Contract analysis

From: Samuel Eklund <seklund@calderwoodharkness.com> To: Alison Trang <atrang@ridgelinecapital.com> Date: Mon, 03 Oct 2022 04:47:00 -0000 Subject: Vantor v. Stonefield — Privileged Litigation Update and Expert Retention Authorization

**ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT**

This email constitutes a privileged and confidential communication containing legal advice rendered by Calderwood & Harkness LLP to its client. The contents are protected by the attorney-client privilege and the work product doctrine. This communication should not be forwarded, disclosed, or distributed to any third party without the prior written approval of counsel. Inadvertent disclosure does not constitute a waiv

I hope this finds you both well. This email provides a consolidated litigation update on the above-referenced matter for Ridgeline's records and includes a request for authorization regarding expert retention. Please do not hesitate to reach out with any questions.

**Case:** *Vantor Holdings Corp. v. Stonefield Logistics Group Inc.*, Case No. 22-cv-07841 (S.D.N.Y.), assigned to the Hon. Margaret T. Calloway, U.S.D.J.

As you know, Calderwood & Harkness was engaged on September 1, 2022, and we filed our Notice of Appearance on September 8, 2022. This email follows up on the in-person strategy session held on September 15 at SLG's Fort Worth offices, which was attended by myself and Catherine Gallagher from C&H, and by Marcus Denton, Tobias Wren, Priya Ramachandran, Carlos Medina, Janet Kirkwood, and Eric Hess from SLG. The purpose

On August 12, 2022, Vantor Holdings Corp. (acting through its subsidiary Vantor Transport Services LLC, the former third-party logistics partner) filed suit in the Southern District of New York alleging that Stonefield wrongfully terminated a five-year Transportation Services Agreement dated March 15, 2019 (TSA Contract Ref. No. SLG-VTS-2019-0315). The TSA had a term running from April 1, 2019 through March 31, 2024,

Vantor claims approximately **$95.4 million** in total damages, broken down as follows:

| Category | Amount | |---|---| | Liquidated damages (Section 14.2): 75% × $43.2M ACV × ~2.07 remaining years ($64.8M for 2 full years + $2.43M for 27-day partial year) | ~$67.23M | | Lost profits (claims 12% operating margin on remaining committed volume) | $18.7M | | Stranded assets / depreciation | $5.2M | | Workforce reduction costs (severance for ~180 personnel) | $2.87M | | Mitigation costs | $1.4M | | **Total*

Vantor is represented by Caldwell Royce & Shapiro LLP, with Harrison Caldwell as lead partner.

**3. INITIAL ASSESSMENT — DEFENSE STRENGTHS**

We believe Stonefield has a strong defense posture. Key points:

**Termination for Cause is well-supported.** Stonefield issued a Cure Notice on January 18, 2022, identifying VTS's material failures across all five Service Level Obligations during Q4 2021:

- **On-time pickup:** 78.2% actual vs. 95% SLO - **On-time delivery:** 81.6% actual vs. 93% SLO - **Tender acceptance:** 71.4% actual vs. 90% SLO - **Equipment availability:** 62% of committed fleet (~248 tractors vs. 400 required) - **Cargo claims ratio:** 1.07% actual (16 claims totaling $387,400 in November–December 2021) vs. ≤0.5% SLO

VTS responded on February 14, 2022, acknowledging "operational challenges" but failing to demonstrate actual cure of any of the identified deficiencies. The 30-day cure period expired on February 17, 2022, and Tobias Wren issued the termination letter on March 4, 2022 under Section 13.1(a). Importantly, the Cure Notice was drafted with reasonable particularity as required by Section 13.2 — each metric, contractual th

**Force majeure defense to volume shortfall claims.** To the extent Vantor attempts to argue that Stonefield failed to meet minimum volume commitments, SLG properly invoked Section 12.1 for COVID-19 impact during April–September 2020. The adjusted Contract Year 2 ACV was $21.6M; actual CY2 tenders of $31.8M exceeded the adjusted minimum by $10.2M.

**Exclusivity defense.** Vantor's complaint alleges that SLG diverted freight to Cascade Freight Systems Inc. and Briarwood Trucking Co. in violation of the exclusivity provisions in Schedule C. Our preliminary analysis — confirmed at the September 15 meeting by Janet Kirkwood — shows that usage of those carriers was limited to Lanes 8–14, which are classified as "Secondary Lanes" under Schedule C, Section 2(b). The

In the interest of full candor, I want to flag three areas of risk:

**The Kirkwood internal email (September 22, 2021).** Janet Kirkwood emailed Carlos Medina stating: *"VTS is a mess. We're already moving volume to Cascade and Briarwood on Lanes 8–14. If VTS doesn't get its act together by Q1 I think we pull the plug on the whole contract."* Janet confirmed at the September 15 session that the diversion referenced was to Secondary Lanes only and was a reactive response to VTS's repe

**Rate adjustment motive.** Ashford Meridian LLP prepared an analysis in February 2022 showing that the April 1, 2022 rate adjustment under the TSA's Rate Adjustment Mechanism (Section 5.3, indexed to 70% diesel / 30% CPI-U) would have increased weighted average per-mile rates from $2.87 to $3.28 — a 14.3% increase adding approximately $6.2M in annual costs. Vantor will almost certainly argue that the termination was

**Liquidated damages enforceability.** The liquidated damages clause (Section 14.2, yielding ~$67.23M) presents genuine uncertainty. Under New York's two-part test, we believe there are moderate grounds for an unenforceability finding — actual damages were arguably ascertainable at the time of contracting, and the formula (75% of ACV multiplied by remaining term) may be viewed as disproportionate to actual harm. That

**5. LITIGATION STRATEGY — FIVE PILLARS**

The following summarizes our Defense Strategy Outline, which was provided separately to Tobias Wren on September 26, 2022:

**Pillar 1 — Rule 12(b)(6) Motion to Dismiss.** We are targeting the liquidated damages clause as an unenforceable penalty and the lost profits claim as inadequately pled. The motion is currently in drafting, and we anticipate filing by mid-October 2022.

**Pillar 2 — Discovery: Build the Factual Record.** We will focus discovery on VTS's internal operational failures, fleet redeployment decisions, and Vantor's failure to mitigate damages. We expect substantial document discovery and key depositions of Vantor personnel, including Pruitt, Milescu, and Vantorovich.

**Pillar 3 — Retain Damages Rebuttal Expert.** Engage an economics and damages expert to rebut Vantor's damages claims and support the penalty argument on the liquidated damages clause. See authorization request in Section 6 below.

**Pillar 4 — Summary Judgment.** Build toward partial or full summary judgment on three fronts: (a) the existence of Cause for termination; (b) the consequential damages bar under the TSA's mutual waiver in Section 15.1; and (c) Vantor's failure to mitigate.

**Pillar 5 — Settlement Contingency.** If discovery produces materially adverse facts — particularly regarding the rate-adjustment motive — we should be prepared to explore resolution. Our current preliminary assessment is that the case can be defended vigorously, but some settlement exposure exists in the nuisance/litigation-cost-avoidance range. We will keep you apprised as the factual record develops.

**6. EXPERT RETENTION — AUTHORIZATION REQUEST**

We recommend retaining **Kensington Analytics Group LLC** (Philadelphia) as our damages and economics rebuttal expert.

- **Lead Expert:** Dr. Evelyn Rosser, Managing Director. Dr. Rosser has extensive experience in transportation economics and contract damages and has testified in several New York breach-of-contract matters. She is well-regarded by courts in this district. - **Senior Analyst:** Michael Chung. - **Rates:** $625/hour (Dr. Rosser); $375/hour (Mr. Chung). - **Estimated Budget:** $180,000–$250,000 through report preparati

**We request Ridgeline's authorization to proceed with this retention given the estimated costs.** Upon your approval, we will circulate the Kensington engagement letter for execution.

For reference, the Preliminary Litigation Budget was transmitted to Tobias Wren and Alison on September 12, 2022. Key figures:

| Category | Estimated Range | |---|---| | C&H legal fees (through summary judgment) | $3.5M – $5.2M | | Costs and disbursements (experts, eDiscovery via Pinnacle Forensics LLC, depositions, travel) | $400K – $750K |

| Timekeeper | Rate | |---|---| | S. Eklund (Partner) | $1,275/hr | | K. Osei (Partner) | $1,175/hr | | C. Gallagher (Senior Associate) | $825/hr | | N. Laroche (Associate) | $650/hr |

A 10% courtesy discount on associate rates applies per the Ridgeline portfolio company arrangement. Monthly invoicing with 30-day payment terms.

Fees incurred to date (September) are modest, reflecting primarily initial case assessment, strategy development, and the commencement of MTD drafting.

- **D&O Policy:** A tender was submitted to Graymark Insurance Company on September 6, 2022 under Policy No. GLG-DO-1025-00008 ($15M aggregate limit). The coverage determination remains pending. I should note candidly that commercial contract claims are typically excluded under D&O policies, and we do not expect a favorable result, but the tender preserves SLG's rights. - **Commercial General Liability:** Brindoval M

Stonefield notified Lakeshore National Bank, as administrative agent under the $425M senior secured credit facility (Ref. LNB-SLG-2017-CA-4402), on August 24, 2022. This was within the 10-business-day window required by Section 6.03(b) of the Credit Agreement for litigation with potential liability exceeding $25M. Catherine Devereaux (SVP, Loan Administration) acknowledged receipt on August 30, 2022 and requested qua

We would appreciate the following from Ridgeline:

1. **Authorization** to retain Kensington Analytics Group LLC on the terms described above. 2. **Preferred cadence for litigation updates.** We suggest quarterly written reports supplemented by ad hoc updates on material developments, consistent with our approach for Tobias Wren at SLG. Please let us know if you would prefer a different cadence. 3. **Distribution.** Please advise whether you would like Brendan Carey

On our end, we anticipate filing the **Motion to Dismiss by mid-October 2022** and will circulate a draft to Tobias Wren and Alison for review in advance of filing.

For your reference, the following documents have been prepared or are forthcoming:

- *Defense Strategy Outline* (September 26, 2022) — previously provided to Tobias Wren; copy available to Ridgeline upon request. - *Preliminary Litigation Budget* (September 12, 2022) — previously provided to Alison and Tobias. - *Kensington Analytics Group LLC engagement letter (draft)* — to be circulated upon receipt of authorization.

I am happy to arrange a call at your convenience to discuss any of the foregoing in further detail. Tobias Wren and Marcus Denton at SLG have been kept apprised of all developments reflected in this update.

Thank you both for your continued confidence in our team.

**Samuel Eklund** Partner Calderwood & Harkness LLP 200 Park Avenue, 38th Floor New York, NY 10166 T: (212) 555-4100 D: (212) 555-4138 M: (917) 555-2764 seklund@calderwoodharkness.com

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