1021-00006 · Client 1021 · Engagement & Administration

quarterly-budget-update-jan-2024.docx DOCUMENT Litigation

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PRIVILEGED & CONFIDENTIAL MEMORANDUM

ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT

January 8, 2024

FROM: Douglas Carmichael, Billing Partner, Litigation (General), Calderwood & Harkness LLP

TO: Martin Holcomb, Executive Vice President & Chief Financial Officer, Verimark Hospitality Group Inc.

CC: Renata Solis-Vega, SVP & General Counsel, Verimark Hospitality Group Inc. Priya Anand, Responsible Partner, Calderwood & Harkness LLP

RE: Quarterly Budget Update — Verimark Hospitality Group Inc. v. Coastal Palms Franchise Holdings LLC et al., Case No. 1021-00006, Circuit Court of the 17th Judicial Circuit, Broward County, Florida

Matter No.: SC-LIT-2022-04872

This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the named recipients. Any disclosure, dissemination, distribution, or copying of this memorandum without the prior written consent of Calderwood & Harkness LLP is strictly prohibited. If you have received this memorandum in error, please notify the sender immediately and destroy all copies.

I. PURPOSE AND EXECUTIVE SUMMARY

This memorandum provides Martin Holcomb and the Verimark Hospitality Group Inc. ("Verimark") finance team with a comprehensive updated litigation budget for the above-captioned matter (the "Coastal Palms matter") as of the close of Q4 2023 (December 31, 2023). It is intended to serve as a planning tool for purposes of financial forecasting, accrual determination, and internal resource allocation, and to facilitate any necessary communications with Verimark's audit committee and external auditors regarding the status of this litigation.

This updated budget replaces the preliminary budget estimate of $4.5 million to $7.5 million through trial that was provided in the Matter Budget Memorandum dated March 10, 2022, which was prepared at the inception of this engagement when the scope of discovery, the complexity of the expert analysis, and the nature of the defendants' litigation posture could not be fully anticipated. In the nearly two years since that initial estimate was prepared, the matter has progressed through extensive discovery, a complex expert phase, and is now at the summary judgment stage, permitting a substantially more refined projection of the remaining costs.

The revised budget is based on (i) actual expenditures incurred through December 31, 2023, and (ii) revised projections for the remaining phases of the litigation, including summary judgment resolution, potential mediation and settlement, potential trial preparation, and trial, if necessary. Based on this analysis, Calderwood & Harkness LLP ("C&H") now estimates the revised all-in cost of this matter at $9.0 million to $10.5 million, encompassing C&H legal fees, expert fees payable to Ridgeline Forensic Advisory LLC ("Ridgeline"), e-discovery costs payable to Nexagen Document Solutions LLC ("Nexagen"), and anticipated mediation, settlement transaction, and trial-related expenses.

The key drivers of the increase over the original estimate are as follows:

(a) The scope and complexity of discovery far exceeded initial projections. C&H originally anticipated a document universe of approximately 200,000 to 400,000 documents. In practice, Nexagen processed approximately 2.3 million documents comprising 1.1 terabytes of data on the Verimark side alone. This volume was driven in large part by the motion-to-compel practice that was necessary to obtain financial records from Suncoast Room Management LLC, Coastal Palms' third-party revenue management vendor, which produced 312,000 additional documents following the Court's October 28, 2022 order granting Verimark's motion.

(b) The deposition program was more extensive than originally projected. Fourteen fact depositions and two expert depositions were conducted between January and June 2023, compared to an original estimate of eight to ten depositions. The expanded program was necessary to establish, through the testimony of property-level managers and accountants, a pattern of revenue underreporting directed by Randall Brecker and Nolan Prescott at the franchisor level.

(c) The expert phase required two affirmative expert reports—an initial damages report and a rebuttal report—from Dr. Sharon Kettlewell, CPA/CFF, CFE, of Ridgeline. The rebuttal report was necessitated by the defendants' retention of Prof. Grant Hargrove of Hargrove Economic Consulting Inc., whose counter-estimate of $6.2 million in underpayments required a detailed response.

(d) Full summary judgment briefing on cross-motions was required. The original budget assumed a single motion for partial summary judgment. In practice, Coastal Palms filed an aggressive cross-motion for summary judgment on all counts and its $12 million counterclaim, requiring comprehensive opposition briefing, two supporting research memoranda, and substantial additional associate time.

The following sections provide a detailed breakdown of actual expenditures, revised projections, variance analysis, and recommendations for next steps.

II. MATTER STATUS SUMMARY

A. Procedural Posture

The matter is currently at the summary judgment stage. Cross-motions for summary judgment have been fully briefed and are awaiting oral argument.

Verimark's Motion for Partial Summary Judgment on Count I (Breach of Contract — Royalties) and Count II (Breach of Contract — Marketing Fund Contributions) was filed on September 29, 2023. The motion seeks a determination of liability on these two counts as a matter of law based on the undisputed documentary evidence of gross room revenue ("GRR") underreporting across the 22 Coastal Palms-branded hotel properties during the 2013–2021 period.

In response, Coastal Palms Franchise Holdings LLC and its co-defendants filed a Cross-Motion for Summary Judgment on all counts in Verimark's complaint and on Coastal Palms' $12 million counterclaim for alleged wrongful termination of the franchise agreement and tortious interference with business relationships. The cross-motion was filed on October 13, 2023.

Response briefs were filed by both parties on November 17, 2023, and reply briefs were filed on December 8, 2023. The briefing is now complete.

Oral argument before the Honorable Richard M. Calloway has been scheduled for January 19, 2024. C&H anticipates that the Court will rule within two to four weeks following oral argument, although the complexity of the cross-motions and the voluminous evidentiary record may extend the deliberation period.

Trial was originally set for February 2024; however, due to the pendency of the summary judgment motions and the anticipated need for post-ruling proceedings (whether mediation or trial preparation), C&H expects that the trial will be continued. The currently expected trial window, should the matter proceed to trial, is May 2024. C&H will request a scheduling conference promptly following the Court's summary judgment ruling to establish firm trial dates and any interim deadlines.

B. Key Developments Since Prior Budget Report

Since the most recent budget report provided in July 2023, the following significant developments have occurred in the matter:

discovery Closure. Fact and expert discovery closed on August 4, 2023, pursuant to the Court's Third Amended Case Management Order entered on February 3, 2023. No further discovery is anticipated unless the Court orders supplemental discovery in connection with the summary judgment ruling or pre-trial proceedings.

Expert Reports. The expert report phase was completed as follows:

• Plaintiff's expert report prepared by Dr. Sharon Kettlewell of Ridgeline Forensic Advisory LLC was served on April 14, 2023. Dr. Kettlewell's report addressed the reconstruction of GRR across all 22 Coastal Palms-branded properties for the 2013–2021 period, the quantification of $197.8 million in underreported GRR, the calculation of resulting underpayments, and the application of the contractual liquidated damages provision under Section 15.3 of the Franchise License Agreement.

• Defendant's expert report prepared by Prof. Grant Hargrove of Hargrove Economic Consulting Inc. was served on May 15, 2023. Prof. Hargrove's report challenged Dr. Kettlewell's GRR reconstruction methodology and presented an alternative damages estimate of $6.2 million.

• Plaintiff's rebuttal expert report prepared by Dr. Kettlewell was served on June 9, 2023, responding to Prof. Hargrove's methodology and defending the reliability of the GRR reconstruction approach.

Expert Depositions. Depositions of Dr. Kettlewell and Prof. Hargrove were conducted on June 26 and June 27, 2023, respectively. Both depositions were full-day proceedings. Dr. Kettlewell's deposition testimony was consistent with her reports, and C&H is confident in the strength of her anticipated trial testimony. Prof. Hargrove's deposition revealed certain weaknesses in his methodology that have been highlighted in the summary judgment briefing.

Summary Judgment Briefing. The summary judgment phase consumed substantial attorney time during the August through December 2023 period. The work performed included the following:

• Preparation of two research memoranda: (i) a memorandum on Florida franchise revenue-reporting law, including analysis of relevant provisions of the Florida Franchise Relationship Act and applicable case law in the Seventeenth Judicial Circuit; and (ii) a memorandum on the enforceability of liquidated damages provisions under Florida law, with particular focus on the standard articulated in Lefemine v. Baron, 573 So. 2d 326 (Fla. 1991), and its progeny.

• Preparation of a comprehensive strategy memorandum evaluating the strengths and vulnerabilities of a motion for partial summary judgment and recommending the scope and framing of the motion.

• Drafting of a 127-paragraph Statement of Undisputed Material Facts, supported by citations to depositions, document exhibits, and expert report exhibits.

• Drafting of a 42-page Memorandum of Law in Support of Plaintiff's Motion for Partial Summary Judgment on Counts I and II.

• Preparation of the opposition brief to Coastal Palms' Cross-Motion for Summary Judgment, addressing the defendants' arguments on all counts and the counterclaim.

• Preparation of reply briefs in further support of Verimark's motion and in opposition to the cross-motion.

Oral Argument Preparation. Analysis of the defendants' cross-motion arguments and preparation of an oral argument bench memo for Priya Anand is currently in progress and is expected to be completed by January 16, 2024. A moot session is scheduled for January 17, 2024.

III. ACTUAL EXPENDITURES THROUGH DECEMBER 31, 2023

The following sections provide a detailed breakdown of all costs incurred in connection with the Coastal Palms matter through December 31, 2023.

A. Calderwood & Harkness Fees (Incurred to Date)

C&H fees incurred through December 31, 2023 total approximately $5.8 million to $6.0 million. The blended effective rate across the C&H team is approximately $685 per hour. The following table provides a breakdown by timekeeper:

Note: The figures in the table above reflect estimated hours and fees for illustrative purposes. Actual billed amounts reflected on issued invoices may vary slightly due to billing adjustments, write-downs, and rounding. The total C&H fees incurred figure of $5.8M–$6.0M includes additional time entries for of-counsel attorneys, specialized research staff, and administrative time that are not separately broken out in this summary.

The following narrative describes the primary contributions of each timekeeper:

Priya Anand has served as Responsible Partner since the inception of the matter in March 2022. Ms. Anand has been responsible for overall case strategy, key deposition examination (including the two-day deposition of Randall Brecker and the depositions of Nolan Prescott and Janet Kerrigan), expert retention and management, and summary judgment strategy. Ms. Anand will serve as lead trial counsel if the matter proceeds to trial and will argue the January 19, 2024 oral argument on the cross-motions for summary judgment.

Douglas Carmichael has served as Billing Partner and has been responsible for client communications, budget management, and litigation cost oversight. Mr. Carmichael has also participated in strategic case conferences, deposition preparation sessions, and review of major filings.

Yuki Nakamura has served as Lead Associate and has been the primary drafter of all substantive filings, including the summary judgment papers. Ms. Nakamura has also managed the day-to-day coordination of the case, including discovery management, liaison with Nexagen regarding the e-discovery workflow, coordination with Ridgeline regarding expert analysis, and supervision of the document review team. Ms. Nakamura's hours represent the largest share of the C&H team's time commitment, reflecting her central role in all phases of the matter.

Carlos Espinoza has served as Working Associate and has been responsible for deposition preparation (including preparation of deposition outlines and witness binders for all 14 fact depositions), damages analysis support in coordination with Ridgeline, preparation of the two research memoranda on Florida franchise law and liquidated damages, and research and drafting in support of the summary judgment briefing.

Paralegals and Contract Attorneys have provided support for document review (including first-level review and privilege review of approximately 2.3 million documents processed by Nexagen), deposition logistics (scheduling, subpoena service, exhibit compilation), and exhibit preparation for the summary judgment filings.

B. Expert Fees — Ridgeline Forensic Advisory LLC

Ridgeline Forensic Advisory LLC was retained in June 2022 to serve as Verimark's damages expert in this matter. The engagement is led by Dr. Sharon Kettlewell, CPA/CFF, CFE, a nationally recognized forensic accountant with extensive experience in franchise revenue disputes. Ridgeline bills at a principal rate of $475 per hour (Dr. Kettlewell) and a staff rate of $325 per hour for supporting analysts.

The scope of Ridgeline's engagement has encompassed the following:

• Reconstruction of GRR across all 22 Coastal Palms-branded hotel properties for the 2013–2021 period, based on analysis of property management system data, bank records, third-party booking platform data, Suncoast Room Management records, and internal accounting records produced in discovery.

• Quantification of $197.8 million in underreported GRR, representing the aggregate difference between reported GRR (on which royalties and other fees were calculated) and actual GRR as reconstructed.

• Calculation of $9.89 million in underpaid royalties (5% of underreported GRR), $4.945 million in underpaid marketing fund contributions (2.5% of underreported GRR), and $1.26 million in underpaid technology fees.

• Development of a compounding interest model yielding $28.4 million in accrued interest on the underpayments, calculated at the contractual default rate of 18% per annum.

• Computation of $105.5 million in liquidated damages under Section 15.3 of the Franchise License Agreement ("FLA § 15.3"), which provides for liquidated damages of three times the aggregate underpayment in the event of intentional underreporting.

• Preparation of the expert report served on April 14, 2023, the rebuttal report served on June 9, 2023, and preparation for Dr. Kettlewell's deposition on June 26, 2023.

Ridgeline fees incurred through December 31, 2023 total approximately $1.65 million to $1.70 million of a projected total engagement fee of approximately $1.85 million. The remaining projected spend of approximately $150,000 to $200,000 relates primarily to Dr. Kettlewell's trial testimony preparation, including preparation of demonstrative exhibits, review of anticipated cross-examination themes, and pre-trial conference attendance.

C. E-discovery Costs — Nexagen Document Solutions LLC

Nexagen Document Solutions LLC was retained in April 2022 to provide e-discovery services for the Coastal Palms matter. The scope of Nexagen's engagement has included data collection, processing, hosting, analytics (including technology-assisted review ("TAR") workflows), and production formatting.

On the Verimark side, Nexagen processed approximately 2.3 million documents comprising approximately 1.1 terabytes of data. This volume significantly exceeded the original estimate of 200,000 to 400,000 documents, driven in large part by the breadth of the relevant data sources across 22 hotel properties, the Suncoast Room Management records obtained through the motion-to-compel practice, and the length of the relevant time period (2013–2021).

Nexagen costs incurred through December 31, 2023 total approximately $700,000 to $720,000 of a projected total of approximately $742,000. The remaining projected spend is minimal and relates to trial exhibit preparation and potential supplemental hosting charges through the conclusion of the matter. C&H notes that Nexagen's per-unit processing and hosting rates have remained consistent with the rates established in the Nexagen engagement letter of April 15, 2022, and that the cost overrun is attributable entirely to the unanticipated volume of data.

D. Court Reporter and Deposition Costs

Court reporter and deposition costs incurred through December 31, 2023 total approximately $124,500. This amount is substantially complete, as all depositions in the matter have been conducted. The depositions were as follows:

Fact Depositions (January 9 – March 17, 2023):

1. Randall Brecker (CEO, Coastal Palms Franchise Holdings LLC) — two-day deposition, January 9–10, 2023

2. Theresa Brecker (COO, Coastal Palms Franchise Holdings LLC) — January 17, 2023

3. Nolan Prescott (CFO, Coastal Palms Franchise Holdings LLC) — January 24, 2023

4. Janet Kerrigan (VP of Finance, Coastal Palms Franchise Holdings LLC) — January 31, 2023

5. David Ortega (General Manager, Coastal Palms Fort Lauderdale Beach) — February 7, 2023

6. Maria Chen (Controller, Coastal Palms Miami Airport) — February 9, 2023

7. William Tabor (General Manager, Coastal Palms Tampa Bay) — February 14, 2023

8. Karen Lipscomb (Director of Revenue, Suncoast Room Management LLC) — February 16, 2023

9. Antoine DuBois (General Manager, Coastal Palms Orlando Convention Center) — February 21, 2023

10. Rachel Stroud (Accounting Manager, Coastal Palms Jacksonville Riverfront) — February 23, 2023

11. Thomas Yee (General Manager, Coastal Palms West Palm Beach) — March 1, 2023

12. Stephanie Vasquez (Controller, Coastal Palms Sarasota Waterfront) — March 7, 2023

13. James Callahan (General Manager, Coastal Palms Naples Gulf Shore) — March 10, 2023

14. Patricia Drummond (30(b)(6) designee, Suncoast Room Management LLC) — March 17, 2023

Expert Depositions (June 26–27, 2023):

15. Dr. Sharon Kettlewell (Plaintiff's expert) — June 26, 2023

16. Prof. Grant Hargrove (Defendant's expert) — June 27, 2023

The court reporter costs include original transcripts, certified copies, videography for five key depositions (Brecker, Brecker, Prescott, Kerrigan, and Lipscomb), and real-time reporting for the Brecker two-day deposition.

E. Other Costs

Filing fees, service of process, courier services, and travel expenses incurred through December 31, 2023 total approximately $15,000 to $20,000. This category includes circuit court filing fees for the initial complaint, amended complaint, and summary judgment filings; process server fees for service on Coastal Palms and its co-defendants; courier and express delivery charges; and travel expenses for depositions conducted outside Broward County (including depositions in Tampa and Jacksonville).

No mediation costs have been incurred to date, as mediation has not yet been proposed or ordered. C&H anticipates that mediation will be appropriate following the summary judgment ruling, as discussed in Section IV.B below.

F. Summary of Total Expenditures Incurred Through December 31, 2023

The following table summarizes all costs incurred in connection with the Coastal Palms matter through December 31, 2023:

For planning purposes, C&H uses a midpoint incurred cost figure of approximately $8.4 million.

IV. REVISED BUDGET PROJECTIONS — REMAINING PHASES

The following sections set forth C&H's revised budget projections for the remaining phases of the Coastal Palms matter. These projections are organized by phase, with each phase presenting a range based on the level of effort that may be required depending on the outcome of earlier phases and the parties' settlement posture.

A. Phase 1: Summary Judgment Resolution (January – February 2024)

The immediate next milestone in the matter is the oral argument on the cross-motions for summary judgment, which is scheduled for January 19, 2024 before the Honorable Richard M. Calloway.

Remaining work in this phase includes:

• Oral argument preparation: Preparation of a comprehensive bench memorandum for Priya Anand, including analysis of anticipated questions from the Court, identification of key record citations, and preparation of concise responses to each of the defendants' summary judgment arguments. Additionally, C&H will conduct a moot session on January 17, 2024, with Mr. Carmichael and Ms. Nakamura serving as the moot panel. Estimated time: 40–60 hours across Anand, Nakamura, and Espinoza.

• Oral argument attendance: Ms. Anand will attend and argue the January 19, 2024 hearing. Mr. Carmichael will attend as second chair. Ms. Nakamura will attend to assist with record references and real-time research if needed.

• Post-argument analysis: Following the oral argument, C&H will prepare a post-argument assessment memorandum for Verimark management, analyzing the Court's likely disposition based on the tenor of the hearing and the questions posed. If the Court requests supplemental briefing on any issue, C&H will prepare and file such briefing promptly.

Estimated additional C&H fees for Phase 1: $35,000 – $55,000.

C&H anticipates that the Court will issue its ruling within two to four weeks of the oral argument, although this timeline is subject to the Court's docket and the complexity of the issues presented. The ruling will significantly affect the trajectory and cost of the remaining phases. A favorable ruling on Verimark's motion for partial summary judgment on Counts I and II would establish liability and narrow the remaining issues for trial (or settlement) to the question of damages. A ruling denying both motions would send the matter to trial on all issues.

B. Phase 2: Mediation / Settlement (If Pursued)

C&H anticipates a strong probability that the parties will engage in mediation following the summary judgment ruling, regardless of the outcome. A favorable partial summary judgment ruling on liability (Counts I and II) would significantly enhance Verimark's settlement leverage by eliminating the defendants' ability to contest liability and focusing the remaining dispute on the quantum of damages and the enforceability of the liquidated damages provision.

Even in the event of an unfavorable ruling (denial of Verimark's motion), C&H believes mediation would be productive given the strength of the record and the cost of trial for both parties. The Court may also order mediation as part of its pre-trial case management.

C&H has identified the Honorable Patricia Everwood (Ret.) of Everwood Dispute Resolution PLLC in Coral Gables, Florida, as a potential mediator. Judge Everwood is a retired Broward County Circuit Judge with extensive experience in complex commercial and franchise disputes. Her rate for a two-day mediation session is $22,500 per day, which would be split equally between the parties.

The budget for this phase is as follows:

• Mediator fees (Verimark's share): $35,000 – $45,000 for a two-day mediation session, including pre-mediation conference calls and review of mediation submissions.

• C&H mediation preparation: Preparation of a confidential mediation statement, settlement-authority analysis and recommendation memorandum, damages-model presentation (including demonstrative exhibits prepared with Ridgeline), and attendance at the mediation. Estimated time: 80–120 hours across the C&H team. Estimated C&H fees: $60,000 – $90,000.

• Settlement documentation (if settlement reached): In the event that the parties reach a settlement at mediation or in post-mediation negotiations, C&H will prepare and negotiate definitive settlement documentation. Given the complexity of the franchise relationship, the number of properties involved, and the likely need for security arrangements (liens, guarantees, or escrow), the settlement documentation phase is expected to require 100–200 hours of attorney time. The documentation would include a comprehensive settlement agreement, franchise surrender and termination documentation, UCC-1 financing statement filings to secure any installment payment obligations, closing logistics and coordination, and any required regulatory filings. Estimated C&H fees for settlement documentation: $75,000 – $150,000.

Estimated total additional costs for Phase 2: $170,000 – $285,000 (including mediator fees, C&H preparation and attendance, and settlement documentation, if applicable).

C. Phase 3: Trial Preparation (If No Settlement)

In the event that settlement efforts are unsuccessful, C&H will proceed with trial preparation. Trial is currently expected in May 2024, which would represent a continuance from the original February 2024 trial date.

Trial preparation will encompass the following work:

• Pretrial motions: Preparation and filing of motions in limine to exclude or limit certain categories of evidence, including anticipated Daubert-type challenges to the admissibility of Prof. Hargrove's expert testimony. C&H will also prepare a comprehensive trial brief addressing the key legal issues.

• Witness preparation: Preparation of all fact and expert witnesses for trial testimony. Fact witness preparation will include sessions with key Verimark corporate representatives and, to the extent cooperating, third-party witnesses. Expert witness preparation will include multiple sessions with Dr. Kettlewell to prepare her direct examination testimony and to rehearse anticipated cross-examination by defense counsel.

• Trial exhibit compilation: Assembly and organization of the trial exhibit binder, including identification and designation of key documents from the 2.3 million-document universe, preparation of demonstrative exhibits and summary charts, and coordination with trial technology vendors for electronic presentation of exhibits in the courtroom.

• Jury instructions or findings of fact: Depending on whether the case is tried to a jury or to the bench, C&H will prepare proposed jury instructions and verdict forms or proposed findings of fact and conclusions of law for the Court.

Estimated additional C&H fees for Phase 3: $350,000 – $550,000.

Ridgeline remaining fees (Dr. Kettlewell trial testimony preparation): $150,000 – $200,000.

D. Phase 4: Trial (If No Settlement)

If the matter proceeds to trial, C&H anticipates a trial duration of 8 to 12 days, based on the number of witnesses, the volume of documentary evidence, and the complexity of the damages issues.

The C&H trial team will consist of Priya Anand (lead trial counsel), Douglas Carmichael (second chair), Yuki Nakamura (witness examination, exhibit management, and real-time brief-writing), Carlos Espinoza (witness preparation support and research), and paralegal support for exhibit logistics and trial technology.

• Estimated additional C&H fees for trial attendance and daily preparation: $250,000 – $400,000. This estimate reflects the fully loaded cost of the trial team for 8 to 12 trial days, including evening preparation sessions, daily witness preparation, and ongoing legal research to address issues arising during trial.

• Trial-related costs: Trial presentation technology (electronic exhibit display, courtroom presentation equipment), hard-copy exhibit reproduction, daily trial transcripts, lodging and travel for the C&H trial team (if trial is held in a venue requiring overnight accommodations), and miscellaneous trial expenses. Estimated trial-related costs: $30,000 – $50,000.

Estimated total additional costs for Phase 4: $280,000 – $450,000.

E. Post-Trial (Contingent)

Post-trial motions (including renewed motions for judgment as a matter of law, motions for new trial, and motions for remittitur or additur) and any potential appeal are not budgeted at this stage. If post-trial proceedings become necessary, C&H will prepare a separate budget estimate at that time. C&H notes that a favorable trial verdict or a successful settlement would eliminate the need for post-trial proceedings entirely.

For purposes of financial planning, C&H advises Verimark that a contested appeal in the Fourth District Court of Appeal could add an estimated $500,000 to $1,000,000 in additional legal fees, depending on the scope of the issues on appeal and the length of the appellate briefing. However, this estimate is highly preliminary and contingent, and C&H does not recommend accruing for appellate costs at this time.

V. REVISED TOTAL BUDGET ESTIMATE

Based on the actual expenditures set forth in Section III and the revised projections set forth in Section IV, C&H presents two budget scenarios, depending on whether the matter resolves through settlement or proceeds to trial.

A. Scenario 1: Settlement Before Trial (More Likely Scenario)

C&H believes that settlement prior to trial is the more likely outcome, particularly if Verimark obtains a favorable partial summary judgment ruling on Counts I and II. In this scenario, the matter would conclude following the mediation/settlement phase, and no trial preparation or trial costs would be incurred.

Rounded Scenario 1 Total: approximately $9.0 million – $9.5 million.

B. Scenario 2: Trial Required (Less Likely but Possible)

In the event that settlement efforts are unsuccessful and the matter proceeds to trial, the budget would include additional costs for trial preparation, trial attendance, and associated expenses. This scenario assumes a trial of 8 to 12 days and does not include post-trial motions or appeal.

Rounded Scenario 2 Total: approximately $9.5 million – $10.5 million.

C. Combined Range

Taking both scenarios into account, the revised all-in estimate for the Coastal Palms matter is $9.0 million to $10.5 million.

This compares to the original estimate of $4.5 million to $7.5 million provided in the Matter Budget Memorandum dated March 10, 2022. The primary variance drivers are discussed in Section VI below.

C&H acknowledges that the revised estimate represents a material increase from the original budget. As discussed in Section VII, however, the litigation costs remain a relatively modest percentage of the total claimed damages and of a realistic settlement recovery range, and C&H believes the matter continues to present a favorable cost-benefit profile for Verimark.

VI. VARIANCE ANALYSIS — ORIGINAL VS. REVISED BUDGET

The following analysis identifies and quantifies the primary drivers of the variance between the original March 2022 budget estimate and the revised January 2024 estimate.

A. Discovery Phase Overrun

The discovery phase accounted for the single largest source of budget variance. The original estimate assumed a document universe of approximately 200,000 to 400,000 documents on the Verimark side, based on C&H's preliminary assessment of the likely scope of relevant data. In practice, the actual document volume was 2.3 million documents comprising 1.1 terabytes of data — approximately six to ten times the original projection.

Several factors contributed to this increase:

• Breadth of the franchise portfolio. The 22 Coastal Palms-branded hotel properties each maintained independent property management systems, accounting records, and revenue reporting data. The need to collect, process, and review data from each property multiplied the document volume beyond original expectations.

• Length of the relevant period. The 2013–2021 period for GRR reconstruction spanned nine years of financial data across all 22 properties, generating a substantially larger universe of responsive documents than originally anticipated.

• Suncoast Room Management records. The defendants' initial refusal to produce financial records from Suncoast Room Management LLC, their third-party revenue management vendor, required Verimark to file a Motion to Compel on September 15, 2022, which was granted by the Court on October 28, 2022. Compliance with the Court's order produced an additional 312,000 documents that required processing, review, and integration into the existing document database. The motion-to-compel practice itself consumed approximately 80 hours of C&H attorney time.

• TAR workflow iterations. The volume of documents required multiple iterations of the TAR workflow to achieve acceptable recall and precision rates, adding processing and review costs.

The expanded discovery phase also resulted in a more extensive deposition program than originally anticipated. C&H originally estimated 8 to 10 fact depositions; in practice, 14 fact depositions were conducted. The additional depositions were necessary to establish a pattern of direction from Randall Brecker and Nolan Prescott at the corporate level that drove the revenue underreporting at the individual property level. The depositions of 10 property-level managers and accountants were critical to establishing this pattern and will be essential evidence at trial or in support of settlement negotiations.

Nexagen e-discovery costs exceeded the original projection by approximately $200,000 to $300,000, driven entirely by the increased data volume. Per-unit rates remained unchanged from the original engagement terms.

B. Expert Phase

The Ridgeline engagement, with a projected total of approximately $1.85 million, falls at the high end of the original estimate range. The primary drivers of this cost were:

• Complexity of GRR reconstruction. Reconstructing actual GRR across 22 hotel properties over a 9-year period required extensive data analysis, cross-referencing of multiple data sources (property management systems, bank records, third-party booking platform data, and Suncoast Room Management records), and property-by-property calculation of underreported revenue. The scope of this analysis was substantially more labor-intensive than originally projected.

• Rebuttal report. The defendants' retention of Prof. Grant Hargrove, whose counter-estimate of $6.2 million in underpayments challenged Dr. Kettlewell's methodology, required the preparation of a detailed rebuttal report. The rebuttal report was not included in the original budget estimate, which assumed that a single expert report would be sufficient.

• Expert deposition preparation and attendance. The deposition of Dr. Kettlewell required two full preparation sessions and a full day of testimony. While expert depositions were included in the original budget, the need for extensive preparation to address Prof. Hargrove's criticisms added to the cost.

C. Summary Judgment Phase

The original budget estimate assumed that Verimark would file a single motion for partial summary judgment and that the defendants would file an opposition brief. The actual summary judgment practice was substantially more extensive:

• Cross-motions. Coastal Palms filed an aggressive cross-motion for summary judgment on all counts in Verimark's complaint and on its $12 million counterclaim. This cross-motion required C&H to prepare a comprehensive opposition brief addressing multiple independent grounds for summary judgment, in addition to the reply brief in support of Verimark's own motion.

• Supporting research memoranda. The two research memoranda prepared in support of the summary judgment briefing (Florida franchise revenue-reporting law; liquidated damages enforceability) added approximately 120 associate hours that were not anticipated in the original budget.

• Scope of the summary judgment papers. The 127-paragraph Statement of Undisputed Material Facts and the 42-page Memorandum of Law required extensive review of the deposition transcripts, document exhibits, and expert reports, and consumed substantially more attorney time than a typical partial summary judgment motion.

D. Extended Timeline

The continuance of the trial date from February 2024 to May 2024 extends the timeline of the matter and generates incremental costs, including:

• Continued Nexagen hosting and data-preservation charges for the 2.3 million-document database.

• Additional status conferences and scheduling proceedings.

• Extended administrative and case management costs.

While the incremental costs associated with the timeline extension are relatively modest in the context of the overall budget, they contribute to the upward pressure on the revised estimate.

VII. COLLECTIBILITY AND COST-BENEFIT CONSIDERATIONS

C&H recognizes that the revised budget represents a significant investment by Verimark, and it is appropriate to evaluate the litigation costs in the context of the potential recovery.

Total Claimed Damages. Verimark's total claimed damages in the Coastal Palms matter are approximately $150 million, comprised of the following components:

Collectibility Considerations. The collectibility of any judgment or settlement is subject to certain risks and constraints, including:

• Senior lien positions. Ironclad National Bank holds first-lien mortgages on 18 of the 22 Coastal Palms-branded hotel properties, with an approximate aggregate outstanding balance of $94 million. This senior lien position constrains Verimark's ability to recover against the real property collateral securing those properties, as any judgment lien would be subordinate to Ironclad's mortgage interests.

• Unencumbered properties. Eight of the 22 properties are unencumbered (i.e., free of first-lien mortgage debt), with an aggregate appraised value of approximately $71.2 million. These properties could serve as collateral for a settlement security arrangement or as a source of recovery in a post-judgment execution scenario.

• Personal assets. The personal assets of Randall Brecker and Nolan Prescott may provide additional recovery sources. C&H has not conducted a comprehensive asset search at this time, but public records indicate that Mr. Brecker owns residential real property in Coral Gables and Aspen, Colorado, and that Mr. Prescott holds interests in several non-party business entities.

Cost-Benefit Analysis. At the midpoint of the revised budget range ($9.75 million), the total litigation costs represent:

• Approximately 6.0% to 7.0% of the total claimed damages of approximately $150 million.

• Approximately 10.3% to 12.0% of a realistic settlement recovery range, which C&H estimates at $80 million to $95 million based on a risk-adjusted analysis that accounts for potential reduction or elimination of the liquidated damages claim, the uncertainty surrounding the enforceability of the contractual interest rate, and collectibility constraints.

C&H believes these ratios are within acceptable parameters for a complex commercial franchise dispute of this magnitude, and that the litigation continues to present a favorable cost-benefit profile for Verimark.

Insurance Coverage. Verimark maintains a litigation expense insurance policy with Pinnacle Indemnity Insurance Co. under Policy No. PLI-VHG-2021-08874, which may offset a portion of the litigation costs incurred in this matter. C&H notified Pinnacle of the Coastal Palms matter by letter dated March 14, 2022, addressed to Arthur Baines, Claims Counsel. As of the date of this memorandum, the coverage determination remains pending. C&H recommends that Verimark follow up with Pinnacle to obtain a coverage determination as soon as practicable, as discussed in the Recommendations section below.

VIII. BILLING AND PAYMENT STATUS

C&H is pleased to report that all invoices issued in connection with the Coastal Palms matter are current through the November 2023 billing cycle. There are no outstanding balances or past-due amounts.

The December 2023 invoice is currently in preparation and is expected to be delivered to Verimark no later than January 15, 2024. The December invoice will reflect the final summary judgment briefing work, including preparation of reply briefs and commencement of oral argument preparation.

C&H appreciates Verimark's consistent prompt-payment history throughout this engagement. Current billing terms remain net 30 days from invoice date, as established in the engagement letter dated March 7, 2022. C&H does not anticipate any changes to these terms.

C&H will continue to issue monthly invoices with detailed time entries organized by phase of the matter, consistent with Verimark's outside counsel billing guidelines. Any questions regarding individual invoices should be directed to Douglas Carmichael or to C&H's billing coordinator, Jennifer Whitfield, at jwhitfield@calderwoodharkness.com.

IX. RECOMMENDATIONS

Based on the current status of the matter and the revised budget analysis set forth herein, C&H respectfully offers the following recommendations for Verimark's consideration:

1. Oral Argument. Priya Anand will argue the cross-motions for summary judgment at the January 19, 2024 hearing before Judge Calloway. Ms. Anand is fully prepared for this argument, and no additional budget authorization is needed for this phase. C&H will provide Verimark with a post-argument assessment memorandum promptly following the hearing.

2. Mediation Planning. C&H recommends that Verimark begin considering its mediation posture and settlement authority in anticipation of a post-ruling mediation process. The summary judgment ruling will substantially affect the parties' respective negotiating positions, and Verimark should be prepared to move quickly toward mediation once the ruling is issued. C&H will prepare a detailed settlement-authority memorandum, including a risk-adjusted analysis of the full range of potential outcomes, once the Court rules on the cross-motions. In the interim, C&H recommends that Mr. Holcomb and Ms. Solis-Vega begin internal discussions with senior management regarding Verimark's settlement objectives and floor.

3. Insurance Recovery. C&H recommends that Verimark follow up with Pinnacle Indemnity Insurance Co. regarding the coverage determination under Policy No. PLI-VHG-2021-08874. Given the magnitude of the litigation costs incurred to date and the potential for significant additional costs through trial, any insurance recovery would meaningfully offset Verimark's net litigation expense. C&H is prepared to assist Verimark in its communications with Pinnacle if directed to do so.

4. Board / Audit Committee Notification. Given that total litigation costs will materially exceed the original budget estimate and that the matter may result in a material settlement, C&H recommends that Mr. Holcomb coordinate with Verimark's audit committee regarding updated accruals for SEC disclosure purposes. Verimark is publicly traded on the Nasdaq Stock Market under the ticker symbol VHMK, and the company's disclosure obligations under ASC 450 (Contingencies) may require updated disclosure in Verimark's annual report on Form 10-K for the fiscal year ended December 31, 2023, or in subsequent quarterly reports on Form 10-Q. C&H recommends that Verimark's external auditors be informed of the revised budget range and the current posture of the litigation so that appropriate loss contingency accruals can be established. C&H is available to participate in discussions with Verimark's auditors if requested.

5. Budget Cap. In light of the revised budget analysis, C&H requests that Verimark confirm revised budget authorization at the $10.5 million level. This authorization would provide sufficient flexibility to take the matter through trial if settlement efforts are unsuccessful, without the need for further budget approval during a period when the C&H team may need to proceed expeditiously with trial preparation. C&H commits to providing Verimark with prompt notice if actual expenditures approach the authorized cap and to obtaining supplemental authorization before exceeding it.

X. APPENDIX: SUMMARY BUDGET TABLE

The following table provides a consolidated comparison of the original March 2022 budget estimate and the revised January 2024 estimate, organized by phase and cost category:

Notes: (1) "Variance" reflects the range of potential overrun or underrun relative to the original estimate. Negative values in parentheses indicate potential underrun. (2) Trial Preparation and Trial phase estimates may decline or be eliminated if the matter settles prior to trial. (3) Post-Trial costs are not budgeted at this stage and would require a separate estimate. (4) Figures may not sum precisely due to rounding and the use of estimate ranges.

CLOSING

C&H remains committed to the efficient and effective prosecution of Verimark's claims in the Coastal Palms matter. We believe the case remains strong on the merits, and we are cautiously optimistic about the prospects for a favorable summary judgment ruling on Counts I and II, which would position Verimark well for a favorable settlement or, if necessary, a successful trial outcome.

PRIVILEGED & CONFIDENTIAL MEMORANDUM
ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
January 8, 2024
FROM: Douglas Carmichael, Billing Partner, Litigation (General), Calderwood & Harkness LLP
TO: Martin Holcomb, Executive Vice President & Chief Financial Officer, Verimark Hospitality Group Inc.
CC: Renata Solis-Vega, SVP & General Counsel, Verimark Hospitality Group Inc. Priya Anand, Responsible Partner, Calderwood & Harkness LLP
RE: Quarterly Budget Update — Verimark Hospitality Group Inc. v. Coastal Palms Franchise Holdings LLC et al., Case No. 1021-00006, Circuit Court of the 17th Judicial Circuit, Broward County, Florida
Matter No.: SC-LIT-2022-04872
This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the named recipients. Any disclosure, dissemination, distribution, or copying of this memorandum without the prior written consent of Calderwood & Harkness LLP is strictly prohibited. If you have received this memorandum in error, please notify the sender immediately and destroy all copies.
I. PURPOSE AND EXECUTIVE SUMMARY
This memorandum provides Martin Holcomb and the Verimark Hospitality Group Inc. ("Verimark") finance team with a comprehensive updated litigation budget for the above-captioned matter (the "Coastal Palms matter") as of the close of Q4 2023 (December 31, 2023). It is intended to serve as a planning tool for purposes of financial forecasting, accrual determination, and internal resource allocation, and to facilitate any necessary communications with Verimark's audit committee and external auditors regarding the status of this litigation.
This updated budget replaces the preliminary budget estimate of $4.5 million to $7.5 million through trial that was provided in the Matter Budget Memorandum dated March 10, 2022, which was prepared at the inception of this engagement when the scope of discovery, the complexity of the expert analysis, and the nature of the defendants' litigation posture could not be fully anticipated. In the nearly two years since that initial estimate was prepared, the matter has progressed through extensive discovery, a complex expert phase, and is now at the summary judgment stage, permitting a substantially more refined projection of the remaining costs.
The revised budget is based on (i) actual expenditures incurred through December 31, 2023, and (ii) revised projections for the remaining phases of the litigation, including summary judgment resolution, potential mediation and settlement, potential trial preparation, and trial, if necessary. Based on this analysis, Calderwood & Harkness LLP ("C&H") now estimates the revised all-in cost of this matter at $9.0 million to $10.5 million, encompassing C&H legal fees, expert fees payable to Ridgeline Forensic Advisory LLC ("Ridgeline"), e-discovery costs payable to Nexagen Document Solutions LLC ("Nexagen"), and anticipated mediation, settlement transaction, and trial-related expenses.
The key drivers of the increase over the original estimate are as follows:
(a) The scope and complexity of discovery far exceeded initial projections. C&H originally anticipated a document universe of approximately 200,000 to 400,000 documents. In practice, Nexagen processed approximately 2.3 million documents comprising 1.1 terabytes of data on the Verimark side alone. This volume was driven in large part by the motion-to-compel practice that was necessary to obtain financial records from Suncoast Room Management LLC, Coastal Palms' third-party revenue management vendor, which produced 312,000 additional documents following the Court's October 28, 2022 order granting Verimark's motion.
(b) The deposition program was more extensive than originally projected. Fourteen fact depositions and two expert depositions were conducted between January and June 2023, compared to an original estimate of eight to ten depositions. The expanded program was necessary to establish, through the testimony of property-level managers and accountants, a pattern of revenue underreporting directed by Randall Brecker and Nolan Prescott at the franchisor level.
(c) The expert phase required two affirmative expert reports—an initial damages report and a rebuttal report—from Dr. Sharon Kettlewell, CPA/CFF, CFE, of Ridgeline. The rebuttal report was necessitated by the defendants' retention of Prof. Grant Hargrove of Hargrove Economic Consulting Inc., whose counter-estimate of $6.2 million in underpayments required a detailed response.
(d) Full summary judgment briefing on cross-motions was required. The original budget assumed a single motion for partial summary judgment. In practice, Coastal Palms filed an aggressive cross-motion for summary judgment on all counts and its $12 million counterclaim, requiring comprehensive opposition briefing, two supporting research memoranda, and substantial additional associate time.
The following sections provide a detailed breakdown of actual expenditures, revised projections, variance analysis, and recommendations for next steps.
II. MATTER STATUS SUMMARY
A. Procedural Posture
The matter is currently at the summary judgment stage. Cross-motions for summary judgment have been fully briefed and are awaiting oral argument.
Verimark's Motion for Partial Summary Judgment on Count I (Breach of Contract — Royalties) and Count II (Breach of Contract — Marketing Fund Contributions) was filed on September 29, 2023. The motion seeks a determination of liability on these two counts as a matter of law based on the undisputed documentary evidence of gross room revenue ("GRR") underreporting across the 22 Coastal Palms-branded hotel properties during the 2013–2021 period.
In response, Coastal Palms Franchise Holdings LLC and its co-defendants filed a Cross-Motion for Summary Judgment on all counts in Verimark's complaint and on Coastal Palms' $12 million counterclaim for alleged wrongful termination of the franchise agreement and tortious interference with business relationships. The cross-motion was filed on October 13, 2023.
Response briefs were filed by both parties on November 17, 2023, and reply briefs were filed on December 8, 2023. The briefing is now complete.
Oral argument before the Honorable Richard M. Calloway has been scheduled for January 19, 2024. C&H anticipates that the Court will rule within two to four weeks following oral argument, although the complexity of the cross-motions and the voluminous evidentiary record may extend the deliberation period.
Trial was originally set for February 2024; however, due to the pendency of the summary judgment motions and the anticipated need for post-ruling proceedings (whether mediation or trial preparation), C&H expects that the trial will be continued. The currently expected trial window, should the matter proceed to trial, is May 2024. C&H will request a scheduling conference promptly following the Court's summary judgment ruling to establish firm trial dates and any interim deadlines.
B. Key Developments Since Prior Budget Report
Since the most recent budget report provided in July 2023, the following significant developments have occurred in the matter:
discovery Closure. Fact and expert discovery closed on August 4, 2023, pursuant to the Court's Third Amended Case Management Order entered on February 3, 2023. No further discovery is anticipated unless the Court orders supplemental discovery in connection with the summary judgment ruling or pre-trial proceedings.
Expert Reports. The expert report phase was completed as follows:
• Plaintiff's expert report prepared by Dr. Sharon Kettlewell of Ridgeline Forensic Advisory LLC was served on April 14, 2023. Dr. Kettlewell's report addressed the reconstruction of GRR across all 22 Coastal Palms-branded properties for the 2013–2021 period, the quantification of $197.8 million in underreported GRR, the calculation of resulting underpayments, and the application of the contractual liquidated damages provision under Section 15.3 of the Franchise License Agreement.
• Defendant's expert report prepared by Prof. Grant Hargrove of Hargrove Economic Consulting Inc. was served on May 15, 2023. Prof. Hargrove's report challenged Dr. Kettlewell's GRR reconstruction methodology and presented an alternative damages estimate of $6.2 million.
• Plaintiff's rebuttal expert report prepared by Dr. Kettlewell was served on June 9, 2023, responding to Prof. Hargrove's methodology and defending the reliability of the GRR reconstruction approach.
Expert Depositions. Depositions of Dr. Kettlewell and Prof. Hargrove were conducted on June 26 and June 27, 2023, respectively. Both depositions were full-day proceedings. Dr. Kettlewell's deposition testimony was consistent with her reports, and C&H is confident in the strength of her anticipated trial testimony. Prof. Hargrove's deposition revealed certain weaknesses in his methodology that have been highlighted in the summary judgment briefing.
Summary Judgment Briefing. The summary judgment phase consumed substantial attorney time during the August through December 2023 period. The work performed included the following:
• Preparation of two research memoranda: (i) a memorandum on Florida franchise revenue-reporting law, including analysis of relevant provisions of the Florida Franchise Relationship Act and applicable case law in the Seventeenth Judicial Circuit; and (ii) a memorandum on the enforceability of liquidated damages provisions under Florida law, with particular focus on the standard articulated in Lefemine v. Baron, 573 So. 2d 326 (Fla. 1991), and its progeny.
• Preparation of a comprehensive strategy memorandum evaluating the strengths and vulnerabilities of a motion for partial summary judgment and recommending the scope and framing of the motion.
• Drafting of a 127-paragraph Statement of Undisputed Material Facts, supported by citations to depositions, document exhibits, and expert report exhibits.
• Drafting of a 42-page Memorandum of Law in Support of Plaintiff's Motion for Partial Summary Judgment on Counts I and II.
• Preparation of the opposition brief to Coastal Palms' Cross-Motion for Summary Judgment, addressing the defendants' arguments on all counts and the counterclaim.
• Preparation of reply briefs in further support of Verimark's motion and in opposition to the cross-motion.
Oral Argument Preparation. Analysis of the defendants' cross-motion arguments and preparation of an oral argument bench memo for Priya Anand is currently in progress and is expected to be completed by January 16, 2024. A moot session is scheduled for January 17, 2024.
III. ACTUAL EXPENDITURES THROUGH DECEMBER 31, 2023
The following sections provide a detailed breakdown of all costs incurred in connection with the Coastal Palms matter through December 31, 2023.
A. Calderwood & Harkness Fees (Incurred to Date)
C&H fees incurred through December 31, 2023 total approximately $5.8 million to $6.0 million. The blended effective rate across the C&H team is approximately $685 per hour. The following table provides a breakdown by timekeeper:
Note: The figures in the table above reflect estimated hours and fees for illustrative purposes. Actual billed amounts reflected on issued invoices may vary slightly due to billing adjustments, write-downs, and rounding. The total C&H fees incurred figure of $5.8M–$6.0M includes additional time entries for of-counsel attorneys, specialized research staff, and administrative time that are not separately broken out in this summary.
The following narrative describes the primary contributions of each timekeeper:
Priya Anand has served as Responsible Partner since the inception of the matter in March 2022. Ms. Anand has been responsible for overall case strategy, key deposition examination (including the two-day deposition of Randall Brecker and the depositions of Nolan Prescott and Janet Kerrigan), expert retention and management, and summary judgment strategy. Ms. Anand will serve as lead trial counsel if the matter proceeds to trial and will argue the January 19, 2024 oral argument on the cross-motions for summary judgment.
Douglas Carmichael has served as Billing Partner and has been responsible for client communications, budget management, and litigation cost oversight. Mr. Carmichael has also participated in strategic case conferences, deposition preparation sessions, and review of major filings.
Yuki Nakamura has served as Lead Associate and has been the primary drafter of all substantive filings, including the summary judgment papers. Ms. Nakamura has also managed the day-to-day coordination of the case, including discovery management, liaison with Nexagen regarding the e-discovery workflow, coordination with Ridgeline regarding expert analysis, and supervision of the document review team. Ms. Nakamura's hours represent the largest share of the C&H team's time commitment, reflecting her central role in all phases of the matter.
Carlos Espinoza has served as Working Associate and has been responsible for deposition preparation (including preparation of deposition outlines and witness binders for all 14 fact depositions), damages analysis support in coordination with Ridgeline, preparation of the two research memoranda on Florida franchise law and liquidated damages, and research and drafting in support of the summary judgment briefing.
Paralegals and Contract Attorneys have provided support for document review (including first-level review and privilege review of approximately 2.3 million documents processed by Nexagen), deposition logistics (scheduling, subpoena service, exhibit compilation), and exhibit preparation for the summary judgment filings.
B. Expert Fees — Ridgeline Forensic Advisory LLC
Ridgeline Forensic Advisory LLC was retained in June 2022 to serve as Verimark's damages expert in this matter. The engagement is led by Dr. Sharon Kettlewell, CPA/CFF, CFE, a nationally recognized forensic accountant with extensive experience in franchise revenue disputes. Ridgeline bills at a principal rate of $475 per hour (Dr. Kettlewell) and a staff rate of $325 per hour for supporting analysts.
The scope of Ridgeline's engagement has encompassed the following:
• Reconstruction of GRR across all 22 Coastal Palms-branded hotel properties for the 2013–2021 period, based on analysis of property management system data, bank records, third-party booking platform data, Suncoast Room Management records, and internal accounting records produced in discovery.
• Quantification of $197.8 million in underreported GRR, representing the aggregate difference between reported GRR (on which royalties and other fees were calculated) and actual GRR as reconstructed.
• Calculation of $9.89 million in underpaid royalties (5% of underreported GRR), $4.945 million in underpaid marketing fund contributions (2.5% of underreported GRR), and $1.26 million in underpaid technology fees.
• Development of a compounding interest model yielding $28.4 million in accrued interest on the underpayments, calculated at the contractual default rate of 18% per annum.
• Computation of $105.5 million in liquidated damages under Section 15.3 of the Franchise License Agreement ("FLA § 15.3"), which provides for liquidated damages of three times the aggregate underpayment in the event of intentional underreporting.
• Preparation of the expert report served on April 14, 2023, the rebuttal report served on June 9, 2023, and preparation for Dr. Kettlewell's deposition on June 26, 2023.
Ridgeline fees incurred through December 31, 2023 total approximately $1.65 million to $1.70 million of a projected total engagement fee of approximately $1.85 million. The remaining projected spend of approximately $150,000 to $200,000 relates primarily to Dr. Kettlewell's trial testimony preparation, including preparation of demonstrative exhibits, review of anticipated cross-examination themes, and pre-trial conference attendance.
C. E-discovery Costs — Nexagen Document Solutions LLC
Nexagen Document Solutions LLC was retained in April 2022 to provide e-discovery services for the Coastal Palms matter. The scope of Nexagen's engagement has included data collection, processing, hosting, analytics (including technology-assisted review ("TAR") workflows), and production formatting.
On the Verimark side, Nexagen processed approximately 2.3 million documents comprising approximately 1.1 terabytes of data. This volume significantly exceeded the original estimate of 200,000 to 400,000 documents, driven in large part by the breadth of the relevant data sources across 22 hotel properties, the Suncoast Room Management records obtained through the motion-to-compel practice, and the length of the relevant time period (2013–2021).
Nexagen costs incurred through December 31, 2023 total approximately $700,000 to $720,000 of a projected total of approximately $742,000. The remaining projected spend is minimal and relates to trial exhibit preparation and potential supplemental hosting charges through the conclusion of the matter. C&H notes that Nexagen's per-unit processing and hosting rates have remained consistent with the rates established in the Nexagen engagement letter of April 15, 2022, and that the cost overrun is attributable entirely to the unanticipated volume of data.
D. Court Reporter and Deposition Costs
Court reporter and deposition costs incurred through December 31, 2023 total approximately $124,500. This amount is substantially complete, as all depositions in the matter have been conducted. The depositions were as follows:
Fact Depositions (January 9 – March 17, 2023):
1. Randall Brecker (CEO, Coastal Palms Franchise Holdings LLC) — two-day deposition, January 9–10, 2023
2. Theresa Brecker (COO, Coastal Palms Franchise Holdings LLC) — January 17, 2023
3. Nolan Prescott (CFO, Coastal Palms Franchise Holdings LLC) — January 24, 2023
4. Janet Kerrigan (VP of Finance, Coastal Palms Franchise Holdings LLC) — January 31, 2023
5. David Ortega (General Manager, Coastal Palms Fort Lauderdale Beach) — February 7, 2023
6. Maria Chen (Controller, Coastal Palms Miami Airport) — February 9, 2023
7. William Tabor (General Manager, Coastal Palms Tampa Bay) — February 14, 2023
8. Karen Lipscomb (Director of Revenue, Suncoast Room Management LLC) — February 16, 2023
9. Antoine DuBois (General Manager, Coastal Palms Orlando Convention Center) — February 21, 2023
10. Rachel Stroud (Accounting Manager, Coastal Palms Jacksonville Riverfront) — February 23, 2023
11. Thomas Yee (General Manager, Coastal Palms West Palm Beach) — March 1, 2023
12. Stephanie Vasquez (Controller, Coastal Palms Sarasota Waterfront) — March 7, 2023
13. James Callahan (General Manager, Coastal Palms Naples Gulf Shore) — March 10, 2023
14. Patricia Drummond (30(b)(6) designee, Suncoast Room Management LLC) — March 17, 2023
Expert Depositions (June 26–27, 2023):
15. Dr. Sharon Kettlewell (Plaintiff's expert) — June 26, 2023
16. Prof. Grant Hargrove (Defendant's expert) — June 27, 2023
The court reporter costs include original transcripts, certified copies, videography for five key depositions (Brecker, Brecker, Prescott, Kerrigan, and Lipscomb), and real-time reporting for the Brecker two-day deposition.
E. Other Costs
Filing fees, service of process, courier services, and travel expenses incurred through December 31, 2023 total approximately $15,000 to $20,000. This category includes circuit court filing fees for the initial complaint, amended complaint, and summary judgment filings; process server fees for service on Coastal Palms and its co-defendants; courier and express delivery charges; and travel expenses for depositions conducted outside Broward County (including depositions in Tampa and Jacksonville).
No mediation costs have been incurred to date, as mediation has not yet been proposed or ordered. C&H anticipates that mediation will be appropriate following the summary judgment ruling, as discussed in Section IV.B below.
F. Summary of Total Expenditures Incurred Through December 31, 2023
The following table summarizes all costs incurred in connection with the Coastal Palms matter through December 31, 2023:
For planning purposes, C&H uses a midpoint incurred cost figure of approximately $8.4 million.
IV. REVISED BUDGET PROJECTIONS — REMAINING PHASES
The following sections set forth C&H's revised budget projections for the remaining phases of the Coastal Palms matter. These projections are organized by phase, with each phase presenting a range based on the level of effort that may be required depending on the outcome of earlier phases and the parties' settlement posture.
A. Phase 1: Summary Judgment Resolution (January – February 2024)
The immediate next milestone in the matter is the oral argument on the cross-motions for summary judgment, which is scheduled for January 19, 2024 before the Honorable Richard M. Calloway.
Remaining work in this phase includes:
• Oral argument preparation: Preparation of a comprehensive bench memorandum for Priya Anand, including analysis of anticipated questions from the Court, identification of key record citations, and preparation of concise responses to each of the defendants' summary judgment arguments. Additionally, C&H will conduct a moot session on January 17, 2024, with Mr. Carmichael and Ms. Nakamura serving as the moot panel. Estimated time: 40–60 hours across Anand, Nakamura, and Espinoza.
• Oral argument attendance: Ms. Anand will attend and argue the January 19, 2024 hearing. Mr. Carmichael will attend as second chair. Ms. Nakamura will attend to assist with record references and real-time research if needed.
• Post-argument analysis: Following the oral argument, C&H will prepare a post-argument assessment memorandum for Verimark management, analyzing the Court's likely disposition based on the tenor of the hearing and the questions posed. If the Court requests supplemental briefing on any issue, C&H will prepare and file such briefing promptly.
Estimated additional C&H fees for Phase 1: $35,000 – $55,000.
C&H anticipates that the Court will issue its ruling within two to four weeks of the oral argument, although this timeline is subject to the Court's docket and the complexity of the issues presented. The ruling will significantly affect the trajectory and cost of the remaining phases. A favorable ruling on Verimark's motion for partial summary judgment on Counts I and II would establish liability and narrow the remaining issues for trial (or settlement) to the question of damages. A ruling denying both motions would send the matter to trial on all issues.
B. Phase 2: Mediation / Settlement (If Pursued)
C&H anticipates a strong probability that the parties will engage in mediation following the summary judgment ruling, regardless of the outcome. A favorable partial summary judgment ruling on liability (Counts I and II) would significantly enhance Verimark's settlement leverage by eliminating the defendants' ability to contest liability and focusing the remaining dispute on the quantum of damages and the enforceability of the liquidated damages provision.
Even in the event of an unfavorable ruling (denial of Verimark's motion), C&H believes mediation would be productive given the strength of the record and the cost of trial for both parties. The Court may also order mediation as part of its pre-trial case management.
C&H has identified the Honorable Patricia Everwood (Ret.) of Everwood Dispute Resolution PLLC in Coral Gables, Florida, as a potential mediator. Judge Everwood is a retired Broward County Circuit Judge with extensive experience in complex commercial and franchise disputes. Her rate for a two-day mediation session is $22,500 per day, which would be split equally between the parties.
The budget for this phase is as follows:
• Mediator fees (Verimark's share): $35,000 – $45,000 for a two-day mediation session, including pre-mediation conference calls and review of mediation submissions.
• C&H mediation preparation: Preparation of a confidential mediation statement, settlement-authority analysis and recommendation memorandum, damages-model presentation (including demonstrative exhibits prepared with Ridgeline), and attendance at the mediation. Estimated time: 80–120 hours across the C&H team. Estimated C&H fees: $60,000 – $90,000.
• Settlement documentation (if settlement reached): In the event that the parties reach a settlement at mediation or in post-mediation negotiations, C&H will prepare and negotiate definitive settlement documentation. Given the complexity of the franchise relationship, the number of properties involved, and the likely need for security arrangements (liens, guarantees, or escrow), the settlement documentation phase is expected to require 100–200 hours of attorney time. The documentation would include a comprehensive settlement agreement, franchise surrender and termination documentation, UCC-1 financing statement filings to secure any installment payment obligations, closing logistics and coordination, and any required regulatory filings. Estimated C&H fees for settlement documentation: $75,000 – $150,000.
Estimated total additional costs for Phase 2: $170,000 – $285,000 (including mediator fees, C&H preparation and attendance, and settlement documentation, if applicable).
C. Phase 3: Trial Preparation (If No Settlement)
In the event that settlement efforts are unsuccessful, C&H will proceed with trial preparation. Trial is currently expected in May 2024, which would represent a continuance from the original February 2024 trial date.
Trial preparation will encompass the following work:
• Pretrial motions: Preparation and filing of motions in limine to exclude or limit certain categories of evidence, including anticipated Daubert-type challenges to the admissibility of Prof. Hargrove's expert testimony. C&H will also prepare a comprehensive trial brief addressing the key legal issues.
• Witness preparation: Preparation of all fact and expert witnesses for trial testimony. Fact witness preparation will include sessions with key Verimark corporate representatives and, to the extent cooperating, third-party witnesses. Expert witness preparation will include multiple sessions with Dr. Kettlewell to prepare her direct examination testimony and to rehearse anticipated cross-examination by defense counsel.
• Trial exhibit compilation: Assembly and organization of the trial exhibit binder, including identification and designation of key documents from the 2.3 million-document universe, preparation of demonstrative exhibits and summary charts, and coordination with trial technology vendors for electronic presentation of exhibits in the courtroom.
• Jury instructions or findings of fact: Depending on whether the case is tried to a jury or to the bench, C&H will prepare proposed jury instructions and verdict forms or proposed findings of fact and conclusions of law for the Court.
Estimated additional C&H fees for Phase 3: $350,000 – $550,000.
Ridgeline remaining fees (Dr. Kettlewell trial testimony preparation): $150,000 – $200,000.
D. Phase 4: Trial (If No Settlement)
If the matter proceeds to trial, C&H anticipates a trial duration of 8 to 12 days, based on the number of witnesses, the volume of documentary evidence, and the complexity of the damages issues.
The C&H trial team will consist of Priya Anand (lead trial counsel), Douglas Carmichael (second chair), Yuki Nakamura (witness examination, exhibit management, and real-time brief-writing), Carlos Espinoza (witness preparation support and research), and paralegal support for exhibit logistics and trial technology.
• Estimated additional C&H fees for trial attendance and daily preparation: $250,000 – $400,000. This estimate reflects the fully loaded cost of the trial team for 8 to 12 trial days, including evening preparation sessions, daily witness preparation, and ongoing legal research to address issues arising during trial.
• Trial-related costs: Trial presentation technology (electronic exhibit display, courtroom presentation equipment), hard-copy exhibit reproduction, daily trial transcripts, lodging and travel for the C&H trial team (if trial is held in a venue requiring overnight accommodations), and miscellaneous trial expenses. Estimated trial-related costs: $30,000 – $50,000.
Estimated total additional costs for Phase 4: $280,000 – $450,000.
E. Post-Trial (Contingent)
Post-trial motions (including renewed motions for judgment as a matter of law, motions for new trial, and motions for remittitur or additur) and any potential appeal are not budgeted at this stage. If post-trial proceedings become necessary, C&H will prepare a separate budget estimate at that time. C&H notes that a favorable trial verdict or a successful settlement would eliminate the need for post-trial proceedings entirely.
For purposes of financial planning, C&H advises Verimark that a contested appeal in the Fourth District Court of Appeal could add an estimated $500,000 to $1,000,000 in additional legal fees, depending on the scope of the issues on appeal and the length of the appellate briefing. However, this estimate is highly preliminary and contingent, and C&H does not recommend accruing for appellate costs at this time.
V. REVISED TOTAL BUDGET ESTIMATE
Based on the actual expenditures set forth in Section III and the revised projections set forth in Section IV, C&H presents two budget scenarios, depending on whether the matter resolves through settlement or proceeds to trial.
A. Scenario 1: Settlement Before Trial (More Likely Scenario)
C&H believes that settlement prior to trial is the more likely outcome, particularly if Verimark obtains a favorable partial summary judgment ruling on Counts I and II. In this scenario, the matter would conclude following the mediation/settlement phase, and no trial preparation or trial costs would be incurred.
Rounded Scenario 1 Total: approximately $9.0 million – $9.5 million.
B. Scenario 2: Trial Required (Less Likely but Possible)
In the event that settlement efforts are unsuccessful and the matter proceeds to trial, the budget would include additional costs for trial preparation, trial attendance, and associated expenses. This scenario assumes a trial of 8 to 12 days and does not include post-trial motions or appeal.
Rounded Scenario 2 Total: approximately $9.5 million – $10.5 million.
C. Combined Range
Taking both scenarios into account, the revised all-in estimate for the Coastal Palms matter is $9.0 million to $10.5 million.
This compares to the original estimate of $4.5 million to $7.5 million provided in the Matter Budget Memorandum dated March 10, 2022. The primary variance drivers are discussed in Section VI below.
C&H acknowledges that the revised estimate represents a material increase from the original budget. As discussed in Section VII, however, the litigation costs remain a relatively modest percentage of the total claimed damages and of a realistic settlement recovery range, and C&H believes the matter continues to present a favorable cost-benefit profile for Verimark.
VI. VARIANCE ANALYSIS — ORIGINAL VS. REVISED BUDGET
The following analysis identifies and quantifies the primary drivers of the variance between the original March 2022 budget estimate and the revised January 2024 estimate.
A. Discovery Phase Overrun
The discovery phase accounted for the single largest source of budget variance. The original estimate assumed a document universe of approximately 200,000 to 400,000 documents on the Verimark side, based on C&H's preliminary assessment of the likely scope of relevant data. In practice, the actual document volume was 2.3 million documents comprising 1.1 terabytes of data — approximately six to ten times the original projection.
Several factors contributed to this increase:
• Breadth of the franchise portfolio. The 22 Coastal Palms-branded hotel properties each maintained independent property management systems, accounting records, and revenue reporting data. The need to collect, process, and review data from each property multiplied the document volume beyond original expectations.
• Length of the relevant period. The 2013–2021 period for GRR reconstruction spanned nine years of financial data across all 22 properties, generating a substantially larger universe of responsive documents than originally anticipated.
• Suncoast Room Management records. The defendants' initial refusal to produce financial records from Suncoast Room Management LLC, their third-party revenue management vendor, required Verimark to file a Motion to Compel on September 15, 2022, which was granted by the Court on October 28, 2022. Compliance with the Court's order produced an additional 312,000 documents that required processing, review, and integration into the existing document database. The motion-to-compel practice itself consumed approximately 80 hours of C&H attorney time.
• TAR workflow iterations. The volume of documents required multiple iterations of the TAR workflow to achieve acceptable recall and precision rates, adding processing and review costs.
The expanded discovery phase also resulted in a more extensive deposition program than originally anticipated. C&H originally estimated 8 to 10 fact depositions; in practice, 14 fact depositions were conducted. The additional depositions were necessary to establish a pattern of direction from Randall Brecker and Nolan Prescott at the corporate level that drove the revenue underreporting at the individual property level. The depositions of 10 property-level managers and accountants were critical to establishing this pattern and will be essential evidence at trial or in support of settlement negotiations.
Nexagen e-discovery costs exceeded the original projection by approximately $200,000 to $300,000, driven entirely by the increased data volume. Per-unit rates remained unchanged from the original engagement terms.
B. Expert Phase
The Ridgeline engagement, with a projected total of approximately $1.85 million, falls at the high end of the original estimate range. The primary drivers of this cost were:
• Complexity of GRR reconstruction. Reconstructing actual GRR across 22 hotel properties over a 9-year period required extensive data analysis, cross-referencing of multiple data sources (property management systems, bank records, third-party booking platform data, and Suncoast Room Management records), and property-by-property calculation of underreported revenue. The scope of this analysis was substantially more labor-intensive than originally projected.
• Rebuttal report. The defendants' retention of Prof. Grant Hargrove, whose counter-estimate of $6.2 million in underpayments challenged Dr. Kettlewell's methodology, required the preparation of a detailed rebuttal report. The rebuttal report was not included in the original budget estimate, which assumed that a single expert report would be sufficient.
• Expert deposition preparation and attendance. The deposition of Dr. Kettlewell required two full preparation sessions and a full day of testimony. While expert depositions were included in the original budget, the need for extensive preparation to address Prof. Hargrove's criticisms added to the cost.
C. Summary Judgment Phase
The original budget estimate assumed that Verimark would file a single motion for partial summary judgment and that the defendants would file an opposition brief. The actual summary judgment practice was substantially more extensive:
• Cross-motions. Coastal Palms filed an aggressive cross-motion for summary judgment on all counts in Verimark's complaint and on its $12 million counterclaim. This cross-motion required C&H to prepare a comprehensive opposition brief addressing multiple independent grounds for summary judgment, in addition to the reply brief in support of Verimark's own motion.
• Supporting research memoranda. The two research memoranda prepared in support of the summary judgment briefing (Florida franchise revenue-reporting law; liquidated damages enforceability) added approximately 120 associate hours that were not anticipated in the original budget.
• Scope of the summary judgment papers. The 127-paragraph Statement of Undisputed Material Facts and the 42-page Memorandum of Law required extensive review of the deposition transcripts, document exhibits, and expert reports, and consumed substantially more attorney time than a typical partial summary judgment motion.
D. Extended Timeline
The continuance of the trial date from February 2024 to May 2024 extends the timeline of the matter and generates incremental costs, including:
• Continued Nexagen hosting and data-preservation charges for the 2.3 million-document database.
• Additional status conferences and scheduling proceedings.
• Extended administrative and case management costs.
While the incremental costs associated with the timeline extension are relatively modest in the context of the overall budget, they contribute to the upward pressure on the revised estimate.
VII. COLLECTIBILITY AND COST-BENEFIT CONSIDERATIONS
C&H recognizes that the revised budget represents a significant investment by Verimark, and it is appropriate to evaluate the litigation costs in the context of the potential recovery.
Total Claimed Damages. Verimark's total claimed damages in the Coastal Palms matter are approximately $150 million, comprised of the following components:
Collectibility Considerations. The collectibility of any judgment or settlement is subject to certain risks and constraints, including:
• Senior lien positions. Ironclad National Bank holds first-lien mortgages on 18 of the 22 Coastal Palms-branded hotel properties, with an approximate aggregate outstanding balance of $94 million. This senior lien position constrains Verimark's ability to recover against the real property collateral securing those properties, as any judgment lien would be subordinate to Ironclad's mortgage interests.
• Unencumbered properties. Eight of the 22 properties are unencumbered (i.e., free of first-lien mortgage debt), with an aggregate appraised value of approximately $71.2 million. These properties could serve as collateral for a settlement security arrangement or as a source of recovery in a post-judgment execution scenario.
• Personal assets. The personal assets of Randall Brecker and Nolan Prescott may provide additional recovery sources. C&H has not conducted a comprehensive asset search at this time, but public records indicate that Mr. Brecker owns residential real property in Coral Gables and Aspen, Colorado, and that Mr. Prescott holds interests in several non-party business entities.
Cost-Benefit Analysis. At the midpoint of the revised budget range ($9.75 million), the total litigation costs represent:
• Approximately 6.0% to 7.0% of the total claimed damages of approximately $150 million.
• Approximately 10.3% to 12.0% of a realistic settlement recovery range, which C&H estimates at $80 million to $95 million based on a risk-adjusted analysis that accounts for potential reduction or elimination of the liquidated damages claim, the uncertainty surrounding the enforceability of the contractual interest rate, and collectibility constraints.
C&H believes these ratios are within acceptable parameters for a complex commercial franchise dispute of this magnitude, and that the litigation continues to present a favorable cost-benefit profile for Verimark.
Insurance Coverage. Verimark maintains a litigation expense insurance policy with Pinnacle Indemnity Insurance Co. under Policy No. PLI-VHG-2021-08874, which may offset a portion of the litigation costs incurred in this matter. C&H notified Pinnacle of the Coastal Palms matter by letter dated March 14, 2022, addressed to Arthur Baines, Claims Counsel. As of the date of this memorandum, the coverage determination remains pending. C&H recommends that Verimark follow up with Pinnacle to obtain a coverage determination as soon as practicable, as discussed in the Recommendations section below.
VIII. BILLING AND PAYMENT STATUS
C&H is pleased to report that all invoices issued in connection with the Coastal Palms matter are current through the November 2023 billing cycle. There are no outstanding balances or past-due amounts.
The December 2023 invoice is currently in preparation and is expected to be delivered to Verimark no later than January 15, 2024. The December invoice will reflect the final summary judgment briefing work, including preparation of reply briefs and commencement of oral argument preparation.
C&H appreciates Verimark's consistent prompt-payment history throughout this engagement. Current billing terms remain net 30 days from invoice date, as established in the engagement letter dated March 7, 2022. C&H does not anticipate any changes to these terms.
C&H will continue to issue monthly invoices with detailed time entries organized by phase of the matter, consistent with Verimark's outside counsel billing guidelines. Any questions regarding individual invoices should be directed to Douglas Carmichael or to C&H's billing coordinator, Jennifer Whitfield, at jwhitfield@calderwoodharkness.com.
IX. RECOMMENDATIONS
Based on the current status of the matter and the revised budget analysis set forth herein, C&H respectfully offers the following recommendations for Verimark's consideration:
1. Oral Argument. Priya Anand will argue the cross-motions for summary judgment at the January 19, 2024 hearing before Judge Calloway. Ms. Anand is fully prepared for this argument, and no additional budget authorization is needed for this phase. C&H will provide Verimark with a post-argument assessment memorandum promptly following the hearing.
2. Mediation Planning. C&H recommends that Verimark begin considering its mediation posture and settlement authority in anticipation of a post-ruling mediation process. The summary judgment ruling will substantially affect the parties' respective negotiating positions, and Verimark should be prepared to move quickly toward mediation once the ruling is issued. C&H will prepare a detailed settlement-authority memorandum, including a risk-adjusted analysis of the full range of potential outcomes, once the Court rules on the cross-motions. In the interim, C&H recommends that Mr. Holcomb and Ms. Solis-Vega begin internal discussions with senior management regarding Verimark's settlement objectives and floor.
3. Insurance Recovery. C&H recommends that Verimark follow up with Pinnacle Indemnity Insurance Co. regarding the coverage determination under Policy No. PLI-VHG-2021-08874. Given the magnitude of the litigation costs incurred to date and the potential for significant additional costs through trial, any insurance recovery would meaningfully offset Verimark's net litigation expense. C&H is prepared to assist Verimark in its communications with Pinnacle if directed to do so.
4. Board / Audit Committee Notification. Given that total litigation costs will materially exceed the original budget estimate and that the matter may result in a material settlement, C&H recommends that Mr. Holcomb coordinate with Verimark's audit committee regarding updated accruals for SEC disclosure purposes. Verimark is publicly traded on the Nasdaq Stock Market under the ticker symbol VHMK, and the company's disclosure obligations under ASC 450 (Contingencies) may require updated disclosure in Verimark's annual report on Form 10-K for the fiscal year ended December 31, 2023, or in subsequent quarterly reports on Form 10-Q. C&H recommends that Verimark's external auditors be informed of the revised budget range and the current posture of the litigation so that appropriate loss contingency accruals can be established. C&H is available to participate in discussions with Verimark's auditors if requested.
5. Budget Cap. In light of the revised budget analysis, C&H requests that Verimark confirm revised budget authorization at the $10.5 million level. This authorization would provide sufficient flexibility to take the matter through trial if settlement efforts are unsuccessful, without the need for further budget approval during a period when the C&H team may need to proceed expeditiously with trial preparation. C&H commits to providing Verimark with prompt notice if actual expenditures approach the authorized cap and to obtaining supplemental authorization before exceeding it.
X. APPENDIX: SUMMARY BUDGET TABLE
The following table provides a consolidated comparison of the original March 2022 budget estimate and the revised January 2024 estimate, organized by phase and cost category:
Notes: (1) "Variance" reflects the range of potential overrun or underrun relative to the original estimate. Negative values in parentheses indicate potential underrun. (2) Trial Preparation and Trial phase estimates may decline or be eliminated if the matter settles prior to trial. (3) Post-Trial costs are not budgeted at this stage and would require a separate estimate. (4) Figures may not sum precisely due to rounding and the use of estimate ranges.
CLOSING
C&H remains committed to the efficient and effective prosecution of Verimark's claims in the Coastal Palms matter. We believe the case remains strong on the merits, and we are cautiously optimistic about the prospects for a favorable summary judgment ruling on Counts I and II, which would position Verimark well for a favorable settlement or, if necessary, a successful trial outcome.
I am available to discuss this budget update at your convenience, whether by telephone, videoconference, or in-person meeting. Please do not hesitate to contact me directly at the information below. I would also be happy to arrange a joint call with Priya Anand to address any substantive questions regarding case strategy or the remaining litigation phases.
A copy of this memorandum has been provided to Renata Solis-Vega, SVP & General Counsel of Verimark Hospitality Group Inc., and to Priya Anand, Responsible Partner at Calderwood & Harkness LLP.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Douglas Carmichael Billing Partner, Litigation (General) Florida Bar No. 0093217
110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 Telephone: (954) 555-4200
Email: dcarmichael@calderwoodharkness.com
CONFIDENTIALITY NOTICE: This memorandum and any attachments are protected by the attorney-client privilege and/or the work product doctrine. This communication is intended only for the use of the addressee(s) listed above. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copying of this memorandum is strictly prohibited. If you have received this memorandum in error, please notify Douglas Carmichael immediately at (954) 555-4200 and delete all copies.
Timekeeper | Role | Rate ($/hr) | Estimated Hours Billed (through 12/31/2023) | Estimated Fees Billed
Priya Anand | Responsible Partner | $975 | ~1,050 of projected ~1,400 total | ~$1,023,750
Douglas Carmichael | Billing Partner | $925 | ~420 of projected ~600 total | ~$388,500
Yuki Nakamura | Lead Associate | $625 | ~3,100 of projected ~3,800 total | ~$1,937,500
Carlos Espinoza | Working Associate | $495 | ~2,250 of projected ~2,900 total | ~$1,113,750
Paralegals / Contract Attorneys | Support | ~$285 (blended) | ~940 of projected ~1,250 total | ~$267,900
Total | ~7,760 | ~$4,731,400
Category | Amount Incurred
Calderwood & Harkness Legal Fees | $5,800,000 – $6,000,000
Ridgeline Forensic Advisory LLC (Expert Fees) | $1,650,000 – $1,700,000
Nexagen Document Solutions LLC (E-discovery) | $700,000 – $720,000
Court Reporter / Deposition Costs | $124,500
Other Costs (Filing, Service, Travel, Courier) | $15,000 – $20,000
Total Incurred Through 12/31/2023 | $8,289,500 – $8,564,500
Category | Estimated Total
Calderwood & Harkness Legal Fees | $6,000,000 – $6,500,000
Ridgeline Forensic Advisory LLC (Expert Fees) | $1,700,000 – $1,850,000
Nexagen Document Solutions LLC (E-discovery) | $742,000
Mediation / Settlement Transaction Costs (Mediator + C&H settlement documentation) | $100,000 – $200,000
Court Reporter / Deposition Costs | $124,500
Other Costs | $20,000 – $30,000
Scenario 1 Total | $8,686,500 – $9,446,500
Category | Estimated Total
Calderwood & Harkness Legal Fees | $6,500,000 – $7,200,000
Ridgeline Forensic Advisory LLC (Expert Fees) | $1,850,000
Nexagen Document Solutions LLC (E-discovery) | $742,000 – $780,000
Court Reporter / Deposition + Trial Costs | $155,000 – $175,000
Other Costs | $30,000 – $50,000
Scenario 2 Total | $9,277,000 – $10,055,000
Damages Component | Amount
Underpaid Royalties (5% of $197.8M underreported GRR) | $9,890,000
Underpaid Marketing Fund Contributions (2.5% of $197.8M underreported GRR) | $4,945,000
Underpaid Technology Fees | $1,260,000
Subtotal — Direct Underpayments | $16,095,000
Compounding Interest (18% contractual default rate) | $28,400,000
Liquidated Damages (FLA § 15.3 — 3x aggregate underpayment) | $105,500,000
Total Claimed Damages | ~$150,000,000
Phase / Category | Original Estimate (March 2022) | Actual / Revised Estimate (January 2024) | Variance | Status
Pleadings & Early Case Management | $150K – $250K | $195K | ($55K) – $45K | Complete
Discovery (Fact) | $1,200K – $2,000K | $2,450K | $450K – $1,250K | Complete
Discovery (Expert) | $250K – $400K | $485K | $85K – $235K | Complete
Depositions (C&H Time) | $400K – $650K | $725K | $75K – $325K | Complete
E-discovery (Nexagen) | $450K – $550K | $742K | $192K – $292K | Substantially Complete
Summary Judgment | $350K – $500K | $875K | $375K – $525K | Substantially Complete
Mediation / Settlement | $150K – $300K | $170K – $285K | ($130K) – $135K | Not Yet Commenced
Trial Preparation | $500K – $900K | $350K – $550K | ($550K) – $50K | Pending
Trial | $300K – $600K | $280K – $450K | ($320K) – $150K | Pending
Post-Trial | $100K – $200K | Not Budgeted | N/A | Contingent
Expert Fees (Ridgeline) | $800K – $1,200K | $1,700K – $1,850K | $500K – $1,050K | Substantially Complete
Court Reporter / Deposition Costs | $80K – $120K | $124.5K – $175K | $4.5K – $95K | Substantially Complete
Other Costs (Filing, Travel, etc.) | $20K – $30K | $20K – $50K | $0 – $20K | Ongoing
Grand Total | $4,500K – $7,500K | $9,000K – $10,500K | $1,500K – $6,000K