ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT — PREPARED IN ANTICIPATION OF LITIGATION
CALDERWOOD & HARKNESS LLP
LITIGATION STRATEGY MEMORANDUM
September 26, 2022
MEMORANDUM
PRIVILEGE DESIGNATION: This memorandum constitutes Attorney-Client Privileged and Confidential communication and Attorney Work Product prepared in anticipation of litigation. It is intended solely for the use of the addressees and other persons authorized to receive privileged communications on behalf of Stonefield Logistics Group Inc. This memorandum should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and Stonefield Logistics Group Inc. Disclosure to any unauthorized third party may result in waiver of applicable privileges.
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I. INTRODUCTION AND PURPOSE
The purpose of this memorandum is to present to Stonefield Logistics Group Inc. ("Stonefield" or "SLG") and its stakeholders the comprehensive litigation defense strategy that Calderwood & Harkness LLP ("C&H") recommends for Stonefield's defense in the breach-of-contract action filed by Vantor Holdings Corp. ("Vantor") in the United States District Court for the Southern District of New York, captioned Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.), assigned to the Honorable Margaret T. Calloway, United States District Judge.
This memorandum should be read in conjunction with, and incorporates by reference, the following previously circulated work product prepared by C&H in connection with this matter:
(a) Preliminary Case Assessment Memorandum, dated September 9, 2022;
(b) TSA Contract Review Memorandum, dated September 14, 2022;
(c) Memorandum re Enforceability of Liquidated Damages Clause Under New York Law, dated September 19, 2022;
(d) Memorandum re Force Majeure Defense Under Section 12.1 of the TSA, dated September 22, 2022; and
(e) Meeting Notes from the September 15, 2022 in-person strategy session held at SLG's Fort Worth offices.
This memorandum was developed following the initial in-person client meeting held on September 15, 2022 at SLG's headquarters in Fort Worth, Texas. That meeting was attended by Samuel Eklund and Patrick Gallagher of C&H, as well as Marcus Denton (Chief Executive Officer, SLG), Tobias Wren (General Counsel, SLG), Priya Ramachandran (Chief Financial Officer, SLG), Carlos Medina (Senior Vice President, Operations, SLG), Janet Kirkwood (Vice President, Carrier Relations, SLG), and Raymond Hess (Director, Contract Compliance, SLG). During that meeting, key facts were discussed and confirmed, and the factual predicates underlying the strategy set forth herein were established and validated with the relevant SLG personnel who have direct knowledge of the events in question.
The defense strategy is organized around five strategic pillars, each described in detail below. These pillars are designed to be executed in a phased approach, proceeding sequentially through pre-answer motion practice, targeted discovery, expert engagement, dispositive motions, and, if necessary, trial. A contingency settlement framework is maintained throughout as a parallel workstream to ensure that Stonefield retains flexibility to resolve the dispute on favorable terms if circumstances warrant. The five pillars are as follows:
Pillar One: Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6);
Pillar Two: Building a comprehensive factual record through targeted offensive and defensive discovery;
Pillar Three: Retention of a damages rebuttal expert;
Pillar Four: Pursuit of full or partial summary judgment; and
Pillar Five: Contingency settlement strategy.
Each pillar is discussed in turn below, followed by a discussion of lender and insurance considerations, staffing and budget matters, recommended next steps, and concluding observations.
II. EXECUTIVE SUMMARY OF CASE POSTURE
A. Claims Against Stonefield
On August 12, 2022, Vantor Holdings Corp. filed its original Complaint in the United States District Court for the Southern District of New York. The case was assigned to the Honorable Margaret T. Calloway, U.S.D.J., and docketed as Case No. 22-cv-07841. Stonefield was served with the Summons and Complaint on August 16, 2022.
Vantor alleges that Stonefield wrongfully terminated the five-year Transportation Services Agreement dated March 15, 2019 (the "TSA," Contract Ref. No. SLG-VTS-2019-0315), entered into between Stonefield Logistics Group Inc., acting in its capacity as "Shipper-Broker," and Vantor Transport Services LLC ("VTS"), a wholly owned subsidiary of Vantor Holdings Corp., acting in its capacity as "Carrier-Provider." The TSA governed the provision of dedicated and over-the-road truckload transportation services by VTS on behalf of Stonefield across a network of designated lanes in the eastern and central United States.
The TSA had an initial term commencing April 1, 2019 and running through March 31, 2024 — a period of five full contract years. Stonefield issued its formal notice of termination for Cause on March 4, 2022, leaving approximately two years and twenty-seven days remaining on the contract term. It is this remaining term that forms the basis for a substantial portion of Vantor's damages claim.
Vantor claims approximately $95.4 million in total damages, consisting of the following categories:
(i) Liquidated damages under Section 14.2 of the TSA: $64.8 million, calculated as 75% of the Annual Contract Value ("ACV") of $43.2 million, multiplied by the two full remaining contract years, plus an additional $2.43 million for the partial contract year (27 days), yielding a total liquidated damages claim of $67.23 million;
(ii) Lost profits: $18.7 million, based on Vantor's allegation that VTS operated at a 12% operating margin on committed volume under the TSA, and that this margin would have been maintained over the remaining contract term;
(iii) Stranded assets and costs: $5.2 million, reflecting Vantor's claim that VTS invested in dedicated equipment, facilities, and infrastructure in reliance on the TSA's full five-year term;
(iv) Workforce reduction costs: $2.87 million, representing alleged severance and related costs for approximately 180 drivers and support staff that VTS claims it was required to terminate or reassign as a direct result of losing the SLG contract; and
(v) Mitigation costs: $1.4 million, reflecting Vantor's claim for costs incurred in attempting to replace the SLG contract revenue.
Vantor's core theory of the case is that Stonefield's termination "for Cause" was pretextual and that the real motivation for termination was Stonefield's desire to avoid the contractual rate adjustment scheduled to take effect on April 1, 2022. Under the TSA's rate adjustment provisions, the weighted average per-mile rate was projected to increase by approximately 14.3%, from $2.87 per mile to $3.28 per mile, which would have added approximately $6.2 million in annual transportation costs to Stonefield's operations. Vantor further alleges that Stonefield sought to terminate the TSA in order to divert freight volume to lower-cost carriers, and that the cited Service Level Obligation failures were either manufactured or exaggerated to provide a contractual pretext for termination.
Vantor is represented in this action by Caldwell Royce & Shapiro LLP, with Harrison Caldwell serving as lead partner and Jason Whitford serving as senior associate. C&H filed its Notice of Appearance on behalf of Stonefield on September 8, 2022.
B. Stonefield's Position
Stonefield's position is that the termination of the TSA was a valid and properly exercised right under Section 13.1(a) of the TSA, which permits either party to terminate the Agreement upon material breach by the other party that remains uncured following written notice and expiration of the applicable cure period. Stonefield contends that VTS committed sustained, material, and uncured breaches of its Service Level Obligations ("SLOs") as set forth in Schedule B to the TSA, and that these breaches were severe, pervasive, and well-documented.
Specifically, on January 18, 2022, Raymond Hess, Director of Contract Compliance for SLG, issued a formal Cure Notice to VTS specifying with reasonable particularity each SLO failure and the applicable cure period. The Cure Notice identified failures across all five SLO categories measured under the TSA for the fourth quarter of calendar year 2021 (October 1, 2021 through December 31, 2021). Section 13.2 of the TSA provides for a thirty-day cure period following receipt of a Cure Notice. VTS received the Cure Notice on or about January 19, 2022, and the thirty-day cure period therefore expired on or about February 17, 2022. VTS did not effectuate adequate cure within that period.
Tobias Wren, General Counsel of SLG, issued the formal termination letter on March 4, 2022, citing VTS's failure to cure the identified material breaches within the cure period.
VTS's Q4 2021 performance failures, as documented in Stonefield's internal performance tracking systems and independently verified by the Contract Compliance team, are summarized below:
These failures are significant both in their magnitude and their breadth. VTS failed to meet the required threshold in every single SLO category, and the shortfalls were not marginal — they ranged from 11.4 percentage points to 23.0 percentage points below the minimum required levels. In addition to the quantified SLO failures, VTS chronically failed to provide substitute equipment or surge capacity as required under Section 7.4 of the TSA when its own fleet was unavailable, further exacerbating the operational disruptions experienced by Stonefield and its shippers.
C. Overall Assessment
Based on our review of the available facts, the TSA, applicable New York law, and the discussions at the September 15 client meeting, C&H assesses that Stonefield occupies a strong defensive position. The primary source of that strength is the objective, documented, and quantified nature of VTS's performance failures across all five SLO categories. These are not subjective quality assessments or matters of opinion — they are concrete, measurable metrics derived from operational data that VTS itself reported and that Stonefield independently tracked. The breadth and severity of the failures make it difficult for Vantor to characterize the termination as pretextual, as a pretextual termination theory requires the trier of fact to disbelieve overwhelming contemporaneous evidence of genuine performance deficiencies.
Notwithstanding the overall strength of the defense, C&H has identified two principal risk areas that require careful management throughout the litigation:
(i) The Kirkwood Email. On September 22, 2021 — approximately four months before the Cure Notice was issued — Janet Kirkwood (Vice President, Carrier Relations) sent an internal email to Carlos Medina (Senior Vice President, Operations) that contains language Vantor is likely to cite as evidence of premeditated termination. The email states, in relevant part: "VTS is a mess. We're already moving volume to Cascade and Briarwood on Lanes 8–14. If VTS doesn't get its act together by Q1 I think we pull the plug on the whole contract." While this language, read in isolation, could be construed as evidence that Stonefield had already decided to terminate the TSA and was simply searching for a contractual basis to do so, the full context — as discussed in detail in Section IV.C below — supports a benign interpretation. Nevertheless, this email represents the single most potentially damaging document in Stonefield's possession and requires careful management.
(ii) Enforceability of the Liquidated Damages Clause. As analyzed in detail in our September 19, 2022 memorandum, the enforceability of the liquidated damages provision in Section 14.2 of the TSA under New York law presents a meaningful uncertainty. We assess the risk of the clause being found to constitute an unenforceable penalty as "moderate." While New York courts are generally reluctant to override freely negotiated commercial terms between sophisticated parties — and will typically enforce liquidated damages provisions where both parties had access to legal counsel and the clause was the product of arm's-length negotiation — the 75%-of-ACV formula in this case produces a result ($67.23 million) that may strike a court as disproportionate to the actual harm suffered, particularly in light of the robust freight market conditions that would have allowed Vantor to mitigate a significant portion of its losses.
Both of these risk areas are addressed in the strategy set forth below, and C&H believes they are manageable through careful witness preparation, targeted discovery, and robust expert analysis.
III. PILLAR ONE: MOTION TO DISMISS (RULE 12(b)(6))
A. Recommendation
C&H recommends that Stonefield file a pre-answer motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) targeting two of Vantor's claims: (i) the liquidated damages claim, on the ground that it is based on an unenforceable penalty clause, and (ii) the lost profits claim, on the ground that it is inadequately pled and duplicative of the liquidated damages claim.
Our target filing date for the motion is on or before October 14, 2022. This timeline accounts for the applicable deadline under FRCP 12(a)(1)(A)(i), as extended by the filing of a pre-answer motion, and provides sufficient time for Gallagher and Laroche to complete the draft and for Eklund to conduct a final review before filing. We note that the filing of a Rule 12(b)(6) motion will toll the time for Stonefield to file its Answer, Affirmative Defenses, and Counterclaim until fourteen days after the court rules on the motion, thereby preserving flexibility.
B. Liquidated Damages Argument
Section 14.2 of the TSA provides, in relevant part, that if Stonefield terminates the Agreement for any reason other than "for Cause" (as defined in Section 13.1(a)), Stonefield shall pay to VTS liquidated damages in an amount equal to seventy-five percent (75%) of the Annual Contract Value ($43.2 million), multiplied by the number of full and partial contract years remaining in the initial term or any renewal term then in effect. Applying this formula to the facts here, Vantor claims liquidated damages of $67.23 million — consisting of $64.8 million for the two full remaining contract years and $2.43 million for the twenty-seven-day partial year.
Under well-established New York law, a liquidated damages provision is enforceable only if two requirements are satisfied: (1) actual damages flowing from the breach were difficult to ascertain at the time of contracting, and (2) the stipulated amount is a reasonable estimate of the anticipated harm and not a penalty designed to compel performance. See Northpoint Holdings v. Purdy Corp., 41 N.Y.2d 354, 365 (1977); JMD Holding Corp. v. Congress Financial Corp., 4 N.Y.3d 373, 380 (2005).
Stonefield's motion will argue that the Section 14.2 liquidated damages provision fails both prongs of this test:
First, actual damages for the wrongful termination of a transportation services contract are not difficult to ascertain. The standard measure of damages — lost volume multiplied by the applicable margin — is readily calculable from available market data and VTS's own financial records. This is not a case involving novel technology, speculative revenue streams, or other circumstances that would make damages inherently uncertain. Transportation services are fungible, freight markets are well-established and transparent, and the financial impact of lost volume can be determined with reasonable precision.
Second, the 75%-of-ACV formula bears no reasonable relationship to the anticipated harm that VTS would suffer from an early termination. The formula does not account for VTS's ability to mitigate by redeploying its fleet to serve other customers — a readily available option in the robust freight market that prevailed during the contract term. Nor does it account for variable costs that VTS would no longer incur upon termination (driver compensation, fuel, maintenance, insurance, and similar operating expenses), which constitute the vast majority of a carrier's cost structure. The $67.23 million figure is approximately 3.6 times VTS's own claimed lost profits of $18.7 million, which itself likely overstates actual damages. The formula is, in substance, a penalty designed to deter early termination rather than a reasonable pre-estimate of compensable harm.
C&H acknowledges the risk associated with this argument. New York courts have historically accorded substantial deference to sophisticated commercial parties who negotiate liquidated damages provisions at arm's length, and the TSA contains specific boilerplate language in which both parties "acknowledge and agree that the liquidated damages set forth herein represent a reasonable estimate of the damages that VTS would suffer in the event of early termination and are not a penalty." This language, while not dispositive, may give the court pause before striking the clause at the motion to dismiss stage, where the standard requires the court to accept all well-pleaded allegations as true and draw all reasonable inferences in favor of the non-movant.
Even if the motion to dismiss is denied on this ground — which we view as the likely outcome — the motion accomplishes important strategic objectives by framing the narrative early and preserving the argument for summary judgment, when the court will have the benefit of a fully developed factual record and expert economic analysis.
C. Lost Profits Argument
In addition to the liquidated damages argument, the motion to dismiss will challenge Vantor's lost profits claim on two independent grounds.
First, the motion will argue that Vantor's lost profits claim of $18.7 million fails to plead damages with the requisite certainty and specificity required under New York pleading standards. New York courts require that lost profits be established with "reasonable certainty" and cannot be based on "speculation or conjecture." Kenford Co. v. County of Erie, 67 N.Y.2d 257, 261 (1986). Vantor's Complaint asserts a blanket 12% operating margin without providing any factual basis for that figure, without accounting for market fluctuations over the remaining two-year term, and without addressing the impact of VTS's own operational deficiencies on its ability to generate the claimed margins.
Second, and more fundamentally, the motion will argue that the liquidated damages and lost profits claims are duplicative — both seek to compensate Vantor for the same underlying harm, namely the economic value of the remaining contract term. Under New York law, a plaintiff cannot recover both liquidated damages and actual damages for the same breach where the liquidated damages provision is intended to serve as the exclusive remedy for early termination. See Biotronik A.G. v. Conor Medsystems Ireland, Ltd., 22 N.Y.3d 799, 806 (2014). Permitting recovery of both would result in an impermissible double recovery. This argument has reasonable prospects of success even at the motion to dismiss stage, as it raises a pure legal question regarding the structure of Vantor's damages theories.
D. Strategic Value
Even if the motion to dismiss is denied in its entirety — an outcome for which C&H is prepared — the motion accomplishes several important strategic objectives:
(i) It forces Vantor to refine and defend its damages theory at the outset of the litigation, before discovery has commenced, requiring Vantor's counsel to articulate its position on the relationship between the liquidated damages and lost profits claims;
(ii) It creates an early record of Stonefield's affirmative positions on the unenforceability of the liquidated damages clause and the duplicative nature of Vantor's damages theories, preserving these arguments for future briefing;
(iii) It may prompt an Amended Complaint that narrows, restructures, or clarifies Vantor's claims, potentially reducing the scope of damages at issue and providing Stonefield with additional information about Vantor's theory of the case;
(iv) It imposes litigation costs on Vantor by requiring Vantor to prepare and file an opposition brief and potentially appear for oral argument, thereby signaling to Vantor that Stonefield intends to litigate this case aggressively and that resolution will not come cheaply; and
(v) It sets the tone for the litigation and communicates to the court and to opposing counsel that Stonefield has a substantive and meritorious defense.
In terms of realistic assessment, C&H expects that the stand-alone motion to dismiss on the liquidated damages enforceability question is more likely than not to be deferred by the court to summary judgment or trial, as courts frequently treat the "reasonableness" inquiry as a factual question that cannot be resolved on the pleadings. However, the duplicative-damages argument and the pleading-specificity challenge to the lost profits claim have reasonable prospects of being resolved favorably at this stage, and even partial success would meaningfully narrow the case.
E. Supporting Work
The draft motion to dismiss is being prepared by Patrick Gallagher and Simone Laroche and is currently under review by Samuel Eklund. The motion will be supported by a Declaration of Samuel Eklund attaching: (a) the Transportation Services Agreement dated March 15, 2019 (Exhibit A); and (b) the Cure Notice dated January 18, 2022 (Exhibit B). The supporting memorandum of law is targeted at approximately twenty-five to thirty pages and will address both the liquidated damages enforceability argument and the duplicative/inadequately-pled lost profits argument.
IV. PILLAR TWO: BUILD FACTUAL RECORD THROUGH DISCOVERY
A. Discovery Objectives
The overarching objective of Stonefield's discovery strategy is to build a factual record that (i) affirmatively supports Stonefield's defense that the termination was valid for Cause, and (ii) undercuts each element of Vantor's damages claims. To accomplish these objectives, Stonefield's discovery efforts will focus on obtaining Vantor's internal communications and records that demonstrate the following:
(i) VTS's intentional diversion of fleet capacity. Based on information provided by SLG's operational team during the September 15 client meeting, SLG witnesses believe that VTS intentionally pulled tractors and drivers off SLG-dedicated lanes during Q3 and Q4 2021 to serve other accounts that offered higher per-mile rates. If this can be confirmed through VTS's internal records, it will establish that VTS's SLO failures were not the result of market conditions, force majeure, or operational difficulties, but were the direct consequence of deliberate business decisions by VTS to prioritize other customers over SLG — decisions that constitute a volitional breach of the TSA.
(ii) VTS's awareness of and failure to address SLO deficiencies. Stonefield will seek internal communications showing that VTS management was aware of the declining performance metrics on the SLG account and either failed to take corrective action or affirmatively chose not to allocate resources to remediation.
(iii) Vantor's failure to mitigate damages after termination. Under New York law, a plaintiff has an affirmative duty to take reasonable steps to mitigate its damages following a breach of contract. Stonefield will seek discovery demonstrating that Vantor made no meaningful effort to replace the SLG contract revenue — either by soliciting new shipper accounts or by redeploying VTS's fleet to serve existing customers on a spot or contract basis — despite favorable freight market conditions in Q1 and Q2 of 2022 that would have made mitigation readily achievable.
(iv) The true financial condition of Vantor/VTS and accuracy of damages claims. Stonefield will seek financial records necessary to test the accuracy and reasonableness of Vantor's damages calculations, including the claimed 12% operating margin, stranded asset valuations, and workforce reduction costs.
A key discovery target will be internal email communications between Sandra Milescu, Chief Operating Officer of VTS, and Nikolai Vantorovich, Chief Executive Officer of Vantor Holdings Corp., regarding fleet management decisions during the Q3–Q4 2021 timeframe. Based on information shared by SLG witnesses at the September 15 client meeting — particularly Janet Kirkwood and Raymond Hess — SLG's operations team observed a marked decline in VTS equipment availability beginning in approximately October 2021, coinciding with a period of elevated spot market rates. The SLG team believes, based on their operational experience and communications with VTS dispatchers, that VTS was intentionally pulling tractors off SLG-dedicated lanes to serve other shippers willing to pay spot market premiums. If VTS's internal records confirm this theory, it will substantially strengthen Stonefield's defense on multiple fronts: it will explain the SLO failures as the product of VTS's own misconduct, it will support the "first-to-breach" defense, and it will undercut Vantor's characterization of the termination as pretextual.
An equally important objective of the discovery strategy is to protect Stonefield's privileged communications, particularly pre-litigation advice provided by Ashford Meridian LLP. Lorraine Beckwith, a partner at Ashford Meridian, drafted the TSA and subsequently provided legal guidance to SLG on its termination rights during the cure period in January and February 2022. These communications are protected by the attorney-client privilege and must be carefully logged and defended.
B. Offensive discovery Plan
Stonefield's affirmative discovery efforts will proceed in multiple phases, with the initial phase commencing promptly after entry of the Case Management Order ("CMO"). The specific discovery instruments are outlined below.
Interrogatories. Stonefield will serve up to twenty-five interrogatories (the maximum permitted under FRCP 33(a)(1) absent leave of court or stipulation) covering the following subject areas:
(a) Vantor's damages calculations and the methodology employed to arrive at each category of claimed damages, including the basis for the claimed 12% operating margin, the methodology for calculating the liquidated damages amount, and the valuation of stranded assets;
(b) Vantor's mitigation efforts, if any, following termination of the TSA, including identification of any replacement shipper accounts obtained, the terms and revenue associated with such accounts, and any efforts to redeploy VTS's fleet and workforce;
(c) VTS's fleet deployment decisions during Q3 and Q4 of 2021, including the number of tractors and drivers assigned to SLG-dedicated lanes on a monthly basis, any reductions in dedicated equipment, and the basis for any such reductions;
(d) The factual basis for Vantor's allegation that Stonefield's termination for Cause was pretextual, including identification of all facts, documents, and witnesses supporting that contention;
(e) The identity of all persons with knowledge of VTS's performance under the SLOs and the circumstances giving rise to the alleged SLO failures; and
(f) The details of Vantor's claimed stranded asset costs ($5.2 million) and workforce reduction costs ($2.87 million), including itemization, supporting documentation, and the dates on which such costs were incurred.
Document Requests (First Set). Stonefield will serve approximately thirty-five to forty document requests in its first set, targeting the following categories of documents:
(a) All internal VTS communications (including emails, memoranda, instant messages, and text messages) regarding the SLG account, SLG-dedicated lanes, and performance under the TSA from July 1, 2021 through April 30, 2022;
(b) Fleet deployment and management records, including dispatch logs, tractor assignment records, driver assignment records, and fleet utilization reports, for Q3 2021 through Q1 2022;
(c) Financial statements of Vantor Holdings Corp. and VTS for fiscal years 2019 through 2022, including audited annual statements, unaudited interim statements, and management accounts;
(d) All documents relating to Vantor's mitigation efforts following termination, including communications with prospective shippers, proposals submitted, contracts entered into, and revenue generated from replacement business;
(e) Vantor Holdings Corp. board of directors meeting minutes from January 2021 through the present;
(f) All communications between Vantor/VTS personnel and prospective shippers or replacement customers from January 2022 through the present; and
(g) All documents relating to the retention of any expert witnesses, including engagement letters, expert reports, and underlying data.
Document Requests (Second Set). A targeted follow-up set of document requests is anticipated once the first production reveals the scope and nature of VTS's fleet redeployment during the relevant period. This second set will specifically target VTS's contracts, rate confirmations, and communications with other shippers to whom VTS redirected fleet capacity that was previously dedicated to SLG lanes. Establishing the identity and terms of these alternative arrangements will be critical to proving that VTS deliberately diverted equipment from the SLG account.
Requests for Admission. Stonefield will serve approximately thirty requests for admission designed to establish undisputed facts that will support the summary judgment motion. The RFAs will target the following matters:
(a) VTS's actual Q4 2021 performance metrics across all five SLO categories (on-time pickup, on-time delivery, tender acceptance, equipment availability, and cargo claims ratio);
(b) VTS's receipt of the Cure Notice on or about January 19, 2022, and the content of that Cure Notice;
(c) VTS's failure to cure the identified deficiencies within the thirty-day cure period;
(d) The removal of tractors and drivers from SLG-dedicated lanes during Q3 and Q4 2021;
(e) The classification of Lanes 8 through 14 as "Secondary Lanes" under Section 2(b) of Schedule C to the TSA;
(f) The applicability (or non-applicability) of the force majeure clause to the Q4 2021 performance period; and
(g) The completion of the mandatory executive negotiation period under TSA Section 16 prior to the commencement of litigation.
Depositions. The following individuals have been identified as key deponents on the Vantor side:
(a) Derek Pruitt, Vice President of Business Development, VTS — Mr. Pruitt served as the primary relationship manager for the SLG account and is expected to have firsthand knowledge of communications between VTS and SLG regarding performance issues, the Cure Notice, and the circumstances surrounding the termination;
(b) Sandra Milescu, Chief Operating Officer, VTS — Ms. Milescu is expected to have directed the fleet management and deployment decisions that resulted in the SLO failures and is a central witness to the allegation that VTS intentionally diverted equipment from SLG-dedicated lanes;
(c) Nikolai Vantorovich, Chief Executive Officer, Vantor Holdings Corp. — Mr. Vantorovich is the ultimate decision-maker at Vantor and is expected to testify regarding corporate-level decisions, damages, mitigation efforts, and the executive negotiation sessions conducted under TSA Section 16; and
(d) Vantor FRCP 30(b)(6) corporate designee — Stonefield will serve a Rule 30(b)(6) deposition notice requiring Vantor to designate one or more persons to testify on behalf of the corporation regarding specified topics, including damages methodology, mitigation, fleet deployment, and corporate governance decisions related to the litigation.
Third-Party Subpoenas. Stonefield will issue subpoenas to the following third parties to obtain records relevant to the defense:
(a) Cascade Freight Systems Inc. (Columbus, Ohio) — Cascade is one of the alternative carriers that Stonefield engaged to handle freight volume on lanes where VTS rejected tenders or failed to provide equipment. Subpoenaed records will confirm that Stonefield's use of Cascade was limited to non-Primary Lanes (specifically Lanes 8 through 14, classified as "Secondary Lanes" under Section 2(b) of Schedule C to the TSA), thereby supporting Stonefield's position that no exclusivity violation occurred.
(b) Briarwood Trucking Co. (Arlington, Virginia) — Briarwood is the second alternative carrier utilized by Stonefield. The same analysis and objectives apply as with Cascade.
Third-party subpoena responses confirming that Stonefield's use of Cascade and Briarwood was confined to Secondary Lanes will be critical to defeating Vantor's anticipated argument that Stonefield's engagement of alternative carriers constituted an independent breach of the TSA's exclusivity provisions.
C. Defensive discovery Preparation
Stonefield has taken the following steps to prepare for the discovery obligations that will be imposed upon it as the defending party in this litigation:
Litigation Hold. A comprehensive litigation hold was issued on September 2, 2022, directed to all SLG personnel with potential knowledge of or involvement in the VTS relationship, the TSA, the Cure Notice, and the termination decision. Written acknowledgments of the litigation hold have been received from Janet Kirkwood, Raymond Hess, Carlos Medina, and Priya Ramachandran, among others. The litigation hold covers all categories of potentially relevant documents, including emails, instant messages, text messages, shared drive files, hard-copy files, and mobile device communications.
Document Collection and Review. C&H anticipates that Stonefield's document collection will yield approximately 40,000 to 50,000 documents for review and potential production. To manage this volume efficiently, C&H has engaged Pinnacle Forensics LLC (Project ID: PF-SLG-2022-0914; Nathan Billings, Client Engagement Director) to provide forensic data collection, processing, hosting, and a review platform utilizing technology-assisted review ("TAR") methodology. The use of TAR, combined with targeted keyword searches and priority custodian review, will enable C&H to complete the document review in a cost-effective and defensible manner.
Anticipated Areas of Vantor's discovery Focus. Based on our assessment of Vantor's Complaint and likely litigation strategy, C&H anticipates that Vantor will focus its discovery efforts on the following areas:
(i) Internal SLG communications regarding the diversion of freight volume to Cascade Freight Systems and Briarwood Trucking, which Vantor will attempt to characterize as evidence that Stonefield was already transitioning away from VTS before the Cure Notice was issued;
(ii) The September 22, 2021 email from Janet Kirkwood to Carlos Medina (discussed below), which contains language that Vantor will seek to use as evidence of a premeditated scheme to terminate the TSA;
(iii) SLG's awareness of and internal analysis of the April 2022 rate adjustment and its financial impact, which Vantor will use to support its pretext theory; and
(iv) SLG's compliance with Annual Contract Value minimum volume commitments, which Vantor may raise as a countervailing breach to offset or excuse VTS's SLO failures.
Kirkwood Email Risk Management. The September 22, 2021 email from Janet Kirkwood to Carlos Medina is the single most potentially damaging document in Stonefield's possession and requires a dedicated risk management strategy. The email states:
"VTS is a mess. We're already moving volume to Cascade and Briarwood on Lanes 8–14. If VTS doesn't get its act together by Q1 I think we pull the plug on the whole contract."
Read in isolation, this language could be construed by Vantor (and potentially by a jury) as evidence that Stonefield had already decided, as early as September 2021, to terminate the TSA and was searching for a contractual pretext to do so. However, the full context supports a materially different interpretation, and C&H's strategy for managing this document involves the following elements:
(a) Context of volume diversion. Ms. Kirkwood confirmed during the September 15 client meeting that the volume diversion referenced in the email was limited exclusively to non-Primary Lanes (Lanes 8 through 14, classified as "Secondary Lanes" under Schedule C). This diversion was responsive to VTS's own tender rejections — VTS was rejecting a substantial percentage of tenders on these lanes, and Stonefield had no contractual obligation to leave freight unshipped while waiting for VTS to accept. The use of Cascade and Briarwood on Secondary Lanes was expressly permitted under the TSA and does not constitute a breach or evidence of bad faith.
(b) Interpretation of "pull the plug" language. The "pull the plug" language reflects legitimate frustration with VTS's deteriorating performance, not a predetermined scheme to terminate the contract for pretextual reasons. The email was written in an informal, internal context and expresses a conditional sentiment — "if VTS doesn't get its act together" — which actually demonstrates that, as of September 2021, Stonefield was still hoping VTS would remedy its performance issues and was not yet committed to termination. That Stonefield subsequently issued a Cure Notice and provided VTS with a full thirty-day cure period is entirely consistent with this interpretation.
(c) Witness preparation. C&H will prepare Ms. Kirkwood thoroughly for her anticipated deposition testimony regarding this email. Deposition preparation will focus on establishing the contextual framework described above and ensuring that Ms. Kirkwood's testimony is clear, consistent, and grounded in the contemporaneous facts. C&H anticipates that Vantor's counsel will devote substantial deposition time to this email, and Ms. Kirkwood must be prepared to address it calmly and comprehensively.
Privilege Protection. Communications between SLG and Ashford Meridian LLP (Lorraine Beckwith, partner) during the cure period in January and February 2022 are protected by the attorney-client privilege. These communications include legal advice provided by Ms. Beckwith regarding SLG's rights and obligations under the TSA's termination provisions, the sufficiency of the Cure Notice, and the legal consequences of proceeding with termination. C&H will prepare a detailed privilege log identifying each withheld communication with sufficient specificity to support the privilege designation while not disclosing the substance of the communications. C&H anticipates that Vantor may challenge certain privilege designations, and we are prepared to defend them, including through in camera review by the court if necessary.
D. Anticipated discovery Timeline
Based on C&H's experience with Judge Calloway's case management practices and the typical schedule in the Southern District of New York for complex commercial cases, C&H anticipates that the Case Management Order will establish a fact discovery deadline of approximately seven to eight months from the date of the Initial Pretrial Conference. Accordingly, we project the following discovery timeline:
• Service of first discovery requests: within thirty (30) days of entry of the CMO;
• Stonefield's document production: within forty-five to sixty (45–60) days of receiving Vantor's document requests;
• Receipt and analysis of Vantor's discovery responses and document production: ongoing through mid-2023;
• Depositions: to be scheduled in the summer 2023 timeframe, with all depositions to be completed by the close of fact discovery; and
• Third-party subpoena returns: to be collected and analyzed as received.
V. PILLAR THREE: RETAIN DAMAGES REBUTTAL EXPERT
A. Expert Selection
C&H recommends that Stonefield retain Kensington Analytics Group LLC ("KAG"), based in Philadelphia, Pennsylvania, to serve as Stonefield's damages rebuttal expert. The engagement would be led by Dr. Evelyn Rosser, Managing Director of KAG, who specializes in transportation economics and contract damages. Dr. Rosser holds a Ph.D. in economics from the Wharton School of the University of Pennsylvania and has more than twenty years of experience providing expert economic analysis in commercial litigation. She has testified as an expert witness in analogous freight and logistics contract disputes, including cases involving disputed termination provisions, lost profits claims, and liquidated damages enforceability challenges. Her deep familiarity with the transportation sector and her credentials as a credentialed expert in this specialized area will bring significant credibility to Stonefield's damages defense.
Dr. Rosser would be supported by Michael Chung, Senior Analyst at KAG, who would assist in data analysis, financial modeling, and preparation of supporting exhibits and analyses.
The estimated budget for the KAG engagement is $180,000 to $250,000, depending on the ultimate scope of the engagement and whether expert depositions are required. This estimate includes preparation of the rebuttal report, deposition preparation and testimony (if required), and trial testimony (if required). The budget does not include costs associated with any supplemental expert analyses that may be required depending on the methodology and scope of Vantor's expert report.
B. Scope of Expert Engagement
Dr. Rosser's engagement will be focused on rebuttal of Vantor's damages claims. Vantor is expected to retain its own damages expert (the identity of whom is not known as of the date of this memorandum) to support the damages figures alleged in the Complaint. Dr. Rosser's work will be responsive to the opposing expert's report and will address the following key rebuttal issues:
Liquidated Damages Unenforceability. Dr. Rosser will provide an economic analysis demonstrating that actual damages flowing from the early termination of a transportation services agreement were readily ascertainable at the time of contracting. This analysis will draw on standard freight market data — including publicly available rate indices, carrier margin data, and industry benchmarks — to demonstrate that the parties could have estimated actual damages with reasonable precision when the TSA was executed in March 2019. Dr. Rosser will further analyze the $67.23 million liquidated damages amount and demonstrate that it is grossly disproportionate to any actual loss that VTS could have suffered from the early termination, taking into account VTS's ability to mitigate, VTS's variable cost savings, and prevailing market conditions.
Alternative Damages Calculation. Assuming arguendo that the termination is found to have been wrongful (a premise Stonefield disputes but that must be addressed for damages purposes), Dr. Rosser will calculate the maximum defensible damages exposure under an alternative lost-profits theory. This calculation will adjust for the following factors:
(a) VTS's own breaches. VTS's sustained SLO failures reduced the operational value of the contract and would have affected VTS's ability to maintain the margins it claims. Any damages analysis must account for the fact that VTS was not performing the contract as promised and was therefore not entitled to recover damages as if it had been performing flawlessly;
(b) Vantor's failure to mitigate. Freight market conditions in Q1 and Q2 of 2022 were exceptionally robust, with spot rates elevated approximately 35% above historical averages. These conditions provided VTS with ample opportunity to obtain replacement freight volume — either through spot market loads or through new contractual arrangements with other shippers. Dr. Rosser will analyze market data to quantify the volume that VTS could reasonably have been expected to replace and the margins it would have earned on that replacement volume;
(c) Proper market-based margin calculations. Vantor's claimed 12% operating margin appears inflated relative to industry benchmarks for truckload carriers. Dr. Rosser will analyze comparable carrier margins and provide a market-based estimate that more accurately reflects the margins VTS would have earned on the remaining contract volume; and
(d) Volume shortfall offsets. During the force majeure-adjusted periods in 2020, Stonefield's actual tender volume exceeded the adjusted ACV, resulting in periods where SLG arguably overpaid relative to committed minimums. These overpayments should be offset against any damages calculation.
Consequential Damages Bar. Dr. Rosser's analysis will support Stonefield's legal argument that the stranded asset costs ($5.2 million), workforce reduction costs ($2.87 million), and mitigation costs ($1.4 million) are consequential damages in nature and are barred by the mutual waiver of consequential damages in TSA Section 15.1. Dr. Rosser will provide economic classification and analysis of each category to demonstrate that these costs are not direct damages flowing from the breach but are instead indirect, incidental, or consequential in character.
Mitigation Failure Analysis. As a standalone component of her analysis, Dr. Rosser will conduct a comprehensive mitigation failure analysis demonstrating through market data that Vantor could have readily obtained replacement freight volume following the termination but made no meaningful effort to do so. This analysis will draw on publicly available data regarding freight market conditions, carrier utilization rates, and spot and contract rate trends during the relevant period. The failure to mitigate will serve as a basis for reducing any damages award, even if the court finds the termination to have been wrongful.
C. Timing
C&H will send a formal retention letter to Kensington Analytics Group LLC by the end of October 2022. The retention letter will establish the scope, terms, and confidentiality obligations of the engagement. Upon execution of the engagement agreement, C&H will provide Dr. Rosser with background materials, including the TSA, the Complaint, Stonefield's key documents, and relevant market data.
The detailed expert scope memorandum will be provided to Dr. Rosser upon receipt of Vantor's expert report, which is anticipated to be served in connection with the expert discovery deadlines established by the CMO. Dr. Rosser's rebuttal report will be served per the CMO's rebuttal expert discovery deadline, which is typically thirty days after the opening expert report.
D. Potential Daubert Challenge
Depending on the methodology employed by Vantor's damages expert, C&H will evaluate whether to file a motion to exclude expert testimony under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), and its progeny. A Daubert challenge may be warranted if Vantor's expert:
(a) Assumes the enforceability of the liquidated damages clause without conducting an independent analysis of whether the clause satisfies the legal requirements for enforcement under New York law;
(b) Uses inflated margin assumptions that are inconsistent with industry benchmarks and VTS's own historical financial performance;
(c) Fails to account for VTS's duty to mitigate or employs a mitigation analysis that ignores readily available market data; or
(d) Relies on speculative or conclusory assumptions regarding VTS's future performance that are not grounded in reliable data or methodology.
C&H recommends evaluating whether to file a standalone Daubert motion or to incorporate the challenge within the summary judgment briefing. This decision will be made after reviewing the opposing expert's report and assessing the most effective strategic approach. In some cases, combining the Daubert challenge with the summary judgment motion can be more efficient and can increase the likelihood that the court will consider the expert reliability issues in the context of the broader case.
VI. PILLAR FOUR: PURSUE SUMMARY JUDGMENT
A. Overview
The ultimate litigation objective is to obtain full or partial summary judgment disposing of Vantor's claims and/or establishing Stonefield's entitlement to affirmative declaratory relief. Summary judgment under FRCP 56 is appropriate where there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Given the strength of the documentary record establishing VTS's pervasive and uncured SLO failures, C&H believes that Stonefield has a reasonable prospect of obtaining summary judgment on one or more of the central issues in this case.
Counterclaim Strategy. C&H recommends that Stonefield file a counterclaim for declaratory judgment seeking a judicial declaration that: (i) Stonefield's termination of the TSA was valid and for Cause within the meaning of Section 13.1(a); (ii) no liquidated damages or other damages are owed to Vantor under the TSA; and (iii) any material breach of the TSA was committed by VTS, not by Stonefield. The counterclaim serves several strategic purposes: it reframes the narrative from one in which Stonefield is defending against breach allegations to one in which Stonefield is affirmatively seeking vindication of its contractual rights; it preserves Stonefield's right to affirmative relief; and it positions Stonefield as the movant for summary judgment on the declaratory judgment counterclaim, which carries favorable burden-of-proof and framing advantages.
B. Summary Judgment Arguments — Four Pillars
Stonefield's summary judgment motion will be organized around four principal arguments, each of which is designed to address a different component of Vantor's claims.
1. Valid Termination for Cause (Section 13.1(a)). The centerpiece of Stonefield's summary judgment motion will be the argument that VTS's service failures constituted a material breach as a matter of law and that Stonefield's termination was a valid exercise of its contractual rights under Section 13.1(a) of the TSA. The evidence supporting this argument is overwhelming:
(a) VTS failed to meet the minimum SLO threshold in every single performance category during Q4 2021 — on-time pickup, on-time delivery, tender acceptance, equipment availability, and cargo claims ratio. The shortfalls were not marginal; they ranged from 11.4 to 23.0 percentage points below the contractually required minimums.
(b) Stonefield issued a Cure Notice on January 18, 2022, prepared by Raymond Hess, Director of Contract Compliance, specifying with "reasonable particularity" (as required by Section 13.2) each SLO failure, the applicable contractual threshold, the actual performance level, and the applicable cure period.
(c) VTS received the Cure Notice and was afforded the full thirty-day cure period required by Section 13.2. The cure period expired on or about February 17, 2022.
(d) VTS's February 14, 2022 response — a letter from Derek Pruitt (VP, Business Development, VTS) addressed to Janet Kirkwood (VP, Carrier Relations, SLG) — acknowledged "operational challenges" affecting VTS's performance on the SLG account but did not demonstrate actual remediation or a return to SLO compliance. The response was, in substance, a request for additional time and a vague promise to improve, rather than a demonstration that the identified deficiencies had been cured.
(e) Post-cure-period metrics, covering the period from mid-February through early March 2022, continued to reflect performance below SLO thresholds, confirming that VTS had not effectuated cure.
These undisputed facts establish that VTS committed sustained, severe, and uncured material breaches of the TSA, entitling Stonefield to terminate the Agreement for Cause under Section 13.1(a).
2. Unenforceability of Liquidated Damages as Penalty. At the summary judgment stage, the liquidated damages argument will be bolstered by the full factual record and, critically, by the economic analysis of Dr. Rosser. The summary judgment brief will combine the legal argument (under the two-prong test established by Truck Rent-A-Center and its progeny) with Dr. Rosser's expert analysis demonstrating that: (a) actual damages were readily ascertainable at the time of contracting using standard freight market data and margin analysis; and (b) the $67.23 million liquidated damages figure is grossly disproportionate to any actual loss VTS could have suffered, particularly in light of the robust mitigation opportunities available in the freight market.
3. Bar on Consequential Damages Under TSA Section 15.1. Section 15.1 of the TSA contains a mutual waiver of consequential, incidental, special, and indirect damages. Three of Vantor's five damages categories — stranded assets ($5.2 million), workforce reduction costs ($2.87 million), and mitigation costs ($1.4 million) — are consequential in nature and are therefore barred by this waiver. Stranded asset costs represent investments made in reliance on the contract's full term and are classic consequential damages. Workforce reduction costs — severance and related expenses for terminated drivers and support staff — are indirect losses flowing from the termination, not direct damages. Mitigation costs are, by definition, costs incurred in an effort to minimize the consequences of the breach and are consequential in character. Summary judgment on this issue should be achievable, as it involves the interpretation of a clear contractual provision applied to well-defined categories of damages.
4. Failure to Mitigate. The fourth pillar of the summary judgment motion will address Vantor's failure to mitigate its damages following the termination. Under New York law, a non-breaching party has a duty to take reasonable steps to minimize its losses, and damages that could have been avoided through reasonable mitigation efforts are not recoverable. Through discovery and Dr. Rosser's expert analysis, Stonefield will demonstrate that the freight market conditions in Q1 and Q2 of 2022 were exceptionally favorable for carriers, with spot rates elevated approximately 35% above historical averages and carrier utilization rates at near-record levels. Despite these conditions, Vantor made no meaningful effort to replace the SLG contract volume, either by pursuing new shipper accounts, by participating in the spot market, or by redeploying VTS's fleet and drivers to serve existing customers at market rates. This failure to mitigate should result in a substantial reduction — if not outright elimination — of Vantor's recoverable damages.
C. Additional Summary Judgment Considerations
In addition to the four principal arguments described above, the summary judgment motion will address several ancillary issues that Vantor is expected to raise:
Force Majeure Defense (Section 12.1). Vantor may allege that Stonefield failed to meet its ACV minimum volume commitments during the contract term, and that this failure constitutes a countervailing breach that excuses VTS's own performance deficiencies. Stonefield's response is that any shortfall in tendered volume during calendar year 2020 was the direct result of the COVID-19 pandemic's impact on freight demand and is excused under the force majeure provision in TSA Section 12.1. Stonefield properly invoked force majeure for the period from April through September 2020 (six months). Adjusting the CY2 ACV pro rata for the force majeure period yields an adjusted ACV of $21.6 million ($43.2 million × 6/12). Stonefield's actual tenders during the non-force-majeure months of CY2 totaled $31.8 million, exceeding the adjusted ACV by $10.2 million. Accordingly, Stonefield satisfied its volume obligations during CY2 after giving effect to the force majeure adjustment.
No Exclusivity Violation. Vantor may argue that Stonefield's use of Cascade Freight Systems and Briarwood Trucking during 2021 constituted a breach of the TSA's exclusivity provisions. This argument fails because the exclusivity obligation in Schedule C applies only to the fourteen designated "Primary Lanes" identified in Section 2(a) of Schedule C. Lanes 8 through 14, on which Cascade and Briarwood were utilized, are classified as "Secondary Lanes" under Section 2(b) and are expressly excluded from the exclusivity restriction. Third-party subpoena responses from Cascade and Briarwood should confirm that Stonefield's use of these carriers was limited to Secondary Lanes, providing independent corroboration of Stonefield's position.
First-to-Breach Doctrine. Under New York law, a party who commits the first material breach of a contract cannot recover damages from the other party for a subsequent breach. See Ashgrove & Co. v. Camberwell Industries, 500 F.3d 171, 186 (2d Cir. 2007). Stonefield will argue that VTS committed the first material breach by unilaterally reducing fleet capacity on SLG-dedicated lanes — an action that C&H believes, based on information from the September 15 client meeting, commenced in approximately October 2021, well before Stonefield's issuance of the Cure Notice in January 2022 or the termination in March 2022. If discovery confirms the October 2021 timing, the first-to-breach doctrine independently excuses Stonefield's subsequent performance and validates the termination.
Pretext / Mixed Motive. Even if Vantor can demonstrate that Stonefield was aware of the upcoming April 2022 rate adjustment and was motivated, at least in part, by a desire to avoid the projected $6.2 million annual cost increase, this fact is legally irrelevant under New York contract law. When a contract permits termination for Cause, and the terminating party can establish that Cause in fact existed at the time of termination, New York law does not inquire into the terminating party's subjective motivation. The existence of actual Cause at the time of termination is dispositive. See Fink v. DeClassis, 745 F. Supp. 509, 515 (S.D.N.Y. 1990). Stonefield's motion will argue that the "pretext" theory is legally infirm as a matter of law, regardless of whatever mixed motivations may have existed alongside the legitimate contractual grounds.
D. Potential Obstacles
C&H has identified the following potential obstacles to obtaining full summary judgment, which we discuss candidly so that Stonefield and its stakeholders can assess the range of possible outcomes:
First, the Kirkwood September 22, 2021 email creates a disputed fact issue regarding Stonefield's motive and the timeline of volume diversion. If the court views Stonefield's subjective intent as relevant — a legal question on which there is some ambiguity in the case law — the email could preclude full summary judgment on the Cause defense, because a reasonable jury could interpret the email as evidence of a premeditated scheme. C&H will argue vigorously that subjective intent is legally irrelevant when objective Cause exists, but the court may disagree and find that the pretext question raises a genuine factual dispute that must be submitted to the jury.
Second, if the court finds that the liquidated damages enforceability question is a mixed question of fact and law — requiring factual development on the "reasonableness" of the estimate at the time of contracting, the parties' relative sophistication, the negotiation history, and similar considerations — it may deny summary judgment on that issue and reserve it for trial. While C&H believes that the enforceability question can be resolved on summary judgment (particularly with the benefit of Dr. Rosser's expert analysis), courts are sometimes reluctant to strike liquidated damages provisions on summary judgment, preferring to submit the question to the jury.
Contingency Strategy. In the event that full summary judgment is not achievable, C&H will pursue partial summary judgment on the consequential damages bar (Section 15.1) and the mitigation failure issues. Partial summary judgment on these issues would eliminate $9.47 million from Vantor's