insurance-coverage-notification-letter.docx

1038-00007 · Cascade Retail Holdings · Insurance

insurance-coverage-notification-letter.docx DOCUMENT Litigation

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CALDERWOOD & HARKNESS LLP Attorneys at Law 600 South Grand Avenue, Suite 3200 Los Angeles, California 90071 Telephone: (213) 555-8200 Facsimile: (213) 555-8201 www.calderwoodharkness.com

September 20, 2021

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND VIA ELECTRONIC MAIL (lfurman@pinnacleni.com)

Leonard Furman Senior Claims Adjuster Pinnacle National Insurance Co. 120 Broadway, Suite 3500 New York, New York 10271

Re: Notice of Claim Under Commercial General Liability Policy No. PNG-CGL-2021-04487

Insured: Cascade Retail Holdings Inc.

Claim: Vantor Holdings Corp. v. Cascade Retail Holdings Inc., Case No. 21STCV-34872, Superior Court of the State of California, County of Los Angeles

Dear Mr. Furman:

1. Purpose and Identification of Counsel

This firm, Calderwood & Harkness LLP, has been retained as defense counsel for Cascade Retail Holdings Inc. ("Cascade" or "CRH"), a Delaware corporation headquartered at 2200 Elliott Avenue West, Suite 1400, Seattle, Washington 98119, and publicly traded on the Nasdaq Stock Market under the ticker symbol "CRHI." We write on behalf of our client to provide formal notice of a claim under Cascade's Commercial General Liability policy, Policy No. PNG-CGL-2021-04487 (the "Policy"), issued by Pinnacle National Insurance Co. ("Pinnacle" or the "Carrier").

Calderwood & Harkness LLP was engaged by Cascade on September 13, 2021, to serve as lead defense counsel in the above-referenced litigation. The engagement was opened under firm matter number 1038-00007. Douglas Carmichael, Partner, serves as the responsible partner on this matter. Francesca Morano, Partner, serves as the billing partner. Both Mr. Carmichael and Ms. Morano are based in the firm's Los Angeles office.

We respectfully request that all correspondence, communications, and notices regarding this claim, including but not limited to any coverage determination, reservation of rights letter, or other response from Pinnacle, be directed to the undersigned at the following address:

Douglas Carmichael, Partner Calderwood & Harkness LLP 600 South Grand Avenue, Suite 3200 Los Angeles, California 90071 Telephone: (213) 555-8200

Email: dcarmichael@calderwoodharkness.com

This letter constitutes Cascade's formal and timely notice of the claim described below, in accordance with the terms and conditions of the Policy, and is intended to preserve all of Cascade's rights to coverage thereunder.

2. Description of the Lawsuit

2.1 Filing and Service

On September 7, 2021, Vantor Holdings Corp. ("Vantor"), a California corporation headquartered at 18500 Von Karman Avenue, Suite 600, Irvine, California 92612, filed a civil complaint against Cascade in the Superior Court of the State of California, County of Los Angeles. The matter has been assigned Case No. 21STCV-34872 and is pending before the Honorable Judge assigned to that department.

As of the date of this letter, Cascade has not yet been formally served with the summons and complaint. However, Cascade became aware of the filing of the complaint through independent channels and anticipates that service will occur imminently. We are sending this notice in advance of service in order to ensure that Pinnacle receives the earliest possible notice of the claim and has the maximum amount of time to evaluate coverage. Upon receipt of formal service, we will promptly supplement this notice with confirmation of the date of service and the resulting deadline for Cascade's responsive pleading.

Vantor is represented in the litigation by the law firm of Kessler, Brandt & Whitfield LLP, located at 1999 Avenue of the Stars, Suite 2800, Los Angeles, California 90067. Martin Kessler, Esq. and Natalie Whitfield, Esq. serve as lead counsel for Vantor in the matter.

2.2 Parties. Plaintiff — Vantor Holdings Corp. Vantor is a privately held wholesale distribution and specialty retail company. Based on publicly available information and the allegations in the complaint, Vantor generates approximately $1.1 billion in annual revenue (fiscal year 2021) and operates approximately 85 retail locations across the states of California, Arizona, Nevada, and Oregon. Vantor was founded by, and is currently led by, Richard "Rick" Ellsworth, who serves as its Chief Executive Officer. Vantor's business model centers on maintaining exclusive relationships with a curated group of consumer-goods suppliers and distributing those products through its retail network and wholesale channels.

Defendant — Cascade Retail Holdings Inc. Cascade is a multi-channel retail and e-commerce company with approximately $6.8 billion in annual revenue (fiscal year 2021). As of September 2021, Cascade's market capitalization is approximately $14.2 billion. Cascade operates more than 340 retail locations across 22 states and maintains a significant online sales presence. Margaret Prumvane serves as Cascade's Chief Executive Officer and President. David Pruitt serves as General Counsel and Corporate Secretary. Cascade's business encompasses a broad range of consumer product categories, including home goods, consumer electronics accessories, and personal care and wellness products — the categories at issue in this litigation.

2.3 Summary of Allegations

The complaint alleges that Cascade engaged in a systematic campaign to induce three of Vantor's key consumer-goods suppliers to breach exclusive supply agreements with Vantor. According to Vantor's allegations, this campaign was conducted in connection with an internal Cascade supplier diversification initiative known as "Project Atlas," which was launched in or around February 2021. Vantor contends that Project Atlas specifically targeted suppliers that had existing exclusive relationships with Vantor, and that Cascade's agents and employees deliberately offered these suppliers significantly more favorable financial terms and longer contract durations in order to entice them to abandon their contractual obligations to Vantor.

The three supplier relationships at issue are described in detail below:

Hemsworth Consumer Products LLC. Hemsworth Consumer Products LLC ("Hemsworth") is an Oregon limited liability company with its principal place of business at 4720 NW Yeon Avenue, Portland, Oregon 97210. Janet Kohler serves as Hemsworth's Chief Executive Officer. Hemsworth manufactures and distributes home goods and kitchen accessories. Hemsworth entered into an exclusive supply agreement with Vantor on March 15, 2019, for a three-year term expiring on March 14, 2022. Under the terms of the Vantor-Hemsworth agreement, Vantor committed to a minimum annual purchase commitment of $12.5 million. The complaint alleges that, notwithstanding Hemsworth's existing exclusive arrangement with Vantor, Cascade entered into a new supply agreement with Hemsworth on or about June 1, 2021. The Cascade-Hemsworth agreement allegedly carries a five-year term and a minimum annual purchase commitment of $28.0 million — more than double the annual value of the Vantor arrangement.

Tridale Manufacturing Inc. Tridale Manufacturing Inc. ("Tridale") is a Nevada corporation with its principal place of business at 6300 South Pecos Road, Suite 210, Las Vegas, Nevada 89120. Gregory Fontaine serves as Tridale's President. Tridale manufactures consumer electronics accessories. Tridale entered into an exclusive supply agreement with Vantor on January 10, 2020, for a two-year term expiring on January 9, 2022. Under the terms of the Vantor-Tridale agreement, Vantor committed to a minimum annual purchase commitment of $8.3 million. The complaint alleges that Cascade entered into a new supply agreement with Tridale on or about August 15, 2021. The Cascade-Tridale agreement allegedly carries a three-year term and a minimum annual purchase commitment of $19.5 million — approximately 2.3 times the annual value of the Vantor arrangement.

Orion Lifestyle Brands Corp. Orion Lifestyle Brands Corp. ("Orion") is a California corporation with its principal place of business at 1900 Avenue of the Stars, Suite 1050, Los Angeles, California 90067. Simone Alvarez serves as Orion's Chief Executive Officer. Orion manufactures and distributes personal care and wellness products. Orion entered into an exclusive supply agreement with Vantor on July 1, 2018, for a four-year term expiring on June 30, 2022. Under the terms of the Vantor-Orion agreement, Vantor committed to a minimum annual purchase commitment of $14.6 million. The complaint alleges that Cascade entered into a new supply agreement with Orion on or about May 10, 2021. The Cascade-Orion agreement allegedly carries a four-year term and a minimum annual purchase commitment of $31.0 million — more than double the annual value of the Vantor arrangement.

Vantor contends that Cascade's actions were taken with full knowledge of the exclusive supply agreements between Vantor and each of the three suppliers, and that Cascade deliberately structured its competing offers to provide financial incentives that made it economically impracticable for the suppliers to honor their existing obligations to Vantor.

2.4 Causes of Action

The complaint asserts three causes of action against Cascade:

First Cause of Action: Tortious Interference with Contractual Relations. Vantor alleges that Cascade had knowledge of the valid and existing exclusive supply agreements between Vantor and each of Hemsworth, Tridale, and Orion; that Cascade intentionally and unjustifiably induced, encouraged, and caused each of those suppliers to breach their respective exclusive supply agreements with Vantor; that the suppliers in fact breached their agreements with Vantor by entering into competing supply arrangements with Cascade; and that Vantor suffered substantial damages as a direct and proximate result of those breaches.

Second Cause of Action: Tortious Interference with Prospective Economic Advantage. Vantor alleges that, independent of the existing contractual relationships, Vantor had a reasonable expectation of continued, renewed, and expanded business relationships with Hemsworth, Tridale, and Orion beyond the initial terms of their respective exclusive supply agreements. Vantor contends that Cascade engaged in independently wrongful conduct that disrupted and destroyed these prospective economic relationships, depriving Vantor of the benefit of future supply arrangements that it would have otherwise secured.

Third Cause of Action: Unfair Business Practices (Cal. Bus. & Prof. Code § 17200 *et seq.*). Vantor alleges that Cascade's systematic supplier-poaching campaign, as described in the complaint, constitutes an unfair, unlawful, and/or fraudulent business practice within the meaning of California Business and Professions Code Section 17200. Vantor seeks injunctive relief and restitution under this statutory cause of action in addition to the damages sought under the tort claims.

2.5 Damages Claimed

Vantor claims total damages in the amount of $87.4 million, broken down by supplier relationship as follows:

Each lost-profits figure is based on Vantor's projection of the revenue stream it would have derived from the respective supplier relationship over the projection period indicated, discounted to present value at a rate of 8.5%. As noted above, Vantor also seeks injunctive relief and restitution under its Section 17200 claim. The complaint does not specify a separate monetary amount for the statutory claim, but to the extent the court awards restitution, the total exposure could exceed the $87.4 million figure.

3. Cascade's Preliminary Defenses

In order to assist Pinnacle in evaluating coverage and the nature of the underlying claims, we provide the following brief summary of Cascade's anticipated defense theories. These theories are preliminary and subject to refinement as discovery proceeds:

(a) Lack of Knowledge. Cascade contends that, at the time it entered into its supply agreements with Hemsworth, Tridale, and Orion, Cascade did not have actual knowledge of the exclusivity provisions contained in Vantor's respective supply agreements with those entities. Cascade's negotiations with the three suppliers were conducted through Cascade's standard procurement channels, and the suppliers did not disclose the existence or terms of their exclusive arrangements with Vantor during the course of those negotiations.

(b) Independent Supplier Choice. The three suppliers independently chose to enter into supply agreements with Cascade based on their own assessment of their business interests. Cascade did not employ any inducement, coercion, or improper means to cause the suppliers to breach their agreements with Vantor. The suppliers were free to evaluate competing business opportunities, and they exercised their independent business judgment in choosing to contract with Cascade.

(c) Termination-for-Convenience Clauses. Each of the Vantor exclusive supply agreements at issue contained a termination-for-convenience clause, permitting either party to terminate the agreement upon advance written notice. Specifically, the Hemsworth agreement required 90 days' notice, the Tridale agreement required 60 days' notice, and the Orion agreement required 120 days' notice. It is Cascade's understanding, based on preliminary investigation, that each of the three suppliers exercised its termination-for-convenience right and provided the required notice to Vantor prior to entering into its agreement with Cascade. Accordingly, the suppliers' agreements with Vantor were lawfully terminated before the suppliers contracted with Cascade, and no breach occurred.

(d) Failure to Mitigate. Vantor failed to take reasonable steps to mitigate its damages by seeking alternative suppliers for the products previously supplied by Hemsworth, Tridale, and Orion. The consumer-goods categories at issue — home goods and kitchen accessories, consumer electronics accessories, and personal care and wellness products — are served by numerous manufacturers and distributors, and Vantor had reasonable opportunities to secure substitute supply relationships.

(e) Duplicative Statutory Claim. The Section 17200 claim is duplicative of, and entirely derivative of, the tortious interference claims. It adds no independent factual basis and is subject to dismissal or, at a minimum, should not be permitted to expand Vantor's recovery beyond the damages available under its tort theories.

Cascade intends to file its answer and affirmative defenses within the time permitted by applicable law following service of the summons and complaint. We will provide Pinnacle with a copy of Cascade's responsive pleading promptly upon filing.

4. Coverage Request

4.1 Defense Costs

Cascade hereby formally requests that Pinnacle National Insurance Co. provide coverage for defense costs incurred in connection with the defense of Vantor Holdings Corp. v. Cascade Retail Holdings Inc., Case No. 21STCV-34872, under CGL Policy No. PNG-CGL-2021-04487.

Defense of the matter is being conducted by Calderwood & Harkness LLP. The current members of the defense team, and their respective billing rates, are as follows:

In addition to the Calderwood & Harkness defense team, Cascade may engage supplemental local counsel to assist with California-specific procedural matters. Should supplemental local counsel be retained, Cascade anticipates engaging Wortham & Adair LLP, located at 611 West Sixth Street, Suite 2400, Los Angeles, California 90017, with Diana Prescott, Partner, serving as lead local counsel.

Cascade also anticipates that electronic discovery services will be required given the volume of documents and communications likely to be at issue in this litigation, including communications between Cascade's procurement team and the three supplier entities, as well as internal Cascade documents relating to Project Atlas. E-discovery services may be provided by Krane Investigations LLC, located at 333 South Hope Street, Suite 1600, Los Angeles, California 90071, with Samuel Byrd serving as Project Manager.

Further, Cascade anticipates that expert witnesses will need to be retained in connection with damages analysis, lost-profits modeling, and potentially industry-standard business practices. We will provide Pinnacle with the identity and engagement terms of any retained experts as that information becomes available.

Cascade requests that Pinnacle confirm its willingness to cover the defense costs described herein and advise us of any billing guidelines, reporting requirements, or prior-approval procedures that the Carrier requires defense counsel to follow.

4.2 Indemnity and Settlement Coverage

In addition to defense costs, Cascade requests that Pinnacle evaluate and confirm potential indemnity coverage for any settlement or adverse judgment that may arise from the claims asserted in this litigation.

We draw the Carrier's attention to the nature of the causes of action pleaded in the complaint. While the claims are denominated as tortious interference and unfair business practices, we respectfully submit that the underlying conduct alleged — namely, Cascade's alleged solicitation and procurement of supplier relationships through competitive commercial offerings — may fall within the scope of the Policy's "personal and advertising injury" coverage provisions, or other applicable coverage parts. Specifically, the complaint's allegations that Cascade's Project Atlas initiative systematically targeted Vantor's supplier relationships may implicate coverage for certain enumerated offenses under the personal and advertising injury coverage, including but not limited to offenses arising from the publication or utterance of material that disparages a person's or organization's goods, products, or services, or conduct that constitutes an infringement upon another's right in connection with trade or business.

We request that Pinnacle undertake a thorough analysis of all potentially applicable coverage provisions, endorsements, and extensions within the Policy in connection with its evaluation of indemnity coverage.

4.3 Reservation of Rights

Cascade requests that, if Pinnacle is unable to issue a prompt and unconditional acceptance of coverage, the Carrier provide a detailed reservation of rights letter that specifically identifies each and every coverage defense, exclusion, condition, or limitation upon which Pinnacle intends to rely in connection with this claim. Any reservation of rights letter should identify the specific Policy provisions at issue and explain the factual and legal basis for each asserted coverage defense.

Cascade expressly reserves all of its rights under the Policy, including but not limited to its right to select and retain its own defense counsel. Cascade does not waive, and shall not be deemed to have waived, any coverage rights by proceeding with its own choice of counsel, by incurring defense costs prior to receiving a coverage determination from Pinnacle, or by any other action taken in connection with the defense of this litigation. Nothing in this letter or in any subsequent communication shall be construed as an admission by Cascade of any fact, liability, or coverage limitation, or as a waiver of any right, remedy, or defense available to Cascade under the Policy, at law, or in equity.

5. Request for Prompt Response

Given the significant exposure at issue in this matter — $87.4 million in claimed damages, exclusive of potential statutory restitution and injunctive relief — and the aggressive litigation timeline that we anticipate will be imposed by the court, we respectfully request that Pinnacle respond promptly to this notice of claim.

Specifically, we request the following:

(a) Written Acknowledgment. Written acknowledgment of receipt of this notice within ten (10) business days of the date of this letter — i.e., no later than October 4, 2021.

(b) Coverage Determination. A coverage determination or, if necessary, a detailed reservation of rights letter within thirty (30) days of the date of this letter — i.e., no later than October 20, 2021.

Timely cooperation and a prompt coverage determination are essential to ensure that Cascade's interests are adequately protected in this litigation. We anticipate that the court will set an initial case management conference within approximately 45 days of service of the complaint, and that discovery will commence shortly thereafter. Early clarity on coverage will allow defense counsel to appropriately staff the matter, develop a litigation strategy, and manage defense costs in a manner that serves the interests of both the insured and the Carrier.

Should you require any additional information or documentation in connection with your evaluation of this claim, please do not hesitate to contact the undersigned at the address, telephone number, or email address set forth above. We will respond promptly to any such requests.

6. Enclosures

The following documents are enclosed with this letter for Pinnacle's review and records:

1. Copy of the Complaint filed September 7, 2021, in Vantor Holdings Corp. v. Cascade Retail Holdings Inc., Case No. 21STCV-34872, Superior Court of the State of California, County of Los Angeles (including all exhibits attached thereto);

2. Copy of Commercial General Liability Policy No. PNG-CGL-2021-04487 issued by Pinnacle National Insurance Co. to Cascade Retail Holdings Inc. (Cascade's copy, including all endorsements, schedules, and declarations pages); and

3. Copy of the Calderwood & Harkness LLP engagement letter dated September 13, 2021, between Calderwood & Harkness LLP and Cascade Retail Holdings Inc.

We thank you for your prompt attention to this matter and look forward to receiving your timely response.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Douglas Carmichael, Partner 600 South Grand Avenue, Suite 3200 Los Angeles, California 90071 Telephone: (213) 555-8200

Email: dcarmichael@calderwoodharkness.com

cc:

David Pruitt, General Counsel & Corporate Secretary, Cascade Retail Holdings Inc., 2200 Elliott Avenue West, Suite 1400, Seattle, WA 98119

Francesca Morano, Partner, Calderwood & Harkness LLP, 600 South Grand Avenue, Suite 3200, Los Angeles, CA 90071

Yuki Nakamura, Senior Associate, Calderwood & Harkness LLP, 600 South Grand Avenue, Suite 3200, Los Angeles, CA 90071

Enclosures (3)

Supplier Relationship	Claimed Lost Profits	Projection Period	Discount Rate
Hemsworth Consumer Products LLC	$34,200,000	5 years	8.5%
Tridale Manufacturing Inc.	$22,800,000	4 years	8.5%
Orion Lifestyle Brands Corp.	$30,400,000	6 years	8.5%
Total Claimed Damages	$87,400,000
Attorney	Position	Billing Rate
Douglas Carmichael	Partner (Responsible Partner)	$1,150/hour
Francesca Morano	Partner (Billing Partner)	$1,050/hour
Yuki Nakamura	Senior Associate	$725/hour
Carlos Espinoza	Associate	$575/hour

CALDERWOOD & HARKNESS LLP Attorneys at Law 600 South Grand Avenue, Suite 3200 Los Angeles, California 90071 Telephone: (213) 555-8200 Facsimile: (213) 555-8201 www.calderwoodharkness.com
September 20, 2021
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND VIA ELECTRONIC MAIL (lfurman@pinnacleni.com)
Leonard Furman Senior Claims Adjuster Pinnacle National Insurance Co. 120 Broadway, Suite 3500 New York, New York 10271
Re: Notice of Claim Under Commercial General Liability Policy No. PNG-CGL-2021-04487
Insured: Cascade Retail Holdings Inc.
Claim: Vantor Holdings Corp. v. Cascade Retail Holdings Inc., Case No. 21STCV-34872, Superior Court of the State of California, County of Los Angeles
Dear Mr. Furman:
1. Purpose and Identification of Counsel
This firm, Calderwood & Harkness LLP, has been retained as defense counsel for Cascade Retail Holdings Inc. ("Cascade" or "CRH"), a Delaware corporation headquartered at 2200 Elliott Avenue West, Suite 1400, Seattle, Washington 98119, and publicly traded on the Nasdaq Stock Market under the ticker symbol "CRHI." We write on behalf of our client to provide formal notice of a claim under Cascade's Commercial General Liability policy, Policy No. PNG-CGL-2021-04487 (the "Policy"), issued by Pinnacle National Insurance Co. ("Pinnacle" or the "Carrier").
Calderwood & Harkness LLP was engaged by Cascade on September 13, 2021, to serve as lead defense counsel in the above-referenced litigation. The engagement was opened under firm matter number 1038-00007. Douglas Carmichael, Partner, serves as the responsible partner on this matter. Francesca Morano, Partner, serves as the billing partner. Both Mr. Carmichael and Ms. Morano are based in the firm's Los Angeles office.
We respectfully request that all correspondence, communications, and notices regarding this claim, including but not limited to any coverage determination, reservation of rights letter, or other response from Pinnacle, be directed to the undersigned at the following address:
Douglas Carmichael, Partner Calderwood & Harkness LLP 600 South Grand Avenue, Suite 3200 Los Angeles, California 90071 Telephone: (213) 555-8200
Email: dcarmichael@calderwoodharkness.com
This letter constitutes Cascade's formal and timely notice of the claim described below, in accordance with the terms and conditions of the Policy, and is intended to preserve all of Cascade's rights to coverage thereunder.
2. Description of the Lawsuit
2.1 Filing and Service
On September 7, 2021, Vantor Holdings Corp. ("Vantor"), a California corporation headquartered at 18500 Von Karman Avenue, Suite 600, Irvine, California 92612, filed a civil complaint against Cascade in the Superior Court of the State of California, County of Los Angeles. The matter has been assigned Case No. 21STCV-34872 and is pending before the Honorable Judge assigned to that department.
As of the date of this letter, Cascade has not yet been formally served with the summons and complaint. However, Cascade became aware of the filing of the complaint through independent channels and anticipates that service will occur imminently. We are sending this notice in advance of service in order to ensure that Pinnacle receives the earliest possible notice of the claim and has the maximum amount of time to evaluate coverage. Upon receipt of formal service, we will promptly supplement this notice with confirmation of the date of service and the resulting deadline for Cascade's responsive pleading.
Vantor is represented in the litigation by the law firm of Kessler, Brandt & Whitfield LLP, located at 1999 Avenue of the Stars, Suite 2800, Los Angeles, California 90067. Martin Kessler, Esq. and Natalie Whitfield, Esq. serve as lead counsel for Vantor in the matter.
2.2 Parties. Plaintiff — Vantor Holdings Corp. Vantor is a privately held wholesale distribution and specialty retail company. Based on publicly available information and the allegations in the complaint, Vantor generates approximately $1.1 billion in annual revenue (fiscal year 2021) and operates approximately 85 retail locations across the states of California, Arizona, Nevada, and Oregon. Vantor was founded by, and is currently led by, Richard "Rick" Ellsworth, who serves as its Chief Executive Officer. Vantor's business model centers on maintaining exclusive relationships with a curated group of consumer-goods suppliers and distributing those products through its retail network and wholesale channels.
Defendant — Cascade Retail Holdings Inc. Cascade is a multi-channel retail and e-commerce company with approximately $6.8 billion in annual revenue (fiscal year 2021). As of September 2021, Cascade's market capitalization is approximately $14.2 billion. Cascade operates more than 340 retail locations across 22 states and maintains a significant online sales presence. Margaret Prumvane serves as Cascade's Chief Executive Officer and President. David Pruitt serves as General Counsel and Corporate Secretary. Cascade's business encompasses a broad range of consumer product categories, including home goods, consumer electronics accessories, and personal care and wellness products — the categories at issue in this litigation.
2.3 Summary of Allegations
The complaint alleges that Cascade engaged in a systematic campaign to induce three of Vantor's key consumer-goods suppliers to breach exclusive supply agreements with Vantor. According to Vantor's allegations, this campaign was conducted in connection with an internal Cascade supplier diversification initiative known as "Project Atlas," which was launched in or around February 2021. Vantor contends that Project Atlas specifically targeted suppliers that had existing exclusive relationships with Vantor, and that Cascade's agents and employees deliberately offered these suppliers significantly more favorable financial terms and longer contract durations in order to entice them to abandon their contractual obligations to Vantor.
The three supplier relationships at issue are described in detail below:
Hemsworth Consumer Products LLC. Hemsworth Consumer Products LLC ("Hemsworth") is an Oregon limited liability company with its principal place of business at 4720 NW Yeon Avenue, Portland, Oregon 97210. Janet Kohler serves as Hemsworth's Chief Executive Officer. Hemsworth manufactures and distributes home goods and kitchen accessories. Hemsworth entered into an exclusive supply agreement with Vantor on March 15, 2019, for a three-year term expiring on March 14, 2022. Under the terms of the Vantor-Hemsworth agreement, Vantor committed to a minimum annual purchase commitment of $12.5 million. The complaint alleges that, notwithstanding Hemsworth's existing exclusive arrangement with Vantor, Cascade entered into a new supply agreement with Hemsworth on or about June 1, 2021. The Cascade-Hemsworth agreement allegedly carries a five-year term and a minimum annual purchase commitment of $28.0 million — more than double the annual value of the Vantor arrangement.
Tridale Manufacturing Inc. Tridale Manufacturing Inc. ("Tridale") is a Nevada corporation with its principal place of business at 6300 South Pecos Road, Suite 210, Las Vegas, Nevada 89120. Gregory Fontaine serves as Tridale's President. Tridale manufactures consumer electronics accessories. Tridale entered into an exclusive supply agreement with Vantor on January 10, 2020, for a two-year term expiring on January 9, 2022. Under the terms of the Vantor-Tridale agreement, Vantor committed to a minimum annual purchase commitment of $8.3 million. The complaint alleges that Cascade entered into a new supply agreement with Tridale on or about August 15, 2021. The Cascade-Tridale agreement allegedly carries a three-year term and a minimum annual purchase commitment of $19.5 million — approximately 2.3 times the annual value of the Vantor arrangement.
Orion Lifestyle Brands Corp. Orion Lifestyle Brands Corp. ("Orion") is a California corporation with its principal place of business at 1900 Avenue of the Stars, Suite 1050, Los Angeles, California 90067. Simone Alvarez serves as Orion's Chief Executive Officer. Orion manufactures and distributes personal care and wellness products. Orion entered into an exclusive supply agreement with Vantor on July 1, 2018, for a four-year term expiring on June 30, 2022. Under the terms of the Vantor-Orion agreement, Vantor committed to a minimum annual purchase commitment of $14.6 million. The complaint alleges that Cascade entered into a new supply agreement with Orion on or about May 10, 2021. The Cascade-Orion agreement allegedly carries a four-year term and a minimum annual purchase commitment of $31.0 million — more than double the annual value of the Vantor arrangement.
Vantor contends that Cascade's actions were taken with full knowledge of the exclusive supply agreements between Vantor and each of the three suppliers, and that Cascade deliberately structured its competing offers to provide financial incentives that made it economically impracticable for the suppliers to honor their existing obligations to Vantor.
2.4 Causes of Action
The complaint asserts three causes of action against Cascade:
First Cause of Action: Tortious Interference with Contractual Relations. Vantor alleges that Cascade had knowledge of the valid and existing exclusive supply agreements between Vantor and each of Hemsworth, Tridale, and Orion; that Cascade intentionally and unjustifiably induced, encouraged, and caused each of those suppliers to breach their respective exclusive supply agreements with Vantor; that the suppliers in fact breached their agreements with Vantor by entering into competing supply arrangements with Cascade; and that Vantor suffered substantial damages as a direct and proximate result of those breaches.
Second Cause of Action: Tortious Interference with Prospective Economic Advantage. Vantor alleges that, independent of the existing contractual relationships, Vantor had a reasonable expectation of continued, renewed, and expanded business relationships with Hemsworth, Tridale, and Orion beyond the initial terms of their respective exclusive supply agreements. Vantor contends that Cascade engaged in independently wrongful conduct that disrupted and destroyed these prospective economic relationships, depriving Vantor of the benefit of future supply arrangements that it would have otherwise secured.
Third Cause of Action: Unfair Business Practices (Cal. Bus. & Prof. Code § 17200 *et seq.*). Vantor alleges that Cascade's systematic supplier-poaching campaign, as described in the complaint, constitutes an unfair, unlawful, and/or fraudulent business practice within the meaning of California Business and Professions Code Section 17200. Vantor seeks injunctive relief and restitution under this statutory cause of action in addition to the damages sought under the tort claims.
2.5 Damages Claimed
Vantor claims total damages in the amount of $87.4 million, broken down by supplier relationship as follows:
Each lost-profits figure is based on Vantor's projection of the revenue stream it would have derived from the respective supplier relationship over the projection period indicated, discounted to present value at a rate of 8.5%. As noted above, Vantor also seeks injunctive relief and restitution under its Section 17200 claim. The complaint does not specify a separate monetary amount for the statutory claim, but to the extent the court awards restitution, the total exposure could exceed the $87.4 million figure.
3. Cascade's Preliminary Defenses
In order to assist Pinnacle in evaluating coverage and the nature of the underlying claims, we provide the following brief summary of Cascade's anticipated defense theories. These theories are preliminary and subject to refinement as discovery proceeds:
(a) Lack of Knowledge. Cascade contends that, at the time it entered into its supply agreements with Hemsworth, Tridale, and Orion, Cascade did not have actual knowledge of the exclusivity provisions contained in Vantor's respective supply agreements with those entities. Cascade's negotiations with the three suppliers were conducted through Cascade's standard procurement channels, and the suppliers did not disclose the existence or terms of their exclusive arrangements with Vantor during the course of those negotiations.
(b) Independent Supplier Choice. The three suppliers independently chose to enter into supply agreements with Cascade based on their own assessment of their business interests. Cascade did not employ any inducement, coercion, or improper means to cause the suppliers to breach their agreements with Vantor. The suppliers were free to evaluate competing business opportunities, and they exercised their independent business judgment in choosing to contract with Cascade.
(c) Termination-for-Convenience Clauses. Each of the Vantor exclusive supply agreements at issue contained a termination-for-convenience clause, permitting either party to terminate the agreement upon advance written notice. Specifically, the Hemsworth agreement required 90 days' notice, the Tridale agreement required 60 days' notice, and the Orion agreement required 120 days' notice. It is Cascade's understanding, based on preliminary investigation, that each of the three suppliers exercised its termination-for-convenience right and provided the required notice to Vantor prior to entering into its agreement with Cascade. Accordingly, the suppliers' agreements with Vantor were lawfully terminated before the suppliers contracted with Cascade, and no breach occurred.
(d) Failure to Mitigate. Vantor failed to take reasonable steps to mitigate its damages by seeking alternative suppliers for the products previously supplied by Hemsworth, Tridale, and Orion. The consumer-goods categories at issue — home goods and kitchen accessories, consumer electronics accessories, and personal care and wellness products — are served by numerous manufacturers and distributors, and Vantor had reasonable opportunities to secure substitute supply relationships.
(e) Duplicative Statutory Claim. The Section 17200 claim is duplicative of, and entirely derivative of, the tortious interference claims. It adds no independent factual basis and is subject to dismissal or, at a minimum, should not be permitted to expand Vantor's recovery beyond the damages available under its tort theories.
Cascade intends to file its answer and affirmative defenses within the time permitted by applicable law following service of the summons and complaint. We will provide Pinnacle with a copy of Cascade's responsive pleading promptly upon filing.
4. Coverage Request
4.1 Defense Costs
Cascade hereby formally requests that Pinnacle National Insurance Co. provide coverage for defense costs incurred in connection with the defense of Vantor Holdings Corp. v. Cascade Retail Holdings Inc., Case No. 21STCV-34872, under CGL Policy No. PNG-CGL-2021-04487.
Defense of the matter is being conducted by Calderwood & Harkness LLP. The current members of the defense team, and their respective billing rates, are as follows:
In addition to the Calderwood & Harkness defense team, Cascade may engage supplemental local counsel to assist with California-specific procedural matters. Should supplemental local counsel be retained, Cascade anticipates engaging Wortham & Adair LLP, located at 611 West Sixth Street, Suite 2400, Los Angeles, California 90017, with Diana Prescott, Partner, serving as lead local counsel.
Cascade also anticipates that electronic discovery services will be required given the volume of documents and communications likely to be at issue in this litigation, including communications between Cascade's procurement team and the three supplier entities, as well as internal Cascade documents relating to Project Atlas. E-discovery services may be provided by Krane Investigations LLC, located at 333 South Hope Street, Suite 1600, Los Angeles, California 90071, with Samuel Byrd serving as Project Manager.
Further, Cascade anticipates that expert witnesses will need to be retained in connection with damages analysis, lost-profits modeling, and potentially industry-standard business practices. We will provide Pinnacle with the identity and engagement terms of any retained experts as that information becomes available.
Cascade requests that Pinnacle confirm its willingness to cover the defense costs described herein and advise us of any billing guidelines, reporting requirements, or prior-approval procedures that the Carrier requires defense counsel to follow.
4.2 Indemnity and Settlement Coverage
In addition to defense costs, Cascade requests that Pinnacle evaluate and confirm potential indemnity coverage for any settlement or adverse judgment that may arise from the claims asserted in this litigation.
We draw the Carrier's attention to the nature of the causes of action pleaded in the complaint. While the claims are denominated as tortious interference and unfair business practices, we respectfully submit that the underlying conduct alleged — namely, Cascade's alleged solicitation and procurement of supplier relationships through competitive commercial offerings — may fall within the scope of the Policy's "personal and advertising injury" coverage provisions, or other applicable coverage parts. Specifically, the complaint's allegations that Cascade's Project Atlas initiative systematically targeted Vantor's supplier relationships may implicate coverage for certain enumerated offenses under the personal and advertising injury coverage, including but not limited to offenses arising from the publication or utterance of material that disparages a person's or organization's goods, products, or services, or conduct that constitutes an infringement upon another's right in connection with trade or business.
We request that Pinnacle undertake a thorough analysis of all potentially applicable coverage provisions, endorsements, and extensions within the Policy in connection with its evaluation of indemnity coverage.
4.3 Reservation of Rights
Cascade requests that, if Pinnacle is unable to issue a prompt and unconditional acceptance of coverage, the Carrier provide a detailed reservation of rights letter that specifically identifies each and every coverage defense, exclusion, condition, or limitation upon which Pinnacle intends to rely in connection with this claim. Any reservation of rights letter should identify the specific Policy provisions at issue and explain the factual and legal basis for each asserted coverage defense.
Cascade expressly reserves all of its rights under the Policy, including but not limited to its right to select and retain its own defense counsel. Cascade does not waive, and shall not be deemed to have waived, any coverage rights by proceeding with its own choice of counsel, by incurring defense costs prior to receiving a coverage determination from Pinnacle, or by any other action taken in connection with the defense of this litigation. Nothing in this letter or in any subsequent communication shall be construed as an admission by Cascade of any fact, liability, or coverage limitation, or as a waiver of any right, remedy, or defense available to Cascade under the Policy, at law, or in equity.
5. Request for Prompt Response
Given the significant exposure at issue in this matter — $87.4 million in claimed damages, exclusive of potential statutory restitution and injunctive relief — and the aggressive litigation timeline that we anticipate will be imposed by the court, we respectfully request that Pinnacle respond promptly to this notice of claim.
Specifically, we request the following:
(a) Written Acknowledgment. Written acknowledgment of receipt of this notice within ten (10) business days of the date of this letter — i.e., no later than October 4, 2021.
(b) Coverage Determination. A coverage determination or, if necessary, a detailed reservation of rights letter within thirty (30) days of the date of this letter — i.e., no later than October 20, 2021.
Timely cooperation and a prompt coverage determination are essential to ensure that Cascade's interests are adequately protected in this litigation. We anticipate that the court will set an initial case management conference within approximately 45 days of service of the complaint, and that discovery will commence shortly thereafter. Early clarity on coverage will allow defense counsel to appropriately staff the matter, develop a litigation strategy, and manage defense costs in a manner that serves the interests of both the insured and the Carrier.
Should you require any additional information or documentation in connection with your evaluation of this claim, please do not hesitate to contact the undersigned at the address, telephone number, or email address set forth above. We will respond promptly to any such requests.
6. Enclosures
The following documents are enclosed with this letter for Pinnacle's review and records:
1. Copy of the Complaint filed September 7, 2021, in Vantor Holdings Corp. v. Cascade Retail Holdings Inc., Case No. 21STCV-34872, Superior Court of the State of California, County of Los Angeles (including all exhibits attached thereto);
2. Copy of Commercial General Liability Policy No. PNG-CGL-2021-04487 issued by Pinnacle National Insurance Co. to Cascade Retail Holdings Inc. (Cascade's copy, including all endorsements, schedules, and declarations pages); and
3. Copy of the Calderwood & Harkness LLP engagement letter dated September 13, 2021, between Calderwood & Harkness LLP and Cascade Retail Holdings Inc.
We thank you for your prompt attention to this matter and look forward to receiving your timely response.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Douglas Carmichael, Partner 600 South Grand Avenue, Suite 3200 Los Angeles, California 90071 Telephone: (213) 555-8200
Email: dcarmichael@calderwoodharkness.com
cc:
David Pruitt, General Counsel & Corporate Secretary, Cascade Retail Holdings Inc., 2200 Elliott Avenue West, Suite 1400, Seattle, WA 98119
Francesca Morano, Partner, Calderwood & Harkness LLP, 600 South Grand Avenue, Suite 3200, Los Angeles, CA 90071
Yuki Nakamura, Senior Associate, Calderwood & Harkness LLP, 600 South Grand Avenue, Suite 3200, Los Angeles, CA 90071
Enclosures (3)
Supplier Relationship | Claimed Lost Profits | Projection Period | Discount Rate
Hemsworth Consumer Products LLC | $34,200,000 | 5 years | 8.5%
Tridale Manufacturing Inc. | $22,800,000 | 4 years | 8.5%
Orion Lifestyle Brands Corp. | $30,400,000 | 6 years | 8.5%
Total Claimed Damages | $87,400,000
Attorney | Position | Billing Rate
Douglas Carmichael | Partner (Responsible Partner) | $1,150/hour
Francesca Morano | Partner (Billing Partner) | $1,050/hour
Yuki Nakamura | Senior Associate | $725/hour
Carlos Espinoza | Associate | $575/hour

CALDERWOOD & HARKNESS LLP

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