CALDERWOOD & HARKNESS LLP Attorneys at Law
333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 714-8200 Facsimile: (305) 714-8201 www.calderwoodharkness.com
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION
LITIGATION HOLD NOTICE — IMMEDIATE ACTION REQUIRED
September 19, 2022
TO:
Marcus Ellsworth, Chief Executive Officer, Verimark Hospitality Group Inc.
Diane Calder, Chief Financial Officer, Verimark Hospitality Group Inc.
Nathaniel Driscoll, General Counsel, Verimark Hospitality Group Inc.
Sandra Pellegrini, Vice President, Risk Management, Verimark Hospitality Group Inc.
FROM:
Elaine Forsythe, Partner, Calderwood & Harkness LLP
RE:
Litigation Hold Notice — Preservation of Documents and Information Relating to Hurricane Callista Property Damage, Business-Interruption Losses, and Insurance Coverage Claims
DATE:
September 19, 2022
ENGAGEMENT NO.:
1021-00003
I. PURPOSE OF THIS NOTICE
Calderwood & Harkness LLP represents Verimark Hospitality Group Inc. ("VHG" or the "Company," Nasdaq: VMRK) in connection with insurance coverage claims arising from Hurricane Callista, which made landfall on the coast of the Lower Florida Keys at approximately 1:30 PM EDT on September 18, 2022. This memorandum constitutes a formal litigation hold notice issued pursuant to the Company's obligations under applicable federal and state law, including Rules 26 and 37 of the Federal Rules of Civil Procedure and corresponding provisions of the Florida Rules of Civil Procedure, to preserve all potentially relevant evidence when litigation is reasonably anticipated.
This notice imposes an immediate obligation on all recipients — and on all persons and departments to whom this notice is further distributed in accordance with Section 5 below — to preserve all documents, communications, electronically stored information ("ESI"), and tangible items that may be relevant to VHG's insurance claims and any potential litigation against its property and business-interruption insurers. This obligation is effective as of the date of this notice and supersedes any contrary provisions of VHG's routine document retention and destruction policies.
As of the date of this notice, VHG's submission of its initial notice of loss to Ironclad Indemnity Corporation ("Ironclad") is imminent and anticipated to be transmitted no later than September 22, 2022. This litigation hold is being implemented proactively, in advance of the formal claim submission, to ensure that VHG fulfills its preservation duties from the earliest practicable moment. Given the magnitude of the losses sustained by VHG's three Florida resort properties and the complexity of the Company's layered insurance program, litigation against one or more of VHG's property and business-interruption insurers is reasonably anticipated. Accordingly, the duty to preserve all potentially relevant materials attaches immediately.
All recipients of this notice must take the preservation obligations set forth herein with the utmost seriousness. Failure to preserve relevant materials may result in court-imposed sanctions, including adverse inference instructions to a jury, monetary penalties, dismissal of claims, or other severe remedies. The consequences of spoliation of evidence can be devastating to a party's position in litigation, and this firm is committed to ensuring that VHG's preservation obligations are satisfied fully and in good faith.
II. BACKGROUND
A. Hurricane Callista
Hurricane Callista was classified as a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale at the time of landfall. The storm made landfall at approximately 1:30 PM EDT on September 18, 2022, in the Big Pine Key area of the Lower Florida Keys, with maximum sustained winds of approximately 145 miles per hour. The hurricane brought catastrophic wind damage and extensive storm-surge flooding to the Florida Keys, Southwest Florida, and portions of the Tampa Bay region. Hurricane Callista was one of the most destructive storms to impact the Florida coastline in recent memory, and early estimates suggest billions of dollars in insured losses statewide.
B. VHG's Affected Properties
VHG owns and operates three resort properties in the State of Florida that sustained significant damage from Hurricane Callista. Each of these properties was located in a mandatory evacuation zone and was subject to evacuation orders issued by the relevant county emergency management authorities. The three affected properties are as follows:
1. Verimark Grand Key Resort — Mile Marker 48, Marathon, Florida 33050. The Grand Key Resort is a 312-room luxury resort and full-service marina facility located in the Middle Keys. The property features oceanfront accommodations, multiple dining venues, a full-service spa, and a 96-slip marina. Monroe County issued a mandatory evacuation order for all residents and visitors in the Florida Keys effective September 16, 2022. The Grand Key Resort sustained substantial wind and storm-surge damage, including structural damage to guest-room buildings, destruction of marina infrastructure, and extensive flooding of ground-level facilities.
2. Verimark Harborview Hotel & Conference Center — 1400 Estero Boulevard, Fort Myers Beach, Florida 33931. The Harborview Hotel is a 224-room hotel with an attached 40,000-square-foot conference and events facility located on Fort Myers Beach in Lee County. The property serves both leisure and group/corporate markets and is a significant revenue-generating asset for VHG. Lee County issued a mandatory evacuation order for Fort Myers Beach and barrier island communities effective September 17, 2022. The Harborview Hotel sustained severe damage from both high winds and storm surge, with particular devastation to the conference center and lower-level guest-room wings.
3. Verimark Sunset Shores — 7200 Gulf Boulevard, St. Pete Beach, Florida 33706. The Sunset Shores is a 186-room boutique resort located on St. Pete Beach in Pinellas County. The property is positioned as an upscale lifestyle resort and draws a premium leisure clientele. While located farther north than the hurricane's point of landfall, Sunset Shores sustained wind damage to its roofing systems, building envelope, and exterior amenity areas, as well as localized flooding.
All three properties were closed in advance of the hurricane in compliance with mandatory evacuation orders and remain closed as of the date of this notice. The duration of closures at each property is presently uncertain and will depend on the nature and extent of required repairs, the availability of restoration contractors, and the timeline for obtaining necessary governmental approvals and inspections.
C. VHG's Insurance Program
VHG maintains a comprehensive insurance program providing all-risk property and business-interruption coverage for its portfolio of hospitality assets. The program is structured as a layered tower with a total aggregate limit of $60,000,000, subject to a per-occurrence deductible of $500,000. The program is placed through VHG's insurance broker of record, Tidewater Risk Advisors LLC ("Tidewater"), with Franklin Orde serving as the designated account executive. The current policy period for all layers is July 1, 2022 through July 1, 2023.
The carriers and layers of coverage are as follows:
Given the preliminary magnitude of VHG's property damage and anticipated business-interruption losses across three resort properties, this matter has the potential to implicate multiple, if not all, layers of the insurance tower. Issues relating to coverage terms, sub-limits, exclusions, and the application of the named-windstorm provisions in the policies are anticipated to be subjects of significant dispute with one or more of the carriers.
D. Calderwood & Harkness LLP Engagement
Calderwood & Harkness LLP's engagement on behalf of VHG was formally opened on August 30, 2022, under Engagement No. 1021-00003, as Hurricane Callista developed in the Caribbean and threatened VHG's Florida properties. The scope of the engagement encompasses coverage analysis of VHG's insurance program, counseling with respect to claim preparation and submission, and, if necessary, prosecution of VHG's insurance coverage claims through litigation or alternative dispute resolution.
III. SCOPE OF THE LITIGATION HOLD — CATEGORIES OF MATERIALS TO BE PRESERVED
The following categories describe the types of documents, communications, data, and other materials that must be preserved under this litigation hold. These categories are intended to be illustrative and broadly inclusive. If there is any question as to whether a particular document or item falls within the scope of this hold, it must be preserved, and the question should be directed to the compliance contacts identified in Section 5.3 below. When in doubt, preserve.
3.1 Property Damage Documentation
All materials relating to the physical condition of the Grand Key Resort, Harborview Hotel & Conference Center, and Sunset Shores, both before and after Hurricane Callista, must be preserved. This category includes, without limitation:
(a) All photographs, videos, drone footage, and other visual records of damage to any of the three affected properties, including images taken before the storm that document the pre-storm condition of the buildings, grounds, marina facilities, and other structures;
(b) All engineering reports, structural assessments, damage surveys, building inspections, and inspection records prepared by VHG personnel, third-party engineers, architects, consultants, or governmental authorities relating to the condition of any affected property;
(c) All repair estimates, contractor bids, proposals, invoices, work orders, purchase orders, change orders, and construction schedules relating to the restoration, repair, or reconstruction of any affected property;
(d) All records of emergency protective measures taken before, during, and after Hurricane Callista, including but not limited to boarding and shuttering, sandbagging, equipment relocation, inventory protection, generator deployment, water extraction, mold remediation, and debris removal;
(e) All records relating to the timeline of property closures and anticipated or actual reopenings at each property, including communications with local authorities regarding permitting, inspections, and certificates of occupancy; and
(f) Any pre-storm maintenance records, capital improvement plans, or condition reports for each property that may be relevant to establishing the pre-loss condition and value of the insured assets.
3.2 Business-Interruption and Financial Records
All financial and operational records necessary to document VHG's business-interruption losses must be preserved. This category includes, without limitation:
(a) Revenue data for each of the three affected properties, broken down by revenue stream, including but not limited to room revenue, food and beverage revenue, conference and event revenue, marina revenue, spa revenue, retail revenue, parking revenue, and all other ancillary revenue sources;
(b) Historical financial performance data for each property, including average daily rate ("ADR"), occupancy rates, revenue per available room ("RevPAR"), and other key performance indicators. For reference, the most recent pre-loss performance metrics on file for each property are as follows:
• Verimark Grand Key Resort: ADR of $389; occupancy rate of 82%
• Verimark Harborview Hotel & Conference Center: ADR of $295; occupancy rate of 74%
• Verimark Sunset Shores: ADR of $342; occupancy rate of 79%
(c) Monthly and quarterly financial statements, profit-and-loss statements, operating budgets, and forecasts for each property for fiscal year 2020, fiscal year 2021, and fiscal year 2022 (year-to-date). For context, VHG's consolidated revenue for FY 2021 was approximately $412 million, with consolidated EBITDA of approximately $78 million;
(d) Records of all continuing expenses incurred during the period of closure at each property, as well as records identifying expenses that were saved or discontinued as a result of the closure;
(e) All extra expense records, including costs incurred to expedite restoration, reduce the period of interruption, or otherwise mitigate business-interruption losses, such as temporary facility arrangements, overtime labor, expedited shipping of materials, and similar expenditures;
(f) All guest reservation records, cancellation logs, booking pace reports, group contract records, and forward-looking booking data for each property, covering the period of interruption and a reasonable period thereafter;
(g) Records of all mitigation efforts undertaken by VHG to reduce the period of business interruption at each property, including efforts to redirect guests to non-affected VHG properties or third-party partner hotels; and
(h) Any projections, forecasts, or financial models prepared by VHG management, consultants, or advisors regarding the anticipated financial impact of Hurricane Callista on VHG's operations and earnings.
3.3 Insurance Policy and Placement Documents
All materials relating to VHG's insurance program must be preserved. This category includes, without limitation:
(a) Complete copies of all property and business-interruption insurance policies — including the primary policy and all excess-layer policies — for the current policy period (July 1, 2022 through July 1, 2023), as well as complete copies of corresponding policies for at least the two immediately preceding policy periods;
(b) All endorsements, riders, binders, cover notes, declarations pages, and policy amendments for each policy in the tower;
(c) All correspondence, emails, memoranda, and other communications between VHG (including any VHG officer, employee, or representative) and Tidewater Risk Advisors LLC (including Franklin Orde and any other Tidewater personnel) relating to the placement, renewal, binding, and terms and conditions of the insurance program, including but not limited to negotiations regarding sub-limits, exclusions, deductibles, and endorsements. Of particular importance are any communications relating to the named-windstorm sub-limit, the windstorm deductible provisions, and any modifications to coverage terms negotiated during the most recent renewal;
(d) All premium payment records, invoices, and confirmations of payment for all layers of the insurance program;
(e) All prior-year policy documents, including policies, endorsements, and placement correspondence, to the extent they may be relevant for comparison purposes or to establish the history of coverage terms; and
(f) All applications, submissions, underwriting questionnaires, supplemental information, property schedules, statement of values, and other materials provided to insurers or brokers in connection with the placement or renewal of the insurance program.
3.4 Communications with Insurers, Adjusters, and Related Third Parties
All communications with insurers, claims adjusters, and other external parties involved in the claims process must be preserved. This category includes, without limitation:
(a) All communications — whether written, electronic, or telephonic (including call logs, notes, and recordings, if any) — with Ironclad Indemnity Corporation and its personnel, including but not limited to Victor Haddon, Senior Vice President of Claims, and any other Ironclad claims personnel, underwriters, or representatives;
(b) All communications with Pinnacle Surplus Lines Inc. and its personnel regarding VHG's claim or the status of coverage under Policy No. PSL-XS1-2022-3390;
(c) All communications with Montclair Assurance Company and its personnel regarding VHG's claim or the status of coverage under Policy No. MAC-XS2-2022-09817;
(d) All communications with Sovereign Re Ltd. and its personnel regarding VHG's claim or the status of coverage under Policy No. SRL-XS3-2022-5102;
(e) All communications with Arbor Claims Services LLC, including its designated adjuster Denise Whitford and any other Arbor personnel, encompassing all inspection reports, adjustment communications, field notes, and related materials arising from the property inspections scheduled for or conducted on or about October 5, 2022, as well as any subsequent site visits, follow-up inspections, or supplemental adjustment activities;
(f) All communications with Tidewater Risk Advisors LLC, including Franklin Orde and any other Tidewater personnel, relating to the notification of loss, the claims process, or any aspect of VHG's insurance coverage;
(g) All notice-of-loss submissions, sworn statements in proof of loss, and any supplemental claim submissions, amendments, or supporting documentation provided to any insurer; and
(h) Any reservation of rights letters, coverage position letters, denial communications, or other substantive coverage correspondence received from any insurer. We note that a reservation of rights letter from Ironclad Indemnity Corporation is anticipated in the near term and, upon receipt, must be immediately preserved and forwarded to this firm. Any such letter received on or about October 12, 2022, or at any other time, must be preserved in its entirety.
3.5 Internal Communications
All internal VHG communications relating to Hurricane Callista and its aftermath must be preserved. This category includes, without limitation:
(a) All internal VHG emails, memoranda, text messages, instant messages (including messages transmitted through platforms such as Northgate Data Systems, Meridian Solutions, or similar collaboration tools), voicemails, and other communications among VHG officers, directors, employees, contractors, and agents relating to any of the following topics:
(i) Hurricane Callista damage and its impact on the operations of any of the three affected properties or on VHG's business generally;
(ii) Decisions regarding the evacuation of guests and staff, the closure of any property, and the timeline and planning for property reopenings;
(iii) Restoration planning, contractor selection and engagement, scope-of-work determinations, and construction management for any affected property;
(iv) Financial impact assessments, loss projections, earnings impact analyses, and budgetary adjustments relating to Hurricane Callista;
(v) Insurance claim preparation, claim strategy, coverage analysis, and any discussions regarding the adequacy of VHG's insurance program or the anticipated response of any carrier;
(vi) Communications with Calderwood & Harkness LLP, which are protected by the attorney-client privilege and the work-product doctrine and must be preserved but must not be disclosed to any third party without the express prior authorization of this firm or VHG's General Counsel; and
(vii) Any other topics that relate to or touch upon the damage caused by Hurricane Callista, VHG's insurance coverage, or the claims and potential litigation arising therefrom.
3.6 Corporate Records
All corporate governance and public disclosure records relating to Hurricane Callista must be preserved. This category includes, without limitation:
(a) Minutes, agendas, presentations, reports, and all other materials from meetings of VHG's Board of Directors, any committee of the Board, or any executive leadership meetings at which Hurricane Callista, its impact on VHG's operations or financial performance, insurance claims, business-continuity planning, or related topics were discussed;
(b) All filings with the U.S. Securities and Exchange Commission ("SEC"), including but not limited to Forms 10-Q, 10-K, 8-K, and any amendments thereto, that reference Hurricane Callista or its impact on VHG's operations, financial condition, or results of operations;
(c) All press releases, media statements, investor presentations, earnings call transcripts, and other public or investor communications issued by or on behalf of VHG that reference Hurricane Callista or its impact; and
(d) Any internal reports, briefing memoranda, executive summaries, or dashboards prepared for senior management or the Board of Directors regarding the hurricane's impact on VHG's properties, operations, or financial outlook.
3.7 Electronic Data and Systems
All electronically stored information ("ESI") within VHG's possession, custody, or control that falls within the scope of the categories described above must be preserved. Specific attention should be directed to the following:
(a) All ESI stored on VHG's servers (on-premises and co-located), cloud-based platforms (including but not limited to Ashgrove Software, Crestline Software, and any other cloud service providers utilized by VHG), email systems, document management systems, shared network drives, and backup systems;
(b) All data stored within VHG's property management systems ("PMS") for each of the three affected properties, including reservation data, occupancy records, room assignment logs, guest folios, revenue data, and related operational information;
(c) All data stored within VHG's accounting and financial reporting systems, including the general ledger, accounts payable and receivable records, fixed-asset records, and any enterprise resource planning ("ERP") system data;
(d) All data stored on personal devices — including smartphones, tablets, and laptops — used by VHG personnel for business communications or to store business records relating to any of the topics identified in this notice. This applies to both company-issued devices and personally owned devices used for VHG business purposes; and
(e) All content posted to or stored on social media accounts maintained by VHG or any of its individual properties, including but not limited to accounts on Kestrel Services Inc., Northpoint Services Inc., Fenmore Solutions, Westmark Health IT, Kestrel Group, and any other platforms, to the extent such content relates to Hurricane Callista, property closures, damage, restoration, or reopening.
IV. PRESERVATION OBLIGATIONS AND INSTRUCTIONS
4.1 Immediate Suspension of Document Destruction
Effective immediately upon receipt of this notice, all routine document retention and destruction policies, auto-delete functions, and records-management schedules are hereby suspended with respect to any and all materials falling within the categories described in Section 3 above. This suspension applies to all media and formats, whether paper or electronic.
No documents, files, communications, or data of any kind falling within the scope of this litigation hold may be deleted, destroyed, altered, overwritten, or discarded by any VHG officer, director, employee, contractor, or agent. This prohibition applies regardless of whether the materials are stored on VHG systems, third-party systems, personal devices, or any other medium.
Specifically, VHG must take immediate steps to:
(a) Disable any auto-purge or auto-delete settings on the email accounts of all individuals identified as custodians under this hold;
(b) Suspend any scheduled destruction, overwriting, or recycling of backup tapes, archived data, or legacy storage media that may contain materials within the scope of this hold; and
(c) Ensure that no electronic data is overwritten, reformatted, or lost through routine system maintenance, hardware replacement, software upgrades, or migration to new platforms without first confirming that all relevant data has been preserved.
4.2 Scope of "Documents"
For purposes of this litigation hold, the term "documents" is to be construed in the broadest possible sense and includes all forms of recorded information, regardless of the medium on which they are stored or the manner in which they were created. Without limitation, "documents" includes:
(a) Paper documents, including correspondence, memoranda, reports, contracts, handwritten notes, notebooks, journals, and printed materials;
(b) Electronic files, including word-processing documents, spreadsheets, presentations, databases, PDFs, and image files;
(c) Email communications, including all attachments, headers, and metadata;
(d) Text messages (SMS and MMS), instant messages, and messages transmitted through collaboration platforms;
(e) Voicemail messages and voicemail-to-text transcriptions;
(f) Photographs, videos, and audio recordings in any format;
(g) Databases and structured data repositories;
(h) Calendar entries, task lists, and scheduling records;
(i) Internet browser history, bookmarks, and cached data, to the extent relevant; and
(j) Metadata associated with any of the foregoing, including but not limited to file creation dates, modification dates, author information, and version history.
4.3 Personal Devices and Accounts
Preservation obligations under this litigation hold extend to personal devices (smartphones, tablets, laptops, home computers) and personal email or messaging accounts (including personal Northgate Software, Cascade Health IT, outlook, Meridian Systems, Meridian Services Inc., signal, or any other accounts) to the extent such devices or accounts were used for VHG business communications or to store VHG business records relating to any of the topics identified in Section 3 of this notice.
Each recipient of this notice is personally responsible for preserving any such materials on his or her personal devices or accounts. If a recipient has any question about whether particular materials on a personal device or account are within the scope of this hold, the recipient should contact the compliance contacts identified in Section 5.3 below for guidance before taking any action that could result in the loss of such materials.
4.4 Duration
This litigation hold remains in effect until it is affirmatively lifted by further written notice from Calderwood & Harkness LLP or from VHG's General Counsel, Nathaniel Driscoll. The hold will not expire automatically on any particular date and must be affirmatively terminated in writing. Recipients should assume that all preservation obligations described in this notice will remain in force for the foreseeable future. Periodic reminders regarding the continuing nature of this hold will be issued by VHG's Legal Department and/or Calderwood & Harkness LLP.
V. DISTRIBUTION AND COMPLIANCE
5.1 Further Distribution
Nathaniel Driscoll, General Counsel, and Sandra Pellegrini, Vice President of Risk Management, are hereby requested to identify all VHG personnel — at the corporate level and at each of the three affected properties — who may possess, control, or have access to materials falling within the scope of this litigation hold. This includes, without limitation:
(a) Property-level General Managers at the Grand Key Resort, Harborview Hotel & Conference Center, and Sunset Shores;
(b) Directors of Operations at each affected property;
(c) Property-level Controllers and finance personnel;
(d) Engineering and facilities management personnel at each property;
(e) Information technology ("IT") personnel at both the corporate and property levels;
(f) Sales and marketing personnel with knowledge of booking data, group contracts, or promotional activities;
(g) Human resources personnel with knowledge of staffing, payroll continuation, or employee-related decisions during the closure period; and
(h) Any other VHG personnel who may have knowledge of or access to relevant materials.
This notice must be distributed to all such individuals promptly — and in no event later than five (5) business days from the date hereof — with a complete and accurate record of distribution maintained by VHG's Legal Department. The key departments and functions that should receive this notice include, at a minimum: Legal, Risk Management, Finance and Accounting, Information Technology, Operations (at each property), Facilities and Engineering (at each property), Sales and Marketing, and Human Resources.
5.2 Acknowledgment
Each recipient of this notice — whether a direct addressee listed above or a subsequent recipient identified through the distribution process described in Section 5.1 — must acknowledge receipt of this notice in writing and confirm his or her understanding of the preservation obligations set forth herein. An email acknowledgment is sufficient for this purpose, provided that it clearly identifies the recipient, confirms receipt of the Litigation Hold Notice dated September 19, 2022, and confirms the recipient's understanding of and intention to comply with the preservation obligations described herein.
A formal Acknowledgment Form is attached hereto as Attachment A and may be used in lieu of an email acknowledgment.
All acknowledgments should be returned to:
Nathaniel Driscoll, General Counsel Verimark Hospitality Group Inc. 1900 Brickell Avenue, Suite 3200 Miami, Florida 33129
Email: ndriscoll@verimarkhotels.com
A copy of each acknowledgment should also be forwarded to:
Tiffany Rosenthal, Lead Associate Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131
Email: trosenthal@calderwoodharkness.com
5.3 Compliance Contacts
Any questions regarding the scope, application, or interpretation of this litigation hold notice should be directed to one of the following individuals:
• Nathaniel Driscoll, General Counsel, Verimark Hospitality Group Inc., 1900 Brickell Avenue, Suite 3200, Miami, FL 33129; Telephone: (305) 556-4100; Email: ndriscoll@verimarkhotels.com
• Elaine Forsythe, Partner, Calderwood & Harkness LLP, 333 SE 2nd Avenue, Suite 4400, Miami, FL 33131; Telephone: (305) 714-8200; Email: eforsythe@calderwoodharkness.com
• Tiffany Rosenthal, Lead Associate, Calderwood & Harkness LLP, 333 SE 2nd Avenue, Suite 4400, Miami, FL 33131; Telephone: (305) 714-8200; Email: trosenthal@calderwoodharkness.com
Recipients are strongly encouraged to contact one of the above individuals promptly if they have any uncertainty about whether particular materials or categories of materials fall within the scope of this hold. It is far preferable to over-preserve than to risk the loss of potentially relevant evidence.
5.4 IT Department Coordination
VHG's Information Technology department, at both the corporate and property levels, is directed to take immediate steps to ensure the comprehensive preservation of all ESI within the scope of this litigation hold. Specifically, the IT department is directed to undertake the following actions without delay:
(a) Email Preservation: Suspend all auto-deletion, auto-archival, and mailbox-size-management processes for the email accounts of all individuals identified as custodians under this hold. Ensure that no emails, calendar entries, or other data in these accounts are automatically deleted or moved to locations where they may be overwritten or lost;
(b) Backup Tape and Archive Preservation: Identify and preserve all current backup tapes, disaster-recovery snapshots, and archived data stores that contain or may contain materials within the scope of this hold. Prevent the overwriting, recycling, or destruction of such media until further notice;
(c) Hard Drive and Network Folder Preservation: Image or otherwise create forensically sound copies of relevant hard drives, shared network folders, and departmental drives that contain or may contain materials within the scope of this hold. Where imaging is not practicable, ensure that the original media is preserved in its current state and protected from alteration;
(d) Cloud-Based Data Repositories: Identify and preserve all data stored in cloud-based platforms, file-sharing services, collaboration tools, and software-as-a-service applications used by VHG, to the extent such data falls within the scope of this hold;
(e) Documentation of Preservation Steps: Maintain a detailed written log of all preservation steps taken pursuant to this notice, including the date of each action, the systems and data affected, the method of preservation employed, and the identity of the individual(s) responsible for executing each step. This log should be provided to Nathaniel Driscoll and Calderwood & Harkness LLP upon request.
Calderwood & Harkness LLP is available to consult with VHG's IT department regarding appropriate preservation methodologies and to assist in the identification of custodians and data sources.
VI. CONSEQUENCES OF NON-COMPLIANCE
Failure to comply with this litigation hold notice may expose VHG and individual employees to serious legal consequences. Courts have broad discretion to impose sanctions for the spoliation of evidence, and the consequences of non-compliance can include, without limitation:
(a) Adverse Inference Instructions: A court may instruct the jury that it may presume the destroyed or lost evidence was unfavorable to VHG's position;
(b) Monetary Sanctions: A court may impose substantial monetary sanctions against VHG, including the costs and attorneys' fees incurred by the opposing party as a result of the spoliation;
(c) Preclusion of Evidence: A court may preclude VHG from introducing certain evidence or pursuing certain claims;
(d) Dismissal or Default Judgment: In the most extreme cases, a court may dismiss VHG's claims or enter a default judgment against the Company; and
(e) Individual Liability: Individual employees who destroy or fail to preserve relevant evidence may face personal sanctions or other consequences.
Any employee who becomes aware of the destruction, loss, alteration, or potential compromise of any materials that may be within the scope of this litigation hold must immediately notify Nathaniel Driscoll, General Counsel, at the contact information set forth in Section 5.3 above. Prompt notification will allow VHG and Calderwood & Harkness LLP to assess the situation and take appropriate remedial steps.
VII. CONFIDENTIALITY
This litigation hold notice is a privileged and confidential attorney-client communication between Calderwood & Harkness LLP and its client, Verimark Hospitality Group Inc. The contents of this notice are protected by the attorney-client privilege and the work-product doctrine.
This notice should not be shared with, disclosed to, or discussed with any third party outside of VHG without the prior written approval of Nathaniel Driscoll, General Counsel, or Calderwood & Harkness LLP. Specifically, the existence of this litigation hold and the contents of this notice should not be communicated to any insurer, independent adjuster, insurance broker, or other external party, including but not limited to Ironclad Indemnity Corporation, Pinnacle Surplus Lines Inc., Montclair Assurance Company, Sovereign Re Ltd., Arbor Claims Services LLC, or Tidewater Risk Advisors LLC.
Internal distribution of this notice to VHG personnel, as directed in Section 5.1 above, does not waive the privileged and confidential nature of this communication. All VHG personnel who receive this notice are expected to maintain its confidentiality.
Should you have any questions regarding the content, scope, or application of this litigation hold notice, please do not hesitate to contact me directly at (305) 714-8200 or at eforsythe@calderwoodharkness.com.
Thank you for your immediate attention to this critically important matter.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Elaine Forsythe Partner 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 714-8200
Email: eforsythe@calderwoodharkness.com
cc:
Tiffany Rosenthal, Lead Associate, Calderwood & Harkness LLP
Andrew Fitzpatrick, Associate, Calderwood & Harkness LLP
Howard Bellamy, Partner (Billing Partner), Calderwood & Harkness LLP
Attachment: Attachment A — Acknowledgment Form
ATTACHMENT A
LITIGATION HOLD NOTICE — ACKNOWLEDGMENT FORM
Engagement No.: 1021-00003
RE: Litigation Hold Notice — Preservation of Documents and Information Relating to Hurricane Callista Property Damage, Business-Interruption Losses, and Insurance Coverage Claims
I, the undersigned, hereby acknowledge that I have received, read, and understand the Litigation Hold Notice dated September 19, 2022, issued by Calderwood & Harkness LLP on behalf of Verimark Hospitality Group Inc. I understand the preservation obligations described therein and confirm the following:
1. I will immediately take all necessary steps to preserve all documents, communications, electronically stored information, and tangible items within my possession, custody, or control that fall within the scope of the categories described in Section 3 of the Litigation Hold Notice.
2. I will not delete, destroy, alter, overwrite, or discard any materials falling within the scope of the litigation hold, whether stored on VHG systems, personal devices, personal email or messaging accounts, or any other medium.
3. I will comply with the suspension of routine document retention and destruction policies as described in the Litigation Hold Notice.
4. I will maintain the confidentiality of the Litigation Hold Notice and will not disclose its existence or contents to any third party outside of Verimark Hospitality Group Inc. without the prior approval of VHG's General Counsel or Calderwood & Harkness LLP.
5. I will promptly notify Nathaniel Driscoll, General Counsel, if I become aware of the destruction, loss, or potential compromise of any materials that may fall within the scope of this litigation hold.
6. I will contact the compliance contacts identified in Section 5.3 of the Litigation Hold Notice if I have any questions regarding the scope or application of the hold.
Name (Printed): ________
Title / Department: ________
Property / Location: ________