PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT ATTORNEY-CLIENT PRIVILEGED COMMUNICATION
This memorandum constitutes attorney work product prepared in anticipation of litigation and contains privileged attorney-client communications. It is intended solely for the internal files of Calderwood & Harkness LLP. This document is not to be disclosed to any third party without prior authorization from the responsible partner. Any inadvertent disclosure does not constitute a waiver of any applicable privilege.
MEMORANDUM
Type: Internal File Memorandum — Matter Closing
To: File
From: Patrick Gallagher and Simone Laroche, reviewed and approved by Alan Ngo
Date: August 26, 2024
Re: Matter Closing Memorandum — Cascade Retail Holdings Inc. — Washington Attorney General Consumer Protection Inquiry
C&H Matter No.: 1038-00004
Client: Cascade Retail Holdings Inc. (Nasdaq: CRHI)
Status: CLOSED (AVC executed August 20, 2024)
I. Purpose and Scope of Memorandum
This memorandum memorializes the full course of Calderwood & Harkness LLP's ("C&H" or the "Firm") representation of Cascade Retail Holdings Inc. ("CRH" or "Cascade") in connection with the consumer-protection inquiry initiated by the Washington State Attorney General's Office, Consumer Protection Division (the "AG" or the "AG's Office"), concerning CRH's pricing-disclosure practices across its retail and ecommerce operations. The purpose of this memorandum is to create a comprehensive, contemporaneous record of the matter for the Firm's internal files, and to document the resolution achieved on behalf of the client.
The matter was opened upon the issuance of a Civil Investigative Demand ("CID") by the Washington AG to CRH on March 26, 2024, pursuant to the investigative authority granted under RCW 19.86.110 of the Washington Consumer Protection Act, RCW 19.86 et seq. The inquiry concerned allegations that CRH displayed inflated reference prices — including "compare-at," "original price," and "was/now" figures — in connection with its "Smart Price" promotional program, which had been launched in October 2023. The matter was resolved through a negotiated Assurance of Voluntary Compliance ("AVC"), which was fully executed on August 20, 2024 by the authorized representatives of both CRH and the State of Washington.
This memorandum is prepared for the internal file to preserve a comprehensive record of: (a) the matter history and factual background giving rise to the inquiry; (b) the scope and terms of C&H's engagement by CRH; (c) a chronological summary of key milestones throughout the representation; (d) the substantive terms of the executed AVC; (e) the financial outcomes, including the total financial commitment by CRH under the AVC; (f) a billing summary and fee reconciliation; (g) the status of insurance coverage under CRH's D&O and corporate-liability policy; (h) open and residual items requiring continued attention by CRH and, potentially, by C&H; and (i) document-retention and file-inventory matters. This memorandum should be read in conjunction with the engagement letter, the executed AVC, the C&H client advisory memorandum dated August 22, 2024, and the underlying correspondence and work-product files maintained under C&H Matter No. 1038-00004.
II. Background and Origin of the Inquiry
A. The Client
Cascade Retail Holdings Inc. is a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol CRHI. The company is headquartered at 4500 Overlake Boulevard, Suite 800, Bellevue, Washington 98004. CRH operates a multi-channel retail business consisting of 187 brick-and-mortar retail stores across 14 western United States states and a national ecommerce platform accessible at cascaderetail.com. The company's product mix spans a broad range of consumer categories, including apparel, footwear, home goods, kitchen appliances, outdoor furniture, and consumer electronics accessories.
For its fiscal year ending December 31, 2023 ("FY 2023"), CRH reported total revenue of approximately $3.47 billion. As of March 2024, CRH's approximate market capitalization was $5.1 billion. CRH is a well-known retail brand in the Pacific Northwest and western United States, with a significant consumer presence both in physical retail locations and through its online platform.
The following individuals at CRH were the primary contacts and decision-makers during the course of C&H's representation:
• Martin J. Okafor — Chief Executive Officer
• Diana Prescott-Levy — General Counsel (primary client contact for legal matters; signatory on the engagement letter and the executed AVC)
• Raymond Soo — Vice President, Marketing & Pricing Strategy (principal business-side contact regarding the "Smart Price" promotional program and the Praxton Analytics engagement)
• Terence Ashford — Chief Compliance Officer (responsible for compliance implementation and AVC monitoring obligations)
CRH's outside auditors are Whitfield & Crane LLP, located in Seattle, Washington. Whitfield & Crane was not directly involved in this matter but was identified by CRH as a relevant party for purposes of coordinating any financial-statement implications arising from the AVC's financial commitments.
B. The "Smart Price" Promotional Program
On October 15, 2023, CRH launched its "Smart Price" promotional program, a company-wide pricing initiative designed to enhance the presentation of value messaging to consumers across both the ecommerce platform and in-store signage. The core feature of the Smart Price program was the use of algorithmically generated reference prices, which were displayed alongside current selling prices to communicate the degree of savings or discount available to consumers. These reference prices were labeled variously as "compare-at," "original price," and "was/now" figures, depending on the product category and sales channel.
The algorithmic reference-price model underlying the Smart Price program was built and maintained by Praxton Analytics LLC, a third-party pricing consultant retained by CRH in 2023. Praxton Analytics is located at 2020 Westlake Avenue N, Suite 310, Seattle, Washington 98109, and its principal is Dr. Leila Farzan. Praxton Analytics' engagement by CRH predated C&H's involvement in this matter, and the firm's pricing algorithm was deployed by CRH without prior review by outside counsel for compliance with applicable pricing-disclosure standards, including FTC pricing guidance, the Washington Consumer Protection Act, or analogous state-law requirements.
The Smart Price program was rolled out across all 187 CRH retail locations and the cascaderetail.com ecommerce platform simultaneously. It covered a wide array of product categories, with particular emphasis on women's apparel, men's footwear, home textiles, small kitchen appliances, outdoor furniture, and consumer electronics accessories — the six product categories that ultimately became the focus of the AG's investigation.
C. Consumer Complaints and AG Investigation
Between January 2023 and February 2024, a total of 147 consumer complaints were filed with the Washington Attorney General's Office alleging that Cascade Retail displayed inflated "original" or "compare-at" prices that did not reflect prices at which the merchandise had actually been offered for sale in the regular course of business. The complaints described a pattern of reference-price inflation in which the stated "original" or "compare-at" price was substantially higher than any price at which the consumer could locate or had previously observed the item being sold, both on CRH's own platform and at competing retailers. The volume and consistency of these complaints apparently prompted the AG's Consumer Protection Division to initiate a formal investigation into CRH's pricing-disclosure practices.
On March 26, 2024, the Washington Attorney General's Consumer Protection Division issued a Civil Investigative Demand to CRH under the authority of RCW 19.86.110, which grants the Attorney General broad investigative powers in connection with potential violations of the Washington Consumer Protection Act, RCW 19.86 et seq. The CID was served on CRH at its corporate headquarters in Bellevue, Washington and was directed to the attention of the company's General Counsel, Diana Prescott-Levy.
The CID was comprehensive in scope. It contained 23 document requests and 14 interrogatories. The requests and interrogatories targeted the following subject areas, among others:
(a) CRH's reference-pricing methodology, including the algorithms, data inputs, and decision logic used to generate "compare-at," "original," and "was/now" prices;
(b) The engagement, scope of work, and deliverables of Praxton Analytics LLC, including all contracts, statements of work, and communications between CRH and Praxton Analytics;
(c) Internal communications among CRH's marketing, merchandising, and pricing strategy teams regarding the development, launch, and operation of the Smart Price promotional program;
(d) Compliance with applicable pricing-disclosure standards, including any internal policies, training materials, or legal reviews related to reference-pricing practices;
(e) Consumer complaints received by CRH directly concerning reference-pricing accuracy;
(f) Sales data, pricing histories, and transactional records for all SKUs displayed with reference prices during the period October 15, 2023 through March 15, 2024; and
(g) CRH's prior interactions with, or guidance received from, any federal or state regulatory body regarding pricing practices.
The lead AG personnel assigned to the investigation were:
• Meredith Calloway-Voss — Lead Assistant Attorney General, Consumer Protection Division
• Jordan A. Kittridge — Investigating Assistant Attorney General
• Sandra Pietsch — Investigator
All AG personnel are based at the AG's Consumer Protection Division offices located at 800 Fifth Avenue, Suite 2000, Seattle, Washington 98104. Throughout the investigation, Meredith Calloway-Voss served as the primary point of contact for all substantive communications and negotiations on behalf of the AG's Office.
D. AG's Preliminary Findings
In connection with its investigation, and prior to C&H's engagement, the AG's Office conducted a preliminary analysis of CRH's pricing data based on a sample of 2,340 stock-keeping units ("SKUs") reviewed during the January 1, 2024 through March 15, 2024 period. The AG's preliminary findings, which were communicated to CRH in summary form and subsequently elaborated upon during the course of the parties' negotiations, revealed the following:
(a) Of the 2,340 SKUs sampled, 1,601 SKUs — representing 68.4% of the sample — displayed a "compare-at" or "original" price that exceeded the highest price at which the item had actually been offered for sale during the preceding 90-day period.
(b) The average overstatement of reference prices in the sample was 37.2% above the actual highest offering price during the relevant lookback window. In certain product categories, particularly women's apparel and outdoor furniture, the average overstatement exceeded 45%.
(c) The six product categories identified as having the highest incidence and magnitude of reference-price inflation were: women's apparel, men's footwear, home textiles, small kitchen appliances, outdoor furniture, and consumer electronics accessories.
(d) The AG estimated that the aggregate gross merchandise sales of items bearing potentially inflated reference prices during the October 15, 2023 through March 15, 2024 period — approximately five months — totaled approximately $214 million, or approximately $42.8 million per month.
These preliminary findings were significant and informed the AG's negotiating posture throughout the resolution process. C&H's engagement strategy, discussed further below, included challenging the representativeness of the AG's sample, the methodology used to determine the "lookback window" for reference-price comparison, and the causal nexus between the displayed reference prices and actual consumer purchasing decisions.
E. Prior Counsel Involvement
Before C&H's engagement, CRH consulted with Dunlap, Mercer & Fosse LLP ("DMF"), the company's regular outside regulatory counsel. The lead DMF partner involved was Nora Chisholm, based at DMF's Seattle office at 999 Fourth Avenue, Suite 3100, Seattle, Washington 98104. DMF had previously advised CRH on Federal Trade Commission pricing-guidance compliance matters in 2022, and Ms. Chisholm was familiar with CRH's general pricing practices and regulatory posture.
Upon CRH's receipt of the CID on March 26, 2024, Diana Prescott-Levy contacted DMF for initial guidance. DMF provided preliminary advice on the CID response process and the scope of the AG's investigative authority under RCW 19.86.110, but did not undertake any substantive response or negotiation on CRH's behalf. Following internal discussions involving Mr. Okafor, Ms. Prescott-Levy, and the CRH Board's Audit Committee, CRH determined that the complexity and potential exposure associated with the AG inquiry warranted the retention of specialized outside counsel with deep experience in state consumer-protection enforcement matters, pricing-related regulatory investigations, and negotiated resolution of AG enforcement proceedings. CRH accordingly approached C&H, and DMF's involvement in this matter concluded at that point.
III. Calderwood & Harkness Engagement
A. Engagement Letter
CRH formally retained Calderwood & Harkness LLP on April 9, 2024, to serve as outside counsel in connection with the AG consumer-protection inquiry. The engagement letter was executed on behalf of CRH by Diana Prescott-Levy, General Counsel, and on behalf of C&H by Alan Ngo, the designated Responsible Partner for the matter. The engagement letter defined the scope of the representation as the defense of CRH in connection with the Washington AG's CID and any related enforcement action, negotiation, or resolution proceedings arising from the AG's investigation into CRH's pricing-disclosure practices.
C&H's Seattle office, located at 1201 Third Avenue, Suite 4400, Seattle, Washington 98101, served as the primary office for this engagement.
The following attorneys comprised the C&H engagement team for this matter:
At the time of engagement, C&H and CRH agreed upon an estimated fee budget of $350,000 to $475,000 for the matter, exclusive of out-of-pocket costs (e-discovery vendor, travel, court fees if applicable, and miscellaneous disbursements). This budget estimate was based on the assumption that the matter would be resolved through negotiation rather than contested litigation or trial.
The matter was assigned C&H Matter Number 1038-00004. The Firm's Employer Identification Number is 91-2847561.
The engagement letter included standard conflict-waiver disclosures, identifying certain existing C&H client relationships that had been reviewed and determined not to present a disqualifying conflict of interest with the CRH representation. The engagement letter also incorporated data-privacy terms governing the handling and protection of consumer data and other personally identifiable information that would be encountered in connection with the CID document productions. These provisions addressed data-security protocols, access controls, and return-or-destruction obligations upon matter closure, and were responsive to both CRH's internal data-governance policies and the AG's expectations regarding the handling of consumer-complaint information.
B. E-discovery Vendor
In connection with the CID response, C&H retained Stormfield Document Solutions LLC as the e-discovery vendor for this matter. Stormfield is located at 820 SW Washington Street, Suite 450, Portland, Oregon 97205. Stormfield was responsible for document processing, hosting the review platform for attorney review of potentially responsive documents, applying analytics and search-term protocols, and formatting the document productions for submission to the AG's Office in accordance with the specifications set forth in the CID. Stormfield's fees and costs are included in the total costs advanced by C&H on behalf of CRH, as summarized in Section VI below.
IV. Chronological Summary of Key Milestones
The following is a chronological summary of the key milestones, events, and developments that occurred during the course of C&H's representation of CRH in this matter, from the initial CID response through the execution of the AVC and closing of the matter.
A. CID Response — Phase One (April 23, 2024)
On April 23, 2024, C&H submitted CRH's initial rolling CID response to Lead Assistant Attorney General Meredith Calloway-Voss at the AG's Consumer Protection Division offices in Seattle. The initial production consisted of approximately 12,400 documents, encompassing a substantial portion of the responsive materials identified through the document collection and review process.
The production was accompanied by a cover letter from Patrick Gallagher, addressed to Ms. Calloway-Voss, which: (a) described the categories of documents produced in the initial rolling production; (b) identified the privilege-log entries associated with documents withheld from production on the basis of attorney-client privilege and/or attorney work-product protection; (c) noted CRH's continuing obligation to supplement the production with additional responsive materials as the review process continued; and (d) proposed a meet-and-confer between counsel for the parties to discuss the remaining scope of the CID requests, any potential areas of narrowing or clarification, and potential resolution pathways that might obviate the need for further formal investigative proceedings.
The Phase One production was organized by CID document-request number and included a Bates-range index, a document custodian list, and a production metadata summary. Documents were produced in TIFF format with searchable text, consistent with the AG's production specifications.
B. Insurance Notice (April 11, 2024) and Coverage Acknowledgment (April 29, 2024)
On April 11, 2024, shortly after C&H's retention, Alan Ngo sent a formal coverage notice on behalf of CRH to Brenda Whitacre, Claims Counsel at Elkhorn Mutual Insurance Company, located at 1100 Dexter Avenue N, Suite 600, Seattle, Washington 98109. The notice was submitted under CRH's directors-and-officers and corporate-liability insurance policy, Policy No. ELK-DO-2024-08817, and reported the AG's CID as a potential "claim" or "circumstance" triggering coverage under the policy.
The relevant policy terms are summarized as follows:
• Carrier: Elkhorn Mutual Insurance Company
• Policy Number: ELK-DO-2024-08817
• Coverage Type: Directors & Officers and Corporate Liability
• Policy Form: Claims-made basis
• Per-Occurrence Limit: $25,000,000
• Aggregate Limit: $50,000,000
• Self-Insured Retention ("SIR"): $250,000
On April 29, 2024, Elkhorn Mutual Insurance Company, through Brenda Whitacre, issued a written acknowledgment of coverage for defense costs incurred in connection with the AG inquiry. The acknowledgment was subject to the $250,000 SIR and contained various reservations of rights, which are discussed in greater detail in Section VII below. The coverage acknowledgment enabled CRH to seek reimbursement from Elkhorn for defense costs (principally C&H's professional fees and e-discovery vendor costs) incurred above the SIR threshold.
C. Meet-and-Confer (May 14, 2024)
On May 14, 2024, C&H attorneys Alan Ngo and Patrick Gallagher participated in a meet-and-confer with AG personnel Meredith Calloway-Voss and Jordan A. Kittridge. The meeting took place at the AG's offices in Seattle and lasted approximately two and one-half hours.
The primary purposes of the meet-and-confer were to: (a) discuss the status and completeness of CRH's CID response; (b) address certain clarifications requested by the AG regarding the Praxton Analytics algorithm and the data inputs used to generate reference prices; (c) explore the AG's enforcement posture and appetite for a negotiated resolution; and (d) establish a framework for settlement discussions.
During the meeting, the AG signaled a willingness to resolve the matter through an Assurance of Voluntary Compliance ("AVC") — a commonly used enforcement tool under RCW 19.86 — rather than pursuing a formal enforcement action or filing a complaint in King County Superior Court. However, the AG's willingness to proceed by AVC was conditioned on CRH's agreement to the following principal categories of relief: (i) prospective pricing reforms requiring CRH to adopt and implement compliant reference-pricing practices; (ii) a consumer restitution fund to compensate affected consumers; (iii) a civil penalty payable to the State; and (iv) independent compliance monitoring for a specified period to ensure adherence to the reformed pricing practices.
C&H communicated the AG's position to CRH's General Counsel, Diana Prescott-Levy, and Chief Compliance Officer, Terence Ashford, and recommended that CRH engage in good-faith AVC negotiations, given the strength of the AG's preliminary findings, the volume of consumer complaints, and the litigation risk and reputational exposure that would attend a contested enforcement proceeding. CRH's leadership concurred with this recommendation.
D. CID Response — Phase Two (May 31, 2024)
On May 31, 2024, C&H submitted a supplemental production of approximately 8,700 additional documents to the AG's Office, bringing the cumulative document production to approximately 21,100 documents across the two phases. The supplemental production included additional responsive materials from the custodians identified in the CID, as well as materials from supplemental custodians identified during the course of the review process (including certain Praxton Analytics custodial files produced to CRH under the terms of CRH's consulting agreement with Praxton Analytics).
The Phase Two production was accompanied by a cover letter from Patrick Gallagher that included an updated privilege log, a consolidated Bates-range summary covering both productions, and a certification that CRH's production was substantially complete as to all 23 document requests and 14 interrogatories in the CID. The cover letter also formally confirmed CRH's willingness to engage in good-faith AVC negotiation and requested that the parties proceed to exchange draft AVC terms at the earliest practicable date.
E. AG Draft AVC (June 12, 2024)
On June 12, 2024, the AG's Office transmitted its initial draft AVC terms to C&H. The draft AVC was prepared by Meredith Calloway-Voss and Jordan A. Kittridge and reflected the AG's opening negotiating position. The key terms proposed by the AG in the initial draft were as follows:
(a) Lookback Window: CRH would be required to adopt a 180-day lookback window for all reference prices — meaning that any "compare-at," "original," or "was" price must reflect the actual, bona fide price at which the item was offered for sale during the immediately preceding 180-day period.
(b) Consumer Restitution Fund: CRH would establish a $4,500,000 consumer restitution fund to provide refunds or store credits to consumers who purchased items bearing materially inflated reference prices during the relevant period.
(c) Civil Penalty: CRH would pay a $1,500,000 civil penalty to the Washington State Consumer Protection Account.
(d) Compliance Reporting: CRH would submit quarterly compliance reports to the AG's Consumer Protection Division for the duration of the monitoring period.
(e) Independent Compliance Monitoring: CRH would retain, at its own expense, an independent compliance monitor for a period of 36 months to conduct regular audits of CRH's reference-pricing practices and the underlying Praxton Analytics algorithm.
The AG's draft did not include a no-admission-of-liability clause and did not provide for a cure period before stipulated penalties would accrue in the event of an alleged AVC breach. C&H assessed the AG's initial position as aggressive but within the range of outcomes observed in comparable state AG consumer-protection enforcement matters.
F. CRH Counter-Proposed AVC (June 28, 2024)
On June 28, 2024, following extensive internal analysis, client consultations, and a detailed assessment of comparable AVC precedents in Washington and other jurisdictions, C&H submitted CRH's counter-proposed AVC to the AG. The counter-proposed AVC was transmitted in the form of a redlined version of the AG's initial draft, accompanied by a cover letter from Alan Ngo addressed to Meredith Calloway-Voss and Jordan A. Kittridge.
CRH's principal counter-proposals were as follows:
(a) Lookback Window: CRH proposed a 120-day lookback window, a compromise from CRH's initial internal target of 90 days. C&H's cover letter argued that a 120-day lookback was consistent with emerging industry standards and the FTC's historical guidance on reference pricing, and that a 180-day lookback would impose undue operational burdens on CRH's pricing systems without a corresponding consumer-protection benefit.
(b) Consumer Restitution Fund: CRH proposed a reduction of the restitution fund from the AG's proposed $4,500,000 to $2,850,000, based on a revised analysis of the number of affected transactions and the actual consumer harm attributable to the reference-price discrepancies. C&H's analysis incorporated a narrower definition of "materially inflated" reference prices and excluded certain categories of promotional pricing that CRH contended were within the bounds of legitimate comparison advertising.
(c) Civil Penalty: CRH proposed a reduction of the civil penalty from $1,500,000 to $750,000, citing CRH's prompt cooperation with the investigation, its proactive remedial efforts (including the suspension of the Smart Price program on certain product categories), and the absence of any prior enforcement history.
(d) Compliance Reporting: CRH proposed semi-annual (rather than quarterly) compliance reporting, arguing that less-frequent reporting was sufficient given the concurrent independent compliance monitoring requirement and would reduce the administrative burden on both CRH and the AG's office.
(e) Monitoring Period: CRH proposed a 24-month (rather than 36-month) monitoring period, again citing CRH's cooperation and remedial efforts and the adequacy of a shorter monitoring term to demonstrate sustained compliance.
(f) Cure Period: CRH proposed a 30-day cure period for any alleged material breach of the AVC before stipulated penalties would begin to accrue, in order to provide CRH a reasonable opportunity to identify and correct any inadvertent non-compliance.
(g) No Admission of Liability: CRH insisted on the inclusion of a no-admission-of-liability clause, consistent with the standard practice in AVC resolutions, providing that CRH neither admits nor denies any violation of RCW 19.86 or any other applicable law.
G. Agreement in Principle (July 18, 2024)
Following the exchange of the initial and counter-proposed AVC drafts, the parties engaged in several weeks of additional negotiations, principally through telephone conferences and email exchanges between Alan Ngo and Patrick Gallagher on behalf of C&H/CRH, and Meredith Calloway-Voss and Jordan A. Kittridge on behalf of the AG. The negotiations addressed the financial terms (restitution amount, penalty amount, and investigative-cost reimbursement), the lookback-window duration, the monitoring period, and the compliance-reporting cadence, as well as various operational and procedural provisions of the AVC.
On July 18, 2024, the parties reached an agreement in principle on all material terms of the AVC. The agreed-upon terms substantively reflected CRH's counter-proposed positions on the key commercial and operational issues, with certain minor concessions and clarifications, as more fully described in Section V of this memorandum. C&H communicated the agreement in principle to Diana Prescott-Levy and Terence Ashford and received authorization from CRH to proceed with the preparation and finalization of the definitive AVC document.
H. Final AVC Circulated (August 5, 2024)
On August 5, 2024, the final, execution-ready version of the AVC was circulated between the parties for internal review and signature. The document was reviewed by C&H (Alan Ngo and Patrick Gallagher), by CRH's General Counsel (Diana Prescott-Levy), and by the AG's office (Meredith Calloway-Voss). Each party confirmed that the document accurately reflected the agreement in principle reached on July 18, 2024, and authorized execution.
I. AVC Execution (August 20, 2024)
On August 20, 2024, the AVC was fully executed by Diana Prescott-Levy on behalf of Cascade Retail Holdings Inc. and by Meredith Calloway-Voss on behalf of the State of Washington, acting through the Consumer Protection Division of the Office of the Attorney General.
On the same date, C&H transmitted a closing letter to the AG's Office confirming execution of the AVC, enclosing CRH's executed counterpart signature pages, and confirming the payment timelines for the civil penalty, investigative-cost reimbursement, and establishment of the consumer restitution fund as set forth in the AVC.
The C&H matter was closed as of this date. No further formal proceedings are pending before the AG's Office in connection with this inquiry.
V. Summary of AVC Terms
The following is a summary of the material terms of the executed AVC. A fully executed copy of the AVC is maintained in the matter file under C&H Matter No. 1038-00004.
A. No Admission of Liability
The AVC expressly provides that CRH neither admits nor denies any violation of RCW 19.86 or any other provision of law in connection with the AG's inquiry. The no-admission clause was a critical term for CRH, both for purposes of limiting the potential collateral estoppel implications of the AVC in any future private litigation and for purposes of CRH's public disclosures and investor communications.
B. Prospective Pricing Standards
Under the AVC, CRH is required to ensure that all "compare-at," "original," or "was" reference prices displayed in connection with the sale of merchandise — whether on the cascaderetail.com ecommerce platform or in any of CRH's 187 brick-and-mortar retail locations across 14 western U.S. states — must reflect the actual, bona fide price at which the item was offered for sale in the ordinary course of business for a reasonably substantial period during the immediately preceding 120-day lookback window. The 120-day lookback standard applies across all product categories without exception and represents a compromise between CRH's initial target of 90 days and the AG's opening demand of 180 days. The AVC further specifies that the "ordinary course of business" standard requires that the reference price must have been a genuine offering price at which consumers could have purchased the item, and may not be based on artificially inflated or transient prices established solely for the purpose of creating a reference-price comparison.
C. Independent Compliance Monitoring
The AVC designates Ridgepoint Compliance Solutions Inc. as the independent third-party compliance reviewer responsible for monitoring CRH's adherence to the prospective pricing standards established by the AVC. Ridgepoint Compliance Solutions is located at 700 Stewart Street, Suite 1500, Seattle, Washington 98101. The engagement partner at Ridgepoint is Harold Sung.
Under the terms of the AVC, Ridgepoint is to conduct quarterly audits of CRH's pricing practices, including a review of the Praxton Analytics algorithmic reference-price model, for a period of 24 months commencing on the date of AVC execution (August 20, 2024) and continuing through August 20, 2026. The scope of Ridgepoint's quarterly audits includes: (a) a statistically significant sample of SKUs across all six targeted product categories; (b) a review of the data inputs and outputs of the Praxton Analytics algorithm; (c) an assessment of CRH's internal pricing-compliance procedures and controls; and (d) a written report to both CRH and the AG's Office summarizing audit findings and any recommended corrective actions. The costs of the Ridgepoint engagement are to be borne entirely by CRH.
D. Consumer Restitution Fund
CRH is required to establish a consumer restitution fund in the amount of $2,850,000 to provide refunds or store credits to consumers who purchased items bearing materially inflated reference prices during the October 15, 2023 through March 15, 2024 period. The fund is to be administered by CRH in accordance with a claims process approved by the AG, and the administration of the fund must be completed within 12 months of AVC execution — i.e., by August 20, 2025. Any funds remaining in the restitution fund at the conclusion of the claims period are to be applied as directed by the AG's Office, consistent with the purposes of the Consumer Protection Act.
E. Civil Penalty
CRH is required to pay a civil penalty in the amount of $750,000 to the Washington State Consumer Protection Account, pursuant to RCW 19.86.140. The penalty is payable within 30 days of AVC execution, establishing a payment deadline of September 19, 2024.
F. AG Investigative Costs Reimbursement
CRH is required to reimburse the AG's Office in the amount of $185,000 for investigative costs incurred in connection with the inquiry, including personnel costs, document review expenses, and expert consultation fees. This payment is also due within 30 days of AVC execution (deadline: September 19, 2024).
G. Total Financial Commitment
CRH's total financial commitment under the AVC is as follows:
This total represents a significant reduction from the AG's initial opening position, which would have totaled approximately $6,185,000 (comprising $4,500,000 in restitution, $1,500,000 in civil penalties, and $185,000 in investigative costs). The net reduction achieved through negotiation was approximately $2,400,000, or 38.8%.
H. Compliance Reporting
CRH is required to submit semi-annual compliance reports to the AG's Consumer Protection Division for the duration of the 24-month monitoring period. The reports must describe CRH's pricing practices, summarize the results of the most recent Ridgepoint quarterly audits, identify any instances of non-compliance and the corrective actions taken, and certify CRH's ongoing compliance with the AVC's prospective pricing standards.
The first semi-annual compliance report is due on February 20, 2025 (six months after AVC execution). The final semi-annual report is due on or about August 20, 2026 (at the conclusion of the 24-month monitoring period), at which point CRH's reporting obligations under the AVC will terminate absent any outstanding compliance issues.
I. Stipulated Penalties for Breach
The AVC provides for stipulated penalties of $10,000 per day for any material breach of the AVC's terms. Stipulated penalties are subject to a 30-day cure period: upon the AG's delivery of written notice of an alleged breach, CRH has 30 days to cure the identified non-compliance before stipulated penalties begin to accrue. This cure provision was a key element of CRH's counter-proposed AVC and provides CRH with a reasonable opportunity to address inadvertent or technical compliance failures without immediate financial exposure.
VI. Billing Summary and Fee Reconciliation
A. Calderwood & Harkness Fees and Costs
The following is a summary of the professional fees and costs billed by C&H in connection with this matter through the date of matter closing:
The total amount billed of $451,095 fell within the agreed estimated fee budget range of $350,000 to $475,000 established at the outset of the engagement. The slight exceedance above the midpoint of the range was attributable to the extended negotiation period (approximately six weeks) between the initial and counter-proposed AVC drafts, which required additional attorney time for the preparation and analysis of comparative AVC precedents, the development of CRH's restitution-fund methodology, and the drafting and revision of the redlined AVC document and supporting cover letter.
All invoices were submitted to CRH and processed through the normal C&H billing cycle. CRH has been advised that it may submit the invoices to Elkhorn Mutual Insurance Company for reimbursement of defense costs above the $250,000 SIR, as discussed further in Section VII below.
B. Rate Summary
The hourly rates applicable to this engagement were as follows:
The engagement did not involve any paraprofessional or contract-attorney time. Ms. Hartwell's advisory role was limited to matters relating to tax and financial-structuring considerations associated with the consumer restitution fund, and her total hours on the matter were minimal.
VII. Insurance Coverage Status
A. Policy Details
CRH maintains directors-and-officers and corporate-liability insurance coverage through Elkhorn Mutual Insurance Company. The relevant policy details are as follows:
• Carrier: Elkhorn Mutual Insurance Company
• Policy Number: ELK-DO-2024-08817
• Coverage Type: Directors & Officers and Corporate Liability
• Policy Form: Claims-made basis
• Per-Occurrence Limit: $25,000,000
• Aggregate Limit: $50,000,000
• Self-Insured Retention: $250,000
• Claims Counsel: Brenda Whitacre, Elkhorn Mutual Insurance Company, 1100 Dexter Avenue N, Suite 600, Seattle, WA 98109
B. Coverage Acknowledgment and Reimbursement
As described in Section IV.B above, Elkhorn Mutual acknowledged coverage for defense costs on April 29, 2024, subject to the $250,000 SIR and various reservations of rights. The defense-cost reimbursement calculation is as follows:
The $201,095 defense-cost reimbursement amount is subject to final reconciliation with Elkhorn, which has not yet been completed as of the date of this memorandum. CRH should follow up with Brenda Whitacre to ensure timely processing of the reimbursement claim and resolution of any open questions regarding the allocation of costs between covered defense costs and any amounts Elkhorn may contend fall outside the scope of its coverage obligation.
C. Coverage Exclusions and Disputes
The following items present potential coverage exclusions or disputes with Elkhorn:
Civil Penalty ($750,000). The $750,000 civil penalty payable to the Washington State Consumer Protection Account is excluded from coverage under the policy's governmental-fine/penalty exclusion. This exclusion is standard in D&O and corporate-liability policies and is not disputed by CRH or Elkhorn. CRH will bear this cost directly.
AG Investigative Costs ($185,000). The $185,000 AG investigative-costs reimbursement is not specifically addressed in Elkhorn's coverage acknowledgment or reservation-of-rights letter. There is ambiguity as to whether this amount should be treated as part of the overall settlement amount (potentially covered as a "loss" under the policy) or excluded as a regulatory cost falling within the governmental-fine/penalty exclusion. This issue has not been resolved as of the date of this memorandum and may require further correspondence with Elkhorn or, if necessary, engagement of coverage counsel.
Consumer Restitution Fund ($2,850,000). The coverage status of the $2,850,000 consumer restitution fund is disputed. Elkhorn reserved rights in its April 29, 2024 acknowledgment letter with respect to whether the restitution fund constitutes an insurable "loss" under the policy or, alternatively, constitutes a disgorgement or restitution payment that is excluded from coverage under the policy's restitution/disgorgement exclusion. The distinction is significant: if the restitution fund is characterized as disgorgement — i.e., the return of ill-gotten gains attributable to the allegedly inflated pricing — Elkhorn would contend that it is uninsurable as a matter of public policy and excluded under the express terms of the policy. If, on the other hand, the restitution fund is characterized as compensatory damages for consumer harm, it may fall within the policy's definition of a covered "loss." This remains an open and unresolved matter as of the date of this memorandum, and is the principal residual insurance issue associated with the closing of this matter. See Section VIII.E below for further discussion.
VIII. Open / Residual Items
Although the C&H matter has been closed and no further active work is presently anticipated, the following items remain open or require continued attention by CRH, its in-house legal team, and/or its other advisors. C&H has communicated these open items to Diana Prescott-Levy and Terence Ashford and has provided a detailed implementation roadmap in the C&H client advisory memorandum dated August 22, 2024.
A. Pending Payment Deadlines
CRH must remit the following payments within 30 days of AVC execution (i.e., by September 19, 2024):
(a) Civil Penalty: $750,000 payable to the Washington State Consumer Protection Account.
(b) AG Investigative Costs Reimbursement: $185,000 payable to the Washington State Attorney General's Office.
C&H has advised Diana Prescott-Levy and Terence Ashford of these deadlines and has recommended that CRH initiate the payment process promptly to ensure timely compliance. Failure to make these payments by the September 19, 2024 deadline could constitute a breach of the AVC, potentially triggering the stipulated-penalty provisions ($10,000 per day, subject to the 30-day cure period).
B. Consumer Restitution Fund Establishment and Administration
CRH must establish the $2,850,000 consumer restitution fund and complete the administration of the claims process within 12 months of AVC execution — i.e., by August 20, 2025. The fund is intended to provide refunds or store credits to consumers who purchased items bearing materially inflated reference prices during the October 15, 2023 through March 15, 2024 period. The claims process must be conducted in accordance with procedures approved by the AG's Office.
CRH's internal team, led by the General Counsel and the Chief Compliance Officer, will manage the fund establishment and claims-administration process. C&H may be consulted if legal issues arise during the administration of the fund, but no ongoing C&H engagement is contemplated for this purpose at this time.
C. Ridgepoint Compliance Solutions Engagement
CRH must promptly formalize its engagement with Ridgepoint Compliance Solutions Inc. (engagement partner: Harold Sung) to commence the quarterly auditing of CRH's pricing practices and the Praxton Analytics reference-price algorithm, as required by the AVC. The first quarterly audit should occur during Q4 2024 (i.e., between October 1 and December 31, 2024), and subsequent audits should occur on a quarterly basis through August 20, 2026 (the end of the 24-month monitoring period).
C&H's client advisory memorandum of August 22, 2024 provided CRH with a detailed implementation roadmap and deadlines calendar for the Ridgepoint engagement, including recommended milestones for formalizing the engagement agreement, conducting an initial scoping assessment, and preparing for the first quarterly audit. CRH's General Counsel and CCO are responsible for executing on this roadmap.
D. Semi-Annual Compliance Reporting
CRH must submit semi-annual compliance reports to the AG's Consumer Protection Division for the full 24-month monitoring period. The compliance-reporting schedule is as follows:
CRH's internal compliance team is responsible for the preparation and submission of these reports. C&H may be engaged on an as-needed basis if CRH requires legal review of the reports or guidance on any compliance issues that arise during the reporting process.
E. Elkhorn Mutual Insurance — Restitution Coverage Dispute
As discussed in Section VII.C above, Elkhorn Mutual's reservation of rights regarding the $2,850,000 consumer restitution fund is unresolved. The central coverage question — whether the restitution fund constitutes an insurable "loss" under the policy or is excluded as a disgorgement/restitution payment — has significant financial implications for CRH. If Elkhorn ultimately denies coverage for the restitution fund, CRH will bear the full $2,850,000 out of pocket. If coverage is obtained, Elkhorn would reimburse CRH for some or all of the restitution amount above the SIR (which has already been exhausted by defense costs).
CRH may need to engage coverage counsel — either C&H or separate insurance-coverage specialists — to pursue reimbursement from Elkhorn if the carrier ultimately denies coverage for the restitution fund. C&H has advised Diana Prescott-Levy of this potential need and has recommended that CRH preserve all rights under the policy and maintain a dialogue with Brenda Whitacre regarding the coverage analysis.
Additionally, the final reconciliation of the $201,095 defense-cost reimbursement remains pending. CRH should ensure that the reimbursement claim is processed and paid by Elkhorn in a timely manner.
F. Praxton Analytics Relationship
In light of the AVC's prospective pricing standards and the Ridgepoint auditing requirement, CRH should evaluate whether to continue, modify, or terminate its engagement with Praxton Analytics LLC for algorithmic reference-price modeling. The AVC requires that CRH's reference prices comply with the 120-day lookback standard on an ongoing basis, and the Praxton Analytics algorithm must be calibrated accordingly. CRH may determine that modifications to the algorithm are sufficient to achieve compliance, or it may conclude that a different pricing methodology or vendor relationship is preferable. This evaluation should be conducted in coordination with Ridgepoint's initial scoping assessment and the first quarterly audit.
C&H has not been asked to advise on the CRH–Praxton Analytics relationship as such, but has flagged this item for CRH's attention as a matter relevant to the company's ongoing AVC compliance obligations.
G. Internal Compliance Program
CRH committed, consistent with the recommendations set forth in C&H's client advisory memorandum of August 22, 2024, to implement internal compliance enhancements designed to support sustained compliance with the AVC's prospective pricing standards. These enhancements include, among other things:
(a) Training programs for CRH's marketing, merchandising, and pricing strategy teams on the 120-day lookback standard and the revised reference-pricing procedures required by the AVC;
(b) Updated internal policies and standard operating procedures governing the creation, approval, and display of reference prices across all sales channels;
(c) Designation of a senior internal compliance officer with responsibility for day-to-day oversight of reference-pricing compliance; and
(d) Implementation of automated monitoring tools and exception-reporting mechanisms to identify potential reference-price discrepancies in real time.
These internal compliance measures are CRH's responsibility to develop and implement. However, non-compliance with the AVC's pricing standards — whether resulting from a failure to implement adequate internal controls or from any other cause — could trigger the AVC's stipulated-penalty provisions ($10,000 per day, subject to the 30-day cure period). CRH should treat the implementation of these internal compliance enhancements as a high priority.
IX. Document Retention and File Inventory
All matter files associated with C&H's representation of CRH in this matter are maintained under C&H Matter No. 1038-00004. The file inventory includes the following categories of materials:
(a) Privileged attorney work product, including internal memoranda, research files, strategic analyses, and draft documents;