PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
Tobias, Marcus,
I wanted to provide you with an initial summary of our assessment of the Vantor litigation and propose a date for an in-person strategy session. Please note that all views expressed below are preliminary and subject to further review and refinement as we continue to develop the factual record.
**Calderwood & Harkness Matter No. 1012-00005**
As you know, we filed our Notice of Appearance on behalf of Stonefield Logistics Group Inc. on September 8, 2022. Since our engagement on September 1, Patrick Gallagher and Simone Laroche have been conducting an initial review of the key documents, including the Complaint filed August 12, 2022; the Transportation Services Agreement dated March 15, 2019 (Contract Ref. No. SLG-VTS-2019-0315); the Cure Notice dated January 18, 2022; Vantor's February 14, 2022 response; and Tobias's March 4, 2022 termination letter. We have also reviewed the pre-litigation correspondence, including Vantor's April 8 demand letter, Stonefield's April 29 response, and the records from the executive negotiation sessions held on May 16 and June 3, 2022.
Tobias — thank you for arranging the prompt delivery of documents and background materials upon our engagement. Having the complete file available from the outset has allowed us to move quickly in forming our preliminary views.
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**1. Overview of Claims**
Vantor Holdings Corp., acting through its operating subsidiary Vantor Transport Services LLC ("VTS"), alleges that Stonefield wrongfully terminated the five-year TSA and seeks approximately $95.4 million in total damages. The damages break down as follows:
- Approximately **$67.23 million** in liquidated damages under Section 14.2 of the TSA, computed as 75% of the $43.2 million annual committed volume multiplied by approximately two remaining contract years plus a partial-year component; - Approximately **$18.7 million** in lost profits; and - Additional categories encompassing stranded assets, workforce reduction costs, and mitigation expenses.
The case has been assigned to the Honorable Margaret T. Calloway, U.S.D.J., in the Southern District of New York. Vantor is represented by Caldwell Royce & Shapiro LLP, with Harrison Caldwell serving as lead partner. Caldwell Royce is a capable firm, and we can expect well-resourced and aggressive litigation from their side.
**2. Preliminary Assessment of Stonefield's Termination-for-Cause Defense**
Based on our initial review, we believe Stonefield has a strong factual basis for its for-Cause termination under Section 13.1(a) of the TSA. VTS's Q4 2021 performance metrics were materially deficient across all five Service Level Obligations ("SLOs"):
| Service Level Obligation
These are not marginal shortfalls — VTS was materially underperforming on every contractual metric.
The Cure Notice sent by Raymond Hess on January 18, 2022 appears to have been properly issued under Section 13.2, specifying the nature and extent of the breaches with reasonable particularity. Vantor's February 14 response acknowledged what it characterized as "operational challenges" but, critically, did not demonstrate actual cure within the 30-day cure period expiring February 17, 2022. We see no basis in the documents reviewed to date for Vantor to argue that cure was effected or that the cure period was extended.
Tobias's March 4, 2022 termination letter appears procedurally sound and consistent with the requirements of Section 13.1(a).
**3. Identified Risk Areas**
While we are encouraged by the strength of the termination-for-cause defense, I want to flag two areas that will require careful attention as we develop our case:
**(a) The Kirkwood Email (September 22, 2021).** Janet Kirkwood's internal email to Carlos Medina on September 22, 2021 references volume diversion to Cascade Freight Systems and Briarwood Trucking on Lanes 8 through 14 and states: "if VTS doesn't get its act together by Q1 I think we pull the plug on the whole contract." We should expect Vantor to characterize this as evidence that the termination was premeditated and pretextual — i.e., that Stonefield had already decided to exit the TSA and used the performance deficiencies as a convenient justification.
We need to understand the full context surrounding this email. Importantly, our preliminary review of Schedule C to the TSA suggests that Lanes 8–14 are designated as Secondary Lanes and are therefore not subject to the exclusivity provisions in Section 3.4. If that is correct, Stonefield's use of alternative carriers on those lanes was entirely within its contractual rights, which would significantly mitigate this risk. We will need to confirm the lane designations and develop a complete picture of the volume diversion timeline and rationale.
**(b) The Anticipated April 2022 Rate Adjustment.** We understand from the Ashford Meridian LLP analysis that the Rate Adjustment Mechanism in Section 5.3 of the TSA would have triggered an approximately 14.3% increase in per-mile rates effective April 2022 — from a $2.87 weighted average to approximately $3.28 — adding roughly $6.2 million in annual transportation costs. Vantor will almost certainly argue that the true motivation for the termination was Stonefield's desire to avoid this rate increase rather than any genuine concern about VTS's operational performance.
This is a narrative risk that we need to address head-on. The key will be developing a factual record that clearly demonstrates the termination decision was driven by legitimate and well-documented operational concerns independent of rate considerations. The strength and breadth of the Q4 2021 performance failures work in our favor here, but we will want to establish the internal decision-making timeline and ensure that the contemporaneous record supports the operational rationale.
**4. Preliminary Strategic Recommendations**
We are developing a comprehensive defense strategy outline, which we will present in greater detail at our strategy session. Our preliminary thinking includes the following principal workstreams:
- **Motion to Dismiss (Rule 12(b)(6)):** We see a viable basis for a partial motion to dismiss targeting (i) the enforceability of the liquidated damages clause under Section 14.2, which we believe may constitute an unenforceable penalty under New York law given the magnitude of the stipulated amount relative to any reasonably anticipated harm, and (ii) the adequacy of Vantor's lost profits pleading, which appears to lack the specificity required under Second Circuit precedent.
- **discovery and Factual Record Development:** Building a thorough factual record demonstrating VTS's sustained service failures and, where applicable, Vantor's own contributory conduct (including its apparent failure to maintain committed equipment levels and its acknowledged driver retention issues).
- **Damages Rebuttal Expert:** Retaining a qualified damages and transportation economics expert to challenge both the liquidated damages computation and the lost profits methodology.
- **Summary Judgment:** Positioning for summary judgment on the validity of the for-Cause termination once the factual record is developed.
As a housekeeping matter, the litigation hold memorandum was issued to Stonefield on September 2. We are in the process of collecting acknowledgments from the key custodians we have identified to date — Janet Kirkwood, Raymond Hess, Carlos Medina, and Priya Ramachandran. Tobias, please let us know if there are additional custodians you believe should be included.
**5. Parallel Workstreams**
We are also reviewing two related matters:
- **D&O Insurance Tender:** We are reviewing the tender to Graymark Insurance Company under Policy No. GLG-DO-1025-00008 to ensure that coverage has been properly noticed and preserved.
- **Lender Notification:** We understand that notification to Lakeshore National Bank was sent on August 24 pursuant to Section 6.03(b) of the Credit Agreement, which requires notice of litigation involving potential liability exceeding $25 million. We will review the notification for completeness.
Tobias, we will coordinate with you on both of these items in the coming days.
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**Proposed In-Person Strategy Session**
I would like to propose an in-person meeting at Stonefield's Fort Worth headquarters (4200 Commerce Parkway, Suite 800) on **Thursday, September 15, 2022**, for a half-day session from **10:00 AM to 2:00 PM CT**. I will attend in person. Patrick Gallagher will join as well, though depending on travel logistics he may participate via video.
We would request that the following Stonefield personnel attend:
- **Marcus Denton** — CEO - **Tobias Wren** — General Counsel - **Priya Ramachandran** — CFO - **Carlos Medina** — SVP, Operations - **Janet Kirkwood** — VP, Carrier Relations (Janet is a key fact witness who oversaw the Vantor relationship day-to-day, and it will be important for us to hear directly from her) - **Raymond Hess** — Director, Contract Compliance (Raymond issued both the Cure Notice and the termination letter and can speak to the procedural steps taken)
Proposed agenda topics for the session include:
1. Detailed walk-through of the Vantor relationship history and the deterioration of VTS performance over 2021 2. Context for the Kirkwood email and any volume diversion decisions on Lanes 8–14 3. The cure notice process and all communications with Vantor during the cure period 4. The role (if any) of the anticipated rate adjustment in the termination decision 5. Document preservation status and custodian identification 6. Initial discussion of defense strategy, litigation timeline, and budget
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We will circulate a more detailed preliminary case assessment memorandum in advance of the September 15 meeting so that everyone can review our analysis beforehand and come prepared with questions and input.
Please confirm your availability for the September 15 date and let us know if you would like to suggest any additional attendees or agenda items. We are, of course, available by phone in the interim should anything arise.
Best regards,
Samuel Eklund Partner Calderwood & Harkness LLP Tel: (212) 555-4100 seklund@calderwoodharkness.com
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