1035-00004 · Client 1035 · Analysis

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CALDERWOOD & HARKNESS LLP

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work-product doctrine. It is intended solely for the use of the individuals to whom it is addressed and should not be disclosed to any third party without prior authorization from the undersigned.

MEMORANDUM

TO: Samuel Eklund, Partner; Linda Osei, Partner

FROM: Jeffrey Park, Senior Associate; Yuki Nakamura, Associate

DATE: November 18, 2022

RE: Fonseca v. Rennick — Case Assessment and Litigation Strategy Matter No. 1035-00004

I. EXECUTIVE SUMMARY

This memorandum provides our assessment of the claims and defenses arising from Marisol Fonseca's dispute with her business partner, Desmond R. Rennick, in connection with the operation of Coastal Meridian Productions LLP ("CMP"), EIN 83-2197644, a California limited liability partnership formed to develop, produce, and exploit feature-length motion pictures. Based on our review of the available documents and the preliminary findings of our forensic consultant, we believe Ms. Fonseca has strong claims on the merits and recommend filing suit in early January 2023 if meaningful settlement progress is not achieved before that time.

On October 10, 2022, this matter was formally opened, and we sent a detailed demand letter on Ms. Fonseca's behalf to Desmond R. Rennick at 438 Georgina Avenue, Santa Monica, CA 90402. The demand letter required a full accounting of CMP's finances; payment of $1,309,385 in diverted partnership proceeds plus applicable interest; and the engagement of an independent, mutually agreed-upon accountant to review CMP's books and records on a go-forward basis. The demand letter set a thirty-day compliance deadline.

On November 2, 2022, Mr. Rennick responded through outside counsel, Elaine Chow of Hargrove, Pettit & Sun LLP, located at 800 South Figueroa Street, Suite 3100, Los Angeles, CA 90017. Ms. Chow's response categorically denies any breach of the Partnership Agreement or any fiduciary duty owed by Mr. Rennick to Ms. Fonseca. Specifically, Ms. Chow's letter advances the following positions:

• The management fees paid to Rennick Slate Ventures LLC ("RSV"), Mr. Rennick's wholly owned entity, in excess of the five-percent cap set forth in the Partnership Agreement were authorized under a "course of dealing" theory, pursuant to which Ms. Fonseca allegedly acquiesced to the higher fee schedule through her silence and acceptance of quarterly distributions over a period of several years.

• Revenue reclassifications that reduced the distributable profit pool — and, consequently, Ms. Fonseca's fifty-five-percent share — reflect legitimate accounting judgments made by CMP's outside accountant, Howard Moss, CPA, of Clearfield & Moss CPAs, located at 9100 Sunset Blvd., Suite 220, West Hollywood, CA 90069.

• Ms. Chow foreshadows a potential counterclaim, alleging that Ms. Fonseca breached the partnership's implied obligation of good faith by retaining Tillerman Forensic Advisory LLC — specifically Greta Sørensen, CPA, CFF, at 350 South Grand Avenue, Suite 1480, Los Angeles, CA 90071 — without Mr. Rennick's consent, thereby subjecting the partnership to unnecessary expense and adversarial scrutiny.

In preparing this memorandum, we have reviewed the following materials: the Hargrove, Pettit & Sun response letter dated November 2, 2022; CMP's quarterly financial statements for calendar years 2018 through the second quarter of 2022; and 142 invoices from RSV (EIN 84-3056178) that were produced informally by Mr. Rennick's counsel in connection with the demand process. We have also consulted with Greta Sørensen and her team at Tillerman Forensic Advisory regarding their preliminary findings; Tillerman's full forensic memorandum is expected on or about December 19, 2022.

Our overall assessment is that Ms. Fonseca holds a commanding position on the merits of her principal claims, particularly with respect to the excess management fees. The revenue-reclassification claim carries somewhat greater risk due to the potential accounting-judgment defense, but remains well-supported by documentary evidence. Mr. Rennick's threatened counterclaim appears meritless and should not deter the prosecution of Ms. Fonseca's claims. We recommend pursuing early mediation in tandem with a credible litigation posture — specifically, by filing suit in the Superior Court of California, County of Los Angeles, in early January 2023 — to maximize settlement leverage while preserving the option to litigate through trial if necessary.

II. BACKGROUND

A. The Partnership

Coastal Meridian Productions LLP was formed on March 8, 2017, pursuant to the California Revised Uniform Partnership Act (Cal. Corp. Code §§ 16100–16962) as a California limited liability partnership. The partnership's registered agent is Pacific Coast Registered Agents, Inc., located at 4200 Wilshire Blvd., Suite 610, Los Angeles, CA 90010. CMP's principal office is located at 1140 N. La Brea Avenue, Suite 300, Los Angeles, CA 90038, which also serves as the partnership's primary business address for purposes of correspondence and contractual obligations with third parties, including distributors, sales agents, and financial institutions.

The partnership is governed by a written Partnership Agreement dated March 8, 2017, which was amended once, on January 15, 2019, by a document styled "First Amendment to the Partnership Agreement of Coastal Meridian Productions LLP" (the "First Amendment"). The First Amendment addressed certain distribution-timing provisions and updated the profit-split recoupment schedule but, notably, did not modify the management-fee provisions of the original Partnership Agreement.

The capital contributions and equity interests of the partners are as follows:

• Marisol Fonseca: Capital contribution of $2,850,000, corresponding to a fifty-five percent (55%) equity interest in CMP.

• Desmond R. Rennick: Capital contribution of $2,331,818, corresponding to a forty-five percent (45%) equity interest in CMP.

• Total CMP Capitalization: $5,181,818 (calculated as $2,850,000 ÷ 0.55, which yields total capitalization consistent with the stated equity percentages).

Under the Partnership Agreement, after full recoupment of each partner's capital contribution with respect to a given film property, the profits derived from that property are to be split fifty-five percent (55%) to Ms. Fonseca and forty-five percent (45%) to Mr. Rennick, consistent with their respective equity interests.

Several provisions of the Partnership Agreement are directly relevant to the claims and defenses at issue:

• Section 6.2 — Management Fee Cap. Section 6.2 expressly caps management fees payable to a partner's designee at five percent (5%) of gross receipts per film property. This provision was specifically negotiated to constrain the fees that RSV or any similar affiliate entity could extract from CMP's revenue streams. The provision is drafted in mandatory terms and does not include any exception for course-of-dealing modifications or oral waivers.

• Section 12.3 — Fee Shifting. Section 12.3 provides for the recovery of reasonable attorney's fees and costs by the prevailing party in the event of a material breach of the Partnership Agreement. This provision is significant both as a potential component of Ms. Fonseca's recovery and as a source of additional settlement leverage.

• Amendment Clause. The Partnership Agreement contains an amendment provision requiring that any modification, amendment, or waiver of the Agreement be evidenced by a writing signed by both partners. This provision directly undermines Mr. Rennick's course-of-dealing defense, as discussed in greater detail in Section III below.

Under the governance structure established by the Partnership Agreement, Mr. Rennick was designated as the day-to-day Managing Partner, with sole signing authority over CMP's operating accounts at Ridgeline Commercial Bank. This arrangement was intended to facilitate the efficient management of production and distribution operations; however, as discussed below, it also created the opportunity for the self-dealing conduct that is the subject of Ms. Fonseca's claims.

It is also relevant to note that Ms. Fonseca personally guaranteed CMP's $1.4 million revolving credit facility with Ridgeline Commercial Bank, whose offices are located at 555 West 7th Street, 18th Floor, Los Angeles, CA 90014. This personal guaranty underscores Ms. Fonseca's material financial exposure to the partnership and the degree to which she relied on Mr. Rennick to manage CMP's finances with fidelity and transparency.

B. The Film Properties

CMP has produced and exploited four feature-length motion pictures during the period relevant to this dispute. The following table summarizes each film property and its aggregate gross receipts through the second quarter of 2022:

These four properties represent the entirety of CMP's revenue-generating portfolio. Salt Wind has been the partnership's most commercially successful film, generating $8,740,000 in gross receipts — nearly double the next highest-grossing property. Iron Lullaby, while released earlier, continues to generate significant residual revenue, particularly through domestic SVOD licensing. The Perdition Room and Nightjars have also performed respectably, contributing meaningfully to the partnership's overall revenue stream. The aggregate gross receipts of $23,220,000 form the baseline for the damages calculations discussed in Section IV of this memorandum.

C. RSV and the Self-Dealing Structure

Rennick Slate Ventures LLC ("RSV") was organized on June 22, 2018 — approximately three months after the theatrical release of CMP's first film, Iron Lullaby — by Mr. Rennick as its sole member. RSV is a California limited liability company with a registered address at 1925 Ocean Park Blvd., Suite 200, Santa Monica, CA 90405. RSV has no employees other than Mr. Rennick and no known clients other than CMP.

Beginning in the second half of 2018 and continuing through at least the second quarter of 2022, RSV invoiced CMP for three categories of services: (1) production management services; (2) post-production supervision; and (3) festival and distribution services. A total of 142 RSV invoices have been produced informally during the pre-litigation demand process. Each of these invoices bears only Mr. Rennick's approval signature, acting in his capacity as CMP's Managing Partner. None of the 142 invoices was countersigned by Ms. Fonseca, and none was submitted to Ms. Fonseca for review or approval prior to payment.

The self-dealing nature of this arrangement is patent. Mr. Rennick, acting as Managing Partner of CMP, approved and authorized payment of invoices submitted by RSV, an entity that Mr. Rennick solely owns and controls. The fees flowed directly from CMP's operating accounts — over which Mr. Rennick had sole signing authority — to RSV's accounts, effectively transferring partnership funds to Mr. Rennick's personal benefit without the knowledge, review, or consent of his partner.

Ms. Fonseca discovered these irregularities in the third quarter of 2022, when CMP's distributions to her fell approximately $1.18 million short of her independent projections based on publicly available and contractually reported revenue data for the four film properties. Upon discovering this discrepancy, Ms. Fonseca engaged Tillerman Forensic Advisory LLC on August 15, 2022, to conduct a preliminary review of CMP's financial records and RSV's invoicing history. Tillerman's preliminary findings, discussed in Section III below, confirmed and elaborated upon Ms. Fonseca's initial concerns.

III. LIABILITY ANALYSIS

A. Excess Management Fees (Claim 1 — Breach of Partnership Agreement / Breach of Fiduciary Duty)

The most straightforward and strongest of Ms. Fonseca's claims arises from the excess management fees paid by CMP to RSV in violation of the five-percent cap established by Section 6.2 of the Partnership Agreement.

The Contractual Cap. Section 6.2 provides, in relevant part, that management fees payable to "any entity designated by a Partner" shall not exceed five percent (5%) of gross receipts per film property. The language is clear, unambiguous, and mandatory. It does not include any exception, carve-out, or escalation mechanism. The provision was the product of arm's-length negotiation between the parties at the time the Partnership Agreement was executed, and it reflects the parties' mutual intent to limit the management fees extractable by affiliated entities to a level consistent with prevailing entertainment-industry norms.

The Permissible Amount. Applying the five-percent cap to CMP's aggregate gross receipts of $23,220,000 yields a maximum permissible management-fee payment of $1,161,000 ($23,220,000 × 5%).

The Actual Amount Paid. According to the 142 RSV invoices produced during the pre-litigation demand process, CMP paid a total of $2,694,500 to RSV in management fees over the relevant period.

The Excess. The excess management fees paid to RSV total $1,533,500 ($2,694,500 − $1,161,000). This excess was extracted from the partnership's revenue streams, reducing the distributable profit pool and, consequently, Ms. Fonseca's fifty-five-percent share of distributable profits.

Rennick's Defense — Course of Dealing. Mr. Rennick, through Ms. Chow's November 2, 2022 response letter, asserts that the excess fees were authorized under a course-of-dealing theory. Specifically, Ms. Chow contends that Ms. Fonseca acquiesced to the higher fee schedule through her silence over a period of several years and her continued acceptance of quarterly distributions during that period. The argument appears to be that Ms. Fonseca's failure to object to the fee levels — despite allegedly receiving quarterly financial statements that disclosed the RSV charges — constituted an implied amendment to the Partnership Agreement or, at minimum, a waiver of her rights under Section 6.2.

Weaknesses of the Course-of-Dealing Defense. We believe this defense is unlikely to succeed for several reasons:

First, the Partnership Agreement contains an express amendment clause requiring that any modification, amendment, or waiver of the Agreement be memorialized in a writing signed by both partners. There is no written amendment — and, indeed, no written communication of any kind — reflecting Ms. Fonseca's consent to management fees in excess of the five-percent cap. The First Amendment, executed on January 15, 2019, addressed distribution-timing provisions and the profit-split recoupment schedule but is entirely silent on management fees.

Second, to the extent Mr. Rennick argues that a course of dealing can override an express contractual provision requiring written amendments, California law is unfavorable to his position. The California Supreme Court has consistently held that a no-oral-modification clause is enforceable and that a course of dealing alone, absent clear and convincing evidence of mutual assent, is insufficient to modify a written contract. While there are narrow exceptions where a party's conduct is so unequivocal as to constitute a waiver, no such evidence exists here.

Third, the factual predicate for the course-of-dealing defense is weak. Ms. Fonseca did not receive detailed RSV invoices as part of her quarterly financial reports; she received summary-level financial statements that aggregated management fees into a single line item. The quarterly statements did not disclose the per-film fee percentages or compare those percentages to the Section 6.2 cap. Ms. Fonseca's acceptance of quarterly distributions does not constitute informed acquiescence when the underlying fee structure was not transparently disclosed.

Fourth, there is no email exchange, text message, voicemail, or other communication reflecting Ms. Fonseca's awareness of or consent to the excess fee arrangement. Our review of all available records has revealed no such evidence, and Mr. Rennick's counsel has not identified any specific communications supporting the defense.

Fiduciary Duty Analysis. Independent of the breach-of-contract claim, Mr. Rennick's conduct gives rise to a claim for breach of fiduciary duty under California law. Under California Corporations Code Section 16404(b)(2), a partner owes a duty of loyalty to the partnership that includes the obligation to account to the partnership for any benefit derived by the partner from transactions connected with the conduct of the partnership's business. This duty is heightened in the context of self-interested transactions, where the partner transacting with the partnership through an affiliated entity bears the burden of establishing that the transaction was fair, authorized, and conducted with the informed consent of the other partners.

Mr. Rennick, as CMP's Managing Partner, caused the partnership to pay $2,694,500 to RSV — an entity that he solely owns — without obtaining Ms. Fonseca's informed consent and in excess of the contractual cap on such payments. He has not produced evidence that he disclosed the nature and extent of the RSV fee arrangement to Ms. Fonseca, nor has he established that she gave informed consent to the self-interested transactions.

Tillerman's Preliminary Findings. Tillerman Forensic Advisory's preliminary analysis, which will be fully documented in the forensic memorandum expected on December 19, 2022, has flagged three specific categories of excess fees, each of which raises distinct concerns:

1. Post-Production Supervision Invoices ($814,600 — 37 invoices). RSV billed CMP $814,600 for "post-production supervision" on various film properties during periods when CMP had already separately engaged third-party post-production houses to perform substantially the same work. Tillerman has identified the third-party engagement agreements and corresponding invoices, which suggest that the RSV charges were duplicative and that no independent post-production supervision was actually performed by RSV.

2. Festival and Distribution Services Invoices ($412,900 — 18 invoices). RSV billed CMP $412,900 for "festival and distribution services" on films that had already completed their theatrical release windows. Tillerman has found no corresponding deliverables, travel records, festival attendance records, or distribution-related work product in CMP's files to support these charges. Several of the invoices reference festivals that had already concluded at the time the invoices were submitted.

3. Miscellaneous Charges Above Market Rate ($306,000). The remaining excess of approximately $306,000 is spread across various invoices for production management and related services. Tillerman's preliminary benchmarking analysis indicates that the rates charged by RSV exceeded comparable industry rates by approximately forty to sixty-five percent, even before accounting for the five-percent contractual cap.

Assessment. We estimate an eighty percent (80%) likelihood of prevailing on this claim. The contractual cap is unambiguous; the amendment clause undermines the course-of-dealing defense; and the preliminary forensic evidence strongly supports the conclusion that the excess fees were unauthorized and, in many instances, duplicative or unsupported by actual services rendered.

B. Improper Revenue Reclassifications (Claim 2 — Breach of Fiduciary Duty / Constructive Fraud)

In addition to the excess management fees, Mr. Rennick directed or authorized the reclassification of $847,200 in domestic distribution revenues as recoupable producer-advance repayments, thereby further reducing the distributable profit pool and depressing Ms. Fonseca's distributions. The reclassifications affected two of CMP's four film properties:

• Salt Wind: $538,200 in domestic home-entertainment revenue received in the third quarter of 2020 was reclassified from "distributable revenue" to "advance recoupment — Tranche B" on the Q3 2020 waterfall schedule. This reclassification had the effect of treating the revenue as a repayment of an outstanding producer advance rather than as profit distributable to the partners.

• Iron Lullaby: $309,000 in domestic SVOD (subscription video on demand) revenue received in the first quarter of 2021 was similarly reclassified from "distributable revenue" to "advance recoupment — Tranche B" on the Q1 2021 waterfall schedule.

• Total Reclassified Revenue: $538,200 + $309,000 = $847,200.

Timing Issue — Post-Recoupment Reclassification. Tillerman's preliminary analysis indicates that the Tranche B producer advances for both Salt Wind and Iron Lullaby were fully recouped no later than the fourth quarter of 2019. This conclusion is corroborated by Clearfield & Moss's own quarterly reports for the Q4 2019 period, which reflect a zero balance on the Tranche B advance accounts for both films as of December 31, 2019. The reclassifications at issue occurred in Q3 2020 (for Salt Wind) and Q1 2021 (for Iron Lullaby) — i.e., nine to fifteen months after full recoupment had been achieved. There is no legitimate accounting basis for reclassifying distributable revenue as advance recoupment when the underlying advance has already been fully recouped.

Effect on Fonseca's Distributions. By reclassifying $847,200 in distributable revenue as advance recoupment, the distributable profit pool was reduced by that amount. Because Ms. Fonseca holds a fifty-five percent equity interest, her share of the diverted revenue is $465,960 ($847,200 × 55%).

Rennick's Defense — Accounting Judgment. Mr. Rennick, through Ms. Chow's response letter, contends that the revenue reclassifications reflect legitimate accounting judgments made by CMP's outside accountant, Howard Moss, CPA, of Clearfield & Moss CPAs. The defense is essentially that the reclassifications were the product of Mr. Moss's independent professional judgment and were not directed or influenced by Mr. Rennick.

Analysis of the Accounting-Judgment Defense. This defense presents the primary risk factor in connection with this claim. If Mr. Moss testifies credibly that the reclassifications were based on his independent professional judgment — for example, in response to his interpretation of certain ambiguities in the producer-advance agreements or the waterfall schedule — the defense could gain traction. However, we believe this risk is manageable for the following reasons:

First, Clearfield & Moss's own Q4 2019 quarterly reports confirm that the Tranche B advances for both Salt Wind and Iron Lullaby had been fully recouped by December 31, 2019. A subsequent reclassification of distributable revenue into these fully recouped advance accounts is facially inconsistent with the firm's own reporting and would require Mr. Moss to explain why his professional judgment in Q3 2020 and Q1 2021 contradicted his firm's Q4 2019 analysis.

Second, during discovery we can seek communications between Mr. Rennick and Mr. Moss (and between Mr. Rennick and Clearfield & Moss more broadly) regarding the reclassification decisions. If these communications reveal that Mr. Rennick instructed or influenced the reclassifications, the accounting-judgment defense collapses. Given the self-dealing pattern established by the RSV fee arrangement, it is reasonable to infer that Mr. Rennick exercised control over CMP's accounting treatment, particularly with respect to entries that directly benefited him financially.

Third, even if Mr. Moss testifies that the reclassifications reflected his independent judgment, the question remains whether that judgment was reasonable. A reclassification of distributable revenue into a fully recouped advance account — nine to fifteen months after recoupment — is difficult to justify under generally accepted accounting principles and entertainment-industry waterfall conventions.

Constructive Fraud Theory. In addition to the breach-of-fiduciary-duty claim, we can assert a claim for constructive fraud. Under California law, constructive fraud arises when a fiduciary obtains an advantage over the other party by failing to disclose material information that the fiduciary had a duty to disclose. Here, Mr. Rennick, as CMP's Managing Partner and Ms. Fonseca's fiduciary, had an obligation to disclose the revenue reclassifications and to obtain Ms. Fonseca's informed consent before altering the waterfall schedules in a manner that reduced her distributions. He did neither. The reclassifications were neither disclosed to Ms. Fonseca nor consented to by her, and she learned of them only through the forensic review conducted by Tillerman in August 2022.

Assessment. We estimate a seventy percent (70%) likelihood of prevailing on this claim. The lower probability, relative to the excess-management-fee claim, reflects the risk that the accounting-judgment defense may create a factual dispute that complicates summary adjudication and could influence a jury. However, the documentary evidence — particularly Clearfield & Moss's own Q4 2019 reports confirming full recoupment — strongly supports our position, and discovery is likely to yield communications that further undermine the defense.

C. Rennick's Potential Counterclaim — Breach of Good-Faith Obligations

Ms. Chow's November 2, 2022 response letter foreshadows a potential counterclaim alleging that Ms. Fonseca breached the partnership's implied obligation of good faith and fair dealing by retaining Tillerman Forensic Advisory LLC without Mr. Rennick's consent. The argument appears to be that Ms. Fonseca's unilateral engagement of a forensic accountant to scrutinize CMP's books and records constitutes an adversarial act inconsistent with the cooperative obligations inherent in a partnership relationship.

Analysis. We believe this counterclaim is without merit and is designed primarily as leverage. Our analysis rests on the following grounds:

First, nothing in the Partnership Agreement requires mutual consent to hire personal advisors. The Partnership Agreement governs the engagement of third parties by the partnership, acting through its Managing Partner, but does not restrict either partner from retaining individual consultants, counsel, or advisors in his or her personal capacity.

Second, Ms. Fonseca retained Tillerman in her individual capacity, not as a CMP engagement. Tillerman's fees are being paid personally by Ms. Fonseca and are not charged to CMP's operating accounts. The engagement letter between Ms. Fonseca and Tillerman confirms that the engagement is a personal-client relationship, not a partnership obligation.

Third, California Corporations Code Section 16403(c) expressly provides that each partner has the right of access to the partnership's books and records and may, without the consent of the other partners, employ agents — including forensic accountants — to inspect and copy those records. Ms. Fonseca's engagement of Tillerman is squarely within the scope of this statutory right.

Fourth, Ms. Chow's letter does not identify any cognizable damages resulting from Ms. Fonseca's retention of Tillerman. A counterclaim for breach of the implied covenant of good faith and fair dealing requires, at minimum, an allegation of actual damages proximately caused by the breach. No such damages have been alleged or can reasonably be alleged on these facts.

Assessment. We estimate a ninety percent or greater (90%+) likelihood of defeating this counterclaim on demurrer or, in the alternative, on summary judgment. The counterclaim lacks both legal and factual merit, and its primary purpose appears to be to create leverage and discourage Ms. Fonseca from pursuing her legitimate claims. We do not believe this counterclaim should deter the prosecution of Ms. Fonseca's claims, and we anticipate that it would be resolved early in the litigation.

D. Additional Legal Theories

In addition to the core breach-of-partnership-agreement, breach-of-fiduciary-duty, and constructive-fraud claims, we intend to assert the following supplemental causes of action, each of which serves strategic purposes and provides additional avenues of recovery:

Accounting (Cal. Corp. Code § 16405(b)). Under California Corporations Code Section 16405(b), Ms. Fonseca is entitled to a court-ordered accounting of CMP's books, records, and financial transactions. This is a derivative claim that arises from Ms. Fonseca's status as a partner and her right to a full and accurate accounting of the partnership's affairs. A court-ordered accounting would compel the production of all financial records, waterfall schedules, distribution statements, and bank records — including records that may not yet have been produced in the informal pre-litigation process. This claim also provides significant settlement leverage, as Mr. Rennick may prefer to avoid the burden, expense, and exposure associated with a judicially supervised accounting.

Unjust Enrichment (Against RSV Directly). Because RSV is a separate legal entity that received $1,533,500 in excess management fees to which it was not contractually entitled, Ms. Fonseca may assert a direct unjust-enrichment claim against RSV seeking restitution of the excess fees. This claim provides an additional basis for recovery and ensures that RSV — not merely Mr. Rennick in his individual capacity — is a party to the litigation. Including RSV as a defendant also creates practical leverage, as any judgment against RSV would encumber the entity's assets and could complicate Mr. Rennick's ability to use RSV as a vehicle for future business activities.

These supplemental claims strengthen the overall litigation posture and provide additional levers in settlement negotiations, but the core recovery is driven by the breach-of-fiduciary-duty and breach-of-partnership-agreement claims described in Sections III.A and III.B above.

IV. DAMAGES CALCULATION

A. Core Damages (Fonseca's 55% Share)

The following table summarizes the core damages attributable to Ms. Fonseca based on her fifty-five percent equity interest in CMP:

The total core damages of $1,309,385 represent the amount by which Ms. Fonseca's partnership distributions were reduced as a direct result of Mr. Rennick's breaches. This figure will be further refined upon receipt of Tillerman's full forensic memorandum, but we do not anticipate material changes to the aggregate figure based on the preliminary analysis.

B. Pre-Judgment Interest

Under California Civil Code Section 3289, a party is entitled to pre-judgment interest at the statutory rate of ten percent (10%) per annum on damages arising from the breach of an obligation that is not based on a written instrument bearing a different rate, or — as is more likely applicable here — at the rate of seven percent (7%) per annum under California Constitution Article XV, Section 1, or ten percent (10%) under Section 3289(b) for breach of contract where the amount of damages is certain or capable of being made certain by calculation. Given that the damages here are readily calculable from the RSV invoices and the waterfall reclassifications, the ten-percent rate under Section 3289(b) is most likely applicable.

For purposes of this memorandum, we estimate the pre-judgment interest as follows:

• Principal: $1,309,385

• Rate: 10% per annum

• Estimated Period: From the date of demand (October 10, 2022) through anticipated resolution (approximately July 2023), a period of approximately nine (9) months

• Calculation: $1,309,385 × 10% × (9 ÷ 12) = $98,204 (rounded)

This estimate is conservative, as pre-judgment interest may properly be calculated from the date the obligation to pay arose (i.e., the dates of the unauthorized fee payments and reclassifications) rather than from the date of demand. If the case proceeds to trial, a longer accrual period and an earlier start date could substantially increase the pre-judgment interest component. However, for settlement-negotiation purposes, we use the more conservative estimate.

C. Total Claim

Combining the core damages and estimated pre-judgment interest:

• Core Damages: $1,309,385

• Pre-Judgment Interest (estimated): $98,204

• Total Claimed Damages: approximately $1,407,589

This figure does not include attorney's fees or forensic-accounting costs, which may be recoverable as discussed below.

D. Attorney's Fees

Section 12.3 of the Partnership Agreement provides for fee-shifting in the event of a material breach. If Ms. Fonseca prevails on her breach-of-partnership-agreement claim — which we assess at an eighty percent probability — she should be entitled to recover her reasonable attorney's fees and costs incurred in prosecuting this action. This would include the fees incurred at Calderwood & Harkness as well as, potentially, the costs of Tillerman Forensic Advisory's engagement to the extent those costs were necessary to establish the breach.

The fee-shifting provision adds meaningful settlement leverage. Mr. Rennick's exposure is not limited to the damages themselves but includes the risk of being required to pay Ms. Fonseca's legal fees if the matter proceeds to trial and Ms. Fonseca prevails. This risk increases Mr. Rennick's incentive to settle on terms favorable to Ms. Fonseca before significant litigation costs are incurred on both sides.

E. Reconstructed Waterfall

Tillerman Forensic Advisory is preparing a full reconstructed waterfall analysis for each of CMP's four film properties. The reconstructed waterfall will show, on a line-by-line and quarter-by-quarter basis, the distributable revenue that should have flowed to each partner absent the excess management fees and the improper revenue reclassifications. This analysis is expected to be completed and delivered as Exhibit C to Tillerman's full forensic memorandum, due on or about December 19, 2022.

The reconstructed waterfall will serve as the foundational damages exhibit in any litigation and will provide a clear, auditable basis for Ms. Fonseca's damages claim. Specifically, it will demonstrate that Ms. Fonseca's cumulative distributions through Q2 2022 should have been significantly higher than the amounts actually distributed to her, with the shortfall corresponding precisely to her fifty-five-percent share of the excess fees and reclassified revenues identified in this memorandum.

V. RECOMMENDED LITIGATION STRATEGY

A. Pre-Litigation Phase (Current)

We are currently in the pre-litigation phase of this matter. The principal activities in this phase include:

1. Awaiting Tillerman's Forensic Memorandum. The full forensic memorandum from Tillerman Forensic Advisory, including the reconstructed waterfall analysis, is expected on or about December 19, 2022. This document will provide the detailed evidentiary foundation for Ms. Fonseca's claims and will inform the final damages calculations reflected in the Complaint.

2. Continuing Document Review. We continue to review and analyze the 142 RSV invoices and the CMP quarterly financial statements produced to date. We have also requested, through informal channels, additional documents from Mr. Rennick's counsel, including RSV bank records and communications between Mr. Rennick and Clearfield & Moss. To date, no additional production has been received.

3. Monitoring for Settlement Overtures. We remain attentive to any meaningful settlement overture from Mr. Rennick or his counsel. The thirty-day compliance deadline in our October 10, 2022 demand letter has expired without compliance (the deadline expired on or about November 9, 2022). Mr. Rennick's failure to comply with the demand supports Ms. Fonseca's entitlement to pre-judgment interest from the date of demand and may be cited in the Complaint as evidence of his unwillingness to account voluntarily for the irregularities identified.

B. Filing

If no meaningful settlement progress is achieved by year-end, we recommend filing the Complaint in the Superior Court of California, County of Los Angeles, in early January 2023. The Complaint will assert the following causes of action:

1. Breach of Fiduciary Duty — against Desmond R. Rennick, individually and as Managing Partner of CMP.

2. Breach of Partnership Agreement — against Desmond R. Rennick, individually and as Managing Partner of CMP.

3. Accounting — against Desmond R. Rennick and CMP.

4. Constructive Fraud — against Desmond R. Rennick, individually and as Managing Partner of CMP.

5. Unjust Enrichment — against Rennick Slate Ventures LLC.

We recommend including a demand for a jury trial. While the accounting claim is equitable in nature and would be resolved by the court, the breach-of-fiduciary-duty, breach-of-contract, and constructive-fraud claims are amenable to jury determination. The inclusion of a jury demand increases litigation costs and complexity for both parties, which may serve as additional motivation for Mr. Rennick to pursue a reasonable settlement.

C. Discovery Plan

Upon filing, we recommend pursuing an aggressive but targeted discovery plan focused on the following priorities:

1. RSV Bank Records. We will seek expedited discovery of RSV's bank records to confirm the receipt and disposition of the excess management fees. These records will establish the flow of funds from CMP to RSV and, potentially, from RSV to Mr. Rennick personally. If the funds were distributed to Mr. Rennick or used for personal expenses, this evidence will strengthen the fiduciary-duty and unjust-enrichment claims.

2. Clearfield & Moss Records and Deposition of Howard Moss, CPA. We will subpoena the complete records of Clearfield & Moss CPAs related to CMP, including all workpapers, communications with Mr. Rennick, and internal memoranda regarding the revenue reclassifications. We will also depose Mr. Moss to establish whether the reclassifications were directed or influenced by Mr. Rennick and whether Mr. Moss's firm maintained independent professional judgment in connection with these entries. The deposition of Mr. Moss is critical to defeating the accounting-judgment defense.

3. Written discovery to Rennick. We will serve interrogatories and requests for production on Mr. Rennick targeting all communications with RSV and Clearfield & Moss regarding fee invoicing, waterfall calculations, revenue classifications, and distribution timing. We will also request all documents reflecting Mr. Rennick's authority to approve RSV invoices and any communications with Ms. Fonseca regarding management fees or waterfall adjustments.

4. Distribution Agreements. We will request all domestic distribution agreements for Salt Wind and Iron Lullaby, including any amendments, side letters, or supplemental agreements. These agreements will allow us to independently verify the revenue streams that were the subject of the reclassifications and to confirm the timing and amount of the Tranche B advance recoupment.

D. Early Mediation

We recommend proposing early mediation to opposing counsel, ideally to be scheduled within sixty to ninety days of filing the Complaint. An early mediation offers several advantages:

First, the partnership relationship between Ms. Fonseca and Mr. Rennick may be capable of preservation if a restated waterfall and corrective payment can be negotiated. CMP's four-film library continues to generate revenue, and the partnership's ongoing economic value may exceed the amount in dispute. A negotiated resolution that addresses both the historical financial irregularities and the governance structure going forward may serve Ms. Fonseca's long-term interests better than a complete dissolution of the partnership.

Second, mediation provides an opportunity to negotiate governance reforms — such as the engagement of an independent accountant, the implementation of a dual-signature requirement for payments exceeding a specified threshold, and the establishment of a transparent quarterly-reporting protocol — that would protect Ms. Fonseca against future self-dealing by Mr. Rennick.

Third, an early mediation, conducted against the backdrop of a filed Complaint and a credible discovery plan, creates maximum settlement pressure at minimum cost. If the mediation is successful, the matter can be resolved for a fraction of the litigation budget. If it is unsuccessful, the information exchanged during the mediation process may still inform our litigation strategy and narrow the issues in dispute.

We recommend engaging a retired Superior Court judge with entertainment-industry experience as mediator. The mediator's credibility and subject-matter expertise will be important in persuading Mr. Rennick (and his counsel) to take the claims seriously and to engage in good-faith settlement negotiations.

E. Settlement Posture

Based on our assessment of the merits, the damages calculation, and the litigation risks on both sides, we recommend the following settlement posture:

• Target Settlement Range: $900,000 to $1,150,000 in a lump-sum payment, plus a restated waterfall going forward with a reduced management-fee cap (e.g., three percent rather than five percent, or elimination of RSV as a service provider entirely) and governance reforms including an independent accountant and dual-signature requirement.

• Walk-Away Threshold: To be discussed with Ms. Fonseca at the next client conference. We recommend establishing a firm walk-away number below which Ms. Fonseca is not willing to settle, taking into account both the expected litigation costs and the value of preserving the partnership.

• Partnership Preservation discount: In evaluating settlement offers, we should consider whether the preservation of the partnership — and its ongoing revenue-generating film library — warrants accepting a discount to the maximum damages figure. A negotiated resolution that includes governance reforms and a restated waterfall may yield greater total value to Ms. Fonseca over time than a judgment for the full damages amount accompanied by a dissolution of the partnership and a potentially contentious wind-down process.

VI. LITIGATION BUDGET ESTIMATE

A. Phase-by-Phase Budget

The following table sets forth our estimated fees for each phase of the litigation, from the current pre-litigation phase through a potential trial:

These estimates are based on current hourly rates for the attorneys and staff assigned to this matter and assume a level of complexity and document volume consistent with our current understanding of the case. The estimates may be revised upward if discovery reveals additional issues, if the case involves extensive motion practice, or if trial preparation requires retention of additional expert witnesses beyond Tillerman Forensic Advisory. Conversely, the estimates may be revised downward if the case settles earlier than anticipated or if certain discovery issues are narrowed through stipulation.

B. Consultant Fees (Billed Directly to Client)

Tillerman Forensic Advisory LLC's estimated fees for this engagement are $85,000 to $110,000. This estimate encompasses the following scope of work:

• Forensic analysis of CMP's financial records, including a detailed review of all 142 RSV invoices, CMP's quarterly financial statements, waterfall schedules, distribution statements, and bank records.

• Preparation of a full reconstructed waterfall analysis for each of CMP's four film properties, showing the distributions that should have been made to each partner absent the irregularities identified.

• Preparation of a comprehensive forensic memorandum suitable for use as a litigation exhibit and as the foundation for expert testimony.

• Potential expert witness preparation, including assistance with the preparation of a damages report, pre-deposition preparation, and mock cross-examination.

If Greta Sørensen, CPA, CFF, is required to testify at trial — whether at deposition, in a declaration in support of a summary-judgment motion, or as a live witness at trial — additional trial-preparation and testimony fees are estimated at $45,000 to $55,000. These additional fees would cover Ms. Sørensen's preparation time, report-drafting time, deposition or trial testimony time, and associated travel and administrative costs.

Tillerman's fees are a direct client obligation and are not included in Calderwood & Harkness's invoices. Per the terms of our engagement letter with Ms. Fonseca, Tillerman bills Ms. Fonseca directly for its services, and Calderwood & Harkness provides coordination and oversight but does not mark up or pass through Tillerman's charges.

C. Budget Discussion

We recommend discussing this budget in detail with Ms. Fonseca at the next client conference. Several points merit particular attention:

First, the settlement-scenario budget of approximately $165,000 in legal fees — plus Tillerman's estimated fees of $85,000 to $110,000 — represents significant savings compared to the full-trial scenario of $630,000 in legal fees plus Tillerman's enhanced fees. The total cost in the settlement scenario would be approximately $250,000 to $275,000, compared to approximately $715,000 to $795,000 in the trial scenario (including Tillerman's potential testimony fees).

Second, these cost differentials should be weighed against the likely settlement discount. If the case settles at the midpoint of our target range — approximately $1,025,000 — Ms. Fonseca's net recovery after legal fees in the settlement scenario would be approximately $750,000 to $775,000. If the case proceeds to trial and Ms. Fonseca obtains a full recovery of approximately $1,407,589 (including pre-judgment interest), her net recovery after legal fees and consultant fees would be approximately $612,000 to $693,000. On a net-recovery basis, the settlement scenario may actually yield a higher return to Ms. Fonseca than a full trial recovery, depending on the ultimate settlement figure.

Third, the fee-shifting provision in Section 12.3 of the Partnership Agreement could significantly alter this analysis. If Ms. Fonseca prevails at trial and recovers her attorney's fees, her net recovery would be substantially higher than in the settlement scenario. However, fee-shifting is subject to the court's discretion and is not guaranteed, and the prospect of recovering fees at trial does not eliminate the risk and expense of the litigation process.

These considerations should be discussed with Ms. Fonseca so that she can make informed decisions about settlement posture and litigation strategy.

VII. NEXT STEPS

Based on our assessment of the claims, defenses, damages, and strategic considerations outlined above, we recommend the following immediate next steps:

1. Receive and Analyze Tillerman's Full Forensic Accounting Memorandum. The full memorandum, including the reconstructed waterfall analysis (expected as Exhibit C), is due on or about December 19, 2022. Upon receipt, we will review the memorandum in detail, confirm the damages calculations, and assess whether the analysis identifies any additional irregularities or modifies our current damages estimate.

2. Schedule Client Conference. We recommend scheduling a client conference with Ms. Fonseca as soon as practicable after receipt of the Tillerman memorandum — ideally during the last week of December 2022 or the first week of January 2023 — to discuss the litigation budget, settlement posture, walk-away threshold, and filing strategy. Ms. Fonseca's input on these matters is essential to the formulation of a coherent litigation and settlement plan.

3. Finalize and File Complaint. If no meaningful settlement progress is achieved by early January 2023, we will finalize the Complaint and file it in the Superior Court of California, County of Los Angeles. The Complaint will assert the five causes of action described in Section V.B above and will include a demand for jury trial.

4. Document Rennick's Non-Compliance with Demand. The thirty-day compliance deadline set forth in our October 10, 2022 demand letter expired on or about November 9, 2022, without compliance. We should document Mr. Rennick's non-compliance in our file and reference it in the Complaint for purposes of establishing the accrual date for pre-judgment interest and demonstrating Mr. Rennick's unwillingness to account voluntarily for the identified irregularities.

5. Prepare discovery Plan and Identify Deponents. We should begin preparing detailed discovery requests and identifying potential deponents in advance of filing, so that discovery can be served promptly after the answer is filed. Key deponents include Howard Moss of Clearfield & Moss CPAs (regarding the revenue reclassifications and his relationship with Mr. Rennick) and Mr. Rennick himself, both in his individual capacity and as the person most knowledgeable of RSV.

VIII. CONCLUSION

Based on our review of the available evidence and our analysis of the applicable law, Ms. Fonseca has strong claims against Mr. Rennick and RSV, supported by clear contractual provisions, well-established fiduciary-duty principles, and compelling preliminary forensic evidence.

The excess-management-fee claim is particularly strong, with an estimated eighty percent (80%) probability of success, given the unambiguous five-percent cap in Section 6.2 of the Partnership Agreement, the absence of any written authorization for the excess fees, and the express amendment clause that undermines Mr. Rennick's course-of-dealing defense. The revenue-reclassification claim carries somewhat greater risk — estimated at seventy percent (70%) — due to the potential accounting-judgment defense, but it is well-supported by Clearfield & Moss's own Q4 2019 reports confirming that the Tranche B advances were fully recouped before the reclassifications occurred. Discovery is likely to yield additional evidence that strengthens this claim.

Mr. Rennick's threatened counterclaim for breach of the implied covenant of good faith — premised on Ms. Fonseca's retention of a forensic accountant — is meritless under California partnership law and should not deter the prosecution of Ms. Fonseca's claims. We estimate a ninety percent or greater likelihood of defeating this counterclaim on demurrer or summary judgment.

Our recommended strategy is to pursue early mediation, paired with a credible litigation posture established by the filing of the Complaint in January 2023 and an aggressive, targeted discovery plan. This approach offers the best path to a favorable resolution that maximizes Ms. Fonseca's net recovery while preserving the option to litigate through trial if necessary. If the partnership relationship can be preserved through negotiated governance reforms and a restated waterfall, the long-term value to Ms. Fonseca may exceed a litigated judgment.

The total claimed damages of approximately $1,407,589 — including core damages of $1,309,385 and estimated pre-judgment interest of $98,204, with the potential for additional recovery through the fee-shifting provision — provide a strong negotiating baseline for settlement discussions.

We welcome the opportunity to discuss this assessment with you and to refine our litigation strategy based on your input and Ms. Fonseca's instructions.

This memorandum is intended solely for the use of the individuals to whom it is addressed. It contains privileged and confidential information protected by the attorney-client privilege and the attorney work-product doctrine. Any unauthorized review, use, disclosure, or distribution is prohibited.

Film Property	Year of Release	Gross Receipts Through Q2 2022
Iron Lullaby	2018	$6,420,000
The Perdition Room	2019	$4,110,000
Salt Wind	2020	$8,740,000
Nightjars	2021	$3,950,000
Total	$23,220,000
Category	Total Irregularity	Fonseca's 55% Share
Excess management fees paid to RSV	$1,533,500	$843,425
Improperly reclassified revenues	$847,200	$465,960
Subtotal	$2,380,700	$1,309,385
Phase	Estimated Cost
Pre-litigation / demand phase	$45,000 (incurred to date: approximately $32,000)
Complaint through answer	$55,000
Discovery (written discovery, depositions, third-party subpoenas)	$120,000
Mediation (preparation and attendance)	$35,000
Trial preparation (if necessary)	$200,000
Trial (estimated 5-day bench trial)	$175,000
Total (through trial)	$630,000
Settlement scenario (through mediation)	$165,000

CALDERWOOD & HARKNESS LLP
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work-product doctrine. It is intended solely for the use of the individuals to whom it is addressed and should not be disclosed to any third party without prior authorization from the undersigned.
MEMORANDUM
TO: Samuel Eklund, Partner; Linda Osei, Partner
FROM: Jeffrey Park, Senior Associate; Yuki Nakamura, Associate
DATE: November 18, 2022
RE: Fonseca v. Rennick — Case Assessment and Litigation Strategy Matter No. 1035-00004
I. EXECUTIVE SUMMARY
This memorandum provides our assessment of the claims and defenses arising from Marisol Fonseca's dispute with her business partner, Desmond R. Rennick, in connection with the operation of Coastal Meridian Productions LLP ("CMP"), EIN 83-2197644, a California limited liability partnership formed to develop, produce, and exploit feature-length motion pictures. Based on our review of the available documents and the preliminary findings of our forensic consultant, we believe Ms. Fonseca has strong claims on the merits and recommend filing suit in early January 2023 if meaningful settlement progress is not achieved before that time.
On October 10, 2022, this matter was formally opened, and we sent a detailed demand letter on Ms. Fonseca's behalf to Desmond R. Rennick at 438 Georgina Avenue, Santa Monica, CA 90402. The demand letter required a full accounting of CMP's finances; payment of $1,309,385 in diverted partnership proceeds plus applicable interest; and the engagement of an independent, mutually agreed-upon accountant to review CMP's books and records on a go-forward basis. The demand letter set a thirty-day compliance deadline.
On November 2, 2022, Mr. Rennick responded through outside counsel, Elaine Chow of Hargrove, Pettit & Sun LLP, located at 800 South Figueroa Street, Suite 3100, Los Angeles, CA 90017. Ms. Chow's response categorically denies any breach of the Partnership Agreement or any fiduciary duty owed by Mr. Rennick to Ms. Fonseca. Specifically, Ms. Chow's letter advances the following positions:
• The management fees paid to Rennick Slate Ventures LLC ("RSV"), Mr. Rennick's wholly owned entity, in excess of the five-percent cap set forth in the Partnership Agreement were authorized under a "course of dealing" theory, pursuant to which Ms. Fonseca allegedly acquiesced to the higher fee schedule through her silence and acceptance of quarterly distributions over a period of several years.
• Revenue reclassifications that reduced the distributable profit pool — and, consequently, Ms. Fonseca's fifty-five-percent share — reflect legitimate accounting judgments made by CMP's outside accountant, Howard Moss, CPA, of Clearfield & Moss CPAs, located at 9100 Sunset Blvd., Suite 220, West Hollywood, CA 90069.
• Ms. Chow foreshadows a potential counterclaim, alleging that Ms. Fonseca breached the partnership's implied obligation of good faith by retaining Tillerman Forensic Advisory LLC — specifically Greta Sørensen, CPA, CFF, at 350 South Grand Avenue, Suite 1480, Los Angeles, CA 90071 — without Mr. Rennick's consent, thereby subjecting the partnership to unnecessary expense and adversarial scrutiny.
In preparing this memorandum, we have reviewed the following materials: the Hargrove, Pettit & Sun response letter dated November 2, 2022; CMP's quarterly financial statements for calendar years 2018 through the second quarter of 2022; and 142 invoices from RSV (EIN 84-3056178) that were produced informally by Mr. Rennick's counsel in connection with the demand process. We have also consulted with Greta Sørensen and her team at Tillerman Forensic Advisory regarding their preliminary findings; Tillerman's full forensic memorandum is expected on or about December 19, 2022.
Our overall assessment is that Ms. Fonseca holds a commanding position on the merits of her principal claims, particularly with respect to the excess management fees. The revenue-reclassification claim carries somewhat greater risk due to the potential accounting-judgment defense, but remains well-supported by documentary evidence. Mr. Rennick's threatened counterclaim appears meritless and should not deter the prosecution of Ms. Fonseca's claims. We recommend pursuing early mediation in tandem with a credible litigation posture — specifically, by filing suit in the Superior Court of California, County of Los Angeles, in early January 2023 — to maximize settlement leverage while preserving the option to litigate through trial if necessary.
II. BACKGROUND
A. The Partnership
Coastal Meridian Productions LLP was formed on March 8, 2017, pursuant to the California Revised Uniform Partnership Act (Cal. Corp. Code §§ 16100–16962) as a California limited liability partnership. The partnership's registered agent is Pacific Coast Registered Agents, Inc., located at 4200 Wilshire Blvd., Suite 610, Los Angeles, CA 90010. CMP's principal office is located at 1140 N. La Brea Avenue, Suite 300, Los Angeles, CA 90038, which also serves as the partnership's primary business address for purposes of correspondence and contractual obligations with third parties, including distributors, sales agents, and financial institutions.
The partnership is governed by a written Partnership Agreement dated March 8, 2017, which was amended once, on January 15, 2019, by a document styled "First Amendment to the Partnership Agreement of Coastal Meridian Productions LLP" (the "First Amendment"). The First Amendment addressed certain distribution-timing provisions and updated the profit-split recoupment schedule but, notably, did not modify the management-fee provisions of the original Partnership Agreement.
The capital contributions and equity interests of the partners are as follows:
• Marisol Fonseca: Capital contribution of $2,850,000, corresponding to a fifty-five percent (55%) equity interest in CMP.
• Desmond R. Rennick: Capital contribution of $2,331,818, corresponding to a forty-five percent (45%) equity interest in CMP.
• Total CMP Capitalization: $5,181,818 (calculated as $2,850,000 ÷ 0.55, which yields total capitalization consistent with the stated equity percentages).
Under the Partnership Agreement, after full recoupment of each partner's capital contribution with respect to a given film property, the profits derived from that property are to be split fifty-five percent (55%) to Ms. Fonseca and forty-five percent (45%) to Mr. Rennick, consistent with their respective equity interests.
Several provisions of the Partnership Agreement are directly relevant to the claims and defenses at issue:
• Section 6.2 — Management Fee Cap. Section 6.2 expressly caps management fees payable to a partner's designee at five percent (5%) of gross receipts per film property. This provision was specifically negotiated to constrain the fees that RSV or any similar affiliate entity could extract from CMP's revenue streams. The provision is drafted in mandatory terms and does not include any exception for course-of-dealing modifications or oral waivers.
• Section 12.3 — Fee Shifting. Section 12.3 provides for the recovery of reasonable attorney's fees and costs by the prevailing party in the event of a material breach of the Partnership Agreement. This provision is significant both as a potential component of Ms. Fonseca's recovery and as a source of additional settlement leverage.
• Amendment Clause. The Partnership Agreement contains an amendment provision requiring that any modification, amendment, or waiver of the Agreement be evidenced by a writing signed by both partners. This provision directly undermines Mr. Rennick's course-of-dealing defense, as discussed in greater detail in Section III below.
Under the governance structure established by the Partnership Agreement, Mr. Rennick was designated as the day-to-day Managing Partner, with sole signing authority over CMP's operating accounts at Ridgeline Commercial Bank. This arrangement was intended to facilitate the efficient management of production and distribution operations; however, as discussed below, it also created the opportunity for the self-dealing conduct that is the subject of Ms. Fonseca's claims.
It is also relevant to note that Ms. Fonseca personally guaranteed CMP's $1.4 million revolving credit facility with Ridgeline Commercial Bank, whose offices are located at 555 West 7th Street, 18th Floor, Los Angeles, CA 90014. This personal guaranty underscores Ms. Fonseca's material financial exposure to the partnership and the degree to which she relied on Mr. Rennick to manage CMP's finances with fidelity and transparency.
B. The Film Properties
CMP has produced and exploited four feature-length motion pictures during the period relevant to this dispute. The following table summarizes each film property and its aggregate gross receipts through the second quarter of 2022:
These four properties represent the entirety of CMP's revenue-generating portfolio. Salt Wind has been the partnership's most commercially successful film, generating $8,740,000 in gross receipts — nearly double the next highest-grossing property. Iron Lullaby, while released earlier, continues to generate significant residual revenue, particularly through domestic SVOD licensing. The Perdition Room and Nightjars have also performed respectably, contributing meaningfully to the partnership's overall revenue stream. The aggregate gross receipts of $23,220,000 form the baseline for the damages calculations discussed in Section IV of this memorandum.
C. RSV and the Self-Dealing Structure
Rennick Slate Ventures LLC ("RSV") was organized on June 22, 2018 — approximately three months after the theatrical release of CMP's first film, Iron Lullaby — by Mr. Rennick as its sole member. RSV is a California limited liability company with a registered address at 1925 Ocean Park Blvd., Suite 200, Santa Monica, CA 90405. RSV has no employees other than Mr. Rennick and no known clients other than CMP.
Beginning in the second half of 2018 and continuing through at least the second quarter of 2022, RSV invoiced CMP for three categories of services: (1) production management services; (2) post-production supervision; and (3) festival and distribution services. A total of 142 RSV invoices have been produced informally during the pre-litigation demand process. Each of these invoices bears only Mr. Rennick's approval signature, acting in his capacity as CMP's Managing Partner. None of the 142 invoices was countersigned by Ms. Fonseca, and none was submitted to Ms. Fonseca for review or approval prior to payment.
The self-dealing nature of this arrangement is patent. Mr. Rennick, acting as Managing Partner of CMP, approved and authorized payment of invoices submitted by RSV, an entity that Mr. Rennick solely owns and controls. The fees flowed directly from CMP's operating accounts — over which Mr. Rennick had sole signing authority — to RSV's accounts, effectively transferring partnership funds to Mr. Rennick's personal benefit without the knowledge, review, or consent of his partner.
Ms. Fonseca discovered these irregularities in the third quarter of 2022, when CMP's distributions to her fell approximately $1.18 million short of her independent projections based on publicly available and contractually reported revenue data for the four film properties. Upon discovering this discrepancy, Ms. Fonseca engaged Tillerman Forensic Advisory LLC on August 15, 2022, to conduct a preliminary review of CMP's financial records and RSV's invoicing history. Tillerman's preliminary findings, discussed in Section III below, confirmed and elaborated upon Ms. Fonseca's initial concerns.
III. LIABILITY ANALYSIS
A. Excess Management Fees (Claim 1 — Breach of Partnership Agreement / Breach of Fiduciary Duty)
The most straightforward and strongest of Ms. Fonseca's claims arises from the excess management fees paid by CMP to RSV in violation of the five-percent cap established by Section 6.2 of the Partnership Agreement.
The Contractual Cap. Section 6.2 provides, in relevant part, that management fees payable to "any entity designated by a Partner" shall not exceed five percent (5%) of gross receipts per film property. The language is clear, unambiguous, and mandatory. It does not include any exception, carve-out, or escalation mechanism. The provision was the product of arm's-length negotiation between the parties at the time the Partnership Agreement was executed, and it reflects the parties' mutual intent to limit the management fees extractable by affiliated entities to a level consistent with prevailing entertainment-industry norms.
The Permissible Amount. Applying the five-percent cap to CMP's aggregate gross receipts of $23,220,000 yields a maximum permissible management-fee payment of $1,161,000 ($23,220,000 × 5%).
The Actual Amount Paid. According to the 142 RSV invoices produced during the pre-litigation demand process, CMP paid a total of $2,694,500 to RSV in management fees over the relevant period.
The Excess. The excess management fees paid to RSV total $1,533,500 ($2,694,500 − $1,161,000). This excess was extracted from the partnership's revenue streams, reducing the distributable profit pool and, consequently, Ms. Fonseca's fifty-five-percent share of distributable profits.
Rennick's Defense — Course of Dealing. Mr. Rennick, through Ms. Chow's November 2, 2022 response letter, asserts that the excess fees were authorized under a course-of-dealing theory. Specifically, Ms. Chow contends that Ms. Fonseca acquiesced to the higher fee schedule through her silence over a period of several years and her continued acceptance of quarterly distributions during that period. The argument appears to be that Ms. Fonseca's failure to object to the fee levels — despite allegedly receiving quarterly financial statements that disclosed the RSV charges — constituted an implied amendment to the Partnership Agreement or, at minimum, a waiver of her rights under Section 6.2.
Weaknesses of the Course-of-Dealing Defense. We believe this defense is unlikely to succeed for several reasons:
First, the Partnership Agreement contains an express amendment clause requiring that any modification, amendment, or waiver of the Agreement be memorialized in a writing signed by both partners. There is no written amendment — and, indeed, no written communication of any kind — reflecting Ms. Fonseca's consent to management fees in excess of the five-percent cap. The First Amendment, executed on January 15, 2019, addressed distribution-timing provisions and the profit-split recoupment schedule but is entirely silent on management fees.
Second, to the extent Mr. Rennick argues that a course of dealing can override an express contractual provision requiring written amendments, California law is unfavorable to his position. The California Supreme Court has consistently held that a no-oral-modification clause is enforceable and that a course of dealing alone, absent clear and convincing evidence of mutual assent, is insufficient to modify a written contract. While there are narrow exceptions where a party's conduct is so unequivocal as to constitute a waiver, no such evidence exists here.
Third, the factual predicate for the course-of-dealing defense is weak. Ms. Fonseca did not receive detailed RSV invoices as part of her quarterly financial reports; she received summary-level financial statements that aggregated management fees into a single line item. The quarterly statements did not disclose the per-film fee percentages or compare those percentages to the Section 6.2 cap. Ms. Fonseca's acceptance of quarterly distributions does not constitute informed acquiescence when the underlying fee structure was not transparently disclosed.
Fourth, there is no email exchange, text message, voicemail, or other communication reflecting Ms. Fonseca's awareness of or consent to the excess fee arrangement. Our review of all available records has revealed no such evidence, and Mr. Rennick's counsel has not identified any specific communications supporting the defense.
Fiduciary Duty Analysis. Independent of the breach-of-contract claim, Mr. Rennick's conduct gives rise to a claim for breach of fiduciary duty under California law. Under California Corporations Code Section 16404(b)(2), a partner owes a duty of loyalty to the partnership that includes the obligation to account to the partnership for any benefit derived by the partner from transactions connected with the conduct of the partnership's business. This duty is heightened in the context of self-interested transactions, where the partner transacting with the partnership through an affiliated entity bears the burden of establishing that the transaction was fair, authorized, and conducted with the informed consent of the other partners.
Mr. Rennick, as CMP's Managing Partner, caused the partnership to pay $2,694,500 to RSV — an entity that he solely owns — without obtaining Ms. Fonseca's informed consent and in excess of the contractual cap on such payments. He has not produced evidence that he disclosed the nature and extent of the RSV fee arrangement to Ms. Fonseca, nor has he established that she gave informed consent to the self-interested transactions.
Tillerman's Preliminary Findings. Tillerman Forensic Advisory's preliminary analysis, which will be fully documented in the forensic memorandum expected on December 19, 2022, has flagged three specific categories of excess fees, each of which raises distinct concerns:
1. Post-Production Supervision Invoices ($814,600 — 37 invoices). RSV billed CMP $814,600 for "post-production supervision" on various film properties during periods when CMP had already separately engaged third-party post-production houses to perform substantially the same work. Tillerman has identified the third-party engagement agreements and corresponding invoices, which suggest that the RSV charges were duplicative and that no independent post-production supervision was actually performed by RSV.
2. Festival and Distribution Services Invoices ($412,900 — 18 invoices). RSV billed CMP $412,900 for "festival and distribution services" on films that had already completed their theatrical release windows. Tillerman has found no corresponding deliverables, travel records, festival attendance records, or distribution-related work product in CMP's files to support these charges. Several of the invoices reference festivals that had already concluded at the time the invoices were submitted.
3. Miscellaneous Charges Above Market Rate ($306,000). The remaining excess of approximately $306,000 is spread across various invoices for production management and related services. Tillerman's preliminary benchmarking analysis indicates that the rates charged by RSV exceeded comparable industry rates by approximately forty to sixty-five percent, even before accounting for the five-percent contractual cap.
Assessment. We estimate an eighty percent (80%) likelihood of prevailing on this claim. The contractual cap is unambiguous; the amendment clause undermines the course-of-dealing defense; and the preliminary forensic evidence strongly supports the conclusion that the excess fees were unauthorized and, in many instances, duplicative or unsupported by actual services rendered.
B. Improper Revenue Reclassifications (Claim 2 — Breach of Fiduciary Duty / Constructive Fraud)
In addition to the excess management fees, Mr. Rennick directed or authorized the reclassification of $847,200 in domestic distribution revenues as recoupable producer-advance repayments, thereby further reducing the distributable profit pool and depressing Ms. Fonseca's distributions. The reclassifications affected two of CMP's four film properties:
• Salt Wind: $538,200 in domestic home-entertainment revenue received in the third quarter of 2020 was reclassified from "distributable revenue" to "advance recoupment — Tranche B" on the Q3 2020 waterfall schedule. This reclassification had the effect of treating the revenue as a repayment of an outstanding producer advance rather than as profit distributable to the partners.
• Iron Lullaby: $309,000 in domestic SVOD (subscription video on demand) revenue received in the first quarter of 2021 was similarly reclassified from "distributable revenue" to "advance recoupment — Tranche B" on the Q1 2021 waterfall schedule.
• Total Reclassified Revenue: $538,200 + $309,000 = $847,200.
Timing Issue — Post-Recoupment Reclassification. Tillerman's preliminary analysis indicates that the Tranche B producer advances for both Salt Wind and Iron Lullaby were fully recouped no later than the fourth quarter of 2019. This conclusion is corroborated by Clearfield & Moss's own quarterly reports for the Q4 2019 period, which reflect a zero balance on the Tranche B advance accounts for both films as of December 31, 2019. The reclassifications at issue occurred in Q3 2020 (for Salt Wind) and Q1 2021 (for Iron Lullaby) — i.e., nine to fifteen months after full recoupment had been achieved. There is no legitimate accounting basis for reclassifying distributable revenue as advance recoupment when the underlying advance has already been fully recouped.
Effect on Fonseca's Distributions. By reclassifying $847,200 in distributable revenue as advance recoupment, the distributable profit pool was reduced by that amount. Because Ms. Fonseca holds a fifty-five percent equity interest, her share of the diverted revenue is $465,960 ($847,200 × 55%).
Rennick's Defense — Accounting Judgment. Mr. Rennick, through Ms. Chow's response letter, contends that the revenue reclassifications reflect legitimate accounting judgments made by CMP's outside accountant, Howard Moss, CPA, of Clearfield & Moss CPAs. The defense is essentially that the reclassifications were the product of Mr. Moss's independent professional judgment and were not directed or influenced by Mr. Rennick.
Analysis of the Accounting-Judgment Defense. This defense presents the primary risk factor in connection with this claim. If Mr. Moss testifies credibly that the reclassifications were based on his independent professional judgment — for example, in response to his interpretation of certain ambiguities in the producer-advance agreements or the waterfall schedule — the defense could gain traction. However, we believe this risk is manageable for the following reasons:
First, Clearfield & Moss's own Q4 2019 quarterly reports confirm that the Tranche B advances for both Salt Wind and Iron Lullaby had been fully recouped by December 31, 2019. A subsequent reclassification of distributable revenue into these fully recouped advance accounts is facially inconsistent with the firm's own reporting and would require Mr. Moss to explain why his professional judgment in Q3 2020 and Q1 2021 contradicted his firm's Q4 2019 analysis.
Second, during discovery we can seek communications between Mr. Rennick and Mr. Moss (and between Mr. Rennick and Clearfield & Moss more broadly) regarding the reclassification decisions. If these communications reveal that Mr. Rennick instructed or influenced the reclassifications, the accounting-judgment defense collapses. Given the self-dealing pattern established by the RSV fee arrangement, it is reasonable to infer that Mr. Rennick exercised control over CMP's accounting treatment, particularly with respect to entries that directly benefited him financially.
Third, even if Mr. Moss testifies that the reclassifications reflected his independent judgment, the question remains whether that judgment was reasonable. A reclassification of distributable revenue into a fully recouped advance account — nine to fifteen months after recoupment — is difficult to justify under generally accepted accounting principles and entertainment-industry waterfall conventions.
Constructive Fraud Theory. In addition to the breach-of-fiduciary-duty claim, we can assert a claim for constructive fraud. Under California law, constructive fraud arises when a fiduciary obtains an advantage over the other party by failing to disclose material information that the fiduciary had a duty to disclose. Here, Mr. Rennick, as CMP's Managing Partner and Ms. Fonseca's fiduciary, had an obligation to disclose the revenue reclassifications and to obtain Ms. Fonseca's informed consent before altering the waterfall schedules in a manner that reduced her distributions. He did neither. The reclassifications were neither disclosed to Ms. Fonseca nor consented to by her, and she learned of them only through the forensic review conducted by Tillerman in August 2022.
Assessment. We estimate a seventy percent (70%) likelihood of prevailing on this claim. The lower probability, relative to the excess-management-fee claim, reflects the risk that the accounting-judgment defense may create a factual dispute that complicates summary adjudication and could influence a jury. However, the documentary evidence — particularly Clearfield & Moss's own Q4 2019 reports confirming full recoupment — strongly supports our position, and discovery is likely to yield communications that further undermine the defense.
C. Rennick's Potential Counterclaim — Breach of Good-Faith Obligations
Ms. Chow's November 2, 2022 response letter foreshadows a potential counterclaim alleging that Ms. Fonseca breached the partnership's implied obligation of good faith and fair dealing by retaining Tillerman Forensic Advisory LLC without Mr. Rennick's consent. The argument appears to be that Ms. Fonseca's unilateral engagement of a forensic accountant to scrutinize CMP's books and records constitutes an adversarial act inconsistent with the cooperative obligations inherent in a partnership relationship.
Analysis. We believe this counterclaim is without merit and is designed primarily as leverage. Our analysis rests on the following grounds:
First, nothing in the Partnership Agreement requires mutual consent to hire personal advisors. The Partnership Agreement governs the engagement of third parties by the partnership, acting through its Managing Partner, but does not restrict either partner from retaining individual consultants, counsel, or advisors in his or her personal capacity.
Second, Ms. Fonseca retained Tillerman in her individual capacity, not as a CMP engagement. Tillerman's fees are being paid personally by Ms. Fonseca and are not charged to CMP's operating accounts. The engagement letter between Ms. Fonseca and Tillerman confirms that the engagement is a personal-client relationship, not a partnership obligation.
Third, California Corporations Code Section 16403(c) expressly provides that each partner has the right of access to the partnership's books and records and may, without the consent of the other partners, employ agents — including forensic accountants — to inspect and copy those records. Ms. Fonseca's engagement of Tillerman is squarely within the scope of this statutory right.
Fourth, Ms. Chow's letter does not identify any cognizable damages resulting from Ms. Fonseca's retention of Tillerman. A counterclaim for breach of the implied covenant of good faith and fair dealing requires, at minimum, an allegation of actual damages proximately caused by the breach. No such damages have been alleged or can reasonably be alleged on these facts.
Assessment. We estimate a ninety percent or greater (90%+) likelihood of defeating this counterclaim on demurrer or, in the alternative, on summary judgment. The counterclaim lacks both legal and factual merit, and its primary purpose appears to be to create leverage and discourage Ms. Fonseca from pursuing her legitimate claims. We do not believe this counterclaim should deter the prosecution of Ms. Fonseca's claims, and we anticipate that it would be resolved early in the litigation.
D. Additional Legal Theories
In addition to the core breach-of-partnership-agreement, breach-of-fiduciary-duty, and constructive-fraud claims, we intend to assert the following supplemental causes of action, each of which serves strategic purposes and provides additional avenues of recovery:
Accounting (Cal. Corp. Code § 16405(b)). Under California Corporations Code Section 16405(b), Ms. Fonseca is entitled to a court-ordered accounting of CMP's books, records, and financial transactions. This is a derivative claim that arises from Ms. Fonseca's status as a partner and her right to a full and accurate accounting of the partnership's affairs. A court-ordered accounting would compel the production of all financial records, waterfall schedules, distribution statements, and bank records — including records that may not yet have been produced in the informal pre-litigation process. This claim also provides significant settlement leverage, as Mr. Rennick may prefer to avoid the burden, expense, and exposure associated with a judicially supervised accounting.
Unjust Enrichment (Against RSV Directly). Because RSV is a separate legal entity that received $1,533,500 in excess management fees to which it was not contractually entitled, Ms. Fonseca may assert a direct unjust-enrichment claim against RSV seeking restitution of the excess fees. This claim provides an additional basis for recovery and ensures that RSV — not merely Mr. Rennick in his individual capacity — is a party to the litigation. Including RSV as a defendant also creates practical leverage, as any judgment against RSV would encumber the entity's assets and could complicate Mr. Rennick's ability to use RSV as a vehicle for future business activities.
These supplemental claims strengthen the overall litigation posture and provide additional levers in settlement negotiations, but the core recovery is driven by the breach-of-fiduciary-duty and breach-of-partnership-agreement claims described in Sections III.A and III.B above.
IV. DAMAGES CALCULATION
A. Core Damages (Fonseca's 55% Share)
The following table summarizes the core damages attributable to Ms. Fonseca based on her fifty-five percent equity interest in CMP:
The total core damages of $1,309,385 represent the amount by which Ms. Fonseca's partnership distributions were reduced as a direct result of Mr. Rennick's breaches. This figure will be further refined upon receipt of Tillerman's full forensic memorandum, but we do not anticipate material changes to the aggregate figure based on the preliminary analysis.
B. Pre-Judgment Interest
Under California Civil Code Section 3289, a party is entitled to pre-judgment interest at the statutory rate of ten percent (10%) per annum on damages arising from the breach of an obligation that is not based on a written instrument bearing a different rate, or — as is more likely applicable here — at the rate of seven percent (7%) per annum under California Constitution Article XV, Section 1, or ten percent (10%) under Section 3289(b) for breach of contract where the amount of damages is certain or capable of being made certain by calculation. Given that the damages here are readily calculable from the RSV invoices and the waterfall reclassifications, the ten-percent rate under Section 3289(b) is most likely applicable.
For purposes of this memorandum, we estimate the pre-judgment interest as follows:
• Principal: $1,309,385
• Rate: 10% per annum
• Estimated Period: From the date of demand (October 10, 2022) through anticipated resolution (approximately July 2023), a period of approximately nine (9) months
• Calculation: $1,309,385 × 10% × (9 ÷ 12) = $98,204 (rounded)
This estimate is conservative, as pre-judgment interest may properly be calculated from the date the obligation to pay arose (i.e., the dates of the unauthorized fee payments and reclassifications) rather than from the date of demand. If the case proceeds to trial, a longer accrual period and an earlier start date could substantially increase the pre-judgment interest component. However, for settlement-negotiation purposes, we use the more conservative estimate.
C. Total Claim
Combining the core damages and estimated pre-judgment interest:
• Core Damages: $1,309,385
• Pre-Judgment Interest (estimated): $98,204
• Total Claimed Damages: approximately $1,407,589
This figure does not include attorney's fees or forensic-accounting costs, which may be recoverable as discussed below.
D. Attorney's Fees
Section 12.3 of the Partnership Agreement provides for fee-shifting in the event of a material breach. If Ms. Fonseca prevails on her breach-of-partnership-agreement claim — which we assess at an eighty percent probability — she should be entitled to recover her reasonable attorney's fees and costs incurred in prosecuting this action. This would include the fees incurred at Calderwood & Harkness as well as, potentially, the costs of Tillerman Forensic Advisory's engagement to the extent those costs were necessary to establish the breach.
The fee-shifting provision adds meaningful settlement leverage. Mr. Rennick's exposure is not limited to the damages themselves but includes the risk of being required to pay Ms. Fonseca's legal fees if the matter proceeds to trial and Ms. Fonseca prevails. This risk increases Mr. Rennick's incentive to settle on terms favorable to Ms. Fonseca before significant litigation costs are incurred on both sides.
E. Reconstructed Waterfall
Tillerman Forensic Advisory is preparing a full reconstructed waterfall analysis for each of CMP's four film properties. The reconstructed waterfall will show, on a line-by-line and quarter-by-quarter basis, the distributable revenue that should have flowed to each partner absent the excess management fees and the improper revenue reclassifications. This analysis is expected to be completed and delivered as Exhibit C to Tillerman's full forensic memorandum, due on or about December 19, 2022.
The reconstructed waterfall will serve as the foundational damages exhibit in any litigation and will provide a clear, auditable basis for Ms. Fonseca's damages claim. Specifically, it will demonstrate that Ms. Fonseca's cumulative distributions through Q2 2022 should have been significantly higher than the amounts actually distributed to her, with the shortfall corresponding precisely to her fifty-five-percent share of the excess fees and reclassified revenues identified in this memorandum.
V. RECOMMENDED LITIGATION STRATEGY
A. Pre-Litigation Phase (Current)
We are currently in the pre-litigation phase of this matter. The principal activities in this phase include:
1. Awaiting Tillerman's Forensic Memorandum. The full forensic memorandum from Tillerman Forensic Advisory, including the reconstructed waterfall analysis, is expected on or about December 19, 2022. This document will provide the detailed evidentiary foundation for Ms. Fonseca's claims and will inform the final damages calculations reflected in the Complaint.
2. Continuing Document Review. We continue to review and analyze the 142 RSV invoices and the CMP quarterly financial statements produced to date. We have also requested, through informal channels, additional documents from Mr. Rennick's counsel, including RSV bank records and communications between Mr. Rennick and Clearfield & Moss. To date, no additional production has been received.
3. Monitoring for Settlement Overtures. We remain attentive to any meaningful settlement overture from Mr. Rennick or his counsel. The thirty-day compliance deadline in our October 10, 2022 demand letter has expired without compliance (the deadline expired on or about November 9, 2022). Mr. Rennick's failure to comply with the demand supports Ms. Fonseca's entitlement to pre-judgment interest from the date of demand and may be cited in the Complaint as evidence of his unwillingness to account voluntarily for the irregularities identified.
B. Filing
If no meaningful settlement progress is achieved by year-end, we recommend filing the Complaint in the Superior Court of California, County of Los Angeles, in early January 2023. The Complaint will assert the following causes of action:
1. Breach of Fiduciary Duty — against Desmond R. Rennick, individually and as Managing Partner of CMP.
2. Breach of Partnership Agreement — against Desmond R. Rennick, individually and as Managing Partner of CMP.
3. Accounting — against Desmond R. Rennick and CMP.
4. Constructive Fraud — against Desmond R. Rennick, individually and as Managing Partner of CMP.
5. Unjust Enrichment — against Rennick Slate Ventures LLC.
We recommend including a demand for a jury trial. While the accounting claim is equitable in nature and would be resolved by the court, the breach-of-fiduciary-duty, breach-of-contract, and constructive-fraud claims are amenable to jury determination. The inclusion of a jury demand increases litigation costs and complexity for both parties, which may serve as additional motivation for Mr. Rennick to pursue a reasonable settlement.
C. Discovery Plan
Upon filing, we recommend pursuing an aggressive but targeted discovery plan focused on the following priorities:
1. RSV Bank Records. We will seek expedited discovery of RSV's bank records to confirm the receipt and disposition of the excess management fees. These records will establish the flow of funds from CMP to RSV and, potentially, from RSV to Mr. Rennick personally. If the funds were distributed to Mr. Rennick or used for personal expenses, this evidence will strengthen the fiduciary-duty and unjust-enrichment claims.
2. Clearfield & Moss Records and Deposition of Howard Moss, CPA. We will subpoena the complete records of Clearfield & Moss CPAs related to CMP, including all workpapers, communications with Mr. Rennick, and internal memoranda regarding the revenue reclassifications. We will also depose Mr. Moss to establish whether the reclassifications were directed or influenced by Mr. Rennick and whether Mr. Moss's firm maintained independent professional judgment in connection with these entries. The deposition of Mr. Moss is critical to defeating the accounting-judgment defense.
3. Written discovery to Rennick. We will serve interrogatories and requests for production on Mr. Rennick targeting all communications with RSV and Clearfield & Moss regarding fee invoicing, waterfall calculations, revenue classifications, and distribution timing. We will also request all documents reflecting Mr. Rennick's authority to approve RSV invoices and any communications with Ms. Fonseca regarding management fees or waterfall adjustments.
4. Distribution Agreements. We will request all domestic distribution agreements for Salt Wind and Iron Lullaby, including any amendments, side letters, or supplemental agreements. These agreements will allow us to independently verify the revenue streams that were the subject of the reclassifications and to confirm the timing and amount of the Tranche B advance recoupment.
D. Early Mediation
We recommend proposing early mediation to opposing counsel, ideally to be scheduled within sixty to ninety days of filing the Complaint. An early mediation offers several advantages:
First, the partnership relationship between Ms. Fonseca and Mr. Rennick may be capable of preservation if a restated waterfall and corrective payment can be negotiated. CMP's four-film library continues to generate revenue, and the partnership's ongoing economic value may exceed the amount in dispute. A negotiated resolution that addresses both the historical financial irregularities and the governance structure going forward may serve Ms. Fonseca's long-term interests better than a complete dissolution of the partnership.
Second, mediation provides an opportunity to negotiate governance reforms — such as the engagement of an independent accountant, the implementation of a dual-signature requirement for payments exceeding a specified threshold, and the establishment of a transparent quarterly-reporting protocol — that would protect Ms. Fonseca against future self-dealing by Mr. Rennick.
Third, an early mediation, conducted against the backdrop of a filed Complaint and a credible discovery plan, creates maximum settlement pressure at minimum cost. If the mediation is successful, the matter can be resolved for a fraction of the litigation budget. If it is unsuccessful, the information exchanged during the mediation process may still inform our litigation strategy and narrow the issues in dispute.
We recommend engaging a retired Superior Court judge with entertainment-industry experience as mediator. The mediator's credibility and subject-matter expertise will be important in persuading Mr. Rennick (and his counsel) to take the claims seriously and to engage in good-faith settlement negotiations.
E. Settlement Posture
Based on our assessment of the merits, the damages calculation, and the litigation risks on both sides, we recommend the following settlement posture:
• Target Settlement Range: $900,000 to $1,150,000 in a lump-sum payment, plus a restated waterfall going forward with a reduced management-fee cap (e.g., three percent rather than five percent, or elimination of RSV as a service provider entirely) and governance reforms including an independent accountant and dual-signature requirement.
• Walk-Away Threshold: To be discussed with Ms. Fonseca at the next client conference. We recommend establishing a firm walk-away number below which Ms. Fonseca is not willing to settle, taking into account both the expected litigation costs and the value of preserving the partnership.
• Partnership Preservation discount: In evaluating settlement offers, we should consider whether the preservation of the partnership — and its ongoing revenue-generating film library — warrants accepting a discount to the maximum damages figure. A negotiated resolution that includes governance reforms and a restated waterfall may yield greater total value to Ms. Fonseca over time than a judgment for the full damages amount accompanied by a dissolution of the partnership and a potentially contentious wind-down process.
VI. LITIGATION BUDGET ESTIMATE
A. Phase-by-Phase Budget
The following table sets forth our estimated fees for each phase of the litigation, from the current pre-litigation phase through a potential trial:
These estimates are based on current hourly rates for the attorneys and staff assigned to this matter and assume a level of complexity and document volume consistent with our current understanding of the case. The estimates may be revised upward if discovery reveals additional issues, if the case involves extensive motion practice, or if trial preparation requires retention of additional expert witnesses beyond Tillerman Forensic Advisory. Conversely, the estimates may be revised downward if the case settles earlier than anticipated or if certain discovery issues are narrowed through stipulation.
B. Consultant Fees (Billed Directly to Client)
Tillerman Forensic Advisory LLC's estimated fees for this engagement are $85,000 to $110,000. This estimate encompasses the following scope of work:
• Forensic analysis of CMP's financial records, including a detailed review of all 142 RSV invoices, CMP's quarterly financial statements, waterfall schedules, distribution statements, and bank records.
• Preparation of a full reconstructed waterfall analysis for each of CMP's four film properties, showing the distributions that should have been made to each partner absent the irregularities identified.
• Preparation of a comprehensive forensic memorandum suitable for use as a litigation exhibit and as the foundation for expert testimony.
• Potential expert witness preparation, including assistance with the preparation of a damages report, pre-deposition preparation, and mock cross-examination.
If Greta Sørensen, CPA, CFF, is required to testify at trial — whether at deposition, in a declaration in support of a summary-judgment motion, or as a live witness at trial — additional trial-preparation and testimony fees are estimated at $45,000 to $55,000. These additional fees would cover Ms. Sørensen's preparation time, report-drafting time, deposition or trial testimony time, and associated travel and administrative costs.
Tillerman's fees are a direct client obligation and are not included in Calderwood & Harkness's invoices. Per the terms of our engagement letter with Ms. Fonseca, Tillerman bills Ms. Fonseca directly for its services, and Calderwood & Harkness provides coordination and oversight but does not mark up or pass through Tillerman's charges.
C. Budget Discussion
We recommend discussing this budget in detail with Ms. Fonseca at the next client conference. Several points merit particular attention:
First, the settlement-scenario budget of approximately $165,000 in legal fees — plus Tillerman's estimated fees of $85,000 to $110,000 — represents significant savings compared to the full-trial scenario of $630,000 in legal fees plus Tillerman's enhanced fees. The total cost in the settlement scenario would be approximately $250,000 to $275,000, compared to approximately $715,000 to $795,000 in the trial scenario (including Tillerman's potential testimony fees).
Second, these cost differentials should be weighed against the likely settlement discount. If the case settles at the midpoint of our target range — approximately $1,025,000 — Ms. Fonseca's net recovery after legal fees in the settlement scenario would be approximately $750,000 to $775,000. If the case proceeds to trial and Ms. Fonseca obtains a full recovery of approximately $1,407,589 (including pre-judgment interest), her net recovery after legal fees and consultant fees would be approximately $612,000 to $693,000. On a net-recovery basis, the settlement scenario may actually yield a higher return to Ms. Fonseca than a full trial recovery, depending on the ultimate settlement figure.
Third, the fee-shifting provision in Section 12.3 of the Partnership Agreement could significantly alter this analysis. If Ms. Fonseca prevails at trial and recovers her attorney's fees, her net recovery would be substantially higher than in the settlement scenario. However, fee-shifting is subject to the court's discretion and is not guaranteed, and the prospect of recovering fees at trial does not eliminate the risk and expense of the litigation process.
These considerations should be discussed with Ms. Fonseca so that she can make informed decisions about settlement posture and litigation strategy.
VII. NEXT STEPS
Based on our assessment of the claims, defenses, damages, and strategic considerations outlined above, we recommend the following immediate next steps:
1. Receive and Analyze Tillerman's Full Forensic Accounting Memorandum. The full memorandum, including the reconstructed waterfall analysis (expected as Exhibit C), is due on or about December 19, 2022. Upon receipt, we will review the memorandum in detail, confirm the damages calculations, and assess whether the analysis identifies any additional irregularities or modifies our current damages estimate.
2. Schedule Client Conference. We recommend scheduling a client conference with Ms. Fonseca as soon as practicable after receipt of the Tillerman memorandum — ideally during the last week of December 2022 or the first week of January 2023 — to discuss the litigation budget, settlement posture, walk-away threshold, and filing strategy. Ms. Fonseca's input on these matters is essential to the formulation of a coherent litigation and settlement plan.
3. Finalize and File Complaint. If no meaningful settlement progress is achieved by early January 2023, we will finalize the Complaint and file it in the Superior Court of California, County of Los Angeles. The Complaint will assert the five causes of action described in Section V.B above and will include a demand for jury trial.
4. Document Rennick's Non-Compliance with Demand. The thirty-day compliance deadline set forth in our October 10, 2022 demand letter expired on or about November 9, 2022, without compliance. We should document Mr. Rennick's non-compliance in our file and reference it in the Complaint for purposes of establishing the accrual date for pre-judgment interest and demonstrating Mr. Rennick's unwillingness to account voluntarily for the identified irregularities.
5. Prepare discovery Plan and Identify Deponents. We should begin preparing detailed discovery requests and identifying potential deponents in advance of filing, so that discovery can be served promptly after the answer is filed. Key deponents include Howard Moss of Clearfield & Moss CPAs (regarding the revenue reclassifications and his relationship with Mr. Rennick) and Mr. Rennick himself, both in his individual capacity and as the person most knowledgeable of RSV.
VIII. CONCLUSION
Based on our review of the available evidence and our analysis of the applicable law, Ms. Fonseca has strong claims against Mr. Rennick and RSV, supported by clear contractual provisions, well-established fiduciary-duty principles, and compelling preliminary forensic evidence.
The excess-management-fee claim is particularly strong, with an estimated eighty percent (80%) probability of success, given the unambiguous five-percent cap in Section 6.2 of the Partnership Agreement, the absence of any written authorization for the excess fees, and the express amendment clause that undermines Mr. Rennick's course-of-dealing defense. The revenue-reclassification claim carries somewhat greater risk — estimated at seventy percent (70%) — due to the potential accounting-judgment defense, but it is well-supported by Clearfield & Moss's own Q4 2019 reports confirming that the Tranche B advances were fully recouped before the reclassifications occurred. Discovery is likely to yield additional evidence that strengthens this claim.
Mr. Rennick's threatened counterclaim for breach of the implied covenant of good faith — premised on Ms. Fonseca's retention of a forensic accountant — is meritless under California partnership law and should not deter the prosecution of Ms. Fonseca's claims. We estimate a ninety percent or greater likelihood of defeating this counterclaim on demurrer or summary judgment.
Our recommended strategy is to pursue early mediation, paired with a credible litigation posture established by the filing of the Complaint in January 2023 and an aggressive, targeted discovery plan. This approach offers the best path to a favorable resolution that maximizes Ms. Fonseca's net recovery while preserving the option to litigate through trial if necessary. If the partnership relationship can be preserved through negotiated governance reforms and a restated waterfall, the long-term value to Ms. Fonseca may exceed a litigated judgment.
The total claimed damages of approximately $1,407,589 — including core damages of $1,309,385 and estimated pre-judgment interest of $98,204, with the potential for additional recovery through the fee-shifting provision — provide a strong negotiating baseline for settlement discussions.
We welcome the opportunity to discuss this assessment with you and to refine our litigation strategy based on your input and Ms. Fonseca's instructions.
This memorandum is intended solely for the use of the individuals to whom it is addressed. It contains privileged and confidential information protected by the attorney-client privilege and the attorney work-product doctrine. Any unauthorized review, use, disclosure, or distribution is prohibited.
Film Property | Year of Release | Gross Receipts Through Q2 2022
Iron Lullaby | 2018 | $6,420,000
The Perdition Room | 2019 | $4,110,000
Salt Wind | 2020 | $8,740,000
Nightjars | 2021 | $3,950,000
Total | $23,220,000
Category | Total Irregularity | Fonseca's 55% Share
Excess management fees paid to RSV | $1,533,500 | $843,425
Improperly reclassified revenues | $847,200 | $465,960
Subtotal | $2,380,700 | $1,309,385
Phase | Estimated Cost
Pre-litigation / demand phase | $45,000 (incurred to date: approximately $32,000)
Complaint through answer | $55,000
Discovery (written discovery, depositions, third-party subpoenas) | $120,000
Mediation (preparation and attendance) | $35,000
Trial preparation (if necessary) | $200,000
Trial (estimated 5-day bench trial) | $175,000
Total (through trial) | $630,000
Settlement scenario (through mediation) | $165,000