Contract analysis

I. Executive Summary This memorandum addresses two primary questions raised by the engagement team: (1) whether the liquidated damages provision in § 14.3 of the Dedicated Freight Services Agreement ("DFSA") executed on April 15, 2022, between Stonefield Logistics Group Inc. ("Stonefield" or "SLG") and Ridgeline Freight Carriers LLC ("Ridgeline") is enforceable under Texas law, and (2) whether the personal guaranty e

II. Questions Presented A. Question One Is the liquidated damages provision in § 14.3 of the Dedicated Freight Services Agreement dated April 15, 2022, between Stonefield Logistics Group Inc. and Ridgeline Freight Carriers LLC, enforceable under Texas law, or is it subject to invalidation as an unenforceable penalty? B. Question Two Is the personal guaranty executed by Gerald Brashear under § 14.5 of the DFSA enforce

III. Brief Answers A. Answer to Question One Yes. The liquidated damages provision satisfies both prongs of the Texas enforceability test. As to the first prong, the harm from Ridgeline's breach — including emergency re-procurement costs on a volatile spot freight market, service disruption to Stonefield's 14-state retail distribution network, customer relationship damage, transition costs associated with onboarding

IV. Relevant Contractual Provisions The following sections of the DFSA are material to the enforceability analysis. I have quoted or closely paraphrased the operative language and provided calculations as applied to the facts of this matter. A. § 3.2 — Minimum Monthly Revenue Commitment

Section 3.2 of the DFSA established the core performance obligation that Ridgeline undertook in exchange for its position as a dedicated carrier within Stonefield's managed transportation network. Under this provision, Ridgeline committed to provide a minimum of twelve (12) dedicated Class 8 tractor-trailers, each equipped and operated by a qualified commercial driver, for Stonefield's Texas retail distribution lanes

Section 14.3 of the DFSA provides, in pertinent part: "In the event of Carrier's material default under this Agreement and Carrier's failure to cure such default within thirty (30) calendar days following receipt of written notice from Shipper specifying the nature of such default (the "Cure Period"), Carrier shall pay to Shipper, as liquidated damages and not as a penalty, an amount equal to the greater of (a) twent

Section 14.4 of the DFSA contains a mutual waiver of consequential, incidental, and indirect damages that is typical of commercial transportation agreements. However, the provision includes a critical carve-out that is operative here. The relevant language provides: "Notwithstanding the foregoing mutual waiver of consequential, incidental, and indirect damages, the parties agree that the following categories of damag

Section 14.5 of the DFSA contains a personal guaranty executed by Gerald Brashear. The relevant language provides: "Gerald Brashear, as the sole member and managing member of Carrier, hereby unconditionally and irrevocably guarantees the full and prompt payment and performance of all of Carrier's obligations arising under this Section 14, including without limitation the liquidated damages obligation set forth in Sec

Section 14.6 provides that the prevailing party in any dispute arising under Section 14 shall be entitled to recover its reasonable attorneys' fees and costs, including but not limited to filing fees, service of process costs, expert fees, and other litigation expenses. This provision is consistent with and supplemental to the statutory right to recover attorneys' fees under Texas Civil Practice & Remedies Code § 38.

Section 18.1 of the DFSA provides that the Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any choice-of-law or conflict-of-laws provisions. This governing law provision applies to all aspects of the DFSA, including the liquidated damages provision, the consequential damages carve-out, and the personal guaranty. G. § 18.2 — Forum Selection

Section 18.2 provides that any action or proceeding arising out of or relating to the DFSA shall be brought exclusively in the state or federal courts located in Dallas County, Texas, and the parties irrevocably consent to the personal jurisdiction and venue of such courts. Both Ridgeline and Brashear consented to this forum selection clause by executing the DFSA.

V. Factual Background The following factual summary is based on documents currently in the file, including the DFSA, correspondence between the parties, Stonefield's internal records, and information provided by Stonefield's General Counsel, Diane Ostrowski, and Vice President of Operations, Marcus Ellington. A. The Parties Stonefield Logistics Group Inc. is a Texas corporation headquartered at 4100 Commerce Street,

VI. Legal Analysis — Enforceability of Liquidated Damages Under Texas Law A. The Two-Part Texas Test Texas courts evaluate the enforceability of liquidated damages provisions using a well-established two-part test. Under this framework, a liquidated damages clause is enforceable if two conditions are satisfied: (1) the harm caused by the breach is incapable or difficult of estimation at the time of contracting, and (

VII. Legal Analysis — Enforceability of Personal Guaranty (§ 14.5) A. Terms of the Guaranty As set forth in Section IV.D above, Gerald Brashear executed a personal, unconditional guaranty of Carrier's obligations under Section 14 of the DFSA. The guaranty is absolute, continuing, and irrevocable. It is capped at an aggregate maximum amount of $3,000,000 (the "Guaranty Cap"). The guaranty expressly covers the liquidat

VIII. Consideration of Default Judgment Context Based on the factual circumstances described in Section V above — including Ridgeline's complete cessation of operations, the repossession of its equipment, Brashear's non-responsiveness to the December 22, 2023 demand letter and subsequent communications, and the apparent insolvency of Ridgeline as a going concern — it is anticipated that Ridgeline and Brashear may fai

IX. Conclusion and Recommendations Based on the foregoing analysis, I reach the following conclusions:

1. The liquidated damages provision in § 14.3 of the DFSA is enforceable under the two-part Texas test. The harm from Ridgeline's breach — encompassing emergency re-procurement costs in a volatile freight market, service disruption to Stonefield's retail distribution network, reputational injury, and transition costs — is incapable or difficult of estimation. The 25% formula is a reasonable forecast of just compensat

2. The re-procurement damages under § 14.4 are recoverable in addition to the liquidated damages under § 14.3 because they address distinct categories of harm: the liquidated damages compensate for the forward-looking loss of the bargained-for revenue commitment, while the re-procurement damages compensate for the backward-looking, actual out-of-pocket costs of procuring substitute freight services during the Transit

3. Total damages of $2,437,500 are supportable ($1,381,250 in liquidated damages plus $1,056,250 in re-procurement damages), exclusive of pre-judgment interest, attorneys' fees, and costs.

4. The personal guaranty executed by Gerald Brashear under § 14.5 is enforceable up to the $3,000,000 Guaranty Cap. Brashear is personally liable for the full amount of the claim, including attorneys' fees and costs. Based on these conclusions, I recommend the following course of action: (a) Proceed with filing the Original Petition in the 134th Judicial District Court of Dallas County, Texas, asserting claims for br

X. Signature block / Review Notation Prepared by: ________________________________________ Yuki Nakamura Associate Calderwood & Harkness LLP Date: February 8, 2024 Reviewed by: ________________________________________ Jeffrey Park Lead Associate Calderwood & Harkness LLP Date: ________ Approved by: ________________________________________ Priya Anand Partner Calderwood & Harkness LLP Date: ________ DISTRIBUTION: Inte