1035-00004 · Client 1035 · Analysis

forensic-accounting-analysis-memo.docx DOCUMENT Litigation

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CALDERWOOD & HARKNESS LLP Attorneys at Law

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work-product doctrine. It is prepared in anticipation of litigation and is not intended for disclosure to any third party. Any inadvertent disclosure does not constitute a waiver of privilege.

MEMORANDUM

TO: Samuel Eklund; Jeffrey Park

FROM: Yuki Nakamura

DATE: January 9, 2023

RE: Summary of Tillerman Forensic Advisory Findings — Fonseca v. Rennick — Matter No. 1035-00004

I. PURPOSE

This memorandum summarizes the key findings from the preliminary forensic accounting memorandum prepared by Tillerman Forensic Advisory LLC, dated December 19, 2022 (the "Tillerman Memo"). The Tillerman Memo was prepared by Greta Sørensen, CPA, CFF, Principal of Tillerman Forensic Advisory LLC, located at 350 South Grand Avenue, Suite 1480, Los Angeles, California 90071. Ms. Sørensen holds a license in good standing from the California Board of Accountancy and is Certified in Financial Forensics through the American Institute of Certified Public Accountants.

Tillerman Forensic Advisory was retained by our client, Marguerite D. Fonseca, on August 15, 2022, pursuant to an engagement letter executed on the same date, to conduct a comprehensive forensic review of the books and records of Coastal Meridian Productions LLP ("CMP"), EIN 83-2197644. CMP is a California limited liability partnership formed on March 8, 2017, by Fonseca and Desmond R. Rennick for the purpose of developing, producing, and exploiting feature-length motion-picture properties. The two partners hold equal capital interests in the partnership, with distributable profits allocated 55% to Fonseca and 45% to Rennick pursuant to the CMP Partnership Agreement, as described further below.

The purpose of this summary is to relate Tillerman's principal findings to our pleading strategy in anticipation of the complaint to be filed in the Superior Court of California, County of Los Angeles. As discussed in our team conference on January 4, 2023, we intend to file the complaint no later than February 15, 2023, and this memorandum is intended to guide the drafting of the factual allegations and damages sections.

The scope of Tillerman's review, as defined in the engagement letter and reiterated in the Tillerman Memo, encompassed the following areas:

(a) All intercompany transactions between CMP and Rennick Slate Ventures LLC ("RSV"), EIN 84-3056178, a California limited liability company organized on June 22, 2018, by Desmond R. Rennick as sole member and manager;

(b) All waterfall calculations prepared by CMP's outside accountant, Clearfield & Moss CPAs, under the direction of Howard Moss, CPA, Partner-in-Charge, for the period from CMP's inception through the second quarter of 2022; and

(c) All domestic distribution revenue records for CMP's four feature-film properties: Iron Lullaby (2018), The Perdition Room (2019), Salt Wind (2020), and Nightjars (2021).

The Tillerman Memo comprises a twenty-three-page narrative report, supported by three exhibits: Exhibit A (RSV Invoice Analysis), Exhibit B (Revenue Reclassification Detail), and Exhibit C (Reconstructed Revenue Waterfall). As set forth in the sections that follow, Tillerman's findings reveal a pattern of excess fee extraction and revenue manipulation that is directly attributable to Rennick's conduct as Managing Partner and that forms the factual foundation for our anticipated claims for breach of fiduciary duty, breach of the partnership agreement, constructive fraud, and an accounting.

II. RSV INVOICE ANALYSIS

A. Invoice Total: $2,694,500

Tillerman's team reviewed a total of 142 invoices issued by RSV to CMP during the period from July 2018 through June 2022. These invoices were sourced from CMP's accounts-payable files, which Tillerman obtained from Clearfield & Moss CPAs pursuant to Fonseca's authorization as a partner of CMP. Each invoice was catalogued by date, invoice number, film property, service description, and amount. The aggregate invoiced amount across all 142 invoices was $2,694,500.

To evaluate whether these invoices were consistent with the governing contractual terms, Tillerman compared the total invoiced amounts on a per-film basis to the management-fee cap established in Section 6.2 of the CMP Partnership Agreement, dated March 8, 2017, as amended by the First Amendment to Partnership Agreement dated January 15, 2019 (collectively, the "Partnership Agreement"). Section 6.2 provides, in pertinent part:

"Fees payable to the Managing Partner or any entity owned or controlled by the Managing Partner for management, supervision, or administrative services rendered in connection with the Partnership's film properties shall not exceed five percent (5%) of the applicable film property's gross receipts, calculated on a cumulative basis."

The following table, adapted from Exhibit A to the Tillerman Memo, sets forth the RSV invoiced amounts for each CMP film property, the applicable 5% management-fee cap based on confirmed gross receipts through the second quarter of 2022, and the corresponding gross receipts figures:

Tillerman performed arithmetic verification of the cap amounts. The sum of the individual film caps — $321,000 + $205,500 + $437,000 + $197,500 — equals $1,161,000, which in turn equals $23,220,000 multiplied by 5%. This has been independently confirmed.

Accordingly, the total excess management fees charged by RSV above the contractual cap amount to $2,694,500 − $1,161,000 = $1,533,500. This figure has been confirmed by both Tillerman's analysis and our independent review of the underlying records.

B. Categories of Excess

Tillerman categorized the $1,533,500 in excess fees into three principal groupings based on the service descriptions appearing on the face of the invoices and Tillerman's comparison of those descriptions to CMP's operational records. Each category is discussed below.

1. Duplicative Post-Production Supervision — $814,600 (37 invoices)

The largest category of excess fees, totaling $814,600 across thirty-seven separate invoices, consists of charges described on the invoices as "post-production supervision" services rendered in connection with all four CMP film properties. These invoices purport to reflect fees for RSV's oversight and management of the post-production process for each film, including editorial, color correction, sound mixing, visual effects supervision, and deliverables preparation.

However, Tillerman's review of CMP's vendor files and accounts-payable ledger reveals that CMP separately and directly engaged third-party post-production houses to perform the identical categories of services during the same time periods covered by the RSV invoices. Specifically, CMP's records reflect direct contracts and corresponding payments to established post-production vendors for each of the four films, covering editorial, color, sound, and visual effects services. The payments under those direct contracts were substantial and consistent with industry norms for the type and scope of work performed.

Tillerman accordingly flags these thirty-seven RSV invoices as potentially duplicative — that is, RSV was billing CMP for supervision of work that was already being managed and paid for under direct CMP contracts with the post-production vendors themselves. In essence, CMP was paying twice for the same scope of services: once to the vendors who actually performed the work, and again to RSV for purported "supervision" of that work.

Critically, no deliverables, work logs, time records, correspondence, or any other documentation from RSV was found in CMP's files to substantiate the post-production supervision charges. Tillerman's team specifically requested and searched for any evidence of RSV personnel involvement in the post-production process and found none. The absence of supporting documentation, combined with the existence of parallel vendor contracts, strongly suggests that these charges represent self-dealing by Rennick through his wholly owned entity.

2. Unsupported Festival and Distribution Services — $412,900 (18 invoices)

The second category, totaling $412,900 across eighteen invoices, consists of charges described on the invoices as "festival and distribution services." These invoices purported to cover RSV's work in submitting the respective films to domestic and international film festivals, coordinating festival screenings, managing press and publicity in connection with festival appearances, and providing distribution-strategy consulting.

Tillerman's analysis revealed a significant timing anomaly. Many of these invoices were dated well after the respective films' initial theatrical release dates — in several cases, months after the relevant film had completed its festival circuit entirely. For example, RSV invoiced CMP for festival services related to Iron Lullaby as late as April 2020, despite the fact that Iron Lullaby had completed its festival run by mid-2019 and entered wide domestic theatrical distribution in August 2019. Similar post-circuit invoicing patterns were observed for the other properties.

Moreover, Tillerman was unable to locate any corresponding deliverables in CMP's files to support the charges. No festival submission confirmations, attendance records, travel itineraries, screening schedules, publicity reports, distributor correspondence, or distribution activity reports were found. The absence of any corroborating documentation, coupled with the timing of the invoices relative to the films' actual festival and distribution timelines, renders these charges unsupported under any reasonable accounting standard.

3. Miscellaneous Overcharges — $306,000 (remaining excess)

The remaining excess of approximately $306,000 is distributed across various service categories, including production management, consulting, travel coordination, and general administrative support. These invoices, while describing facially legitimate service categories, reflect unit rates and aggregate charges that substantially exceed comparable market benchmarks.

Tillerman compared the RSV charges in this category to prevailing industry rates for similar services, drawing on publicly available compensation surveys, Tillerman's internal database of entertainment-industry billing norms, and comparable engagement data from other forensic reviews conducted by the firm. Based on this analysis, Tillerman found that the RSV charges in this miscellaneous category exceeded market benchmarks by approximately 40% to 65%, depending on the specific service line. While overcharging alone does not necessarily establish impropriety, the magnitude of the overcharges — when viewed in the context of the self-dealing relationship between Rennick and RSV — is significant and supports an inference that these fees were not the product of arm's-length negotiation.

C. Invoice Approval

Tillerman's review of the invoice-approval process revealed a further area of concern that bears directly on our fiduciary-duty and constructive-fraud theories. All 142 RSV invoices reviewed by Tillerman bear only the approval signature of Desmond R. Rennick. None of the invoices are countersigned, co-approved, or otherwise endorsed by Marguerite D. Fonseca or by any independent third party.

This pattern is consistent with Rennick's role as the day-to-day Managing Partner of CMP, a position under which the Partnership Agreement grants him signing authority over CMP's operating accounts for ordinary-course expenditures. However, the exercise of that authority to approve payments to his own wholly owned entity — particularly where those payments exceed the contractual cap set forth in Section 6.2 of the Partnership Agreement by more than $1.5 million — raises serious fiduciary-duty concerns. Rennick was, in substance, approving payments from the partnership to himself, without the knowledge or consent of his co-partner, and in excess of the contractual limits expressly established to govern such related-party transactions.

Fonseca has confirmed to us that she was not informed of the RSV invoices at the time they were submitted, approved, or paid, and that she did not learn of the scope and magnitude of the RSV billings until Tillerman's review was undertaken in the fall of 2022.

III. REVENUE RECLASSIFICATION ANALYSIS

In addition to the excess-fee analysis, Tillerman identified two discrete revenue reclassification events that further reduced the distributable profit pool available to Fonseca. Both events involved the transfer of confirmed domestic distribution revenue from the "distributable revenue" line of CMP's waterfall schedules to an "advance recoupment — Tranche B" line, without any legitimate accounting basis for doing so. The details are as follows.

A. Salt Wind — $538,200

In the third quarter of 2020, $538,200 in domestic home-entertainment revenue received by CMP from the exploitation of Salt Wind was reclassified on the Q3 2020 waterfall schedule prepared by Clearfield & Moss CPAs. The revenue in question had been collected by CMP from its home-entertainment distributor and had been correctly classified as distributable revenue in the initial draft of the quarterly waterfall. However, the final version of the Q3 2020 waterfall schedule — the version that was used to calculate and pay quarterly distributions — reflected a reclassification of this $538,200 from the "distributable revenue" category to the "advance recoupment — Tranche B" category.

The effect of this reclassification was to remove $538,200 from the distributable profit pool that would otherwise have been subject to the 55/45 split between Fonseca and Rennick. By moving this amount into the advance-recoupment line, the reclassification reduced the amount of revenue available for distribution to the partners, and correspondingly reduced Fonseca's share of the Q3 2020 distribution.

B. Iron Lullaby — $309,000

A substantially identical reclassification occurred in the first quarter of 2021. In Q1 2021, $309,000 in domestic SVOD (subscription video-on-demand) revenue received by CMP from the exploitation of Iron Lullaby was reclassified on the Q1 2021 waterfall schedule. As with the Salt Wind reclassification, this amount was moved from the "distributable revenue" category to the "advance recoupment — Tranche B" category, thereby reducing the distributable profit pool and Fonseca's corresponding share of the Q1 2021 distribution.

C. Total Reclassified: $847,200

The combined total of improperly reclassified revenues across both events is $538,200 + $309,000 = $847,200. This figure has been independently confirmed.

D. Recoupment Status of Underlying Advances

The critical issue underlying the reclassification analysis is whether there was any legitimate accounting basis for moving these revenues into the "advance recoupment — Tranche B" line. To resolve this question, Tillerman analyzed the underlying Tranche B advance agreements for both Salt Wind and Iron Lullaby, as well as the quarterly financial statements and recoupment schedules prepared by Clearfield & Moss CPAs from inception through Q2 2022.

Tillerman's key finding is as follows: the Tranche B advances for both *Salt Wind* and *Iron Lullaby* were fully recouped by the fourth quarter of 2019. This conclusion is not based solely on Tillerman's own reconstruction of the recoupment schedules; it is independently confirmed by Clearfield & Moss CPAs' own quarterly financial reports for Q4 2019. Those reports — which were prepared by Moss's team and distributed to both Fonseca and Rennick — reflect a zero outstanding balance on the Tranche B advances for both film properties as of December 31, 2019.

The significance of this finding cannot be overstated. The Salt Wind reclassification occurred in Q3 2020, approximately nine months after the Tranche B advance for that film had been fully recouped. The Iron Lullaby reclassification occurred in Q1 2021, approximately fifteen months after the Tranche B advance for that film had been fully recouped. In both cases, the advance balances were already at zero when the reclassifications were made. There was, in Tillerman's professional opinion, no legitimate accounting basis for reclassifying current distributable revenue into an advance-recoupment line that had already been fully satisfied.

Tillerman concludes that the reclassifications had the effect — and, based on the absence of any supporting rationale, the apparent purpose — of reducing the distributable profit pool and thereby depressing Fonseca's share of distributions from CMP. When viewed in conjunction with the excess management fees paid to RSV, these reclassifications form part of a broader pattern of conduct by Rennick that systematically diverted value away from Fonseca and toward Rennick or entities controlled by Rennick.

IV. RECONSTRUCTED WATERFALL

To quantify the aggregate financial impact of the excess management fees and the improper revenue reclassifications on Fonseca's distributions, Tillerman prepared a full reconstructed revenue waterfall for all four CMP film properties from inception through Q2 2022. This reconstructed waterfall is designated as Exhibit C to the Tillerman Memo and runs to eleven pages.

The reconstructed waterfall eliminates the effect of both categories of financial irregularities identified in the Tillerman Memo:

(1) The $1,533,500 in excess management fees paid to RSV above the 5% contractual cap established by Section 6.2 of the Partnership Agreement; and

(2) The $847,200 in distributable revenues improperly reclassified from distributable revenue to advance recoupment — Tranche B in Q3 2020 and Q1 2021.

Tillerman's reconstructed waterfall reflects what Fonseca's cumulative distributions should have been had CMP's financial records been maintained in accordance with the Partnership Agreement and generally accepted accounting principles, without the effect of the excess fees and improper reclassifications. The results are summarized in the following table:

The shortfall of $1,309,385 represents the total amount by which Fonseca was underpaid as a result of the identified irregularities. This figure is consistent with and confirms our independent damages calculation, which proceeds as follows:

• Fonseca's 55% share of excess management fees: $1,533,500 × 55% = $843,425

• Fonseca's 55% share of improperly reclassified revenues: $847,200 × 55% = $465,960

• Total: $843,425 + $465,960 = $1,309,385

The arithmetic reconciliation between Tillerman's bottom-up waterfall reconstruction and our top-down percentage-based calculation has been confirmed. This convergence strengthens our confidence in the accuracy and reliability of Tillerman's analysis and provides a solid evidentiary foundation for our damages claim.

V. RECOMMENDATIONS

Based on the foregoing summary of Tillerman's findings, I recommend the following action items for the litigation team's consideration. Each recommendation is designed to ensure that we maximize the evidentiary value of Tillerman's work and position our case for success at both the discovery and trial stages.

1. Discovery Priorities

The Tillerman findings should be incorporated into our discovery plan upon filing the complaint. In particular, Tillerman's categorization of the excess invoices and the specific timing of the revenue reclassifications should inform the scope and specificity of our initial document requests and interrogatories.

As a priority matter, we need to obtain RSV's bank records. Tillerman's analysis traces the flow of funds from CMP to RSV but, because RSV's own financial records were not available to Tillerman, the analysis cannot determine the ultimate disposition of the $2,694,500 in fees paid by CMP to RSV. We should issue targeted subpoenas to Ridgeline Commercial Bank, CMP's lender, located at 555 West 7th Street, 18th Floor, Los Angeles, California 90014, and to any other depository institution at which RSV maintained accounts, seeking complete account statements and transactional records for the relevant period. The purpose of this request is to trace whether the funds received by RSV were used for legitimate CMP-related purposes — such as reimbursement of actual out-of-pocket costs incurred by RSV on CMP's behalf — or were instead diverted to Rennick's personal use. Evidence of personal diversion would substantially strengthen our constructive-fraud claim and may support a request for punitive damages.

2. Deposition of Howard Moss, CPA

We should schedule and take the deposition of Howard Moss, CPA, of Clearfield & Moss CPAs, located at 9100 Sunset Blvd., Suite 220, West Hollywood, California 90069, at the earliest opportunity following the close of initial written discovery. Moss served as the Partner-in-Charge of CMP's engagement at Clearfield & Moss and was directly responsible for the preparation of CMP's quarterly waterfall schedules, including the schedules on which the improper reclassifications appeared.

The key areas of inquiry for Moss's deposition should include the following:

(a) The Q4 2019 quarterly report confirming full recoupment of Tranche B advances for both Salt Wind and Iron Lullaby, including the data and methodology underlying the recoupment calculations reflected in that report;

(b) Whether Rennick instructed or directed the subsequent Q3 2020 and Q1 2021 reclassifications, and, if so, the nature and form of those instructions (e.g., written directive, email, telephone call, in-person meeting);

(c) Whether Moss or any member of his team raised any concerns about the propriety or accounting basis of the reclassifications with either Fonseca or Rennick, and, if not, why not; and

(d) The process by which RSV invoices were reviewed and approved for payment by CMP, including whether Moss's team performed any independent review of the RSV invoices for compliance with the Section 6.2 fee cap, and whether Moss was aware that the aggregate RSV billings exceeded the contractual cap by more than $1.5 million.

Moss's testimony has the potential to be highly probative on the question of Rennick's intent. If Moss testifies that Rennick specifically directed the reclassifications despite the advances having been fully recouped, that testimony would go directly to the issue of scienter and would support our constructive-fraud theory. Conversely, if Moss testifies that he acted independently or based on his own professional judgment, we will need to assess whether Clearfield & Moss may bear potential third-party liability, which could open additional avenues for recovery.

3. Expert Testimony

Greta Sørensen has indicated that she is prepared to testify as an expert witness at trial if necessary. Her estimated trial-preparation and testimony fees are in the range of $45,000 to $55,000, which is consistent with the rates typically charged by forensic accounting experts of comparable experience and qualifications in the Los Angeles market.

Ms. Sørensen's qualifications — including her CPA license and her certification in Financial Forensics (CFF) — together with the thoroughness and rigor of her analysis as reflected in the Tillerman Memo, make her a strong expert candidate. Her ability to walk the trier of fact through the invoice analysis, the revenue reclassifications, and the reconstructed waterfall in clear and accessible terms will be critical to demonstrating the full scope and dollar amount of Fonseca's damages.

I recommend that we formally designate Ms. Sørensen as a retained expert in our initial disclosures under California Code of Civil Procedure Section 2034.210 et seq. Early designation will allow us to manage the expert-discovery timeline proactively and will signal to opposing counsel the strength of our damages case.

4. Pre-Judgment Interest

Tillerman's analysis does not include a calculation of pre-judgment interest on the $1,309,385 shortfall. This is consistent with the scope of Tillerman's engagement, which focused on the forensic accounting analysis rather than the legal calculation of recoverable damages.

Based on our own preliminary estimate, applying California's statutory pre-judgment interest rate of 10% per annum (Cal. Civ. Code § 3289) from the date of our October 2022 demand letter through the anticipated filing date, the estimated pre-judgment interest is calculated as follows:

$1,309,385 × 10% × (9 months / 12 months) = approximately $98,204

This yields a total anticipated claim, inclusive of estimated interest, of approximately $1,407,589. This figure should be referenced in the body of the complaint and in any pre-litigation demand context, though we should note that the exact interest calculation will ultimately depend on the court's determination of the appropriate accrual date or dates. It is possible that interest may accrue from the date of each underpayment rather than from the date of the demand letter, which would yield a substantially higher interest figure. We should research this issue further and, if appropriate, present alternative interest calculations in the complaint.

5. Coordination with Pleading

The complaint should incorporate Tillerman's findings throughout the factual allegations and damages sections. Specifically, I recommend the following approach:

(a) The factual allegations should describe the three categories of excess management fees identified by Tillerman — duplicative post-production supervision ($814,600), unsupported festival and distribution services ($412,900), and miscellaneous overcharges ($306,000) — with sufficient detail to establish the self-dealing nature of the transactions and the absence of any supporting documentation in CMP's files.

(b) The factual allegations should separately describe the two revenue reclassification events — Salt Wind in Q3 2020 ($538,200) and Iron Lullaby in Q1 2021 ($309,000) — and should specifically allege that the underlying Tranche B advances had been fully recouped by Q4 2019, rendering the reclassifications baseless.

(c) The damages section should reference the reconstructed waterfall (Exhibit C to the Tillerman Memo) as the evidentiary foundation for our damages claim of $1,309,385, plus pre-judgment interest.

(d) As to each category of wrongful conduct, the complaint should allege that all RSV invoices were self-approved by Rennick without Fonseca's knowledge or consent, and that the revenue reclassifications were made without any legitimate accounting justification. These allegations support both the breach-of-fiduciary-duty claim (based on Rennick's self-dealing and failure to act in the interest of the partnership and his co-partner) and the constructive-fraud claim (based on Rennick's exploitation of the fiduciary relationship to obtain an unfair advantage over Fonseca).

I am available to discuss these recommendations and to begin coordinating the complaint draft at your convenience. Please let me know if you require any additional detail from the Tillerman Memo or if you would like me to arrange a call with Ms. Sørensen to discuss any aspect of her findings.

Yuki Nakamura Associate Calderwood & Harkness LLP

Encl.: Tillerman Forensic Advisory LLC, Preliminary Forensic Accounting Memorandum (Dec. 19, 2022)

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT Calderwood & Harkness LLP	Matter No. 1035-00004
Film Property	RSV Invoices	5% Cap (Gross Receipts × 5%)	Gross Receipts (thru Q2 2022)
Iron Lullaby (2018)	$612,300	$321,000	$6,420,000
The Perdition Room (2019)	$473,200	$205,500	$4,110,000
Salt Wind (2020)	$1,034,800	$437,000	$8,740,000
Nightjars (2021)	$574,200	$197,500	$3,950,000
Total	$2,694,500	$1,161,000	$23,220,000
Item	Amount
Fonseca's cumulative distributions — as actually paid (through Q2 2022)	$6,109,307
Fonseca's cumulative distributions — as should have been paid per reconstructed waterfall	$7,418,692
Shortfall	$1,309,385

CALDERWOOD & HARKNESS LLP Attorneys at Law
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work-product doctrine. It is prepared in anticipation of litigation and is not intended for disclosure to any third party. Any inadvertent disclosure does not constitute a waiver of privilege.
MEMORANDUM
TO: Samuel Eklund; Jeffrey Park
FROM: Yuki Nakamura
DATE: January 9, 2023
RE: Summary of Tillerman Forensic Advisory Findings — Fonseca v. Rennick — Matter No. 1035-00004
I. PURPOSE
This memorandum summarizes the key findings from the preliminary forensic accounting memorandum prepared by Tillerman Forensic Advisory LLC, dated December 19, 2022 (the "Tillerman Memo"). The Tillerman Memo was prepared by Greta Sørensen, CPA, CFF, Principal of Tillerman Forensic Advisory LLC, located at 350 South Grand Avenue, Suite 1480, Los Angeles, California 90071. Ms. Sørensen holds a license in good standing from the California Board of Accountancy and is Certified in Financial Forensics through the American Institute of Certified Public Accountants.
Tillerman Forensic Advisory was retained by our client, Marguerite D. Fonseca, on August 15, 2022, pursuant to an engagement letter executed on the same date, to conduct a comprehensive forensic review of the books and records of Coastal Meridian Productions LLP ("CMP"), EIN 83-2197644. CMP is a California limited liability partnership formed on March 8, 2017, by Fonseca and Desmond R. Rennick for the purpose of developing, producing, and exploiting feature-length motion-picture properties. The two partners hold equal capital interests in the partnership, with distributable profits allocated 55% to Fonseca and 45% to Rennick pursuant to the CMP Partnership Agreement, as described further below.
The purpose of this summary is to relate Tillerman's principal findings to our pleading strategy in anticipation of the complaint to be filed in the Superior Court of California, County of Los Angeles. As discussed in our team conference on January 4, 2023, we intend to file the complaint no later than February 15, 2023, and this memorandum is intended to guide the drafting of the factual allegations and damages sections.
The scope of Tillerman's review, as defined in the engagement letter and reiterated in the Tillerman Memo, encompassed the following areas:
(a) All intercompany transactions between CMP and Rennick Slate Ventures LLC ("RSV"), EIN 84-3056178, a California limited liability company organized on June 22, 2018, by Desmond R. Rennick as sole member and manager;
(b) All waterfall calculations prepared by CMP's outside accountant, Clearfield & Moss CPAs, under the direction of Howard Moss, CPA, Partner-in-Charge, for the period from CMP's inception through the second quarter of 2022; and
(c) All domestic distribution revenue records for CMP's four feature-film properties: Iron Lullaby (2018), The Perdition Room (2019), Salt Wind (2020), and Nightjars (2021).
The Tillerman Memo comprises a twenty-three-page narrative report, supported by three exhibits: Exhibit A (RSV Invoice Analysis), Exhibit B (Revenue Reclassification Detail), and Exhibit C (Reconstructed Revenue Waterfall). As set forth in the sections that follow, Tillerman's findings reveal a pattern of excess fee extraction and revenue manipulation that is directly attributable to Rennick's conduct as Managing Partner and that forms the factual foundation for our anticipated claims for breach of fiduciary duty, breach of the partnership agreement, constructive fraud, and an accounting.
II. RSV INVOICE ANALYSIS
A. Invoice Total: $2,694,500
Tillerman's team reviewed a total of 142 invoices issued by RSV to CMP during the period from July 2018 through June 2022. These invoices were sourced from CMP's accounts-payable files, which Tillerman obtained from Clearfield & Moss CPAs pursuant to Fonseca's authorization as a partner of CMP. Each invoice was catalogued by date, invoice number, film property, service description, and amount. The aggregate invoiced amount across all 142 invoices was $2,694,500.
To evaluate whether these invoices were consistent with the governing contractual terms, Tillerman compared the total invoiced amounts on a per-film basis to the management-fee cap established in Section 6.2 of the CMP Partnership Agreement, dated March 8, 2017, as amended by the First Amendment to Partnership Agreement dated January 15, 2019 (collectively, the "Partnership Agreement"). Section 6.2 provides, in pertinent part:
"Fees payable to the Managing Partner or any entity owned or controlled by the Managing Partner for management, supervision, or administrative services rendered in connection with the Partnership's film properties shall not exceed five percent (5%) of the applicable film property's gross receipts, calculated on a cumulative basis."
The following table, adapted from Exhibit A to the Tillerman Memo, sets forth the RSV invoiced amounts for each CMP film property, the applicable 5% management-fee cap based on confirmed gross receipts through the second quarter of 2022, and the corresponding gross receipts figures:
Tillerman performed arithmetic verification of the cap amounts. The sum of the individual film caps — $321,000 + $205,500 + $437,000 + $197,500 — equals $1,161,000, which in turn equals $23,220,000 multiplied by 5%. This has been independently confirmed.
Accordingly, the total excess management fees charged by RSV above the contractual cap amount to $2,694,500 − $1,161,000 = $1,533,500. This figure has been confirmed by both Tillerman's analysis and our independent review of the underlying records.
B. Categories of Excess
Tillerman categorized the $1,533,500 in excess fees into three principal groupings based on the service descriptions appearing on the face of the invoices and Tillerman's comparison of those descriptions to CMP's operational records. Each category is discussed below.
1. Duplicative Post-Production Supervision — $814,600 (37 invoices)
The largest category of excess fees, totaling $814,600 across thirty-seven separate invoices, consists of charges described on the invoices as "post-production supervision" services rendered in connection with all four CMP film properties. These invoices purport to reflect fees for RSV's oversight and management of the post-production process for each film, including editorial, color correction, sound mixing, visual effects supervision, and deliverables preparation.
However, Tillerman's review of CMP's vendor files and accounts-payable ledger reveals that CMP separately and directly engaged third-party post-production houses to perform the identical categories of services during the same time periods covered by the RSV invoices. Specifically, CMP's records reflect direct contracts and corresponding payments to established post-production vendors for each of the four films, covering editorial, color, sound, and visual effects services. The payments under those direct contracts were substantial and consistent with industry norms for the type and scope of work performed.
Tillerman accordingly flags these thirty-seven RSV invoices as potentially duplicative — that is, RSV was billing CMP for supervision of work that was already being managed and paid for under direct CMP contracts with the post-production vendors themselves. In essence, CMP was paying twice for the same scope of services: once to the vendors who actually performed the work, and again to RSV for purported "supervision" of that work.
Critically, no deliverables, work logs, time records, correspondence, or any other documentation from RSV was found in CMP's files to substantiate the post-production supervision charges. Tillerman's team specifically requested and searched for any evidence of RSV personnel involvement in the post-production process and found none. The absence of supporting documentation, combined with the existence of parallel vendor contracts, strongly suggests that these charges represent self-dealing by Rennick through his wholly owned entity.
2. Unsupported Festival and Distribution Services — $412,900 (18 invoices)
The second category, totaling $412,900 across eighteen invoices, consists of charges described on the invoices as "festival and distribution services." These invoices purported to cover RSV's work in submitting the respective films to domestic and international film festivals, coordinating festival screenings, managing press and publicity in connection with festival appearances, and providing distribution-strategy consulting.
Tillerman's analysis revealed a significant timing anomaly. Many of these invoices were dated well after the respective films' initial theatrical release dates — in several cases, months after the relevant film had completed its festival circuit entirely. For example, RSV invoiced CMP for festival services related to Iron Lullaby as late as April 2020, despite the fact that Iron Lullaby had completed its festival run by mid-2019 and entered wide domestic theatrical distribution in August 2019. Similar post-circuit invoicing patterns were observed for the other properties.
Moreover, Tillerman was unable to locate any corresponding deliverables in CMP's files to support the charges. No festival submission confirmations, attendance records, travel itineraries, screening schedules, publicity reports, distributor correspondence, or distribution activity reports were found. The absence of any corroborating documentation, coupled with the timing of the invoices relative to the films' actual festival and distribution timelines, renders these charges unsupported under any reasonable accounting standard.
3. Miscellaneous Overcharges — $306,000 (remaining excess)
The remaining excess of approximately $306,000 is distributed across various service categories, including production management, consulting, travel coordination, and general administrative support. These invoices, while describing facially legitimate service categories, reflect unit rates and aggregate charges that substantially exceed comparable market benchmarks.
Tillerman compared the RSV charges in this category to prevailing industry rates for similar services, drawing on publicly available compensation surveys, Tillerman's internal database of entertainment-industry billing norms, and comparable engagement data from other forensic reviews conducted by the firm. Based on this analysis, Tillerman found that the RSV charges in this miscellaneous category exceeded market benchmarks by approximately 40% to 65%, depending on the specific service line. While overcharging alone does not necessarily establish impropriety, the magnitude of the overcharges — when viewed in the context of the self-dealing relationship between Rennick and RSV — is significant and supports an inference that these fees were not the product of arm's-length negotiation.
C. Invoice Approval
Tillerman's review of the invoice-approval process revealed a further area of concern that bears directly on our fiduciary-duty and constructive-fraud theories. All 142 RSV invoices reviewed by Tillerman bear only the approval signature of Desmond R. Rennick. None of the invoices are countersigned, co-approved, or otherwise endorsed by Marguerite D. Fonseca or by any independent third party.
This pattern is consistent with Rennick's role as the day-to-day Managing Partner of CMP, a position under which the Partnership Agreement grants him signing authority over CMP's operating accounts for ordinary-course expenditures. However, the exercise of that authority to approve payments to his own wholly owned entity — particularly where those payments exceed the contractual cap set forth in Section 6.2 of the Partnership Agreement by more than $1.5 million — raises serious fiduciary-duty concerns. Rennick was, in substance, approving payments from the partnership to himself, without the knowledge or consent of his co-partner, and in excess of the contractual limits expressly established to govern such related-party transactions.
Fonseca has confirmed to us that she was not informed of the RSV invoices at the time they were submitted, approved, or paid, and that she did not learn of the scope and magnitude of the RSV billings until Tillerman's review was undertaken in the fall of 2022.
III. REVENUE RECLASSIFICATION ANALYSIS
In addition to the excess-fee analysis, Tillerman identified two discrete revenue reclassification events that further reduced the distributable profit pool available to Fonseca. Both events involved the transfer of confirmed domestic distribution revenue from the "distributable revenue" line of CMP's waterfall schedules to an "advance recoupment — Tranche B" line, without any legitimate accounting basis for doing so. The details are as follows.
A. Salt Wind — $538,200
In the third quarter of 2020, $538,200 in domestic home-entertainment revenue received by CMP from the exploitation of Salt Wind was reclassified on the Q3 2020 waterfall schedule prepared by Clearfield & Moss CPAs. The revenue in question had been collected by CMP from its home-entertainment distributor and had been correctly classified as distributable revenue in the initial draft of the quarterly waterfall. However, the final version of the Q3 2020 waterfall schedule — the version that was used to calculate and pay quarterly distributions — reflected a reclassification of this $538,200 from the "distributable revenue" category to the "advance recoupment — Tranche B" category.
The effect of this reclassification was to remove $538,200 from the distributable profit pool that would otherwise have been subject to the 55/45 split between Fonseca and Rennick. By moving this amount into the advance-recoupment line, the reclassification reduced the amount of revenue available for distribution to the partners, and correspondingly reduced Fonseca's share of the Q3 2020 distribution.
B. Iron Lullaby — $309,000
A substantially identical reclassification occurred in the first quarter of 2021. In Q1 2021, $309,000 in domestic SVOD (subscription video-on-demand) revenue received by CMP from the exploitation of Iron Lullaby was reclassified on the Q1 2021 waterfall schedule. As with the Salt Wind reclassification, this amount was moved from the "distributable revenue" category to the "advance recoupment — Tranche B" category, thereby reducing the distributable profit pool and Fonseca's corresponding share of the Q1 2021 distribution.
C. Total Reclassified: $847,200
The combined total of improperly reclassified revenues across both events is $538,200 + $309,000 = $847,200. This figure has been independently confirmed.
D. Recoupment Status of Underlying Advances
The critical issue underlying the reclassification analysis is whether there was any legitimate accounting basis for moving these revenues into the "advance recoupment — Tranche B" line. To resolve this question, Tillerman analyzed the underlying Tranche B advance agreements for both Salt Wind and Iron Lullaby, as well as the quarterly financial statements and recoupment schedules prepared by Clearfield & Moss CPAs from inception through Q2 2022.
Tillerman's key finding is as follows: the Tranche B advances for both *Salt Wind* and *Iron Lullaby* were fully recouped by the fourth quarter of 2019. This conclusion is not based solely on Tillerman's own reconstruction of the recoupment schedules; it is independently confirmed by Clearfield & Moss CPAs' own quarterly financial reports for Q4 2019. Those reports — which were prepared by Moss's team and distributed to both Fonseca and Rennick — reflect a zero outstanding balance on the Tranche B advances for both film properties as of December 31, 2019.
The significance of this finding cannot be overstated. The Salt Wind reclassification occurred in Q3 2020, approximately nine months after the Tranche B advance for that film had been fully recouped. The Iron Lullaby reclassification occurred in Q1 2021, approximately fifteen months after the Tranche B advance for that film had been fully recouped. In both cases, the advance balances were already at zero when the reclassifications were made. There was, in Tillerman's professional opinion, no legitimate accounting basis for reclassifying current distributable revenue into an advance-recoupment line that had already been fully satisfied.
Tillerman concludes that the reclassifications had the effect — and, based on the absence of any supporting rationale, the apparent purpose — of reducing the distributable profit pool and thereby depressing Fonseca's share of distributions from CMP. When viewed in conjunction with the excess management fees paid to RSV, these reclassifications form part of a broader pattern of conduct by Rennick that systematically diverted value away from Fonseca and toward Rennick or entities controlled by Rennick.
IV. RECONSTRUCTED WATERFALL
To quantify the aggregate financial impact of the excess management fees and the improper revenue reclassifications on Fonseca's distributions, Tillerman prepared a full reconstructed revenue waterfall for all four CMP film properties from inception through Q2 2022. This reconstructed waterfall is designated as Exhibit C to the Tillerman Memo and runs to eleven pages.
The reconstructed waterfall eliminates the effect of both categories of financial irregularities identified in the Tillerman Memo:
(1) The $1,533,500 in excess management fees paid to RSV above the 5% contractual cap established by Section 6.2 of the Partnership Agreement; and
(2) The $847,200 in distributable revenues improperly reclassified from distributable revenue to advance recoupment — Tranche B in Q3 2020 and Q1 2021.
Tillerman's reconstructed waterfall reflects what Fonseca's cumulative distributions should have been had CMP's financial records been maintained in accordance with the Partnership Agreement and generally accepted accounting principles, without the effect of the excess fees and improper reclassifications. The results are summarized in the following table:
The shortfall of $1,309,385 represents the total amount by which Fonseca was underpaid as a result of the identified irregularities. This figure is consistent with and confirms our independent damages calculation, which proceeds as follows:
• Fonseca's 55% share of excess management fees: $1,533,500 × 55% = $843,425
• Fonseca's 55% share of improperly reclassified revenues: $847,200 × 55% = $465,960
• Total: $843,425 + $465,960 = $1,309,385
The arithmetic reconciliation between Tillerman's bottom-up waterfall reconstruction and our top-down percentage-based calculation has been confirmed. This convergence strengthens our confidence in the accuracy and reliability of Tillerman's analysis and provides a solid evidentiary foundation for our damages claim.
V. RECOMMENDATIONS
Based on the foregoing summary of Tillerman's findings, I recommend the following action items for the litigation team's consideration. Each recommendation is designed to ensure that we maximize the evidentiary value of Tillerman's work and position our case for success at both the discovery and trial stages.
1. Discovery Priorities
The Tillerman findings should be incorporated into our discovery plan upon filing the complaint. In particular, Tillerman's categorization of the excess invoices and the specific timing of the revenue reclassifications should inform the scope and specificity of our initial document requests and interrogatories.
As a priority matter, we need to obtain RSV's bank records. Tillerman's analysis traces the flow of funds from CMP to RSV but, because RSV's own financial records were not available to Tillerman, the analysis cannot determine the ultimate disposition of the $2,694,500 in fees paid by CMP to RSV. We should issue targeted subpoenas to Ridgeline Commercial Bank, CMP's lender, located at 555 West 7th Street, 18th Floor, Los Angeles, California 90014, and to any other depository institution at which RSV maintained accounts, seeking complete account statements and transactional records for the relevant period. The purpose of this request is to trace whether the funds received by RSV were used for legitimate CMP-related purposes — such as reimbursement of actual out-of-pocket costs incurred by RSV on CMP's behalf — or were instead diverted to Rennick's personal use. Evidence of personal diversion would substantially strengthen our constructive-fraud claim and may support a request for punitive damages.
2. Deposition of Howard Moss, CPA
We should schedule and take the deposition of Howard Moss, CPA, of Clearfield & Moss CPAs, located at 9100 Sunset Blvd., Suite 220, West Hollywood, California 90069, at the earliest opportunity following the close of initial written discovery. Moss served as the Partner-in-Charge of CMP's engagement at Clearfield & Moss and was directly responsible for the preparation of CMP's quarterly waterfall schedules, including the schedules on which the improper reclassifications appeared.
The key areas of inquiry for Moss's deposition should include the following:
(a) The Q4 2019 quarterly report confirming full recoupment of Tranche B advances for both Salt Wind and Iron Lullaby, including the data and methodology underlying the recoupment calculations reflected in that report;
(b) Whether Rennick instructed or directed the subsequent Q3 2020 and Q1 2021 reclassifications, and, if so, the nature and form of those instructions (e.g., written directive, email, telephone call, in-person meeting);
(c) Whether Moss or any member of his team raised any concerns about the propriety or accounting basis of the reclassifications with either Fonseca or Rennick, and, if not, why not; and
(d) The process by which RSV invoices were reviewed and approved for payment by CMP, including whether Moss's team performed any independent review of the RSV invoices for compliance with the Section 6.2 fee cap, and whether Moss was aware that the aggregate RSV billings exceeded the contractual cap by more than $1.5 million.
Moss's testimony has the potential to be highly probative on the question of Rennick's intent. If Moss testifies that Rennick specifically directed the reclassifications despite the advances having been fully recouped, that testimony would go directly to the issue of scienter and would support our constructive-fraud theory. Conversely, if Moss testifies that he acted independently or based on his own professional judgment, we will need to assess whether Clearfield & Moss may bear potential third-party liability, which could open additional avenues for recovery.
3. Expert Testimony
Greta Sørensen has indicated that she is prepared to testify as an expert witness at trial if necessary. Her estimated trial-preparation and testimony fees are in the range of $45,000 to $55,000, which is consistent with the rates typically charged by forensic accounting experts of comparable experience and qualifications in the Los Angeles market.
Ms. Sørensen's qualifications — including her CPA license and her certification in Financial Forensics (CFF) — together with the thoroughness and rigor of her analysis as reflected in the Tillerman Memo, make her a strong expert candidate. Her ability to walk the trier of fact through the invoice analysis, the revenue reclassifications, and the reconstructed waterfall in clear and accessible terms will be critical to demonstrating the full scope and dollar amount of Fonseca's damages.
I recommend that we formally designate Ms. Sørensen as a retained expert in our initial disclosures under California Code of Civil Procedure Section 2034.210 et seq. Early designation will allow us to manage the expert-discovery timeline proactively and will signal to opposing counsel the strength of our damages case.
4. Pre-Judgment Interest
Tillerman's analysis does not include a calculation of pre-judgment interest on the $1,309,385 shortfall. This is consistent with the scope of Tillerman's engagement, which focused on the forensic accounting analysis rather than the legal calculation of recoverable damages.
Based on our own preliminary estimate, applying California's statutory pre-judgment interest rate of 10% per annum (Cal. Civ. Code § 3289) from the date of our October 2022 demand letter through the anticipated filing date, the estimated pre-judgment interest is calculated as follows:
$1,309,385 × 10% × (9 months / 12 months) = approximately $98,204
This yields a total anticipated claim, inclusive of estimated interest, of approximately $1,407,589. This figure should be referenced in the body of the complaint and in any pre-litigation demand context, though we should note that the exact interest calculation will ultimately depend on the court's determination of the appropriate accrual date or dates. It is possible that interest may accrue from the date of each underpayment rather than from the date of the demand letter, which would yield a substantially higher interest figure. We should research this issue further and, if appropriate, present alternative interest calculations in the complaint.
5. Coordination with Pleading
The complaint should incorporate Tillerman's findings throughout the factual allegations and damages sections. Specifically, I recommend the following approach:
(a) The factual allegations should describe the three categories of excess management fees identified by Tillerman — duplicative post-production supervision ($814,600), unsupported festival and distribution services ($412,900), and miscellaneous overcharges ($306,000) — with sufficient detail to establish the self-dealing nature of the transactions and the absence of any supporting documentation in CMP's files.
(b) The factual allegations should separately describe the two revenue reclassification events — Salt Wind in Q3 2020 ($538,200) and Iron Lullaby in Q1 2021 ($309,000) — and should specifically allege that the underlying Tranche B advances had been fully recouped by Q4 2019, rendering the reclassifications baseless.
(c) The damages section should reference the reconstructed waterfall (Exhibit C to the Tillerman Memo) as the evidentiary foundation for our damages claim of $1,309,385, plus pre-judgment interest.
(d) As to each category of wrongful conduct, the complaint should allege that all RSV invoices were self-approved by Rennick without Fonseca's knowledge or consent, and that the revenue reclassifications were made without any legitimate accounting justification. These allegations support both the breach-of-fiduciary-duty claim (based on Rennick's self-dealing and failure to act in the interest of the partnership and his co-partner) and the constructive-fraud claim (based on Rennick's exploitation of the fiduciary relationship to obtain an unfair advantage over Fonseca).
I am available to discuss these recommendations and to begin coordinating the complaint draft at your convenience. Please let me know if you require any additional detail from the Tillerman Memo or if you would like me to arrange a call with Ms. Sørensen to discuss any aspect of her findings.
Yuki Nakamura Associate Calderwood & Harkness LLP
Encl.: Tillerman Forensic Advisory LLC, Preliminary Forensic Accounting Memorandum (Dec. 19, 2022)
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT Calderwood & Harkness LLP | Matter No. 1035-00004
Film Property | RSV Invoices | 5% Cap (Gross Receipts × 5%) | Gross Receipts (thru Q2 2022)
Iron Lullaby (2018) | $612,300 | $321,000 | $6,420,000
The Perdition Room (2019) | $473,200 | $205,500 | $4,110,000
Salt Wind (2020) | $1,034,800 | $437,000 | $8,740,000
Nightjars (2021) | $574,200 | $197,500 | $3,950,000
Total | $2,694,500 | $1,161,000 | $23,220,000
Item | Amount
Fonseca's cumulative distributions — as actually paid (through Q2 2022) | $6,109,307
Fonseca's cumulative distributions — as should have been paid per reconstructed waterfall | $7,418,692
Shortfall | $1,309,385

CALDERWOOD & HARKNESS LLP Attorneys at Law

MEMORANDUM

I. PURPOSE

II. RSV INVOICE ANALYSIS

III. REVENUE RECLASSIFICATION ANALYSIS

IV. RECONSTRUCTED WATERFALL

V. RECOMMENDATIONS

Record

Parties

Dates

Amounts