client-letter-post-mediation-report.docx

1035-00005 · Marguerite Delp · Correspondence/Client

client-letter-post-mediation-report.docx DOCUMENT M&A / Corporate

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CALDERWOOD & HARKNESS LLP Attorneys at Law 350 South Grand Avenue, Suite 4800 Los Angeles, California 90071 Telephone: (213) 555-7100 Facsimile: (213) 555-7101

April 15, 2023

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION Via Personal Delivery and Encrypted Email

Marguerite D. Fonseca 1847 Coldwater Canyon Drive Beverly Hills, California 90210

Re: In re Estate of Teodoro R. Fonseca Los Angeles County Superior Court, Case No. 22STPB09714 Calderwood & Harkness Matter No. 1035-00005 Post-Mediation Report and Recommendation

Dear Ms. Fonseca:

I. Purpose and Summary of This Letter

We write to report to you on the mediation session held on Wednesday, April 12, 2023, before the Honorable Constance Adler (Retired) at the Westside Dispute Resolution Center, located at 11400 West Olympic Boulevard, Suite 550, Los Angeles, California 90064. As you will recall, the mediation was conducted pursuant to the Stipulation and Order for Mediation filed with the Los Angeles County Superior Court on March 10, 2023, which required the parties to participate in at least one full-day mediation session before a mutually agreed-upon neutral.

All parties and their respective counsel were present for the entirety of the session. You were accompanied by the undersigned, Howard Quinn, and by Elliot Nguyen, both of Calderwood & Harkness LLP. Your stepchildren — Rafael T. Fonseca, Isabela C. Fonseca-Greer, and Nicolás R. Fonseca (collectively, the "Contestants") — were represented by Damian R. Ortega and Lydia Kwan of Brennan, Ortega & Saldívar LLP. No other parties or observers were present, consistent with the confidentiality protocols established by the mediator at the outset of the session.

As an overall summary, the mediation did not result in a resolution of the pending dispute. However, we believe the session was productive in several important respects. The mediation clarified the parties' respective positions, exposed certain weaknesses in the Contestants' claims, and identified potential areas of compromise that may form the basis for future settlement discussions. Judge Adler was thorough and thoughtful in her facilitation, and she expressed her view that the matter is ultimately suited for a negotiated resolution, provided the parties are given adequate time and space to negotiate outside the pressures of active litigation.

Based on the results of the mediation and the current posture of the case, this letter recommends that you authorize the execution of a Settlement Standstill Agreement with the Contestants. As described in detail below, the proposed standstill would toll all litigation deadlines for an initial period of six months while preserving the possibility of further informal settlement discussions. We believe this approach offers substantial benefits in terms of cost savings and strategic positioning, without materially prejudicing your legal rights. The standstill would be terminable on thirty days' written notice, ensuring that you retain the ability to resume litigation at any time should circumstances warrant.

The sections that follow provide a detailed account of the mediation session, an assessment of the litigation risks and strengths of your position, the proposed terms and our analysis of the standstill agreement, a summary of the financial status of the engagement, and the specific next steps we recommend.

II. Summary of the April 12, 2023 Mediation Session

A. Opening Statements and Procedural Framework

The mediation session commenced at approximately 9:00 a.m. and continued until approximately 5:45 p.m., with a brief lunch recess from approximately 12:15 p.m. to 1:15 p.m. Judge Adler opened the proceedings with a framework discussion in which she outlined the ground rules for the day. She emphasized the confidentiality of all mediation communications pursuant to California Evidence Code sections 1115 through 1128, reminding all parties and counsel that no statements made during the session could be used as evidence in any subsequent proceeding. She further noted that the mediation would proceed in a combination of joint sessions and private caucuses (shuttle mediation), and that anything disclosed in a private caucus would not be shared with the opposing side without the disclosing party's express permission.

Following Judge Adler's introductory remarks, each side was invited to present an opening statement in the joint session. On your behalf, our firm presented an opening statement that emphasized several foundational points: your rights as the surviving spouse of Teodoro R. Fonseca under the California Probate Code, specifically sections 6400 through 6414, governing intestate succession; the community property character of substantially all of the assets comprising the probate estate, given that the vast majority of those assets were acquired or significantly enhanced during your fourteen-year marriage; and the critical weaknesses in the Contestants' principal claim, namely the assertion that a premarital agreement was executed on May 30, 2008, which would reclassify key media-related assets as the decedent's separate property. We addressed the evidentiary infirmities of the alleged premarital agreement at length, noting the absence of a signed original, the lack of your signature on the photocopy, and the forensic findings suggestive of alteration.

Brennan, Ortega & Saldívar LLP then presented the Contestants' opening statement, delivered primarily by Mr. Ortega. The Contestants' opening focused on the alleged premarital agreement dated May 30, 2008, and its purported effect on the characterization of the decedent's media-related assets. Mr. Ortega argued that the agreement, if enforced, would classify all media-related assets originated or conceived prior to the marriage as Teodoro's separate property, substantially reducing the community estate. The Contestants' opening also addressed the separate property characterization of specific assets, including the Malibu beach house, and advanced the individual claims of Isabela C. Fonseca-Greer and Nicolás R. Fonseca.

B. Contestants' Principal Positions as Stated at Mediation

We summarize below the Contestants' principal positions as articulated during both the joint session and the subsequent rounds of shuttle mediation, together with our responses and assessments.

1. The Alleged Premarital Agreement

The Contestants continued to assert that a premarital agreement was executed by Teodoro R. Fonseca and Marguerite D. Fonseca on or about May 30, 2008, approximately two weeks before the parties' wedding on June 14, 2008. According to the Contestants, this agreement would classify all media-related assets originated or conceived prior to the marriage — including certain intellectual property rights, development deals, and associated business interests — as Teodoro's separate property.

As you know, the evidentiary foundation for this claim remains extremely weak. The Contestants have produced only a photocopy of a two-page document bearing what appears to be Teodoro's signature on the second page. Critically, your signature does not appear on the second page of this photocopy. During the mediation, Mr. Ortega acknowledged the evidentiary challenges posed by the absence of the original document and the missing signature, but stated that the Contestants are continuing efforts to locate the original. He represented that the Contestants believe the original may be among documents stored in a safety deposit box at Western Heritage Bank & Trust, which is the subject of a pending access request.

Our position remains firm: the photocopy is incomplete, unauthenticated, and bears signs of alteration as identified in the preliminary forensic report of Dr. Elaine Prescott, dated February 22, 2023, prepared by Brindoval Forensic Document Services LLC. Dr. Prescott's analysis identified inconsistencies in the typeface and formatting between the first and second pages of the photocopy, as well as indications of possible digital manipulation in the area adjacent to the signature line. We maintain that the document, even if an original were produced with your signature, would likely be unenforceable under the Uniform Premarital Agreement Act as codified in California Family Code sections 1610 through 1617, given the lack of evidence that you were provided with adequate disclosure of the decedent's assets and liabilities prior to execution, that you had independent legal counsel, and that you executed the agreement voluntarily and with sufficient time for review.

2. Lumiére Canyon Studios LLC

The Contestants asserted that the decedent's fifty percent (50%) membership interest in Lumiére Canyon Studios LLC constitutes his separate property. This interest is valued at approximately $15,800,000, based on the enterprise value of $31,600,000 as of December 31, 2021. The Contestants' theory is that Teodoro funded the company's formation with pre-marital capital — specifically, proceeds from the sale of a prior production company, Fonseca Media Group, which predated the marriage.

Our position is strong on this issue. Lumiére Canyon Studios LLC was formed on March 18, 2009, during the marriage. The operating agreement, also dated March 18, 2009, expressly provides for a fifty percent/fifty percent (50%/50%) membership allocation between Teodoro and you, Ms. Fonseca. Under California community property law, there is a strong presumption that property acquired during marriage is community property (Family Code § 760), and the Contestants bear the burden of tracing the source of funds to a separate property origin by clear and convincing evidence. The operating agreement's express inclusion of you as a fifty percent member further undermines the Contestants' separate property theory. While the Contestants may attempt to trace a portion of the initial capital contribution to pre-marital funds, the company was overwhelmingly built during the marriage, with community labor, community capital infusions, and community reinvestment of earnings. Even under a tracing analysis, the community's interest would be substantial.

3. Pacific Rim Narrative Partners LLC

The Contestants claimed that the decedent's thirty-five percent (35%) membership interest in Pacific Rim Narrative Partners LLC ("PRNP") is separate property. PRNP is a media investment and content development fund with approximately $78,500,000 in assets under management, yielding an estimated value of the decedent's interest of approximately $27,475,000.

Our position: PRNP was formed in 2015, squarely during the marriage, and was funded with community assets. There is no credible basis for a separate property characterization. The Contestants' argument on this point appeared to rest primarily on the assertion that the premarital agreement, if enforceable, would classify PRNP as an extension of Teodoro's pre-marital media activities. This argument is circular and dependent on the validity of the premarital agreement, which, as discussed above, we believe to be unenforceable.

4. Malibu Beach House (27100 Pacific Coast Highway)

The Contestants argued that the real property located at 27100 Pacific Coast Highway, Malibu, California 90265 (the "Malibu Property") is Teodoro's separate property because it was purchased on August 22, 2007, for $4,750,000, approximately ten months before the marriage. The current fair market value of the Malibu Property is estimated at $6,200,000.

Our position acknowledges that the initial purchase of the property predated the marriage, creating a separate property component. However, community funds were used for a substantial renovation completed in 2016 at a cost of approximately $1,800,000, as well as approximately $2,016,400 in mortgage payments made from community funds during the marriage. The mortgage payment calculation is based on one hundred forty-two (142) monthly payments of $14,200 each, paid from June 2008 through the mortgage payoff in March 2020. In total, community contributions to the Malibu Property amount to approximately $3,816,400. Under the Moore/Marsden community property tracing principles (In re Marriage of Moore (1980) 28 Cal.3d 366; In re Marriage of Marsden (1982) 130 Cal.App.3d 426), the community's interest in the Malibu Property is approximately 61.6% ($3,816,400 / $6,200,000), representing a community interest of approximately $3,819,200. We presented this analysis at mediation, and the Contestants did not offer a competing Moore/Marsden calculation, though Mr. Ortega indicated that their experts may develop an alternative analysis that accounts for appreciation attributable to market forces rather than community contributions.

5. Beverly Hills Residence (1847 Coldwater Canyon Drive)

The Contestants claimed that the Beverly Hills residence located at 1847 Coldwater Canyon Drive, Beverly Hills, California 90210, with a current fair market value of $8,450,000, is partially separate property. Their theory rests on an alleged pre-marital down payment made by Teodoro. Our position is that the property is community property. The property was purchased during the marriage, title was taken in both names, and we have seen no credible evidence of a separate property down payment. To the extent the Contestants can demonstrate a separate property contribution to the down payment, their recovery would be limited to reimbursement of that contribution without appreciation, under applicable California authority.

6. Isabela C. Fonseca-Greer's Promissory Note Claim

Isabela C. Fonseca-Greer maintained her claim as a creditor of the estate, based on a promissory note dated January 15, 2020, in the principal amount of $1,200,000 payable to Amber Light Documentary Films LLC, a company controlled by Isabela. The note bears an annual interest rate of 3.5%. Including accrued interest through the date of Teodoro's death, Isabela claims a total amount due of $1,310,460, comprising $1,200,000 in principal and $110,460 in interest accrued over approximately 2.63 years.

Our position remains that this transaction was a gift, not a loan. No repayment was ever demanded during Teodoro's lifetime, no payments were ever made by Amber Light Documentary Films LLC or by Isabela, and there is no correspondence or other documentation suggesting that the parties treated this transfer as a bona fide loan. Teodoro made numerous gifts to his children during his lifetime, and this transfer is consistent with that pattern. We believe that the promissory note, to the extent it was executed at all, was a formality that did not reflect the true intent of the parties. At mediation, Isabela maintained her position but did not present any new evidence of repayment activity or demand correspondence.

7. Nicolás R. Fonseca's Educational Expense Claim

Nicolás R. Fonseca maintained his claim for $387,500 in educational expense reimbursement, based on an alleged oral promise by Teodoro to reimburse Nicolás for the cost of his graduate program at the Columbia University School of the Arts (film studies MFA program). Nicolás asserts that Teodoro orally promised to cover all educational expenses, including tuition, housing, and living expenses, and that Nicolás relied on this promise in enrolling and completing the program.

Our position is that this claim is barred by the California Statute of Frauds (Civil Code § 1624), which requires agreements that cannot be performed within one year to be memorialized in writing. The MFA program extended over two academic years, and there is no written agreement or other documentation supporting the alleged oral promise. Additionally, the evidentiary support for the claim is thin; Nicolás's claim rests primarily on his own testimony and the testimony of one corroborating witness (a friend who was allegedly present during a family dinner conversation). We do not consider this claim to be a significant litigation risk.

C. Our Presentation of Key Evidence and Positions

During the joint session and in our private caucuses with Judge Adler, we presented several key elements of our case, which we summarize here for your reference.

Total Probate Estate Value. We presented our estimate of the total probate estate value at $71,112,000, which is based on the appraisals and valuations prepared by our retained experts. We noted that the Contestants' estimate of the probate estate is lower, at approximately $68,750,000, reflecting different valuations prepared by their appraiser, Morton Linden of Hargrove & Linden Appraisals Inc. The principal areas of valuation disagreement relate to the enterprise value of Lumiére Canyon Studios LLC and the value of the intellectual property portfolio. While the valuation gap of approximately $2,362,000 is not insignificant, we believe it is within a range that could be resolved through negotiation or, if necessary, through competing expert testimony at trial.

Expert Valuations. We emphasized the preliminary findings of Pinnacle West Appraisal Group LLC, specifically the work of Dr. Sandra Fujimoto, ASA, CVA, regarding the valuation of Lumiére Canyon Studios LLC, PRNP, and the decedent's intellectual property portfolio. The IP portfolio consists of fourteen (14) feature films and six (6) television series, with a combined net present value estimated at $4,600,000. Dr. Fujimoto's valuation methodology is rigorous and defensible, employing a combination of income-based and market-based approaches. We are confident that her findings will withstand scrutiny at trial if necessary.

Forensic Document Analysis. We highlighted Dr. Prescott's forensic analysis findings regarding the premarital agreement photocopy. As noted above, Dr. Prescott identified signs of alteration and formatting inconsistencies between the two pages of the document. These findings significantly undermine the Contestants' reliance on the photocopy and strengthen our argument that the premarital agreement, to the extent it ever existed, is unenforceable.

Surviving Spouse Entitlement. We reviewed your entitlement as the surviving spouse under California's intestacy laws. Under Probate Code section 6401, the surviving spouse is entitled to one hundred percent (100%) of the community property. Under Probate Code section 6402, where the decedent is survived by more than one child, the surviving spouse is entitled to one-third (1/3) of any separate property. Given that the vast majority of the estate assets are, in our view, community property, your entitlement to the estate is substantial.

Non-Probate Life Insurance Proceeds. We noted for the record that the non-probate life insurance proceeds totaling $5,000,000 are undisputed. These proceeds consist of two policies: (a) a $3,000,000 term life policy from Meridian Mutual Life Insurance Co., Policy No. GH-TL-2019-05582; and (b) a $2,000,000 whole life policy from Commonwealth Fidelity Assurance Corp., Policy No. GH-WL-2014-01247. You are the named beneficiary on both policies, and the Contestants have not challenged this designation. Our Petition for Preliminary Distribution of Non-Probate Assets, filed on January 18, 2023, remains pending before the Court and would, if granted, allow for distribution of these proceeds to you in advance of the resolution of the contested probate matters.

D. Negotiations and Impasse

Following the opening statements, Judge Adler conducted multiple rounds of shuttle mediation between the parties, meeting privately with each side on at least four separate occasions throughout the day. These private caucuses allowed for candid discussions regarding the strengths and weaknesses of each party's position, as well as an exploration of potential settlement frameworks.

The Contestants' initial settlement demand was for approximately forty percent (40%) of the probate estate, to be distributed among the three children, in addition to recognition and payment of Isabela's promissory note claim of $1,310,460 and Nicolás's educational expense claim of $387,500. Under this demand, the three children would receive a combined distribution of approximately $28,444,800 (40% of $71,112,000) plus $1,697,960 in individual claims, for a total of approximately $30,142,760.

Our position, which we communicated clearly to Judge Adler, was that you are entitled to the entirety of the community property — which constitutes the vast majority of the estate — and a significant share of any property determined to be separate property. We maintained that the Contestants' claims regarding the premarital agreement and separate property characterization are legally and factually weak, and that the Contestants' settlement demand was not supported by a reasonable assessment of the probable litigation outcome.

Over the course of the day, some movement was made by both sides. The Contestants indicated a willingness to reduce their demand, though the specific reduction conveyed through Judge Adler was not sufficient to approach a range that we could recommend. Similarly, we explored with Judge Adler several potential frameworks, including a graduated distribution model that would account for the varying strengths of the Contestants' claims on different assets. However, the gap between the parties' positions remained too substantial to bridge at this session.

At approximately 5:15 p.m., Judge Adler convened a final joint session in which she expressed her view that the matter could benefit from further informal discussions and a cooling-off period before any resumed mediation or return to active litigation. She observed that while the parties' positions were far apart at the present time, the tone of the discussions had been constructive and the areas of potential compromise that emerged during the day suggested that a negotiated resolution remained achievable with additional time and effort. She recommended that the parties consider entering into a standstill agreement to preserve the possibility of further negotiations without the pressure of impending litigation deadlines.

III. Assessment of Litigation Risks and Strengths

As your counsel, we are obligated to provide you with a candid assessment of the strengths and risks of your position should the matter proceed to contested litigation. We address each in turn.

A. Strengths of Our Position

We believe your position is strong on the merits for the following reasons:

• Community Property Presumption. Under California law, there is a strong presumption that all property acquired during marriage is community property. The burden is on the party seeking to overcome this presumption to establish, by clear and convincing evidence, that the property is separate. The vast majority of the estate assets were acquired or significantly enhanced during your fourteen-year marriage to Teodoro.

• Lumiére Canyon Studios LLC. The LLC was formed during the marriage, and the operating agreement expressly identifies you as a fifty percent member. The Contestants' separate property theory rests on a pre-marital capital tracing argument that is, at best, speculative.

• Pacific Rim Narrative Partners LLC. PRNP was formed in 2015, during the marriage, and funded with community assets. The Contestants' separate property characterization depends entirely on the enforceability of the premarital agreement.

• Community Contributions to Malibu Property. The community's substantial financial contributions to the Malibu Property — totaling approximately $3,816,400 in mortgage payments and renovation costs — establish a significant community interest under Moore/Marsden.

• Premarital Agreement Deficiencies. The premarital agreement photocopy lacks your signature, is incomplete, and shows forensic indications of alteration. Even if an original were produced, serious enforceability challenges would remain under the Uniform Premarital Agreement Act.

• Isabela's Promissory Note. The evidence strongly suggests the $1,200,000 transfer was a gift. No repayment was ever demanded, and no payments were ever made.

• Nicolás's Oral Promise. The Statute of Frauds presents a significant legal bar to this claim, and the evidentiary support is thin.

B. Areas of Potential Risk

No litigation is without risk, and we identify the following areas of vulnerability:

• Original Premarital Agreement. If the Contestants succeed in locating the original premarital agreement with valid, authenticated signatures — including yours — the analysis of the pre-marital media assets could be materially altered. While we believe the agreement would face significant enforceability challenges even in its original form, the production of a complete, signed original would strengthen the Contestants' position considerably.

• Malibu Property Separate Property Interest. Because the Malibu Property was purchased approximately ten months before the marriage, it carries a separate property component. Even under the Moore/Marsden analysis, the Contestants would be entitled to argue that a portion of the property's appreciation is attributable to market forces rather than community contributions, potentially reducing the community's percentage interest.

• Pre-Marital Capital Tracing for Lumiére Canyon. The Contestants could attempt to trace specific pre-marital capital contributions to the formation of Lumiére Canyon Studios LLC. While we believe this argument is weak given the fifty-fifty operating agreement and the overwhelming community contributions to the company's growth, a well-presented tracing analysis could create some uncertainty at trial.

• Claudette Marchetti's Declaration. Claudette Marchetti, Teodoro's longtime personal assistant, has submitted a declaration supporting the existence of the premarital agreement and asserting that she witnessed both parties sign the document. Ms. Marchetti's testimony, if credited, could provide factual support for the Contestants' claim regarding the premarital agreement. However, her declaration is not corroborated by any documentary evidence, and her credibility can be challenged on cross-examination.

• Valuation Disputes. The $2,362,000 gap between Pinnacle West's valuation ($71,112,000) and Hargrove & Linden's valuation ($68,750,000) introduces uncertainty regarding the total estate value. Valuation disputes are inherently fact-intensive and difficult to predict at trial, particularly with respect to media-related assets.

C. Overall Assessment

Taking all factors into account, we believe that your position is strong on the merits and that the probable litigation outcome would be favorable to you. The community property presumption, the operating agreement structure of Lumiére Canyon Studios LLC, the formation of PRNP during the marriage, and the evidentiary deficiencies of the premarital agreement all favor your position. However, protracted litigation would be costly, both financially and emotionally, and any litigation outcome carries inherent uncertainty. The prospect of a trial on contested probate matters — involving competing expert testimony on valuation, document authentication, and property characterization — presents risks that cannot be eliminated regardless of the strength of the underlying case. For these reasons, we believe that a measured approach that preserves both the option of settlement and the option of litigation is in your best interest at this time.

IV. Recommendation — Settlement Standstill Agreement

A. Proposed Standstill Terms

Following the mediation, we have been in communication with Mr. Ortega regarding the terms of a proposed Settlement Standstill Agreement. The Contestants have expressed a willingness to enter into such an agreement, consistent with Judge Adler's recommendation. The proposed key terms are as follows:

1. Tolling of Litigation Deadlines. All litigation deadlines — including deadlines for discovery responses, motion filing, and trial-related proceedings — would be tolled for an initial period of six (6) months, commencing on the date of execution and extending through approximately October 28, 2023.

2. Moratorium on Litigation Activity. No new motions, discovery requests, or other litigation filings may be made by either party during the standstill period, except as may be necessary to preserve the estate or respond to emergency circumstances.

3. Continuation of Neutral Administration. The estate would continue to be administered by Ashford Fiduciary Services Inc. (Gerald Whitmore, principal officer), located at 600 Wilshire Boulevard, Suite 1450, Los Angeles, California 90017, serving as the neutral administrator appointed pursuant to the stipulation filed on March 22, 2023.

4. Administration Costs. Monthly administration costs of $8,500 payable to Ashford Fiduciary Services Inc. would continue to be shared equally: $4,250 per month payable by Ms. Fonseca, and $4,250 per month payable collectively by the Contestants. Additionally, Ashford's annual assets-under-administration (AUA) based fee of 0.15% of assets under administration would continue to apply.

5. Renewal and Termination. The standstill would be renewable in six-month increments by mutual written consent of both sides. Either party could terminate the standstill on thirty (30) days' written notice to the other party and to the Court, at which point all tolled deadlines would resume.

6. Confidentiality. All settlement discussions conducted during the standstill period would be subject to confidentiality provisions, consistent with the mediation confidentiality protections under the California Evidence Code.

7. Target Execution Date. The target execution date for the Settlement Standstill Agreement is April 28, 2023. We believe this timeline is achievable, provided you authorize us to proceed promptly.

B. Benefits of the Standstill

We believe the proposed Settlement Standstill Agreement offers several significant benefits:

• Cost Savings. Active litigation in a contested probate matter of this complexity involves substantial legal costs, including fees for discovery, depositions, motion practice, expert consultations, and trial preparation. We estimate that active litigation through trial could cost in excess of $500,000 in attorney fees and costs alone. The standstill avoids these costs during the tolling period.

• Preservation of the Status Quo. The standstill preserves the status quo and protects the estate assets under the supervision of a neutral administrator, ensuring that no assets are dissipated or improperly managed during the pendency of the dispute.

• Opportunity for Further Settlement Discussions. The standstill allows time for further informal settlement discussions without the pressure of looming litigation deadlines. Based on the mediation session, we believe there are areas of potential compromise that may be productively explored in a less adversarial setting.

• Consistent with the Mediator's Recommendation. Judge Adler expressly recommended a cooling-off period. Honoring this recommendation demonstrates good faith and may enhance our credibility with the Court in the event that the matter returns to active litigation.

• No Prejudice to Your Rights. The standstill is terminable on thirty days' written notice, allowing you to resume litigation at any time. Your legal rights are fully preserved during the standstill period.

• Modest Cost. Your share of the Ashford administration costs during the standstill period ($4,250 per month, or approximately $25,500 over the initial six-month period) is modest compared to the costs of active litigation.

C. Risks of the Standstill

In the interest of providing a complete analysis, we also identify the following risks associated with the standstill:

• Delay and discovery Risk. A six-month delay could give the Contestants additional time to locate the original premarital agreement or to develop their factual record, including potentially identifying additional witnesses or documents that support their claims. This risk is mitigated, however, by the fact that the Contestants have had the purported premarital agreement issue under investigation for several months already, and the moratorium on formal discovery during the standstill limits their ability to use the litigation process to advance their evidence-gathering.

• Asset Value Fluctuation. Estate assets, particularly the media-related interests in Lumiére Canyon Studios LLC and PRNP, may fluctuate in value during the standstill period. A significant decline in value would reduce the total estate, while an increase could make settlement more difficult. However, this risk is inherent in any probate proceeding of extended duration and is not unique to the standstill.

• Continuing Administration Costs. Monthly Ashford administration costs will continue to accrue during the standstill period, as will the annual AUA-based fee. These costs are a necessary expense of the neutral administration arrangement and would continue regardless of whether the standstill is in place.

• No Guarantee of Settlement. The standstill does not guarantee that a settlement will be reached. It is possible that, at the conclusion of the standstill period, the parties' positions will remain irreconcilable and the matter will return to active litigation. In that event, the standstill period will have delayed resolution without achieving a settlement.

D. Our Recommendation

After careful consideration of the foregoing factors, we recommend that you authorize execution of the Settlement Standstill Agreement. In our judgment, the benefits of the standstill outweigh the risks at this stage of the proceeding. Your position is strong on the merits, which gives you significant leverage in any settlement discussions. The cost savings from avoiding active litigation during the standstill period are substantial. And the standstill preserves your ability to resume litigation at any time should the settlement discussions prove unproductive.

If the standstill does not lead to productive settlement discussions during the initial six-month period, we can reassess at that time and either renew the standstill for an additional period or resume litigation as warranted by the circumstances. We will, of course, continue to monitor the situation closely throughout the standstill period and will advise you immediately of any developments that may affect our recommendation.

V. Financial Status of the Engagement

As set forth in the engagement letter dated October 12, 2022, referenced under Calderwood & Harkness Matter No. 1035-00005, an evergreen retainer of $150,000 was paid upon engagement. Fees and costs have been billed at the agreed hourly rates, as follows:

An updated billing summary as of the date of this letter will be provided with the next monthly invoice, which you should expect to receive on or about May 1, 2023. The invoice will reflect all time incurred through the end of April 2023, including time related to the mediation session and the preparation of this report.

Costs advanced to date on your behalf include the following categories:

• Appraiser fees payable to Pinnacle West Appraisal Group LLC (Dr. Sandra Fujimoto, ASA, CVA) for business valuation and intellectual property appraisal services;

• Forensic document examiner fees payable to Brindoval Forensic Document Services LLC (Dr. Elaine Prescott) for analysis of the premarital agreement photocopy;

• Court filing fees associated with the probate petition and related filings;

• Mediator fees payable to the Westside Dispute Resolution Center for the April 12, 2023 mediation session before Hon. Constance Adler (Ret.).

We also note that Ridgeway Accounting Partners LLP, with Dennis Chua, CPA as the engagement partner, continues to prepare the estate's inventory, tax filings, and financial reconciliation. Ridgeway's fees are borne by the estate and are paid through the Ashford Fiduciary Services administration account, not from your personal retainer. We will continue to coordinate with Ridgeway to ensure that the estate's accounting and tax obligations are met in a timely manner.

VI. Next Steps and Action Items

Based on the foregoing analysis and recommendation, we propose the following next steps:

1. Authorization to Proceed. We respectfully request your written authorization to proceed with execution of the Settlement Standstill Agreement on or before the target date of April 28, 2023. Please indicate your authorization by signing and returning the enclosed authorization form, or by communicating your approval via email to the undersigned.

2. Pause of Litigation Activity. Upon execution of the standstill agreement, all litigation activity will be paused, including the pending discovery requests propounded by both sides and any motion practice currently in preparation.

3. Coordination with Ashford Fiduciary Services. We will continue to coordinate with Ashford Fiduciary Services Inc. regarding ongoing estate administration and quarterly reporting. Mr. Whitmore has been responsive and effective in his role as neutral administrator, and we will ensure that you are kept informed of all material administration developments.

4. Monitoring of Estate Accounting. We will continue to monitor the estate accountant's work through Ridgeway Accounting Partners LLP, including the preparation of the estate inventory and any required tax filings.

5. Settlement Communications. We will keep you informed of any communications from Brennan, Ortega & Saldívar LLP regarding settlement discussions, and we will not engage in any substantive settlement negotiations without your prior knowledge and approval.

6. Petition for Preliminary Distribution. The Petition for Preliminary Distribution of Non-Probate Assets (life insurance proceeds), filed on January 18, 2023, will be tolled during the standstill period under the general tolling provision. However, because the life insurance proceeds are non-probate assets and are undisputed, we may be able to pursue the petition separately if needed during the standstill period, depending on the terms of the final standstill agreement. We will discuss this option with you as appropriate.

7. Next Status Update. We will provide you with the next written status update following execution of the standstill agreement or upon any material development in the matter, whichever occurs first.

VII. Availability and Contact Information

I am available to discuss this letter and our recommendation at your convenience. Please do not hesitate to contact me directly if you have any questions, concerns, or would like to schedule a meeting to discuss the matter in greater detail. Elliot Nguyen, the lead associate on this matter, is also available to assist you.

Howard Quinn, Partner Calderwood & Harkness LLP 350 South Grand Avenue, Suite 4800 Los Angeles, California 90071 Direct: (213) 555-7118

Email: hquinn@calderwoodharkness.com

Elliot Nguyen, Senior Associate Calderwood & Harkness LLP 350 South Grand Avenue, Suite 4800 Los Angeles, California 90071 Direct: (213) 555-7134

Email: enguyen@calderwoodharkness.com

We appreciate your continued confidence in our representation, and we remain committed to achieving the best possible outcome for you in this matter.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Howard Quinn Partner

cc: Patricia Dunmore, Billing Partner, Calderwood & Harkness LLP cc: Elliot Nguyen, Lead Associate, Calderwood & Harkness LLP

Enclosures: None (to follow under separate cover, if applicable)

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CALDERWOOD & HARKNESS LLP Attorneys at Law 350 South Grand Avenue, Suite 4800 Los Angeles, California 90071 Telephone: (213) 555-7100 Facsimile: (213) 555-7101
April 15, 2023
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION Via Personal Delivery and Encrypted Email
Marguerite D. Fonseca 1847 Coldwater Canyon Drive Beverly Hills, California 90210
Re: In re Estate of Teodoro R. Fonseca Los Angeles County Superior Court, Case No. 22STPB09714 Calderwood & Harkness Matter No. 1035-00005 Post-Mediation Report and Recommendation
Dear Ms. Fonseca:
I. Purpose and Summary of This Letter
We write to report to you on the mediation session held on Wednesday, April 12, 2023, before the Honorable Constance Adler (Retired) at the Westside Dispute Resolution Center, located at 11400 West Olympic Boulevard, Suite 550, Los Angeles, California 90064. As you will recall, the mediation was conducted pursuant to the Stipulation and Order for Mediation filed with the Los Angeles County Superior Court on March 10, 2023, which required the parties to participate in at least one full-day mediation session before a mutually agreed-upon neutral.
All parties and their respective counsel were present for the entirety of the session. You were accompanied by the undersigned, Howard Quinn, and by Elliot Nguyen, both of Calderwood & Harkness LLP. Your stepchildren — Rafael T. Fonseca, Isabela C. Fonseca-Greer, and Nicolás R. Fonseca (collectively, the "Contestants") — were represented by Damian R. Ortega and Lydia Kwan of Brennan, Ortega & Saldívar LLP. No other parties or observers were present, consistent with the confidentiality protocols established by the mediator at the outset of the session.
As an overall summary, the mediation did not result in a resolution of the pending dispute. However, we believe the session was productive in several important respects. The mediation clarified the parties' respective positions, exposed certain weaknesses in the Contestants' claims, and identified potential areas of compromise that may form the basis for future settlement discussions. Judge Adler was thorough and thoughtful in her facilitation, and she expressed her view that the matter is ultimately suited for a negotiated resolution, provided the parties are given adequate time and space to negotiate outside the pressures of active litigation.
Based on the results of the mediation and the current posture of the case, this letter recommends that you authorize the execution of a Settlement Standstill Agreement with the Contestants. As described in detail below, the proposed standstill would toll all litigation deadlines for an initial period of six months while preserving the possibility of further informal settlement discussions. We believe this approach offers substantial benefits in terms of cost savings and strategic positioning, without materially prejudicing your legal rights. The standstill would be terminable on thirty days' written notice, ensuring that you retain the ability to resume litigation at any time should circumstances warrant.
The sections that follow provide a detailed account of the mediation session, an assessment of the litigation risks and strengths of your position, the proposed terms and our analysis of the standstill agreement, a summary of the financial status of the engagement, and the specific next steps we recommend.
II. Summary of the April 12, 2023 Mediation Session
A. Opening Statements and Procedural Framework
The mediation session commenced at approximately 9:00 a.m. and continued until approximately 5:45 p.m., with a brief lunch recess from approximately 12:15 p.m. to 1:15 p.m. Judge Adler opened the proceedings with a framework discussion in which she outlined the ground rules for the day. She emphasized the confidentiality of all mediation communications pursuant to California Evidence Code sections 1115 through 1128, reminding all parties and counsel that no statements made during the session could be used as evidence in any subsequent proceeding. She further noted that the mediation would proceed in a combination of joint sessions and private caucuses (shuttle mediation), and that anything disclosed in a private caucus would not be shared with the opposing side without the disclosing party's express permission.
Following Judge Adler's introductory remarks, each side was invited to present an opening statement in the joint session. On your behalf, our firm presented an opening statement that emphasized several foundational points: your rights as the surviving spouse of Teodoro R. Fonseca under the California Probate Code, specifically sections 6400 through 6414, governing intestate succession; the community property character of substantially all of the assets comprising the probate estate, given that the vast majority of those assets were acquired or significantly enhanced during your fourteen-year marriage; and the critical weaknesses in the Contestants' principal claim, namely the assertion that a premarital agreement was executed on May 30, 2008, which would reclassify key media-related assets as the decedent's separate property. We addressed the evidentiary infirmities of the alleged premarital agreement at length, noting the absence of a signed original, the lack of your signature on the photocopy, and the forensic findings suggestive of alteration.
Brennan, Ortega & Saldívar LLP then presented the Contestants' opening statement, delivered primarily by Mr. Ortega. The Contestants' opening focused on the alleged premarital agreement dated May 30, 2008, and its purported effect on the characterization of the decedent's media-related assets. Mr. Ortega argued that the agreement, if enforced, would classify all media-related assets originated or conceived prior to the marriage as Teodoro's separate property, substantially reducing the community estate. The Contestants' opening also addressed the separate property characterization of specific assets, including the Malibu beach house, and advanced the individual claims of Isabela C. Fonseca-Greer and Nicolás R. Fonseca.
B. Contestants' Principal Positions as Stated at Mediation
We summarize below the Contestants' principal positions as articulated during both the joint session and the subsequent rounds of shuttle mediation, together with our responses and assessments.
1. The Alleged Premarital Agreement
The Contestants continued to assert that a premarital agreement was executed by Teodoro R. Fonseca and Marguerite D. Fonseca on or about May 30, 2008, approximately two weeks before the parties' wedding on June 14, 2008. According to the Contestants, this agreement would classify all media-related assets originated or conceived prior to the marriage — including certain intellectual property rights, development deals, and associated business interests — as Teodoro's separate property.
As you know, the evidentiary foundation for this claim remains extremely weak. The Contestants have produced only a photocopy of a two-page document bearing what appears to be Teodoro's signature on the second page. Critically, your signature does not appear on the second page of this photocopy. During the mediation, Mr. Ortega acknowledged the evidentiary challenges posed by the absence of the original document and the missing signature, but stated that the Contestants are continuing efforts to locate the original. He represented that the Contestants believe the original may be among documents stored in a safety deposit box at Western Heritage Bank & Trust, which is the subject of a pending access request.
Our position remains firm: the photocopy is incomplete, unauthenticated, and bears signs of alteration as identified in the preliminary forensic report of Dr. Elaine Prescott, dated February 22, 2023, prepared by Brindoval Forensic Document Services LLC. Dr. Prescott's analysis identified inconsistencies in the typeface and formatting between the first and second pages of the photocopy, as well as indications of possible digital manipulation in the area adjacent to the signature line. We maintain that the document, even if an original were produced with your signature, would likely be unenforceable under the Uniform Premarital Agreement Act as codified in California Family Code sections 1610 through 1617, given the lack of evidence that you were provided with adequate disclosure of the decedent's assets and liabilities prior to execution, that you had independent legal counsel, and that you executed the agreement voluntarily and with sufficient time for review.
2. Lumiére Canyon Studios LLC
The Contestants asserted that the decedent's fifty percent (50%) membership interest in Lumiére Canyon Studios LLC constitutes his separate property. This interest is valued at approximately $15,800,000, based on the enterprise value of $31,600,000 as of December 31, 2021. The Contestants' theory is that Teodoro funded the company's formation with pre-marital capital — specifically, proceeds from the sale of a prior production company, Fonseca Media Group, which predated the marriage.
Our position is strong on this issue. Lumiére Canyon Studios LLC was formed on March 18, 2009, during the marriage. The operating agreement, also dated March 18, 2009, expressly provides for a fifty percent/fifty percent (50%/50%) membership allocation between Teodoro and you, Ms. Fonseca. Under California community property law, there is a strong presumption that property acquired during marriage is community property (Family Code § 760), and the Contestants bear the burden of tracing the source of funds to a separate property origin by clear and convincing evidence. The operating agreement's express inclusion of you as a fifty percent member further undermines the Contestants' separate property theory. While the Contestants may attempt to trace a portion of the initial capital contribution to pre-marital funds, the company was overwhelmingly built during the marriage, with community labor, community capital infusions, and community reinvestment of earnings. Even under a tracing analysis, the community's interest would be substantial.
3. Pacific Rim Narrative Partners LLC
The Contestants claimed that the decedent's thirty-five percent (35%) membership interest in Pacific Rim Narrative Partners LLC ("PRNP") is separate property. PRNP is a media investment and content development fund with approximately $78,500,000 in assets under management, yielding an estimated value of the decedent's interest of approximately $27,475,000.
Our position: PRNP was formed in 2015, squarely during the marriage, and was funded with community assets. There is no credible basis for a separate property characterization. The Contestants' argument on this point appeared to rest primarily on the assertion that the premarital agreement, if enforceable, would classify PRNP as an extension of Teodoro's pre-marital media activities. This argument is circular and dependent on the validity of the premarital agreement, which, as discussed above, we believe to be unenforceable.
4. Malibu Beach House (27100 Pacific Coast Highway)
The Contestants argued that the real property located at 27100 Pacific Coast Highway, Malibu, California 90265 (the "Malibu Property") is Teodoro's separate property because it was purchased on August 22, 2007, for $4,750,000, approximately ten months before the marriage. The current fair market value of the Malibu Property is estimated at $6,200,000.
Our position acknowledges that the initial purchase of the property predated the marriage, creating a separate property component. However, community funds were used for a substantial renovation completed in 2016 at a cost of approximately $1,800,000, as well as approximately $2,016,400 in mortgage payments made from community funds during the marriage. The mortgage payment calculation is based on one hundred forty-two (142) monthly payments of $14,200 each, paid from June 2008 through the mortgage payoff in March 2020. In total, community contributions to the Malibu Property amount to approximately $3,816,400. Under the Moore/Marsden community property tracing principles (In re Marriage of Moore (1980) 28 Cal.3d 366; In re Marriage of Marsden (1982) 130 Cal.App.3d 426), the community's interest in the Malibu Property is approximately 61.6% ($3,816,400 / $6,200,000), representing a community interest of approximately $3,819,200. We presented this analysis at mediation, and the Contestants did not offer a competing Moore/Marsden calculation, though Mr. Ortega indicated that their experts may develop an alternative analysis that accounts for appreciation attributable to market forces rather than community contributions.
5. Beverly Hills Residence (1847 Coldwater Canyon Drive)
The Contestants claimed that the Beverly Hills residence located at 1847 Coldwater Canyon Drive, Beverly Hills, California 90210, with a current fair market value of $8,450,000, is partially separate property. Their theory rests on an alleged pre-marital down payment made by Teodoro. Our position is that the property is community property. The property was purchased during the marriage, title was taken in both names, and we have seen no credible evidence of a separate property down payment. To the extent the Contestants can demonstrate a separate property contribution to the down payment, their recovery would be limited to reimbursement of that contribution without appreciation, under applicable California authority.
6. Isabela C. Fonseca-Greer's Promissory Note Claim
Isabela C. Fonseca-Greer maintained her claim as a creditor of the estate, based on a promissory note dated January 15, 2020, in the principal amount of $1,200,000 payable to Amber Light Documentary Films LLC, a company controlled by Isabela. The note bears an annual interest rate of 3.5%. Including accrued interest through the date of Teodoro's death, Isabela claims a total amount due of $1,310,460, comprising $1,200,000 in principal and $110,460 in interest accrued over approximately 2.63 years.
Our position remains that this transaction was a gift, not a loan. No repayment was ever demanded during Teodoro's lifetime, no payments were ever made by Amber Light Documentary Films LLC or by Isabela, and there is no correspondence or other documentation suggesting that the parties treated this transfer as a bona fide loan. Teodoro made numerous gifts to his children during his lifetime, and this transfer is consistent with that pattern. We believe that the promissory note, to the extent it was executed at all, was a formality that did not reflect the true intent of the parties. At mediation, Isabela maintained her position but did not present any new evidence of repayment activity or demand correspondence.
7. Nicolás R. Fonseca's Educational Expense Claim
Nicolás R. Fonseca maintained his claim for $387,500 in educational expense reimbursement, based on an alleged oral promise by Teodoro to reimburse Nicolás for the cost of his graduate program at the Columbia University School of the Arts (film studies MFA program). Nicolás asserts that Teodoro orally promised to cover all educational expenses, including tuition, housing, and living expenses, and that Nicolás relied on this promise in enrolling and completing the program.
Our position is that this claim is barred by the California Statute of Frauds (Civil Code § 1624), which requires agreements that cannot be performed within one year to be memorialized in writing. The MFA program extended over two academic years, and there is no written agreement or other documentation supporting the alleged oral promise. Additionally, the evidentiary support for the claim is thin; Nicolás's claim rests primarily on his own testimony and the testimony of one corroborating witness (a friend who was allegedly present during a family dinner conversation). We do not consider this claim to be a significant litigation risk.
C. Our Presentation of Key Evidence and Positions
During the joint session and in our private caucuses with Judge Adler, we presented several key elements of our case, which we summarize here for your reference.
Total Probate Estate Value. We presented our estimate of the total probate estate value at $71,112,000, which is based on the appraisals and valuations prepared by our retained experts. We noted that the Contestants' estimate of the probate estate is lower, at approximately $68,750,000, reflecting different valuations prepared by their appraiser, Morton Linden of Hargrove & Linden Appraisals Inc. The principal areas of valuation disagreement relate to the enterprise value of Lumiére Canyon Studios LLC and the value of the intellectual property portfolio. While the valuation gap of approximately $2,362,000 is not insignificant, we believe it is within a range that could be resolved through negotiation or, if necessary, through competing expert testimony at trial.
Expert Valuations. We emphasized the preliminary findings of Pinnacle West Appraisal Group LLC, specifically the work of Dr. Sandra Fujimoto, ASA, CVA, regarding the valuation of Lumiére Canyon Studios LLC, PRNP, and the decedent's intellectual property portfolio. The IP portfolio consists of fourteen (14) feature films and six (6) television series, with a combined net present value estimated at $4,600,000. Dr. Fujimoto's valuation methodology is rigorous and defensible, employing a combination of income-based and market-based approaches. We are confident that her findings will withstand scrutiny at trial if necessary.
Forensic Document Analysis. We highlighted Dr. Prescott's forensic analysis findings regarding the premarital agreement photocopy. As noted above, Dr. Prescott identified signs of alteration and formatting inconsistencies between the two pages of the document. These findings significantly undermine the Contestants' reliance on the photocopy and strengthen our argument that the premarital agreement, to the extent it ever existed, is unenforceable.
Surviving Spouse Entitlement. We reviewed your entitlement as the surviving spouse under California's intestacy laws. Under Probate Code section 6401, the surviving spouse is entitled to one hundred percent (100%) of the community property. Under Probate Code section 6402, where the decedent is survived by more than one child, the surviving spouse is entitled to one-third (1/3) of any separate property. Given that the vast majority of the estate assets are, in our view, community property, your entitlement to the estate is substantial.
Non-Probate Life Insurance Proceeds. We noted for the record that the non-probate life insurance proceeds totaling $5,000,000 are undisputed. These proceeds consist of two policies: (a) a $3,000,000 term life policy from Meridian Mutual Life Insurance Co., Policy No. GH-TL-2019-05582; and (b) a $2,000,000 whole life policy from Commonwealth Fidelity Assurance Corp., Policy No. GH-WL-2014-01247. You are the named beneficiary on both policies, and the Contestants have not challenged this designation. Our Petition for Preliminary Distribution of Non-Probate Assets, filed on January 18, 2023, remains pending before the Court and would, if granted, allow for distribution of these proceeds to you in advance of the resolution of the contested probate matters.
D. Negotiations and Impasse
Following the opening statements, Judge Adler conducted multiple rounds of shuttle mediation between the parties, meeting privately with each side on at least four separate occasions throughout the day. These private caucuses allowed for candid discussions regarding the strengths and weaknesses of each party's position, as well as an exploration of potential settlement frameworks.
The Contestants' initial settlement demand was for approximately forty percent (40%) of the probate estate, to be distributed among the three children, in addition to recognition and payment of Isabela's promissory note claim of $1,310,460 and Nicolás's educational expense claim of $387,500. Under this demand, the three children would receive a combined distribution of approximately $28,444,800 (40% of $71,112,000) plus $1,697,960 in individual claims, for a total of approximately $30,142,760.
Our position, which we communicated clearly to Judge Adler, was that you are entitled to the entirety of the community property — which constitutes the vast majority of the estate — and a significant share of any property determined to be separate property. We maintained that the Contestants' claims regarding the premarital agreement and separate property characterization are legally and factually weak, and that the Contestants' settlement demand was not supported by a reasonable assessment of the probable litigation outcome.
Over the course of the day, some movement was made by both sides. The Contestants indicated a willingness to reduce their demand, though the specific reduction conveyed through Judge Adler was not sufficient to approach a range that we could recommend. Similarly, we explored with Judge Adler several potential frameworks, including a graduated distribution model that would account for the varying strengths of the Contestants' claims on different assets. However, the gap between the parties' positions remained too substantial to bridge at this session.
At approximately 5:15 p.m., Judge Adler convened a final joint session in which she expressed her view that the matter could benefit from further informal discussions and a cooling-off period before any resumed mediation or return to active litigation. She observed that while the parties' positions were far apart at the present time, the tone of the discussions had been constructive and the areas of potential compromise that emerged during the day suggested that a negotiated resolution remained achievable with additional time and effort. She recommended that the parties consider entering into a standstill agreement to preserve the possibility of further negotiations without the pressure of impending litigation deadlines.
III. Assessment of Litigation Risks and Strengths
As your counsel, we are obligated to provide you with a candid assessment of the strengths and risks of your position should the matter proceed to contested litigation. We address each in turn.
A. Strengths of Our Position
We believe your position is strong on the merits for the following reasons:
• Community Property Presumption. Under California law, there is a strong presumption that all property acquired during marriage is community property. The burden is on the party seeking to overcome this presumption to establish, by clear and convincing evidence, that the property is separate. The vast majority of the estate assets were acquired or significantly enhanced during your fourteen-year marriage to Teodoro.
• Lumiére Canyon Studios LLC. The LLC was formed during the marriage, and the operating agreement expressly identifies you as a fifty percent member. The Contestants' separate property theory rests on a pre-marital capital tracing argument that is, at best, speculative.
• Pacific Rim Narrative Partners LLC. PRNP was formed in 2015, during the marriage, and funded with community assets. The Contestants' separate property characterization depends entirely on the enforceability of the premarital agreement.
• Community Contributions to Malibu Property. The community's substantial financial contributions to the Malibu Property — totaling approximately $3,816,400 in mortgage payments and renovation costs — establish a significant community interest under Moore/Marsden.
• Premarital Agreement Deficiencies. The premarital agreement photocopy lacks your signature, is incomplete, and shows forensic indications of alteration. Even if an original were produced, serious enforceability challenges would remain under the Uniform Premarital Agreement Act.
• Isabela's Promissory Note. The evidence strongly suggests the $1,200,000 transfer was a gift. No repayment was ever demanded, and no payments were ever made.
• Nicolás's Oral Promise. The Statute of Frauds presents a significant legal bar to this claim, and the evidentiary support is thin.
B. Areas of Potential Risk
No litigation is without risk, and we identify the following areas of vulnerability:
• Original Premarital Agreement. If the Contestants succeed in locating the original premarital agreement with valid, authenticated signatures — including yours — the analysis of the pre-marital media assets could be materially altered. While we believe the agreement would face significant enforceability challenges even in its original form, the production of a complete, signed original would strengthen the Contestants' position considerably.
• Malibu Property Separate Property Interest. Because the Malibu Property was purchased approximately ten months before the marriage, it carries a separate property component. Even under the Moore/Marsden analysis, the Contestants would be entitled to argue that a portion of the property's appreciation is attributable to market forces rather than community contributions, potentially reducing the community's percentage interest.
• Pre-Marital Capital Tracing for Lumiére Canyon. The Contestants could attempt to trace specific pre-marital capital contributions to the formation of Lumiére Canyon Studios LLC. While we believe this argument is weak given the fifty-fifty operating agreement and the overwhelming community contributions to the company's growth, a well-presented tracing analysis could create some uncertainty at trial.
• Claudette Marchetti's Declaration. Claudette Marchetti, Teodoro's longtime personal assistant, has submitted a declaration supporting the existence of the premarital agreement and asserting that she witnessed both parties sign the document. Ms. Marchetti's testimony, if credited, could provide factual support for the Contestants' claim regarding the premarital agreement. However, her declaration is not corroborated by any documentary evidence, and her credibility can be challenged on cross-examination.
• Valuation Disputes. The $2,362,000 gap between Pinnacle West's valuation ($71,112,000) and Hargrove & Linden's valuation ($68,750,000) introduces uncertainty regarding the total estate value. Valuation disputes are inherently fact-intensive and difficult to predict at trial, particularly with respect to media-related assets.
C. Overall Assessment
Taking all factors into account, we believe that your position is strong on the merits and that the probable litigation outcome would be favorable to you. The community property presumption, the operating agreement structure of Lumiére Canyon Studios LLC, the formation of PRNP during the marriage, and the evidentiary deficiencies of the premarital agreement all favor your position. However, protracted litigation would be costly, both financially and emotionally, and any litigation outcome carries inherent uncertainty. The prospect of a trial on contested probate matters — involving competing expert testimony on valuation, document authentication, and property characterization — presents risks that cannot be eliminated regardless of the strength of the underlying case. For these reasons, we believe that a measured approach that preserves both the option of settlement and the option of litigation is in your best interest at this time.
IV. Recommendation — Settlement Standstill Agreement
A. Proposed Standstill Terms
Following the mediation, we have been in communication with Mr. Ortega regarding the terms of a proposed Settlement Standstill Agreement. The Contestants have expressed a willingness to enter into such an agreement, consistent with Judge Adler's recommendation. The proposed key terms are as follows:
1. Tolling of Litigation Deadlines. All litigation deadlines — including deadlines for discovery responses, motion filing, and trial-related proceedings — would be tolled for an initial period of six (6) months, commencing on the date of execution and extending through approximately October 28, 2023.
2. Moratorium on Litigation Activity. No new motions, discovery requests, or other litigation filings may be made by either party during the standstill period, except as may be necessary to preserve the estate or respond to emergency circumstances.
3. Continuation of Neutral Administration. The estate would continue to be administered by Ashford Fiduciary Services Inc. (Gerald Whitmore, principal officer), located at 600 Wilshire Boulevard, Suite 1450, Los Angeles, California 90017, serving as the neutral administrator appointed pursuant to the stipulation filed on March 22, 2023.
4. Administration Costs. Monthly administration costs of $8,500 payable to Ashford Fiduciary Services Inc. would continue to be shared equally: $4,250 per month payable by Ms. Fonseca, and $4,250 per month payable collectively by the Contestants. Additionally, Ashford's annual assets-under-administration (AUA) based fee of 0.15% of assets under administration would continue to apply.
5. Renewal and Termination. The standstill would be renewable in six-month increments by mutual written consent of both sides. Either party could terminate the standstill on thirty (30) days' written notice to the other party and to the Court, at which point all tolled deadlines would resume.
6. Confidentiality. All settlement discussions conducted during the standstill period would be subject to confidentiality provisions, consistent with the mediation confidentiality protections under the California Evidence Code.
7. Target Execution Date. The target execution date for the Settlement Standstill Agreement is April 28, 2023. We believe this timeline is achievable, provided you authorize us to proceed promptly.
B. Benefits of the Standstill
We believe the proposed Settlement Standstill Agreement offers several significant benefits:
• Cost Savings. Active litigation in a contested probate matter of this complexity involves substantial legal costs, including fees for discovery, depositions, motion practice, expert consultations, and trial preparation. We estimate that active litigation through trial could cost in excess of $500,000 in attorney fees and costs alone. The standstill avoids these costs during the tolling period.
• Preservation of the Status Quo. The standstill preserves the status quo and protects the estate assets under the supervision of a neutral administrator, ensuring that no assets are dissipated or improperly managed during the pendency of the dispute.
• Opportunity for Further Settlement Discussions. The standstill allows time for further informal settlement discussions without the pressure of looming litigation deadlines. Based on the mediation session, we believe there are areas of potential compromise that may be productively explored in a less adversarial setting.
• Consistent with the Mediator's Recommendation. Judge Adler expressly recommended a cooling-off period. Honoring this recommendation demonstrates good faith and may enhance our credibility with the Court in the event that the matter returns to active litigation.
• No Prejudice to Your Rights. The standstill is terminable on thirty days' written notice, allowing you to resume litigation at any time. Your legal rights are fully preserved during the standstill period.
• Modest Cost. Your share of the Ashford administration costs during the standstill period ($4,250 per month, or approximately $25,500 over the initial six-month period) is modest compared to the costs of active litigation.
C. Risks of the Standstill
In the interest of providing a complete analysis, we also identify the following risks associated with the standstill:
• Delay and discovery Risk. A six-month delay could give the Contestants additional time to locate the original premarital agreement or to develop their factual record, including potentially identifying additional witnesses or documents that support their claims. This risk is mitigated, however, by the fact that the Contestants have had the purported premarital agreement issue under investigation for several months already, and the moratorium on formal discovery during the standstill limits their ability to use the litigation process to advance their evidence-gathering.
• Asset Value Fluctuation. Estate assets, particularly the media-related interests in Lumiére Canyon Studios LLC and PRNP, may fluctuate in value during the standstill period. A significant decline in value would reduce the total estate, while an increase could make settlement more difficult. However, this risk is inherent in any probate proceeding of extended duration and is not unique to the standstill.
• Continuing Administration Costs. Monthly Ashford administration costs will continue to accrue during the standstill period, as will the annual AUA-based fee. These costs are a necessary expense of the neutral administration arrangement and would continue regardless of whether the standstill is in place.
• No Guarantee of Settlement. The standstill does not guarantee that a settlement will be reached. It is possible that, at the conclusion of the standstill period, the parties' positions will remain irreconcilable and the matter will return to active litigation. In that event, the standstill period will have delayed resolution without achieving a settlement.
D. Our Recommendation
After careful consideration of the foregoing factors, we recommend that you authorize execution of the Settlement Standstill Agreement. In our judgment, the benefits of the standstill outweigh the risks at this stage of the proceeding. Your position is strong on the merits, which gives you significant leverage in any settlement discussions. The cost savings from avoiding active litigation during the standstill period are substantial. And the standstill preserves your ability to resume litigation at any time should the settlement discussions prove unproductive.
If the standstill does not lead to productive settlement discussions during the initial six-month period, we can reassess at that time and either renew the standstill for an additional period or resume litigation as warranted by the circumstances. We will, of course, continue to monitor the situation closely throughout the standstill period and will advise you immediately of any developments that may affect our recommendation.
V. Financial Status of the Engagement
As set forth in the engagement letter dated October 12, 2022, referenced under Calderwood & Harkness Matter No. 1035-00005, an evergreen retainer of $150,000 was paid upon engagement. Fees and costs have been billed at the agreed hourly rates, as follows:
An updated billing summary as of the date of this letter will be provided with the next monthly invoice, which you should expect to receive on or about May 1, 2023. The invoice will reflect all time incurred through the end of April 2023, including time related to the mediation session and the preparation of this report.
Costs advanced to date on your behalf include the following categories:
• Appraiser fees payable to Pinnacle West Appraisal Group LLC (Dr. Sandra Fujimoto, ASA, CVA) for business valuation and intellectual property appraisal services;
• Forensic document examiner fees payable to Brindoval Forensic Document Services LLC (Dr. Elaine Prescott) for analysis of the premarital agreement photocopy;
• Court filing fees associated with the probate petition and related filings;
• Mediator fees payable to the Westside Dispute Resolution Center for the April 12, 2023 mediation session before Hon. Constance Adler (Ret.).
We also note that Ridgeway Accounting Partners LLP, with Dennis Chua, CPA as the engagement partner, continues to prepare the estate's inventory, tax filings, and financial reconciliation. Ridgeway's fees are borne by the estate and are paid through the Ashford Fiduciary Services administration account, not from your personal retainer. We will continue to coordinate with Ridgeway to ensure that the estate's accounting and tax obligations are met in a timely manner.
VI. Next Steps and Action Items
Based on the foregoing analysis and recommendation, we propose the following next steps:
1. Authorization to Proceed. We respectfully request your written authorization to proceed with execution of the Settlement Standstill Agreement on or before the target date of April 28, 2023. Please indicate your authorization by signing and returning the enclosed authorization form, or by communicating your approval via email to the undersigned.
2. Pause of Litigation Activity. Upon execution of the standstill agreement, all litigation activity will be paused, including the pending discovery requests propounded by both sides and any motion practice currently in preparation.
3. Coordination with Ashford Fiduciary Services. We will continue to coordinate with Ashford Fiduciary Services Inc. regarding ongoing estate administration and quarterly reporting. Mr. Whitmore has been responsive and effective in his role as neutral administrator, and we will ensure that you are kept informed of all material administration developments.
4. Monitoring of Estate Accounting. We will continue to monitor the estate accountant's work through Ridgeway Accounting Partners LLP, including the preparation of the estate inventory and any required tax filings.
5. Settlement Communications. We will keep you informed of any communications from Brennan, Ortega & Saldívar LLP regarding settlement discussions, and we will not engage in any substantive settlement negotiations without your prior knowledge and approval.
6. Petition for Preliminary Distribution. The Petition for Preliminary Distribution of Non-Probate Assets (life insurance proceeds), filed on January 18, 2023, will be tolled during the standstill period under the general tolling provision. However, because the life insurance proceeds are non-probate assets and are undisputed, we may be able to pursue the petition separately if needed during the standstill period, depending on the terms of the final standstill agreement. We will discuss this option with you as appropriate.
7. Next Status Update. We will provide you with the next written status update following execution of the standstill agreement or upon any material development in the matter, whichever occurs first.
VII. Availability and Contact Information
I am available to discuss this letter and our recommendation at your convenience. Please do not hesitate to contact me directly if you have any questions, concerns, or would like to schedule a meeting to discuss the matter in greater detail. Elliot Nguyen, the lead associate on this matter, is also available to assist you.
Howard Quinn, Partner Calderwood & Harkness LLP 350 South Grand Avenue, Suite 4800 Los Angeles, California 90071 Direct: (213) 555-7118
Email: hquinn@calderwoodharkness.com
Elliot Nguyen, Senior Associate Calderwood & Harkness LLP 350 South Grand Avenue, Suite 4800 Los Angeles, California 90071 Direct: (213) 555-7134
Email: enguyen@calderwoodharkness.com
We appreciate your continued confidence in our representation, and we remain committed to achieving the best possible outcome for you in this matter.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Howard Quinn Partner
cc: Patricia Dunmore, Billing Partner, Calderwood & Harkness LLP cc: Elliot Nguyen, Lead Associate, Calderwood & Harkness LLP
Enclosures: None (to follow under separate cover, if applicable)
Timekeeper Level | Hourly Rate
Partners | $975/hour
Senior Associates | $650/hour
Associates | $525/hour
Paralegals | $295/hour

CALDERWOOD & HARKNESS LLP

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