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CALDERWOOD & HARKNESS LLP Attorneys at Law
600 South Grand Avenue, Suite 3200 Los Angeles, California 90071 Telephone: (213) 555-8400 Facsimile: (213) 555-8401
MEMORANDUM
May 8, 2023
TO: David Pruitt, General Counsel & Corporate Secretary, Cascade Retail Holdings Inc. Margaret Prumvane, CEO & President, Cascade Retail Holdings Inc.
FROM: Douglas Carmichael, Partner, Calderwood & Harkness LLP Francesca Morano, Partner, Calderwood & Harkness LLP
RE: Settlement Recommendation — Vantor Holdings Corp. v. Cascade Retail Holdings Inc., Case No. 21STCV-34872 (Superior Court of California, County of Los Angeles)
C&H MATTER NO.: 1038-00007
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I. EXECUTIVE SUMMARY AND RECOMMENDATION
The purpose of this memorandum is to recommend that Cascade Retail Holdings Inc. ("Cascade" or the "Company") accept a negotiated settlement in the amount of $14,750,000 to resolve all remaining claims asserted by Vantor Holdings Corp. ("Vantor") in Vantor Holdings Corp. v. Cascade Retail Holdings Inc., Case No. 21STCV-34872, pending in the Superior Court of California, County of Los Angeles (the "Litigation"). This recommendation is based upon our comprehensive assessment of litigation risk, a thorough cost-benefit analysis, and the favorable non-monetary terms that have been negotiated during the course of settlement discussions between counsel for the respective parties.
The proposed settlement amount of $14,750,000 represents an approximately 83% reduction from Vantor's total claimed damages of $87,400,000, as set forth in the expert report of Dr. Harold Pryce of Meridian Forensic Economics LLC. While the settlement figure falls modestly above the upper end of Cascade's rebuttal damages range of $6,100,000 to $11,300,000 — as calculated by Dr. Vivian Ostrowski of Archer & Colvin Consulting Group — it reflects a reasonable compromise when the full spectrum of trial risks, uncertainties, and additional litigation costs are taken into account.
Importantly, Cascade's net out-of-pocket settlement obligation is expected to be substantially less than the headline figure. Pinnacle National Insurance Co. ("Pinnacle") has agreed in principle to contribute $6,250,000 toward the settlement amount under commercial general liability policy PNG-CGL-2021-04487, reducing Cascade's direct settlement payment to approximately $8,500,000. When this net settlement cost is combined with Cascade's estimated net defense costs of $3,742,400 (after anticipated insurance reimbursement of $2,150,000), the total economic impact to the Company is approximately $18,492,400.
In context, this total economic impact is immaterial to Cascade's financial position. Against the Company's fiscal year 2021 annual revenue of approximately $6.8 billion and approximate market capitalization of $14.2 billion as of September 2021, the total economic impact represents less than 0.3% of annual revenue and approximately 0.13% of market capitalization. We anticipate that Cascade's financial and accounting advisors will reach a similar conclusion regarding materiality, though that determination ultimately rests with the Company's CFO and outside auditors.
Beyond the financial considerations, the proposed settlement eliminates the uncertainty and risk inherent in a jury trial — including the possibility of an adverse verdict, adverse publicity, and the potential for a damages award at or above the high end of realistic exposure estimates. The settlement imposes no injunctive relief and no restrictions of any kind on Cascade's future supplier relationships, including its existing agreements with Hemsworth Consumer Products LLC, Tridale Manufacturing Inc., and Orion Lifestyle Brands Corp. — thereby preserving the full strategic value of the Company's Project Atlas initiative. Additionally, the settlement includes a mutual non-admission of liability, mutual release, confidentiality provisions, and mutual non-disparagement obligations, each of which serves Cascade's interests.
For the reasons detailed in this memorandum, we strongly recommend that Cascade authorize the settlement at $14,750,000 and direct Calderwood & Harkness to finalize the Settlement Agreement and Mutual Release for execution.
II. PROCEDURAL HISTORY AND CURRENT POSTURE
A. Background of the Litigation
Vantor Holdings Corp. commenced this action by filing a complaint against Cascade Retail Holdings Inc. on September 7, 2021, in the Superior Court of California, County of Los Angeles. The complaint arose out of Cascade's acquisition of supply relationships with three consumer products companies — Hemsworth Consumer Products LLC ("Hemsworth"), Tridale Manufacturing Inc. ("Tridale"), and Orion Lifestyle Brands Corp. ("Orion") — that had previously maintained exclusive supply agreements with Vantor. Cascade's internal initiative to diversify and expand its supplier base, referred to internally as "Project Atlas," served as the factual predicate for Vantor's claims.
Cascade was served with the summons and complaint on September 28, 2021. Calderwood & Harkness LLP was engaged to represent Cascade in connection with this matter and opened the file on September 13, 2021, following an initial consultation with David Pruitt regarding the anticipated litigation. Cascade filed its Answer and Affirmative Defenses on October 18, 2021, asserting, among other defenses, that Cascade had no actual knowledge of the exclusivity provisions in Vantor's supplier agreements, that all three suppliers independently and voluntarily exercised contractual termination-for-convenience rights prior to entering into agreements with Cascade, and that Cascade's competitive solicitation of the suppliers was lawful and privileged.
The initial case management conference was held before the Honorable Katherine H. Yamada on November 5, 2021, at which time the parties presented their respective case management statements. The Court entered its scheduling order on January 14, 2022, establishing deadlines for fact discovery, expert discovery, dispositive motions, and trial.
Over the ensuing months, the parties engaged in extensive discovery, including the production of more than 187,000 documents, the review and production of electronically stored information in connection with over 30 custodians, and the completion of nine fact depositions and two expert depositions. The e-discovery effort was managed in conjunction with Krane Investigations LLC, which assisted Calderwood & Harkness in the collection, processing, and review of electronic data.
B. Claims at Issue
Vantor's complaint originally asserted three causes of action against Cascade:
1. Tortious Interference with Contractual Relations. Vantor alleged that Cascade knowingly and intentionally induced Hemsworth Consumer Products LLC, Tridale Manufacturing Inc., and Orion Lifestyle Brands Corp. to breach their respective exclusive supply agreements with Vantor. Vantor contended that Cascade was aware of the existence and terms of these exclusive supply agreements and nevertheless pursued a systematic campaign — through Project Atlas — to lure these suppliers away from Vantor by offering significantly higher annual purchase commitments and other favorable terms, thereby causing the suppliers to terminate their contractual relationships with Vantor in violation of contractual exclusivity obligations.
2. Tortious Interference with Prospective Economic Advantage. Vantor alleged that, independent of the existing contractual relationships, Vantor had a reasonable expectation of renewed and expanded supplier relationships with Hemsworth, Tridale, and Orion beyond the initial terms of their respective supply agreements. Vantor contended that Cascade engaged in independently wrongful conduct — specifically, the deliberate and systematic targeting of Vantor's key suppliers — that disrupted these prospective economic relationships and caused Vantor to suffer economic loss.
3. Unfair Business Practices Under Cal. Bus. & Prof. Code § 17200. Vantor alleged that Cascade's supplier-acquisition campaign, as conducted through Project Atlas, constituted unfair, unlawful, or fraudulent business practices within the meaning of California's Unfair Competition Law. Vantor sought restitution and injunctive relief under this cause of action.
C. Summary Judgment Ruling (April 14, 2023)
On February 28, 2023, Cascade filed a Motion for Partial Summary Judgment, seeking adjudication of two of Vantor's three claims. Specifically, Cascade moved for summary judgment on the Section 17200 unfair business practices claim and the tortious interference with prospective economic advantage claim. The motion was supported by a comprehensive statement of undisputed material facts, declarations from Cascade personnel, excerpts of deposition testimony, and a detailed memorandum of points and authorities.
On April 14, 2023, the Court issued its ruling on Cascade's motion:
Section 17200 Claim — Granted. The Court granted summary judgment on Vantor's unfair business practices claim under California Business and Professions Code Section 17200, finding that the claim was duplicative of and effectively preempted by Vantor's tortious interference claims. The Court concluded that Vantor had failed to identify any independent unlawful, unfair, or fraudulent conduct beyond the same allegations underlying its tortious interference theories and that permitting the Section 17200 claim to proceed to trial would result in an improper attempt to obtain duplicate recovery. This ruling eliminated one of the three causes of action and, critically, removed the possibility of injunctive relief under Section 17200.
Tortious Interference with Prospective Economic Advantage — Denied. The Court denied summary judgment on the tortious interference with prospective economic advantage claim, finding that triable issues of material fact existed regarding whether Cascade's conduct — specifically, the systematic targeting of three of Vantor's key suppliers during a defined period through Project Atlas — rose to the level of independently wrongful conduct sufficient to support this cause of action. While the Court acknowledged the strength of Cascade's argument that competitive solicitation is generally lawful, it concluded that the pattern and scope of the conduct presented factual questions that were properly reserved for the jury.
As a result of the summary judgment ruling, two claims remain for trial: (1) tortious interference with contractual relations, and (2) tortious interference with prospective economic advantage. Trial is currently scheduled for August 21, 2023.
D. Mandatory Settlement Conference
A mandatory settlement conference was conducted on April 28, 2023, before the Honorable Robert T. Castañeda, who served as the settlement conference judge. Both parties attended with full settlement authority, as required by the Court's order.
During the settlement conference, the parties exchanged their initial settlement positions. Vantor opened with a demand of $32,000,000, representing approximately 37% of its total claimed damages. Cascade countered with an offer of $9,000,000, reflecting the low end of its expected trial exposure and the strength of its defenses. The conference did not result in an immediate settlement; however, Judge Castañeda's observations regarding the risks and costs facing both parties established a productive framework for continued negotiations.
Following the settlement conference, counsel for the respective parties — Calderwood & Harkness LLP for Cascade and Kessler, Brandt & Whitfield LLP for Vantor — engaged in a series of telephone calls and written exchanges over the following two and a half weeks. These negotiations were conducted principally between Douglas Carmichael and Francesca Morano on behalf of Cascade and Martin Kessler and Natalie Whitfield on behalf of Vantor. Through iterative movement on both sides, the parties reached an agreement in principle on May 5, 2023, at a settlement amount of $14,750,000, subject to the approval and authorization of each party's respective principals.
This memorandum is submitted for the purpose of obtaining Cascade's authorization to proceed with the settlement on the terms outlined herein.
III. ASSESSMENT OF REMAINING CLAIMS — STRENGTHS AND RISKS
The analysis that follows reflects our candid assessment of the strengths and vulnerabilities of Cascade's position with respect to each of the two remaining claims. We have endeavored to provide a balanced evaluation to enable Cascade's leadership to make a fully informed settlement decision.
A. Tortious Interference with Contractual Relations
This claim — Vantor's first cause of action — is the core of the case and represents the primary theory of damages. Vantor alleges that Cascade knowingly induced Hemsworth, Tridale, and Orion to breach their exclusive supply agreements with Vantor. To prevail, Vantor must prove: (1) the existence of valid contracts between Vantor and the three suppliers; (2) Cascade's knowledge of those contracts; (3) intentional acts by Cascade designed to induce breach or disruption of those contracts; (4) actual breach or disruption of the contracts; and (5) resulting damages.
Cascade's Strengths
Cascade's defense on this claim is substantial and rests on several pillars. First, all three of the exclusive supply agreements at issue contained termination-for-convenience clauses that permitted either party to terminate the agreement upon written notice, without cause. The relevant provisions and timelines are as follows:
• Hemsworth Consumer Products LLC: The Vantor–Hemsworth Exclusive Supply Agreement was executed on March 15, 2019, with an initial term expiring March 14, 2022. The agreement contained a termination-for-convenience clause requiring 90 days' prior written notice. Hemsworth provided its notice of termination to Vantor prior to entering into its agreement with Cascade.
• Tridale Manufacturing Inc.: The Vantor–Tridale Exclusive Supply Agreement was executed on January 10, 2020, with an initial term expiring January 9, 2022. The agreement contained a termination-for-convenience clause requiring 60 days' prior written notice. Tridale provided its notice of termination to Vantor prior to entering into its agreement with Cascade.
• Orion Lifestyle Brands Corp.: The Vantor–Orion Exclusive Supply Agreement was executed on July 1, 2018, with an initial term expiring June 30, 2022. The agreement contained a termination-for-convenience clause requiring 120 days' prior written notice. Orion provided its notice of termination to Vantor prior to entering into its agreement with Cascade.
The chronology is important. Each supplier exercised its contractual termination right before executing its corresponding agreement with Cascade. The Cascade–Orion agreement was executed on May 10, 2021; the Cascade–Hemsworth agreement was executed on June 1, 2021; and the Cascade–Tridale agreement was executed on August 15, 2021. In each instance, the supplier had already notified Vantor of its intent to terminate prior to executing the Cascade agreement. This sequence of events undermines Vantor's assertion that Cascade induced breaches of the exclusive supply agreements, because the suppliers' exercise of termination-for-convenience rights was, by the terms of those agreements, contractually permissible conduct — not a breach.
Second, discovery has confirmed that Cascade did not possess copies of, and did not have actual knowledge of, the specific exclusivity provisions contained in the Vantor supply agreements at the time the Cascade agreements were executed. Calderwood & Harkness conducted an exhaustive review of all documents produced from Cascade's custodial files, and no document evidencing Cascade's actual knowledge of the exclusivity terms was identified. Furthermore, the deposition testimony of Cascade personnel, including Annika Bergström (Senior Vice President, Supply Chain) and Lena Torvik (Vice President, Strategic Sourcing), consistently denied any knowledge of specific exclusivity provisions.
Third, our analysis of the 14 internal Project Atlas emails that reference Vantor's supplier relationships — out of a total of 2,847 Project Atlas-related emails reviewed during discovery — reveals that none of these communications demonstrates actual knowledge of the exclusivity terms in the Vantor supply agreements. The emails reference the suppliers' existing relationships with Vantor in general terms (e.g., "currently supplying Vantor," "Vantor's supplier network") but do not reference or acknowledge the existence of exclusive dealing provisions, non-compete restrictions, or other contractual limitations on the suppliers' freedom to contract with competitors.
Fourth, the evidence demonstrates that the suppliers independently chose to contract with Cascade based on the materially superior commercial terms Cascade offered. Specifically, Cascade offered significantly higher annual purchase commitments compared to those under the Vantor agreements:
• Hemsworth: Cascade committed to $28.0 million in annual purchases, compared to Vantor's $12.5 million commitment — a 124% increase.
• Tridale: Cascade committed to $19.5 million in annual purchases, compared to Vantor's $8.3 million commitment — a 135% increase.
• Orion: Cascade committed to $31.0 million in annual purchases, compared to Vantor's $14.6 million commitment — a 112% increase.
These substantial increases in annual purchase commitments provided each supplier with a powerful independent economic incentive to transition from Vantor to Cascade. The suppliers' decisions were driven by their own business interests, not by any coercion or improper inducement by Cascade.
Cascade's Risks
Notwithstanding the foregoing strengths, Cascade's position is not without risk. We identify the following areas of concern:
First, the 14 Project Atlas emails, while not conclusive evidence of knowledge of exclusivity terms, do demonstrate Cascade's awareness of the existence of Vantor's supplier relationships. Vantor's counsel — Martin Kessler and Natalie Whitfield of Kessler, Brandt & Whitfield LLP, both of whom are experienced and effective trial lawyers — will argue that these emails support an inference of constructive knowledge of the exclusivity provisions. The argument will be that a sophisticated national retailer with a $6.8 billion revenue base would not have embarked on a targeted supplier-acquisition campaign without investigating whether the target suppliers were subject to contractual restrictions, and that Cascade's failure to do so constitutes willful blindness.
Second, the deposition testimony of Annika Bergström (October 12, 2022) presents a particular area of concern. While Ms. Bergström did not admit knowledge of the exclusivity provisions, certain of her answers — particularly regarding her understanding of general industry practices relating to exclusive supply arrangements and her acknowledgment that she "assumed" some of Vantor's suppliers "might have" contractual commitments — may be used by Vantor to argue that Cascade proceeded with deliberate indifference to the existence of exclusivity restrictions. We anticipate that Vantor will highlight these answers in its trial presentation and argue that they support a finding of constructive knowledge or willful blindness.
Third, the jury composition and venue present a meaningful risk factor. This case will be tried before a jury in Los Angeles County. Vantor is a locally headquartered, privately held, mid-market company with approximately $1.1 billion in annual revenue and approximately 85 retail locations concentrated in California, Arizona, Nevada, and Oregon. Cascade, by contrast, is a large, publicly traded, out-of-state retailer with $6.8 billion in annual revenue and over 340 locations across 22 states. A Los Angeles jury may view Vantor sympathetically as the smaller competitor and may be receptive to Vantor's narrative that Cascade — a substantially larger competitor — engaged in predatory conduct to strip Vantor of its key supplier relationships.
Fourth, the deposition of Thomas Brennecke (October 26, 2022), Vantor's Vice President of Supplier Relations, was effective for Vantor's case. Mr. Brennecke presented a compelling and emotionally resonant account of the impact of the supplier losses on Vantor's business, including the scramble to identify replacement suppliers, the loss of key product lines, and the damage to Vantor's competitive position. His testimony is likely to resonate with a jury and to reinforce Vantor's narrative of a deliberate "poaching campaign."
B. Tortious Interference with Prospective Economic Advantage
This claim survived Cascade's motion for partial summary judgment. The Court's April 14, 2023 ruling found triable issues of fact regarding whether Cascade engaged in "independently wrongful conduct" — a required element of a tortious interference with prospective economic advantage claim under California law. See Glenrock Corporation, 29 Cal. 4th 1134 (2003).
Vantor will argue at trial that the systematic targeting of three of its key suppliers during a concentrated period through a deliberate internal initiative — Project Atlas — constitutes a pattern of conduct that rises to the level of independently wrongful behavior. Vantor will contend that the scale, coordination, and intentionality of Cascade's campaign go beyond ordinary competitive solicitation and instead reflect an anticompetitive effort to undermine a rival by dismantling its supply chain.
Cascade's position remains strong that competitive supplier solicitation is a lawful and privileged activity and does not constitute independently wrongful conduct merely because it is organized, deliberate, or ultimately successful. California law recognizes the right of competitors to solicit business relationships, and the mere fact that such solicitation results in the loss of prospective economic advantage to a competitor does not, without more, give rise to tort liability. However, the Court's denial of summary judgment on this claim signals that the Court believes a reasonable jury could find that Cascade's conduct crossed the line from legitimate competition into independently wrongful behavior. This is a factual determination that cannot be predicted with certainty, and it introduces additional risk into any trial scenario.
C. Overall Trial Risk Assessment
Based on our assessment of the two remaining claims, the discovery record, the Court's summary judgment rulings, and the expected trial dynamics, we estimate the probability of an adverse verdict on at least one claim at 30% to 40%. This probability range reflects a balanced consideration of Cascade's strong factual defenses on the tortious interference with contractual relations claim, offset by the risks posed by the Project Atlas emails, the Bergström deposition testimony, the Brennecke deposition testimony, the venue and jury composition factors, and the Court's ruling that the prospective economic advantage claim presents triable issues of fact.
If an adverse verdict were to be returned, we estimate the probable damages range at trial to be $8,000,000 to $20,000,000, taking into account the remaining terms of the exclusive supply agreements at the time of the alleged breaches, Vantor's mitigation obligations, and the inherent uncertainty of jury discretion on the question of prospective damages. The upper end of this range reflects the possibility that a jury, having found liability, could adopt a more expansive view of damages than our rebuttal expert's analysis supports, particularly if the jury credits the prospective economic advantage theory and awards damages for lost future supplier relationships beyond the initial contract terms.
The risk of a damages award approaching Vantor's full claimed amount of $87,400,000 is assessed as very low — under 5%. Dr. Pryce's damages methodology relies on aggressively speculative assumptions about multi-year projected revenue streams extending well beyond the remaining terms of the exclusive supply agreements, and we believe there is a strong basis to exclude or substantially limit such testimony under Sargon Enterprises, Inc. v. University of Southern California, 55 Cal. 4th 747 (2012). Nevertheless, this tail risk cannot be entirely eliminated, as evidentiary rulings on expert testimony are subject to the trial court's discretion and cannot be guaranteed in advance.
Finally, we note the potential for adverse publicity and reputational impact if the case proceeds to trial. Vantor's narrative of a predatory supplier-poaching campaign by a large national retailer against a smaller regional competitor has the potential to attract media attention, particularly given Cascade's status as a Nasdaq-listed public company. While Cascade's conduct was, in our assessment, lawful and commercially reasonable, the framing of the dispute in a public trial setting could generate unfavorable coverage and raise questions among investors, suppliers, and other stakeholders.
IV. DAMAGES ANALYSIS
A. Vantor's Claimed Damages ($87,400,000)
Vantor's damages claim of $87,400,000 is based on the expert report of Dr. Harold Pryce of Meridian Forensic Economics LLC, dated December 9, 2022. Dr. Pryce calculated lost profits for each of the three supplier relationships using a discounted cash flow methodology, applying a discount rate of 8.5%. His calculations are summarized as follows:
A critical weakness in Dr. Pryce's analysis is his reliance on multi-year projected revenue streams extending well beyond the remaining terms of the exclusive supply agreements. As noted above, the Hemsworth agreement had approximately 9 months remaining on its exclusive term at the time of the alleged interference, the Tridale agreement had approximately 5 months remaining, and the Orion agreement had approximately 13 months remaining. Dr. Pryce's projections of 5-year, 4-year, and 6-year revenue streams, respectively, are predicated on the assumption that each supplier relationship would have been renewed and expanded for multiple additional terms — an assumption that is inherently speculative and unsupported by any binding contractual commitment or renewal obligation.
We believe that Dr. Pryce's methodology is vulnerable to challenge under Sargon Enterprises, Inc. v. University of Southern California, 55 Cal. 4th 747 (2012), and that there is a reasonable basis to seek exclusion or limitation of his projections to the periods covered by the remaining terms of the supply agreements. However, as noted in our trial risk assessment, evidentiary rulings on expert testimony cannot be guaranteed.
B. Cascade's Rebuttal Damages ($6,100,000 – $11,300,000)
Dr. Vivian Ostrowski of Archer & Colvin Consulting Group submitted her rebuttal expert report on December 22, 2022. Dr. Ostrowski confined her lost-profits analysis to the remaining terms of the exclusive supply agreements, which she considered to be the only contractually certain period of the supplier relationships. Her calculations are summarized as follows:
Dr. Ostrowski further opined that Vantor's damages should be subject to an additional reduction of 40% to 55% based on Vantor's failure to mitigate its damages by seeking alternative suppliers. The evidence in the record demonstrates that Vantor did not initiate efforts to identify and contract with replacement suppliers until approximately four months after receiving notice of each supplier's termination, despite the availability of comparable alternative suppliers in the consumer products market. Applying the mitigation reduction to the rebuttal range yields a provable damages estimate of approximately $2,700,000 to $6,800,000.
A summary of Dr. Ostrowski's rebuttal report is attached hereto as Enclosure C.
C. Assessment of Probable Damages Exposure at Trial
Taking into account the full range of damages testimony that a jury would hear at trial — from Dr. Pryce's $87.4 million figure to Dr. Ostrowski's rebuttal range of $6.1 million to $11.3 million (before mitigation reduction) — we assess the probable damages exposure in the event of an adverse verdict as follows:
A jury verdict, if one is returned in Vantor's favor, would most likely fall somewhere between Dr. Ostrowski's upper-bound estimate and a figure moderately above it. Juries in commercial tort cases frequently reach compromise verdicts that reflect elements of both parties' expert testimony but that ultimately exceed the defendant's preferred range. We consider $10,000,000 to $20,000,000 to be the realistic range of a probable adverse verdict if Vantor prevails on both remaining claims.
The proposed settlement of $14,750,000 falls within the mid-point of this expected trial outcome range. Critically, however, the settlement eliminates the tail risk of a verdict above $20 million, eliminates the certainty of an additional $2.5 million to $3.5 million in defense costs through trial, and avoids the attendant adverse publicity and management disruption that would accompany a multi-week jury trial.
V. FINANCIAL ANALYSIS OF PROPOSED SETTLEMENT
A. Settlement Payment
The proposed settlement provides for a total payment by Cascade to Vantor of $14,750,000 in full and final resolution of all claims in Case No. 21STCV-34872. The settlement amount would be payable in a single lump sum within thirty (30) days following execution of the Settlement Agreement and Mutual Release.
As discussed in Section VII below, Pinnacle National Insurance Co. has agreed in principle to contribute $6,250,000 toward the settlement amount under CGL policy PNG-CGL-2021-04487. This anticipated insurance contribution reduces Cascade's net out-of-pocket settlement cost to $8,500,000, calculated as follows:
Total settlement amount: $14,750,000 Less: Pinnacle insurance contribution: ($6,250,000) Net settlement cost to Cascade: $8,500,000
B. Defense Costs Incurred to Date
Over the approximately twenty months since the commencement of this litigation, Cascade has incurred the following defense costs:
Calderwood & Harkness LLP Legal Fees: $4,387,500
Other Defense Costs:
Total Defense Costs Incurred to Date: $5,892,400
This total represents the sum of Calderwood & Harkness legal fees ($4,387,500), e-discovery costs ($892,400), expert fees ($485,000), and local counsel fees ($127,500). A detailed breakdown of defense costs is attached hereto as Enclosure B.
C. Insurance Reimbursement of Defense Costs
Pinnacle National Insurance Co. has indicated its willingness to reimburse $2,150,000 in covered defense costs incurred by Cascade in connection with the Litigation. This reimbursement, combined with the $6,250,000 settlement contribution, represents the full extent of Pinnacle's anticipated coverage obligations under policy PNG-CGL-2021-04487.
The net defense costs to Cascade after insurance reimbursement are calculated as follows:
Total defense costs: $5,892,400 Less: Pinnacle reimbursement: ($2,150,000) Net defense costs to Cascade: $3,742,400
D. Total Economic Impact to Cascade
The total economic impact to Cascade of the proposed settlement, inclusive of net defense costs, is summarized as follows:
Net settlement cost (after insurance): $8,500,000 Net defense costs (after insurance): $3,742,400 Total economic impact to Cascade: $12,242,400
Alternatively, computed on a gross basis before allocating insurance proceeds between settlement and defense:
Gross settlement amount: $14,750,000 Net defense costs: $3,742,400 Total gross settlement plus net defense costs: $18,492,400
Total anticipated insurance recovery across both settlement and defense costs:
Settlement contribution: $6,250,000 Defense cost reimbursement: $2,150,000 Total insurance recovery: $8,400,000
For purposes of this memorandum, we refer to the total economic impact as $18,492,400, representing the sum of the gross settlement payment and net defense costs, as this figure most accurately captures the full financial consequence of the Litigation to Cascade.
E. Comparison to Cost of Continued Litigation Through Trial
If the proposed settlement is rejected and the case proceeds to trial as currently scheduled for August 21, 2023, we estimate that Cascade would incur approximately $2,500,000 to $3,500,000 in additional defense costs, including attorney fees for trial preparation and trial attendance, expert fees for trial preparation and testimony by Dr. Ostrowski, preparation of trial exhibits and demonstrative aids, jury consultant fees, and other trial-related expenses. This would bring total defense costs to approximately $8,400,000 to $9,400,000.
The following table summarizes the comparative economic outcomes under the settlement and trial scenarios:
If Cascade prevails at trial, the total economic exposure would be limited to net defense costs of approximately $6,200,000 to $7,200,000 — a more favorable outcome than the proposed settlement. However, this outcome carries no certainty, and as discussed in Section III.C above, we assess the probability of a fully favorable outcome at only 60% to 70%.
If Cascade loses at trial, the total economic exposure could range from approximately $16,200,000 to $27,200,000 (a verdict of $10,000,000 to $20,000,000 plus total net defense costs), which significantly exceeds the proposed settlement total of $18,492,400 at the upper end. Moreover, the trial scenario carries the additional risk of adverse publicity, management distraction, and potential adverse precedent — none of which is captured in the purely financial comparison.
The proposed settlement therefore represents a risk-adjusted, cost-effective resolution that provides certainty at a total cost that falls within the lower half of the expected range of trial outcomes.
VI. KEY NON-MONETARY SETTLEMENT TERMS
The proposed settlement contains several non-monetary terms that are materially favorable to Cascade. Each is summarized below.
A. Non-Admission of Liability
The settlement agreement expressly provides that Cascade admits no liability or wrongdoing in connection with the claims alleged in Case No. 21STCV-34872. The settlement is stated to be a compromise entered into solely to avoid the burden, expense, distraction, and uncertainty of continued litigation. This provision protects Cascade from any inference or assertion — by Vantor, by third parties, or in any future proceeding — that the settlement constitutes an acknowledgment of the merits of Vantor's claims.
B. Mutual Release of All Claims
The settlement agreement contains a full and complete mutual release of all claims, counterclaims, cross-claims, and causes of action between Cascade and Vantor, and their respective affiliates, officers, directors, employees, agents, and successors, arising out of or related to the facts, transactions, occurrences, or circumstances alleged in Case No. 21STCV-34872. The release is broadly drafted to encompass known and unknown claims and includes a waiver of the protections of California Civil Code Section 1542, which provides that a general release does not extend to claims that the releasing party does not know or suspect to exist at the time of executing the release.
This mutual release ensures finality and precludes any future attempt by Vantor to assert related claims arising from the same factual circumstances.
C. Confidentiality. All terms of the settlement, including the settlement amount and any other financial terms, are subject to strict confidentiality obligations. Neither Cascade nor Vantor may disclose the terms of the settlement to any third party, except as required by applicable law, regulatory obligations, or securities disclosure requirements applicable to Cascade as a Nasdaq-listed company (ticker: CRHI). The confidentiality provision includes carve-outs permitting disclosure to each party's attorneys, accountants, auditors, insurance carriers, and tax advisors, in each case subject to obligations of confidentiality.
This provision protects Cascade from the risk that the settlement terms could be publicized or used as a benchmark in any future disputes involving Cascade's supplier relationships.
D. Mutual Non-Disparagement
Both Cascade and Vantor agree to refrain from making any disparaging, defamatory, or derogatory statements about the other party, its officers, directors, employees, or affiliates in connection with the Litigation or the underlying events. This provision ensures that neither party engages in post-settlement public commentary that could damage the other's reputation or business relationships.
E. No Injunctive Relief; No Restrictions on Future Supplier Relationships
This is, in our assessment, the most strategically significant non-monetary term of the proposed settlement. The settlement imposes no injunctive relief of any kind and no restrictions whatsoever on Cascade's future supplier relationships, including its existing relationships with Hemsworth Consumer Products LLC, Tridale Manufacturing Inc., and Orion Lifestyle Brands Corp.
Cascade's existing supply agreements with all three suppliers remain in full force and effect, as follows:
• Cascade–Hemsworth: 5-year term commencing June 1, 2021, with annual purchase commitment of $28.0 million.
• Cascade–Tridale: 3-year term commencing August 15, 2021, with annual purchase commitment of $19.5 million.
• Cascade–Orion: 4-year term commencing May 10, 2021, with annual purchase commitment of $31.0 million.
The aggregate annual purchase commitment under these three agreements is approximately $78.5 million, representing a significant component of Cascade's supply chain portfolio and a key objective of the Project Atlas initiative. The preservation of these supplier relationships without any court-imposed restrictions, non-compete obligations, or behavioral constraints is a critically important outcome that validates the strategic rationale underlying Project Atlas and ensures that Cascade realizes the full commercial value of the supplier transitions.
During settlement negotiations, Vantor initially sought inclusion of a non-solicitation provision that would have restricted Cascade from soliciting additional suppliers that maintain or have maintained supply relationships with Vantor for a period of three years. Cascade rejected this provision, and Vantor ultimately agreed to its removal from the settlement terms. The absence of any such restriction is a significant negotiating achievement.
F. Dismissal. Upon execution of the Settlement Agreement and Mutual Release, the parties will file a Joint Stipulation of Dismissal with Prejudice of all claims and causes of action in Case No. 21STCV-34872. The dismissal will be filed with the Superior Court of California, County of Los Angeles, and will have the effect of terminating the Litigation with finality. The Court will retain jurisdiction solely for purposes of enforcing the terms of the settlement agreement.
VII. INSURANCE COVERAGE CONSIDERATIONS
Cascade's commercial general liability policy with Pinnacle National Insurance Co. (policy number PNG-CGL-2021-04487) provides coverage for certain advertising injury and personal injury claims, including claims of tortious interference with business relationships. Cascade tendered the defense and indemnity of the Vantor claims to Pinnacle on September 20, 2021, promptly following service of the complaint.
Pinnacle acknowledged coverage and agreed to participate in the defense and settlement of the Litigation, subject to a reservation of rights. Pinnacle retained the right to contest coverage with respect to certain categories of damages (including punitive damages, if any had been sought, and damages attributable to intentional conduct), but has participated constructively in the defense effort throughout the course of the Litigation.
As discussed above, Pinnacle has agreed in principle to make the following contributions:
• Settlement contribution: $6,250,000 toward the $14,750,000 settlement payment.
• Defense cost reimbursement: $2,150,000 toward Cascade's defense costs of $5,892,400.
• Total anticipated insurance recovery: $8,400,000.
The insurance contributions reflect Pinnacle's assessment of its coverage obligations under the policy and represent a negotiated allocation between the carrier and Cascade. Calderwood & Harkness has engaged in discussions with Pinnacle's Senior Claims Adjuster, Leonard Furman, regarding the timing and mechanics of the insurance payments. Upon execution of the Settlement Agreement and Mutual Release, Calderwood & Harkness will submit a formal demand to Pinnacle with supporting documentation, including the executed settlement agreement, an accounting of defense costs, and other materials required by the policy terms.
We anticipate that Pinnacle will process the settlement contribution in a timely manner, consistent with the thirty-day payment period specified in the proposed settlement agreement. The defense cost reimbursement may require a somewhat longer processing period, and we will coordinate with Mr. Furman to ensure that the reimbursement is received as promptly as practicable.
Correspondence with Pinnacle regarding coverage is attached hereto as Enclosure D.
VIII. SECURITIES DISCLOSURE CONSIDERATIONS
Cascade Retail Holdings Inc. is a publicly traded company listed on the Nasdaq Stock Market under the ticker symbol CRHI. As such, Cascade is subject to the reporting and disclosure requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated by the Securities and Exchange Commission ("SEC"), including requirements relating to the disclosure of material litigation developments, contingencies, and settlements.
The proposed settlement amount of $14,750,000, and the total economic impact to Cascade of $18,492,400 (inclusive of net defense costs), should be reviewed by Cascade's Chief Financial Officer, Raj Subramanian, and the Company's outside auditors, Granville & Associates, P.C. (engagement partner: Arthur Granville), for purposes of determining materiality and assessing any potential disclosure obligations. These obligations may include, but are not limited to:
• Disclosure in Cascade's periodic filings (Form 10-Q, Form 10-K) under Item 103 (Legal Proceedings) and in the notes to financial statements under ASC 450 (Contingencies);
• Potential current report on Form 8-K if the settlement is determined to be material under Item 8.01 (Other Events); and
• Assessment of whether the settlement amount should be accrued as a liability or disclosed as a contingency in the Company's financial statements.
Based on our review, we note the following relevant financial metrics:
• Cascade's FY 2021 annual revenue: approximately $6.8 billion.
• Cascade's approximate market capitalization (September 2021): approximately $14.2 billion.
• Total economic impact of $18,492,400 as a percentage of annual revenue: approximately 0.27%.
• Total economic impact as a percentage of market capitalization: approximately 0.13%.
Given these proportions, we expect that the total economic impact will fall below materiality thresholds typically applied by auditors and the SEC in determining whether litigation settlements require specific disclosure. However, this determination is ultimately a financial and accounting judgment that rests with Cascade's CFO and outside auditors, and we defer to their expertise on this question. We are prepared to consult with Mr. Subramanian and Mr. Granville as needed to provide any information they may require regarding the terms of the settlement and the nature of the underlying claims.
We also note that the confidentiality provisions of the proposed settlement agreement are expressly subject to an exception for disclosures required by applicable law, regulatory obligations, or securities disclosure requirements. If Cascade's financial advisors determine that disclosure is required, the settlement agreement permits such disclosure without constituting a breach of the confidentiality obligations.
IX. STRATEGIC CONSIDERATIONS
Beyond the quantitative financial analysis and legal risk assessment set forth above, several broader strategic considerations support the recommendation to accept the proposed settlement.
Venue and Jury Dynamics. As discussed in Section III, the Litigation would be tried before a jury in Los Angeles County. Vantor, as a locally headquartered, privately held, mid-market retailer with approximately $1.1 billion in annual revenue and approximately 85 retail locations concentrated in California, Arizona, Nevada, and Oregon, is likely to be perceived sympathetically by a local jury. Cascade, as a large, publicly traded, out-of-state retailer with $6.8 billion in annual revenue and over 340 locations across 22 states, may face an uphill battle in persuading a Los Angeles jury that its competitive supplier solicitation activities were lawful and appropriate. Settlement avoids this inherent venue disadvantage.
Avoidance of Adverse Precedent. If the case were to proceed to trial and Cascade were to receive an adverse verdict — particularly on the tortious interference with prospective economic advantage claim — the resulting precedent could have implications beyond this Litigation. An adverse ruling or jury finding could be cited by other competitors or suppliers in future disputes challenging Cascade's competitive supplier solicitation practices. This risk is particularly relevant given Cascade's ongoing supply chain diversification efforts and the importance of competitive flexibility in negotiating supplier relationships. Settlement eliminates the risk of adverse precedent entirely.
The Project Atlas Emails. The 14 internal Project Atlas emails referencing Vantor's supplier relationships, while not establishing actual knowledge of exclusivity terms, represent a trial presentation risk that is difficult to fully neutralize. In the hands of skilled trial counsel, these emails can be presented to a jury in a manner that creates the impression of deliberate, knowing interference, even though a careful reading of the emails does not support that conclusion. Settlement eliminates the risk that these emails will be taken out of context and used to support a verdict against Cascade.
Preservation of Supplier Relationships. As discussed in Section VI.E, the proposed settlement imposes no restrictions on Cascade's existing or future supplier relationships. Cascade's agreements with Hemsworth, Tridale, and Orion remain in full force and effect, with aggregate annual purchase commitments of approximately $78.5 million. The preservation of these relationships, without the cloud of ongoing litigation or the risk of court-imposed restrictions, is a significant strategic benefit.
Management Time and Attention. The Litigation has consumed significant time and attention from Cascade's management team over approximately twenty months. This includes, most notably, the preparation and attendance of depositions by Annika Bergström (October 12, 2022) and Lena Torvik (November 18, 2022), as well as ongoing consultations with counsel regarding discovery obligations, motion practice, and settlement strategy. If the case proceeds to trial, the time demands on management would intensify substantially, including trial preparation, witness preparation, and potential trial attendance. Settlement would allow Cascade's leadership to refocus its time and energy on the Company's core operations and strategic priorities.
X. RECOMMENDATION
For the reasons set forth in this memorandum, we recommend that Cascade Retail Holdings Inc. accept the proposed settlement of $14,750,000 to resolve all remaining claims in Vantor Holdings Corp. v. Cascade Retail Holdings Inc., Case No. 21STCV-34872.
The key factors supporting this recommendation are summarized as follows:
1. The settlement amount of $14,750,000 represents an approximately 83% reduction from Vantor's claimed damages of $87,400,000 and reflects a compromise that, while modestly above the upper end of Cascade's rebuttal damages range, is well within the range of probable trial outcomes.
2. The anticipated insurance contribution of $6,250,000 from Pinnacle National Insurance Co. reduces Cascade's net settlement cost to $8,500,000.
3. The total economic impact to Cascade of approximately $18,492,400 (inclusive of net defense costs) is within the range anticipated in our November 15, 2021 initial exposure assessment and represents a cost-effective resolution when compared to the expected costs and risks of proceeding to trial.
4. The settlement amount is immaterial to Cascade's financial position, representing less than 0.3% of annual revenue and approximately 0.13% of market capitalization.
5. The non-monetary terms of the settlement are highly favorable to Cascade, including:
(a) Non-admission of liability; (b) Full mutual release of all claims; (c) Confidentiality of settlement terms; (d) Mutual non-disparagement; (e) No injunctive relief and no restrictions on future supplier relationships; and (f) Dismissal with prejudice of all claims.
6. The settlement eliminates trial risk, including the 30%–40% probability of an adverse verdict, the tail risk of a high damages award, and the risk of adverse publicity and reputational harm.
7. The settlement preserves the full strategic value of Project Atlas by maintaining Cascade's supplier agreements with Hemsworth, Tridale, and Orion without any court-imposed restrictions or behavioral constraints.
We are prepared to finalize the Settlement Agreement and Mutual Release promptly upon receiving authorization from Cascade. A draft of the Settlement Agreement is attached hereto as Enclosure A for your review.
XI. NEXT STEPS
Upon authorization by Cascade, the following steps will be taken to implement the proposed settlement:
1. Authorization. Obtain written authorization from David Pruitt, General Counsel & Corporate Secretary, and Margaret Prumvane, CEO & President, to proceed with the settlement at $14,750,000 on the terms outlined in this memorandum and the attached draft Settlement Agreement.
2. Finalize Settlement Agreement. Finalize and circulate the draft Settlement Agreement and Mutual Release to Kessler, Brandt & Whitfield LLP for review, negotiation of any remaining non-substantive terms, and execution by the parties.
3. Insurance Coordination. Coordinate with Pinnacle National Insurance Co. — specifically, Leonard Furman, Senior Claims Adjuster — regarding the $6,250,000 insurance contribution toward the settlement amount, the timing of Pinnacle's payment, and the required supporting documentation.
4. Dismissal Filing. Prepare and file a Joint Stipulation of Dismissal with Prejudice in Case No. 21STCV-34872 with the Superior Court of California, County of Los Angeles, upon execution of the Settlement Agreement.
5. Defense Cost Reimbursement. Submit a formal post-settlement insurance recovery demand to Pinnacle National Insurance Co. for $2,150,000 in covered defense costs, with accompanying documentation.
6. Securities Disclosure Review. Coordinate with Raj Subramanian (CFO) and Granville & Associates, P.C. (Arthur Granville) regarding materiality assessment and any required securities disclosure filings.
7. Matter Closure. Close Calderwood & Harkness matter number 1038-00007 upon completion of all settlement-related tasks, including receipt of all insurance payments and filing of the Joint Stipulation of Dismissal.
We are available at your convenience to discuss this memorandum and our recommendation in further detail. Please do not hesitate to contact either of the undersigned at the telephone numbers or email addresses listed below.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Douglas Carmichael Partner Direct: (213) 555-8412
Email: dcarmichael@calderwoodharkness.com
By: ________
Francesca Morano Partner Direct: (213) 555-8427
Email: fmorano@calderwoodharkness.com
600 South Grand Avenue, Suite 3200 Los Angeles, California 90071
ENCLOSURES
The following enclosures are attached to this memorandum and incorporated herein by reference:
Enclosure A: Draft Settlement Agreement and Mutual Release
Enclosure B: Summary of Defense Costs and Fee Breakdown
Enclosure C: Dr. Vivian Ostrowski Rebuttal Report Summary (December 22, 2022) — Archer & Colvin Consulting Group
Enclosure D: Pinnacle National Insurance Co. — Coverage Correspondence (including tender letter dated September 20, 2021, Pinnacle's acknowledgment and reservation of rights, and settlement contribution correspondence)