1017-00004 · Entities. Aurelius Global Media Group · Mediation & Settlement/Class Action

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CALDERWOOD & HARKNESS LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017

CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT This memorandum is a privileged and confidential attorney-client communication and attorney work product. It is intended solely for the use of the individuals and entities to whom it is addressed. Any dissemination, distribution, or copying of this memorandum or its contents to any person or entity not authorized to receive it is strictly prohibited. If you have received this memorandum in error, please notify Calderwood & Harkness LLP immediately and destroy all copies.

MEMORANDUM

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

FROM: Renata Vasquez, Responsible Partner, Calderwood & Harkness LLP

DATE: August 15, 2023

RE: Settlement Authority Recommendation — Pre-Mediation #1 — Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214 (Consolidated); Aldrich v. Aurelius Media Americas Inc., LASC Case No. 22STCV41087

C&H Matter No.: 1017-00004

I. Executive Summary and Recommendation

The purpose of this memorandum is to request formal settlement authority in advance of Mediation Session #1, which is currently scheduled for August 25, 2023, before the Honorable Patricia Okoro (Ret.) of Westpark Dispute Resolution Inc., located at 1925 Century Park East, Suite 1700, Los Angeles, California 90067. As discussed in greater detail below, the recent partial certification ruling issued by Judge Escobedo on August 11, 2023, coupled with the overall posture of both the Fuentes class action and the Aldrich individual action, creates a window for meaningful settlement negotiations. We believe it is in AMA's interest to approach this mediation with sufficient authority to reach a resolution if the opportunity presents itself.

Based on our comprehensive analysis of the litigation risk, competing damages valuations, insurance coordination, and the strategic posture of both matters, we recommend that AMA seek approval for the following settlement authority:

We note at the outset that Session #1 is focused exclusively on the class action claims. The Aldrich matter is not currently scheduled for mediation; however, depending on the progress of class action discussions during Session #1, we may recommend folding the Aldrich matter into a combined Session #2 if the parties are amenable to a global resolution. Authority for the Aldrich component is requested now so that we are positioned to move quickly if an opportunity for comprehensive resolution arises.

Pursuant to AMA's Outside Counsel Guidelines § 7.4, approval for this settlement authority must be obtained from Gregory Tanaka (VP, Legal & Compliance) and Philippa Cartwright (General Counsel, AGMG). Because the total recommended maximum authority of $18,000,000 exceeds the $5,000,000 threshold established in the Guidelines, final authorization must also be obtained from Jonathan Mercer (President, AMA) and the AGMG Board's Audit and Risk Committee. We respectfully recommend that this memorandum be circulated to the Audit and Risk Committee promptly so that authority may be secured prior to the August 25 mediation date.

The balance of this memorandum sets forth our detailed analysis supporting these recommendations.

II. Current Posture of the Class Action

A. Certification Order (August 11, 2023)

On August 11, 2023, the Honorable Raymond Escobedo, sitting in Department 34 of the Los Angeles County Superior Court, issued an order granting in part and denying in part Plaintiffs' Motion for Class Certification in Fuentes v. Aurelius Media Americas Inc., Case No. 22STCV38214. The order, which is attached hereto as Exhibit A, represents a mixed result that carries significant implications for both the settlement posture and trial risk profile of this matter.

Claims Certified for Class Treatment. The Court certified the following claims for class treatment:

(1) First Meal Period Auto-Deduction Claim — Plaintiffs' claim that AMA's use of an automatic meal period deduction in its timekeeping system resulted in systematic denial of meal period premiums owed under California Labor Code § 226.7 and the applicable IWC Wage Order;

(2) Derivative Wage Statement Claim — Plaintiffs' claim under California Labor Code § 226 that AMA's wage statements were inaccurate because they failed to reflect meal period premiums that were allegedly owed;

(3) Unfair Competition Law (UCL) Claim — Plaintiffs' claim under California Business & Professions Code § 17200, predicated on the underlying meal period and wage statement violations; and

(4) PAGA Claim — Plaintiffs' Private Attorneys General Act representative claim, which the Court permitted to proceed as a representative action alongside the certified class claims.

Claims Denied Class Certification. The Court denied class certification as to five of the seven causes of action asserted by Plaintiffs:

(1) Rest Period Claim — Denied on predominance grounds, with the Court finding that rest period compliance was heavily dependent on individualized circumstances, including the specific production schedule of each show unit and the discretion exercised by individual unit production managers;

(2) Off-the-Clock/Overtime Claim — Denied on predominance grounds, with the Court finding that off-the-clock work allegations were inherently individualized and not susceptible to common proof;

(3) Minimum Wage Claim — Denied for lack of commonality and typicality, as the named plaintiffs' minimum wage allegations were atypical of the putative class;

(4) Second Meal Period Claim — Denied on predominance grounds, as the second meal period obligation arises only for shifts exceeding ten hours and the evidence did not establish a common policy or practice of denying second meal periods; and

(5) Waiting Time Penalties Claim — Denied on predominance and superiority grounds, with the Court finding that the determination of whether wages were "willfully" withheld upon separation required individualized inquiry into each class member's circumstances of separation.

The denial of five of seven causes of action represents a significant defense achievement. These five claims — particularly the rest period, off-the-clock/overtime, and waiting time penalties claims — constituted the most exposure-heavy and individualized components of Plaintiffs' case. Their exclusion from class treatment substantially narrows the scope of the certified action and the realistic settlement range.

Certified Class Definition. The Court defined the certified class as follows:

All current and former non-exempt, hourly employees of Aurelius Media Americas Inc. who worked in the State of California at any time from November 1, 2018 through the date of preliminary approval of any class settlement, who were subject to AMA's automatic meal period deduction in the NovaPay Solutions TimeTrack Pro timekeeping system.

Based on payroll data produced by AMA during discovery, the estimated class size is approximately 1,850 individuals, encompassing employees across AMA's seven California production facilities (West Hollywood, Studio City, Burbank, El Segundo, Sherman Oaks, Hollywood, and Santa Monica) and fourteen active show units during the class period.

Rejection of AMA's Subclass Argument. AMA had argued that, if certification were appropriate, the class should be limited to a subclass of employees at Facilities 2 (Studio City), 4 (Burbank), and 7 (El Segundo) — the three facilities where the Missed Meal Attestation feature in TimeTrack Pro had been deactivated. This subclass would have encompassed approximately 700 individuals. The Court rejected this argument, finding that the low utilization rates of the attestation feature at the remaining four facilities (ranging from 1.8% to 4.1%) rendered the distinction between facilities with and without the attestation feature "functionally irrelevant." In the Court's view, a mechanism that employees do not know about or do not use provides no meaningful differentiation between facilities, and certification of the full class was therefore appropriate.

B. Implications of Partial Certification

The partial certification order has the following implications for AMA's settlement posture:

Favorable Implications. The denial of class certification for rest period, off-the-clock/overtime, minimum wage, second meal period, and waiting time penalty claims is a substantial win for AMA. These claims collectively accounted for the majority of Plaintiffs' aggregate damages model (approximately $22.1 million of Dr. Rennick's $38.6 million total valuation, excluding PAGA penalties). Their exclusion from class treatment means that AMA faces certified class exposure only on the first meal period claim and derivative wage statement claim — a dramatically narrower scope of liability than what Plaintiffs originally sought. The denial of these claims on predominance and individualization grounds also validates AMA's core defense theory: that employment conditions varied significantly across show units and facilities, making blanket class-wide liability inappropriate.

Unfavorable Implications. The certification of the full class — all approximately 1,850 members — rather than the Facilities 2, 4, and 7 subclass of approximately 700 members is a setback. The Court's rejection of the subclass argument, grounded in the low utilization rates of the attestation feature across all facilities, broadens the certified class by approximately 165% relative to AMA's preferred framework. This expansion increases AMA's aggregate exposure on the certified claims and may strengthen Plaintiffs' negotiating position at mediation by allowing them to point to a larger affected population.

Neutral Implications. The Court's order noted that individual damages calculations may be required even for the certified claims, as the amount of premiums owed to each class member will depend on their specific shift records and meal period compliance data. This observation preserves AMA's ability to contest per-employee damages and may provide a basis for decertification or partial summary judgment motions at a later stage if the case does not settle. However, we do not expect to litigate those motions, as both sides now have strong incentives to settle.

C. Discovery and Evidentiary Record

Fact discovery in the class action is substantially complete. AMA produced a total of 147,832 documents, comprising approximately 1.2 million pages of materials including payroll records, timekeeping data, policy manuals, employee handbooks, training materials, internal communications, and production schedules. Plaintiffs produced 3,412 documents, consisting primarily of personal communications, employment records, and documents relating to the named plaintiffs' individual circumstances. E-discovery hosting and processing services were provided by Marlowe Asset Management Litigation Technology Inc., which has maintained a dedicated document review platform for this matter since December 2022.

A total of eighteen depositions have been completed — eleven taken by Plaintiffs and seven taken by the Defense. Key depositions include:

• Named Plaintiffs: Maria Fuentes (production assistant, West Hollywood facility), Brian Halloran (camera operator, Sherman Oaks facility), and Diana Padilla (events coordinator, Burbank facility / live events unit);

• AMA Corporate Witnesses (PMK Designees): Chiamaka Okafor (designated as Person Most Knowledgeable regarding timekeeping policies and the TimeTrack Pro system), Luis Arroyo (designated as Person Most Knowledgeable regarding production scheduling practices across California facilities);

• AMA Individual Witnesses: Kenneth Fong (Senior Director, Payroll Operations), Jonathan Mercer (President, AMA), and Taylor Prescott (Vice President, Unscripted Programming).

Expert reports have been exchanged as follows:

• Plaintiffs' Expert: Dr. Howard Rennick of Pinnacle Economic Consulting Group LLC, whose expert report dated April 28, 2023, sets forth Plaintiffs' aggregate damages model across all asserted claims;

• Defense Experts: Dr. Rajesh Makhija of Workforce Dynamics Consulting LLC, whose expert report dated May 19, 2023, analyzes the variability of employment conditions across AMA's show units and facilities in support of AMA's individualization defense; and Dr. Catherine Lindstrom of Hargrove Analytics Inc., whose expert report dated June 9, 2023, provides an alternative damages valuation focused on the certified claims.

Rebuttal reports were served in accordance with the case management order, and both sides have identified additional percipient witnesses who may be called at trial. The evidentiary record is sufficiently developed to permit informed settlement discussions.

III. Damages Analysis — Class Action

A. Competing Expert Valuations

The parties' respective experts have produced materially divergent damages valuations, a circumstance that is typical in California wage-and-hour class actions. The following table summarizes the competing valuations and our risk-adjusted assessment:

Several points merit emphasis regarding the above comparison. Dr. Rennick's total of $38.6 million encompasses all seven causes of action originally asserted by Plaintiffs, including the five claims that were denied class certification. While those claims remain theoretically available for individual prosecution or through the PAGA representative mechanism, they are no longer viable as class claims and their inclusion in Plaintiffs' aggregate model substantially inflates Plaintiffs' negotiating position beyond what is realistically achievable. Dr. Lindstrom's valuation of approximately $5.8 million focuses on the claims that were actually certified — the first meal period claim and the derivative wage statement claim — plus a reasonable estimate of PAGA exposure. Our own risk-adjusted assessment of $5 million to $8 million reflects the range of outcomes we consider most probable given the evidentiary record and the certification ruling.

B. Key Assumptions Underlying Our Assessment

Our assessment of realistic exposure in the $5 million to $8 million range rests on several key analytical assumptions and observations:

Flaws in Dr. Rennick's Model. Dr. Rennick's damages model assumes that every meal period that was automatically deducted by the TimeTrack Pro system constitutes a "missed" meal period — i.e., that each auto-deduction represents a violation requiring payment of a one-hour premium. This assumption is fundamentally flawed. The auto-deduction feature was designed to deduct thirty minutes of meal period time from shifts exceeding the applicable threshold, on the assumption that the employee took a compliant off-duty meal break. For the majority of employees at AMA's California facilities, the auto-deduction accurately reflected compliant meal periods. Dr. Rennick's blanket assumption of a 100% violation rate has no empirical basis in the record and was challenged by Dr. Makhija's facility-level and show-unit-level analysis, which demonstrated significant variation in actual meal period compliance.

Dr. Lindstrom's Alternative Model. Dr. Lindstrom's alternative model, which yields an aggregate valuation of approximately $5.8 million for the certified claims, uses actual missed-meal attestation data from the four facilities where the feature was active, applies a conservative extrapolation methodology to estimate violations at the three facilities where the feature was inactive, and adjusts for the class period and number of affected employees. While Dr. Lindstrom's methodology has limitations — the Court's certification order itself noted the low utilization rates of the attestation feature, which may undercount actual violations — her model provides a more defensible starting point than Dr. Rennick's blanket approach.

Impact of Partial Certification. The fact that certification was limited to the first meal period claim substantially reduces realistic exposure. The rest period claim ($8.4 million in Dr. Rennick's model), the off-the-clock/overtime claim ($12.2 million), and the remaining denied claims collectively accounted for more than half of Plaintiffs' total damages demand. These claims can still be pursued on an individual basis or through the PAGA representative mechanism, but they are not subject to class-wide adjudication, and the practical likelihood of individual prosecution by 1,850 class members is low. A global settlement that releases all claims — including the non-certified claims — provides AMA with the certainty and finality that is a core business objective.

PAGA Penalties. Plaintiffs' PAGA penalty demand of $12.2 million is based on a statutory penalty calculation that does not account for the substantial judicial discretion afforded to courts under Labor Code § 2699(e)(2) to reduce PAGA penalties where the employer has acted in good faith or the penalty would otherwise be unjust, arbitrary, or oppressive. In our experience, California courts routinely apply a 75% to 90% reduction to PAGA penalties in settlement, particularly where the employer has taken corrective action. AMA's December 2022 remediation — activating the attestation feature at Facilities 2, 4, and 7 and correcting the auto-deduction threshold — supports a significant reduction. We estimate a realistic PAGA settlement component in the range of $500,000 to $1,000,000.

C. Settlement Range Rationale

We recommend a settlement authority range of $10,000,000 to $15,000,000 (gross settlement amount) for the class action. The rationale for this range is as follows:

$10,000,000 Floor. The $10 million floor represents approximately 172% of the defense expert's $5.8 million valuation. While we believe Dr. Lindstrom's analysis is sound, we recognize that the certification order creates meaningful trial risk and that the auto-deduction practice "presents poorly" in front of a jury. Multiple experienced mediators in similar California wage-and-hour class actions have observed that auto-deduction practices — regardless of their technical compliance — create an unfavorable optic in which the employer appears to have systematically deducted time without employee input. A settlement at $10 million would require Plaintiffs to accept a substantial reduction from their claimed exposure but would provide a meaningful recovery that a court is likely to approve at the preliminary and final approval stages.

$15,000,000 Ceiling. The $15 million ceiling represents approximately 38.9% of Plaintiffs' total claimed exposure of $38.6 million. This percentage falls at the upper end of the 15% to 40% range that is typical for California wage-and-hour class action settlements, and it would provide meaningful per-class-member recovery while securing a broad release of all claims — including the non-certified rest period, off-the-clock, overtime, minimum wage, and waiting time penalty claims. We believe $15 million represents the maximum amount that is justified by the risk profile of the certified claims, particularly in light of the significant defense achievements at the certification stage. Settlement at or below this level, when combined with the broad release of all claims, represents a favorable outcome for AMA.

Importance of a Global Release. Any settlement of the class action should include a global release extinguishing all class, PAGA, and individual claims — including the five causes of action that were denied class certification. The uncertified claims, while limited in their practical exposure, create theoretical tail risk that would persist absent a comprehensive release. A global release provides AMA with the comprehensive finality that is essential to its business planning and reduces the risk of future individual or representative claims arising from the same underlying practices.

IV. Trial Risk Assessment — Class Action

A. AMA's Strengths at Trial

AMA possesses several meaningful defensive strengths that would be presented at trial if the class action does not settle:

Facially Compliant Policies. AMA maintained written meal and rest break policies that are facially compliant with California law and the applicable IWC Wage Order. The employee handbook, which was distributed to all non-exempt employees and updated annually, contains meal and rest break policy provisions that accurately state employees' rights. These policies were acknowledged in writing by the vast majority of class members upon hire or at the time of annual policy updates.

Attestation Feature. At four of AMA's seven California production facilities (West Hollywood, Sherman Oaks, Hollywood, and Santa Monica), the TimeTrack Pro system included an active Missed Meal Attestation feature that allowed employees to report missed meal breaks directly through the timekeeping system. When an employee reported a missed meal through this feature, the system automatically flagged the shift for premium payment. This mechanism, while underutilized, demonstrates that AMA provided a means for employees to obtain meal period premiums when breaks were missed.

Individualized Damages. Dr. Makhija's expert analysis demonstrates significant variability in meal period compliance across AMA's fourteen show units. Some units — particularly those engaged in office-based post-production work — had meal period compliance rates exceeding 95%, while others — particularly those engaged in on-location production — showed lower compliance rates. This variability supports AMA's argument that damages cannot be calculated on a class-wide basis using a uniform violation rate and that individual inquiry would be required to determine each class member's actual damages.

Named Plaintiff Testimony. The named plaintiffs presented mixed testimony during their depositions that could be exploited at trial. Brian Halloran acknowledged that he "usually" received his meal breaks during non-shooting days and that he was aware of the Missed Meal Attestation feature but chose not to use it because he "didn't think it would make a difference." Maria Fuentes acknowledged that her experience varied significantly between shooting days and office days, and that on office days she "almost always" took a full thirty-minute meal break. While Diana Padilla's testimony was more uniformly adverse to AMA (discussed below), the mixed testimony of Halloran and Fuentes provides AMA with useful cross-examination material.

Corrective Measures. In December 2022, AMA implemented corrective measures to address the issues identified in this litigation. Specifically, AMA activated the Missed Meal Attestation feature at Facilities 2 (Studio City), 4 (Burbank), and 7 (El Segundo), and corrected the auto-deduction threshold from six hours to five hours to comply with IWC Wage Order 12. While these measures do not eliminate liability for the class period, they demonstrate good faith and may support a reduction in PAGA penalties under Labor Code § 2699(e)(2).

B. AMA's Vulnerabilities at Trial

Notwithstanding the above strengths, AMA faces several significant vulnerabilities that create meaningful trial risk:

Deactivated Attestation Feature. The Missed Meal Attestation feature in TimeTrack Pro was not activated at three of AMA's seven California production facilities: Studio City (Facility 2), Burbank (Facility 4), and El Segundo (Facility 7). At these three facilities, employees had no mechanism within the timekeeping system to report missed meal breaks, and the auto-deduction was applied without any employee input or confirmation. The Court found this fact significant in its certification order, noting that employees at these facilities "were provided no reasonable means of challenging the auto-deduction or reporting a missed meal period."

Low Attestation Utilization Rates. Even at the four facilities where the Missed Meal Attestation feature was active, utilization rates were strikingly low: 2.3% at West Hollywood, 4.1% at Sherman Oaks, 1.8% at Hollywood, and 3.7% at Santa Monica. The Court characterized this low utilization as evidence that employees were unaware of the feature, noting that "a mechanism employees don't know about is functionally equivalent to no mechanism at all." This finding undermines AMA's argument that the attestation feature provided a meaningful safeguard against unpaid meal period premiums, and it is likely to resonate with a jury.

Six-Hour Auto-Deduction Threshold. The TimeTrack Pro system was configured to apply the automatic meal period deduction for shifts exceeding six hours, rather than the five-hour threshold required under IWC Wage Order 12 (applicable to the entertainment industry). This configuration error means that employees who worked shifts between five and six hours were not provided any meal period deduction — and, by extension, may not have been provided meal periods at all — without any documentation or premium payment. This is an independent compliance failure that is difficult to defend and distinct from the broader auto-deduction issue.

Absence of Training Materials. During discovery, AMA was unable to identify any formal training materials relating to the Missed Meal Attestation feature. No evidence was produced of any communications to employees explaining the feature's existence, purpose, or method of use. The absence of training materials corroborates the Court's finding that low utilization rates reflected a lack of employee awareness rather than genuine employee choice.

Industry Culture and Jury Appeal. The entertainment industry production culture creates a sympathetic class narrative that is likely to resonate with a Los Angeles jury. Class members include production assistants, camera operators, lighting technicians, and other below-the-line workers who routinely work extended twelve- to sixteen-hour shooting days under conditions of significant production pressure. Plaintiffs' counsel can be expected to present testimony and exhibits illustrating the demanding nature of production work and the pressure — whether explicit or implicit — to forgo meal breaks in order to maintain production schedules.

Padilla Testimony. Of the three named plaintiffs, Diana Padilla presented the most compelling testimony regarding AMA's meal period practices. Padilla worked as an events coordinator at the Burbank facility, primarily supporting AMA's live events unit. Her testimony regarding the inability to take meal breaks during live productions — where stepping away from the control room was not feasible — was particularly compelling and well-documented. Padilla's testimony, if credited by a jury, supports a finding that AMA's production practices systematically impeded meal break compliance, at least for certain show units.

C. Overall Trial Risk

Based on our assessment of the strengths and vulnerabilities described above, we estimate the following probability distribution for trial outcomes in the class action:

• Probability of AMA prevailing entirely at trial (zero liability): Approximately 25–30%. While AMA has defensible positions on several elements, the combination of the deactivated attestation feature, low utilization rates, the six-hour threshold error, and the sympathetic class narrative makes a complete defense verdict unlikely but not impossible.

• Probability of plaintiff verdict in the range of Plaintiffs' expert valuation ($38.6 million or similar): Approximately 15–20%. A verdict at this level would require the jury to adopt Dr. Rennick's 100% violation rate assumption, which we believe is improbable but cannot be excluded.

• Most likely trial outcome: A verdict in the range of $8,000,000 to $18,000,000, with an estimated probability of 40–50%. This range reflects a jury finding of liability on the certified first meal period claim with damages calculated using a violation rate somewhere between Dr. Lindstrom's conservative estimate and Dr. Rennick's blanket assumption.

If the case proceeds to trial, AMA should expect to incur additional fees and expenses of approximately $1,200,000 to $1,800,000, inclusive of expert witness fees, trial preparation costs, jury consultant fees, and trial counsel time. The trial itself would consume approximately fifteen to twenty court days, with additional time required for pre-trial motions and post-trial proceedings.

These trial cost and timeline estimates reinforce the economic rationale for settlement within the recommended range. A settlement at $12.5 million (the midpoint of our recommended range), for example, would cost substantially less than the expected value of a trial verdict ($8–18 million range, midpoint $13 million) when trial costs of $1.2–1.8 million are added to the verdict exposure.

V. Aldrich Individual Action — Current Posture and Settlement Considerations

A. Case Status

Aldrich v. Aurelius Media Americas Inc., Case No. 22STCV41087, is assigned to the Honorable Catherine Villanueva, Department 52, of the Los Angeles County Superior Court. The case arises from the termination of Derek Aldrich, who served as Senior Vice President of Development at AMA from September 2017 until his termination on October 14, 2022.

Aldrich's Claims. Aldrich asserts the following causes of action:

(1) Wrongful Termination in Violation of Public Policy — Aldrich contends that his termination was in retaliation for his opposition to a restructuring directive from Jonathan Mercer that Aldrich believed would result in wage-and-hour violations for below-the-line production staff;

(2) Breach of Contract — Aldrich contests the "for cause" designation of his termination and seeks: (a) severance pay of $970,000 (representing 24 months of base salary at $485,000 per year), which would have been payable upon a "without cause" termination under § 7.3 of the Employment Agreement; (b) a pro-rata bonus for fiscal year 2022 of $168,750; and (c) acceleration of 15,300 unvested restricted stock units (RSUs), with an approximate value of $332,200 based on AGMG's current stock price of approximately $21.71 per share;

(3) Breach of the Implied Covenant of Good Faith and Fair Dealing — Aldrich contends that AMA manufactured the "for cause" grounds in order to avoid paying severance and triggering RSU acceleration;

(4) Declaratory Relief Regarding Restrictive Covenant — Aldrich seeks a judicial declaration that the non-competition provision (§ 9.1) of his Employment Agreement is void and unenforceable under California Business & Professions Code § 16600; and

(5) Expense Reimbursement — Aldrich seeks $28,400 in unreimbursed business expenses under California Labor Code § 2802, relating to travel, equipment, and entertainment expenses incurred during the final months of his employment.

AMA's Cross-Claims. AMA filed cross-claims against Aldrich on January 20, 2023, asserting the following causes of action:

(1) Breach of Employment Agreement (§ 9.4 Confidentiality) — AMA alleges that Aldrich breached the confidentiality provisions of his Employment Agreement by transmitting proprietary and confidential materials to his personal email and to a third party;

(2) Misappropriation of Trade Secrets (California Uniform Trade Secrets Act) — AMA alleges that Aldrich misappropriated trade secrets by forwarding show format bibles, pilot sizzle reels, and a revenue model to Halcyon Creek Productions LLC, a company in which Aldrich has an undisclosed interest;

(3) Breach of Fiduciary Duty — AMA alleges that Aldrich breached his fiduciary duties as a senior executive by engaging in unauthorized discussions with a competitor regarding AMA's proprietary content; and

(4) Conversion — AMA alleges that Aldrich converted AMA's proprietary materials by transmitting them to his personal email and to Halcyon Creek without authorization.

The cross-claims are based on an internal investigation conducted by AMA's IT security team, which identified that Aldrich transmitted a total of 340 emails from his AMA email account to his personal email address between March and September 2022, and that seven of those emails — containing show format bibles for "Apex Endurance," "The Remix," and "Untamed West," pilot sizzle reels, and the Summit Challenge revenue model — were forwarded to an email address associated with Halcyon Creek Productions LLC.

Employment Agreement. Aldrich's employment is governed by an Employment Agreement dated September 5, 2017, as amended on August 1, 2020 (the "Employment Agreement"). The Employment Agreement contains a New York choice-of-law clause (§ 14.3). However, given that the litigation is pending in a California court and involves a California-based employee, we anticipate that the court will apply California law under the Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881 (1998), analysis, which holds that California's strong public policy interest in the employment relationship will generally override a contractual choice-of-law provision when application of the chosen law would contravene California public policy.

Termination Circumstances. Aldrich was terminated "for cause" on October 14, 2022, under § 7.2(b) of the Employment Agreement. AMA cited two grounds for the termination: (i) unauthorized transmission of confidential information in violation of § 9.4 and AMA's Acceptable Use and Confidentiality Policy; and (ii) insubordination arising from Aldrich's refusal to implement a restructuring directive from Jonathan Mercer regarding the consolidation of certain production operations.

Opposing Counsel. Aldrich is represented by Cameron Whitfield and Julia Nazarian of Whitfield & Associates, 9465 Wilshire Boulevard, Suite 320, Beverly Hills, California 90212. Whitfield is an experienced employment litigator who has handled several high-profile wrongful termination cases in the entertainment industry.

B. Aldrich Exposure Analysis

The following table sets forth Aldrich's current settlement demand (as communicated in a July 14, 2023 letter from Whitfield & Associates) and our risk-adjusted assessment of AMA's exposure:

Several components of Aldrich's demand warrant specific comment. The severance, pro-rata bonus, COBRA subsidy, and RSU acceleration components are binary — they are owed in full if the "for cause" designation is overturned, and not at all if it is upheld. The expense reimbursement of $28,400 is likely owed regardless of the "for cause" determination, as Labor Code § 2802 obligations are independent of the circumstances of separation. Aldrich's emotional distress demand of $500,000 is inflated for a breach of contract case without egregious facts; we estimate a realistic range of $50,000 to $150,000. The lost future compensation claim of $1,200,000 (representing approximately two years of total compensation) is subject to a substantial mitigation offset, as Aldrich appears to have obtained alternative employment within approximately four months of his termination, although at a lower compensation level. The punitive damages demand of $200,000 is a placeholder; we assess the probability of a punitive damages award as negligible absent clear and convincing evidence of malice, oppression, or fraud.

C. "For Cause" Litigation Risk

The central issue in the Aldrich litigation is whether AMA's "for cause" termination was legally justified under the Employment Agreement. We assess the overall probability of upholding the "for cause" determination at approximately 60/40 in AMA's favor, with the specific grounds analyzed as follows:

Ground 1: Unauthorized Transmission of Confidential Information. This ground rests on the strongest factual record. Aldrich forwarded 340 emails from his AMA account to his personal email address over a period of approximately six months, and seven of those emails — containing show format bibles for "Apex Endurance," "The Remix," and "Untamed West," pilot sizzle reels for two unannounced series, and the Summit Challenge revenue model (for a franchise generating approximately $42 million in annual revenue) — were forwarded to an email address associated with Halcyon Creek Productions LLC. Aldrich signed AMA's Acceptable Use and Confidentiality Policy on April 12, 2021, which expressly prohibits the transmission of company-owned materials to personal email accounts or third parties without prior written authorization. This conduct satisfies § 7.2(b)(i) (material breach of the Employment Agreement's confidentiality obligations) and § 7.2(b)(vi) (violation of company policy). Aldrich's deposition explanation — that the transmissions to Halcyon Creek were made in connection with a "co-production opportunity" that he was exploring on AMA's behalf — was implausible on its face, as no evidence of any authorization, documentation, or reporting of such an opportunity was produced during discovery. We assess the probability of this ground being upheld as approximately 70–75%.

Ground 2: Insubordination. This ground is substantially weaker due to a procedural deficiency in AMA's compliance with the Employment Agreement's cure provisions. Section 7.2(b)(iv) of the Employment Agreement provides that termination for "failure to follow lawful directions of the Board or the President" requires that the employee be given written notice of the deficiency and a cure period of fifteen (15) business days. AMA issued a written warning to Aldrich on October 11, 2022, but terminated him on October 14, 2022 — only three calendar days later, which falls far short of the contractually required fifteen business days. Aldrich's counsel has identified this procedural failure and will vigorously argue that the insubordination ground is invalid as a matter of contract law. We agree that this ground is vulnerable and assess the probability of it being independently upheld as approximately 30–35%.

Timeline Vulnerability. An additional concern relates to the chronology of events leading to Aldrich's termination. AMA's Data Loss Prevention (DLP) audit identified the email transmissions in August 2022, and preliminary findings were reported to Gregory Tanaka on September 6, 2022. However, no action was taken on the confidential information grounds until after the October 10, 2022 insubordination incident, when Aldrich refused to implement Mercer's restructuring directive. This timeline supports Aldrich's narrative that the confidential information grounds were pretextual — i.e., that AMA was aware of the email transmissions for over a month before acting, and that the decision to invoke these grounds was triggered not by genuine concern about confidentiality but by Aldrich's refusal to follow Mercer's directive. While we believe this narrative can be rebutted (AMA can argue that the DLP audit was still ongoing and that the full scope of the transmissions was not known until October), it creates a plausible pretext argument that could influence a jury.

Cross-Claims as Leverage. AMA's cross-claims provide meaningful leverage in settlement negotiations. The CUTSA claim (misappropriation of trade secrets) has an estimated probability of success of approximately 65%, based on the strong factual record of unauthorized transmission of proprietary materials. The breach of fiduciary duty claim has an estimated probability of approximately 55%. However, actual damages on the cross-claims are difficult to quantify absent evidence that Halcyon Creek commercially exploited the transmitted materials, and discovery to date has not revealed such evidence. The primary value of the cross-claims in the settlement context is as a bargaining chip and as a basis for seeking injunctive relief (return/deletion of proprietary materials) and enforcement of the surviving restrictive covenant provisions.

D. Restrictive Covenant Considerations

The Employment Agreement contains the following restrictive covenant provisions, each of which raises distinct enforceability and settlement considerations:

Section 9.1 — Non-Competition (18 months). This provision restricts Aldrich from engaging in competitive activities for a period of eighteen months following termination. The provision is void under California Business & Professions Code § 16600, which broadly prohibits contractual restraints on an individual's ability to engage in a lawful profession, trade, or business. AMA has effectively conceded the unenforceability of this provision by amending its Cross-Complaint to remove any claim for enforcement of § 9.1. In settlement, AMA should formally acknowledge that § 9.1 is void, consistent with California law.

Section 9.2 — Employee Non-Solicitation (24 months). This provision restricts Aldrich from soliciting AMA employees for a period of twenty-four months following termination. Employee non-solicitation provisions remain generally enforceable in California, and this provision is a key negotiating point in any settlement. AMA has a legitimate interest in preventing Aldrich from recruiting key production personnel to competing ventures.

Section 9.3 — Business Non-Solicitation (24 months). This provision restricts Aldrich from soliciting AMA's business relationships (including advertisers, distribution partners, and content licensees) for a period of twenty-four months. This provision is more vulnerable to challenge than § 9.2, as California courts have increasingly scrutinized business non-solicitation provisions that function as de facto non-competition agreements by effectively preventing the employee from working in the same industry.

Section 9.4 — Confidentiality (Indefinite). This provision imposes an indefinite obligation of confidentiality with respect to AMA's proprietary information. Confidentiality provisions are generally enforceable in California, and § 9.4 is AMA's strongest restrictive covenant provision. It must be preserved in full force in any settlement.

Settlement Framework for Restrictive Covenants. In any settlement of the Aldrich matter, we recommend the following framework for the restrictive covenant provisions:

• Void § 9.1 (non-compete) — this is a concession consistent with California law and has already been effectively made;

• Reduce §§ 9.2 (employee non-solicitation) and 9.3 (business non-solicitation) from 24 months to 12 months — this provides Aldrich with meaningful relief while preserving AMA's core interests during the period of greatest competitive risk;

• Preserve § 9.4 (confidentiality) in full force and effect without modification.

E. Settlement Range Rationale — Aldrich

We recommend a settlement authority range of $1,500,000 to $3,000,000 for the Aldrich individual action. The rationale for this range is as follows:

$1,500,000 Floor. The $1.5 million floor reflects AMA's strong cross-claims as a source of settlement leverage, as well as the approximately 60% probability of upholding the "for cause" designation. If AMA's cross-claims are credible (as we believe they are), Aldrich faces meaningful counterclaim exposure that offsets a portion of his affirmative recovery. A settlement at $1.5 million would represent a significant discount from Aldrich's $4.15 million demand and would reflect a resolution in which AMA's leverage from the cross-claims is fully credited.

$3,000,000 Ceiling. The $3 million ceiling reflects the maximum risk scenario in which the "for cause" designation is overturned and Aldrich prevails on all of his contractual claims (severance, pro-rata bonus, RSU acceleration, COBRA subsidy) plus a modest emotional distress award and reasonable attorneys' fees. We do not believe that exceeding $3 million is justified in any scenario, given the leverage provided by AMA's cross-claims and the weakness of Aldrich's emotional distress and punitive damages theories.

Key Non-Monetary Terms. In addition to the monetary component, any settlement of the Aldrich matter should include the following non-monetary terms:

• Modified restrictive covenant framework as described in Section V.D above;

• Return and certification of deletion of all AMA proprietary materials in Aldrich's possession, custody, or control, including all materials transmitted to personal email and to Halcyon Creek Productions LLC;

• Neutral reference provision requiring AMA to provide only dates of employment and title in response to reference inquiries;

• Mutual non-disparagement provision;

• Partial RSU acceleration as a negotiating tool — offering to accelerate a portion (e.g., 50–75%) of the 15,300 unvested RSUs provides a meaningful value transfer to Aldrich while avoiding the precedent of full acceleration upon a "for cause" termination.

F. Insurance — Aldrich

EPL Coverage Denial. Pemberton Mutual Assurance Co. denied coverage for the Aldrich dispute in a Reservation of Rights letter dated December 22, 2022. The denial was based on two grounds: (1) the Insured v. Insured Exclusion (§ IV.C of the Policy), which excludes claims brought by a current or former officer, director, or employee of the insured entity against the insured entity; and (2) a dispute regarding whether Aldrich's claims fall within the Policy's definition of "Employment Practices." We reviewed the Reservation of Rights letter and concur that the Insured v. Insured Exclusion applies on these facts. Accordingly, AMA must plan to self-fund the entire defense and settlement of the Aldrich matter.

D&O Coverage. AMA maintains Directors & Officers liability coverage through Redcliffe Specialty Insurance (Policy No. RSI-DO-2022-04419, $10,000,000 primary tower) with excess coverage through Ashford Reinsurance Ltd. (Policy No. ARL-EX-2022-01102, $25,000,000 excess layer). This coverage remains available if Aldrich were to name individual officers or directors as defendants. To date, Aldrich has not done so, and his claims are asserted solely against AMA as the corporate entity. We are monitoring this issue and will promptly notify the D&O carrier if individual claims are asserted.

VI. Insurance Coordination — Class Action

A. EPL Policy (Pemberton Mutual Assurance Co.)

AMA's Employment Practices Liability insurance for the class action is provided by Pemberton Mutual Assurance Co. under Policy No. PMA-EPL-2022-00837. The key terms of the Policy are as follows:

• Self-Insured Retention (SIR): $5,000,000

• Aggregate Policy Limit: $15,000,000

• Policy Period: January 1, 2022 – December 31, 2023

AMA tendered the Fuentes class action to Pemberton on November 8, 2022. Pemberton acknowledged coverage on December 22, 2022, subject to a reservation of rights. The reservation of rights identifies two areas of potential coverage dispute:

• Penalty Exclusion (§ IV.F): Pemberton reserves the right to deny coverage for any portion of a settlement or judgment attributable to PAGA penalties, on the ground that penalties are excluded from the definition of covered "Loss" under the Policy;

• Intentional Acts Exclusion (§ IV.A): Pemberton reserves the right to deny coverage for any portion of a settlement or judgment attributable to willful violations of California labor law, on the ground that intentional or willful conduct is excluded from coverage.

AMA has incurred approximately $2,800,000 in defense costs through August 2023, which are eroding the SIR. The SIR has not yet been fully exhausted, but it will be when defense costs are combined with any settlement payment. Once the SIR is exhausted, Pemberton's coverage obligation begins, up to the $15,000,000 aggregate limit (which includes both defense costs and indemnity payments above the SIR).

Pemberton has indicated through its coverage counsel, Margaret Doherty of Pemberton's in-house claims department, a willingness to contribute to a class settlement within the $10 million to $15 million range, subject to certain conditions regarding settlement structure. The maximum authorized Pemberton contribution to a settlement is $9,250,000, representing the Policy's participation above the SIR within the $15,000,000 aggregate limit (i.e., $15,000,000 aggregate limit minus the $5,000,000 SIR minus approximately $750,000 in defense costs expected to erode the remaining SIR balance through the settlement approval process).

Settlement Structuring Recommendations. To maximize Pemberton's contribution and minimize coverage disputes, we recommend the following structuring principles for any class settlement:

• Allocate the settlement payment primarily to covered wage-and-hour claims (meal period premiums and wage statement penalties) rather than to PAGA penalties;

• Minimize the stated PAGA allocation to reduce the risk of a coverage dispute under the Penalty Exclusion;

• Avoid any admissions of willful or intentional conduct in the settlement agreement, as such admissions could trigger the Intentional Acts Exclusion; and

• Structure the settlement as a "compromise of disputed claims" with no admission of liability.

B. Funding Analysis at Various Settlement Levels

The following table illustrates the allocation of settlement costs between Pemberton and AMA at various gross settlement amounts within the recommended authority range:

The Pemberton share estimates assume that the SIR is fully exhausted by a combination of defense costs (approximately $2.8 million incurred to date, plus approximately $500,000 in estimated additional defense costs through settlement approval) and AMA's share of the settlement payment. The estimates further assume that Pemberton does not invoke the Penalty Exclusion or Intentional Acts Exclusion to reduce its contribution, which is consistent with Pemberton's preliminary indications of willingness to participate. We note, however, that for any settlement amount exceeding $14,750,000, Pemberton's contribution is capped at $9,250,000, and any additional settlement amount would be entirely self-funded by AMA, as the $15,000,000 aggregate limit would be exhausted.

C. Combined Self-Funded Exposure

The following analysis summarizes AMA's total out-of-pocket exposure under two scenarios — maximum authority and midpoint authority:

At Maximum Authority ($15M Class + $3M Aldrich):

• Class action self-funded share: ~$5,750,000

• Aldrich self-funded (entirely self-funded): $3,000,000

• Total defense costs (both matters, through resolution): ~$3,300,000

• Total out-of-pocket: ~$12,050,000

At Midpoint Authority ($12.5M Class + $2.25M Aldrich):

• Class action self-funded share: ~$4,500,000

• Aldrich self-funded (entirely self-funded): $2,250,000

• Total defense costs (both matters, through resolution): ~$3,300,000

• Total out-of-pocket: ~$10,050,000

These figures represent AMA's total cost of resolution, inclusive of all defense costs, settlement payments, and carrier-related expenses. We believe these figures are within the range that AMA's finance team has modeled for litigation reserve purposes, based on our conversations with Gregory Tanaka in June and July 2023.

VII. Mediation Strategy

A. Session #1 (August 25, 2023) — Class Action Focus

Mediation Session #1, scheduled for August 25, 2023, will be focused exclusively on the class action claims. The following outlines our recommended approach:

Opening Position. We recommend that AMA open with a settlement offer in the range of $8,000,000 to $9,000,000 (gross settlement amount). This opening position establishes AMA's credibility as a serious negotiating party while leaving meaningful room to negotiate upward toward the target deal range. An opening offer below $8 million risks being perceived as unreasonable given the certification order and the class size, which could undermine AMA's credibility with the mediator.

Expected Plaintiffs' Opening. Based on our prior experience with Plaintiffs' counsel (Marcos Quintero and Stephanie Park of Quintero Park LLP) and the typical dynamic in California wage-and-hour class mediations, we expect Plaintiffs to open in the range of $25,000,000 to $30,000,000. This opening will likely be anchored to Dr. Rennick's $38.6 million aggregate valuation, discounted modestly to account for the partial certification denial. We expect significant movement from this opening over the course of the mediation session.

Mediator Profile. The Honorable Patricia Okoro (Ret.) served twenty-five years on the Los Angeles Superior Court bench and has extensive experience mediating employment class actions. She has a reputation for being direct with both sides, providing candid evaluations of case value, and working persistently toward resolution. We anticipate that she will be well-prepared and will engage substantively with the damages analysis and trial risk issues.

Key Arguments. In our mediation brief and during the mediation session, we intend to emphasize the following points:

(1) Partial Certification. The denial of certification for five of seven causes of action substantially limits Plaintiffs' realistic recovery. The certified claims represent a fraction of the total claimed exposure, and the denied claims — which account for over $20 million of Dr. Rennick's model — are no longer available for class-wide prosecution.

(2) Dr. Lindstrom's Valuation. Dr. Lindstrom's $5.8 million valuation for the certified claims is credible, conservative, and based on actual attestation data rather than blanket assumptions. Her methodology provides a reliable basis for assessing realistic damages.

(3) Flaws in Dr. Rennick's Model. Dr. Rennick's assumption of a 100% violation rate — that every auto-deducted meal period constitutes a violation — is fundamentally flawed and inconsistent with the actual evidence. Even at the facilities where the attestation feature was inactive, the auto-deduction accurately reflected compliant meal periods for the majority of employees.

(4) Corrective Action. AMA implemented corrective measures in December 2022, including activation of the attestation feature at all facilities and correction of the auto-deduction threshold. These measures demonstrate good faith and support a reduction in PAGA penalties.

(5) Bilateral Trial Risk. Trial risk is significant for both sides. Plaintiffs face the risk that a jury will reject the blanket violation assumption and award damages substantially below their demand. AMA faces the risk that the jury will be influenced by the sympathetic production-culture narrative and the undeniable compliance gaps in the timekeeping system.

Target Deal Range. Our target deal range for Session #1 is $12,000,000 to $15,000,000 (gross settlement amount). We believe this range is achievable if the mediator provides a candid evaluation consistent with the partial certification ruling and the competing damages analysis. If the parties are unable to reach agreement within this range during Session #1 — for example, if Plaintiffs' final position remains at $20 million or above — we recommend scheduling a second mediation session within two to three weeks to allow for further negotiation.

B. Combined Mediation (Class + Aldrich)

If the class action is not fully resolved during Session #1, or if both sides express a willingness to explore a comprehensive resolution, we recommend scheduling a combined Session #2 that addresses both the class action and the Aldrich individual action simultaneously.

A combined mediation offers several strategic advantages for AMA. First, it creates package-deal leverage by allowing AMA to negotiate across both matters simultaneously, with potential trade-offs between the class settlement amount and the Aldrich settlement terms. Second, a combined resolution simplifies AMA's overall exposure profile and allows for comprehensive closure of all pending California employment litigation before the end of fiscal year 2023 or the first quarter of fiscal year 2024. Third, a single combined mediation session is more efficient than separate mediations and reduces total mediation costs.

We will coordinate with Cameron Whitfield of Whitfield & Associates regarding Aldrich's potential participation in a combined session. Whitfield has previously indicated a general willingness to participate in mediation, though no formal agreement to mediate the Aldrich matter has been reached. If a combined Session #2 is scheduled, it would likely require a different mediator or a co-mediation arrangement, as Judge Okoro has not been engaged on the Aldrich matter.

VIII. Approval Process

Pursuant to AMA's Outside Counsel Guidelines § 7.4, settlement authority for matters in which Calderwood & Harkness serves as outside counsel must be approved as follows:

• For settlement amounts up to $5,000,000: Approval by Gregory Tanaka (VP, Legal & Compliance) and Philippa Cartwright (General Counsel, AGMG);

• For settlement amounts exceeding $5,000,000: The foregoing approvals, plus final authorization from Jonathan Mercer (President, AMA) and the AGMG Board's Audit and Risk Committee.

The total recommended maximum authority of $18,000,000 ($15,000,000 for the class action and $3,000,000 for the Aldrich individual action) substantially exceeds the $5,000,000 threshold. Accordingly, approval from all four designated authorities — Gregory Tanaka, Philippa Cartwright, Jonathan Mercer, and the Audit and Risk Committee — is required.

We respectfully recommend that this memorandum be shared with the Audit and Risk Committee at the earliest opportunity and that formal written authorization be obtained prior to the August 25, 2023 mediation session. If scheduling constraints prevent a full Committee meeting before the mediation date, we recommend that the Committee consider authorizing Mr. Tanaka and Ms. Cartwright to act on the Committee's behalf within the approved parameters, subject to telephonic confirmation during or immediately following the mediation session.

We confirm that Calderwood & Harkness will not enter into any settlement agreement, execute any term sheet, or make any binding commitment on AMA's behalf without prior written authorization from AMA's designated decision-makers. Any tentative agreement reached during mediation will be expressly conditioned on AMA's internal approval process and will not become binding until executed by authorized representatives of AMA.

IX. Conclusion

Both the Fuentes class action and the Aldrich individual action are ripe for resolution. The partial certification ruling issued on August 11, 2023, creates strong incentives for both sides to negotiate: for Plaintiffs, because certification was denied for five of seven causes of action, substantially limiting the recoverable class exposure; and for AMA, because the certified first meal period claim, combined with the unfavorable auto-deduction optics and the Court's critical comments regarding the attestation feature, creates meaningful trial risk that warrants resolution.

Our recommended total maximum authority of $18,000,000 ($15,000,000 for the class action and $3,000,000 for the Aldrich individual action) represents a prudent settlement framework that accounts for the litigation risk profile of both matters while positioning AMA for a favorable resolution. At the recommended ceilings, the total resolution would represent approximately 42% of Plaintiffs' combined claimed exposure of $42,750,000 ($38,600,000 for the class action and $4,150,000 for the Aldrich individual action). In the context of California wage-and-hour class action settlements, a recovery in this range is within the normal parameters for court approval and consistent with settlements in comparable cases involving auto-deduction timekeeping practices.

Pemberton Mutual Assurance Co.'s willingness to participate in the class action settlement — with a maximum contribution of $9,250,000 — substantially mitigates AMA's out-of-pocket exposure. At the maximum combined authority of $18 million, AMA's total out-of-pocket cost (inclusive of defense costs and self-funded settlement components) would be approximately $12 million. At the midpoint of

CALDERWOOD & HARKNESS LLP 777 South Flower Street, Suite 4200 Los Angeles, California 90017
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT This memorandum is a privileged and confidential attorney-client communication and attorney work product. It is intended solely for the use of the individuals and entities to whom it is addressed. Any dissemination, distribution, or copying of this memorandum or its contents to any person or entity not authorized to receive it is strictly prohibited. If you have received this memorandum in error, please notify Calderwood & Harkness LLP immediately and destroy all copies.
MEMORANDUM
TO: Gregory Tanaka, Vice President, Legal & Compliance, Aurelius Media Americas Inc.; Philippa Cartwright, General Counsel, Aurelius Global Media Group; Jonathan Mercer, President, Aurelius Media Americas Inc.
FROM: Renata Vasquez, Responsible Partner, Calderwood & Harkness LLP
DATE: August 15, 2023
RE: Settlement Authority Recommendation — Pre-Mediation #1 — Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214 (Consolidated); Aldrich v. Aurelius Media Americas Inc., LASC Case No. 22STCV41087
C&H Matter No.: 1017-00004
I. Executive Summary and Recommendation
The purpose of this memorandum is to request formal settlement authority in advance of Mediation Session #1, which is currently scheduled for August 25, 2023, before the Honorable Patricia Okoro (Ret.) of Westpark Dispute Resolution Inc., located at 1925 Century Park East, Suite 1700, Los Angeles, California 90067. As discussed in greater detail below, the recent partial certification ruling issued by Judge Escobedo on August 11, 2023, coupled with the overall posture of both the Fuentes class action and the Aldrich individual action, creates a window for meaningful settlement negotiations. We believe it is in AMA's interest to approach this mediation with sufficient authority to reach a resolution if the opportunity presents itself.
Based on our comprehensive analysis of the litigation risk, competing damages valuations, insurance coordination, and the strategic posture of both matters, we recommend that AMA seek approval for the following settlement authority:
We note at the outset that Session #1 is focused exclusively on the class action claims. The Aldrich matter is not currently scheduled for mediation; however, depending on the progress of class action discussions during Session #1, we may recommend folding the Aldrich matter into a combined Session #2 if the parties are amenable to a global resolution. Authority for the Aldrich component is requested now so that we are positioned to move quickly if an opportunity for comprehensive resolution arises.
Pursuant to AMA's Outside Counsel Guidelines § 7.4, approval for this settlement authority must be obtained from Gregory Tanaka (VP, Legal & Compliance) and Philippa Cartwright (General Counsel, AGMG). Because the total recommended maximum authority of $18,000,000 exceeds the $5,000,000 threshold established in the Guidelines, final authorization must also be obtained from Jonathan Mercer (President, AMA) and the AGMG Board's Audit and Risk Committee. We respectfully recommend that this memorandum be circulated to the Audit and Risk Committee promptly so that authority may be secured prior to the August 25 mediation date.
The balance of this memorandum sets forth our detailed analysis supporting these recommendations.
II. Current Posture of the Class Action
A. Certification Order (August 11, 2023)
On August 11, 2023, the Honorable Raymond Escobedo, sitting in Department 34 of the Los Angeles County Superior Court, issued an order granting in part and denying in part Plaintiffs' Motion for Class Certification in Fuentes v. Aurelius Media Americas Inc., Case No. 22STCV38214. The order, which is attached hereto as Exhibit A, represents a mixed result that carries significant implications for both the settlement posture and trial risk profile of this matter.
Claims Certified for Class Treatment. The Court certified the following claims for class treatment:
(1) First Meal Period Auto-Deduction Claim — Plaintiffs' claim that AMA's use of an automatic meal period deduction in its timekeeping system resulted in systematic denial of meal period premiums owed under California Labor Code § 226.7 and the applicable IWC Wage Order;
(2) Derivative Wage Statement Claim — Plaintiffs' claim under California Labor Code § 226 that AMA's wage statements were inaccurate because they failed to reflect meal period premiums that were allegedly owed;
(3) Unfair Competition Law (UCL) Claim — Plaintiffs' claim under California Business & Professions Code § 17200, predicated on the underlying meal period and wage statement violations; and
(4) PAGA Claim — Plaintiffs' Private Attorneys General Act representative claim, which the Court permitted to proceed as a representative action alongside the certified class claims.
Claims Denied Class Certification. The Court denied class certification as to five of the seven causes of action asserted by Plaintiffs:
(1) Rest Period Claim — Denied on predominance grounds, with the Court finding that rest period compliance was heavily dependent on individualized circumstances, including the specific production schedule of each show unit and the discretion exercised by individual unit production managers;
(2) Off-the-Clock/Overtime Claim — Denied on predominance grounds, with the Court finding that off-the-clock work allegations were inherently individualized and not susceptible to common proof;
(3) Minimum Wage Claim — Denied for lack of commonality and typicality, as the named plaintiffs' minimum wage allegations were atypical of the putative class;
(4) Second Meal Period Claim — Denied on predominance grounds, as the second meal period obligation arises only for shifts exceeding ten hours and the evidence did not establish a common policy or practice of denying second meal periods; and
(5) Waiting Time Penalties Claim — Denied on predominance and superiority grounds, with the Court finding that the determination of whether wages were "willfully" withheld upon separation required individualized inquiry into each class member's circumstances of separation.
The denial of five of seven causes of action represents a significant defense achievement. These five claims — particularly the rest period, off-the-clock/overtime, and waiting time penalties claims — constituted the most exposure-heavy and individualized components of Plaintiffs' case. Their exclusion from class treatment substantially narrows the scope of the certified action and the realistic settlement range.
Certified Class Definition. The Court defined the certified class as follows:
All current and former non-exempt, hourly employees of Aurelius Media Americas Inc. who worked in the State of California at any time from November 1, 2018 through the date of preliminary approval of any class settlement, who were subject to AMA's automatic meal period deduction in the NovaPay Solutions TimeTrack Pro timekeeping system.
Based on payroll data produced by AMA during discovery, the estimated class size is approximately 1,850 individuals, encompassing employees across AMA's seven California production facilities (West Hollywood, Studio City, Burbank, El Segundo, Sherman Oaks, Hollywood, and Santa Monica) and fourteen active show units during the class period.
Rejection of AMA's Subclass Argument. AMA had argued that, if certification were appropriate, the class should be limited to a subclass of employees at Facilities 2 (Studio City), 4 (Burbank), and 7 (El Segundo) — the three facilities where the Missed Meal Attestation feature in TimeTrack Pro had been deactivated. This subclass would have encompassed approximately 700 individuals. The Court rejected this argument, finding that the low utilization rates of the attestation feature at the remaining four facilities (ranging from 1.8% to 4.1%) rendered the distinction between facilities with and without the attestation feature "functionally irrelevant." In the Court's view, a mechanism that employees do not know about or do not use provides no meaningful differentiation between facilities, and certification of the full class was therefore appropriate.
B. Implications of Partial Certification
The partial certification order has the following implications for AMA's settlement posture:
Favorable Implications. The denial of class certification for rest period, off-the-clock/overtime, minimum wage, second meal period, and waiting time penalty claims is a substantial win for AMA. These claims collectively accounted for the majority of Plaintiffs' aggregate damages model (approximately $22.1 million of Dr. Rennick's $38.6 million total valuation, excluding PAGA penalties). Their exclusion from class treatment means that AMA faces certified class exposure only on the first meal period claim and derivative wage statement claim — a dramatically narrower scope of liability than what Plaintiffs originally sought. The denial of these claims on predominance and individualization grounds also validates AMA's core defense theory: that employment conditions varied significantly across show units and facilities, making blanket class-wide liability inappropriate.
Unfavorable Implications. The certification of the full class — all approximately 1,850 members — rather than the Facilities 2, 4, and 7 subclass of approximately 700 members is a setback. The Court's rejection of the subclass argument, grounded in the low utilization rates of the attestation feature across all facilities, broadens the certified class by approximately 165% relative to AMA's preferred framework. This expansion increases AMA's aggregate exposure on the certified claims and may strengthen Plaintiffs' negotiating position at mediation by allowing them to point to a larger affected population.
Neutral Implications. The Court's order noted that individual damages calculations may be required even for the certified claims, as the amount of premiums owed to each class member will depend on their specific shift records and meal period compliance data. This observation preserves AMA's ability to contest per-employee damages and may provide a basis for decertification or partial summary judgment motions at a later stage if the case does not settle. However, we do not expect to litigate those motions, as both sides now have strong incentives to settle.
C. Discovery and Evidentiary Record
Fact discovery in the class action is substantially complete. AMA produced a total of 147,832 documents, comprising approximately 1.2 million pages of materials including payroll records, timekeeping data, policy manuals, employee handbooks, training materials, internal communications, and production schedules. Plaintiffs produced 3,412 documents, consisting primarily of personal communications, employment records, and documents relating to the named plaintiffs' individual circumstances. E-discovery hosting and processing services were provided by Marlowe Asset Management Litigation Technology Inc., which has maintained a dedicated document review platform for this matter since December 2022.
A total of eighteen depositions have been completed — eleven taken by Plaintiffs and seven taken by the Defense. Key depositions include:
•  Named Plaintiffs: Maria Fuentes (production assistant, West Hollywood facility), Brian Halloran (camera operator, Sherman Oaks facility), and Diana Padilla (events coordinator, Burbank facility / live events unit);
•  AMA Corporate Witnesses (PMK Designees): Chiamaka Okafor (designated as Person Most Knowledgeable regarding timekeeping policies and the TimeTrack Pro system), Luis Arroyo (designated as Person Most Knowledgeable regarding production scheduling practices across California facilities);
•  AMA Individual Witnesses: Kenneth Fong (Senior Director, Payroll Operations), Jonathan Mercer (President, AMA), and Taylor Prescott (Vice President, Unscripted Programming).
Expert reports have been exchanged as follows:
•  Plaintiffs' Expert: Dr. Howard Rennick of Pinnacle Economic Consulting Group LLC, whose expert report dated April 28, 2023, sets forth Plaintiffs' aggregate damages model across all asserted claims;
•  Defense Experts: Dr. Rajesh Makhija of Workforce Dynamics Consulting LLC, whose expert report dated May 19, 2023, analyzes the variability of employment conditions across AMA's show units and facilities in support of AMA's individualization defense; and Dr. Catherine Lindstrom of Hargrove Analytics Inc., whose expert report dated June 9, 2023, provides an alternative damages valuation focused on the certified claims.
Rebuttal reports were served in accordance with the case management order, and both sides have identified additional percipient witnesses who may be called at trial. The evidentiary record is sufficiently developed to permit informed settlement discussions.
III. Damages Analysis — Class Action
A. Competing Expert Valuations
The parties' respective experts have produced materially divergent damages valuations, a circumstance that is typical in California wage-and-hour class actions. The following table summarizes the competing valuations and our risk-adjusted assessment:
Several points merit emphasis regarding the above comparison. Dr. Rennick's total of $38.6 million encompasses all seven causes of action originally asserted by Plaintiffs, including the five claims that were denied class certification. While those claims remain theoretically available for individual prosecution or through the PAGA representative mechanism, they are no longer viable as class claims and their inclusion in Plaintiffs' aggregate model substantially inflates Plaintiffs' negotiating position beyond what is realistically achievable. Dr. Lindstrom's valuation of approximately $5.8 million focuses on the claims that were actually certified — the first meal period claim and the derivative wage statement claim — plus a reasonable estimate of PAGA exposure. Our own risk-adjusted assessment of $5 million to $8 million reflects the range of outcomes we consider most probable given the evidentiary record and the certification ruling.
B. Key Assumptions Underlying Our Assessment
Our assessment of realistic exposure in the $5 million to $8 million range rests on several key analytical assumptions and observations:
Flaws in Dr. Rennick's Model. Dr. Rennick's damages model assumes that every meal period that was automatically deducted by the TimeTrack Pro system constitutes a "missed" meal period — i.e., that each auto-deduction represents a violation requiring payment of a one-hour premium. This assumption is fundamentally flawed. The auto-deduction feature was designed to deduct thirty minutes of meal period time from shifts exceeding the applicable threshold, on the assumption that the employee took a compliant off-duty meal break. For the majority of employees at AMA's California facilities, the auto-deduction accurately reflected compliant meal periods. Dr. Rennick's blanket assumption of a 100% violation rate has no empirical basis in the record and was challenged by Dr. Makhija's facility-level and show-unit-level analysis, which demonstrated significant variation in actual meal period compliance.
Dr. Lindstrom's Alternative Model. Dr. Lindstrom's alternative model, which yields an aggregate valuation of approximately $5.8 million for the certified claims, uses actual missed-meal attestation data from the four facilities where the feature was active, applies a conservative extrapolation methodology to estimate violations at the three facilities where the feature was inactive, and adjusts for the class period and number of affected employees. While Dr. Lindstrom's methodology has limitations — the Court's certification order itself noted the low utilization rates of the attestation feature, which may undercount actual violations — her model provides a more defensible starting point than Dr. Rennick's blanket approach.
Impact of Partial Certification. The fact that certification was limited to the first meal period claim substantially reduces realistic exposure. The rest period claim ($8.4 million in Dr. Rennick's model), the off-the-clock/overtime claim ($12.2 million), and the remaining denied claims collectively accounted for more than half of Plaintiffs' total damages demand. These claims can still be pursued on an individual basis or through the PAGA representative mechanism, but they are not subject to class-wide adjudication, and the practical likelihood of individual prosecution by 1,850 class members is low. A global settlement that releases all claims — including the non-certified claims — provides AMA with the certainty and finality that is a core business objective.
PAGA Penalties. Plaintiffs' PAGA penalty demand of $12.2 million is based on a statutory penalty calculation that does not account for the substantial judicial discretion afforded to courts under Labor Code § 2699(e)(2) to reduce PAGA penalties where the employer has acted in good faith or the penalty would otherwise be unjust, arbitrary, or oppressive. In our experience, California courts routinely apply a 75% to 90% reduction to PAGA penalties in settlement, particularly where the employer has taken corrective action. AMA's December 2022 remediation — activating the attestation feature at Facilities 2, 4, and 7 and correcting the auto-deduction threshold — supports a significant reduction. We estimate a realistic PAGA settlement component in the range of $500,000 to $1,000,000.
C. Settlement Range Rationale
We recommend a settlement authority range of $10,000,000 to $15,000,000 (gross settlement amount) for the class action. The rationale for this range is as follows:
$10,000,000 Floor. The $10 million floor represents approximately 172% of the defense expert's $5.8 million valuation. While we believe Dr. Lindstrom's analysis is sound, we recognize that the certification order creates meaningful trial risk and that the auto-deduction practice "presents poorly" in front of a jury. Multiple experienced mediators in similar California wage-and-hour class actions have observed that auto-deduction practices — regardless of their technical compliance — create an unfavorable optic in which the employer appears to have systematically deducted time without employee input. A settlement at $10 million would require Plaintiffs to accept a substantial reduction from their claimed exposure but would provide a meaningful recovery that a court is likely to approve at the preliminary and final approval stages.
$15,000,000 Ceiling. The $15 million ceiling represents approximately 38.9% of Plaintiffs' total claimed exposure of $38.6 million. This percentage falls at the upper end of the 15% to 40% range that is typical for California wage-and-hour class action settlements, and it would provide meaningful per-class-member recovery while securing a broad release of all claims — including the non-certified rest period, off-the-clock, overtime, minimum wage, and waiting time penalty claims. We believe $15 million represents the maximum amount that is justified by the risk profile of the certified claims, particularly in light of the significant defense achievements at the certification stage. Settlement at or below this level, when combined with the broad release of all claims, represents a favorable outcome for AMA.
Importance of a Global Release. Any settlement of the class action should include a global release extinguishing all class, PAGA, and individual claims — including the five causes of action that were denied class certification. The uncertified claims, while limited in their practical exposure, create theoretical tail risk that would persist absent a comprehensive release. A global release provides AMA with the comprehensive finality that is essential to its business planning and reduces the risk of future individual or representative claims arising from the same underlying practices.
IV. Trial Risk Assessment — Class Action
A. AMA's Strengths at Trial
AMA possesses several meaningful defensive strengths that would be presented at trial if the class action does not settle:
Facially Compliant Policies. AMA maintained written meal and rest break policies that are facially compliant with California law and the applicable IWC Wage Order. The employee handbook, which was distributed to all non-exempt employees and updated annually, contains meal and rest break policy provisions that accurately state employees' rights. These policies were acknowledged in writing by the vast majority of class members upon hire or at the time of annual policy updates.
Attestation Feature. At four of AMA's seven California production facilities (West Hollywood, Sherman Oaks, Hollywood, and Santa Monica), the TimeTrack Pro system included an active Missed Meal Attestation feature that allowed employees to report missed meal breaks directly through the timekeeping system. When an employee reported a missed meal through this feature, the system automatically flagged the shift for premium payment. This mechanism, while underutilized, demonstrates that AMA provided a means for employees to obtain meal period premiums when breaks were missed.
Individualized Damages. Dr. Makhija's expert analysis demonstrates significant variability in meal period compliance across AMA's fourteen show units. Some units — particularly those engaged in office-based post-production work — had meal period compliance rates exceeding 95%, while others — particularly those engaged in on-location production — showed lower compliance rates. This variability supports AMA's argument that damages cannot be calculated on a class-wide basis using a uniform violation rate and that individual inquiry would be required to determine each class member's actual damages.
Named Plaintiff Testimony. The named plaintiffs presented mixed testimony during their depositions that could be exploited at trial. Brian Halloran acknowledged that he "usually" received his meal breaks during non-shooting days and that he was aware of the Missed Meal Attestation feature but chose not to use it because he "didn't think it would make a difference." Maria Fuentes acknowledged that her experience varied significantly between shooting days and office days, and that on office days she "almost always" took a full thirty-minute meal break. While Diana Padilla's testimony was more uniformly adverse to AMA (discussed below), the mixed testimony of Halloran and Fuentes provides AMA with useful cross-examination material.
Corrective Measures. In December 2022, AMA implemented corrective measures to address the issues identified in this litigation. Specifically, AMA activated the Missed Meal Attestation feature at Facilities 2 (Studio City), 4 (Burbank), and 7 (El Segundo), and corrected the auto-deduction threshold from six hours to five hours to comply with IWC Wage Order 12. While these measures do not eliminate liability for the class period, they demonstrate good faith and may support a reduction in PAGA penalties under Labor Code § 2699(e)(2).
B. AMA's Vulnerabilities at Trial
Notwithstanding the above strengths, AMA faces several significant vulnerabilities that create meaningful trial risk:
Deactivated Attestation Feature. The Missed Meal Attestation feature in TimeTrack Pro was not activated at three of AMA's seven California production facilities: Studio City (Facility 2), Burbank (Facility 4), and El Segundo (Facility 7). At these three facilities, employees had no mechanism within the timekeeping system to report missed meal breaks, and the auto-deduction was applied without any employee input or confirmation. The Court found this fact significant in its certification order, noting that employees at these facilities "were provided no reasonable means of challenging the auto-deduction or reporting a missed meal period."
Low Attestation Utilization Rates. Even at the four facilities where the Missed Meal Attestation feature was active, utilization rates were strikingly low: 2.3% at West Hollywood, 4.1% at Sherman Oaks, 1.8% at Hollywood, and 3.7% at Santa Monica. The Court characterized this low utilization as evidence that employees were unaware of the feature, noting that "a mechanism employees don't know about is functionally equivalent to no mechanism at all." This finding undermines AMA's argument that the attestation feature provided a meaningful safeguard against unpaid meal period premiums, and it is likely to resonate with a jury.
Six-Hour Auto-Deduction Threshold. The TimeTrack Pro system was configured to apply the automatic meal period deduction for shifts exceeding six hours, rather than the five-hour threshold required under IWC Wage Order 12 (applicable to the entertainment industry). This configuration error means that employees who worked shifts between five and six hours were not provided any meal period deduction — and, by extension, may not have been provided meal periods at all — without any documentation or premium payment. This is an independent compliance failure that is difficult to defend and distinct from the broader auto-deduction issue.
Absence of Training Materials. During discovery, AMA was unable to identify any formal training materials relating to the Missed Meal Attestation feature. No evidence was produced of any communications to employees explaining the feature's existence, purpose, or method of use. The absence of training materials corroborates the Court's finding that low utilization rates reflected a lack of employee awareness rather than genuine employee choice.
Industry Culture and Jury Appeal. The entertainment industry production culture creates a sympathetic class narrative that is likely to resonate with a Los Angeles jury. Class members include production assistants, camera operators, lighting technicians, and other below-the-line workers who routinely work extended twelve- to sixteen-hour shooting days under conditions of significant production pressure. Plaintiffs' counsel can be expected to present testimony and exhibits illustrating the demanding nature of production work and the pressure — whether explicit or implicit — to forgo meal breaks in order to maintain production schedules.
Padilla Testimony. Of the three named plaintiffs, Diana Padilla presented the most compelling testimony regarding AMA's meal period practices. Padilla worked as an events coordinator at the Burbank facility, primarily supporting AMA's live events unit. Her testimony regarding the inability to take meal breaks during live productions — where stepping away from the control room was not feasible — was particularly compelling and well-documented. Padilla's testimony, if credited by a jury, supports a finding that AMA's production practices systematically impeded meal break compliance, at least for certain show units.
C. Overall Trial Risk
Based on our assessment of the strengths and vulnerabilities described above, we estimate the following probability distribution for trial outcomes in the class action:
•  Probability of AMA prevailing entirely at trial (zero liability): Approximately 25–30%. While AMA has defensible positions on several elements, the combination of the deactivated attestation feature, low utilization rates, the six-hour threshold error, and the sympathetic class narrative makes a complete defense verdict unlikely but not impossible.
•  Probability of plaintiff verdict in the range of Plaintiffs' expert valuation ($38.6 million or similar): Approximately 15–20%. A verdict at this level would require the jury to adopt Dr. Rennick's 100% violation rate assumption, which we believe is improbable but cannot be excluded.
•  Most likely trial outcome: A verdict in the range of $8,000,000 to $18,000,000, with an estimated probability of 40–50%. This range reflects a jury finding of liability on the certified first meal period claim with damages calculated using a violation rate somewhere between Dr. Lindstrom's conservative estimate and Dr. Rennick's blanket assumption.
If the case proceeds to trial, AMA should expect to incur additional fees and expenses of approximately $1,200,000 to $1,800,000, inclusive of expert witness fees, trial preparation costs, jury consultant fees, and trial counsel time. The trial itself would consume approximately fifteen to twenty court days, with additional time required for pre-trial motions and post-trial proceedings.
These trial cost and timeline estimates reinforce the economic rationale for settlement within the recommended range. A settlement at $12.5 million (the midpoint of our recommended range), for example, would cost substantially less than the expected value of a trial verdict ($8–18 million range, midpoint $13 million) when trial costs of $1.2–1.8 million are added to the verdict exposure.
V. Aldrich Individual Action — Current Posture and Settlement Considerations
A. Case Status
Aldrich v. Aurelius Media Americas Inc., Case No. 22STCV41087, is assigned to the Honorable Catherine Villanueva, Department 52, of the Los Angeles County Superior Court. The case arises from the termination of Derek Aldrich, who served as Senior Vice President of Development at AMA from September 2017 until his termination on October 14, 2022.
Aldrich's Claims. Aldrich asserts the following causes of action:
(1) Wrongful Termination in Violation of Public Policy — Aldrich contends that his termination was in retaliation for his opposition to a restructuring directive from Jonathan Mercer that Aldrich believed would result in wage-and-hour violations for below-the-line production staff;
(2) Breach of Contract — Aldrich contests the "for cause" designation of his termination and seeks: (a) severance pay of $970,000 (representing 24 months of base salary at $485,000 per year), which would have been payable upon a "without cause" termination under § 7.3 of the Employment Agreement; (b) a pro-rata bonus for fiscal year 2022 of $168,750; and (c) acceleration of 15,300 unvested restricted stock units (RSUs), with an approximate value of $332,200 based on AGMG's current stock price of approximately $21.71 per share;
(3) Breach of the Implied Covenant of Good Faith and Fair Dealing — Aldrich contends that AMA manufactured the "for cause" grounds in order to avoid paying severance and triggering RSU acceleration;
(4) Declaratory Relief Regarding Restrictive Covenant — Aldrich seeks a judicial declaration that the non-competition provision (§ 9.1) of his Employment Agreement is void and unenforceable under California Business & Professions Code § 16600; and
(5) Expense Reimbursement — Aldrich seeks $28,400 in unreimbursed business expenses under California Labor Code § 2802, relating to travel, equipment, and entertainment expenses incurred during the final months of his employment.
AMA's Cross-Claims. AMA filed cross-claims against Aldrich on January 20, 2023, asserting the following causes of action:
(1) Breach of Employment Agreement (§ 9.4 Confidentiality) — AMA alleges that Aldrich breached the confidentiality provisions of his Employment Agreement by transmitting proprietary and confidential materials to his personal email and to a third party;
(2) Misappropriation of Trade Secrets (California Uniform Trade Secrets Act) — AMA alleges that Aldrich misappropriated trade secrets by forwarding show format bibles, pilot sizzle reels, and a revenue model to Halcyon Creek Productions LLC, a company in which Aldrich has an undisclosed interest;
(3) Breach of Fiduciary Duty — AMA alleges that Aldrich breached his fiduciary duties as a senior executive by engaging in unauthorized discussions with a competitor regarding AMA's proprietary content; and
(4) Conversion — AMA alleges that Aldrich converted AMA's proprietary materials by transmitting them to his personal email and to Halcyon Creek without authorization.
The cross-claims are based on an internal investigation conducted by AMA's IT security team, which identified that Aldrich transmitted a total of 340 emails from his AMA email account to his personal email address between March and September 2022, and that seven of those emails — containing show format bibles for "Apex Endurance," "The Remix," and "Untamed West," pilot sizzle reels, and the Summit Challenge revenue model — were forwarded to an email address associated with Halcyon Creek Productions LLC.
Employment Agreement. Aldrich's employment is governed by an Employment Agreement dated September 5, 2017, as amended on August 1, 2020 (the "Employment Agreement"). The Employment Agreement contains a New York choice-of-law clause (§ 14.3). However, given that the litigation is pending in a California court and involves a California-based employee, we anticipate that the court will apply California law under the Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881 (1998), analysis, which holds that California's strong public policy interest in the employment relationship will generally override a contractual choice-of-law provision when application of the chosen law would contravene California public policy.
Termination Circumstances. Aldrich was terminated "for cause" on October 14, 2022, under § 7.2(b) of the Employment Agreement. AMA cited two grounds for the termination: (i) unauthorized transmission of confidential information in violation of § 9.4 and AMA's Acceptable Use and Confidentiality Policy; and (ii) insubordination arising from Aldrich's refusal to implement a restructuring directive from Jonathan Mercer regarding the consolidation of certain production operations.
Opposing Counsel. Aldrich is represented by Cameron Whitfield and Julia Nazarian of Whitfield & Associates, 9465 Wilshire Boulevard, Suite 320, Beverly Hills, California 90212. Whitfield is an experienced employment litigator who has handled several high-profile wrongful termination cases in the entertainment industry.
B. Aldrich Exposure Analysis
The following table sets forth Aldrich's current settlement demand (as communicated in a July 14, 2023 letter from Whitfield & Associates) and our risk-adjusted assessment of AMA's exposure:
Several components of Aldrich's demand warrant specific comment. The severance, pro-rata bonus, COBRA subsidy, and RSU acceleration components are binary — they are owed in full if the "for cause" designation is overturned, and not at all if it is upheld. The expense reimbursement of $28,400 is likely owed regardless of the "for cause" determination, as Labor Code § 2802 obligations are independent of the circumstances of separation. Aldrich's emotional distress demand of $500,000 is inflated for a breach of contract case without egregious facts; we estimate a realistic range of $50,000 to $150,000. The lost future compensation claim of $1,200,000 (representing approximately two years of total compensation) is subject to a substantial mitigation offset, as Aldrich appears to have obtained alternative employment within approximately four months of his termination, although at a lower compensation level. The punitive damages demand of $200,000 is a placeholder; we assess the probability of a punitive damages award as negligible absent clear and convincing evidence of malice, oppression, or fraud.
C. "For Cause" Litigation Risk
The central issue in the Aldrich litigation is whether AMA's "for cause" termination was legally justified under the Employment Agreement. We assess the overall probability of upholding the "for cause" determination at approximately 60/40 in AMA's favor, with the specific grounds analyzed as follows:
Ground 1: Unauthorized Transmission of Confidential Information. This ground rests on the strongest factual record. Aldrich forwarded 340 emails from his AMA account to his personal email address over a period of approximately six months, and seven of those emails — containing show format bibles for "Apex Endurance," "The Remix," and "Untamed West," pilot sizzle reels for two unannounced series, and the Summit Challenge revenue model (for a franchise generating approximately $42 million in annual revenue) — were forwarded to an email address associated with Halcyon Creek Productions LLC. Aldrich signed AMA's Acceptable Use and Confidentiality Policy on April 12, 2021, which expressly prohibits the transmission of company-owned materials to personal email accounts or third parties without prior written authorization. This conduct satisfies § 7.2(b)(i) (material breach of the Employment Agreement's confidentiality obligations) and § 7.2(b)(vi) (violation of company policy). Aldrich's deposition explanation — that the transmissions to Halcyon Creek were made in connection with a "co-production opportunity" that he was exploring on AMA's behalf — was implausible on its face, as no evidence of any authorization, documentation, or reporting of such an opportunity was produced during discovery. We assess the probability of this ground being upheld as approximately 70–75%.
Ground 2: Insubordination. This ground is substantially weaker due to a procedural deficiency in AMA's compliance with the Employment Agreement's cure provisions. Section 7.2(b)(iv) of the Employment Agreement provides that termination for "failure to follow lawful directions of the Board or the President" requires that the employee be given written notice of the deficiency and a cure period of fifteen (15) business days. AMA issued a written warning to Aldrich on October 11, 2022, but terminated him on October 14, 2022 — only three calendar days later, which falls far short of the contractually required fifteen business days. Aldrich's counsel has identified this procedural failure and will vigorously argue that the insubordination ground is invalid as a matter of contract law. We agree that this ground is vulnerable and assess the probability of it being independently upheld as approximately 30–35%.
Timeline Vulnerability. An additional concern relates to the chronology of events leading to Aldrich's termination. AMA's Data Loss Prevention (DLP) audit identified the email transmissions in August 2022, and preliminary findings were reported to Gregory Tanaka on September 6, 2022. However, no action was taken on the confidential information grounds until after the October 10, 2022 insubordination incident, when Aldrich refused to implement Mercer's restructuring directive. This timeline supports Aldrich's narrative that the confidential information grounds were pretextual — i.e., that AMA was aware of the email transmissions for over a month before acting, and that the decision to invoke these grounds was triggered not by genuine concern about confidentiality but by Aldrich's refusal to follow Mercer's directive. While we believe this narrative can be rebutted (AMA can argue that the DLP audit was still ongoing and that the full scope of the transmissions was not known until October), it creates a plausible pretext argument that could influence a jury.
Cross-Claims as Leverage. AMA's cross-claims provide meaningful leverage in settlement negotiations. The CUTSA claim (misappropriation of trade secrets) has an estimated probability of success of approximately 65%, based on the strong factual record of unauthorized transmission of proprietary materials. The breach of fiduciary duty claim has an estimated probability of approximately 55%. However, actual damages on the cross-claims are difficult to quantify absent evidence that Halcyon Creek commercially exploited the transmitted materials, and discovery to date has not revealed such evidence. The primary value of the cross-claims in the settlement context is as a bargaining chip and as a basis for seeking injunctive relief (return/deletion of proprietary materials) and enforcement of the surviving restrictive covenant provisions.
D. Restrictive Covenant Considerations
The Employment Agreement contains the following restrictive covenant provisions, each of which raises distinct enforceability and settlement considerations:
Section 9.1 — Non-Competition (18 months). This provision restricts Aldrich from engaging in competitive activities for a period of eighteen months following termination. The provision is void under California Business & Professions Code § 16600, which broadly prohibits contractual restraints on an individual's ability to engage in a lawful profession, trade, or business. AMA has effectively conceded the unenforceability of this provision by amending its Cross-Complaint to remove any claim for enforcement of § 9.1. In settlement, AMA should formally acknowledge that § 9.1 is void, consistent with California law.
Section 9.2 — Employee Non-Solicitation (24 months). This provision restricts Aldrich from soliciting AMA employees for a period of twenty-four months following termination. Employee non-solicitation provisions remain generally enforceable in California, and this provision is a key negotiating point in any settlement. AMA has a legitimate interest in preventing Aldrich from recruiting key production personnel to competing ventures.
Section 9.3 — Business Non-Solicitation (24 months). This provision restricts Aldrich from soliciting AMA's business relationships (including advertisers, distribution partners, and content licensees) for a period of twenty-four months. This provision is more vulnerable to challenge than § 9.2, as California courts have increasingly scrutinized business non-solicitation provisions that function as de facto non-competition agreements by effectively preventing the employee from working in the same industry.
Section 9.4 — Confidentiality (Indefinite). This provision imposes an indefinite obligation of confidentiality with respect to AMA's proprietary information. Confidentiality provisions are generally enforceable in California, and § 9.4 is AMA's strongest restrictive covenant provision. It must be preserved in full force in any settlement.
Settlement Framework for Restrictive Covenants. In any settlement of the Aldrich matter, we recommend the following framework for the restrictive covenant provisions:
•  Void § 9.1 (non-compete) — this is a concession consistent with California law and has already been effectively made;
•  Reduce §§ 9.2 (employee non-solicitation) and 9.3 (business non-solicitation) from 24 months to 12 months — this provides Aldrich with meaningful relief while preserving AMA's core interests during the period of greatest competitive risk;
•  Preserve § 9.4 (confidentiality) in full force and effect without modification.
E. Settlement Range Rationale — Aldrich
We recommend a settlement authority range of $1,500,000 to $3,000,000 for the Aldrich individual action. The rationale for this range is as follows:
$1,500,000 Floor. The $1.5 million floor reflects AMA's strong cross-claims as a source of settlement leverage, as well as the approximately 60% probability of upholding the "for cause" designation. If AMA's cross-claims are credible (as we believe they are), Aldrich faces meaningful counterclaim exposure that offsets a portion of his affirmative recovery. A settlement at $1.5 million would represent a significant discount from Aldrich's $4.15 million demand and would reflect a resolution in which AMA's leverage from the cross-claims is fully credited.
$3,000,000 Ceiling. The $3 million ceiling reflects the maximum risk scenario in which the "for cause" designation is overturned and Aldrich prevails on all of his contractual claims (severance, pro-rata bonus, RSU acceleration, COBRA subsidy) plus a modest emotional distress award and reasonable attorneys' fees. We do not believe that exceeding $3 million is justified in any scenario, given the leverage provided by AMA's cross-claims and the weakness of Aldrich's emotional distress and punitive damages theories.
Key Non-Monetary Terms. In addition to the monetary component, any settlement of the Aldrich matter should include the following non-monetary terms:
•  Modified restrictive covenant framework as described in Section V.D above;
•  Return and certification of deletion of all AMA proprietary materials in Aldrich's possession, custody, or control, including all materials transmitted to personal email and to Halcyon Creek Productions LLC;
•  Neutral reference provision requiring AMA to provide only dates of employment and title in response to reference inquiries;
•  Mutual non-disparagement provision;
•  Partial RSU acceleration as a negotiating tool — offering to accelerate a portion (e.g., 50–75%) of the 15,300 unvested RSUs provides a meaningful value transfer to Aldrich while avoiding the precedent of full acceleration upon a "for cause" termination.
F. Insurance — Aldrich
EPL Coverage Denial. Pemberton Mutual Assurance Co. denied coverage for the Aldrich dispute in a Reservation of Rights letter dated December 22, 2022. The denial was based on two grounds: (1) the Insured v. Insured Exclusion (§ IV.C of the Policy), which excludes claims brought by a current or former officer, director, or employee of the insured entity against the insured entity; and (2) a dispute regarding whether Aldrich's claims fall within the Policy's definition of "Employment Practices." We reviewed the Reservation of Rights letter and concur that the Insured v. Insured Exclusion applies on these facts. Accordingly, AMA must plan to self-fund the entire defense and settlement of the Aldrich matter.
D&O Coverage. AMA maintains Directors & Officers liability coverage through Redcliffe Specialty Insurance (Policy No. RSI-DO-2022-04419, $10,000,000 primary tower) with excess coverage through Ashford Reinsurance Ltd. (Policy No. ARL-EX-2022-01102, $25,000,000 excess layer). This coverage remains available if Aldrich were to name individual officers or directors as defendants. To date, Aldrich has not done so, and his claims are asserted solely against AMA as the corporate entity. We are monitoring this issue and will promptly notify the D&O carrier if individual claims are asserted.
VI. Insurance Coordination — Class Action
A. EPL Policy (Pemberton Mutual Assurance Co.)
AMA's Employment Practices Liability insurance for the class action is provided by Pemberton Mutual Assurance Co. under Policy No. PMA-EPL-2022-00837. The key terms of the Policy are as follows:
•  Self-Insured Retention (SIR): $5,000,000
•  Aggregate Policy Limit: $15,000,000
•  Policy Period: January 1, 2022 – December 31, 2023
AMA tendered the Fuentes class action to Pemberton on November 8, 2022. Pemberton acknowledged coverage on December 22, 2022, subject to a reservation of rights. The reservation of rights identifies two areas of potential coverage dispute:
•  Penalty Exclusion (§ IV.F): Pemberton reserves the right to deny coverage for any portion of a settlement or judgment attributable to PAGA penalties, on the ground that penalties are excluded from the definition of covered "Loss" under the Policy;
•  Intentional Acts Exclusion (§ IV.A): Pemberton reserves the right to deny coverage for any portion of a settlement or judgment attributable to willful violations of California labor law, on the ground that intentional or willful conduct is excluded from coverage.
AMA has incurred approximately $2,800,000 in defense costs through August 2023, which are eroding the SIR. The SIR has not yet been fully exhausted, but it will be when defense costs are combined with any settlement payment. Once the SIR is exhausted, Pemberton's coverage obligation begins, up to the $15,000,000 aggregate limit (which includes both defense costs and indemnity payments above the SIR).
Pemberton has indicated through its coverage counsel, Margaret Doherty of Pemberton's in-house claims department, a willingness to contribute to a class settlement within the $10 million to $15 million range, subject to certain conditions regarding settlement structure. The maximum authorized Pemberton contribution to a settlement is $9,250,000, representing the Policy's participation above the SIR within the $15,000,000 aggregate limit (i.e., $15,000,000 aggregate limit minus the $5,000,000 SIR minus approximately $750,000 in defense costs expected to erode the remaining SIR balance through the settlement approval process).
Settlement Structuring Recommendations. To maximize Pemberton's contribution and minimize coverage disputes, we recommend the following structuring principles for any class settlement:
•  Allocate the settlement payment primarily to covered wage-and-hour claims (meal period premiums and wage statement penalties) rather than to PAGA penalties;
•  Minimize the stated PAGA allocation to reduce the risk of a coverage dispute under the Penalty Exclusion;
•  Avoid any admissions of willful or intentional conduct in the settlement agreement, as such admissions could trigger the Intentional Acts Exclusion; and
•  Structure the settlement as a "compromise of disputed claims" with no admission of liability.
B. Funding Analysis at Various Settlement Levels
The following table illustrates the allocation of settlement costs between Pemberton and AMA at various gross settlement amounts within the recommended authority range:
The Pemberton share estimates assume that the SIR is fully exhausted by a combination of defense costs (approximately $2.8 million incurred to date, plus approximately $500,000 in estimated additional defense costs through settlement approval) and AMA's share of the settlement payment. The estimates further assume that Pemberton does not invoke the Penalty Exclusion or Intentional Acts Exclusion to reduce its contribution, which is consistent with Pemberton's preliminary indications of willingness to participate. We note, however, that for any settlement amount exceeding $14,750,000, Pemberton's contribution is capped at $9,250,000, and any additional settlement amount would be entirely self-funded by AMA, as the $15,000,000 aggregate limit would be exhausted.
C. Combined Self-Funded Exposure
The following analysis summarizes AMA's total out-of-pocket exposure under two scenarios — maximum authority and midpoint authority:
At Maximum Authority ($15M Class + $3M Aldrich):
•  Class action self-funded share: ~$5,750,000
•  Aldrich self-funded (entirely self-funded): $3,000,000
•  Total defense costs (both matters, through resolution): ~$3,300,000
•  Total out-of-pocket: ~$12,050,000
At Midpoint Authority ($12.5M Class + $2.25M Aldrich):
•  Class action self-funded share: ~$4,500,000
•  Aldrich self-funded (entirely self-funded): $2,250,000
•  Total defense costs (both matters, through resolution): ~$3,300,000
•  Total out-of-pocket: ~$10,050,000
These figures represent AMA's total cost of resolution, inclusive of all defense costs, settlement payments, and carrier-related expenses. We believe these figures are within the range that AMA's finance team has modeled for litigation reserve purposes, based on our conversations with Gregory Tanaka in June and July 2023.
VII. Mediation Strategy
A. Session #1 (August 25, 2023) — Class Action Focus
Mediation Session #1, scheduled for August 25, 2023, will be focused exclusively on the class action claims. The following outlines our recommended approach:
Opening Position. We recommend that AMA open with a settlement offer in the range of $8,000,000 to $9,000,000 (gross settlement amount). This opening position establishes AMA's credibility as a serious negotiating party while leaving meaningful room to negotiate upward toward the target deal range. An opening offer below $8 million risks being perceived as unreasonable given the certification order and the class size, which could undermine AMA's credibility with the mediator.
Expected Plaintiffs' Opening. Based on our prior experience with Plaintiffs' counsel (Marcos Quintero and Stephanie Park of Quintero Park LLP) and the typical dynamic in California wage-and-hour class mediations, we expect Plaintiffs to open in the range of $25,000,000 to $30,000,000. This opening will likely be anchored to Dr. Rennick's $38.6 million aggregate valuation, discounted modestly to account for the partial certification denial. We expect significant movement from this opening over the course of the mediation session.
Mediator Profile. The Honorable Patricia Okoro (Ret.) served twenty-five years on the Los Angeles Superior Court bench and has extensive experience mediating employment class actions. She has a reputation for being direct with both sides, providing candid evaluations of case value, and working persistently toward resolution. We anticipate that she will be well-prepared and will engage substantively with the damages analysis and trial risk issues.
Key Arguments. In our mediation brief and during the mediation session, we intend to emphasize the following points:
(1) Partial Certification. The denial of certification for five of seven causes of action substantially limits Plaintiffs' realistic recovery. The certified claims represent a fraction of the total claimed exposure, and the denied claims — which account for over $20 million of Dr. Rennick's model — are no longer available for class-wide prosecution.
(2) Dr. Lindstrom's Valuation. Dr. Lindstrom's $5.8 million valuation for the certified claims is credible, conservative, and based on actual attestation data rather than blanket assumptions. Her methodology provides a reliable basis for assessing realistic damages.
(3) Flaws in Dr. Rennick's Model. Dr. Rennick's assumption of a 100% violation rate — that every auto-deducted meal period constitutes a violation — is fundamentally flawed and inconsistent with the actual evidence. Even at the facilities where the attestation feature was inactive, the auto-deduction accurately reflected compliant meal periods for the majority of employees.
(4) Corrective Action. AMA implemented corrective measures in December 2022, including activation of the attestation feature at all facilities and correction of the auto-deduction threshold. These measures demonstrate good faith and support a reduction in PAGA penalties.
(5) Bilateral Trial Risk. Trial risk is significant for both sides. Plaintiffs face the risk that a jury will reject the blanket violation assumption and award damages substantially below their demand. AMA faces the risk that the jury will be influenced by the sympathetic production-culture narrative and the undeniable compliance gaps in the timekeeping system.
Target Deal Range. Our target deal range for Session #1 is $12,000,000 to $15,000,000 (gross settlement amount). We believe this range is achievable if the mediator provides a candid evaluation consistent with the partial certification ruling and the competing damages analysis. If the parties are unable to reach agreement within this range during Session #1 — for example, if Plaintiffs' final position remains at $20 million or above — we recommend scheduling a second mediation session within two to three weeks to allow for further negotiation.
B. Combined Mediation (Class + Aldrich)
If the class action is not fully resolved during Session #1, or if both sides express a willingness to explore a comprehensive resolution, we recommend scheduling a combined Session #2 that addresses both the class action and the Aldrich individual action simultaneously.
A combined mediation offers several strategic advantages for AMA. First, it creates package-deal leverage by allowing AMA to negotiate across both matters simultaneously, with potential trade-offs between the class settlement amount and the Aldrich settlement terms. Second, a combined resolution simplifies AMA's overall exposure profile and allows for comprehensive closure of all pending California employment litigation before the end of fiscal year 2023 or the first quarter of fiscal year 2024. Third, a single combined mediation session is more efficient than separate mediations and reduces total mediation costs.
We will coordinate with Cameron Whitfield of Whitfield & Associates regarding Aldrich's potential participation in a combined session. Whitfield has previously indicated a general willingness to participate in mediation, though no formal agreement to mediate the Aldrich matter has been reached. If a combined Session #2 is scheduled, it would likely require a different mediator or a co-mediation arrangement, as Judge Okoro has not been engaged on the Aldrich matter.
VIII. Approval Process
Pursuant to AMA's Outside Counsel Guidelines § 7.4, settlement authority for matters in which Calderwood & Harkness serves as outside counsel must be approved as follows:
•  For settlement amounts up to $5,000,000: Approval by Gregory Tanaka (VP, Legal & Compliance) and Philippa Cartwright (General Counsel, AGMG);
•  For settlement amounts exceeding $5,000,000: The foregoing approvals, plus final authorization from Jonathan Mercer (President, AMA) and the AGMG Board's Audit and Risk Committee.
The total recommended maximum authority of $18,000,000 ($15,000,000 for the class action and $3,000,000 for the Aldrich individual action) substantially exceeds the $5,000,000 threshold. Accordingly, approval from all four designated authorities — Gregory Tanaka, Philippa Cartwright, Jonathan Mercer, and the Audit and Risk Committee — is required.
We respectfully recommend that this memorandum be shared with the Audit and Risk Committee at the earliest opportunity and that formal written authorization be obtained prior to the August 25, 2023 mediation session. If scheduling constraints prevent a full Committee meeting before the mediation date, we recommend that the Committee consider authorizing Mr. Tanaka and Ms. Cartwright to act on the Committee's behalf within the approved parameters, subject to telephonic confirmation during or immediately following the mediation session.
We confirm that Calderwood & Harkness will not enter into any settlement agreement, execute any term sheet, or make any binding commitment on AMA's behalf without prior written authorization from AMA's designated decision-makers. Any tentative agreement reached during mediation will be expressly conditioned on AMA's internal approval process and will not become binding until executed by authorized representatives of AMA.
IX. Conclusion
Both the Fuentes class action and the Aldrich individual action are ripe for resolution. The partial certification ruling issued on August 11, 2023, creates strong incentives for both sides to negotiate: for Plaintiffs, because certification was denied for five of seven causes of action, substantially limiting the recoverable class exposure; and for AMA, because the certified first meal period claim, combined with the unfavorable auto-deduction optics and the Court's critical comments regarding the attestation feature, creates meaningful trial risk that warrants resolution.
Our recommended total maximum authority of $18,000,000 ($15,000,000 for the class action and $3,000,000 for the Aldrich individual action) represents a prudent settlement framework that accounts for the litigation risk profile of both matters while positioning AMA for a favorable resolution. At the recommended ceilings, the total resolution would represent approximately 42% of Plaintiffs' combined claimed exposure of $42,750,000 ($38,600,000 for the class action and $4,150,000 for the Aldrich individual action). In the context of California wage-and-hour class action settlements, a recovery in this range is within the normal parameters for court approval and consistent with settlements in comparable cases involving auto-deduction timekeeping practices.
Pemberton Mutual Assurance Co.'s willingness to participate in the class action settlement — with a maximum contribution of $9,250,000 — substantially mitigates AMA's out-of-pocket exposure. At the maximum combined authority of $18 million, AMA's total out-of-pocket cost (inclusive of defense costs and self-funded settlement components) would be approximately $12 million. At the midpoint of

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