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

INTERNAL MEMORANDUM

June 5, 2025

FROM: James Underwood, Lead Associate, Labor & Employment Devon Archer, Working Associate, Labor & Employment

TO: Bernard Crawford, Responsible Partner, Labor & Employment Renata Vasquez, Billing Partner, Labor & Employment

RE: Damages Exposure Analysis — Delano v. Stonefield Logistics Group Inc., Case No. 3:25-cv-01847-RBC (N.D. Tex., Dallas Division)

CLIENT: Stonefield Logistics Group Inc.

MATTER NO.: 1012-00004

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I. Executive Summary

The purpose of this memorandum is to model plaintiff's damages theory across multiple collective-size and opt-in scenarios in order to provide a comprehensive exposure analysis for Stonefield Logistics Group Inc. ("SLG" or "Stonefield") in the Fair Labor Standards Act ("FLSA") collective action filed by named plaintiff Marcus Delano on April 30, 2025. This case is pending before the Honorable Rebecca Chen, United States District Court for the Northern District of Texas, Dallas Division.

Plaintiff alleges that SLG systematically misclassified approximately 1,200 delivery drivers as independent contractors under a series of Independent Contractor Operating Agreements ("ICOAs"), thereby depriving those drivers of overtime compensation to which they were entitled under the FLSA, 29 U.S.C. § 207(a), and, to a lesser extent, the Texas Payday Law, Tex. Lab. Code § 61.001 et seq. Plaintiff seeks conditional certification of a collective action under 29 U.S.C. § 216(b) encompassing all drivers who performed delivery services for SLG under ICOAs at any of its fourteen distribution hubs during the three-year period preceding the filing of the complaint.

Based on our modeling of plaintiff's damages theory, and applying plaintiff's calculation methodology to the relevant period and driver population, the total maximum potential exposure under plaintiff's theory is approximately $73,958,409.00, inclusive of liquidated damages for willful violation but exclusive of attorneys' fees and costs. This figure represents the theoretical worst-case outcome and assumes a fully certified collective with complete opt-in participation, denial of any motion to compel arbitration, and a finding of willful violation entitling plaintiff to the three-year lookback period and mandatory liquidated damages.

To provide a range of realistic exposure estimates, we have modeled three scenarios:

• Scenario A — Full Collective (Maximum Exposure): Assumes all 1,187 identified drivers opt in, no arbitration motion is filed or such motion is denied, and liquidated damages are awarded in full. Total exposure: approximately $73.96 million.

• Scenario B — Post-Arbitration Reduced Collective: Assumes SLG successfully compels individual arbitration for the approximately 640 drivers who signed ICOA v3.0 (which contains an arbitration clause and collective action waiver), reducing the collective to approximately 547 drivers, with 100% opt-in and liquidated damages. Total exposure: approximately $34.1 million.

• Scenario C — Low Opt-In Rate (Post-Arbitration): Assumes arbitration is compelled for the 640 ICOA v3.0 signatories, and only 20% of the remaining 547 eligible drivers opt in (approximately 109 drivers), with liquidated damages. Total exposure: approximately $6.8 million.

This memorandum also addresses the following additional considerations that bear on SLG's overall litigation risk and strategic posture: (1) a sensitivity analysis examining the impact of variations in per-driver hours worked, pay rates, and partial-period participation on aggregate damages; (2) attorneys' fees exposure under the FLSA's mandatory fee-shifting provision; (3) Calderwood & Harkness's estimated defense costs through trial; (4) an analysis of coverage availability under SLG's Employment Practices Liability Insurance ("EPLI") policy with Broadleaf Insurance Company, including the impact of the carrier's reservation of rights; and (5) the implications of the litigation for SLG's enterprise value and the anticipated exit or recapitalization timeline of Ridgepoint Capital Partners Fund III, LP ("Ridgepoint"), SLG's majority equity sponsor.

We note at the outset that this damages exposure analysis is prepared for internal strategic planning purposes and adopts plaintiff's damages methodology for modeling purposes only. SLG vigorously contests the underlying classification, and our adoption of plaintiff's framework should not be construed as a concession on any factual or legal issue. A separate Settlement Valuation Memorandum, incorporating probability-weighted outcomes and defense-side damages analysis, is targeted for completion in July 2025.

II. Background and Procedural Context

A. Overview of the Litigation

Named plaintiff Marcus Delano is a former delivery driver who worked out of SLG's Fort Worth distribution hub, designated internally as HUB-01, from approximately March 2021 through September 2024. Throughout the duration of his engagement, Delano was classified by SLG as an independent contractor and compensated in accordance with the terms of an Independent Contractor Operating Agreement. Specifically, Delano signed ICOA v1.0, the original template drafted by SLG's prior outside counsel, Pennfield & Daye LLP, in 2018. ICOA v1.0 did not contain an arbitration clause or a collective action waiver.

Delano's complaint, filed on April 30, 2025, asserts a single collective claim under the FLSA, 29 U.S.C. § 216(b), for unpaid overtime compensation. The complaint also references the Texas Payday Law but does not articulate a separate cause of action under that statute with any specificity; rather, it appears to invoke the state statute primarily to bolster the argument that SLG's pay practices were unlawful. The complaint seeks unpaid overtime wages, an equal amount in liquidated damages, reasonable attorneys' fees and costs, and declaratory and injunctive relief.

Stonefield's Answer and fourteen affirmative defenses were filed on June 2, 2025, three days prior to the date of this memorandum. The affirmative defenses include, among others: (1) independent contractor status under the FLSA's economic reality test; (2) good faith and reasonable grounds under 29 U.S.C. § 260 as a bar to liquidated damages; (3) failure to satisfy the "similarly situated" requirement for conditional certification under 29 U.S.C. § 216(b); (4) arbitration and collective action waiver (as to ICOA v3.0 signatories); (5) statute of limitations; and (6) lack of willfulness (two-year, rather than three-year, limitations period).

At the Rule 26(f) conference held on May 28, 2025, plaintiff's counsel, Claudia Hartwell of Hartwell & Brashear PLLC, indicated that plaintiff intends to move for conditional certification of the collective action. Based on the parties' agreed-upon scheduling order, plaintiff's motion for conditional certification is expected to be filed on or about July 14, 2025, with Stonefield's response due thirty days thereafter on August 13, 2025. Judge Chen's current trial setting is September 14, 2026.

B. Proposed Collective Definition

Based on statements made by plaintiff's counsel at the Rule 26(f) conference and in related correspondence, plaintiff intends to seek conditional certification of a collective defined as follows:

All individuals who performed delivery driving services for Stonefield Logistics Group Inc. pursuant to an Independent Contractor Operating Agreement at any of SLG's fourteen (14) distribution hubs at any time from April 30, 2022 through the date of final judgment.

The April 30, 2022 start date represents the three-year FLSA lookback period for willful violations, measured from the complaint filing date of April 30, 2025. Plaintiff has elected the three-year limitations period on the basis of its allegation that SLG's misclassification was willful — i.e., that SLG either knew or showed reckless disregard for whether its classification of drivers as independent contractors violated the FLSA. See 29 U.S.C. § 255(a) (providing that a cause of action arising out of a willful violation may be commenced within three years after the cause of action accrued, as compared to two years for non-willful violations).

SLG's internal Human Resources and payroll records, maintained in the company's PeopleStar HRIS platform and cross-referenced against ICOA execution records, identify 1,187 unique drivers who signed ICOAs during the relevant period (April 30, 2022 through the present) across all fourteen distribution hubs. This figure represents the maximum potential collective size. A hub-by-hub breakdown of driver counts is set forth in Appendix B to this memorandum.

C. ICOA Versions and Arbitration Clause Implications

SLG has utilized three versions of the Independent Contractor Operating Agreement during the relevant period. Understanding the distinctions among these versions is critical to the arbitration strategy and, by extension, to the damages exposure analysis, because the presence or absence of an enforceable arbitration clause with a collective action waiver directly determines the universe of drivers who may participate in the FLSA collective.

ICOA v1.0 (2018 Original Template). Drafted by Pennfield & Daye LLP in 2018, this was the original form of agreement used for all SLG drivers from the inception of the ICOA program until August 2020. ICOA v1.0 did not contain an arbitration clause, a collective action waiver, or any dispute resolution mechanism other than a general forum selection clause designating the courts of Dallas County, Texas. Named plaintiff Marcus Delano signed ICOA v1.0. Any motion to compel arbitration would not apply to Delano personally.

ICOA v2.0 (August 2020 Revision). In August 2020, Pennfield & Daye revised the ICOA to add updated indemnification language, a revised non-solicitation provision, and a modified termination-for-convenience clause. Importantly, ICOA v2.0 did not add an arbitration clause or a collective action waiver. Drivers who signed ICOA v2.0 are therefore similarly situated to v1.0 signatories for purposes of arbitration enforceability — neither group can be compelled to arbitrate.

ICOA v3.0 (January 2023 Revision). In January 2023, SLG retained new outside labor counsel (Westin Talbot LLP) to conduct a comprehensive review of SLG's independent contractor program. As part of that engagement, Westin Talbot recommended — and SLG adopted — a revised ICOA template (v3.0) that included, for the first time, a mandatory individual arbitration clause with an express class and collective action waiver. The arbitration clause designates the American Arbitration Association ("AAA") and its Employment Arbitration Rules, requires individual proceedings, and expressly waives the right to participate in any class, collective, or representative action, whether in court or in arbitration. The clause includes a delegation provision vesting the arbitrator with authority to determine issues of arbitrability.

The arbitration clause in ICOA v3.0 is facially enforceable under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., and is supported by controlling Fifth Circuit and Supreme Court precedent. In Granite Harbor Systems. v. Lewis, 584 U.S. 497 (2018), the Supreme Court held that class and collective action waivers in arbitration agreements are enforceable under the FAA and are not invalidated by the National Labor Relations Act. The Fifth Circuit has consistently applied Ridgeway Services Inc. to uphold collective action waivers in FLSA cases. See, e.g., Badgerow v. Walters, 141 S. Ct. 1263 (2021) (discussing FAA preemption); Cellular Sales of Mo., LLC v. NLRB, 824 F. App'x 263 (5th Cir. 2020).

Approximately 640 drivers signed ICOA v3.0 during the relevant period. If SLG files a motion to compel individual arbitration for those 640 drivers and the motion is granted, the remaining collective would be reduced to approximately 547 drivers (1,187 total drivers minus 640 ICOA v3.0 signatories). This bifurcation of the driver population is the foundation for the distinction between Scenario A and Scenarios B and C in our exposure modeling below.

We note that enforceability of the ICOA v3.0 arbitration clause is not guaranteed. Plaintiff may raise several potential challenges, including: (a) unconscionability under Texas state contract law; (b) the FAA § 1 transportation worker exemption, which excludes from FAA coverage "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce," 9 U.S.C. § 1; and (c) arguments that the drivers did not meaningfully consent to the arbitration terms. These issues are addressed in detail in our separate memorandum dated May 15, 2025, titled "Enforceability of ICOA v3.0 Arbitration Clause — FAA § 1 Transportation Worker Exemption Analysis." For purposes of the present exposure analysis, we assume that the arbitration clause is enforced in full for Scenarios B and C, and we address the implications of an unsuccessful arbitration motion under Scenario A.

III. Plaintiff's Damages Theory

A. Classification as Employees Under the FLSA

The threshold issue in this litigation — and the issue upon which all damages liability depends — is whether SLG's delivery drivers are properly classified as independent contractors or should instead be treated as employees entitled to the protections of the FLSA. Plaintiff contends that SLG's drivers are employees under the FLSA's "economic reality" test, which examines the totality of the working relationship to determine whether the worker is economically dependent on the putative employer. The Fifth Circuit has articulated a multi-factor test for this analysis, considering: (1) the degree of control exercised by the putative employer; (2) the worker's opportunity for profit or loss; (3) the worker's investment in equipment or materials; (4) the degree of skill required; (5) the permanence of the working relationship; and (6) the extent to which the work is an integral part of the putative employer's business. See Hopkins v. Cornerstone Am., 545 F.3d 338, 343 (5th Cir. 2008).

Plaintiff's complaint and supporting declarations set forth a detailed factual narrative alleging that SLG exercised pervasive control over its delivery drivers in a manner inconsistent with a genuine independent contractor relationship. The key control allegations include:

• Mandatory uniforms and vehicle placards. Drivers were required to wear SLG-branded uniforms (polo shirt, hat, and vest) and to display SLG placards on their personal vehicles while performing deliveries.

• GPS tracking via SLG-provided telematics devices. SLG equipped each driver's vehicle with a telematics device (the SLG "TrackPoint" unit) that transmitted real-time GPS location data to SLG's operations center, enabling SLG dispatchers and hub managers to monitor driver location, speed, idle time, and route adherence throughout the workday.

• Route assignment through SLG's proprietary RouteSync dispatch platform. Drivers did not independently solicit or select delivery assignments. Instead, all deliveries were assigned through SLG's proprietary RouteSync dispatch platform, which allocated deliveries to drivers based on geographic proximity, hub capacity, and customer priority designations established by SLG management.

• Required daily delivery windows. Drivers were required to be available for delivery assignments during a mandatory daily window of 7:00 AM to 8:00 PM, Monday through Saturday. Failure to be available during scheduled windows without prior approval resulted in performance demerits under SLG's Driver Performance Scorecard system.

• Mandatory safety and customer-service training. All drivers were required to complete an initial 16-hour training program at their assigned hub, covering SLG safety protocols, vehicle loading procedures, customer interaction standards, and RouteSync platform operation. In addition, drivers were required to attend quarterly refresher training sessions of approximately 4 hours each. Attendance at training sessions was tracked through SLG's internal LMS (Learning Management System) and was a condition of continued engagement.

• 85% minimum acceptance rate. Drivers were required to maintain a minimum delivery acceptance rate of 85% per rolling 30-day period, as measured by the RouteSync platform. Drivers falling below this threshold were subject to performance counseling and, ultimately, termination of their ICOA.

• Prohibition on subcontracting. The ICOA prohibited drivers from subcontracting their delivery obligations to third parties without prior written approval from SLG's hub manager. Plaintiff alleges that such approval was rarely, if ever, granted in practice, effectively rendering the subcontracting right illusory.

• No ability to negotiate per-delivery rates. Per-delivery rates were set unilaterally by SLG and were non-negotiable. Rate schedules were updated periodically by SLG management and communicated to drivers through the RouteSync platform.

SLG contests each of these characterizations and maintains that its drivers are properly classified as independent contractors. However, for purposes of this exposure analysis, we assume that plaintiff's classification theory prevails, as the purpose of this memorandum is to model plaintiff's maximum damages scenario.

B. Overtime Compensation Calculation

Under the ICOA structure, SLG compensated drivers on a per-delivery basis, with rates ranging from $14.50 to $38.00 per delivery depending on package weight, delivery distance, and delivery type (standard delivery versus white-glove delivery, which involves in-home setup or assembly). Because drivers were classified as independent contractors, no overtime premium was paid for hours worked in excess of 40 per workweek. Plaintiff alleges that this payment structure violated 29 U.S.C. § 207(a)(1), which requires that covered employees receive overtime compensation at a rate not less than one and one-half times their regular rate of pay for all hours worked in excess of 40 in a single workweek.

Plaintiff's damages calculation methodology proceeds as follows, using named plaintiff Delano's own pay and time records as the baseline:

1. Average Weekly Gross Pay. Based on SLG's 2023 pay records for Delano, his average weekly gross compensation was $1,247.00.

2. Average Weekly Hours Worked. Based on GPS telematics data from the TrackPoint device and RouteSync platform logs, Delano's average weekly hours worked (measured from first delivery assignment accepted to last delivery completed, plus reasonable allowances for loading and return-to-hub time) was 58 hours per week.

3. Effective Hourly Rate. Dividing average weekly gross pay by average weekly hours worked yields an effective hourly rate of $1,247.00 ÷ 58 hours = $21.50 per hour.

4. FLSA Overtime Rate. The FLSA overtime rate is calculated as one and one-half times the effective hourly rate: $21.50 × 1.5 = $32.25 per hour.

5. Weekly Overtime Hours. Total weekly hours worked (58) minus the 40-hour FLSA overtime threshold yields 18 overtime hours per week.

6. Weekly Unpaid Overtime Differential Per Driver. The overtime differential is the difference between the overtime rate and the effective hourly rate, multiplied by the number of overtime hours: 18 hours × ($32.25 − $21.50) = 18 hours × $10.75 = $193.50 per week.

This $193.50 per-week figure represents the unpaid overtime premium that plaintiff alleges each driver in the collective was owed on a weekly basis. It is important to note that this figure reflects an unpaid overtime differential — that is, the half-time premium component of overtime pay — rather than the full overtime rate, because the straight-time component of the overtime hours was already included in the per-delivery compensation the drivers actually received.

C. Relevant Period

The relevant period for damages calculation purposes extends from April 30, 2022 (three years prior to the April 30, 2025 complaint filing date, based on plaintiff's willful violation allegation) through approximately August 2025, which represents the approximate current date of analysis. This yields a total relevant period of approximately 161 weeks.

We note that the relevant period will continue to accrue through the date of final judgment if the collective action proceeds and SLG continues to classify its delivery drivers as independent contractors during the pendency of the litigation. If the case proceeds to trial in September 2026, the relevant period could extend to approximately 230 weeks, which would increase per-driver damages proportionally. For purposes of this memorandum, however, we have used the 161-week figure as a conservative baseline that reflects the relevant period through the approximate date of the analysis.

D. Per-Driver Estimated Damages

Applying plaintiff's per-week overtime differential to the 161-week relevant period yields estimated per-driver damages of:

$193.50 per week × 161 weeks = $31,153.50 per driver in unpaid overtime compensation.

This figure assumes that each driver in the proposed collective worked the same average weekly hours (58) and earned the same average weekly gross pay ($1,247.00) as the named plaintiff — a simplifying assumption that plaintiff will likely seek to extrapolate to the collective as a whole. Stonefield will vigorously contest the representativeness of Delano's individual experience, and we anticipate that variations in hours worked, pay rates, geographic hub conditions, and tenure length will introduce substantial dispersion around this per-driver average. The sensitivity analysis in Section V below addresses the impact of these variables on aggregate exposure.

E. Liquidated Damages

Under 29 U.S.C. § 216(b), an employer that violates the overtime provisions of the FLSA is liable to the affected employees for "unpaid overtime compensation . . . and in an additional equal amount as liquidated damages." The availability of liquidated damages effectively doubles the total damages exposure. Liquidated damages under the FLSA are considered compensatory, not punitive, and are intended to compensate employees for the delay in receiving wages to which they were entitled. See Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 707 (1945).

Plaintiff alleges that SLG's misclassification was willful, which triggers the three-year statute of limitations under 29 U.S.C. § 255(a). Plaintiff's willfulness allegation also supports the availability of liquidated damages, as a willful violation creates a strong presumption in favor of the liquidated damages award. Where a plaintiff establishes a willful violation, the burden shifts to the employer to demonstrate good faith and reasonable grounds under 29 U.S.C. § 260 in order to reduce or eliminate liquidated damages.

The doubling effect of liquidated damages is as follows:

Per-driver exposure inclusive of liquidated damages: $31,153.50 × 2 = $62,307.00.

SLG may assert the good-faith defense under 29 U.S.C. § 260, arguing that it relied in good faith on the legal advice of Pennfield & Daye LLP in structuring its independent contractor program and drafting the ICOAs. Reliance on counsel's advice is a relevant factor in the good-faith analysis, but it is neither dispositive nor sufficient standing alone. See Stokes v. BWXT Pantex, LLC, 424 F. App'x 324, 326 (5th Cir. 2011) (per curiam) (noting that reliance on legal advice is one factor among several in the good-faith inquiry). The court retains discretion to reduce or eliminate liquidated damages upon a showing of good faith, but success of this defense is uncertain and highly fact-dependent. We assess the likelihood of prevailing on the good-faith defense as moderate at best, given evolving judicial skepticism of the independent contractor model in the delivery/logistics industry and the increasing body of guidance from the Department of Labor regarding economic reality factors.

IV. Scenario Modeling

Based on the foregoing damages theory and the key variables that will determine the ultimate size of the collective and the applicable damages multiplier, we have constructed three exposure scenarios. Each scenario is designed to capture a distinct combination of outcomes on the critical strategic and procedural issues: (1) whether the motion to compel arbitration is filed and granted; (2) the collective's opt-in rate; and (3) whether liquidated damages are awarded.

A. Scenario A — Full Collective (Maximum Exposure)

1. Assumptions. Scenario A represents the theoretical maximum exposure and assumes worst-case outcomes at every decision point:

• Conditional certification is granted for the full proposed collective as defined by plaintiff.

• All 1,187 identified drivers opt in to the collective action.

• No motion to compel arbitration is filed, or if filed, the motion is denied in its entirety (either on the basis of the FAA § 1 transportation worker exemption or on unconscionability grounds).

• A willful violation is found by the court or jury, and liquidated damages are awarded in full under 29 U.S.C. § 216(b).

• All drivers' weekly hours worked and weekly gross pay are assumed to match the named plaintiff's averages (58 hours/week and $1,247.00/week, respectively), yielding the $193.50 per-week overtime differential for each driver.

2. Damages Calculation

Single damages: 1,187 drivers × $31,153.50 per driver = $36,979,204.50

Liquidated damages (equal amount): $36,979,204.50

Total Scenario A exposure: $36,979,204.50 + $36,979,204.50 = $73,958,409.00

(Approximately $74.0 million)

3. Commentary. This is the theoretical maximum exposure and assumes the confluence of worst-case outcomes at every stage of the litigation. While it is important for SLG and Ridgepoint to understand the outer boundary of potential liability, several factors make this scenario unlikely to materialize in practice.

First, a 100% opt-in rate is exceedingly rare in FLSA collective actions. The FLSA's collective action mechanism under § 216(b) requires each individual to affirmatively opt in by filing a written consent with the court, in contrast to the opt-out mechanism of a Rule 23 class action. This structural feature typically results in participation rates significantly below the total eligible population. In the Fifth Circuit, typical opt-in rates in similar logistics and delivery driver misclassification cases have ranged from approximately 10% to 35%, depending on the nature and effectiveness of the court-approved notice, the extent of plaintiff's counsel's outreach campaign, and the degree of engagement and cohesion among the driver population.

Second, however, we note that plaintiff's counsel, Claudia Hartwell of Hartwell & Brashear PLLC, has a well-established track record of achieving above-average opt-in rates in driver misclassification collective actions. Hartwell & Brashear represented the plaintiffs in Rodriguez v. FleetLink Delivery Services, Inc., No. 4:22-cv-02109 (S.D. Tex. 2023), in which the firm achieved an opt-in rate of approximately 42% following court-supervised notice, and in Tran v. Metro Courier Solutions LLC, No. 3:21-cv-00834 (N.D. Tex. 2022), in which the opt-in rate was approximately 38%. Hartwell & Brashear's reputation for aggressive outreach — including targeted social media campaigns, informational town halls, and driver-to-driver referral programs — suggests that opt-in rates in this case may trend toward the higher end of the historical range.

Third, this scenario does not account for potential variations in individual drivers' hours worked and pay rates, which would likely reduce per-driver damages for some portion of the collective and increase them for others. The use of the named plaintiff's averages as a uniform proxy overstates damages for drivers who worked fewer hours or during a shorter portion of the relevant period, while understating damages for drivers who consistently worked longer hours or earned lower per-delivery rates (resulting in a lower effective hourly rate and thus a higher overtime differential as a proportion of total hours).

Notwithstanding these caveats, Scenario A serves as the critical upper-bound reference point for settlement and reserve analysis. If the arbitration motion is denied or not pursued, and if Judge Chen grants conditional certification for the full collective, the settlement dynamics will be heavily influenced by the proximity of plaintiff's demand to this maximum exposure figure.

B. Scenario B — Post-Arbitration Reduced Collective

1. Assumptions. Scenario B models the outcome in which SLG pursues and prevails on its motion to compel individual arbitration for drivers who signed ICOA v3.0:

• SLG files a motion to compel individual arbitration and dismiss from the collective all drivers who signed ICOA v3.0 (the January 2023 revision containing the arbitration clause and collective action waiver).

• The motion is granted in full; approximately 640 drivers are compelled to individual arbitration and dismissed from the collective action.

• The remaining collective consists of approximately 547 drivers (those who signed ICOA v1.0 or v2.0, which did not contain arbitration clauses).

• 100% of the remaining 547 eligible drivers opt in to the collective action.

• A willful violation is found, and liquidated damages are awarded in full.

• Per-driver damages are assumed to match the named plaintiff's averages.

2. Damages Calculation

Single damages: 547 drivers × $31,153.50 per driver = $17,040,964.50

Liquidated damages (equal amount): $17,040,964.50

Total Scenario B exposure: $17,040,964.50 + $17,040,964.50 = $34,081,929.00

(Approximately $34.1 million)

3. Commentary. Scenario B reduces collective action exposure by approximately $39.9 million compared to Scenario A — a reduction of approximately 54%. This underscores the critical importance of the arbitration strategy as the single most impactful lever available to SLG for reducing aggregate damages exposure in the collective action.

However, it is essential to recognize that compelling 640 drivers to individual arbitration does not eliminate their underlying FLSA claims. Those drivers retain the right to pursue individual overtime claims in AAA arbitration proceedings. If all 640 compelled drivers were to file individual arbitration demands and prevail on the merits, the aggregate individual arbitration exposure would be significant:

640 drivers × $62,307.00 per driver (inclusive of liquidated damages) = $39,876,480.00

In practice, however, the percentage of individuals compelled to arbitration who actually file and pursue individual claims is typically very small. Empirical studies and our firm's experience suggest that fewer than 5% to 10% of individuals compelled to individual arbitration ultimately pursue their claims through the arbitration process, due to the costs, burdens, and logistical barriers associated with initiating and maintaining an individual proceeding. Even assuming a 10% filing rate and 100% success rate among those who file, individual arbitration exposure would be approximately:

64 drivers × $62,307.00 = $3,987,648.00

This figure, while not negligible, is substantially more manageable than the $39.9 million in exposure removed from the collective by the arbitration motion.

From a litigation management perspective, the collective action mechanism is the primary driver of aggregate exposure, settlement pressure, and leverage. Removing 640 drivers from the collective substantially reduces plaintiff's negotiating position and the case's settlement value, even if a residual tail of individual arbitration claims remains.

We note that the enforceability of the ICOA v3.0 arbitration clause remains subject to potential challenges, as discussed in Section II.C above and in our separate memorandum dated May 15, 2025. The most significant challenge is plaintiff's likely argument that SLG's delivery drivers fall within the FAA § 1 transportation worker exemption. This argument has gained traction in certain circuits — particularly the First Circuit in Waithaka v. Hollowell & Co., 966 F.3d 10 (1st Cir. 2020) — but the Fifth Circuit has not yet squarely addressed the issue in the context of last-mile delivery drivers. The outcome of this threshold question will determine whether the arbitration clause can be enforced and, consequently, which scenario range is operative.

C. Scenario C — Low Opt-In Rate (Post-Arbitration)

1. Assumptions. Scenario C combines a successful arbitration motion with a conservative (low) opt-in rate:

• Arbitration motion is granted as in Scenario B, reducing the eligible collective to approximately 547 drivers.

• Opt-in rate of 20%, consistent with the lower end of Fifth Circuit experience in similar collective actions and reflecting the assumption that, without an aggressive plaintiff-side notice campaign or particularly high driver engagement, participation will be limited.

• 20% of 547 = approximately 109 opt-in plaintiffs (rounding down from 109.4).

• A willful violation is found, and liquidated damages are awarded in full.

• Per-driver damages are assumed to match the named plaintiff's averages.

2. Damages Calculation

Single damages: 109 drivers × $31,153.50 per driver = $3,395,731.50

Liquidated damages (equal amount): $3,395,731.50

Total Scenario C exposure: $3,395,731.50 + $3,395,731.50 = $6,791,463.00

(Approximately $6.8 million)

3. Commentary. Scenario C represents a substantially more manageable exposure level and, for strategic planning purposes, can be viewed as a realistic best-case outcome for SLG, predicated on two favorable developments: (1) successful enforcement of the ICOA v3.0 arbitration clause to remove 640 drivers from the collective, and (2) a modest opt-in rate among the remaining eligible drivers.

Notably, $6.8 million falls within the combined protection of SLG's EPLI coverage. Under the Broadleaf EPLI policy (Policy No. BIC-EPL-2024-07831), SLG would bear the $2,000,000 self-insured retention ("SIR"), and Broadleaf would cover the remaining $4,791,463.00, which is well within the $10,000,000 aggregate policy limit. This means that, assuming coverage is confirmed, SLG's net out-of-pocket exposure under Scenario C would be limited to the $2 million SIR plus defense costs (to the extent defense costs are not covered or erode the policy limit), as discussed in greater detail in Section VII below.

We caution, however, that the 20% opt-in rate assumed in this scenario may be optimistic given the profile of plaintiff's counsel. As noted in our Scenario A commentary, Claudia Hartwell and Hartwell & Brashear PLLC have a demonstrated ability to drive opt-in rates well above the Fifth Circuit average in driver misclassification cases. If Hartwell achieves an opt-in rate closer to 35%–40% (consistent with her track record), the post-arbitration collective size could increase to 191–219 drivers, with corresponding exposure of approximately $11.9 million to $13.7 million (inclusive of liquidated damages) — still substantially less than Scenario A but above the Broadleaf policy's aggregate limit when combined with the SIR and defense costs.

D. Summary Table of Scenarios

The following table summarizes the three modeled scenarios:

V. Sensitivity Analysis — Variations in Per-Driver Damages

The scenario modeling in Section IV assumes uniform per-driver damages of $31,153.50 (or $62,307.00 inclusive of liquidated damages), based on the named plaintiff's individual pay and hours data. In reality, per-driver damages will vary substantially depending on individual hours worked, pay rates, and tenure during the relevant period. This section identifies the key variables that will affect the accuracy of the per-driver damages estimate and models the impact of alternative assumptions.

A. Hours-Worked Variability

Plaintiff's theory assumes that all drivers in the proposed collective worked an average of 58 hours per week — the named plaintiff's individual average based on GPS and RouteSync data. In practice, there will be substantial variation in weekly hours across SLG's 14 distribution hubs, across delivery types (standard versus white-glove), across seasonal demand cycles, and across individual driver work patterns and preferences.

If the average weekly hours worked across the collective are lower than the named plaintiff's 58 hours — for example, 50 hours per week — the overtime calculation changes materially:

• Weekly overtime hours at 50 hours/week: 50 − 40 = 10 hours

• Weekly unpaid overtime differential: 10 × $10.75 = $107.50 per week

• Per-driver damages over 161 weeks: $107.50 × 161 = $17,307.50

• Per-driver damages inclusive of liquidated damages: $17,307.50 × 2 = $34,615.00

This represents a 44% reduction from the $31,153.50 base figure (or from $62,307.00 inclusive of liquidated damages). Applied to the Scenario A collective of 1,187 drivers, total exposure at 50 hours/week would be approximately $41.1 million (inclusive of liquidated damages), compared to $74.0 million at 58 hours/week — a reduction of approximately $32.9 million.

Conversely, some drivers — particularly those at high-volume urban hubs such as HUB-03 (Houston) and HUB-02 (Dallas) — may have worked more than 58 hours per week on average, which would increase their individual damages beyond the baseline estimate.

SLG's retained expert, Dr. Priya Ramanathan of Corbin Risk Advisors LLC, is currently analyzing RouteSync dispatch logs and TrackPoint GPS data across all 14 hubs to develop a statistical profile of hours-worked distributions across the driver population. Preliminary indications suggest meaningful variation, with weekly hours ranging from as few as 35 hours (for part-time or seasonal drivers) to as many as 70 hours (for full-time drivers at peak-demand hubs during the holiday season). Dr. Ramanathan's analysis will be critical for both: (a) opposing conditional certification by demonstrating individualized variations that undermine the "similarly situated" requirement; and (b) refining the damages model to account for actual hours-worked distributions rather than relying on the named plaintiff's data as a uniform proxy.

B. Pay-Rate Variability

Per-delivery rates under the ICOA range from $14.50 to $38.00 per delivery, depending on package weight, distance, and delivery type. This rate dispersion means that drivers performing predominantly white-glove or heavy/long-distance deliveries will have higher per-delivery compensation and, consequently, a higher effective hourly rate than drivers performing predominantly standard local deliveries.

The effective hourly rate directly affects the overtime differential. A driver with an effective hourly rate of $28.00 per hour (rather than the named plaintiff's $21.50) would have an overtime rate of $42.00 ($28.00 × 1.5), an overtime differential of $14.00 ($42.00 − $28.00), and a weekly unpaid overtime amount of $14.00 × 18 = $252.00 per week — significantly higher than the named plaintiff's $193.50.

Conversely, a driver earning a lower effective hourly rate of $16.00 per hour would have an overtime differential of only $8.00 ($24.00 − $16.00) and weekly unpaid overtime of $8.00 × 18 = $144.00 per week. In certain cases, drivers who worked fewer hours but at higher per-delivery rates may have limited or no overtime exposure if their total weekly hours did not consistently exceed 40.

This variability cuts in both directions and underscores the importance of obtaining granular, driver-level pay and hours data to refine the damages model. Dr. Ramanathan's analysis will include a pay-rate distribution component.

C. Partial-Period Drivers

Not all 1,187 drivers in SLG's records worked the entire 161-week relevant period. Many drivers began their ICOA engagement after April 30, 2022 (new hires during the period), and many others terminated their engagement before the present date (voluntary departures, ICOA terminations, or transitions to other roles). For partial-period drivers, per-driver damages would be proportionally lower.

For example, a driver who worked for only 80 weeks during the relevant period (approximately 18 months) would have estimated damages of $193.50 × 80 = $15,480.00 (or $30,960.00 inclusive of liquidated damages) — approximately half of the baseline figure.

SLG's HR and payroll records, maintained in the PeopleStar HRIS platform, will need to be analyzed to determine the average number of weeks worked per driver during the relevant period. We anticipate that this analysis will reveal a significant portion of the driver population with less than full-period tenures, particularly given the high turnover rates typical of the delivery logistics industry. Initial estimates from SLG's Chief People Officer, Aaron Turcotte, suggest an annual driver turnover rate of approximately 35%–45%, which would imply that a substantial number of drivers in the relevant period have partial-period tenures.

D. Good-Faith Defense Impact on Liquidated Damages

As discussed in Section III.E above, SLG may seek to reduce or eliminate liquidated damages by establishing good faith and reasonable grounds under 29 U.S.C. § 260. If this defense is successful, the court has discretion to award no liquidated damages or a reduced amount.

The impact of eliminating liquidated damages entirely would be to halve the total exposure in every scenario:

SLG's good-faith defense rests primarily on its reliance on Pennfield & Daye LLP's legal advice in structuring the independent contractor program and drafting the original ICOA in 2018. SLG can document that it sought and received specific legal guidance from Pennfield & Daye regarding FLSA classification, that it followed the recommendations provided, and that it continued to engage outside counsel (first Pennfield & Daye and later Westin Talbot LLP) to review and update the ICOA template over time. However, several factors may undercut this defense:

• The Department of Labor issued updated guidance on the economic reality test in 2024 (effective March 11, 2024), which may have placed SLG on constructive notice that its classification was at risk.

• Industry-specific litigation trends in the delivery and logistics sector have been widely reported and discussed in trade publications, potentially undermining a claim of good-faith ignorance.

• The degree to which SLG's management was personally aware of the classification risk (as opposed to relying passively on prior counsel's advice) will be explored in discovery.

We assess the probability of successfully eliminating liquidated damages entirely as no greater than 25%–30%, with a somewhat higher probability (40%–50%) of achieving a partial reduction. These probability estimates will be incorporated into the forthcoming Settlement Valuation Memorandum.

VI. Attorneys' Fees and Costs Exposure

A. FLSA Fee-Shifting

Under 29 U.S.C. § 216(b), a prevailing plaintiff in an FLSA overtime case is entitled to recover "a reasonable attorney's fee to be paid by the defendant, and costs of the action." Fee-shifting under the FLSA is mandatory for prevailing plaintiffs; the court does not have discretion to deny fees entirely. The statute's fee-shifting provision is designed to incentivize private enforcement of the FLSA and to ensure that workers with meritorious overtime claims are not deterred from pursuing them by the cost of legal representation.

Plaintiff's counsel, Claudia Hartwell of Hartwell & Brashear PLLC, is likely operating on a contingency fee basis, as is standard practice for plaintiff-side FLSA collective actions. Contingency fees in FLSA cases are typically set at 33.3% (one-third) of the total recovery. If the full Scenario A exposure materializes and the case settles or results in a judgment at face value, the estimated contingency fee would be:

$73,958,409.00 × 0.333 = approximately $24,628,189.40

In a litigated (non-settlement) outcome, the court would determine plaintiff's attorneys' fees based on the lodestar method — i.e., the number of hours reasonably expended by plaintiff's counsel multiplied by a reasonable hourly rate, with the possibility of an upward or downward adjustment based on the Johnson factors. See Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717–19 (5th Cir. 1974). Depending on the complexity and duration of the litigation, lodestar-based fees could be higher or lower than the contingency percentage. In large-scale FLSA collective actions that proceed through trial, lodestar fees can be substantial, often running into the millions of dollars.

For purposes of this exposure analysis, we note that attorneys' fees under the FLSA are awarded in addition to damages and liquidated damages and would therefore increase SLG's total financial exposure beyond the figures set forth in the scenario modeling above. The precise magnitude of fees exposure is difficult to estimate at this stage and will depend heavily on the trajectory of the litigation and whether it resolves through settlement, summary judgment, or trial.

B. Defense Costs

Calderwood & Harkness estimates total defense legal fees through trial at approximately $2.1 million to $2.8 million, depending on the scope and complexity of discovery, the number and nature of dispositive motions, and the length of trial. This estimate is broken down by phase as follows:

• Phase 1 — Pre-Certification (through conditional certification ruling): Estimated fees of $475,000, inclusive of $90,000 in preliminary expert analysis costs. This phase encompasses the Rule 26(f) conference, initial discovery, preparation and filing of SLG's opposition to conditional certification, any motion to compel arbitration, and coordination with Corbin Risk Advisors on preliminary data analysis.

• Phase 2 — Post-Certification Through Close of discovery: Estimated fees of $700,000 to $900,000, depending on collective size and the scope of merits discovery. This phase includes fact and expert depositions, production and review of RouteSync and GPS data, pay records analysis, and preparation of the expert report.

• Phase 3 — Dispositive Motions: Estimated fees of $300,000 to $400,000 for preparation and briefing of any summary judgment motion (whether on classification, willfulness, or damages issues).

• Phase 4 — Trial Preparation and Trial: Estimated fees of $625,000 to $1,025,000, depending on the length of trial, number of witnesses, and whether the case is tried to a jury or to the court.

Expert fees for Corbin Risk Advisors LLC (Dr. Priya Ramanathan) are estimated as follows:

• Conditional certification phase: $175,000 (preliminary statistical analysis of hours-worked data, preparation of declaration in opposition to conditional certification).

• Total through trial: $450,000 (inclusive of full statistical analysis, expert report, deposition preparation, and trial testimony).

All fees are subject to the billing rates established under the Ridgepoint Capital portfolio company panel agreement with Calderwood & Harkness:

• Partners: $875/hour

• Associates: $525/hour

• Paralegals: $275/hour

These rates reflect the negotiated panel discount applicable to all portfolio companies of Ridgepoint Capital Partners and its affiliated funds.

VII. Insurance Coverage Analysis

A. EPLI Policy Terms

SLG maintains an Employment Practices Liability Insurance ("EPLI") policy with the following terms:

• Carrier: Broadleaf Insurance Company

• Policy Number: BIC-EPL-2024-07831

• Policy Period: January 1, 2025 through January 1, 2026

• Self-Insured Retention ("SIR"): $2,000,000 per claim

• Policy Limit: $10,000,000 aggregate

The EPLI policy provides coverage for claims arising from "Employment Practices Wrongful Acts," which is defined to include, among other things, wrongful termination, discrimination, harassment, retaliation, and wage and hour violations. The policy is written on a claims-made basis, meaning it covers claims first made during the policy period, regardless of when the underlying conduct occurred, subject to any applicable retroactive date or prior-acts exclusion.

B. Coverage Status

Broadleaf Insurance Company acknowledged coverage for the Delano matter in a letter to SLG's General Counsel, Margaret Hollis, subject to a reservation of rights letter dated May 19, 2025. The reservation of rights letter identifies two primary coverage issues:

(a) Whether misclassification claims constitute covered "Employment Practices Wrongful Acts." Broadleaf's reservation raises the question of whether claims alleging independent contractor misclassification — as distinguished from traditional wage and hour claims brought by acknowledged employees — fall within the policy's coverage grant. Broadleaf takes the preliminary position that the policy's definition of "Employment Practices Wrongful Acts" contemplates claims by individuals who are "employees" of the insured, and that claims by individuals whose very employment status is in dispute may fall outside the scope of coverage. This is a novel coverage question in the EPLI context, and the answer may depend on the specific policy language, applicable state insurance law, and the ultimate merits determination regarding classification.

(b) Potential late-notice defense for pre-policy-period conduct. The complaint alleges misclassification conduct dating back to April 30, 2022 — nearly three years prior to the January 1, 2025 inception date of the current policy. Broadleaf has reserved its right to assert that SLG failed to provide timely notice of the claim or of circumstances that could give rise to a claim under prior policy years, potentially triggering a late-notice defense. SLG's prior-year EPLI policies (with Broadleaf and, before that, with Sentinel National Insurance Group) would need to be examined to determine whether the claim should have been reported under an earlier policy year.

These reservation of rights issues introduce meaningful uncertainty regarding the availability of EPLI coverage. If Broadleaf ultimately denies coverage based on either or both of these grounds, SLG would bear the entirety of any judgment or settlement, with no insurer contribution.

If coverage is confirmed, the policy structure provides the following protection: SLG bears the first $2,000,000 of any covered loss (the SIR), and Broadleaf covers the next $10,000,000 in aggregate above the SIR, for a maximum combined coverage of $12,000,000. Amounts in excess of $12,000,000 would be uninsured exposure borne by SLG.

C. Gap Analysis

The following table illustrates the coverage gap under each scenario, assuming Broadleaf confirms coverage:

Several additional considerations bear on the coverage analysis:

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressees identified herein in connection with the legal representation of Stonefield Logistics Group Inc. Any dissemination, distribution, or copying of this memorandum or any portion thereof to any person or entity not authorized by Calderwood & Harkness LLP is strictly prohibited.
CALDERWOOD & HARKNESS LLP 2200 Ross Avenue, Suite 3600 Dallas, Texas 75201
INTERNAL MEMORANDUM
June 5, 2025
FROM: James Underwood, Lead Associate, Labor & Employment Devon Archer, Working Associate, Labor & Employment
TO: Bernard Crawford, Responsible Partner, Labor & Employment Renata Vasquez, Billing Partner, Labor & Employment
RE: Damages Exposure Analysis — Delano v. Stonefield Logistics Group Inc., Case No. 3:25-cv-01847-RBC (N.D. Tex., Dallas Division)
CLIENT: Stonefield Logistics Group Inc.
MATTER NO.: 1012-00004
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I. Executive Summary
The purpose of this memorandum is to model plaintiff's damages theory across multiple collective-size and opt-in scenarios in order to provide a comprehensive exposure analysis for Stonefield Logistics Group Inc. ("SLG" or "Stonefield") in the Fair Labor Standards Act ("FLSA") collective action filed by named plaintiff Marcus Delano on April 30, 2025. This case is pending before the Honorable Rebecca Chen, United States District Court for the Northern District of Texas, Dallas Division.
Plaintiff alleges that SLG systematically misclassified approximately 1,200 delivery drivers as independent contractors under a series of Independent Contractor Operating Agreements ("ICOAs"), thereby depriving those drivers of overtime compensation to which they were entitled under the FLSA, 29 U.S.C. § 207(a), and, to a lesser extent, the Texas Payday Law, Tex. Lab. Code § 61.001 et seq. Plaintiff seeks conditional certification of a collective action under 29 U.S.C. § 216(b) encompassing all drivers who performed delivery services for SLG under ICOAs at any of its fourteen distribution hubs during the three-year period preceding the filing of the complaint.
Based on our modeling of plaintiff's damages theory, and applying plaintiff's calculation methodology to the relevant period and driver population, the total maximum potential exposure under plaintiff's theory is approximately $73,958,409.00, inclusive of liquidated damages for willful violation but exclusive of attorneys' fees and costs. This figure represents the theoretical worst-case outcome and assumes a fully certified collective with complete opt-in participation, denial of any motion to compel arbitration, and a finding of willful violation entitling plaintiff to the three-year lookback period and mandatory liquidated damages.
To provide a range of realistic exposure estimates, we have modeled three scenarios:
• Scenario A — Full Collective (Maximum Exposure): Assumes all 1,187 identified drivers opt in, no arbitration motion is filed or such motion is denied, and liquidated damages are awarded in full. Total exposure: approximately $73.96 million.
• Scenario B — Post-Arbitration Reduced Collective: Assumes SLG successfully compels individual arbitration for the approximately 640 drivers who signed ICOA v3.0 (which contains an arbitration clause and collective action waiver), reducing the collective to approximately 547 drivers, with 100% opt-in and liquidated damages. Total exposure: approximately $34.1 million.
• Scenario C — Low Opt-In Rate (Post-Arbitration): Assumes arbitration is compelled for the 640 ICOA v3.0 signatories, and only 20% of the remaining 547 eligible drivers opt in (approximately 109 drivers), with liquidated damages. Total exposure: approximately $6.8 million.
This memorandum also addresses the following additional considerations that bear on SLG's overall litigation risk and strategic posture: (1) a sensitivity analysis examining the impact of variations in per-driver hours worked, pay rates, and partial-period participation on aggregate damages; (2) attorneys' fees exposure under the FLSA's mandatory fee-shifting provision; (3) Calderwood & Harkness's estimated defense costs through trial; (4) an analysis of coverage availability under SLG's Employment Practices Liability Insurance ("EPLI") policy with Broadleaf Insurance Company, including the impact of the carrier's reservation of rights; and (5) the implications of the litigation for SLG's enterprise value and the anticipated exit or recapitalization timeline of Ridgepoint Capital Partners Fund III, LP ("Ridgepoint"), SLG's majority equity sponsor.
We note at the outset that this damages exposure analysis is prepared for internal strategic planning purposes and adopts plaintiff's damages methodology for modeling purposes only. SLG vigorously contests the underlying classification, and our adoption of plaintiff's framework should not be construed as a concession on any factual or legal issue. A separate Settlement Valuation Memorandum, incorporating probability-weighted outcomes and defense-side damages analysis, is targeted for completion in July 2025.
II. Background and Procedural Context
A. Overview of the Litigation
Named plaintiff Marcus Delano is a former delivery driver who worked out of SLG's Fort Worth distribution hub, designated internally as HUB-01, from approximately March 2021 through September 2024. Throughout the duration of his engagement, Delano was classified by SLG as an independent contractor and compensated in accordance with the terms of an Independent Contractor Operating Agreement. Specifically, Delano signed ICOA v1.0, the original template drafted by SLG's prior outside counsel, Pennfield & Daye LLP, in 2018. ICOA v1.0 did not contain an arbitration clause or a collective action waiver.
Delano's complaint, filed on April 30, 2025, asserts a single collective claim under the FLSA, 29 U.S.C. § 216(b), for unpaid overtime compensation. The complaint also references the Texas Payday Law but does not articulate a separate cause of action under that statute with any specificity; rather, it appears to invoke the state statute primarily to bolster the argument that SLG's pay practices were unlawful. The complaint seeks unpaid overtime wages, an equal amount in liquidated damages, reasonable attorneys' fees and costs, and declaratory and injunctive relief.
Stonefield's Answer and fourteen affirmative defenses were filed on June 2, 2025, three days prior to the date of this memorandum. The affirmative defenses include, among others: (1) independent contractor status under the FLSA's economic reality test; (2) good faith and reasonable grounds under 29 U.S.C. § 260 as a bar to liquidated damages; (3) failure to satisfy the "similarly situated" requirement for conditional certification under 29 U.S.C. § 216(b); (4) arbitration and collective action waiver (as to ICOA v3.0 signatories); (5) statute of limitations; and (6) lack of willfulness (two-year, rather than three-year, limitations period).
At the Rule 26(f) conference held on May 28, 2025, plaintiff's counsel, Claudia Hartwell of Hartwell & Brashear PLLC, indicated that plaintiff intends to move for conditional certification of the collective action. Based on the parties' agreed-upon scheduling order, plaintiff's motion for conditional certification is expected to be filed on or about July 14, 2025, with Stonefield's response due thirty days thereafter on August 13, 2025. Judge Chen's current trial setting is September 14, 2026.
B. Proposed Collective Definition
Based on statements made by plaintiff's counsel at the Rule 26(f) conference and in related correspondence, plaintiff intends to seek conditional certification of a collective defined as follows:
All individuals who performed delivery driving services for Stonefield Logistics Group Inc. pursuant to an Independent Contractor Operating Agreement at any of SLG's fourteen (14) distribution hubs at any time from April 30, 2022 through the date of final judgment.
The April 30, 2022 start date represents the three-year FLSA lookback period for willful violations, measured from the complaint filing date of April 30, 2025. Plaintiff has elected the three-year limitations period on the basis of its allegation that SLG's misclassification was willful — i.e., that SLG either knew or showed reckless disregard for whether its classification of drivers as independent contractors violated the FLSA. See 29 U.S.C. § 255(a) (providing that a cause of action arising out of a willful violation may be commenced within three years after the cause of action accrued, as compared to two years for non-willful violations).
SLG's internal Human Resources and payroll records, maintained in the company's PeopleStar HRIS platform and cross-referenced against ICOA execution records, identify 1,187 unique drivers who signed ICOAs during the relevant period (April 30, 2022 through the present) across all fourteen distribution hubs. This figure represents the maximum potential collective size. A hub-by-hub breakdown of driver counts is set forth in Appendix B to this memorandum.
C. ICOA Versions and Arbitration Clause Implications
SLG has utilized three versions of the Independent Contractor Operating Agreement during the relevant period. Understanding the distinctions among these versions is critical to the arbitration strategy and, by extension, to the damages exposure analysis, because the presence or absence of an enforceable arbitration clause with a collective action waiver directly determines the universe of drivers who may participate in the FLSA collective.
ICOA v1.0 (2018 Original Template). Drafted by Pennfield & Daye LLP in 2018, this was the original form of agreement used for all SLG drivers from the inception of the ICOA program until August 2020. ICOA v1.0 did not contain an arbitration clause, a collective action waiver, or any dispute resolution mechanism other than a general forum selection clause designating the courts of Dallas County, Texas. Named plaintiff Marcus Delano signed ICOA v1.0. Any motion to compel arbitration would not apply to Delano personally.
ICOA v2.0 (August 2020 Revision). In August 2020, Pennfield & Daye revised the ICOA to add updated indemnification language, a revised non-solicitation provision, and a modified termination-for-convenience clause. Importantly, ICOA v2.0 did not add an arbitration clause or a collective action waiver. Drivers who signed ICOA v2.0 are therefore similarly situated to v1.0 signatories for purposes of arbitration enforceability — neither group can be compelled to arbitrate.
ICOA v3.0 (January 2023 Revision). In January 2023, SLG retained new outside labor counsel (Westin Talbot LLP) to conduct a comprehensive review of SLG's independent contractor program. As part of that engagement, Westin Talbot recommended — and SLG adopted — a revised ICOA template (v3.0) that included, for the first time, a mandatory individual arbitration clause with an express class and collective action waiver. The arbitration clause designates the American Arbitration Association ("AAA") and its Employment Arbitration Rules, requires individual proceedings, and expressly waives the right to participate in any class, collective, or representative action, whether in court or in arbitration. The clause includes a delegation provision vesting the arbitrator with authority to determine issues of arbitrability.
The arbitration clause in ICOA v3.0 is facially enforceable under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., and is supported by controlling Fifth Circuit and Supreme Court precedent. In Granite Harbor Systems. v. Lewis, 584 U.S. 497 (2018), the Supreme Court held that class and collective action waivers in arbitration agreements are enforceable under the FAA and are not invalidated by the National Labor Relations Act. The Fifth Circuit has consistently applied Ridgeway Services Inc. to uphold collective action waivers in FLSA cases. See, e.g., Badgerow v. Walters, 141 S. Ct. 1263 (2021) (discussing FAA preemption); Cellular Sales of Mo., LLC v. NLRB, 824 F. App'x 263 (5th Cir. 2020).
Approximately 640 drivers signed ICOA v3.0 during the relevant period. If SLG files a motion to compel individual arbitration for those 640 drivers and the motion is granted, the remaining collective would be reduced to approximately 547 drivers (1,187 total drivers minus 640 ICOA v3.0 signatories). This bifurcation of the driver population is the foundation for the distinction between Scenario A and Scenarios B and C in our exposure modeling below.
We note that enforceability of the ICOA v3.0 arbitration clause is not guaranteed. Plaintiff may raise several potential challenges, including: (a) unconscionability under Texas state contract law; (b) the FAA § 1 transportation worker exemption, which excludes from FAA coverage "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce," 9 U.S.C. § 1; and (c) arguments that the drivers did not meaningfully consent to the arbitration terms. These issues are addressed in detail in our separate memorandum dated May 15, 2025, titled "Enforceability of ICOA v3.0 Arbitration Clause — FAA § 1 Transportation Worker Exemption Analysis." For purposes of the present exposure analysis, we assume that the arbitration clause is enforced in full for Scenarios B and C, and we address the implications of an unsuccessful arbitration motion under Scenario A.
III. Plaintiff's Damages Theory
A. Classification as Employees Under the FLSA
The threshold issue in this litigation — and the issue upon which all damages liability depends — is whether SLG's delivery drivers are properly classified as independent contractors or should instead be treated as employees entitled to the protections of the FLSA. Plaintiff contends that SLG's drivers are employees under the FLSA's "economic reality" test, which examines the totality of the working relationship to determine whether the worker is economically dependent on the putative employer. The Fifth Circuit has articulated a multi-factor test for this analysis, considering: (1) the degree of control exercised by the putative employer; (2) the worker's opportunity for profit or loss; (3) the worker's investment in equipment or materials; (4) the degree of skill required; (5) the permanence of the working relationship; and (6) the extent to which the work is an integral part of the putative employer's business. See Hopkins v. Cornerstone Am., 545 F.3d 338, 343 (5th Cir. 2008).
Plaintiff's complaint and supporting declarations set forth a detailed factual narrative alleging that SLG exercised pervasive control over its delivery drivers in a manner inconsistent with a genuine independent contractor relationship. The key control allegations include:
• Mandatory uniforms and vehicle placards. Drivers were required to wear SLG-branded uniforms (polo shirt, hat, and vest) and to display SLG placards on their personal vehicles while performing deliveries.
• GPS tracking via SLG-provided telematics devices. SLG equipped each driver's vehicle with a telematics device (the SLG "TrackPoint" unit) that transmitted real-time GPS location data to SLG's operations center, enabling SLG dispatchers and hub managers to monitor driver location, speed, idle time, and route adherence throughout the workday.
• Route assignment through SLG's proprietary RouteSync dispatch platform. Drivers did not independently solicit or select delivery assignments. Instead, all deliveries were assigned through SLG's proprietary RouteSync dispatch platform, which allocated deliveries to drivers based on geographic proximity, hub capacity, and customer priority designations established by SLG management.
• Required daily delivery windows. Drivers were required to be available for delivery assignments during a mandatory daily window of 7:00 AM to 8:00 PM, Monday through Saturday. Failure to be available during scheduled windows without prior approval resulted in performance demerits under SLG's Driver Performance Scorecard system.
• Mandatory safety and customer-service training. All drivers were required to complete an initial 16-hour training program at their assigned hub, covering SLG safety protocols, vehicle loading procedures, customer interaction standards, and RouteSync platform operation. In addition, drivers were required to attend quarterly refresher training sessions of approximately 4 hours each. Attendance at training sessions was tracked through SLG's internal LMS (Learning Management System) and was a condition of continued engagement.
• 85% minimum acceptance rate. Drivers were required to maintain a minimum delivery acceptance rate of 85% per rolling 30-day period, as measured by the RouteSync platform. Drivers falling below this threshold were subject to performance counseling and, ultimately, termination of their ICOA.
• Prohibition on subcontracting. The ICOA prohibited drivers from subcontracting their delivery obligations to third parties without prior written approval from SLG's hub manager. Plaintiff alleges that such approval was rarely, if ever, granted in practice, effectively rendering the subcontracting right illusory.
• No ability to negotiate per-delivery rates. Per-delivery rates were set unilaterally by SLG and were non-negotiable. Rate schedules were updated periodically by SLG management and communicated to drivers through the RouteSync platform.
SLG contests each of these characterizations and maintains that its drivers are properly classified as independent contractors. However, for purposes of this exposure analysis, we assume that plaintiff's classification theory prevails, as the purpose of this memorandum is to model plaintiff's maximum damages scenario.
B. Overtime Compensation Calculation
Under the ICOA structure, SLG compensated drivers on a per-delivery basis, with rates ranging from $14.50 to $38.00 per delivery depending on package weight, delivery distance, and delivery type (standard delivery versus white-glove delivery, which involves in-home setup or assembly). Because drivers were classified as independent contractors, no overtime premium was paid for hours worked in excess of 40 per workweek. Plaintiff alleges that this payment structure violated 29 U.S.C. § 207(a)(1), which requires that covered employees receive overtime compensation at a rate not less than one and one-half times their regular rate of pay for all hours worked in excess of 40 in a single workweek.
Plaintiff's damages calculation methodology proceeds as follows, using named plaintiff Delano's own pay and time records as the baseline:
1. Average Weekly Gross Pay. Based on SLG's 2023 pay records for Delano, his average weekly gross compensation was $1,247.00.
2. Average Weekly Hours Worked. Based on GPS telematics data from the TrackPoint device and RouteSync platform logs, Delano's average weekly hours worked (measured from first delivery assignment accepted to last delivery completed, plus reasonable allowances for loading and return-to-hub time) was 58 hours per week.
3. Effective Hourly Rate. Dividing average weekly gross pay by average weekly hours worked yields an effective hourly rate of $1,247.00 ÷ 58 hours = $21.50 per hour.
4. FLSA Overtime Rate. The FLSA overtime rate is calculated as one and one-half times the effective hourly rate: $21.50 × 1.5 = $32.25 per hour.
5. Weekly Overtime Hours. Total weekly hours worked (58) minus the 40-hour FLSA overtime threshold yields 18 overtime hours per week.
6. Weekly Unpaid Overtime Differential Per Driver. The overtime differential is the difference between the overtime rate and the effective hourly rate, multiplied by the number of overtime hours: 18 hours × ($32.25 − $21.50) = 18 hours × $10.75 = $193.50 per week.
This $193.50 per-week figure represents the unpaid overtime premium that plaintiff alleges each driver in the collective was owed on a weekly basis. It is important to note that this figure reflects an unpaid overtime differential — that is, the half-time premium component of overtime pay — rather than the full overtime rate, because the straight-time component of the overtime hours was already included in the per-delivery compensation the drivers actually received.
C. Relevant Period
The relevant period for damages calculation purposes extends from April 30, 2022 (three years prior to the April 30, 2025 complaint filing date, based on plaintiff's willful violation allegation) through approximately August 2025, which represents the approximate current date of analysis. This yields a total relevant period of approximately 161 weeks.
We note that the relevant period will continue to accrue through the date of final judgment if the collective action proceeds and SLG continues to classify its delivery drivers as independent contractors during the pendency of the litigation. If the case proceeds to trial in September 2026, the relevant period could extend to approximately 230 weeks, which would increase per-driver damages proportionally. For purposes of this memorandum, however, we have used the 161-week figure as a conservative baseline that reflects the relevant period through the approximate date of the analysis.
D. Per-Driver Estimated Damages
Applying plaintiff's per-week overtime differential to the 161-week relevant period yields estimated per-driver damages of:
$193.50 per week × 161 weeks = $31,153.50 per driver in unpaid overtime compensation.
This figure assumes that each driver in the proposed collective worked the same average weekly hours (58) and earned the same average weekly gross pay ($1,247.00) as the named plaintiff — a simplifying assumption that plaintiff will likely seek to extrapolate to the collective as a whole. Stonefield will vigorously contest the representativeness of Delano's individual experience, and we anticipate that variations in hours worked, pay rates, geographic hub conditions, and tenure length will introduce substantial dispersion around this per-driver average. The sensitivity analysis in Section V below addresses the impact of these variables on aggregate exposure.
E. Liquidated Damages
Under 29 U.S.C. § 216(b), an employer that violates the overtime provisions of the FLSA is liable to the affected employees for "unpaid overtime compensation . . . and in an additional equal amount as liquidated damages." The availability of liquidated damages effectively doubles the total damages exposure. Liquidated damages under the FLSA are considered compensatory, not punitive, and are intended to compensate employees for the delay in receiving wages to which they were entitled. See Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 707 (1945).
Plaintiff alleges that SLG's misclassification was willful, which triggers the three-year statute of limitations under 29 U.S.C. § 255(a). Plaintiff's willfulness allegation also supports the availability of liquidated damages, as a willful violation creates a strong presumption in favor of the liquidated damages award. Where a plaintiff establishes a willful violation, the burden shifts to the employer to demonstrate good faith and reasonable grounds under 29 U.S.C. § 260 in order to reduce or eliminate liquidated damages.
The doubling effect of liquidated damages is as follows:
Per-driver exposure inclusive of liquidated damages: $31,153.50 × 2 = $62,307.00.
SLG may assert the good-faith defense under 29 U.S.C. § 260, arguing that it relied in good faith on the legal advice of Pennfield & Daye LLP in structuring its independent contractor program and drafting the ICOAs. Reliance on counsel's advice is a relevant factor in the good-faith analysis, but it is neither dispositive nor sufficient standing alone. See Stokes v. BWXT Pantex, LLC, 424 F. App'x 324, 326 (5th Cir. 2011) (per curiam) (noting that reliance on legal advice is one factor among several in the good-faith inquiry). The court retains discretion to reduce or eliminate liquidated damages upon a showing of good faith, but success of this defense is uncertain and highly fact-dependent. We assess the likelihood of prevailing on the good-faith defense as moderate at best, given evolving judicial skepticism of the independent contractor model in the delivery/logistics industry and the increasing body of guidance from the Department of Labor regarding economic reality factors.
IV. Scenario Modeling
Based on the foregoing damages theory and the key variables that will determine the ultimate size of the collective and the applicable damages multiplier, we have constructed three exposure scenarios. Each scenario is designed to capture a distinct combination of outcomes on the critical strategic and procedural issues: (1) whether the motion to compel arbitration is filed and granted; (2) the collective's opt-in rate; and (3) whether liquidated damages are awarded.
A. Scenario A — Full Collective (Maximum Exposure)
1. Assumptions. Scenario A represents the theoretical maximum exposure and assumes worst-case outcomes at every decision point:
• Conditional certification is granted for the full proposed collective as defined by plaintiff.
• All 1,187 identified drivers opt in to the collective action.
• No motion to compel arbitration is filed, or if filed, the motion is denied in its entirety (either on the basis of the FAA § 1 transportation worker exemption or on unconscionability grounds).
• A willful violation is found by the court or jury, and liquidated damages are awarded in full under 29 U.S.C. § 216(b).
• All drivers' weekly hours worked and weekly gross pay are assumed to match the named plaintiff's averages (58 hours/week and $1,247.00/week, respectively), yielding the $193.50 per-week overtime differential for each driver.
2. Damages Calculation
Single damages: 1,187 drivers × $31,153.50 per driver = $36,979,204.50
Liquidated damages (equal amount): $36,979,204.50
Total Scenario A exposure: $36,979,204.50 + $36,979,204.50 = $73,958,409.00
(Approximately $74.0 million)
3. Commentary. This is the theoretical maximum exposure and assumes the confluence of worst-case outcomes at every stage of the litigation. While it is important for SLG and Ridgepoint to understand the outer boundary of potential liability, several factors make this scenario unlikely to materialize in practice.
First, a 100% opt-in rate is exceedingly rare in FLSA collective actions. The FLSA's collective action mechanism under § 216(b) requires each individual to affirmatively opt in by filing a written consent with the court, in contrast to the opt-out mechanism of a Rule 23 class action. This structural feature typically results in participation rates significantly below the total eligible population. In the Fifth Circuit, typical opt-in rates in similar logistics and delivery driver misclassification cases have ranged from approximately 10% to 35%, depending on the nature and effectiveness of the court-approved notice, the extent of plaintiff's counsel's outreach campaign, and the degree of engagement and cohesion among the driver population.
Second, however, we note that plaintiff's counsel, Claudia Hartwell of Hartwell & Brashear PLLC, has a well-established track record of achieving above-average opt-in rates in driver misclassification collective actions. Hartwell & Brashear represented the plaintiffs in Rodriguez v. FleetLink Delivery Services, Inc., No. 4:22-cv-02109 (S.D. Tex. 2023), in which the firm achieved an opt-in rate of approximately 42% following court-supervised notice, and in Tran v. Metro Courier Solutions LLC, No. 3:21-cv-00834 (N.D. Tex. 2022), in which the opt-in rate was approximately 38%. Hartwell & Brashear's reputation for aggressive outreach — including targeted social media campaigns, informational town halls, and driver-to-driver referral programs — suggests that opt-in rates in this case may trend toward the higher end of the historical range.
Third, this scenario does not account for potential variations in individual drivers' hours worked and pay rates, which would likely reduce per-driver damages for some portion of the collective and increase them for others. The use of the named plaintiff's averages as a uniform proxy overstates damages for drivers who worked fewer hours or during a shorter portion of the relevant period, while understating damages for drivers who consistently worked longer hours or earned lower per-delivery rates (resulting in a lower effective hourly rate and thus a higher overtime differential as a proportion of total hours).
Notwithstanding these caveats, Scenario A serves as the critical upper-bound reference point for settlement and reserve analysis. If the arbitration motion is denied or not pursued, and if Judge Chen grants conditional certification for the full collective, the settlement dynamics will be heavily influenced by the proximity of plaintiff's demand to this maximum exposure figure.
B. Scenario B — Post-Arbitration Reduced Collective
1. Assumptions. Scenario B models the outcome in which SLG pursues and prevails on its motion to compel individual arbitration for drivers who signed ICOA v3.0:
• SLG files a motion to compel individual arbitration and dismiss from the collective all drivers who signed ICOA v3.0 (the January 2023 revision containing the arbitration clause and collective action waiver).
• The motion is granted in full; approximately 640 drivers are compelled to individual arbitration and dismissed from the collective action.
• The remaining collective consists of approximately 547 drivers (those who signed ICOA v1.0 or v2.0, which did not contain arbitration clauses).
• 100% of the remaining 547 eligible drivers opt in to the collective action.
• A willful violation is found, and liquidated damages are awarded in full.
• Per-driver damages are assumed to match the named plaintiff's averages.
2. Damages Calculation
Single damages: 547 drivers × $31,153.50 per driver = $17,040,964.50
Liquidated damages (equal amount): $17,040,964.50
Total Scenario B exposure: $17,040,964.50 + $17,040,964.50 = $34,081,929.00
(Approximately $34.1 million)
3. Commentary. Scenario B reduces collective action exposure by approximately $39.9 million compared to Scenario A — a reduction of approximately 54%. This underscores the critical importance of the arbitration strategy as the single most impactful lever available to SLG for reducing aggregate damages exposure in the collective action.
However, it is essential to recognize that compelling 640 drivers to individual arbitration does not eliminate their underlying FLSA claims. Those drivers retain the right to pursue individual overtime claims in AAA arbitration proceedings. If all 640 compelled drivers were to file individual arbitration demands and prevail on the merits, the aggregate individual arbitration exposure would be significant:
640 drivers × $62,307.00 per driver (inclusive of liquidated damages) = $39,876,480.00
In practice, however, the percentage of individuals compelled to arbitration who actually file and pursue individual claims is typically very small. Empirical studies and our firm's experience suggest that fewer than 5% to 10% of individuals compelled to individual arbitration ultimately pursue their claims through the arbitration process, due to the costs, burdens, and logistical barriers associated with initiating and maintaining an individual proceeding. Even assuming a 10% filing rate and 100% success rate among those who file, individual arbitration exposure would be approximately:
64 drivers × $62,307.00 = $3,987,648.00
This figure, while not negligible, is substantially more manageable than the $39.9 million in exposure removed from the collective by the arbitration motion.
From a litigation management perspective, the collective action mechanism is the primary driver of aggregate exposure, settlement pressure, and leverage. Removing 640 drivers from the collective substantially reduces plaintiff's negotiating position and the case's settlement value, even if a residual tail of individual arbitration claims remains.
We note that the enforceability of the ICOA v3.0 arbitration clause remains subject to potential challenges, as discussed in Section II.C above and in our separate memorandum dated May 15, 2025. The most significant challenge is plaintiff's likely argument that SLG's delivery drivers fall within the FAA § 1 transportation worker exemption. This argument has gained traction in certain circuits — particularly the First Circuit in Waithaka v. Hollowell & Co., 966 F.3d 10 (1st Cir. 2020) — but the Fifth Circuit has not yet squarely addressed the issue in the context of last-mile delivery drivers. The outcome of this threshold question will determine whether the arbitration clause can be enforced and, consequently, which scenario range is operative.
C. Scenario C — Low Opt-In Rate (Post-Arbitration)
1. Assumptions. Scenario C combines a successful arbitration motion with a conservative (low) opt-in rate:
• Arbitration motion is granted as in Scenario B, reducing the eligible collective to approximately 547 drivers.
• Opt-in rate of 20%, consistent with the lower end of Fifth Circuit experience in similar collective actions and reflecting the assumption that, without an aggressive plaintiff-side notice campaign or particularly high driver engagement, participation will be limited.
• 20% of 547 = approximately 109 opt-in plaintiffs (rounding down from 109.4).
• A willful violation is found, and liquidated damages are awarded in full.
• Per-driver damages are assumed to match the named plaintiff's averages.
2. Damages Calculation
Single damages: 109 drivers × $31,153.50 per driver = $3,395,731.50
Liquidated damages (equal amount): $3,395,731.50
Total Scenario C exposure: $3,395,731.50 + $3,395,731.50 = $6,791,463.00
(Approximately $6.8 million)
3. Commentary. Scenario C represents a substantially more manageable exposure level and, for strategic planning purposes, can be viewed as a realistic best-case outcome for SLG, predicated on two favorable developments: (1) successful enforcement of the ICOA v3.0 arbitration clause to remove 640 drivers from the collective, and (2) a modest opt-in rate among the remaining eligible drivers.
Notably, $6.8 million falls within the combined protection of SLG's EPLI coverage. Under the Broadleaf EPLI policy (Policy No. BIC-EPL-2024-07831), SLG would bear the $2,000,000 self-insured retention ("SIR"), and Broadleaf would cover the remaining $4,791,463.00, which is well within the $10,000,000 aggregate policy limit. This means that, assuming coverage is confirmed, SLG's net out-of-pocket exposure under Scenario C would be limited to the $2 million SIR plus defense costs (to the extent defense costs are not covered or erode the policy limit), as discussed in greater detail in Section VII below.
We caution, however, that the 20% opt-in rate assumed in this scenario may be optimistic given the profile of plaintiff's counsel. As noted in our Scenario A commentary, Claudia Hartwell and Hartwell & Brashear PLLC have a demonstrated ability to drive opt-in rates well above the Fifth Circuit average in driver misclassification cases. If Hartwell achieves an opt-in rate closer to 35%–40% (consistent with her track record), the post-arbitration collective size could increase to 191–219 drivers, with corresponding exposure of approximately $11.9 million to $13.7 million (inclusive of liquidated damages) — still substantially less than Scenario A but above the Broadleaf policy's aggregate limit when combined with the SIR and defense costs.
D. Summary Table of Scenarios
The following table summarizes the three modeled scenarios:
V. Sensitivity Analysis — Variations in Per-Driver Damages
The scenario modeling in Section IV assumes uniform per-driver damages of $31,153.50 (or $62,307.00 inclusive of liquidated damages), based on the named plaintiff's individual pay and hours data. In reality, per-driver damages will vary substantially depending on individual hours worked, pay rates, and tenure during the relevant period. This section identifies the key variables that will affect the accuracy of the per-driver damages estimate and models the impact of alternative assumptions.
A. Hours-Worked Variability
Plaintiff's theory assumes that all drivers in the proposed collective worked an average of 58 hours per week — the named plaintiff's individual average based on GPS and RouteSync data. In practice, there will be substantial variation in weekly hours across SLG's 14 distribution hubs, across delivery types (standard versus white-glove), across seasonal demand cycles, and across individual driver work patterns and preferences.
If the average weekly hours worked across the collective are lower than the named plaintiff's 58 hours — for example, 50 hours per week — the overtime calculation changes materially:
• Weekly overtime hours at 50 hours/week: 50 − 40 = 10 hours
• Weekly unpaid overtime differential: 10 × $10.75 = $107.50 per week
• Per-driver damages over 161 weeks: $107.50 × 161 = $17,307.50
• Per-driver damages inclusive of liquidated damages: $17,307.50 × 2 = $34,615.00
This represents a 44% reduction from the $31,153.50 base figure (or from $62,307.00 inclusive of liquidated damages). Applied to the Scenario A collective of 1,187 drivers, total exposure at 50 hours/week would be approximately $41.1 million (inclusive of liquidated damages), compared to $74.0 million at 58 hours/week — a reduction of approximately $32.9 million.
Conversely, some drivers — particularly those at high-volume urban hubs such as HUB-03 (Houston) and HUB-02 (Dallas) — may have worked more than 58 hours per week on average, which would increase their individual damages beyond the baseline estimate.
SLG's retained expert, Dr. Priya Ramanathan of Corbin Risk Advisors LLC, is currently analyzing RouteSync dispatch logs and TrackPoint GPS data across all 14 hubs to develop a statistical profile of hours-worked distributions across the driver population. Preliminary indications suggest meaningful variation, with weekly hours ranging from as few as 35 hours (for part-time or seasonal drivers) to as many as 70 hours (for full-time drivers at peak-demand hubs during the holiday season). Dr. Ramanathan's analysis will be critical for both: (a) opposing conditional certification by demonstrating individualized variations that undermine the "similarly situated" requirement; and (b) refining the damages model to account for actual hours-worked distributions rather than relying on the named plaintiff's data as a uniform proxy.
B. Pay-Rate Variability
Per-delivery rates under the ICOA range from $14.50 to $38.00 per delivery, depending on package weight, distance, and delivery type. This rate dispersion means that drivers performing predominantly white-glove or heavy/long-distance deliveries will have higher per-delivery compensation and, consequently, a higher effective hourly rate than drivers performing predominantly standard local deliveries.
The effective hourly rate directly affects the overtime differential. A driver with an effective hourly rate of $28.00 per hour (rather than the named plaintiff's $21.50) would have an overtime rate of $42.00 ($28.00 × 1.5), an overtime differential of $14.00 ($42.00 − $28.00), and a weekly unpaid overtime amount of $14.00 × 18 = $252.00 per week — significantly higher than the named plaintiff's $193.50.
Conversely, a driver earning a lower effective hourly rate of $16.00 per hour would have an overtime differential of only $8.00 ($24.00 − $16.00) and weekly unpaid overtime of $8.00 × 18 = $144.00 per week. In certain cases, drivers who worked fewer hours but at higher per-delivery rates may have limited or no overtime exposure if their total weekly hours did not consistently exceed 40.
This variability cuts in both directions and underscores the importance of obtaining granular, driver-level pay and hours data to refine the damages model. Dr. Ramanathan's analysis will include a pay-rate distribution component.
C. Partial-Period Drivers
Not all 1,187 drivers in SLG's records worked the entire 161-week relevant period. Many drivers began their ICOA engagement after April 30, 2022 (new hires during the period), and many others terminated their engagement before the present date (voluntary departures, ICOA terminations, or transitions to other roles). For partial-period drivers, per-driver damages would be proportionally lower.
For example, a driver who worked for only 80 weeks during the relevant period (approximately 18 months) would have estimated damages of $193.50 × 80 = $15,480.00 (or $30,960.00 inclusive of liquidated damages) — approximately half of the baseline figure.
SLG's HR and payroll records, maintained in the PeopleStar HRIS platform, will need to be analyzed to determine the average number of weeks worked per driver during the relevant period. We anticipate that this analysis will reveal a significant portion of the driver population with less than full-period tenures, particularly given the high turnover rates typical of the delivery logistics industry. Initial estimates from SLG's Chief People Officer, Aaron Turcotte, suggest an annual driver turnover rate of approximately 35%–45%, which would imply that a substantial number of drivers in the relevant period have partial-period tenures.
D. Good-Faith Defense Impact on Liquidated Damages
As discussed in Section III.E above, SLG may seek to reduce or eliminate liquidated damages by establishing good faith and reasonable grounds under 29 U.S.C. § 260. If this defense is successful, the court has discretion to award no liquidated damages or a reduced amount.
The impact of eliminating liquidated damages entirely would be to halve the total exposure in every scenario:
SLG's good-faith defense rests primarily on its reliance on Pennfield & Daye LLP's legal advice in structuring the independent contractor program and drafting the original ICOA in 2018. SLG can document that it sought and received specific legal guidance from Pennfield & Daye regarding FLSA classification, that it followed the recommendations provided, and that it continued to engage outside counsel (first Pennfield & Daye and later Westin Talbot LLP) to review and update the ICOA template over time. However, several factors may undercut this defense:
• The Department of Labor issued updated guidance on the economic reality test in 2024 (effective March 11, 2024), which may have placed SLG on constructive notice that its classification was at risk.
• Industry-specific litigation trends in the delivery and logistics sector have been widely reported and discussed in trade publications, potentially undermining a claim of good-faith ignorance.
• The degree to which SLG's management was personally aware of the classification risk (as opposed to relying passively on prior counsel's advice) will be explored in discovery.
We assess the probability of successfully eliminating liquidated damages entirely as no greater than 25%–30%, with a somewhat higher probability (40%–50%) of achieving a partial reduction. These probability estimates will be incorporated into the forthcoming Settlement Valuation Memorandum.
VI. Attorneys' Fees and Costs Exposure
A. FLSA Fee-Shifting
Under 29 U.S.C. § 216(b), a prevailing plaintiff in an FLSA overtime case is entitled to recover "a reasonable attorney's fee to be paid by the defendant, and costs of the action." Fee-shifting under the FLSA is mandatory for prevailing plaintiffs; the court does not have discretion to deny fees entirely. The statute's fee-shifting provision is designed to incentivize private enforcement of the FLSA and to ensure that workers with meritorious overtime claims are not deterred from pursuing them by the cost of legal representation.
Plaintiff's counsel, Claudia Hartwell of Hartwell & Brashear PLLC, is likely operating on a contingency fee basis, as is standard practice for plaintiff-side FLSA collective actions. Contingency fees in FLSA cases are typically set at 33.3% (one-third) of the total recovery. If the full Scenario A exposure materializes and the case settles or results in a judgment at face value, the estimated contingency fee would be:
$73,958,409.00 × 0.333 = approximately $24,628,189.40
In a litigated (non-settlement) outcome, the court would determine plaintiff's attorneys' fees based on the lodestar method — i.e., the number of hours reasonably expended by plaintiff's counsel multiplied by a reasonable hourly rate, with the possibility of an upward or downward adjustment based on the Johnson factors. See Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717–19 (5th Cir. 1974). Depending on the complexity and duration of the litigation, lodestar-based fees could be higher or lower than the contingency percentage. In large-scale FLSA collective actions that proceed through trial, lodestar fees can be substantial, often running into the millions of dollars.
For purposes of this exposure analysis, we note that attorneys' fees under the FLSA are awarded in addition to damages and liquidated damages and would therefore increase SLG's total financial exposure beyond the figures set forth in the scenario modeling above. The precise magnitude of fees exposure is difficult to estimate at this stage and will depend heavily on the trajectory of the litigation and whether it resolves through settlement, summary judgment, or trial.
B. Defense Costs
Calderwood & Harkness estimates total defense legal fees through trial at approximately $2.1 million to $2.8 million, depending on the scope and complexity of discovery, the number and nature of dispositive motions, and the length of trial. This estimate is broken down by phase as follows:
• Phase 1 — Pre-Certification (through conditional certification ruling): Estimated fees of $475,000, inclusive of $90,000 in preliminary expert analysis costs. This phase encompasses the Rule 26(f) conference, initial discovery, preparation and filing of SLG's opposition to conditional certification, any motion to compel arbitration, and coordination with Corbin Risk Advisors on preliminary data analysis.
• Phase 2 — Post-Certification Through Close of discovery: Estimated fees of $700,000 to $900,000, depending on collective size and the scope of merits discovery. This phase includes fact and expert depositions, production and review of RouteSync and GPS data, pay records analysis, and preparation of the expert report.
• Phase 3 — Dispositive Motions: Estimated fees of $300,000 to $400,000 for preparation and briefing of any summary judgment motion (whether on classification, willfulness, or damages issues).
• Phase 4 — Trial Preparation and Trial: Estimated fees of $625,000 to $1,025,000, depending on the length of trial, number of witnesses, and whether the case is tried to a jury or to the court.
Expert fees for Corbin Risk Advisors LLC (Dr. Priya Ramanathan) are estimated as follows:
• Conditional certification phase: $175,000 (preliminary statistical analysis of hours-worked data, preparation of declaration in opposition to conditional certification).
• Total through trial: $450,000 (inclusive of full statistical analysis, expert report, deposition preparation, and trial testimony).
All fees are subject to the billing rates established under the Ridgepoint Capital portfolio company panel agreement with Calderwood & Harkness:
• Partners: $875/hour
• Associates: $525/hour
• Paralegals: $275/hour
These rates reflect the negotiated panel discount applicable to all portfolio companies of Ridgepoint Capital Partners and its affiliated funds.
VII. Insurance Coverage Analysis
A. EPLI Policy Terms
SLG maintains an Employment Practices Liability Insurance ("EPLI") policy with the following terms:
• Carrier: Broadleaf Insurance Company
• Policy Number: BIC-EPL-2024-07831
• Policy Period: January 1, 2025 through January 1, 2026
• Self-Insured Retention ("SIR"): $2,000,000 per claim
• Policy Limit: $10,000,000 aggregate
The EPLI policy provides coverage for claims arising from "Employment Practices Wrongful Acts," which is defined to include, among other things, wrongful termination, discrimination, harassment, retaliation, and wage and hour violations. The policy is written on a claims-made basis, meaning it covers claims first made during the policy period, regardless of when the underlying conduct occurred, subject to any applicable retroactive date or prior-acts exclusion.
B. Coverage Status
Broadleaf Insurance Company acknowledged coverage for the Delano matter in a letter to SLG's General Counsel, Margaret Hollis, subject to a reservation of rights letter dated May 19, 2025. The reservation of rights letter identifies two primary coverage issues:
(a) Whether misclassification claims constitute covered "Employment Practices Wrongful Acts." Broadleaf's reservation raises the question of whether claims alleging independent contractor misclassification — as distinguished from traditional wage and hour claims brought by acknowledged employees — fall within the policy's coverage grant. Broadleaf takes the preliminary position that the policy's definition of "Employment Practices Wrongful Acts" contemplates claims by individuals who are "employees" of the insured, and that claims by individuals whose very employment status is in dispute may fall outside the scope of coverage. This is a novel coverage question in the EPLI context, and the answer may depend on the specific policy language, applicable state insurance law, and the ultimate merits determination regarding classification.
(b) Potential late-notice defense for pre-policy-period conduct. The complaint alleges misclassification conduct dating back to April 30, 2022 — nearly three years prior to the January 1, 2025 inception date of the current policy. Broadleaf has reserved its right to assert that SLG failed to provide timely notice of the claim or of circumstances that could give rise to a claim under prior policy years, potentially triggering a late-notice defense. SLG's prior-year EPLI policies (with Broadleaf and, before that, with Sentinel National Insurance Group) would need to be examined to determine whether the claim should have been reported under an earlier policy year.
These reservation of rights issues introduce meaningful uncertainty regarding the availability of EPLI coverage. If Broadleaf ultimately denies coverage based on either or both of these grounds, SLG would bear the entirety of any judgment or settlement, with no insurer contribution.
If coverage is confirmed, the policy structure provides the following protection: SLG bears the first $2,000,000 of any covered loss (the SIR), and Broadleaf covers the next $10,000,000 in aggregate above the SIR, for a maximum combined coverage of $12,000,000. Amounts in excess of $12,000,000 would be uninsured exposure borne by SLG.
C. Gap Analysis
The following table illustrates the coverage gap under each scenario, assuming Broadleaf confirms coverage:
Several additional considerations bear on the coverage analysis:
• Under Scenario A, EPLI coverage offsets only approximately 16.2% of total exposure ($12 million of $74 million), leaving SLG with approximately $62 million in uncovered exposure — a catastrophic amount that would severely threaten SLG's financial viability.
• Under Scenario B, EPLI coverage offsets approximately 35.2% of total exposure ($12 million of $34.1 million), with approximately $22.1 million in uncovered exposure. While less severe than Scenario A, this uncovered amount would still represent a material financial burden, equivalent to approximately 78% of SLG's FY 2024 EBITDA.
• Under Scenario C, total exposure of $6.8 million falls within the combined SIR plus policy limit, and the coverage gap is effectively zero (assuming coverage is confirmed). SLG's out-of-pocket cost under this scenario would be limited to the $2 million SIR plus any defense costs not covered by the policy.
• Defense costs erosion. The question of whether defense costs erode the $10 million policy limit or are covered separately ("outside the limits") is a critical policy term that requires further review. If defense costs erode the policy limit, the effective amount available for indemnification of damages is reduced by the amount of defense costs paid by the carrier. Given Calderwood & Harkness's estimated defense costs of $2.1 million to $2.8 million, this erosion could meaningfully reduce the coverage available for damages, particularly in Scenario C where the total exposure is close to the policy limit.
• The coverage gap analysis assumes that Broadleaf ultimately confirms coverage and does not assert a successful denial based on its reservation of rights. If coverage is denied, SLG bears the full exposure under every scenario, with no insurer contribution. We recommend that SLG and Calderwood & Harkness (in coordination with coverage counsel, if separate coverage counsel is engaged) proactively work with Broadleaf to resolve the reservation of rights issues as early as practicable.
VIII. Impact on Enterprise Value and PE Sponsor Considerations
A. SLG Financial Context
An understanding of SLG's financial profile is necessary to contextualize the damages exposure within the broader enterprise and to assess the implications for Ridgepoint Capital Partners Fund III, LP's investment thesis and exit strategy.
SLG's fiscal year 2024 financial results reflect the following key metrics:
• Revenue: $312.7 million
• EBITDA: $28.4 million (EBITDA margin of approximately 9.1%)
Ridgepoint Capital Partners Fund III, LP acquired a 72% equity stake in SLG in July 2019 for approximately $285 million, implying an enterprise value at acquisition of approximately $396 million (based on the 72% equity stake and assuming the purchase price was proportionate to the equity stake). The remaining 28% equity is held by SLG's founding family and senior management. Ridgepoint's acquisition was financed in part through a senior secured credit facility with Meridian National Bank, the terms of which include financial covenants and reporting obligations that may be implicated by a material litigation contingency.
Ridgepoint is currently exploring a potential exit or recapitalization of SLG in late 2025 or early 2026, with an anticipated process timeline that would involve marketing to potential strategic buyers or financial sponsors beginning in Q4 2025. The presence of a significant pending litigation, and the magnitude of the associated damages exposure, will be a critical factor in Ridgepoint's ability to execute its exit strategy on favorable terms and within its target timeline.
B. Litigation Contingency and Enterprise Value
The damages exposure identified in this memorandum has direct and significant implications for SLG's enterprise value and for the feasibility and terms of any exit or recapitalization transaction.
Under Scenario A, total exposure of approximately $74.0 million represents approximately 2.6 times SLG's FY 2024 EBITDA of $28.4 million. An unresolved litigation contingency of this magnitude would, in all likelihood, be a transaction-stopper or would result in a dramatic reduction in enterprise value. Sophisticated buyers and their counsel would identify the litigation as a critical diligence issue, and the associated uncertainty would likely manifest in one or more of the following ways:
• A reduction in the offered purchase price to reflect the expected cost of resolving the litigation.
• A requirement for a substantial indemnification escrow or holdback, potentially in the range of $15 million to $30 million or more, which would reduce the net proceeds available to Ridgepoint at closing.
• A special indemnification obligation from Ridgepoint or the selling shareholders for any litigation-related losses in excess of the escrow amount.
• A delay or abandonment of the transaction until the litigation is resolved or the exposure is reduced to a more manageable level.
Even under Scenario C ($6.8 million), the existence of the pending collective action and the ongoing classification risk create diligence concerns that could affect transaction economics. A buyer would likely require representations and warranties regarding the litigation, a litigation-specific indemnification provision, and potentially a purchase price reduction or escrow to cover the residual exposure. The risk of ongoing damages accrual (discussed in Section VIII.C below) adds an additional dimension of uncertainty that sophisticated buyers will seek to address through protective transaction terms.
For these reasons, we recommend that early resolution of the litigation — whether through a combination of the arbitration strategy and a negotiated settlement — would be strategically beneficial for Ridgepoint's exit timeline. A resolved litigation contingency would remove a significant impediment to the exit process and allow Ridgepoint to present SLG to potential buyers without the overhang of uncertain and potentially material litigation exposure.
C. Ongoing Classification Risk
If SLG continues to classify its delivery drivers as independent contractors during and after the pendency of this litigation, damages continue to accrue on a weekly basis under plaintiff's theory. The rate of ongoing accrual is approximately:
$193.50 per driver per week × 1,187 drivers = approximately $229,624.50 per week, or approximately $11.9 million per year (single damages only, before liquidated damages).
This ongoing accrual has two significant implications. First, it increases the total damages exposure with each passing week, making delay disadvantageous from a financial perspective. Second, it creates a forward-looking risk that extends beyond the resolution of the current litigation: even if SLG settles the Delano action, it would remain exposed to future claims by drivers who continue to be classified as independent contractors.
Prospective reclassification of drivers as W-2 employees would stop the accrual of future overtime damages but would significantly increase SLG's operating costs, including employer-side payroll taxes (FICA, FUTA, and state unemployment), benefits obligations (health insurance, retirement plan contributions), workers' compensation premiums, and the administrative costs associated with employee onboarding and payroll processing. A comprehensive cost-of-reclassification analysis is beyond the scope of this memorandum but should be undertaken in conjunction with the settlement valuation analysis and in consultation with SLG's finance team. We understand that SLG's Chief People Officer, Aaron Turcotte, has engaged Muldoon Thackeray CPAs LLP to prepare a preliminary reclassification cost model, which we will incorporate into the Settlement Valuation Memorandum when available.
IX. Comparison to Fifth Circuit Settlements in Analogous Cases
To provide additional context for the exposure analysis, we have reviewed publicly available settlement data in FLSA collective actions involving driver and delivery worker misclassification in the Fifth Circuit and neighboring jurisdictions. While each case presents unique factual and procedural circumstances that limit direct comparability, the available data provides useful benchmarks for estimating the range of likely settlement values relative to total claimed exposure.
In general, FLSA collective actions involving driver misclassification claims that settle after conditional certification but prior to trial have settled in the range of 10% to 30% of maximum theoretical damages, depending on the following factors: (1) the strength of plaintiff's classification evidence under the economic

INTERNAL MEMORANDUM

MATTER NO.: 1012-00004

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