1012-00004 · Stonefield Logistics Group · Arbitration Strategy

arbitration-timing-strategy-memorandum.docx DOCUMENT Finance & Banking

2 / 35 ← → ✕

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP 2200 Ross Avenue, Suite 3600 Dallas, TX 75201

INTERNAL MEMORANDUM

June 10, 2025

TO:

Margaret Hollis, General Counsel Stonefield Logistics Group Inc. 4200 Commerce Gateway Blvd., Suite 800 Irving, TX 75039

Nathan Okonkwo, Managing Director Ridgepoint Capital Management LLC 225 W. Wacker Drive, Suite 2400 Chicago, IL 60606

FROM:

Bernard Crawford, Responsible Partner Labor & Employment Practice Group Calderwood & Harkness LLP

CC:

Renata Vasquez, Billing Partner, Calderwood & Harkness LLP James Underwood, Lead Associate, Calderwood & Harkness LLP Devon Archer, Working Associate, Calderwood & Harkness LLP

RE:

Strategic Considerations — Timing of Motion to Compel Individual Arbitration for ICOA v3.0 Signatories in Delano v. Stonefield Logistics Group Inc., Case No. 3:25-cv-01847-RBC (N.D. Tex.)

CONFIDENTIALITY NOTICE: This memorandum is protected by the attorney-client privilege and the work product doctrine. It has been prepared in anticipation of litigation and for the purpose of providing legal advice to Stonefield Logistics Group Inc. and its authorized representatives. This memorandum and its contents should not be distributed outside of the authorized recipients identified above without the prior written consent of Calderwood & Harkness LLP.

I. Executive Summary

The purpose of this memorandum is to analyze the optimal timing for filing a motion to compel individual arbitration and dismiss the collective claims of the approximately 640 drivers who executed the Independent Contractor Operating Agreement, Version 3.0 ("ICOA v3.0"), which was introduced in January 2023 and contains an arbitration clause with an express class and collective action waiver. This analysis is undertaken in the context of Delano v. Stonefield Logistics Group Inc., Case No. 3:25-cv-01847-RBC (N.D. Tex.), and is informed by both the litigation posture and the broader business considerations facing Stonefield Logistics Group Inc. ("SLG" or "Stonefield") and its majority equity holder, Ridgepoint Capital Partners Fund III, LP ("Ridgepoint").

Plaintiff Marcus Delano filed his Fair Labor Standards Act ("FLSA") collective action complaint on April 30, 2025, through his counsel at Hartwell & Brashear PLLC, alleging that SLG has misclassified its delivery drivers as independent contractors and seeking unpaid overtime compensation, liquidated damages, and attorneys' fees on behalf of a proposed collective of all similarly situated drivers. Plaintiff's Motion for Conditional Certification was filed on July 14, 2025, and Stonefield's response to that motion is due on August 13, 2025. Plaintiff's reply is due August 27, 2025. The proposed collective, as defined in Plaintiff's motion, encompasses approximately 1,187 drivers operating across all 14 SLG distribution hubs.

The strategic significance of the arbitration motion is substantial. If the motion to compel arbitration for ICOA v3.0 signatories succeeds, approximately 640 drivers would be removed from the potential collective, reducing it from approximately 1,187 to approximately 547 drivers. This reduction would decrease Stonefield's total potential exposure from approximately $73,958,409 (inclusive of FLSA liquidated damages) to approximately $34.1 million — a reduction of approximately $39.9 million. It is important to note that the named plaintiff, Marcus Delano, signed ICOA v1.0 (the original 2018 version), which does not contain an arbitration clause. Accordingly, the motion to compel arbitration would not apply to Mr. Delano personally and would not defeat the action in its entirety. However, the motion would significantly reduce the collective's scope and SLG's aggregate liability exposure.

This memorandum evaluates three timing options for filing the motion to compel arbitration:

Option A: Filing the motion to compel arbitration before the conditional certification ruling, as a standalone motion filed in advance of the August 13, 2025 opposition deadline.

Option B: Filing the motion to compel arbitration concurrently with or shortly after the opposition to conditional certification, integrating the arbitration argument into the conditional certification briefing and filing the standalone motion within approximately two weeks thereafter.

Option C: Filing the motion to compel arbitration after the court rules on conditional certification, deferring the motion until the court has addressed conditional certification and, potentially, until opt-in notices have been distributed.

As discussed in detail below, Calderwood & Harkness recommends Option B — filing the motion to compel arbitration concurrently with or shortly after the opposition to conditional certification — as the approach that best balances legal strength, strategic impact, cost management within the Phase 1 billing cap, and alignment with Ridgepoint's anticipated exit or recapitalization timeline in late 2025 or early 2026.

II. Background

A. The ICOA v3.0 Arbitration Clause

Stonefield's contractual relationship with its delivery drivers is governed by the Independent Contractor Operating Agreement, which has been revised on three occasions since its initial adoption. The original ICOA v1.0 was drafted by Pennfield & Daye LLP in 2018, contemporaneous with the launch of SLG's independent contractor driver program. ICOA v1.0 was subsequently revised in August 2020, producing ICOA v2.0, which updated certain compensation terms and operational requirements but did not add dispute resolution provisions. Neither ICOA v1.0 nor ICOA v2.0 contains an arbitration provision or a class or collective action waiver.

In January 2023, Stonefield undertook a comprehensive revision of the ICOA, resulting in ICOA v3.0. The most significant addition in ICOA v3.0 was the inclusion of Section 14 — a mandatory arbitration clause and class/collective action waiver. This provision requires that all disputes "arising out of or relating to" the ICOA, "including but not limited to claims related to classification, compensation, the nature of the working relationship, and any federal, state, or local statutory claims," be resolved through binding individual arbitration administered by the American Arbitration Association ("AAA") under its Employment Arbitration Rules and Mediation Procedures. The collective action waiver expressly provides that the signatory "waives any right to participate in, initiate, or be a member of any class, collective, or representative action in any court or arbitral forum."

Of the approximately 1,187 drivers encompassed by the proposed collective in this action, approximately 640 drivers executed ICOA v3.0. The remaining approximately 547 drivers continue to operate under ICOA v1.0 or ICOA v2.0, neither of which contains an arbitration provision.

A separate enforceability analysis of the ICOA v3.0 arbitration clause and collective action waiver was completed by this firm and transmitted to Ms. Hollis on May 15, 2025 (see C&H Memorandum re: Enforceability of ICOA v3.0 Arbitration and Collective Action Waiver, dated May 15, 2025). That analysis concluded that the arbitration clause and collective action waiver are likely enforceable under the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1–16, and applicable Fifth Circuit precedent. In particular, the United States Supreme Court's decision in Granite Harbor Systems. v. Lewis, 584 U.S. 497 (2018), squarely holds that arbitration agreements containing class and collective action waivers are enforceable under the FAA, even in the context of FLSA collective actions. The Supreme Court's subsequent decision in Lamps Plus, Inc. v. Varela, 587 U.S. 323 (2019), further reinforced that arbitration agreements must be enforced according to their terms and that ambiguity in an arbitration agreement does not justify classwide arbitration.

The principal enforceability risk identified in the May 15, 2025 memorandum relates to the FAA § 1 transportation worker exemption. Section 1 of the FAA exempts from its coverage "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." The Supreme Court's decision in New Prime Inc. v. Oliveira, 586 U.S. 105 (2019), extended this exemption to independent contractor agreements with transportation workers, holding that the term "contracts of employment" in FAA § 1 refers broadly to agreements to perform work rather than solely to employer-employee relationships. Accordingly, if SLG's drivers are determined to be "workers engaged in foreign or interstate commerce" within the meaning of FAA § 1, the arbitration clause could fall outside the FAA's coverage.

Our May 15, 2025 analysis concluded that the FAA § 1 exemption is unlikely to apply to SLG's drivers because they are classified as independent contractors performing last-mile and regional delivery services rather than serving as interstate transportation workers. The drivers' routes are predominantly intrastate, and SLG's operations are centered on regional distribution hub-to-destination delivery rather than interstate freight movement. The Fifth Circuit's analysis in Eastus v. ISS Facility Services, Inc., 960 F.3d 207 (5th Cir. 2020), supports a narrow construction of the exemption. However, this issue presents a non-trivial litigation risk, particularly if Plaintiff can marshal evidence that a meaningful percentage of SLG drivers regularly cross state lines or that SLG's delivery network forms part of a broader interstate supply chain. We estimate the probability of the court applying the FAA § 1 exemption at approximately 15–25%, with the risk varying by distribution hub and individual driver route patterns.

B. Procedural Posture

The relevant procedural history and upcoming deadlines are as follows:

• April 30, 2025: Plaintiff Marcus Delano filed his Complaint and Collective Action Demand through Hartwell & Brashear PLLC. Lead counsel is Claudia Hartwell. The complaint alleges violations of the FLSA, 29 U.S.C. § 207, asserting that SLG misclassified its delivery drivers as independent contractors and thereby failed to pay overtime compensation. The complaint seeks unpaid overtime wages, an equal amount as liquidated damages under 29 U.S.C. § 216(b), attorneys' fees, and costs.

• June 2, 2025: Stonefield filed its Answer through Calderwood & Harkness LLP, asserting fourteen affirmative defenses. Notably, the Fifth Affirmative Defense asserts the enforceability of the ICOA v3.0 arbitration clause and collective action waiver against all drivers who executed that agreement. The Sixth Affirmative Defense asserts that the proposed collective members are not similarly situated. Other affirmative defenses include independent contractor status, good faith and reasonable grounds defense under 29 U.S.C. § 260, and statute of limitations defenses.

• June 18, 2025: Rule 16 Scheduling Conference held before the Hon. Rebecca Chen, U.S. District Judge, Northern District of Texas, Dallas Division.

• June 20, 2025: Scheduling Order entered by the Court, establishing the following key deadlines:

• Plaintiff's Motion for Conditional Certification: July 14, 2025

• Defendant's Response to Motion for Conditional Certification: August 13, 2025

• Plaintiff's Reply: August 27, 2025

• discovery Cutoff: March 15, 2026

• Dispositive Motion Deadline: April 30, 2026

• Trial Setting: September 14, 2026

• July 14, 2025: Plaintiff's Motion for Conditional Certification filed. The motion proposes a collective of all current and former delivery drivers who performed services for SLG at any of its 14 distribution hubs during the three-year period preceding the filing of the complaint and who were classified as independent contractors.

The case is assigned to the Hon. Rebecca Chen, U.S. District Judge, with the Hon. Timothy Farrell serving as the assigned Magistrate Judge.

C. Ridgepoint Capital Exit Timeline

Ridgepoint Capital Partners Fund III, LP acquired a 72% equity stake in Stonefield Logistics Group Inc. in July 2019 for approximately $285 million. Nathan Okonkwo, Managing Director of Ridgepoint Capital Management LLC (the general partner of Fund III), serves as a board observer on the SLG Board of Directors. The remaining equity is held by the founding Stonefield family interests and certain management equity participants.

Ridgepoint is actively exploring a potential exit or recapitalization of its SLG investment, with a target window of late 2025 or early 2026. Potential exit paths under consideration include a strategic sale, a secondary sale to another private equity sponsor, and a dividend recapitalization. These alternatives are at varying stages of analysis, and preliminary outreach to potential acquirers and capital providers has commenced.

The pendency and scale of this litigation materially affects SLG's enterprise value and any potential transaction. The total potential exposure of approximately $73,958,409 (inclusive of FLSA liquidated damages) is significant relative to SLG's financial profile: SLG reported fiscal year 2024 EBITDA of $28.4 million on revenue of $312.7 million. An unresolved FLSA collective action with aggregate exposure exceeding 2.5x EBITDA would be expected to materially impact buyer or lender diligence, purchase price negotiations, indemnity and escrow provisions, and representations and warranties insurance underwriting.

Reducing litigation exposure through successful enforcement of the ICOA v3.0 arbitration clauses or through early resolution of the litigation is therefore a significant priority for both SLG and Ridgepoint. Ridgepoint's exit timeline creates urgency to achieve clarity on the collective's actual size and the realistic range of potential liability as early as practicable. In particular, if a potential transaction is to be signed and closed in Q4 2025 or Q1 2026, having a court ruling on the arbitrability of the ICOA v3.0 signatories' claims in hand — or at a minimum having the motion pending and fully briefed — would materially improve SLG's negotiating position and valuation.

III. Option A: File Motion to Compel Arbitration Before the Conditional Certification Ruling

A. Description. Under Option A, Stonefield would file the motion to compel individual arbitration for the approximately 640 ICOA v3.0 signatories immediately — that is, prior to August 13, 2025, when the opposition to conditional certification is due — as a standalone motion. This would place the arbitration motion before the court before it rules on the conditional certification question, and it would be briefed on a separate track from the conditional certification briefing.

The motion would request that the court (i) compel individual arbitration for all claims brought by or on behalf of any putative collective member who executed ICOA v3.0, and (ii) dismiss or strike those individuals from the proposed collective.

B. Advantages. Filing the motion to compel arbitration in advance of the conditional certification briefing offers several potential advantages:

Demonstrates confidence in enforceability. An early filing signals that Stonefield has strong confidence in the enforceability of the ICOA v3.0 arbitration clause and is not seeking to delay or obscure the issue. This posture can be effective both with the court and with opposing counsel, who may be prompted to reassess the scope and viability of the proposed collective.

Potential to resequence the court's analysis. If the motion is filed early, there is a possibility — though not a certainty — that the court may elect to address the arbitration issue first, potentially mooting or significantly narrowing the conditional certification question. If the court rules favorably on arbitration before it reaches conditional certification, the collective would be immediately reduced from approximately 1,187 to approximately 547 drivers, and the court would know the true scope of the proposed collective before deciding conditional certification. This could simplify the court's analysis and, in the best case, lead to a denial of conditional certification for the remaining drivers on independent grounds.

Proactive defense posture and settlement leverage. An early filing signals to Plaintiff's counsel that the collective may not be as large as alleged in the conditional certification motion. This could facilitate earlier settlement discussions at more favorable terms, which would be aligned with Ridgepoint's timeline for achieving clarity on litigation exposure. If Hartwell & Brashear recognizes that the maximum realistic collective is closer to 547 drivers rather than 1,187, the settlement demand calculus changes materially.

C. Disadvantages. Despite these potential advantages, Option A presents several significant risks and drawbacks:

Risk of deferred ruling. The most significant risk is that the court will decline to address the arbitration motion before resolving conditional certification. Northern District of Texas practice, and Fifth Circuit authority more broadly, generally favors addressing conditional certification as a threshold matter in FLSA collective actions. The court retains broad discretion on the sequencing of motions, and there is a substantial possibility that Hon. Rebecca Chen would defer ruling on the arbitration motion until after conditional certification is resolved. In that scenario, the arbitration motion would sit pending while the certification briefing proceeds on its own timeline, resulting in no strategic advantage and potentially duplicative briefing.

Risk of adverse judicial perception. Filing a standalone arbitration motion in advance of the conditional certification opposition could be perceived by the court as a dilatory tactic or an attempt to complicate the conditional certification process. This is a particular concern given that the FLSA conditional certification standard is deliberately lenient — courts routinely grant conditional certification at the notice stage — and an early arbitration motion might be viewed as an effort to circumvent that process. Hon. Rebecca Chen has not issued any published decisions on the sequencing of arbitration motions in FLSA collective actions, but her general case management approach favors adherence to the scheduling order and orderly briefing.

Resource diversion and billing cap risk. Filing the arbitration motion on a standalone basis before the conditional certification opposition is due would divert the defense team's attention and resources during a critical briefing period. Legal fees through the conditional certification stage are already estimated at approximately $385,000 (exclusive of the $90,000 allocated for Dr. Priya Ramanathan's expert preliminary analysis from Corbin Risk Advisors LLC), which places cumulative Phase 1 costs near the $475,000 billing cap. Adding a separate arbitration motion and associated briefing simultaneously increases the risk of exceeding the cap and requires reallocation of resources from the conditional certification opposition, which is the more time-sensitive filing.

Ripeness concerns. Plaintiff's counsel will likely argue that the arbitration motion is premature at this stage because no opt-in notices have been sent and no individual ICOA v3.0 driver has yet attempted to join the collective by filing a consent form. Hartwell & Brashear will contend that there is no ripe controversy as to those individuals, and that the motion to compel arbitration is an advisory request that asks the court to rule on the enforceability of arbitration agreements with respect to persons who are not yet parties to the action. While there are counterarguments to this position — including that the proposed collective definition encompasses the v3.0 signatories and that the court has authority to narrow the collective prospectively — the ripeness objection has some force at this procedural stage.

Fifth Circuit precedent on sequencing. Several Fifth Circuit decisions suggest that courts retain discretion on the sequencing of arbitration and conditional certification motions and may prefer to address conditional certification first before resolving individual arbitrability questions. See, e.g., Villarreal v. C.H. Robinson Worldwide, Inc., No. 5:18-cv-00281 (W.D. Tex. 2019) (addressing conditional certification before ruling on pending motion to compel arbitration for subset of collective members).

D. Estimated Additional Cost

The estimated additional legal fees for a standalone arbitration motion and supporting brief filed at this stage are approximately $45,000 to $65,000. This estimate reflects the preparation of the motion, supporting brief, declarations (including the declaration of Stonefield's Vice President of Human Resources regarding the execution and distribution of ICOA v3.0), and exhibits. Potential reply briefing costs are estimated at an additional $15,000 to $25,000. These costs, when added to the existing Phase 1 budget, present a material risk of exceeding the $475,000 billing cap.

IV. Option B: File Motion to Compel Arbitration Concurrently with or Shortly After the Conditional Certification Opposition

A. Description. Under Option B, Stonefield would pursue a two-pronged approach:

First, Stonefield would incorporate the ICOA v3.0 arbitration clause argument as a significant component of its opposition to conditional certification, which is due on August 13, 2025. The opposition would argue, among other things, that the proposed collective is overbroad because approximately 640 of the 1,187 putative collective members are bound by enforceable arbitration agreements with collective action waivers, and that the court should either deny conditional certification as to those individuals or narrow the conditional certification order to exclude them.

Second, contemporaneously with the filing of the opposition brief or within approximately one to two weeks thereafter (target filing date: August 25–27, 2025), Stonefield would file a standalone motion to compel individual arbitration for the ICOA v3.0 signatories, supported by a full brief and evidentiary record. This standalone motion would develop the arbitration enforceability arguments in greater detail and request that the court compel individual arbitration and dismiss or strike the collective claims of v3.0 signatories.

An alternative sub-approach within Option B is to file the standalone arbitration motion immediately after the court rules on conditional certification but before opt-in notices are distributed. This variant would be appropriate if the court issues a ruling on conditional certification before addressing the arbitration motion, and it would allow Stonefield to seek a stay of opt-in notices as to v3.0 signatories pending resolution of the arbitration motion.

B. Advantages. Option B offers the most favorable combination of strategic, legal, and financial advantages:

Natural integration of the arbitration argument into the conditional certification opposition. The opposition to conditional certification must already address the question of whether the proposed collective members are "similarly situated" within the meaning of 29 U.S.C. § 216(b). One of the strongest arguments against conditional certification — or, alternatively, for narrowing the certified collective — is that the proposed collective encompasses drivers operating under materially different contractual terms. The existence of three distinct versions of the ICOA, only one of which contains an arbitration clause and collective action waiver, is the most significant contractual variation among the putative collective members. Incorporating the arbitration argument into the conditional certification opposition strengthens the "overbroad collective" argument by demonstrating that the proposed collective is not a homogeneous group but rather includes a substantial subset of drivers who have contractually agreed to resolve disputes through individual arbitration rather than collective litigation.

Efficiency and cost-effectiveness. The opposition brief already addresses the variations among ICOA v1.0, v2.0, and v3.0 as part of the "similarly situated" analysis. Dr. Priya Ramanathan's expert declaration from Corbin Risk Advisors LLC, which is being prepared to support the opposition, will address the distributional and operational differences among drivers under the three ICOA versions. The arbitration clause difference is the most significant variation among ICOA versions, and incorporating it into the existing briefing leverages work already underway rather than creating an entirely separate briefing track. The estimated incremental cost for the standalone arbitration motion filed concurrently or shortly after the opposition — building on the research and analysis already performed — is $25,000 to $40,000, which is substantially lower than the $45,000 to $65,000 estimate for a standalone early filing under Option A.

Court receives a complete picture. By integrating the arbitration argument into the conditional certification opposition and filing the standalone motion shortly thereafter, Stonefield provides the court with a complete picture of the defense's position at once. The court can consider both (a) that the proposed collective members are not similarly situated and that conditional certification should be denied or narrowed on that basis, and (b) that even if conditional certification is granted, the collective is significantly smaller than alleged because 640 members are subject to enforceable arbitration agreements. This dual-track argument provides the court with multiple bases for narrowing the collective and increases the likelihood that at least one of these arguments will succeed.

Preserves a second opportunity to narrow the collective. If the court grants conditional certification without addressing the arbitration issue in the conditional certification ruling, the standalone arbitration motion remains pending and provides a second, independent mechanism for reducing the collective. The arbitration motion is not dependent on the conditional certification ruling; it is based on the FAA and the enforceability of the arbitration agreements, which are separate legal bases.

Cost management within Phase 1 billing cap. At $25,000 to $40,000 in incremental costs, Option B is manageable within the Phase 1 billing cap of $475,000 (inclusive of $90,000 for expert preliminary analysis). As discussed in greater detail in the Comparative Analysis section below, cumulative fees through June 30, 2025 were $87,400, and cumulative fees through July 31, 2025 are projected at approximately $142,350, leaving approximately $332,650 in remaining Phase 1 budget. Even at the high end of the incremental cost estimate for Option B, cumulative Phase 1 costs would remain within the cap.

Alignment with Ridgepoint exit timeline. If the standalone arbitration motion is filed in late August 2025 and the court addresses it in the ordinary course — with response briefing completed by late September or early October 2025 — a ruling could reasonably be expected by November or December 2025. This timing would provide Ridgepoint and SLG with clarity on the collective's actual scope and the realistic range of potential liability before year-end, which is aligned with the targeted exit or recapitalization window of late 2025 or early 2026. Having a favorable ruling in hand, or at a minimum a fully briefed motion pending, would materially improve SLG's valuation position and reduce the litigation-related overhang on any potential transaction.

C. Disadvantages. Option B is not without risks, though the risks are manageable and can be mitigated through careful briefing:

Risk of opt-in notices to v3.0 signatories. If the court grants conditional certification without addressing the arbitration issue — which is possible, particularly if the court follows the lenient "similarly situated" standard typically applied at the conditional certification stage — there may be a period during which opt-in notices are sent to all 1,187 drivers, including the 640 ICOA v3.0 signatories. If v3.0 drivers opt in before the arbitration motion is resolved, additional motion practice would be required to compel individual arbitration for each opt-in, increasing costs and administrative burden. This risk can be partially mitigated by requesting that the court either (i) defer the distribution of opt-in notices until the arbitration motion is resolved, or (ii) bifurcate the opt-in notice process to separately address v3.0 and non-v3.0 drivers.

Potential dilution of the "not similarly situated" argument. There is a risk that raising the arbitration argument prominently in the conditional certification opposition could be read by the court as an implicit concession that the remaining drivers (those under ICOA v1.0 and v2.0) are similarly situated and that conditional certification is appropriate as to those approximately 547 drivers. Plaintiff's counsel will likely seize on this framing to argue that Stonefield has effectively conceded conditional certification for the non-v3.0 drivers.

Mitigation. This risk can be mitigated through careful briefing that frames the arbitration argument as one of multiple independent grounds for denying or narrowing conditional certification — not as the sole argument. The opposition should maintain Stonefield's position that the proposed collective members are not similarly situated on multiple independent grounds, including (i) the arbitration clause variation, (ii) differences in operational structures, route assignments, and work conditions across distribution hubs, (iii) differences in the degree of control exercised by SLG over drivers at different hubs, and (iv) individualized issues that predominate over common questions. The arbitration argument should be presented as an additional, independently sufficient basis for narrowing the collective, without conceding the broader "similarly situated" analysis.

D. Estimated Additional Cost

The estimated incremental cost for the standalone arbitration motion, leveraging the research and briefing already underway for the conditional certification opposition, is $25,000 to $40,000. This estimate is lower than the Option A estimate because a significant portion of the legal analysis, factual record development, and exhibit preparation will already have been completed in connection with the conditional certification opposition. The incremental cost is expected to remain within the Phase 1 billing cap.

V. Option C: File Motion to Compel Arbitration After the Court Rules on Conditional Certification

A. Description. Under Option C, Stonefield would hold the arbitration motion entirely and defer filing until after the court has ruled on the motion for conditional certification. If conditional certification is granted, Stonefield would then file the motion to compel arbitration as a post-certification motion, seeking to narrow the collective before or during the opt-in period. If conditional certification is denied entirely, the arbitration motion would be unnecessary, at least for the time being.

B. Advantages. Deferring the arbitration motion until after the conditional certification ruling offers certain advantages:

Avoids ripeness concerns entirely. By waiting until after conditional certification is granted and opt-in notices are sent, Stonefield eliminates any ripeness or standing argument. Once individual ICOA v3.0 drivers file consent forms to opt in to the collective, there is an actual controversy as to each of those individuals, and the motion to compel arbitration for each opt-in is unambiguously ripe for adjudication.

Tailored briefing. Waiting to see how the court frames its conditional certification ruling allows Stonefield to tailor the arbitration motion to the court's reasoning. If the court's ruling contains language favorable to the defense — for example, acknowledging differences among ICOA versions or noting the arbitration clause as a distinguishing factor — Stonefield can incorporate that language into the arbitration motion. Conversely, if the court's ruling raises concerns about the enforceability of the arbitration clause or the FAA § 1 exemption, Stonefield can preemptively address those concerns in the arbitration motion.

Potential cost savings if conditional certification is denied. If the court denies conditional certification entirely — which, while unlikely at the notice stage, is not impossible — the arbitration motion would be unnecessary, and Stonefield would avoid the cost of preparing and filing it. The estimated savings would be $25,000 to $65,000, depending on which option would have been pursued.

Clear litigation posture. Filing the arbitration motion after conditional certification provides a cleaner procedural posture: the court has addressed the threshold question of collective certification, and the arbitration motion is squarely addressed to the question of which opt-in individuals are subject to enforceable arbitration agreements.

C. Disadvantages. The disadvantages of Option C are substantial and, in our assessment, outweigh the advantages:

Delay. The most significant disadvantage is delay. Depending on the court's docket and decision timeline, a ruling on conditional certification is likely to issue in fall 2025 — potentially as late as October or November 2025. If conditional certification is granted, the arbitration motion would not be filed until late 2025 or early 2026. Briefing on the arbitration motion would then extend into early 2026, and a ruling might not issue until spring 2026. This timeline is too late to meaningfully impact Ridgepoint's targeted exit or recapitalization window of late 2025 to early 2026. The litigation would remain unresolved and the collective size uncertain during the critical period when potential acquirers or capital providers would be conducting diligence.

Opt-in proliferation. During the interim between conditional certification and the resolution of the arbitration motion, all 1,187 drivers — including the 640 ICOA v3.0 signatories — would be eligible to receive opt-in notices. Experience in FLSA collective actions indicates that opt-in rates can vary significantly, but a rate of 50% to 70% among notified drivers is within the range of reasonable expectations, particularly where plaintiff's counsel conducts active outreach. If 50% to 70% of the 640 v3.0 signatories opt in, Stonefield would face 320 to 448 individual opt-ins who are subject to arbitration agreements, each of whom would require individual or batched motion practice to compel arbitration. This significantly increases the administrative burden and cost of enforcing the arbitration clause.

Higher aggregate legal costs. As a consequence of the opt-in proliferation discussed above, motion practice to compel individual arbitrations for 320 to 448 individual drivers could cost $75,000 to $150,000 or more, depending on whether the court permits batched or omnibus motion practice or requires individual motions. These costs far exceed the Phase 1 billing cap and would create substantial Phase 2 costs that are not currently budgeted.

Increased waiver risk. While the risk of arbitration waiver is assessed as low under all three options — principally because Stonefield asserted the enforceability of the arbitration clause and collective action waiver as the Fifth Affirmative Defense in its Answer filed on June 2, 2025 — the risk increases with delay. The Fifth Circuit applies a two-part test for waiver of the right to compel arbitration, examining whether the party seeking arbitration (i) substantially invoked the judicial process, and (ii) caused prejudice to the opposing party. See Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344 (5th Cir. 2004). By participating in the conditional certification process without raising the arbitration defense in a motion, and by engaging in merits discovery during the post-certification period, Stonefield would provide Plaintiff's counsel with additional factual predicates to argue waiver. While the assertion of the arbitration defense in the Answer substantially mitigates this risk, delay increases the argument's surface area and introduces uncertainty.

Loss of strategic information asymmetry. If the arbitration motion is deferred, Plaintiff's counsel will have additional time to organize and recruit opt-ins among v3.0 drivers before Stonefield acts. Early filing of the arbitration motion serves to put v3.0 drivers and Plaintiff's counsel on notice that these drivers' participation in the collective is contested, which may deter some v3.0 drivers from opting in or prompt Plaintiff's counsel to focus opt-in efforts on non-v3.0 drivers.

D. Estimated Additional Cost

If opt-in notices are distributed to all 1,187 drivers and a significant number of ICOA v3.0 signatories opt in — estimated at 50% to 70% of 640 v3.0 drivers, or approximately 320 to 448 individual drivers — the cost of motion practice to compel individual arbitrations could range from $75,000 to $150,000 or more. This estimate assumes that some degree of batched or omnibus motion practice may be available, but the costs could be higher if the court requires individualized motions and hearings. These costs far exceed the Phase 1 billing cap of $475,000 and would create substantial additional Phase 2 expenditures.

VI. Comparative Analysis

A. Summary Table

The following table summarizes the key dimensions of comparison across the three timing options:

B. Key Considerations Weighed

Collective Size Reduction. All three options ultimately aim to achieve the same outcome: the removal of approximately 640 ICOA v3.0 signatories from the potential collective, reducing it from approximately 1,187 to approximately 547 drivers and decreasing maximum exposure from approximately $73,958,409 to approximately $34.1 million (inclusive of liquidated damages). The question is not whether to pursue the motion to compel arbitration — that decision has already been made — but rather when to file it for maximum strategic effect. Option B achieves this most efficiently by integrating the arbitration argument into the existing conditional certification briefing and filing the standalone motion on an accelerated but cost-effective timeline.

Cost Management. Option B is the most cost-effective approach, with estimated incremental costs of $25,000 to $40,000 compared to $45,000 to $65,000 (plus $15,000 to $25,000 in reply costs) for Option A and $75,000 to $150,000 or more for Option C. The Phase 1 billing cap of $475,000 — which is inclusive of $90,000 in expert costs for Dr. Ramanathan's preliminary analysis — requires careful management. Cumulative fees through June 30, 2025 were $87,400. Cumulative fees through July 31, 2025 are projected at approximately $142,350, reflecting the substantial work underway on the conditional certification opposition, expert coordination, and document review. This leaves approximately $332,650 remaining in the Phase 1 budget. Under Option B, the incremental arbitration motion costs of $25,000 to $40,000 would consume only a small fraction of the remaining budget. Under Option A, the higher costs and the risk of duplicative briefing threaten to exhaust the Phase 1 budget. Under Option C, the post-certification motion practice costs would far exceed the Phase 1 cap and require negotiation of additional budget authority.

Ridgepoint Timeline. Option B is most closely aligned with Ridgepoint's targeted exit or recapitalization window of late 2025 to early 2026. If the standalone arbitration motion is filed in late August 2025 and fully briefed by late September or early October 2025, a ruling can reasonably be expected by November or December 2025, depending on the court's docket. This would provide Ridgepoint and SLG with a substantially clearer picture of the collective's actual scope and potential liability range before year-end, which is critical to informing exit or recapitalization valuations, buyer diligence, and negotiation of indemnification or escrow provisions. Option A offers earlier filing but carries a substantial risk that the court defers ruling until after conditional certification, which would negate the timing advantage. Option C risks not resolving the arbitration question until spring 2026, which is too late to meaningfully impact the Ridgepoint exit timeline.

Waiver Risk. The risk of waiver is assessed as low under all three options, given that Stonefield asserted the enforceability of the arbitration clause and collective action waiver as the Fifth Affirmative Defense in its Answer filed on June 2, 2025. However, waiver risk is a function of time and litigation conduct: the longer Stonefield participates in the litigation without seeking to enforce the arbitration clause, the greater the surface area for waiver arguments. Option A presents no meaningful waiver risk. Option B presents minimal waiver risk, as the arbitration argument is raised within months of the Answer and before any merits discovery. Option C presents the most surface area for waiver arguments, particularly if Stonefield participates in merits discovery and the conditional certification process without seeking to enforce the arbitration clause until after opt-ins have been received.

Court Receptivity. Based on our review of Hon. Rebecca Chen's prior case management orders and published decisions, and consistent with standard Northern District of Texas practice, we expect that the court will follow the typical approach of addressing conditional certification as a threshold matter in FLSA collective actions before turning to individual arbitrability questions. This makes Option A less likely to succeed in changing the court's preferred sequencing. Option B hedges this risk effectively by integrating the arbitration argument into the conditional certification opposition — thereby ensuring the court is aware of the issue and can address it in its conditional certification ruling if it chooses — while simultaneously filing the standalone motion to preserve the issue for separate adjudication if the court does not address it in the certification context.

VII. Interaction with Other Strategic Considerations

A. Impact on Settlement Posture

The timing and success of the arbitration motion will materially affect the settlement calculus for both parties. Reducing the collective from 1,187 to 547 drivers changes the analysis significantly. At 547 drivers, the total potential exposure (including FLSA liquidated damages) drops from approximately $73,958,409 to approximately $34.1 million. If opt-in rates are moderate — and historical data in comparable FLSA collective actions in the Northern District of Texas suggest opt-in rates in the range of 15% to 30% at the conditional certification stage — the number of actual opt-in claimants from the remaining 547 non-v3.0 drivers could be approximately 82 to 164 individuals. Even at a 20% opt-in rate (approximately 109 drivers), the actual aggregate exposure could be approximately $6.8 million, which is within the limits of SLG's Employment Practices Liability Insurance ("EPLI") policy.

Early resolution of the arbitration issue would therefore strengthen Stonefield's negotiating position for any mediation or settlement discussions. If the court compels arbitration for v3.0 signatories, Plaintiff's counsel will be forced to reassess the economics of the case and the realistic range of recovery. This may prompt earlier and more favorable settlement discussions, which would be consistent with Ridgepoint's interest in achieving resolution or at least clarity on litigation exposure before any exit transaction.

The draft mediation position statement, which is currently in preparation, should account for the timing of the arbitration motion and its anticipated impact on collective size. We recommend that the mediation position statement be finalized after the court's ruling on the arbitration motion (or, if mediation is scheduled before a ruling, that the position statement present the motion's pendency as a factor materially affecting the settlement range).

B. Impact on EPLI Coverage

Stonefield's EPLI policy, Policy No. BIC-EPL-2024-07831, is underwritten by Broadleaf Insurance Company and provides coverage for Employment Practices Wrongful Acts, subject to a $10 million aggregate limit and a $2 million self-insured retention ("SIR"). Broadleaf Insurance Company acknowledged coverage of the Delano action by letter dated May 19, 2025, subject to a reservation of rights. The reservation of rights letter identifies two principal coverage issues: (a) whether misclassification claims constitute covered "Employment Practices Wrongful Acts" under the policy, given that the policy defines covered acts in relation to an "employment relationship" and the core allegation in this case is that SLG's drivers were misclassified as independent contractors rather than employees; and (b) a potential late-notice defense for conduct occurring prior to the inception of the current policy period, to the extent that SLG had notice of potential claims before the policy was placed.

The interplay between the arbitration motion and the EPLI coverage is significant. If the collective is reduced to approximately 547 drivers and actual exposure falls to a range of approximately $6.8 million to $34.1 million (depending on opt-in rates and the ultimate merits outcome), the likelihood of achieving settlement within the policy limits increases substantially. At the lower end of the exposure range — approximately $6.8 million based on a 20% opt-in rate — settlement within the $10 million policy limit (net of the $2 million SIR) would be feasible, and Broadleaf's contribution would be meaningful even if coverage is ultimately confirmed only in part. Conversely, at the higher end of the exposure range — particularly at the full $73,958,409 aggregate exposure with the full collective — the $10 million policy limit would cover only a small fraction of a potential judgment, and the out-of-pocket exposure to SLG would be severe.

We continue to monitor the Broadleaf reservation of rights and are in communication with Broadleaf's coverage counsel regarding the scope of coverage. The resolution of the arbitration motion and the resulting reduction in collective size may also affect Broadleaf's posture on the reservation of rights, as a smaller collective and lower exposure range may reduce the insurer's incentive to contest coverage.

C. Impact on Lender and Auditor Considerations

Stonefield's primary lending relationship is with Meridian National Bank, which serves as administrative agent under SLG's senior secured credit facility. The credit agreement contains customary representations and covenants regarding litigation contingencies, including a requirement to disclose pending or threatened litigation that could reasonably be expected to have a material adverse effect on SLG's financial condition or operations. The potential exposure in the Delano action — at approximately $73,958,409 on the high end — is material relative to SLG's $28.4 million EBITDA and $312.7 million revenue. Reducing the potential collective size and the corresponding exposure range will be relevant to any required disclosures, covenant compliance assessments, and communications with Meridian National Bank.

Similarly, Whitmore & Solano CPAs LLP, SLG's external auditors, will likely need to assess the Delano litigation as a contingent liability for financial statement purposes under ASC 450 (formerly SFAS No. 5). A clearer picture of the collective size and the enforceability of the ICOA v3.0 arbitration clause would support more precise loss contingency estimates and disclosures. If the arbitration motion is filed and resolved before year-end, Whitmore & Solano would have a substantially better basis for evaluating whether the contingent liability should be classified as probable, reasonably possible, or remote, and for estimating the range of reasonably possible loss.

VIII. Recommendation

Based on the analysis set forth in this memorandum, Calderwood & Harkness recommends Option B: file the motion to compel individual arbitration concurrently with or shortly after the opposition to conditional certification.

Specifically, we recommend the following sequencing:

1. August 13, 2025: File Stonefield's opposition to conditional certification by the established deadline, prominently incorporating the ICOA v3.0 arbitration clause argument as one of several independent bases for denying or narrowing the proposed collective. The opposition brief should argue that the proposed collective of 1,187 drivers is overbroad because approximately 640 members are bound by enforceable arbitration agreements with collective action waivers, and that conditional certification should be denied or limited to the approximately 547 drivers who are not subject to arbitration agreements.

2. August 25–27, 2025 (target): File the standalone motion to compel individual arbitration for all ICOA v3.0 signatories, supported by a full brief, declarations, and exhibits. The motion should request that the court (a) compel individual arbitration for all putative collective members who executed ICOA v3.0, (b) dismiss or strike the collective claims of those individuals, and (c) in the event that conditional certification has been granted by the time the motion is ruled upon, order that opt-in notices not be sent to v3.0 signatories or that any opt-in consents filed by v3.0 signatories be dismissed.

3. Concurrent request regarding opt-in notices: In connection with the arbitration motion, request that the court (a) defer the distribution of opt-in notices until the arbitration motion is resolved, or alternatively (b) bifurcate the notice process to separately address v3.0 and non-v3.0 drivers, with notices to v3.0 drivers stayed pending the arbitration ruling. If neither stay nor bifurcation is granted, request that the opt-in notices to v3.0 signatories include language identifying the pending arbitration dispute and advising potential opt-ins that their participation may be subject to individual arbitration.

This approach maximizes strategic impact while managing costs within the Phase 1 billing cap. It provides the earliest practical path to reducing the collective size, preserves multiple bases for narrowing the collective, and aligns with Ridgepoint's exit timeline by targeting a resolution on the arbitration question by November or December 2025. The approach also minimizes waiver risk, addresses ripeness concerns by filing the standalone motion in proximity to the conditional certification briefing, and ensures that the court receives a complete picture of the defense's position before ruling on conditional certification.

The draft motion to compel arbitration and supporting brief have been prepared and are ready for finalization upon client authorization. We anticipate that finalization and filing will require approximately one to two weeks of additional work from the date of client approval.

IX. Requested Client Direction

We respectfully request direction from Ms. Hollis and Mr. Okonkwo on the following items:

1. Confirmation of timing strategy. Please confirm approval of Option B as the timing strategy for the motion to compel individual arbitration, or advise of any preference for an alternative approach.

2. Authorization to file. Please confirm authorization to file the standalone motion to compel individual arbitration in the August 25–27, 2025 timeframe, as described in the recommendation above.

3. Board Update coordination. Please confirm whether Ridgepoint and SLG wish to discuss the arbitration strategy — and its interaction with the exit/recapitalization timeline — in conjunction with the Board Update Memorandum that is scheduled for preparation and distribution on or about July 25, 2025. If so, we can prepare a summary of this memorandum's analysis and recommendation for inclusion in the Board Update Memorandum, subject to appropriate privilege protections.

4. Exit/recapitalization timeline considerations. Please identify any concerns regarding the impact of the proposed timing strategy on the exit or recapitalization timeline that should inform further strategic adjustments. In particular, if the targeted exit timeline has shifted or if there are specific diligence milestones that require litigation clarity by a particular date, we should adjust our filing and briefing strategy accordingly.

5. Early mediation discussions. Please advise whether early mediation discussions should be deferred until after the arbitration motion is filed and ruled upon, or whether SLG and Ridgepoint prefer to explore mediation in parallel with the arbitration motion. Our preliminary recommendation is that mediation discussions should be deferred until the arbitration motion is at least filed and fully briefed, so that Stonefield can negotiate from a position that reflects the reduced collective size. However, if there are business reasons to pursue earlier discussions — for example, to achieve clarity for exit diligence purposes — we can structure a mediation approach that accounts for the pending arbitration motion.

We are available to discuss these items by telephone or videoconference at your convenience. Please do not hesitate to contact me directly at (214) 555-7200.

X. Enclosures / Cross-References

The following documents are referenced in this memorandum and are either enclosed or available upon request:

1. C&H Memorandum re: Enforceability of ICOA v3.0 Arbitration and Collective Action Waiver (May 15, 2025)

2. Draft Motion to Compel Individual Arbitration and Dismiss Collective Claims of ICOA v3.0 Signatories (draft, not yet filed)

3. Draft Brief in Support of Motion to Compel Arbitration (draft, not yet filed)

4. ICOA Version Comparison Chart — v1.0, v2.0, v3.0 (May 12, 2025)

5. Damages Exposure Analysis Memorandum (June 5, 2025)

6. Initial Case Assessment Memorandum (May 9, 2025)

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Bernard Crawford Partner, Labor & Employment Practice Group

Calderwood & Harkness LLP 2200 Ross Avenue, Suite 3600 Dallas, TX 75201 Telephone: (214) 555-7200

Email: bcrawford@calderwoodharkness.com

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT. This memorandum is protected by the attorney-client privilege and the work product doctrine. It has been prepared in anticipation of litigation and for the purpose of providing legal advice to Stonefield Logistics Group Inc. Do not distribute outside authorized recipients without prior written consent of Calderwood & Harkness LLP.

Criterion	Option A: File Before Conditional Cert. Ruling	Option B: File Concurrently With / Shortly After Opposition	Option C: File After Conditional Cert. Ruling
Timing of Filing	Before August 13, 2025	August 13–27, 2025	Late 2025 / Early 2026 (post-ruling)
Estimated Incremental Legal Cost	$45,000–$65,000 (+ $15,000–$25,000 reply)	$25,000–$40,000	$75,000–$150,000+
Impact on Collective Size	Reduces collective from ~1,187 to ~547 if successful	Reduces collective from ~1,187 to ~547 if successful	Reduces collective from ~1,187 to ~547 if successful
Alignment with Ridgepoint Exit Timeline (Late 2025 / Early 2026)	Moderate — early filing but ruling may be deferred	Strong — ruling likely by Nov.–Dec. 2025	Weak — ruling unlikely before Spring 2026
Ripeness / Standing Risk	Moderate — no opt-ins yet	Low to Moderate — integrated with certification briefing	None — clear ripeness after opt-ins
Waiver Risk	None	Minimal	Low but increasing
Impact on Conditional Certification Strategy	Neutral to potentially disruptive	Synergistic — strengthens "overbroad collective" argument	Neutral
Likelihood Court Addresses Arbitration Promptly	Low to Moderate — court may defer	Moderate to High — court receives full picture	Moderate — but later in timeline
Impact on Phase 1 Billing Cap ($475,000)	Risk of exceeding cap	Manageable within cap	Exceeds cap significantly

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 2200 Ross Avenue, Suite 3600 Dallas, TX 75201
INTERNAL MEMORANDUM
June 10, 2025
TO:
Margaret Hollis, General Counsel Stonefield Logistics Group Inc. 4200 Commerce Gateway Blvd., Suite 800 Irving, TX 75039
Nathan Okonkwo, Managing Director Ridgepoint Capital Management LLC 225 W. Wacker Drive, Suite 2400 Chicago, IL 60606
FROM:
Bernard Crawford, Responsible Partner Labor & Employment Practice Group Calderwood & Harkness LLP
CC:
Renata Vasquez, Billing Partner, Calderwood & Harkness LLP James Underwood, Lead Associate, Calderwood & Harkness LLP Devon Archer, Working Associate, Calderwood & Harkness LLP
RE:
Strategic Considerations — Timing of Motion to Compel Individual Arbitration for ICOA v3.0 Signatories in Delano v. Stonefield Logistics Group Inc., Case No. 3:25-cv-01847-RBC (N.D. Tex.)
CONFIDENTIALITY NOTICE: This memorandum is protected by the attorney-client privilege and the work product doctrine. It has been prepared in anticipation of litigation and for the purpose of providing legal advice to Stonefield Logistics Group Inc. and its authorized representatives. This memorandum and its contents should not be distributed outside of the authorized recipients identified above without the prior written consent of Calderwood & Harkness LLP.
I. Executive Summary
The purpose of this memorandum is to analyze the optimal timing for filing a motion to compel individual arbitration and dismiss the collective claims of the approximately 640 drivers who executed the Independent Contractor Operating Agreement, Version 3.0 ("ICOA v3.0"), which was introduced in January 2023 and contains an arbitration clause with an express class and collective action waiver. This analysis is undertaken in the context of Delano v. Stonefield Logistics Group Inc., Case No. 3:25-cv-01847-RBC (N.D. Tex.), and is informed by both the litigation posture and the broader business considerations facing Stonefield Logistics Group Inc. ("SLG" or "Stonefield") and its majority equity holder, Ridgepoint Capital Partners Fund III, LP ("Ridgepoint").
Plaintiff Marcus Delano filed his Fair Labor Standards Act ("FLSA") collective action complaint on April 30, 2025, through his counsel at Hartwell & Brashear PLLC, alleging that SLG has misclassified its delivery drivers as independent contractors and seeking unpaid overtime compensation, liquidated damages, and attorneys' fees on behalf of a proposed collective of all similarly situated drivers. Plaintiff's Motion for Conditional Certification was filed on July 14, 2025, and Stonefield's response to that motion is due on August 13, 2025. Plaintiff's reply is due August 27, 2025. The proposed collective, as defined in Plaintiff's motion, encompasses approximately 1,187 drivers operating across all 14 SLG distribution hubs.
The strategic significance of the arbitration motion is substantial. If the motion to compel arbitration for ICOA v3.0 signatories succeeds, approximately 640 drivers would be removed from the potential collective, reducing it from approximately 1,187 to approximately 547 drivers. This reduction would decrease Stonefield's total potential exposure from approximately $73,958,409 (inclusive of FLSA liquidated damages) to approximately $34.1 million — a reduction of approximately $39.9 million. It is important to note that the named plaintiff, Marcus Delano, signed ICOA v1.0 (the original 2018 version), which does not contain an arbitration clause. Accordingly, the motion to compel arbitration would not apply to Mr. Delano personally and would not defeat the action in its entirety. However, the motion would significantly reduce the collective's scope and SLG's aggregate liability exposure.
This memorandum evaluates three timing options for filing the motion to compel arbitration:
Option A: Filing the motion to compel arbitration before the conditional certification ruling, as a standalone motion filed in advance of the August 13, 2025 opposition deadline.
Option B: Filing the motion to compel arbitration concurrently with or shortly after the opposition to conditional certification, integrating the arbitration argument into the conditional certification briefing and filing the standalone motion within approximately two weeks thereafter.
Option C: Filing the motion to compel arbitration after the court rules on conditional certification, deferring the motion until the court has addressed conditional certification and, potentially, until opt-in notices have been distributed.
As discussed in detail below, Calderwood & Harkness recommends Option B — filing the motion to compel arbitration concurrently with or shortly after the opposition to conditional certification — as the approach that best balances legal strength, strategic impact, cost management within the Phase 1 billing cap, and alignment with Ridgepoint's anticipated exit or recapitalization timeline in late 2025 or early 2026.
II. Background
A. The ICOA v3.0 Arbitration Clause
Stonefield's contractual relationship with its delivery drivers is governed by the Independent Contractor Operating Agreement, which has been revised on three occasions since its initial adoption. The original ICOA v1.0 was drafted by Pennfield & Daye LLP in 2018, contemporaneous with the launch of SLG's independent contractor driver program. ICOA v1.0 was subsequently revised in August 2020, producing ICOA v2.0, which updated certain compensation terms and operational requirements but did not add dispute resolution provisions. Neither ICOA v1.0 nor ICOA v2.0 contains an arbitration provision or a class or collective action waiver.
In January 2023, Stonefield undertook a comprehensive revision of the ICOA, resulting in ICOA v3.0. The most significant addition in ICOA v3.0 was the inclusion of Section 14 — a mandatory arbitration clause and class/collective action waiver. This provision requires that all disputes "arising out of or relating to" the ICOA, "including but not limited to claims related to classification, compensation, the nature of the working relationship, and any federal, state, or local statutory claims," be resolved through binding individual arbitration administered by the American Arbitration Association ("AAA") under its Employment Arbitration Rules and Mediation Procedures. The collective action waiver expressly provides that the signatory "waives any right to participate in, initiate, or be a member of any class, collective, or representative action in any court or arbitral forum."
Of the approximately 1,187 drivers encompassed by the proposed collective in this action, approximately 640 drivers executed ICOA v3.0. The remaining approximately 547 drivers continue to operate under ICOA v1.0 or ICOA v2.0, neither of which contains an arbitration provision.
A separate enforceability analysis of the ICOA v3.0 arbitration clause and collective action waiver was completed by this firm and transmitted to Ms. Hollis on May 15, 2025 (see C&H Memorandum re: Enforceability of ICOA v3.0 Arbitration and Collective Action Waiver, dated May 15, 2025). That analysis concluded that the arbitration clause and collective action waiver are likely enforceable under the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1–16, and applicable Fifth Circuit precedent. In particular, the United States Supreme Court's decision in Granite Harbor Systems. v. Lewis, 584 U.S. 497 (2018), squarely holds that arbitration agreements containing class and collective action waivers are enforceable under the FAA, even in the context of FLSA collective actions. The Supreme Court's subsequent decision in Lamps Plus, Inc. v. Varela, 587 U.S. 323 (2019), further reinforced that arbitration agreements must be enforced according to their terms and that ambiguity in an arbitration agreement does not justify classwide arbitration.
The principal enforceability risk identified in the May 15, 2025 memorandum relates to the FAA § 1 transportation worker exemption. Section 1 of the FAA exempts from its coverage "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." The Supreme Court's decision in New Prime Inc. v. Oliveira, 586 U.S. 105 (2019), extended this exemption to independent contractor agreements with transportation workers, holding that the term "contracts of employment" in FAA § 1 refers broadly to agreements to perform work rather than solely to employer-employee relationships. Accordingly, if SLG's drivers are determined to be "workers engaged in foreign or interstate commerce" within the meaning of FAA § 1, the arbitration clause could fall outside the FAA's coverage.
Our May 15, 2025 analysis concluded that the FAA § 1 exemption is unlikely to apply to SLG's drivers because they are classified as independent contractors performing last-mile and regional delivery services rather than serving as interstate transportation workers. The drivers' routes are predominantly intrastate, and SLG's operations are centered on regional distribution hub-to-destination delivery rather than interstate freight movement. The Fifth Circuit's analysis in Eastus v. ISS Facility Services, Inc., 960 F.3d 207 (5th Cir. 2020), supports a narrow construction of the exemption. However, this issue presents a non-trivial litigation risk, particularly if Plaintiff can marshal evidence that a meaningful percentage of SLG drivers regularly cross state lines or that SLG's delivery network forms part of a broader interstate supply chain. We estimate the probability of the court applying the FAA § 1 exemption at approximately 15–25%, with the risk varying by distribution hub and individual driver route patterns.
B. Procedural Posture
The relevant procedural history and upcoming deadlines are as follows:
• April 30, 2025: Plaintiff Marcus Delano filed his Complaint and Collective Action Demand through Hartwell & Brashear PLLC. Lead counsel is Claudia Hartwell. The complaint alleges violations of the FLSA, 29 U.S.C. § 207, asserting that SLG misclassified its delivery drivers as independent contractors and thereby failed to pay overtime compensation. The complaint seeks unpaid overtime wages, an equal amount as liquidated damages under 29 U.S.C. § 216(b), attorneys' fees, and costs.
• June 2, 2025: Stonefield filed its Answer through Calderwood & Harkness LLP, asserting fourteen affirmative defenses. Notably, the Fifth Affirmative Defense asserts the enforceability of the ICOA v3.0 arbitration clause and collective action waiver against all drivers who executed that agreement. The Sixth Affirmative Defense asserts that the proposed collective members are not similarly situated. Other affirmative defenses include independent contractor status, good faith and reasonable grounds defense under 29 U.S.C. § 260, and statute of limitations defenses.
• June 18, 2025: Rule 16 Scheduling Conference held before the Hon. Rebecca Chen, U.S. District Judge, Northern District of Texas, Dallas Division.
• June 20, 2025: Scheduling Order entered by the Court, establishing the following key deadlines:
• Plaintiff's Motion for Conditional Certification: July 14, 2025
• Defendant's Response to Motion for Conditional Certification: August 13, 2025
• Plaintiff's Reply: August 27, 2025
• discovery Cutoff: March 15, 2026
• Dispositive Motion Deadline: April 30, 2026
• Trial Setting: September 14, 2026
• July 14, 2025: Plaintiff's Motion for Conditional Certification filed. The motion proposes a collective of all current and former delivery drivers who performed services for SLG at any of its 14 distribution hubs during the three-year period preceding the filing of the complaint and who were classified as independent contractors.
The case is assigned to the Hon. Rebecca Chen, U.S. District Judge, with the Hon. Timothy Farrell serving as the assigned Magistrate Judge.
C. Ridgepoint Capital Exit Timeline
Ridgepoint Capital Partners Fund III, LP acquired a 72% equity stake in Stonefield Logistics Group Inc. in July 2019 for approximately $285 million. Nathan Okonkwo, Managing Director of Ridgepoint Capital Management LLC (the general partner of Fund III), serves as a board observer on the SLG Board of Directors. The remaining equity is held by the founding Stonefield family interests and certain management equity participants.
Ridgepoint is actively exploring a potential exit or recapitalization of its SLG investment, with a target window of late 2025 or early 2026. Potential exit paths under consideration include a strategic sale, a secondary sale to another private equity sponsor, and a dividend recapitalization. These alternatives are at varying stages of analysis, and preliminary outreach to potential acquirers and capital providers has commenced.
The pendency and scale of this litigation materially affects SLG's enterprise value and any potential transaction. The total potential exposure of approximately $73,958,409 (inclusive of FLSA liquidated damages) is significant relative to SLG's financial profile: SLG reported fiscal year 2024 EBITDA of $28.4 million on revenue of $312.7 million. An unresolved FLSA collective action with aggregate exposure exceeding 2.5x EBITDA would be expected to materially impact buyer or lender diligence, purchase price negotiations, indemnity and escrow provisions, and representations and warranties insurance underwriting.
Reducing litigation exposure through successful enforcement of the ICOA v3.0 arbitration clauses or through early resolution of the litigation is therefore a significant priority for both SLG and Ridgepoint. Ridgepoint's exit timeline creates urgency to achieve clarity on the collective's actual size and the realistic range of potential liability as early as practicable. In particular, if a potential transaction is to be signed and closed in Q4 2025 or Q1 2026, having a court ruling on the arbitrability of the ICOA v3.0 signatories' claims in hand — or at a minimum having the motion pending and fully briefed — would materially improve SLG's negotiating position and valuation.
III. Option A: File Motion to Compel Arbitration Before the Conditional Certification Ruling
A. Description. Under Option A, Stonefield would file the motion to compel individual arbitration for the approximately 640 ICOA v3.0 signatories immediately — that is, prior to August 13, 2025, when the opposition to conditional certification is due — as a standalone motion. This would place the arbitration motion before the court before it rules on the conditional certification question, and it would be briefed on a separate track from the conditional certification briefing.
The motion would request that the court (i) compel individual arbitration for all claims brought by or on behalf of any putative collective member who executed ICOA v3.0, and (ii) dismiss or strike those individuals from the proposed collective.
B. Advantages. Filing the motion to compel arbitration in advance of the conditional certification briefing offers several potential advantages:
Demonstrates confidence in enforceability. An early filing signals that Stonefield has strong confidence in the enforceability of the ICOA v3.0 arbitration clause and is not seeking to delay or obscure the issue. This posture can be effective both with the court and with opposing counsel, who may be prompted to reassess the scope and viability of the proposed collective.
Potential to resequence the court's analysis. If the motion is filed early, there is a possibility — though not a certainty — that the court may elect to address the arbitration issue first, potentially mooting or significantly narrowing the conditional certification question. If the court rules favorably on arbitration before it reaches conditional certification, the collective would be immediately reduced from approximately 1,187 to approximately 547 drivers, and the court would know the true scope of the proposed collective before deciding conditional certification. This could simplify the court's analysis and, in the best case, lead to a denial of conditional certification for the remaining drivers on independent grounds.
Proactive defense posture and settlement leverage. An early filing signals to Plaintiff's counsel that the collective may not be as large as alleged in the conditional certification motion. This could facilitate earlier settlement discussions at more favorable terms, which would be aligned with Ridgepoint's timeline for achieving clarity on litigation exposure. If Hartwell & Brashear recognizes that the maximum realistic collective is closer to 547 drivers rather than 1,187, the settlement demand calculus changes materially.
C. Disadvantages. Despite these potential advantages, Option A presents several significant risks and drawbacks:
Risk of deferred ruling. The most significant risk is that the court will decline to address the arbitration motion before resolving conditional certification. Northern District of Texas practice, and Fifth Circuit authority more broadly, generally favors addressing conditional certification as a threshold matter in FLSA collective actions. The court retains broad discretion on the sequencing of motions, and there is a substantial possibility that Hon. Rebecca Chen would defer ruling on the arbitration motion until after conditional certification is resolved. In that scenario, the arbitration motion would sit pending while the certification briefing proceeds on its own timeline, resulting in no strategic advantage and potentially duplicative briefing.
Risk of adverse judicial perception. Filing a standalone arbitration motion in advance of the conditional certification opposition could be perceived by the court as a dilatory tactic or an attempt to complicate the conditional certification process. This is a particular concern given that the FLSA conditional certification standard is deliberately lenient — courts routinely grant conditional certification at the notice stage — and an early arbitration motion might be viewed as an effort to circumvent that process. Hon. Rebecca Chen has not issued any published decisions on the sequencing of arbitration motions in FLSA collective actions, but her general case management approach favors adherence to the scheduling order and orderly briefing.
Resource diversion and billing cap risk. Filing the arbitration motion on a standalone basis before the conditional certification opposition is due would divert the defense team's attention and resources during a critical briefing period. Legal fees through the conditional certification stage are already estimated at approximately $385,000 (exclusive of the $90,000 allocated for Dr. Priya Ramanathan's expert preliminary analysis from Corbin Risk Advisors LLC), which places cumulative Phase 1 costs near the $475,000 billing cap. Adding a separate arbitration motion and associated briefing simultaneously increases the risk of exceeding the cap and requires reallocation of resources from the conditional certification opposition, which is the more time-sensitive filing.
Ripeness concerns. Plaintiff's counsel will likely argue that the arbitration motion is premature at this stage because no opt-in notices have been sent and no individual ICOA v3.0 driver has yet attempted to join the collective by filing a consent form. Hartwell & Brashear will contend that there is no ripe controversy as to those individuals, and that the motion to compel arbitration is an advisory request that asks the court to rule on the enforceability of arbitration agreements with respect to persons who are not yet parties to the action. While there are counterarguments to this position — including that the proposed collective definition encompasses the v3.0 signatories and that the court has authority to narrow the collective prospectively — the ripeness objection has some force at this procedural stage.
Fifth Circuit precedent on sequencing. Several Fifth Circuit decisions suggest that courts retain discretion on the sequencing of arbitration and conditional certification motions and may prefer to address conditional certification first before resolving individual arbitrability questions. See, e.g., Villarreal v. C.H. Robinson Worldwide, Inc., No. 5:18-cv-00281 (W.D. Tex. 2019) (addressing conditional certification before ruling on pending motion to compel arbitration for subset of collective members).
D. Estimated Additional Cost
The estimated additional legal fees for a standalone arbitration motion and supporting brief filed at this stage are approximately $45,000 to $65,000. This estimate reflects the preparation of the motion, supporting brief, declarations (including the declaration of Stonefield's Vice President of Human Resources regarding the execution and distribution of ICOA v3.0), and exhibits. Potential reply briefing costs are estimated at an additional $15,000 to $25,000. These costs, when added to the existing Phase 1 budget, present a material risk of exceeding the $475,000 billing cap.
IV. Option B: File Motion to Compel Arbitration Concurrently with or Shortly After the Conditional Certification Opposition
A. Description. Under Option B, Stonefield would pursue a two-pronged approach:
First, Stonefield would incorporate the ICOA v3.0 arbitration clause argument as a significant component of its opposition to conditional certification, which is due on August 13, 2025. The opposition would argue, among other things, that the proposed collective is overbroad because approximately 640 of the 1,187 putative collective members are bound by enforceable arbitration agreements with collective action waivers, and that the court should either deny conditional certification as to those individuals or narrow the conditional certification order to exclude them.
Second, contemporaneously with the filing of the opposition brief or within approximately one to two weeks thereafter (target filing date: August 25–27, 2025), Stonefield would file a standalone motion to compel individual arbitration for the ICOA v3.0 signatories, supported by a full brief and evidentiary record. This standalone motion would develop the arbitration enforceability arguments in greater detail and request that the court compel individual arbitration and dismiss or strike the collective claims of v3.0 signatories.
An alternative sub-approach within Option B is to file the standalone arbitration motion immediately after the court rules on conditional certification but before opt-in notices are distributed. This variant would be appropriate if the court issues a ruling on conditional certification before addressing the arbitration motion, and it would allow Stonefield to seek a stay of opt-in notices as to v3.0 signatories pending resolution of the arbitration motion.
B. Advantages. Option B offers the most favorable combination of strategic, legal, and financial advantages:
Natural integration of the arbitration argument into the conditional certification opposition. The opposition to conditional certification must already address the question of whether the proposed collective members are "similarly situated" within the meaning of 29 U.S.C. § 216(b). One of the strongest arguments against conditional certification — or, alternatively, for narrowing the certified collective — is that the proposed collective encompasses drivers operating under materially different contractual terms. The existence of three distinct versions of the ICOA, only one of which contains an arbitration clause and collective action waiver, is the most significant contractual variation among the putative collective members. Incorporating the arbitration argument into the conditional certification opposition strengthens the "overbroad collective" argument by demonstrating that the proposed collective is not a homogeneous group but rather includes a substantial subset of drivers who have contractually agreed to resolve disputes through individual arbitration rather than collective litigation.
Efficiency and cost-effectiveness. The opposition brief already addresses the variations among ICOA v1.0, v2.0, and v3.0 as part of the "similarly situated" analysis. Dr. Priya Ramanathan's expert declaration from Corbin Risk Advisors LLC, which is being prepared to support the opposition, will address the distributional and operational differences among drivers under the three ICOA versions. The arbitration clause difference is the most significant variation among ICOA versions, and incorporating it into the existing briefing leverages work already underway rather than creating an entirely separate briefing track. The estimated incremental cost for the standalone arbitration motion filed concurrently or shortly after the opposition — building on the research and analysis already performed — is $25,000 to $40,000, which is substantially lower than the $45,000 to $65,000 estimate for a standalone early filing under Option A.
Court receives a complete picture. By integrating the arbitration argument into the conditional certification opposition and filing the standalone motion shortly thereafter, Stonefield provides the court with a complete picture of the defense's position at once. The court can consider both (a) that the proposed collective members are not similarly situated and that conditional certification should be denied or narrowed on that basis, and (b) that even if conditional certification is granted, the collective is significantly smaller than alleged because 640 members are subject to enforceable arbitration agreements. This dual-track argument provides the court with multiple bases for narrowing the collective and increases the likelihood that at least one of these arguments will succeed.
Preserves a second opportunity to narrow the collective. If the court grants conditional certification without addressing the arbitration issue in the conditional certification ruling, the standalone arbitration motion remains pending and provides a second, independent mechanism for reducing the collective. The arbitration motion is not dependent on the conditional certification ruling; it is based on the FAA and the enforceability of the arbitration agreements, which are separate legal bases.
Cost management within Phase 1 billing cap. At $25,000 to $40,000 in incremental costs, Option B is manageable within the Phase 1 billing cap of $475,000 (inclusive of $90,000 for expert preliminary analysis). As discussed in greater detail in the Comparative Analysis section below, cumulative fees through June 30, 2025 were $87,400, and cumulative fees through July 31, 2025 are projected at approximately $142,350, leaving approximately $332,650 in remaining Phase 1 budget. Even at the high end of the incremental cost estimate for Option B, cumulative Phase 1 costs would remain within the cap.
Alignment with Ridgepoint exit timeline. If the standalone arbitration motion is filed in late August 2025 and the court addresses it in the ordinary course — with response briefing completed by late September or early October 2025 — a ruling could reasonably be expected by November or December 2025. This timing would provide Ridgepoint and SLG with clarity on the collective's actual scope and the realistic range of potential liability before year-end, which is aligned with the targeted exit or recapitalization window of late 2025 or early 2026. Having a favorable ruling in hand, or at a minimum a fully briefed motion pending, would materially improve SLG's valuation position and reduce the litigation-related overhang on any potential transaction.
C. Disadvantages. Option B is not without risks, though the risks are manageable and can be mitigated through careful briefing:
Risk of opt-in notices to v3.0 signatories. If the court grants conditional certification without addressing the arbitration issue — which is possible, particularly if the court follows the lenient "similarly situated" standard typically applied at the conditional certification stage — there may be a period during which opt-in notices are sent to all 1,187 drivers, including the 640 ICOA v3.0 signatories. If v3.0 drivers opt in before the arbitration motion is resolved, additional motion practice would be required to compel individual arbitration for each opt-in, increasing costs and administrative burden. This risk can be partially mitigated by requesting that the court either (i) defer the distribution of opt-in notices until the arbitration motion is resolved, or (ii) bifurcate the opt-in notice process to separately address v3.0 and non-v3.0 drivers.
Potential dilution of the "not similarly situated" argument. There is a risk that raising the arbitration argument prominently in the conditional certification opposition could be read by the court as an implicit concession that the remaining drivers (those under ICOA v1.0 and v2.0) are similarly situated and that conditional certification is appropriate as to those approximately 547 drivers. Plaintiff's counsel will likely seize on this framing to argue that Stonefield has effectively conceded conditional certification for the non-v3.0 drivers.
Mitigation. This risk can be mitigated through careful briefing that frames the arbitration argument as one of multiple independent grounds for denying or narrowing conditional certification — not as the sole argument. The opposition should maintain Stonefield's position that the proposed collective members are not similarly situated on multiple independent grounds, including (i) the arbitration clause variation, (ii) differences in operational structures, route assignments, and work conditions across distribution hubs, (iii) differences in the degree of control exercised by SLG over drivers at different hubs, and (iv) individualized issues that predominate over common questions. The arbitration argument should be presented as an additional, independently sufficient basis for narrowing the collective, without conceding the broader "similarly situated" analysis.
D. Estimated Additional Cost
The estimated incremental cost for the standalone arbitration motion, leveraging the research and briefing already underway for the conditional certification opposition, is $25,000 to $40,000. This estimate is lower than the Option A estimate because a significant portion of the legal analysis, factual record development, and exhibit preparation will already have been completed in connection with the conditional certification opposition. The incremental cost is expected to remain within the Phase 1 billing cap.
V. Option C: File Motion to Compel Arbitration After the Court Rules on Conditional Certification
A. Description. Under Option C, Stonefield would hold the arbitration motion entirely and defer filing until after the court has ruled on the motion for conditional certification. If conditional certification is granted, Stonefield would then file the motion to compel arbitration as a post-certification motion, seeking to narrow the collective before or during the opt-in period. If conditional certification is denied entirely, the arbitration motion would be unnecessary, at least for the time being.
B. Advantages. Deferring the arbitration motion until after the conditional certification ruling offers certain advantages:
Avoids ripeness concerns entirely. By waiting until after conditional certification is granted and opt-in notices are sent, Stonefield eliminates any ripeness or standing argument. Once individual ICOA v3.0 drivers file consent forms to opt in to the collective, there is an actual controversy as to each of those individuals, and the motion to compel arbitration for each opt-in is unambiguously ripe for adjudication.
Tailored briefing. Waiting to see how the court frames its conditional certification ruling allows Stonefield to tailor the arbitration motion to the court's reasoning. If the court's ruling contains language favorable to the defense — for example, acknowledging differences among ICOA versions or noting the arbitration clause as a distinguishing factor — Stonefield can incorporate that language into the arbitration motion. Conversely, if the court's ruling raises concerns about the enforceability of the arbitration clause or the FAA § 1 exemption, Stonefield can preemptively address those concerns in the arbitration motion.
Potential cost savings if conditional certification is denied. If the court denies conditional certification entirely — which, while unlikely at the notice stage, is not impossible — the arbitration motion would be unnecessary, and Stonefield would avoid the cost of preparing and filing it. The estimated savings would be $25,000 to $65,000, depending on which option would have been pursued.
Clear litigation posture. Filing the arbitration motion after conditional certification provides a cleaner procedural posture: the court has addressed the threshold question of collective certification, and the arbitration motion is squarely addressed to the question of which opt-in individuals are subject to enforceable arbitration agreements.
C. Disadvantages. The disadvantages of Option C are substantial and, in our assessment, outweigh the advantages:
Delay. The most significant disadvantage is delay. Depending on the court's docket and decision timeline, a ruling on conditional certification is likely to issue in fall 2025 — potentially as late as October or November 2025. If conditional certification is granted, the arbitration motion would not be filed until late 2025 or early 2026. Briefing on the arbitration motion would then extend into early 2026, and a ruling might not issue until spring 2026. This timeline is too late to meaningfully impact Ridgepoint's targeted exit or recapitalization window of late 2025 to early 2026. The litigation would remain unresolved and the collective size uncertain during the critical period when potential acquirers or capital providers would be conducting diligence.
Opt-in proliferation. During the interim between conditional certification and the resolution of the arbitration motion, all 1,187 drivers — including the 640 ICOA v3.0 signatories — would be eligible to receive opt-in notices. Experience in FLSA collective actions indicates that opt-in rates can vary significantly, but a rate of 50% to 70% among notified drivers is within the range of reasonable expectations, particularly where plaintiff's counsel conducts active outreach. If 50% to 70% of the 640 v3.0 signatories opt in, Stonefield would face 320 to 448 individual opt-ins who are subject to arbitration agreements, each of whom would require individual or batched motion practice to compel arbitration. This significantly increases the administrative burden and cost of enforcing the arbitration clause.
Higher aggregate legal costs. As a consequence of the opt-in proliferation discussed above, motion practice to compel individual arbitrations for 320 to 448 individual drivers could cost $75,000 to $150,000 or more, depending on whether the court permits batched or omnibus motion practice or requires individual motions. These costs far exceed the Phase 1 billing cap and would create substantial Phase 2 costs that are not currently budgeted.
Increased waiver risk. While the risk of arbitration waiver is assessed as low under all three options — principally because Stonefield asserted the enforceability of the arbitration clause and collective action waiver as the Fifth Affirmative Defense in its Answer filed on June 2, 2025 — the risk increases with delay. The Fifth Circuit applies a two-part test for waiver of the right to compel arbitration, examining whether the party seeking arbitration (i) substantially invoked the judicial process, and (ii) caused prejudice to the opposing party. See Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344 (5th Cir. 2004). By participating in the conditional certification process without raising the arbitration defense in a motion, and by engaging in merits discovery during the post-certification period, Stonefield would provide Plaintiff's counsel with additional factual predicates to argue waiver. While the assertion of the arbitration defense in the Answer substantially mitigates this risk, delay increases the argument's surface area and introduces uncertainty.
Loss of strategic information asymmetry. If the arbitration motion is deferred, Plaintiff's counsel will have additional time to organize and recruit opt-ins among v3.0 drivers before Stonefield acts. Early filing of the arbitration motion serves to put v3.0 drivers and Plaintiff's counsel on notice that these drivers' participation in the collective is contested, which may deter some v3.0 drivers from opting in or prompt Plaintiff's counsel to focus opt-in efforts on non-v3.0 drivers.
D. Estimated Additional Cost
If opt-in notices are distributed to all 1,187 drivers and a significant number of ICOA v3.0 signatories opt in — estimated at 50% to 70% of 640 v3.0 drivers, or approximately 320 to 448 individual drivers — the cost of motion practice to compel individual arbitrations could range from $75,000 to $150,000 or more. This estimate assumes that some degree of batched or omnibus motion practice may be available, but the costs could be higher if the court requires individualized motions and hearings. These costs far exceed the Phase 1 billing cap of $475,000 and would create substantial additional Phase 2 expenditures.
VI. Comparative Analysis
A. Summary Table
The following table summarizes the key dimensions of comparison across the three timing options:
B. Key Considerations Weighed
Collective Size Reduction. All three options ultimately aim to achieve the same outcome: the removal of approximately 640 ICOA v3.0 signatories from the potential collective, reducing it from approximately 1,187 to approximately 547 drivers and decreasing maximum exposure from approximately $73,958,409 to approximately $34.1 million (inclusive of liquidated damages). The question is not whether to pursue the motion to compel arbitration — that decision has already been made — but rather when to file it for maximum strategic effect. Option B achieves this most efficiently by integrating the arbitration argument into the existing conditional certification briefing and filing the standalone motion on an accelerated but cost-effective timeline.
Cost Management. Option B is the most cost-effective approach, with estimated incremental costs of $25,000 to $40,000 compared to $45,000 to $65,000 (plus $15,000 to $25,000 in reply costs) for Option A and $75,000 to $150,000 or more for Option C. The Phase 1 billing cap of $475,000 — which is inclusive of $90,000 in expert costs for Dr. Ramanathan's preliminary analysis — requires careful management. Cumulative fees through June 30, 2025 were $87,400. Cumulative fees through July 31, 2025 are projected at approximately $142,350, reflecting the substantial work underway on the conditional certification opposition, expert coordination, and document review. This leaves approximately $332,650 remaining in the Phase 1 budget. Under Option B, the incremental arbitration motion costs of $25,000 to $40,000 would consume only a small fraction of the remaining budget. Under Option A, the higher costs and the risk of duplicative briefing threaten to exhaust the Phase 1 budget. Under Option C, the post-certification motion practice costs would far exceed the Phase 1 cap and require negotiation of additional budget authority.
Ridgepoint Timeline. Option B is most closely aligned with Ridgepoint's targeted exit or recapitalization window of late 2025 to early 2026. If the standalone arbitration motion is filed in late August 2025 and fully briefed by late September or early October 2025, a ruling can reasonably be expected by November or December 2025, depending on the court's docket. This would provide Ridgepoint and SLG with a substantially clearer picture of the collective's actual scope and potential liability range before year-end, which is critical to informing exit or recapitalization valuations, buyer diligence, and negotiation of indemnification or escrow provisions. Option A offers earlier filing but carries a substantial risk that the court defers ruling until after conditional certification, which would negate the timing advantage. Option C risks not resolving the arbitration question until spring 2026, which is too late to meaningfully impact the Ridgepoint exit timeline.
Waiver Risk. The risk of waiver is assessed as low under all three options, given that Stonefield asserted the enforceability of the arbitration clause and collective action waiver as the Fifth Affirmative Defense in its Answer filed on June 2, 2025. However, waiver risk is a function of time and litigation conduct: the longer Stonefield participates in the litigation without seeking to enforce the arbitration clause, the greater the surface area for waiver arguments. Option A presents no meaningful waiver risk. Option B presents minimal waiver risk, as the arbitration argument is raised within months of the Answer and before any merits discovery. Option C presents the most surface area for waiver arguments, particularly if Stonefield participates in merits discovery and the conditional certification process without seeking to enforce the arbitration clause until after opt-ins have been received.
Court Receptivity. Based on our review of Hon. Rebecca Chen's prior case management orders and published decisions, and consistent with standard Northern District of Texas practice, we expect that the court will follow the typical approach of addressing conditional certification as a threshold matter in FLSA collective actions before turning to individual arbitrability questions. This makes Option A less likely to succeed in changing the court's preferred sequencing. Option B hedges this risk effectively by integrating the arbitration argument into the conditional certification opposition — thereby ensuring the court is aware of the issue and can address it in its conditional certification ruling if it chooses — while simultaneously filing the standalone motion to preserve the issue for separate adjudication if the court does not address it in the certification context.
VII. Interaction with Other Strategic Considerations
A. Impact on Settlement Posture
The timing and success of the arbitration motion will materially affect the settlement calculus for both parties. Reducing the collective from 1,187 to 547 drivers changes the analysis significantly. At 547 drivers, the total potential exposure (including FLSA liquidated damages) drops from approximately $73,958,409 to approximately $34.1 million. If opt-in rates are moderate — and historical data in comparable FLSA collective actions in the Northern District of Texas suggest opt-in rates in the range of 15% to 30% at the conditional certification stage — the number of actual opt-in claimants from the remaining 547 non-v3.0 drivers could be approximately 82 to 164 individuals. Even at a 20% opt-in rate (approximately 109 drivers), the actual aggregate exposure could be approximately $6.8 million, which is within the limits of SLG's Employment Practices Liability Insurance ("EPLI") policy.
Early resolution of the arbitration issue would therefore strengthen Stonefield's negotiating position for any mediation or settlement discussions. If the court compels arbitration for v3.0 signatories, Plaintiff's counsel will be forced to reassess the economics of the case and the realistic range of recovery. This may prompt earlier and more favorable settlement discussions, which would be consistent with Ridgepoint's interest in achieving resolution or at least clarity on litigation exposure before any exit transaction.
The draft mediation position statement, which is currently in preparation, should account for the timing of the arbitration motion and its anticipated impact on collective size. We recommend that the mediation position statement be finalized after the court's ruling on the arbitration motion (or, if mediation is scheduled before a ruling, that the position statement present the motion's pendency as a factor materially affecting the settlement range).
B. Impact on EPLI Coverage
Stonefield's EPLI policy, Policy No. BIC-EPL-2024-07831, is underwritten by Broadleaf Insurance Company and provides coverage for Employment Practices Wrongful Acts, subject to a $10 million aggregate limit and a $2 million self-insured retention ("SIR"). Broadleaf Insurance Company acknowledged coverage of the Delano action by letter dated May 19, 2025, subject to a reservation of rights. The reservation of rights letter identifies two principal coverage issues: (a) whether misclassification claims constitute covered "Employment Practices Wrongful Acts" under the policy, given that the policy defines covered acts in relation to an "employment relationship" and the core allegation in this case is that SLG's drivers were misclassified as independent contractors rather than employees; and (b) a potential late-notice defense for conduct occurring prior to the inception of the current policy period, to the extent that SLG had notice of potential claims before the policy was placed.
The interplay between the arbitration motion and the EPLI coverage is significant. If the collective is reduced to approximately 547 drivers and actual exposure falls to a range of approximately $6.8 million to $34.1 million (depending on opt-in rates and the ultimate merits outcome), the likelihood of achieving settlement within the policy limits increases substantially. At the lower end of the exposure range — approximately $6.8 million based on a 20% opt-in rate — settlement within the $10 million policy limit (net of the $2 million SIR) would be feasible, and Broadleaf's contribution would be meaningful even if coverage is ultimately confirmed only in part. Conversely, at the higher end of the exposure range — particularly at the full $73,958,409 aggregate exposure with the full collective — the $10 million policy limit would cover only a small fraction of a potential judgment, and the out-of-pocket exposure to SLG would be severe.
We continue to monitor the Broadleaf reservation of rights and are in communication with Broadleaf's coverage counsel regarding the scope of coverage. The resolution of the arbitration motion and the resulting reduction in collective size may also affect Broadleaf's posture on the reservation of rights, as a smaller collective and lower exposure range may reduce the insurer's incentive to contest coverage.
C. Impact on Lender and Auditor Considerations
Stonefield's primary lending relationship is with Meridian National Bank, which serves as administrative agent under SLG's senior secured credit facility. The credit agreement contains customary representations and covenants regarding litigation contingencies, including a requirement to disclose pending or threatened litigation that could reasonably be expected to have a material adverse effect on SLG's financial condition or operations. The potential exposure in the Delano action — at approximately $73,958,409 on the high end — is material relative to SLG's $28.4 million EBITDA and $312.7 million revenue. Reducing the potential collective size and the corresponding exposure range will be relevant to any required disclosures, covenant compliance assessments, and communications with Meridian National Bank.
Similarly, Whitmore & Solano CPAs LLP, SLG's external auditors, will likely need to assess the Delano litigation as a contingent liability for financial statement purposes under ASC 450 (formerly SFAS No. 5). A clearer picture of the collective size and the enforceability of the ICOA v3.0 arbitration clause would support more precise loss contingency estimates and disclosures. If the arbitration motion is filed and resolved before year-end, Whitmore & Solano would have a substantially better basis for evaluating whether the contingent liability should be classified as probable, reasonably possible, or remote, and for estimating the range of reasonably possible loss.
VIII. Recommendation
Based on the analysis set forth in this memorandum, Calderwood & Harkness recommends Option B: file the motion to compel individual arbitration concurrently with or shortly after the opposition to conditional certification.
Specifically, we recommend the following sequencing:
1. August 13, 2025: File Stonefield's opposition to conditional certification by the established deadline, prominently incorporating the ICOA v3.0 arbitration clause argument as one of several independent bases for denying or narrowing the proposed collective. The opposition brief should argue that the proposed collective of 1,187 drivers is overbroad because approximately 640 members are bound by enforceable arbitration agreements with collective action waivers, and that conditional certification should be denied or limited to the approximately 547 drivers who are not subject to arbitration agreements.
2. August 25–27, 2025 (target): File the standalone motion to compel individual arbitration for all ICOA v3.0 signatories, supported by a full brief, declarations, and exhibits. The motion should request that the court (a) compel individual arbitration for all putative collective members who executed ICOA v3.0, (b) dismiss or strike the collective claims of those individuals, and (c) in the event that conditional certification has been granted by the time the motion is ruled upon, order that opt-in notices not be sent to v3.0 signatories or that any opt-in consents filed by v3.0 signatories be dismissed.
3. Concurrent request regarding opt-in notices: In connection with the arbitration motion, request that the court (a) defer the distribution of opt-in notices until the arbitration motion is resolved, or alternatively (b) bifurcate the notice process to separately address v3.0 and non-v3.0 drivers, with notices to v3.0 drivers stayed pending the arbitration ruling. If neither stay nor bifurcation is granted, request that the opt-in notices to v3.0 signatories include language identifying the pending arbitration dispute and advising potential opt-ins that their participation may be subject to individual arbitration.
This approach maximizes strategic impact while managing costs within the Phase 1 billing cap. It provides the earliest practical path to reducing the collective size, preserves multiple bases for narrowing the collective, and aligns with Ridgepoint's exit timeline by targeting a resolution on the arbitration question by November or December 2025. The approach also minimizes waiver risk, addresses ripeness concerns by filing the standalone motion in proximity to the conditional certification briefing, and ensures that the court receives a complete picture of the defense's position before ruling on conditional certification.
The draft motion to compel arbitration and supporting brief have been prepared and are ready for finalization upon client authorization. We anticipate that finalization and filing will require approximately one to two weeks of additional work from the date of client approval.
IX. Requested Client Direction
We respectfully request direction from Ms. Hollis and Mr. Okonkwo on the following items:
1. Confirmation of timing strategy. Please confirm approval of Option B as the timing strategy for the motion to compel individual arbitration, or advise of any preference for an alternative approach.
2. Authorization to file. Please confirm authorization to file the standalone motion to compel individual arbitration in the August 25–27, 2025 timeframe, as described in the recommendation above.
3. Board Update coordination. Please confirm whether Ridgepoint and SLG wish to discuss the arbitration strategy — and its interaction with the exit/recapitalization timeline — in conjunction with the Board Update Memorandum that is scheduled for preparation and distribution on or about July 25, 2025. If so, we can prepare a summary of this memorandum's analysis and recommendation for inclusion in the Board Update Memorandum, subject to appropriate privilege protections.
4. Exit/recapitalization timeline considerations. Please identify any concerns regarding the impact of the proposed timing strategy on the exit or recapitalization timeline that should inform further strategic adjustments. In particular, if the targeted exit timeline has shifted or if there are specific diligence milestones that require litigation clarity by a particular date, we should adjust our filing and briefing strategy accordingly.
5. Early mediation discussions. Please advise whether early mediation discussions should be deferred until after the arbitration motion is filed and ruled upon, or whether SLG and Ridgepoint prefer to explore mediation in parallel with the arbitration motion. Our preliminary recommendation is that mediation discussions should be deferred until the arbitration motion is at least filed and fully briefed, so that Stonefield can negotiate from a position that reflects the reduced collective size. However, if there are business reasons to pursue earlier discussions — for example, to achieve clarity for exit diligence purposes — we can structure a mediation approach that accounts for the pending arbitration motion.
We are available to discuss these items by telephone or videoconference at your convenience. Please do not hesitate to contact me directly at (214) 555-7200.
X. Enclosures / Cross-References
The following documents are referenced in this memorandum and are either enclosed or available upon request:
1. C&H Memorandum re: Enforceability of ICOA v3.0 Arbitration and Collective Action Waiver (May 15, 2025)
2. Draft Motion to Compel Individual Arbitration and Dismiss Collective Claims of ICOA v3.0 Signatories (draft, not yet filed)
3. Draft Brief in Support of Motion to Compel Arbitration (draft, not yet filed)
4. ICOA Version Comparison Chart — v1.0, v2.0, v3.0 (May 12, 2025)
5. Damages Exposure Analysis Memorandum (June 5, 2025)
6. Initial Case Assessment Memorandum (May 9, 2025)
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Bernard Crawford Partner, Labor & Employment Practice Group
Calderwood & Harkness LLP 2200 Ross Avenue, Suite 3600 Dallas, TX 75201 Telephone: (214) 555-7200
Email: bcrawford@calderwoodharkness.com
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT. This memorandum is protected by the attorney-client privilege and the work product doctrine. It has been prepared in anticipation of litigation and for the purpose of providing legal advice to Stonefield Logistics Group Inc. Do not distribute outside authorized recipients without prior written consent of Calderwood & Harkness LLP.
Criterion | Option A: File Before Conditional Cert. Ruling | Option B: File Concurrently With / Shortly After Opposition | Option C: File After Conditional Cert. Ruling
Timing of Filing | Before August 13, 2025 | August 13–27, 2025 | Late 2025 / Early 2026 (post-ruling)
Estimated Incremental Legal Cost | $45,000–$65,000 (+ $15,000–$25,000 reply) | $25,000–$40,000 | $75,000–$150,000+
Impact on Collective Size | Reduces collective from ~1,187 to ~547 if successful | Reduces collective from ~1,187 to ~547 if successful | Reduces collective from ~1,187 to ~547 if successful
Alignment with Ridgepoint Exit Timeline (Late 2025 / Early 2026) | Moderate — early filing but ruling may be deferred | Strong — ruling likely by Nov.–Dec. 2025 | Weak — ruling unlikely before Spring 2026
Ripeness / Standing Risk | Moderate — no opt-ins yet | Low to Moderate — integrated with certification briefing | None — clear ripeness after opt-ins
Waiver Risk | None | Minimal | Low but increasing
Impact on Conditional Certification Strategy | Neutral to potentially disruptive | Synergistic — strengthens "overbroad collective" argument | Neutral
Likelihood Court Addresses Arbitration Promptly | Low to Moderate — court may defer | Moderate to High — court receives full picture | Moderate — but later in timeline
Impact on Phase 1 Billing Cap ($475,000) | Risk of exceeding cap | Manageable within cap | Exceeds cap significantly

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

INTERNAL MEMORANDUM

CALDERWOOD & HARKNESS LLP

Record

Parties

Dates

Amounts