joint-employer-analysis-palomar.docx

1021-00005 · Verimark Hospitality Group · Analysis & Advice

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CALDERWOOD & HARKNESS LLP Labor & Employment Practice Group

MEMORANDUM

FROM: Nadia Petrov, Lead Associate, Labor & Employment, Calderwood & Harkness LLP

TO: Bernard Crawford, Responsible Partner, Labor & Employment, Calderwood & Harkness LLP Renata Vasquez, Billing Partner, Labor & Employment, Calderwood & Harkness LLP

CC: James Underwood, Working Associate, Labor & Employment, Calderwood & Harkness LLP

DATE: February 11, 2026

RE: Joint-Employer Exposure Analysis — Palomar Realty Partners LLC and Verimark Hospitality Group Inc. re: Verimark Shores Clearwater Property

MATTER: 1021-00005

CLIENT: Verimark Hospitality Group Inc.

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I. Executive Summary

This memorandum analyzes the joint-employer exposure arising from the relationship between our client, Verimark Hospitality Group Inc. ("VHG"), and Palomar Realty Partners LLC ("Palomar") with respect to the Verimark Shores Clearwater property located at 455 Mandalay Avenue, Clearwater Beach, FL 33767. VHG operates the Verimark Shores Clearwater property pursuant to a Hotel Management Agreement dated June 1, 2021 (reference HMA-2021-0601-PC) (the "HMA") with Palomar, a Florida limited liability company whose Managing Member is Ricardo E. Montalvo. Palomar is headquartered at 1901 West Cypress Street, Suite 400, Tampa, FL 33607. Palomar owns the real property and improvements comprising the hotel; VHG manages the property and directly employs all on-site staff, which consists of approximately 260 employees, of whom an estimated 190 are hourly, non-exempt workers.

This analysis is prompted by a demand letter dated January 14, 2026, received from Garza, Linden & Okafor LLP (with Marco A. Garza serving as lead attorney) on behalf of former VHG employee Daniela M. Serrano. The demand letter names "Verimark-branded properties" as being within the scope of the threatened litigation, and the Verimark Shores Clearwater property is expressly identified among the seven at-issue properties. The demand letter threatens a putative FLSA collective action encompassing an estimated 4,100–5,900 individuals and demands $18.5 million in damages.

This memorandum addresses three principal questions:

1. Whether Palomar may be deemed a "joint employer" of VHG's employees at the Verimark Shores Clearwater property under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq., as interpreted by the United States Court of Appeals for the Eleventh Circuit;

2. The implications of a joint-employer finding for VHG's exposure and the scope of the pre-litigation wage-and-hour audit currently underway; and

3. The indemnification and contribution rights between VHG and Palomar under the HMA, and the strategic considerations relevant to coordinating VHG's and Palomar's respective interests.

Conclusion preview: Based on the information currently available to this office, VHG appears to be the sole employer of the Verimark Shores Clearwater workforce under a traditional economic-reality analysis. VHG exercises direct and exclusive control over hiring, firing, scheduling, supervision, compensation, and record-keeping for all on-site employees. However, there are factual questions regarding Palomar's operational involvement—particularly concerning budget approval rights, operating-account funding mechanisms, and any reserved consent rights over key personnel decisions—that must be investigated further before a definitive conclusion can be reached. We assess the risk of a joint-employer finding as moderate at this time, pending a complete review of HMA-2021-0601-PC and related documentation. We recommend that VHG and Palomar enter into a common interest agreement, that VHG promptly review the HMA's notice-of-claims provisions, and that the indemnification provisions be analyzed in detail once the complete agreement is in hand.

II. Background and Factual Context

A. The Parties and Their Relationship

Verimark Hospitality Group Inc. VHG is a Delaware corporation, publicly traded on the Nasdaq Stock Exchange under the ticker symbol VMHG. VHG is headquartered at 2400 Bayshore Boulevard, Suite 1100, Tampa, FL 33629. The company's Chief Executive Officer is Theodore R. Langford. VHG's General Counsel is Devin K. Arroyo, who serves as our primary point of contact for this engagement. The Vice President of Human Resources is Carla S. Whitfield, and the Director of Payroll & Workforce Compliance is Enrique J. Fuentes. VHG operates fourteen hotel and resort properties across the state of Florida, employing approximately 8,200 total employees, of whom approximately 5,900 are non-exempt hourly workers. For its fiscal year ending December 31, 2025, VHG reported consolidated revenue of approximately $1.42 billion.

VHG is primarily an owner-operator in the hospitality industry, meaning that it both owns and manages the vast majority of its hotel portfolio. The Verimark Shores Clearwater property represents a departure from this standard model: it is the only property in VHG's current portfolio that is managed on behalf of a third-party owner under a hotel management agreement. This distinction is central to the joint-employer analysis discussed in this memorandum.

Palomar Realty Partners LLC. Palomar is a Florida limited liability company organized and existing under the laws of the State of Florida. Its Managing Member is Ricardo E. Montalvo. Palomar is the record owner of the real property and improvements comprising the Verimark Shores Clearwater hotel. Based on publicly available records and information provided by VHG, Palomar appears to be a single-asset or limited-portfolio real estate investment entity. Additional investigation into Palomar's organizational structure, capitalization, and other holdings may be warranted as this matter develops.

The Hotel Management Agreement. VHG and Palomar entered into HMA-2021-0601-PC on June 1, 2021. Under the HMA, VHG manages the Verimark Shores Clearwater hotel on behalf of Palomar, applying VHG's proprietary operational systems, brand standards, and hospitality practices. VHG directly employs all on-site staff at the property. The specific terms of the HMA—including VHG's scope of authority, Palomar's reserved rights, operating-account structures, and indemnification provisions—are critical to the joint-employer analysis and are discussed in detail in Section V below. As of the date of this memorandum, Calderwood & Harkness has requested but not yet received a complete copy of HMA-2021-0601-PC from VHG General Counsel Devin K. Arroyo.

B. The Verimark Shores Clearwater Property

The Verimark Shores Clearwater is a full-service hotel located at 455 Mandalay Avenue, Clearwater Beach, FL 33767. The property comprises 210 guest rooms and offers a range of amenities and services typical of an upscale beach resort hotel. The property's workforce consists of approximately 260 employees across various departments, including front desk operations, housekeeping, food and beverage, maintenance and engineering, sales, and administration. Of these approximately 260 employees, an estimated 190 are hourly, non-exempt workers—the population most directly relevant to the wage-and-hour claims threatened in the Garza demand letter.

It bears emphasis that the Verimark Shores Clearwater is the only one of the seven at-issue properties that is not directly owned by VHG. The remaining six properties identified in the demand letter—Verimark Regency Tampa, Verimark Grand Orlando, Verimark Bayfront St. Petersburg, Verimark Resort & Spa Boca Raton, Verimark Oceanview Fort Lauderdale, and Verimark Key West Collection—are each directly owned and operated by VHG, with no third-party ownership interest. This structural distinction makes the Verimark Shores Clearwater property unique within the scope of the threatened litigation and introduces a layer of complexity not present at the other six properties.

C. The Demand and Threatened Litigation

On January 14, 2026, VHG received a demand letter from Garza, Linden & Okafor LLP, a plaintiffs'-side labor and employment firm located at 600 Brickell Avenue, Suite 2200, Miami, FL 33131. The lead attorney on the matter is Marco A. Garza, with associate Priya N. Chandrasekaran identified as the secondary contact. The demand letter was addressed to VHG's General Counsel, Devin K. Arroyo, and transmitted both via certified mail and electronic delivery.

The named claimant is Daniela M. Serrano, a former front-desk associate (hourly, non-exempt) at the Verimark Regency Tampa property. Ms. Serrano was employed by VHG from March 14, 2022 through August 22, 2025 (Employee ID VHG-EMP-20220314-5587). While Ms. Serrano was employed at the Verimark Regency Tampa property—one of VHG's wholly-owned properties—the demand letter is drafted broadly and expressly encompasses all "Verimark-branded properties in Florida," identifying seven specific properties by name, including the Verimark Shores Clearwater.

The demand letter asserts five categories of wage-and-hour violations:

1. Overtime violations under 29 U.S.C. § 207(a) — Allegations that VHG failed to compensate hourly employees at the required overtime rate of one and one-half times their regular rate for hours worked in excess of forty per workweek, due in part to the alleged failure to include all compensable time in the overtime calculation.

2. Illegal automatic meal-break deductions — Allegations that VHG's payroll system automatically deducted thirty minutes from each shift of six hours or more for a purported meal break, regardless of whether the employee actually received or took a full, uninterrupted thirty-minute break. This allegation is directly relevant to VHG's auto-deduction rule AR-MEAL-030, which is applied uniformly across all VHG properties, including Verimark Shores Clearwater.

3. Uncompensated pre- and post-shift work — Allegations that hourly employees were required or suffered to perform work-related tasks before the start of and after the end of their recorded shifts, including pre-shift preparation, post-shift cleanup, and system logins, without compensation.

4. Florida minimum wage violations for tipped employees — Allegations that VHG failed to comply with Article X, Section 24 of the Florida Constitution, which establishes a minimum wage for tipped employees and requires compliance with specific tip-credit requirements.

5. Misclassification of lead/senior hourly roles — Allegations that VHG improperly classified certain "lead" and "senior" hourly positions as exempt from overtime under the FLSA's administrative exemption, 29 U.S.C. § 213(a)(1), when those positions did not meet the salary-basis or duties tests for the administrative exemption.

The demand letter asserts a putative collective period spanning from January 2023 to the present and estimates the class at between 4,100 and 5,900 individuals. The total demand amount is $18.5 million, inclusive of unpaid wages, liquidated damages, and attorneys' fees.

D. Payroll and Timekeeping Infrastructure

All employees at the Verimark Shores Clearwater property are processed through VHG's centralized payroll system, which is administered by Luminos Payroll Solutions Inc., located at 3300 Peachtree Road NE, Suite 800, Atlanta, GA 30326. VHG's account with Luminos is designated LTT-VHG-2022-0041, and the senior account manager assigned to VHG's account is Shannon D. Prewitt. The Verimark Shores Clearwater property was transitioned to the Luminos TimeTrack platform effective January 1, 2022, approximately seven months after the execution of the HMA.

Of critical importance to the threatened litigation, the same automatic meal-break deduction rule that is at issue in the demand letter—designated AR-MEAL-030, which implements a thirty-minute automatic deduction for any shift of six hours or more—is applied uniformly across all fourteen VHG-managed properties, including the Verimark Shores Clearwater. This means that any systemic violation found in connection with the auto-deduction rule at any other VHG property is very likely replicated at the Verimark Shores Clearwater. Similarly, VHG's Employee Handbook, currently at version 7.2 (effective January 1, 2025), applies uniformly to all Verimark Shores Clearwater employees, establishing the same policies regarding timekeeping, overtime, meal breaks, and compensation that are in effect at VHG's wholly-owned properties.

The uniformity of payroll and timekeeping practices across VHG's portfolio underscores the likelihood that the Verimark Shores Clearwater property will be swept into any collective action that is certified or conditionally certified. The fact that VHG—rather than Palomar—controls and administers the payroll infrastructure is a significant factor in the joint-employer analysis, as discussed in Section IV below.

III. Legal Framework — Joint-Employer Doctrine Under the FLSA

A. Statutory Basis

The Fair Labor Standards Act defines the term "employer" with extraordinary breadth. Under 29 U.S.C. § 203(d), an "employer" includes "any person acting directly or indirectly in the interest of an employer in relation to an employee." The term "employee" is defined under 29 U.S.C. § 203(e) to include "any individual employed by an employer." And the term "employ," as defined in 29 U.S.C. § 203(g), means "to suffer or permit to work"—a formulation that the United States Supreme Court has recognized as the broadest definition of employment found in any federal statute. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992) (contrasting the FLSA's expansive definition with the common-law agency test used under ERISA and other statutes); Rutherford Food Corp. v. McComb, 331 U.S. 722, 728 (1947) (observing that the FLSA's definition of "employ" was designed to have "broad scope").

The breadth of the FLSA's statutory definitions gives rise to the joint-employer concept: two or more entities may simultaneously be the "employer" of a single employee, in which case each entity is jointly and severally liable for FLSA violations, including unpaid minimum wages, unpaid overtime, liquidated damages, and attorneys' fees. The joint-employer doctrine is not an independent cause of action; rather, it is an analytical framework for determining whether a particular entity meets the FLSA's definition of "employer" with respect to a given set of employees.

The significance of a joint-employer finding in the context of the present matter cannot be overstated. If Palomar is determined to be a joint employer of the Verimark Shores Clearwater employees, Palomar would bear joint and several liability for any FLSA violations affecting those employees—meaning that a judgment could be collected in full from either VHG or Palomar, or from both in any combination, up to the total amount of the award. Conversely, if Palomar is not a joint employer, Palomar's exposure to the threatened collective action would be limited to any contractual indemnification obligations it may have under the HMA, if any.

B. The Economic-Reality Test (Eleventh Circuit Standard)

Because the Verimark Shores Clearwater property is located in the Middle District of Florida, the controlling appellate authority on the joint-employer question is the United States Court of Appeals for the Eleventh Circuit. The Eleventh Circuit applies the "economic reality" test to determine whether a putative joint employer qualifies as an "employer" under the FLSA. This test looks beyond formal contractual arrangements and examines the economic substance of the relationship between the putative employer and the workers at issue. See Layton v. Granite Harbor Enterprises (USA), Inc., 686 F.3d 1172, 1176 (11th Cir. 2012); Villarreal v. Woodham, 113 F.3d 202, 205 (11th Cir. 1997).

Under the economic-reality test as applied by the Eleventh Circuit, the following non-exhaustive factors are considered:

1. The alleged employer's power to hire and fire employees. This factor examines whether the putative joint employer possesses the authority—whether exercised or not—to make or materially influence decisions regarding the hiring and termination of the workers at issue. The power need not be exclusive or directly exercised; a reserved right to approve, veto, or influence hiring and firing decisions can be sufficient.

2. The alleged employer's authority to supervise and control employee work schedules or conditions of employment. This factor examines the degree to which the putative joint employer exercises operational control over the day-to-day work of the employees, including setting work schedules, assigning tasks, establishing work rules and procedures, and determining the conditions under which work is performed.

3. The alleged employer's authority to determine the rate and method of payment. This factor assesses whether the putative joint employer sets or influences the wage rates, pay structures, and methods of compensation applicable to the workers at issue. In the hotel management context, this factor is frequently implicated where the property owner funds an operating account from which employee wages are drawn, even if the manager administers the payroll.

4. The alleged employer's maintenance of employment records. This factor examines whether the putative joint employer creates, maintains, or has access to employment records, payroll records, timekeeping data, or other workforce documentation relating to the workers at issue.

No single factor is dispositive. The Eleventh Circuit has consistently held that the determination must be based on the "totality of the circumstances" and that the economic-reality test is to be applied flexibly, with an emphasis on economic substance over contractual form. See Antenor v. D & S Farms, 88 F.3d 925, 929 (11th Cir. 1996). Courts have also recognized that the relative weight accorded to each factor may vary depending on the particular facts and industry context presented. See id.

It should be noted that the joint-employer analysis under the FLSA has been the subject of considerable regulatory activity in recent years. The U.S. Department of Labor ("DOL") promulgated a final rule in 2020 that adopted a narrower, four-factor test for joint-employer status, generally requiring a showing of actual exercise of control rather than reserved or potential control. That rule was subsequently rescinded by the DOL in 2024. While these regulatory developments provide useful context, the Eleventh Circuit has historically relied primarily on its own case law in applying the economic-reality test, and we do not anticipate that the district courts in the Middle District of Florida will depart from established Eleventh Circuit precedent in analyzing the VHG/Palomar relationship.

C. The Horizontal vs. Vertical Joint-Employer Distinction

Courts and commentators have recognized two distinct paradigms of joint employment:

Horizontal joint employment arises when two (or more) employers each independently employ the same worker, and the employers are sufficiently associated with one another—through common ownership, common management, or interrelated operations—to be treated as a single, integrated enterprise for FLSA purposes. The horizontal joint-employer analysis is most commonly encountered in the context of related corporate entities that share employees or transfer workers between affiliated companies. Horizontal joint employment is not at issue in the present analysis.

Vertical joint employment arises when an intermediary employer directly employs the worker, but a second entity benefits from the work performed and exercises sufficient control over the worker's employment to qualify as an employer under the economic-reality test. The vertical joint-employer analysis is most commonly applied in relationships involving staffing agencies, subcontractors, franchisors and franchisees, and—directly relevant here—hotel management companies and property owners. In the vertical paradigm, the intermediary employer (here, VHG) has a direct employment relationship with the worker, while the putative joint employer (here, Palomar) sits in a position of indirect or structural authority over the employment relationship by virtue of its ownership of the property, its contractual rights under the management agreement, and its economic stake in the operations that the workers perform.

The VHG/Palomar relationship at the Verimark Shores Clearwater most closely implicates the vertical joint-employer analysis, with VHG serving as the intermediary employer that directly hires, supervises, and pays the workforce, and Palomar occupying the position of the putative joint employer that owns the property, finances the operations, and potentially retains contractual rights that afford it a degree of control over employment-related decisions.

IV. Application of the Economic-Reality Test to Palomar Realty Partners LLC

This section applies each of the four economic-reality factors to the VHG/Palomar relationship at the Verimark Shores Clearwater, based on the information currently available to this office. As noted throughout this memorandum, a complete analysis requires review of HMA-2021-0601-PC and additional factual investigation. The assessments below are therefore preliminary and subject to revision.

A. Factor 1 — Power to Hire and Fire

Under HMA-2021-0601-PC, VHG has exclusive authority to hire, terminate, discipline, and manage all on-site employees at the Verimark Shores Clearwater property. All employment decisions—from initial recruitment through onboarding, performance management, and separation—are made by VHG's property-level management team and human resources personnel, subject to VHG's corporate-level policies and procedures. There is no indication in the information provided to date that Palomar has directly hired, terminated, or disciplined any Verimark Shores Clearwater employee.

However, an important inquiry remains: Does the HMA reserve to Palomar any approval rights over staffing levels, key hires (e.g., the General Manager or other senior property-level positions), or termination decisions? Hotel management agreements commonly include provisions granting the property owner consent or approval rights over the appointment of the hotel's general manager and, in some cases, other senior management positions. Such provisions are commercially reasonable from the owner's perspective—the general manager has significant influence over the property's operations and financial performance—but they also create a factual basis for arguing that the owner exercises or possesses the power to influence hiring and firing decisions, which could weigh in favor of joint-employer status.

Additionally, even in the absence of formal contractual approval rights, it is important to determine whether Palomar has exercised any informal influence over hiring, firing, or staffing decisions at the property. For example, if Palomar's Managing Member, Ricardo E. Montalvo, has made requests, recommendations, or complaints regarding specific employees, or if Palomar has communicated preferences regarding staffing levels that VHG has implemented, such informal influence could be relevant to the economic-reality analysis.

Recommendation: Review HMA-2021-0601-PC provisions addressing staffing authority, owner approval rights over key personnel, and any restrictions on VHG's hiring, firing, or staffing decisions. Conduct interviews with the Verimark Shores Clearwater property general manager and HR manager to ascertain whether Palomar has exercised any formal or informal involvement in employment decisions.

Preliminary Assessment: Based on available information, this factor weighs against joint-employer status, as VHG appears to exercise exclusive hiring and firing authority. However, the assessment may change if the HMA reserves approval rights to Palomar over key hires or if the investigation reveals informal Palomar involvement.

B. Factor 2 — Supervision and Control of Work Schedules and Conditions

VHG sets all work schedules, shift assignments, operational procedures, and working conditions at the Verimark Shores Clearwater property. VHG's management systems, brand standards, and operating protocols—including the Employee Handbook v.7.2—are applied uniformly at the property. VHG's property-level management team supervises all employees on a day-to-day basis, assigns duties, establishes shift schedules, conducts performance evaluations, and administers disciplinary actions. There is no indication that Palomar personnel are present at the property in any supervisory capacity or that Palomar directly manages or directs the work of any Verimark Shores Clearwater employee.

The principal inquiry under this factor concerns the degree to which Palomar exercises indirect control over working conditions through its contractual rights under the HMA. Property owners in hotel management relationships frequently retain significant rights that, while not constituting direct supervision of employees, can materially influence the conditions under which employees work. These rights may include:

• Approval of operating budgets: If Palomar must approve the annual operating budget for the Verimark Shores Clearwater—including the labor budget—Palomar effectively has the power to constrain staffing levels, limit overtime, and influence the allocation of labor resources, all of which affect working conditions and schedules.

• Capital expenditure approvals: If Palomar controls capital expenditure decisions, it may influence the physical conditions of the workplace, the availability of equipment and tools, and other factors bearing on working conditions.

• Service standards and quality requirements: If the HMA requires VHG to meet service standards or quality metrics specified by Palomar—or if Palomar has the right to impose such standards—this could be construed as an indirect form of control over how employees perform their work.

• Inspection and audit rights: If Palomar has the right to inspect the property, audit operations, or review VHG's operational performance, the exercise of these rights could create a factual record of Palomar involvement in operational decisions.

Recommendation: Review HMA sections addressing operational budgets, capital expenditure approvals, Palomar's rights to inspect or audit operations, any service standards or quality metrics imposed by Palomar, and any supplemental side letters or amendments that may expand Palomar's operational involvement. Examine correspondence between VHG and Palomar for evidence of Palomar's exercise of operational oversight.

Preliminary Assessment: Based on available information, this factor weighs against joint-employer status, as VHG appears to exercise exclusive day-to-day supervisory control. However, the presence of budget approval rights, service standards, or inspection rights in the HMA could shift this assessment toward neutral or slightly in favor of joint-employer status, depending on the scope and frequency of Palomar's exercise of those rights.

C. Factor 3 — Rate and Method of Payment

VHG determines all employee compensation at the Verimark Shores Clearwater property, including wage rates, overtime policies, tip-credit calculations, benefit structures, and incentive programs. All payroll processing is conducted through Luminos Payroll Solutions under VHG's corporate payroll account (LTT-VHG-2022-0041). VHG's Director of Payroll & Workforce Compliance, Enrique J. Fuentes, oversees the payroll function across all VHG properties, including the Verimark Shores Clearwater.

The critical question under this factor is the flow of funds for payroll at the Verimark Shores Clearwater. In many hotel management arrangements, the property owner funds an operating account from which the manager draws to cover operating expenses, including payroll. Under such a structure, the property owner's funds directly pay the employees' wages, even though the manager administers the payroll. Courts have considered this funding dynamic relevant—though not dispositive—in assessing whether the property owner exercises control over the "rate and method of payment." See, e.g., Zheng v. Liberty Apparel Co., 355 F.3d 61, 72 (2d Cir. 2003) (noting the significance of the source of wages in the joint-employer analysis, though in a different circuit).

If the operating-account structure under HMA-2021-0601-PC follows the typical hotel management model—with Palomar funding an operating account and VHG drawing from that account to meet payroll obligations—a plaintiff's attorney could argue that Palomar effectively controls the method of payment, even if VHG sets the wage rates and administers the payroll. Additionally, if Palomar has approval authority over the labor budget (as discussed under Factor 2), Palomar may be deemed to exercise indirect control over the rate of payment by setting the overall labor cost parameters within which VHG must operate.

Recommendation: Obtain and review the HMA's financial provisions in detail, including the operating-account structure, owner funding obligations, the mechanism by which VHG draws payroll and other operating costs, and whether Palomar approves the annual labor budget or any component of employee compensation. Determine whether Palomar has ever directed or requested changes to compensation levels at the property.

Preliminary Assessment: This factor is indeterminate without additional information. If Palomar funds the operating account from which wages are paid and exercises budget approval authority, this factor could weigh moderately in favor of joint-employer status. If VHG funds payroll from its own corporate accounts and is later reimbursed through a management-fee or revenue-sharing structure, this factor would weigh against joint-employer status.

D. Factor 4 — Maintenance of Employment Records

VHG maintains all employment records for the Verimark Shores Clearwater workforce through the Luminos TimeTrack system and VHG's internal Human Resources Information System ("HRIS"). All personnel files, timekeeping data, payroll records, performance evaluations, disciplinary records, and other employment documentation are created, maintained, and controlled by VHG. There is no indication that Palomar independently maintains employment records for Verimark Shores Clearwater employees.

The relevant inquiry under this factor is whether Palomar receives employee-level data, payroll reports, or workforce records as part of its owner-reporting rights under the HMA. Hotel management agreements typically require the manager to provide the owner with periodic financial and operational reports, which may include aggregate payroll expense data, headcount reports, labor cost analyses, and other workforce-related information. If Palomar receives such reports, it may have access to employment records—even if Palomar does not create or maintain those records independently.

Additionally, it is worth inquiring whether Palomar has ever requested or received individualized employee-level data (as opposed to aggregate reports) for any purpose, including insurance, tax reporting, or regulatory compliance related to the property.

Recommendation: Review HMA reporting obligations and any data-sharing provisions between VHG and Palomar. Determine the scope and frequency of reports provided to Palomar and whether those reports include employee-level data. Interview relevant VHG personnel regarding any ad hoc requests from Palomar for workforce or payroll information.

Preliminary Assessment: Based on available information, this factor weighs against joint-employer status, as VHG appears to maintain exclusive control over employment records. However, if Palomar receives detailed payroll or staffing reports as part of standard owner reporting, this factor could be characterized as neutral.

E. Totality of Circumstances — Preliminary Assessment

Based on the totality of the information currently available to this office—and without the benefit of a complete review of HMA-2021-0601-PC—VHG appears to be the primary and likely sole employer of the Verimark Shores Clearwater employees for purposes of the FLSA. VHG exercises direct control over all traditional indicia of the employment relationship: hiring, firing, supervision, scheduling, compensation, payroll administration, and record-keeping. The VHG/Palomar relationship, on its face, is a standard hotel management arrangement in which the manager functions as the employer and the owner functions as a passive investor.

However, certain structural features common to hotel management agreements—particularly Palomar's ownership of the property, potential funding of the operating account from which wages are paid, possible approval rights over operating budgets and key personnel, and the economic interdependence of the owner and manager—create a non-trivial risk that a court could find Palomar to be a joint employer under the economic-reality test. Plaintiffs' counsel in FLSA collective actions routinely seek to expand the universe of responsible employers, and the vertical joint-employer theory is a well-established vehicle for doing so in the hospitality industry.

We characterize the overall risk level as moderate, with the understanding that the risk assessment may be revised upward or downward upon completion of the HMA review and the factual investigation described throughout this memorandum.

V. Analysis of Hotel Management Agreement (HMA-2021-0601-PC)

A. Key Provisions Requiring Review

The joint-employer analysis—and, equally important, the indemnification and contribution analysis—depends critically on the specific terms of HMA-2021-0601-PC. Calderwood & Harkness has requested a complete copy of the HMA from VHG General Counsel Devin K. Arroyo, along with any amendments, side letters, or supplemental agreements executed between the parties. The document has been identified on the litigation-hold data collection list and is among the priority items for the initial document production.

Upon receipt, the following provisions of the HMA will require close review:

1. Scope of Manager's Authority and Autonomy. The provisions defining VHG's authority to manage and operate the Verimark Shores Clearwater property on Palomar's behalf, including the scope of VHG's discretion in day-to-day operational decisions, the boundaries of VHG's authority to bind Palomar to contracts and commitments, and any limitations on VHG's autonomy.

2. Owner's Reserved Rights. Any provisions reserving to Palomar consent, approval, or veto rights over specific categories of decisions, including hiring and termination of key personnel (particularly the General Manager), approval of the annual operating budget and any budget amendments, execution of material contracts, and other matters that could constitute control over employment conditions.

3. Operating Account Structure and Owner Funding Obligations. The provisions governing the establishment, funding, and operation of the property's operating account, including whether Palomar is required to fund the account to cover operating expenses (including payroll), the mechanism by which VHG draws from the account, and any conditions or approvals required for draws.

4. Reporting Requirements. The provisions requiring VHG to provide financial and operational reports to Palomar, including the frequency, scope, and level of detail of such reports, with particular attention to whether reports include employee-level or aggregate workforce data.

5. Termination Provisions. The provisions governing termination of the HMA by either party, including termination for cause, termination without cause, and any provisions addressing the disposition of the property's workforce upon termination—including employee transition, non-solicitation, and continuation of employment obligations.

6. Indemnification Provisions. Discussed in detail in Section V.B below.

7. Insurance Requirements. The provisions specifying the types and amounts of insurance coverage that each party is required to procure and maintain, including employment practices liability insurance, general liability insurance, workers' compensation insurance, and any umbrella or excess coverage.

8. Non-Solicitation and Employee-Transition Provisions. Any provisions restricting either party from soliciting or hiring the other party's employees, or addressing the transition of the property's workforce to a successor manager upon termination of the HMA.

B. Indemnification and Contribution Provisions

The indemnification provisions of HMA-2021-0601-PC will play a central role in determining the allocation of financial responsibility between VHG and Palomar in the event that wage-and-hour claims arise from the operation of the Verimark Shores Clearwater property. The following questions must be addressed:

VHG's indemnification obligation to Palomar. Does the HMA require VHG to indemnify Palomar for claims arising from VHG's management of the property, including employment-related claims? If VHG is obligated to indemnify Palomar for wage-and-hour claims brought by VHG employees, then even if Palomar is found to be a joint employer and is held jointly and severally liable, VHG may bear the ultimate financial responsibility for the loss through the indemnification mechanism.

Palomar's indemnification obligation to VHG. Conversely, does the HMA require Palomar to indemnify VHG for claims arising from Palomar's acts, omissions, or status as property owner—including any claims based on Palomar's alleged joint-employer status? If such a provision exists, VHG may have a contractual right to seek indemnification from Palomar for defense costs and any judgment or settlement attributable to Palomar's actions.

Scope of indemnification. Even if mutual indemnification provisions exist, the scope of those provisions must be carefully analyzed. Key questions include:

(a) Does the indemnification extend to government-imposed penalties, fines, and assessments, or is it limited to third-party claims?

(b) Does the indemnification cover liquidated damages under the FLSA (which effectively double the amount of unpaid wages where the employer's violation is willful)?

(c) Does the indemnification include attorneys' fees and defense costs, and if so, does it require the indemnifying party to pay defense costs as incurred or only upon final resolution?

(d) Are there any caps, baskets, deductibles, or other limitations on the indemnification obligation?

(e) Are there any exclusions—for example, for claims arising from the indemnified party's own negligence, willful misconduct, or breach of the HMA?

Joint and several liability dynamics. It is important to note that even if VHG has a contractual right to indemnification from Palomar, the FLSA's joint and several liability framework means that either party could be required to pay the full amount of any judgment in the first instance. The indemnification right would then operate as a contractual mechanism for shifting the ultimate loss between the parties—but VHG would be exposed to the risk that Palomar lacks the financial capacity to satisfy an indemnification obligation, or that Palomar contests its indemnification responsibility, potentially leading to protracted contribution or indemnification litigation.

C. Preliminary Observations

As of the date of this memorandum, Calderwood & Harkness has not received a complete copy of HMA-2021-0601-PC. We have communicated the urgency of this request to VHG General Counsel Devin K. Arroyo, and the document is expected within the next several business days. A full analysis of the HMA provisions described in this section will be provided in a supplemental memorandum upon receipt and review of the complete agreement and all related documentation.

In the interim, the analysis in this memorandum is based on our understanding of the general terms of the VHG/Palomar relationship as communicated by VHG, our experience with hotel management agreements in the hospitality industry, and the applicable legal framework. The preliminary assessments set forth herein should be treated as directional only and are subject to revision once the HMA is reviewed.

VI. Implications for the Scope of the Wage-and-Hour Audit

A. Inclusion of Verimark Shores Clearwater in the Audit

Regardless of the outcome of the joint-employer analysis, the Verimark Shores Clearwater property must remain within the scope of the pre-litigation wage-and-hour audit currently being conducted by Calderwood & Harkness. There are three independent bases for this conclusion:

First, the demand letter from Garza, Linden & Okafor LLP expressly encompasses "Verimark-branded properties in Florida" and identifies the Verimark Shores Clearwater by name as one of seven at-issue properties. Any response to the demand letter, any pre-litigation settlement discussions, and any litigation defense strategy must account for the potential inclusion of the Verimark Shores Clearwater workforce in the putative collective.

Second, all approximately 190 estimated hourly non-exempt employees at the Verimark Shores Clearwater are part of the putative collective identified in the demand letter. These employees work under the same policies, use the same timekeeping system, and are subject to the same payroll practices as employees at VHG's wholly-owned properties. There is no basis to exclude them from the audit on the ground that they work at a managed property rather than an owned property.

Third, the systemic nature of the alleged violations makes it virtually certain that any violations found at VHG's wholly-owned properties are replicated at the Verimark Shores Clearwater. The property operates under the same Luminos TimeTrack system (account LTT-VHG-2022-0041), the same auto-deduction rule (AR-MEAL-030), the same Employee Handbook (v.7.2), and the same corporate-level payroll and HR policies. The uniformity of VHG's employment practices across its portfolio is both a strength (demonstrating consistent compliance efforts) and a vulnerability (ensuring that any systemic deficiency is portfolio-wide).

B. Additional Audit Steps for Verimark Shores Clearwater

In addition to the standard audit procedures being applied across all seven at-issue properties, the following additional steps should be taken with respect to the Verimark Shores Clearwater:

1. Obtain and review HMA-2021-0601-PC in full, including all amendments, side letters, and supplemental agreements. This is the threshold step for the joint-employer analysis and is expected to be completed within the next two weeks.

2. Interview the Verimark Shores Clearwater property general manager and HR manager. These individuals have been identified as two of the twenty-three litigation-hold custodians. Interviews should focus on any Palomar involvement in employment decisions (hiring, firing, discipline), scheduling, compensation determinations, or working conditions. The interviews should also explore whether any Palomar personnel maintain a regular presence at the property and whether any employees receive direction or instructions from Palomar representatives.

3. Review correspondence between VHG and Palomar. All correspondence—including emails, letters, memoranda, and meeting notes—between VHG and Palomar regarding staffing, labor budgets, operational approvals, and employee-related matters should be collected, reviewed, and analyzed for evidence of Palomar's operational involvement.

4. Determine operating-account structure and flow of payroll funds. The financial architecture of the HMA must be mapped in detail, including the source of funds for employee wages, the mechanism by which VHG draws from the operating account, and whether Palomar approves or controls any aspect of the payroll funding process.

5. Assess dual reporting relationships. Determine whether any Verimark Shores Clearwater employees have dual reporting relationships or receive direction from Palomar personnel in any capacity. Even informal direction from a Palomar representative could be relevant to the joint-employer analysis.

C. Impact on Exposure Calculations

The joint-employer analysis has several implications for the overall exposure model:

Joint and several liability. If Palomar is found to be a joint employer, it would be jointly and severally liable for any wage-and-hour violations at the Verimark Shores Clearwater. This finding would not increase VHG's total exposure at the property—VHG is already exposed as the direct employer—but it would provide a potential source of contribution, meaning that VHG could seek to recover a share of any judgment from Palomar.

Cross-claims and counterclaims. Conversely, if Palomar asserts cross-claims or counterclaims against VHG for indemnification under the HMA—arguing that VHG, as the direct employer and manager, bears responsibility for any wage-and-hour deficiencies—VHG's effective exposure at the property could increase if the HMA's indemnification provisions place the ultimate financial burden on VHG. The direction and magnitude of this shift will depend on the specific terms of the indemnification provisions in the HMA.

Property-specific exposure quantification. The exposure attributable to the Verimark Shores Clearwater should be separately quantified in the exposure model workbook. The Verimark Shores Clearwater tab of the workbook should reflect the following baseline inputs: approximately 190 hourly, non-exempt employees; a blended average hourly rate of $16.50; an average of 42.5 weekly hours worked. These inputs, combined with the applicable claim categories (overtime violations, auto-deduction violations, off-the-clock work, minimum wage violations for tipped employees, and misclassification), the applicable lookback periods (two years for non-willful FLSA violations, three years for willful violations), and the potential for liquidated damages, will generate a property-specific exposure estimate that can be disaggregated from VHG's portfolio-wide exposure for purposes of the Palomar indemnification and contribution analysis.

VII. Palomar's Potential Liability and Strategic Considerations

A. Palomar's Independent Exposure

If plaintiffs' counsel names Palomar as a defendant in any complaint—or if Palomar is joined as a party by VHG or the court—Palomar would face joint and several liability for all FLSA violations at the Verimark Shores Clearwater property, with the same range of remedies available against it as against VHG, including unpaid wages, liquidated damages, and attorneys' fees. The potential exposure to Palomar would be coextensive with VHG's exposure at the property.

An additional dimension of Palomar's exposure merits attention: the potential personal liability of Managing Member Ricardo E. Montalvo. The FLSA's definition of "employer" in 29 U.S.C. § 203(d) extends to "any person acting directly or indirectly in the interest of an employer in relation to an employee." Courts in the Eleventh Circuit have held that individuals—including corporate officers and LLC members—may be personally liable as employers under the FLSA if they exercise sufficient control over the employment relationship. See Patel v. Wargo, 803 F.2d 632, 637–38 (11th Cir. 1986). Whether Montalvo qualifies as an individual employer would depend on the degree of operational involvement he personally exercises at the Verimark Shores Clearwater, including any personal role in setting employment policies, approving budgets, directing operations, or making decisions affecting workers at the property. This question is distinct from the joint-employer analysis at the entity level and would require independent factual investigation.

We note this potential personal liability dimension primarily as a strategic consideration: the prospect of personal exposure may increase Montalvo's motivation to cooperate with VHG in coordinating a defense, or conversely, may cause Palomar and Montalvo to adopt an adversarial posture if they perceive that their interests diverge from VHG's.

B. Notice to Palomar

VHG should promptly determine whether the HMA requires VHG to notify Palomar of claims or threatened claims arising out of the operation of the Verimark Shores Clearwater property. Hotel management agreements commonly include mutual notice-of-claims provisions that require each party to promptly notify the other of any claim, lawsuit, demand, or governmental investigation that may affect the property or give rise to liability. Such provisions frequently include specific notice timing requirements—e.g., notice within a specified number of days of receipt of the claim—and may specify the form and method of delivery of the notice.

The importance of complying with any notice requirement cannot be overstated. If the HMA contains a notice-of-claims provision and VHG fails to notify Palomar within the prescribed time period, VHG may waive or impair its indemnification rights against Palomar. Even if the notice provision does not include an express waiver-for-late-notice clause, Palomar could argue that VHG's failure to provide timely notice caused Palomar prejudice—for example, by depriving Palomar of the opportunity to participate in the investigation and defense of the claim at an early stage.

Recommendation: Review the HMA's notice provisions immediately upon receipt of the agreement. If the HMA requires notice, prepare a formal notice letter to Ricardo E. Montalvo at Palomar's headquarters address (1901 West Cypress Street, Suite 400, Tampa, FL 33607), informing Palomar of the demand letter received from Garza, Linden & Okafor LLP and the threatened collective action. The notice letter should be carefully drafted to preserve VHG's rights under the HMA while avoiding any admissions or characterizations that could be used against VHG in the threatened litigation.

C. Common Interest Agreement

We recommend that VHG and Palomar enter into a common interest and joint defense agreement to facilitate the sharing of privileged information regarding the Verimark Shores Clearwater property in connection with the wage-and-hour claims. The common interest privilege (also referred to as the "joint defense privilege" or the "community of interest" doctrine) protects from disclosure communications between parties who share a common legal interest, even if they are not formally co-defendants or co-represented. A written common interest agreement memorializes the parties' shared interest and establishes protocols for the exchange of information in a manner that preserves the attorney-client privilege and work-product protection.

A draft common interest agreement is being prepared concurrently by James Underwood. The agreement should address the following elements:

1. Scope of Shared Interest. The agreement should define the common legal interest as the defense of the wage-and-hour claims threatened by Garza, Linden & Okafor LLP on behalf of Daniela M. Serrano and any putative collective, to the extent those claims relate to the Verimark Shores Clearwater property.

2. Limitations on Use of Shared Information. The agreement should provide that information shared between VHG and Palomar pursuant to the common interest agreement may be used only for the purpose of the defense of the identified claims and may not be used for any other purpose, including in any dispute between VHG and Palomar (e.g., an indemnification or contribution claim).

3. Privilege Protection Protocols. The agreement should establish procedures for marking shared communications as privileged, restricting access to authorized personnel and counsel, and preventing inadvertent disclosure.

4. Withdrawal Provisions. The agreement should address the circumstances under which either party may withdraw from the common interest arrangement, including provisions for the treatment of information shared prior to withdrawal.

5. Allocation of Costs. The agreement should address whether and how defense costs attributable to the Verimark Shores Clearwater property will be shared between VHG and Palomar.

Potential tension. It must be acknowledged that VHG's and Palomar's interests may not be fully aligned. If the joint-employer analysis concludes that Palomar is a joint employer, Palomar may seek to deflect liability entirely onto VHG as the direct employer, arguing that VHG was solely responsible for all employment decisions and that any violations were the result of VHG's management practices. Conversely, VHG may seek contribution or indemnification from Palomar, arguing that Palomar's operational involvement contributed to the violations or that the HMA's indemnification provisions allocate responsibility to Palomar. These potential areas of adversity should be carefully considered before executing a common interest agreement, and the agreement should include appropriate safeguards to address the possibility that the parties' interests diverge in the future.

D. Litigation Strategy Considerations

Several strategic considerations bear on VHG's approach to the Palomar relationship in the context of the threatened litigation:

Plaintiffs' naming decision. If an FLSA collective action is filed, plaintiffs' counsel at Garza, Linden & Okafor LLP will need to decide whether to name Palomar as a defendant. This decision presents trade-offs for the plaintiffs. Naming Palomar could provide a deeper-pocket defendant, additional evidence of systemic control over the workforce, and leverage in settlement negotiations. However, naming Palomar could also complicate the litigation by introducing additional factual issues (the joint-employer question), additional discovery (Palomar's documents, depositions of Palomar personnel), and potentially additional defenses. We should anticipate that plaintiffs' counsel will carefully evaluate the strategic calculus before deciding whether to join Palomar.

United defense vs. separation. VHG should consider whether it is advantageous to present a united defense with Palomar—projecting a narrative that Palomar is a passive investor with no employment relationship with the workers—or to maintain separation from Palomar to preserve VHG's ability to assert indemnification and contribution claims. The optimal approach will depend on the terms of the HMA, the facts revealed by the investigation, and the parties' respective risk tolerances.

Proactive remediation. If VHG's pre-litigation audit reveals systemic violations at the Verimark Shores Clearwater—particularly violations related to the auto-deduction rule AR-MEAL-030 or off-the-clock work—proactive remediation should be coordinated with Palomar. Because Palomar has a financial interest in the property's operations and because any remediation may affect the property's operating budget, VHG may need Palomar's approval or cooperation to implement remedial measures such as revised timekeeping procedures, additional staffing, or back-pay distributions. Failure to coordinate with Palomar could create disputes under the HMA and complicate both the defense and the remediation effort.

VIII. Insurance Considerations Specific to the Palomar Relationship

VHG maintains an Employment Practices Liability ("EPL") insurance policy with Pinnacle Indemnity Corp. The relevant policy details are as follows:

• Carrier: Pinnacle Indemnity Corp.

• Policy Number: PIN-EPL-2025-44781

• Limits: $10,000,000 per occurrence / $25,000,000 aggregate

• Self-Insured Retention ("SIR"): $500,000

• Policy Period: July 1, 2025 through June 30, 2026

A threshold question for the insurance analysis is whether VHG's EPL coverage extends to claims arising from managed properties—i.e., properties that VHG manages on behalf of third-party owners under hotel management agreements—or whether coverage is limited to claims arising from VHG's wholly-owned properties. If the policy defines the scope of coverage by reference to VHG's employees (regardless of the property at which they work), coverage should extend to the Verimark Shores Clearwater workforce because those employees are VHG employees. However, if the policy defines coverage by reference to VHG's owned or controlled properties, the managed-property structure at Verimark Shores Clearwater could present a coverage issue.

Additionally, Calderwood & Harkness should determine whether Palomar carries its own EPL or general liability insurance coverage that could respond to wage-and-hour claims. If Palomar is named as a defendant and is found to be a joint employer, Palomar's own insurance coverage could be a significant source of defense funding and indemnification. The HMA may specify the types and amounts of insurance that each party is required to procure and maintain; this should be reviewed as part of the HMA analysis described in Section V above.

The tender deadline for VHG's EPL policy requires particular attention. The policy requires VHG to provide written notice to Pinnacle "as soon as practicable" but no later than sixty days after receipt of a demand or claim. The demand letter from Garza, Linden & Okafor LLP was received on January 14, 2026, establishing a notice deadline of March 15, 2026. A tender letter should be prepared and submitted to Lydia C. Bowman at Pinnacle Indemnity Corp. well in advance of this deadline. The tender letter should specifically reference the Palomar/managed-property dimension to ensure that Pinnacle is on notice that the claim encompasses employees at a managed property, not solely at VHG's owned properties. This will help avoid any subsequent coverage dispute based on Pinnacle's alleged lack of notice regarding the managed-property exposure.

IX. Recommendations and Next Steps

Based on the analysis set forth in this memorandum, Calderwood & Harkness makes the following recommendations:

1. Obtain and review the complete HMA-2021-0601-PC, including all amendments, side letters, and supplemental agreements, to complete the joint-employer analysis and the indemnification and contribution analysis. This is the single most important action item. The request has been communicated to VHG General Counsel Devin K. Arroyo as a priority item. Upon receipt, Calderwood & Harkness will prepare a supplemental memorandum addressing the specific HMA provisions relevant to the analyses described in Sections IV and V of this memorandum.

2. Prepare notice to Palomar of the threatened claim if required under the HMA's notice-of-claims provisions. A draft notice letter addressed to Ricardo E. Montalvo at Palomar Realty Partners LLC, 1901 West Cypress Street, Suite 400, Tampa, FL 33607, should be prepared in advance so that it can be delivered promptly upon confirmation that notice is required. The notice letter should be reviewed by the engagement team before delivery to ensure that it preserves VHG's rights without making admissions or concessions.

3. Finalize and execute a common interest agreement between VHG and Palomar to protect the attorney-client privilege and work-product protection in shared communications regarding the Verimark Shores Clearwater wage-and-hour issues. James Underwood is preparing a draft common interest agreement for the engagement team's review. The agreement should be circulated to VHG General Counsel Devin K. Arroyo for comment before being transmitted to Palomar or Palomar's counsel.

4. Conduct interviews with the Verimark Shores Clearwater property general manager and HR manager regarding Palomar's operational involvement in employment decisions, budget approval practices, schedulin

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the individuals identified herein and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
CALDERWOOD & HARKNESS LLP Labor & Employment Practice Group
MEMORANDUM
FROM: Nadia Petrov, Lead Associate, Labor & Employment, Calderwood & Harkness LLP
TO: Bernard Crawford, Responsible Partner, Labor & Employment, Calderwood & Harkness LLP Renata Vasquez, Billing Partner, Labor & Employment, Calderwood & Harkness LLP
CC: James Underwood, Working Associate, Labor & Employment, Calderwood & Harkness LLP
DATE: February 11, 2026
RE: Joint-Employer Exposure Analysis — Palomar Realty Partners LLC and Verimark Hospitality Group Inc. re: Verimark Shores Clearwater Property
MATTER: 1021-00005
CLIENT: Verimark Hospitality Group Inc.
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I. Executive Summary
This memorandum analyzes the joint-employer exposure arising from the relationship between our client, Verimark Hospitality Group Inc. ("VHG"), and Palomar Realty Partners LLC ("Palomar") with respect to the Verimark Shores Clearwater property located at 455 Mandalay Avenue, Clearwater Beach, FL 33767. VHG operates the Verimark Shores Clearwater property pursuant to a Hotel Management Agreement dated June 1, 2021 (reference HMA-2021-0601-PC) (the "HMA") with Palomar, a Florida limited liability company whose Managing Member is Ricardo E. Montalvo. Palomar is headquartered at 1901 West Cypress Street, Suite 400, Tampa, FL 33607. Palomar owns the real property and improvements comprising the hotel; VHG manages the property and directly employs all on-site staff, which consists of approximately 260 employees, of whom an estimated 190 are hourly, non-exempt workers.
This analysis is prompted by a demand letter dated January 14, 2026, received from Garza, Linden & Okafor LLP (with Marco A. Garza serving as lead attorney) on behalf of former VHG employee Daniela M. Serrano. The demand letter names "Verimark-branded properties" as being within the scope of the threatened litigation, and the Verimark Shores Clearwater property is expressly identified among the seven at-issue properties. The demand letter threatens a putative FLSA collective action encompassing an estimated 4,100–5,900 individuals and demands $18.5 million in damages.
This memorandum addresses three principal questions:
1. Whether Palomar may be deemed a "joint employer" of VHG's employees at the Verimark Shores Clearwater property under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq., as interpreted by the United States Court of Appeals for the Eleventh Circuit;
2. The implications of a joint-employer finding for VHG's exposure and the scope of the pre-litigation wage-and-hour audit currently underway; and
3. The indemnification and contribution rights between VHG and Palomar under the HMA, and the strategic considerations relevant to coordinating VHG's and Palomar's respective interests.
Conclusion preview: Based on the information currently available to this office, VHG appears to be the sole employer of the Verimark Shores Clearwater workforce under a traditional economic-reality analysis. VHG exercises direct and exclusive control over hiring, firing, scheduling, supervision, compensation, and record-keeping for all on-site employees. However, there are factual questions regarding Palomar's operational involvement—particularly concerning budget approval rights, operating-account funding mechanisms, and any reserved consent rights over key personnel decisions—that must be investigated further before a definitive conclusion can be reached. We assess the risk of a joint-employer finding as moderate at this time, pending a complete review of HMA-2021-0601-PC and related documentation. We recommend that VHG and Palomar enter into a common interest agreement, that VHG promptly review the HMA's notice-of-claims provisions, and that the indemnification provisions be analyzed in detail once the complete agreement is in hand.
II. Background and Factual Context
A. The Parties and Their Relationship
Verimark Hospitality Group Inc. VHG is a Delaware corporation, publicly traded on the Nasdaq Stock Exchange under the ticker symbol VMHG. VHG is headquartered at 2400 Bayshore Boulevard, Suite 1100, Tampa, FL 33629. The company's Chief Executive Officer is Theodore R. Langford. VHG's General Counsel is Devin K. Arroyo, who serves as our primary point of contact for this engagement. The Vice President of Human Resources is Carla S. Whitfield, and the Director of Payroll & Workforce Compliance is Enrique J. Fuentes. VHG operates fourteen hotel and resort properties across the state of Florida, employing approximately 8,200 total employees, of whom approximately 5,900 are non-exempt hourly workers. For its fiscal year ending December 31, 2025, VHG reported consolidated revenue of approximately $1.42 billion.
VHG is primarily an owner-operator in the hospitality industry, meaning that it both owns and manages the vast majority of its hotel portfolio. The Verimark Shores Clearwater property represents a departure from this standard model: it is the only property in VHG's current portfolio that is managed on behalf of a third-party owner under a hotel management agreement. This distinction is central to the joint-employer analysis discussed in this memorandum.
Palomar Realty Partners LLC. Palomar is a Florida limited liability company organized and existing under the laws of the State of Florida. Its Managing Member is Ricardo E. Montalvo. Palomar is the record owner of the real property and improvements comprising the Verimark Shores Clearwater hotel. Based on publicly available records and information provided by VHG, Palomar appears to be a single-asset or limited-portfolio real estate investment entity. Additional investigation into Palomar's organizational structure, capitalization, and other holdings may be warranted as this matter develops.
The Hotel Management Agreement. VHG and Palomar entered into HMA-2021-0601-PC on June 1, 2021. Under the HMA, VHG manages the Verimark Shores Clearwater hotel on behalf of Palomar, applying VHG's proprietary operational systems, brand standards, and hospitality practices. VHG directly employs all on-site staff at the property. The specific terms of the HMA—including VHG's scope of authority, Palomar's reserved rights, operating-account structures, and indemnification provisions—are critical to the joint-employer analysis and are discussed in detail in Section V below. As of the date of this memorandum, Calderwood & Harkness has requested but not yet received a complete copy of HMA-2021-0601-PC from VHG General Counsel Devin K. Arroyo.
B. The Verimark Shores Clearwater Property
The Verimark Shores Clearwater is a full-service hotel located at 455 Mandalay Avenue, Clearwater Beach, FL 33767. The property comprises 210 guest rooms and offers a range of amenities and services typical of an upscale beach resort hotel. The property's workforce consists of approximately 260 employees across various departments, including front desk operations, housekeeping, food and beverage, maintenance and engineering, sales, and administration. Of these approximately 260 employees, an estimated 190 are hourly, non-exempt workers—the population most directly relevant to the wage-and-hour claims threatened in the Garza demand letter.
It bears emphasis that the Verimark Shores Clearwater is the only one of the seven at-issue properties that is not directly owned by VHG. The remaining six properties identified in the demand letter—Verimark Regency Tampa, Verimark Grand Orlando, Verimark Bayfront St. Petersburg, Verimark Resort & Spa Boca Raton, Verimark Oceanview Fort Lauderdale, and Verimark Key West Collection—are each directly owned and operated by VHG, with no third-party ownership interest. This structural distinction makes the Verimark Shores Clearwater property unique within the scope of the threatened litigation and introduces a layer of complexity not present at the other six properties.
C. The Demand and Threatened Litigation
On January 14, 2026, VHG received a demand letter from Garza, Linden & Okafor LLP, a plaintiffs'-side labor and employment firm located at 600 Brickell Avenue, Suite 2200, Miami, FL 33131. The lead attorney on the matter is Marco A. Garza, with associate Priya N. Chandrasekaran identified as the secondary contact. The demand letter was addressed to VHG's General Counsel, Devin K. Arroyo, and transmitted both via certified mail and electronic delivery.
The named claimant is Daniela M. Serrano, a former front-desk associate (hourly, non-exempt) at the Verimark Regency Tampa property. Ms. Serrano was employed by VHG from March 14, 2022 through August 22, 2025 (Employee ID VHG-EMP-20220314-5587). While Ms. Serrano was employed at the Verimark Regency Tampa property—one of VHG's wholly-owned properties—the demand letter is drafted broadly and expressly encompasses all "Verimark-branded properties in Florida," identifying seven specific properties by name, including the Verimark Shores Clearwater.
The demand letter asserts five categories of wage-and-hour violations:
1. Overtime violations under 29 U.S.C. § 207(a) — Allegations that VHG failed to compensate hourly employees at the required overtime rate of one and one-half times their regular rate for hours worked in excess of forty per workweek, due in part to the alleged failure to include all compensable time in the overtime calculation.
2. Illegal automatic meal-break deductions — Allegations that VHG's payroll system automatically deducted thirty minutes from each shift of six hours or more for a purported meal break, regardless of whether the employee actually received or took a full, uninterrupted thirty-minute break. This allegation is directly relevant to VHG's auto-deduction rule AR-MEAL-030, which is applied uniformly across all VHG properties, including Verimark Shores Clearwater.
3. Uncompensated pre- and post-shift work — Allegations that hourly employees were required or suffered to perform work-related tasks before the start of and after the end of their recorded shifts, including pre-shift preparation, post-shift cleanup, and system logins, without compensation.
4. Florida minimum wage violations for tipped employees — Allegations that VHG failed to comply with Article X, Section 24 of the Florida Constitution, which establishes a minimum wage for tipped employees and requires compliance with specific tip-credit requirements.
5. Misclassification of lead/senior hourly roles — Allegations that VHG improperly classified certain "lead" and "senior" hourly positions as exempt from overtime under the FLSA's administrative exemption, 29 U.S.C. § 213(a)(1), when those positions did not meet the salary-basis or duties tests for the administrative exemption.
The demand letter asserts a putative collective period spanning from January 2023 to the present and estimates the class at between 4,100 and 5,900 individuals. The total demand amount is $18.5 million, inclusive of unpaid wages, liquidated damages, and attorneys' fees.
D. Payroll and Timekeeping Infrastructure
All employees at the Verimark Shores Clearwater property are processed through VHG's centralized payroll system, which is administered by Luminos Payroll Solutions Inc., located at 3300 Peachtree Road NE, Suite 800, Atlanta, GA 30326. VHG's account with Luminos is designated LTT-VHG-2022-0041, and the senior account manager assigned to VHG's account is Shannon D. Prewitt. The Verimark Shores Clearwater property was transitioned to the Luminos TimeTrack platform effective January 1, 2022, approximately seven months after the execution of the HMA.
Of critical importance to the threatened litigation, the same automatic meal-break deduction rule that is at issue in the demand letter—designated AR-MEAL-030, which implements a thirty-minute automatic deduction for any shift of six hours or more—is applied uniformly across all fourteen VHG-managed properties, including the Verimark Shores Clearwater. This means that any systemic violation found in connection with the auto-deduction rule at any other VHG property is very likely replicated at the Verimark Shores Clearwater. Similarly, VHG's Employee Handbook, currently at version 7.2 (effective January 1, 2025), applies uniformly to all Verimark Shores Clearwater employees, establishing the same policies regarding timekeeping, overtime, meal breaks, and compensation that are in effect at VHG's wholly-owned properties.
The uniformity of payroll and timekeeping practices across VHG's portfolio underscores the likelihood that the Verimark Shores Clearwater property will be swept into any collective action that is certified or conditionally certified. The fact that VHG—rather than Palomar—controls and administers the payroll infrastructure is a significant factor in the joint-employer analysis, as discussed in Section IV below.
III. Legal Framework — Joint-Employer Doctrine Under the FLSA
A. Statutory Basis
The Fair Labor Standards Act defines the term "employer" with extraordinary breadth. Under 29 U.S.C. § 203(d), an "employer" includes "any person acting directly or indirectly in the interest of an employer in relation to an employee." The term "employee" is defined under 29 U.S.C. § 203(e) to include "any individual employed by an employer." And the term "employ," as defined in 29 U.S.C. § 203(g), means "to suffer or permit to work"—a formulation that the United States Supreme Court has recognized as the broadest definition of employment found in any federal statute. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992) (contrasting the FLSA's expansive definition with the common-law agency test used under ERISA and other statutes); Rutherford Food Corp. v. McComb, 331 U.S. 722, 728 (1947) (observing that the FLSA's definition of "employ" was designed to have "broad scope").
The breadth of the FLSA's statutory definitions gives rise to the joint-employer concept: two or more entities may simultaneously be the "employer" of a single employee, in which case each entity is jointly and severally liable for FLSA violations, including unpaid minimum wages, unpaid overtime, liquidated damages, and attorneys' fees. The joint-employer doctrine is not an independent cause of action; rather, it is an analytical framework for determining whether a particular entity meets the FLSA's definition of "employer" with respect to a given set of employees.
The significance of a joint-employer finding in the context of the present matter cannot be overstated. If Palomar is determined to be a joint employer of the Verimark Shores Clearwater employees, Palomar would bear joint and several liability for any FLSA violations affecting those employees—meaning that a judgment could be collected in full from either VHG or Palomar, or from both in any combination, up to the total amount of the award. Conversely, if Palomar is not a joint employer, Palomar's exposure to the threatened collective action would be limited to any contractual indemnification obligations it may have under the HMA, if any.
B. The Economic-Reality Test (Eleventh Circuit Standard)
Because the Verimark Shores Clearwater property is located in the Middle District of Florida, the controlling appellate authority on the joint-employer question is the United States Court of Appeals for the Eleventh Circuit. The Eleventh Circuit applies the "economic reality" test to determine whether a putative joint employer qualifies as an "employer" under the FLSA. This test looks beyond formal contractual arrangements and examines the economic substance of the relationship between the putative employer and the workers at issue. See Layton v. Granite Harbor Enterprises (USA), Inc., 686 F.3d 1172, 1176 (11th Cir. 2012); Villarreal v. Woodham, 113 F.3d 202, 205 (11th Cir. 1997).
Under the economic-reality test as applied by the Eleventh Circuit, the following non-exhaustive factors are considered:
1. The alleged employer's power to hire and fire employees. This factor examines whether the putative joint employer possesses the authority—whether exercised or not—to make or materially influence decisions regarding the hiring and termination of the workers at issue. The power need not be exclusive or directly exercised; a reserved right to approve, veto, or influence hiring and firing decisions can be sufficient.
2. The alleged employer's authority to supervise and control employee work schedules or conditions of employment. This factor examines the degree to which the putative joint employer exercises operational control over the day-to-day work of the employees, including setting work schedules, assigning tasks, establishing work rules and procedures, and determining the conditions under which work is performed.
3. The alleged employer's authority to determine the rate and method of payment. This factor assesses whether the putative joint employer sets or influences the wage rates, pay structures, and methods of compensation applicable to the workers at issue. In the hotel management context, this factor is frequently implicated where the property owner funds an operating account from which employee wages are drawn, even if the manager administers the payroll.
4. The alleged employer's maintenance of employment records. This factor examines whether the putative joint employer creates, maintains, or has access to employment records, payroll records, timekeeping data, or other workforce documentation relating to the workers at issue.
No single factor is dispositive. The Eleventh Circuit has consistently held that the determination must be based on the "totality of the circumstances" and that the economic-reality test is to be applied flexibly, with an emphasis on economic substance over contractual form. See Antenor v. D & S Farms, 88 F.3d 925, 929 (11th Cir. 1996). Courts have also recognized that the relative weight accorded to each factor may vary depending on the particular facts and industry context presented. See id.
It should be noted that the joint-employer analysis under the FLSA has been the subject of considerable regulatory activity in recent years. The U.S. Department of Labor ("DOL") promulgated a final rule in 2020 that adopted a narrower, four-factor test for joint-employer status, generally requiring a showing of actual exercise of control rather than reserved or potential control. That rule was subsequently rescinded by the DOL in 2024. While these regulatory developments provide useful context, the Eleventh Circuit has historically relied primarily on its own case law in applying the economic-reality test, and we do not anticipate that the district courts in the Middle District of Florida will depart from established Eleventh Circuit precedent in analyzing the VHG/Palomar relationship.
C. The Horizontal vs. Vertical Joint-Employer Distinction
Courts and commentators have recognized two distinct paradigms of joint employment:
Horizontal joint employment arises when two (or more) employers each independently employ the same worker, and the employers are sufficiently associated with one another—through common ownership, common management, or interrelated operations—to be treated as a single, integrated enterprise for FLSA purposes. The horizontal joint-employer analysis is most commonly encountered in the context of related corporate entities that share employees or transfer workers between affiliated companies. Horizontal joint employment is not at issue in the present analysis.
Vertical joint employment arises when an intermediary employer directly employs the worker, but a second entity benefits from the work performed and exercises sufficient control over the worker's employment to qualify as an employer under the economic-reality test. The vertical joint-employer analysis is most commonly applied in relationships involving staffing agencies, subcontractors, franchisors and franchisees, and—directly relevant here—hotel management companies and property owners. In the vertical paradigm, the intermediary employer (here, VHG) has a direct employment relationship with the worker, while the putative joint employer (here, Palomar) sits in a position of indirect or structural authority over the employment relationship by virtue of its ownership of the property, its contractual rights under the management agreement, and its economic stake in the operations that the workers perform.
The VHG/Palomar relationship at the Verimark Shores Clearwater most closely implicates the vertical joint-employer analysis, with VHG serving as the intermediary employer that directly hires, supervises, and pays the workforce, and Palomar occupying the position of the putative joint employer that owns the property, finances the operations, and potentially retains contractual rights that afford it a degree of control over employment-related decisions.
IV. Application of the Economic-Reality Test to Palomar Realty Partners LLC
This section applies each of the four economic-reality factors to the VHG/Palomar relationship at the Verimark Shores Clearwater, based on the information currently available to this office. As noted throughout this memorandum, a complete analysis requires review of HMA-2021-0601-PC and additional factual investigation. The assessments below are therefore preliminary and subject to revision.
A. Factor 1 — Power to Hire and Fire
Under HMA-2021-0601-PC, VHG has exclusive authority to hire, terminate, discipline, and manage all on-site employees at the Verimark Shores Clearwater property. All employment decisions—from initial recruitment through onboarding, performance management, and separation—are made by VHG's property-level management team and human resources personnel, subject to VHG's corporate-level policies and procedures. There is no indication in the information provided to date that Palomar has directly hired, terminated, or disciplined any Verimark Shores Clearwater employee.
However, an important inquiry remains: Does the HMA reserve to Palomar any approval rights over staffing levels, key hires (e.g., the General Manager or other senior property-level positions), or termination decisions? Hotel management agreements commonly include provisions granting the property owner consent or approval rights over the appointment of the hotel's general manager and, in some cases, other senior management positions. Such provisions are commercially reasonable from the owner's perspective—the general manager has significant influence over the property's operations and financial performance—but they also create a factual basis for arguing that the owner exercises or possesses the power to influence hiring and firing decisions, which could weigh in favor of joint-employer status.
Additionally, even in the absence of formal contractual approval rights, it is important to determine whether Palomar has exercised any informal influence over hiring, firing, or staffing decisions at the property. For example, if Palomar's Managing Member, Ricardo E. Montalvo, has made requests, recommendations, or complaints regarding specific employees, or if Palomar has communicated preferences regarding staffing levels that VHG has implemented, such informal influence could be relevant to the economic-reality analysis.
Recommendation: Review HMA-2021-0601-PC provisions addressing staffing authority, owner approval rights over key personnel, and any restrictions on VHG's hiring, firing, or staffing decisions. Conduct interviews with the Verimark Shores Clearwater property general manager and HR manager to ascertain whether Palomar has exercised any formal or informal involvement in employment decisions.
Preliminary Assessment: Based on available information, this factor weighs against joint-employer status, as VHG appears to exercise exclusive hiring and firing authority. However, the assessment may change if the HMA reserves approval rights to Palomar over key hires or if the investigation reveals informal Palomar involvement.
B. Factor 2 — Supervision and Control of Work Schedules and Conditions
VHG sets all work schedules, shift assignments, operational procedures, and working conditions at the Verimark Shores Clearwater property. VHG's management systems, brand standards, and operating protocols—including the Employee Handbook v.7.2—are applied uniformly at the property. VHG's property-level management team supervises all employees on a day-to-day basis, assigns duties, establishes shift schedules, conducts performance evaluations, and administers disciplinary actions. There is no indication that Palomar personnel are present at the property in any supervisory capacity or that Palomar directly manages or directs the work of any Verimark Shores Clearwater employee.
The principal inquiry under this factor concerns the degree to which Palomar exercises indirect control over working conditions through its contractual rights under the HMA. Property owners in hotel management relationships frequently retain significant rights that, while not constituting direct supervision of employees, can materially influence the conditions under which employees work. These rights may include:
• Approval of operating budgets: If Palomar must approve the annual operating budget for the Verimark Shores Clearwater—including the labor budget—Palomar effectively has the power to constrain staffing levels, limit overtime, and influence the allocation of labor resources, all of which affect working conditions and schedules.
• Capital expenditure approvals: If Palomar controls capital expenditure decisions, it may influence the physical conditions of the workplace, the availability of equipment and tools, and other factors bearing on working conditions.
• Service standards and quality requirements: If the HMA requires VHG to meet service standards or quality metrics specified by Palomar—or if Palomar has the right to impose such standards—this could be construed as an indirect form of control over how employees perform their work.
• Inspection and audit rights: If Palomar has the right to inspect the property, audit operations, or review VHG's operational performance, the exercise of these rights could create a factual record of Palomar involvement in operational decisions.
Recommendation: Review HMA sections addressing operational budgets, capital expenditure approvals, Palomar's rights to inspect or audit operations, any service standards or quality metrics imposed by Palomar, and any supplemental side letters or amendments that may expand Palomar's operational involvement. Examine correspondence between VHG and Palomar for evidence of Palomar's exercise of operational oversight.
Preliminary Assessment: Based on available information, this factor weighs against joint-employer status, as VHG appears to exercise exclusive day-to-day supervisory control. However, the presence of budget approval rights, service standards, or inspection rights in the HMA could shift this assessment toward neutral or slightly in favor of joint-employer status, depending on the scope and frequency of Palomar's exercise of those rights.
C. Factor 3 — Rate and Method of Payment
VHG determines all employee compensation at the Verimark Shores Clearwater property, including wage rates, overtime policies, tip-credit calculations, benefit structures, and incentive programs. All payroll processing is conducted through Luminos Payroll Solutions under VHG's corporate payroll account (LTT-VHG-2022-0041). VHG's Director of Payroll & Workforce Compliance, Enrique J. Fuentes, oversees the payroll function across all VHG properties, including the Verimark Shores Clearwater.
The critical question under this factor is the flow of funds for payroll at the Verimark Shores Clearwater. In many hotel management arrangements, the property owner funds an operating account from which the manager draws to cover operating expenses, including payroll. Under such a structure, the property owner's funds directly pay the employees' wages, even though the manager administers the payroll. Courts have considered this funding dynamic relevant—though not dispositive—in assessing whether the property owner exercises control over the "rate and method of payment." See, e.g., Zheng v. Liberty Apparel Co., 355 F.3d 61, 72 (2d Cir. 2003) (noting the significance of the source of wages in the joint-employer analysis, though in a different circuit).
If the operating-account structure under HMA-2021-0601-PC follows the typical hotel management model—with Palomar funding an operating account and VHG drawing from that account to meet payroll obligations—a plaintiff's attorney could argue that Palomar effectively controls the method of payment, even if VHG sets the wage rates and administers the payroll. Additionally, if Palomar has approval authority over the labor budget (as discussed under Factor 2), Palomar may be deemed to exercise indirect control over the rate of payment by setting the overall labor cost parameters within which VHG must operate.
Recommendation: Obtain and review the HMA's financial provisions in detail, including the operating-account structure, owner funding obligations, the mechanism by which VHG draws payroll and other operating costs, and whether Palomar approves the annual labor budget or any component of employee compensation. Determine whether Palomar has ever directed or requested changes to compensation levels at the property.
Preliminary Assessment: This factor is indeterminate without additional information. If Palomar funds the operating account from which wages are paid and exercises budget approval authority, this factor could weigh moderately in favor of joint-employer status. If VHG funds payroll from its own corporate accounts and is later reimbursed through a management-fee or revenue-sharing structure, this factor would weigh against joint-employer status.
D. Factor 4 — Maintenance of Employment Records
VHG maintains all employment records for the Verimark Shores Clearwater workforce through the Luminos TimeTrack system and VHG's internal Human Resources Information System ("HRIS"). All personnel files, timekeeping data, payroll records, performance evaluations, disciplinary records, and other employment documentation are created, maintained, and controlled by VHG. There is no indication that Palomar independently maintains employment records for Verimark Shores Clearwater employees.
The relevant inquiry under this factor is whether Palomar receives employee-level data, payroll reports, or workforce records as part of its owner-reporting rights under the HMA. Hotel management agreements typically require the manager to provide the owner with periodic financial and operational reports, which may include aggregate payroll expense data, headcount reports, labor cost analyses, and other workforce-related information. If Palomar receives such reports, it may have access to employment records—even if Palomar does not create or maintain those records independently.
Additionally, it is worth inquiring whether Palomar has ever requested or received individualized employee-level data (as opposed to aggregate reports) for any purpose, including insurance, tax reporting, or regulatory compliance related to the property.
Recommendation: Review HMA reporting obligations and any data-sharing provisions between VHG and Palomar. Determine the scope and frequency of reports provided to Palomar and whether those reports include employee-level data. Interview relevant VHG personnel regarding any ad hoc requests from Palomar for workforce or payroll information.
Preliminary Assessment: Based on available information, this factor weighs against joint-employer status, as VHG appears to maintain exclusive control over employment records. However, if Palomar receives detailed payroll or staffing reports as part of standard owner reporting, this factor could be characterized as neutral.
E. Totality of Circumstances — Preliminary Assessment
Based on the totality of the information currently available to this office—and without the benefit of a complete review of HMA-2021-0601-PC—VHG appears to be the primary and likely sole employer of the Verimark Shores Clearwater employees for purposes of the FLSA. VHG exercises direct control over all traditional indicia of the employment relationship: hiring, firing, supervision, scheduling, compensation, payroll administration, and record-keeping. The VHG/Palomar relationship, on its face, is a standard hotel management arrangement in which the manager functions as the employer and the owner functions as a passive investor.
However, certain structural features common to hotel management agreements—particularly Palomar's ownership of the property, potential funding of the operating account from which wages are paid, possible approval rights over operating budgets and key personnel, and the economic interdependence of the owner and manager—create a non-trivial risk that a court could find Palomar to be a joint employer under the economic-reality test. Plaintiffs' counsel in FLSA collective actions routinely seek to expand the universe of responsible employers, and the vertical joint-employer theory is a well-established vehicle for doing so in the hospitality industry.
We characterize the overall risk level as moderate, with the understanding that the risk assessment may be revised upward or downward upon completion of the HMA review and the factual investigation described throughout this memorandum.
V. Analysis of Hotel Management Agreement (HMA-2021-0601-PC)
A. Key Provisions Requiring Review
The joint-employer analysis—and, equally important, the indemnification and contribution analysis—depends critically on the specific terms of HMA-2021-0601-PC. Calderwood & Harkness has requested a complete copy of the HMA from VHG General Counsel Devin K. Arroyo, along with any amendments, side letters, or supplemental agreements executed between the parties. The document has been identified on the litigation-hold data collection list and is among the priority items for the initial document production.
Upon receipt, the following provisions of the HMA will require close review:
1. Scope of Manager's Authority and Autonomy. The provisions defining VHG's authority to manage and operate the Verimark Shores Clearwater property on Palomar's behalf, including the scope of VHG's discretion in day-to-day operational decisions, the boundaries of VHG's authority to bind Palomar to contracts and commitments, and any limitations on VHG's autonomy.
2. Owner's Reserved Rights. Any provisions reserving to Palomar consent, approval, or veto rights over specific categories of decisions, including hiring and termination of key personnel (particularly the General Manager), approval of the annual operating budget and any budget amendments, execution of material contracts, and other matters that could constitute control over employment conditions.
3. Operating Account Structure and Owner Funding Obligations. The provisions governing the establishment, funding, and operation of the property's operating account, including whether Palomar is required to fund the account to cover operating expenses (including payroll), the mechanism by which VHG draws from the account, and any conditions or approvals required for draws.
4. Reporting Requirements. The provisions requiring VHG to provide financial and operational reports to Palomar, including the frequency, scope, and level of detail of such reports, with particular attention to whether reports include employee-level or aggregate workforce data.
5. Termination Provisions. The provisions governing termination of the HMA by either party, including termination for cause, termination without cause, and any provisions addressing the disposition of the property's workforce upon termination—including employee transition, non-solicitation, and continuation of employment obligations.
6. Indemnification Provisions. Discussed in detail in Section V.B below.
7. Insurance Requirements. The provisions specifying the types and amounts of insurance coverage that each party is required to procure and maintain, including employment practices liability insurance, general liability insurance, workers' compensation insurance, and any umbrella or excess coverage.
8. Non-Solicitation and Employee-Transition Provisions. Any provisions restricting either party from soliciting or hiring the other party's employees, or addressing the transition of the property's workforce to a successor manager upon termination of the HMA.
B. Indemnification and Contribution Provisions
The indemnification provisions of HMA-2021-0601-PC will play a central role in determining the allocation of financial responsibility between VHG and Palomar in the event that wage-and-hour claims arise from the operation of the Verimark Shores Clearwater property. The following questions must be addressed:
VHG's indemnification obligation to Palomar. Does the HMA require VHG to indemnify Palomar for claims arising from VHG's management of the property, including employment-related claims? If VHG is obligated to indemnify Palomar for wage-and-hour claims brought by VHG employees, then even if Palomar is found to be a joint employer and is held jointly and severally liable, VHG may bear the ultimate financial responsibility for the loss through the indemnification mechanism.
Palomar's indemnification obligation to VHG. Conversely, does the HMA require Palomar to indemnify VHG for claims arising from Palomar's acts, omissions, or status as property owner—including any claims based on Palomar's alleged joint-employer status? If such a provision exists, VHG may have a contractual right to seek indemnification from Palomar for defense costs and any judgment or settlement attributable to Palomar's actions.
Scope of indemnification. Even if mutual indemnification provisions exist, the scope of those provisions must be carefully analyzed. Key questions include:
(a) Does the indemnification extend to government-imposed penalties, fines, and assessments, or is it limited to third-party claims?
(b) Does the indemnification cover liquidated damages under the FLSA (which effectively double the amount of unpaid wages where the employer's violation is willful)?
(c) Does the indemnification include attorneys' fees and defense costs, and if so, does it require the indemnifying party to pay defense costs as incurred or only upon final resolution?
(d) Are there any caps, baskets, deductibles, or other limitations on the indemnification obligation?
(e) Are there any exclusions—for example, for claims arising from the indemnified party's own negligence, willful misconduct, or breach of the HMA?
Joint and several liability dynamics. It is important to note that even if VHG has a contractual right to indemnification from Palomar, the FLSA's joint and several liability framework means that either party could be required to pay the full amount of any judgment in the first instance. The indemnification right would then operate as a contractual mechanism for shifting the ultimate loss between the parties—but VHG would be exposed to the risk that Palomar lacks the financial capacity to satisfy an indemnification obligation, or that Palomar contests its indemnification responsibility, potentially leading to protracted contribution or indemnification litigation.
C. Preliminary Observations
As of the date of this memorandum, Calderwood & Harkness has not received a complete copy of HMA-2021-0601-PC. We have communicated the urgency of this request to VHG General Counsel Devin K. Arroyo, and the document is expected within the next several business days. A full analysis of the HMA provisions described in this section will be provided in a supplemental memorandum upon receipt and review of the complete agreement and all related documentation.
In the interim, the analysis in this memorandum is based on our understanding of the general terms of the VHG/Palomar relationship as communicated by VHG, our experience with hotel management agreements in the hospitality industry, and the applicable legal framework. The preliminary assessments set forth herein should be treated as directional only and are subject to revision once the HMA is reviewed.
VI. Implications for the Scope of the Wage-and-Hour Audit
A. Inclusion of Verimark Shores Clearwater in the Audit
Regardless of the outcome of the joint-employer analysis, the Verimark Shores Clearwater property must remain within the scope of the pre-litigation wage-and-hour audit currently being conducted by Calderwood & Harkness. There are three independent bases for this conclusion:
First, the demand letter from Garza, Linden & Okafor LLP expressly encompasses "Verimark-branded properties in Florida" and identifies the Verimark Shores Clearwater by name as one of seven at-issue properties. Any response to the demand letter, any pre-litigation settlement discussions, and any litigation defense strategy must account for the potential inclusion of the Verimark Shores Clearwater workforce in the putative collective.
Second, all approximately 190 estimated hourly non-exempt employees at the Verimark Shores Clearwater are part of the putative collective identified in the demand letter. These employees work under the same policies, use the same timekeeping system, and are subject to the same payroll practices as employees at VHG's wholly-owned properties. There is no basis to exclude them from the audit on the ground that they work at a managed property rather than an owned property.
Third, the systemic nature of the alleged violations makes it virtually certain that any violations found at VHG's wholly-owned properties are replicated at the Verimark Shores Clearwater. The property operates under the same Luminos TimeTrack system (account LTT-VHG-2022-0041), the same auto-deduction rule (AR-MEAL-030), the same Employee Handbook (v.7.2), and the same corporate-level payroll and HR policies. The uniformity of VHG's employment practices across its portfolio is both a strength (demonstrating consistent compliance efforts) and a vulnerability (ensuring that any systemic deficiency is portfolio-wide).
B. Additional Audit Steps for Verimark Shores Clearwater
In addition to the standard audit procedures being applied across all seven at-issue properties, the following additional steps should be taken with respect to the Verimark Shores Clearwater:
1. Obtain and review HMA-2021-0601-PC in full, including all amendments, side letters, and supplemental agreements. This is the threshold step for the joint-employer analysis and is expected to be completed within the next two weeks.
2. Interview the Verimark Shores Clearwater property general manager and HR manager. These individuals have been identified as two of the twenty-three litigation-hold custodians. Interviews should focus on any Palomar involvement in employment decisions (hiring, firing, discipline), scheduling, compensation determinations, or working conditions. The interviews should also explore whether any Palomar personnel maintain a regular presence at the property and whether any employees receive direction or instructions from Palomar representatives.
3. Review correspondence between VHG and Palomar. All correspondence—including emails, letters, memoranda, and meeting notes—between VHG and Palomar regarding staffing, labor budgets, operational approvals, and employee-related matters should be collected, reviewed, and analyzed for evidence of Palomar's operational involvement.
4. Determine operating-account structure and flow of payroll funds. The financial architecture of the HMA must be mapped in detail, including the source of funds for employee wages, the mechanism by which VHG draws from the operating account, and whether Palomar approves or controls any aspect of the payroll funding process.
5. Assess dual reporting relationships. Determine whether any Verimark Shores Clearwater employees have dual reporting relationships or receive direction from Palomar personnel in any capacity. Even informal direction from a Palomar representative could be relevant to the joint-employer analysis.
C. Impact on Exposure Calculations
The joint-employer analysis has several implications for the overall exposure model:
Joint and several liability. If Palomar is found to be a joint employer, it would be jointly and severally liable for any wage-and-hour violations at the Verimark Shores Clearwater. This finding would not increase VHG's total exposure at the property—VHG is already exposed as the direct employer—but it would provide a potential source of contribution, meaning that VHG could seek to recover a share of any judgment from Palomar.
Cross-claims and counterclaims. Conversely, if Palomar asserts cross-claims or counterclaims against VHG for indemnification under the HMA—arguing that VHG, as the direct employer and manager, bears responsibility for any wage-and-hour deficiencies—VHG's effective exposure at the property could increase if the HMA's indemnification provisions place the ultimate financial burden on VHG. The direction and magnitude of this shift will depend on the specific terms of the indemnification provisions in the HMA.
Property-specific exposure quantification. The exposure attributable to the Verimark Shores Clearwater should be separately quantified in the exposure model workbook. The Verimark Shores Clearwater tab of the workbook should reflect the following baseline inputs: approximately 190 hourly, non-exempt employees; a blended average hourly rate of $16.50; an average of 42.5 weekly hours worked. These inputs, combined with the applicable claim categories (overtime violations, auto-deduction violations, off-the-clock work, minimum wage violations for tipped employees, and misclassification), the applicable lookback periods (two years for non-willful FLSA violations, three years for willful violations), and the potential for liquidated damages, will generate a property-specific exposure estimate that can be disaggregated from VHG's portfolio-wide exposure for purposes of the Palomar indemnification and contribution analysis.
VII. Palomar's Potential Liability and Strategic Considerations
A. Palomar's Independent Exposure
If plaintiffs' counsel names Palomar as a defendant in any complaint—or if Palomar is joined as a party by VHG or the court—Palomar would face joint and several liability for all FLSA violations at the Verimark Shores Clearwater property, with the same range of remedies available against it as against VHG, including unpaid wages, liquidated damages, and attorneys' fees. The potential exposure to Palomar would be coextensive with VHG's exposure at the property.
An additional dimension of Palomar's exposure merits attention: the potential personal liability of Managing Member Ricardo E. Montalvo. The FLSA's definition of "employer" in 29 U.S.C. § 203(d) extends to "any person acting directly or indirectly in the interest of an employer in relation to an employee." Courts in the Eleventh Circuit have held that individuals—including corporate officers and LLC members—may be personally liable as employers under the FLSA if they exercise sufficient control over the employment relationship. See Patel v. Wargo, 803 F.2d 632, 637–38 (11th Cir. 1986). Whether Montalvo qualifies as an individual employer would depend on the degree of operational involvement he personally exercises at the Verimark Shores Clearwater, including any personal role in setting employment policies, approving budgets, directing operations, or making decisions affecting workers at the property. This question is distinct from the joint-employer analysis at the entity level and would require independent factual investigation.
We note this potential personal liability dimension primarily as a strategic consideration: the prospect of personal exposure may increase Montalvo's motivation to cooperate with VHG in coordinating a defense, or conversely, may cause Palomar and Montalvo to adopt an adversarial posture if they perceive that their interests diverge from VHG's.
B. Notice to Palomar
VHG should promptly determine whether the HMA requires VHG to notify Palomar of claims or threatened claims arising out of the operation of the Verimark Shores Clearwater property. Hotel management agreements commonly include mutual notice-of-claims provisions that require each party to promptly notify the other of any claim, lawsuit, demand, or governmental investigation that may affect the property or give rise to liability. Such provisions frequently include specific notice timing requirements—e.g., notice within a specified number of days of receipt of the claim—and may specify the form and method of delivery of the notice.
The importance of complying with any notice requirement cannot be overstated. If the HMA contains a notice-of-claims provision and VHG fails to notify Palomar within the prescribed time period, VHG may waive or impair its indemnification rights against Palomar. Even if the notice provision does not include an express waiver-for-late-notice clause, Palomar could argue that VHG's failure to provide timely notice caused Palomar prejudice—for example, by depriving Palomar of the opportunity to participate in the investigation and defense of the claim at an early stage.
Recommendation: Review the HMA's notice provisions immediately upon receipt of the agreement. If the HMA requires notice, prepare a formal notice letter to Ricardo E. Montalvo at Palomar's headquarters address (1901 West Cypress Street, Suite 400, Tampa, FL 33607), informing Palomar of the demand letter received from Garza, Linden & Okafor LLP and the threatened collective action. The notice letter should be carefully drafted to preserve VHG's rights under the HMA while avoiding any admissions or characterizations that could be used against VHG in the threatened litigation.
C. Common Interest Agreement
We recommend that VHG and Palomar enter into a common interest and joint defense agreement to facilitate the sharing of privileged information regarding the Verimark Shores Clearwater property in connection with the wage-and-hour claims. The common interest privilege (also referred to as the "joint defense privilege" or the "community of interest" doctrine) protects from disclosure communications between parties who share a common legal interest, even if they are not formally co-defendants or co-represented. A written common interest agreement memorializes the parties' shared interest and establishes protocols for the exchange of information in a manner that preserves the attorney-client privilege and work-product protection.
A draft common interest agreement is being prepared concurrently by James Underwood. The agreement should address the following elements:
1. Scope of Shared Interest. The agreement should define the common legal interest as the defense of the wage-and-hour claims threatened by Garza, Linden & Okafor LLP on behalf of Daniela M. Serrano and any putative collective, to the extent those claims relate to the Verimark Shores Clearwater property.
2. Limitations on Use of Shared Information. The agreement should provide that information shared between VHG and Palomar pursuant to the common interest agreement may be used only for the purpose of the defense of the identified claims and may not be used for any other purpose, including in any dispute between VHG and Palomar (e.g., an indemnification or contribution claim).
3. Privilege Protection Protocols. The agreement should establish procedures for marking shared communications as privileged, restricting access to authorized personnel and counsel, and preventing inadvertent disclosure.
4. Withdrawal Provisions. The agreement should address the circumstances under which either party may withdraw from the common interest arrangement, including provisions for the treatment of information shared prior to withdrawal.
5. Allocation of Costs. The agreement should address whether and how defense costs attributable to the Verimark Shores Clearwater property will be shared between VHG and Palomar.
Potential tension. It must be acknowledged that VHG's and Palomar's interests may not be fully aligned. If the joint-employer analysis concludes that Palomar is a joint employer, Palomar may seek to deflect liability entirely onto VHG as the direct employer, arguing that VHG was solely responsible for all employment decisions and that any violations were the result of VHG's management practices. Conversely, VHG may seek contribution or indemnification from Palomar, arguing that Palomar's operational involvement contributed to the violations or that the HMA's indemnification provisions allocate responsibility to Palomar. These potential areas of adversity should be carefully considered before executing a common interest agreement, and the agreement should include appropriate safeguards to address the possibility that the parties' interests diverge in the future.
D. Litigation Strategy Considerations
Several strategic considerations bear on VHG's approach to the Palomar relationship in the context of the threatened litigation:
Plaintiffs' naming decision. If an FLSA collective action is filed, plaintiffs' counsel at Garza, Linden & Okafor LLP will need to decide whether to name Palomar as a defendant. This decision presents trade-offs for the plaintiffs. Naming Palomar could provide a deeper-pocket defendant, additional evidence of systemic control over the workforce, and leverage in settlement negotiations. However, naming Palomar could also complicate the litigation by introducing additional factual issues (the joint-employer question), additional discovery (Palomar's documents, depositions of Palomar personnel), and potentially additional defenses. We should anticipate that plaintiffs' counsel will carefully evaluate the strategic calculus before deciding whether to join Palomar.
United defense vs. separation. VHG should consider whether it is advantageous to present a united defense with Palomar—projecting a narrative that Palomar is a passive investor with no employment relationship with the workers—or to maintain separation from Palomar to preserve VHG's ability to assert indemnification and contribution claims. The optimal approach will depend on the terms of the HMA, the facts revealed by the investigation, and the parties' respective risk tolerances.
Proactive remediation. If VHG's pre-litigation audit reveals systemic violations at the Verimark Shores Clearwater—particularly violations related to the auto-deduction rule AR-MEAL-030 or off-the-clock work—proactive remediation should be coordinated with Palomar. Because Palomar has a financial interest in the property's operations and because any remediation may affect the property's operating budget, VHG may need Palomar's approval or cooperation to implement remedial measures such as revised timekeeping procedures, additional staffing, or back-pay distributions. Failure to coordinate with Palomar could create disputes under the HMA and complicate both the defense and the remediation effort.
VIII. Insurance Considerations Specific to the Palomar Relationship
VHG maintains an Employment Practices Liability ("EPL") insurance policy with Pinnacle Indemnity Corp. The relevant policy details are as follows:
• Carrier: Pinnacle Indemnity Corp.
• Policy Number: PIN-EPL-2025-44781
• Limits: $10,000,000 per occurrence / $25,000,000 aggregate
• Self-Insured Retention ("SIR"): $500,000
• Policy Period: July 1, 2025 through June 30, 2026
A threshold question for the insurance analysis is whether VHG's EPL coverage extends to claims arising from managed properties—i.e., properties that VHG manages on behalf of third-party owners under hotel management agreements—or whether coverage is limited to claims arising from VHG's wholly-owned properties. If the policy defines the scope of coverage by reference to VHG's employees (regardless of the property at which they work), coverage should extend to the Verimark Shores Clearwater workforce because those employees are VHG employees. However, if the policy defines coverage by reference to VHG's owned or controlled properties, the managed-property structure at Verimark Shores Clearwater could present a coverage issue.
Additionally, Calderwood & Harkness should determine whether Palomar carries its own EPL or general liability insurance coverage that could respond to wage-and-hour claims. If Palomar is named as a defendant and is found to be a joint employer, Palomar's own insurance coverage could be a significant source of defense funding and indemnification. The HMA may specify the types and amounts of insurance that each party is required to procure and maintain; this should be reviewed as part of the HMA analysis described in Section V above.
The tender deadline for VHG's EPL policy requires particular attention. The policy requires VHG to provide written notice to Pinnacle "as soon as practicable" but no later than sixty days after receipt of a demand or claim. The demand letter from Garza, Linden & Okafor LLP was received on January 14, 2026, establishing a notice deadline of March 15, 2026. A tender letter should be prepared and submitted to Lydia C. Bowman at Pinnacle Indemnity Corp. well in advance of this deadline. The tender letter should specifically reference the Palomar/managed-property dimension to ensure that Pinnacle is on notice that the claim encompasses employees at a managed property, not solely at VHG's owned properties. This will help avoid any subsequent coverage dispute based on Pinnacle's alleged lack of notice regarding the managed-property exposure.
IX. Recommendations and Next Steps
Based on the analysis set forth in this memorandum, Calderwood & Harkness makes the following recommendations:
1. Obtain and review the complete HMA-2021-0601-PC, including all amendments, side letters, and supplemental agreements, to complete the joint-employer analysis and the indemnification and contribution analysis. This is the single most important action item. The request has been communicated to VHG General Counsel Devin K. Arroyo as a priority item. Upon receipt, Calderwood & Harkness will prepare a supplemental memorandum addressing the specific HMA provisions relevant to the analyses described in Sections IV and V of this memorandum.
2. Prepare notice to Palomar of the threatened claim if required under the HMA's notice-of-claims provisions. A draft notice letter addressed to Ricardo E. Montalvo at Palomar Realty Partners LLC, 1901 West Cypress Street, Suite 400, Tampa, FL 33607, should be prepared in advance so that it can be delivered promptly upon confirmation that notice is required. The notice letter should be reviewed by the engagement team before delivery to ensure that it preserves VHG's rights without making admissions or concessions.
3. Finalize and execute a common interest agreement between VHG and Palomar to protect the attorney-client privilege and work-product protection in shared communications regarding the Verimark Shores Clearwater wage-and-hour issues. James Underwood is preparing a draft common interest agreement for the engagement team's review. The agreement should be circulated to VHG General Counsel Devin K. Arroyo for comment before being transmitted to Palomar or Palomar's counsel.
4. Conduct interviews with the Verimark Shores Clearwater property general manager and HR manager regarding Palomar's operational involvement in employment decisions, budget approval practices, schedulin

MEMORANDUM

MATTER: 1021-00005

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