurred through the engagement — would be approximately $11,280,000, calculated as follows:
•  Self-funded settlements: $8,000,000
•  Total defense fees and expenses (C&H engagement, all phases): approximately $3,280,000
•  Total all-in cost: approximately $11,280,000
The combined resolution of $17,250,000 represents approximately 40.4% of the total claimed exposure across both matters, which was $42,750,000 ($38,600,000 in the class action + $4,150,000 in the Aldrich dispute). While the percentage-of-claimed-exposure metric is an imperfect measure — it does not account for the relative strength or weakness of the underlying claims — it provides a useful benchmark for evaluating the overall favorability of the resolution. A combined settlement at 40.4% of claimed exposure, particularly in a posture where AMA's for cause defense faces meaningful vulnerabilities, compares favorably to outcomes in similar employment disputes in the Los Angeles market.
The comprehensive resolution of all employment litigation arising from the November 2022 engagement would also provide meaningful operational and reputational benefits to AMA, allowing the company to focus on its ongoing business operations without the distraction and uncertainty of continued litigation.
X. Approval Required
Under AMA's Outside Counsel Guidelines (§ 7.4), settlement authority exceeding $5,000,000 in any single matter or related group of matters requires the approv