PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 200 Park Avenue, 38th Floor New York, New York 10166
MEMORANDUM
PRIVILEGE DESIGNATION: This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product prepared in anticipation of litigation. It should not be disclosed to any third party without the prior written consent of counsel. Disclosure of this memorandum to any person other than the intended recipients may result in a waiver of the attorney-client privilege and/or work product protection. If you have received this memorandum in error, please contact Patrick Gallagher at Calderwood & Harkness LLP immediately.
I. Executive Summary
This memorandum provides a summary of significant activity in the above-captioned matter during the reporting period of January 1 through January 31, 2023.
Four key developments occurred during the reporting period:
First, on January 13, 2023, Calderwood & Harkness filed Stonefield's Answer, Affirmative Defenses, and Counterclaim for Declaratory Judgment in response to Vantor's Amended Complaint. The Answer denies all material allegations of wrongful termination, asserts fourteen affirmative defenses, and includes a counterclaim seeking a declaratory judgment that the termination of the Transportation Services Agreement was valid and exercised for Cause under the terms of the contract.
Second, on January 27, 2023, Vantor, through its counsel Caldwell Royce & Shapiro LLP, filed its Answer to Stonefield's Counterclaim. Our preliminary analysis indicates that the Answer to Counterclaim is consistent with the positions Vantor has taken throughout the litigation and presents no new theories or unexpected arguments.
Third, the Initial Pretrial Conference ("IPC") before the Honorable Margaret T. Calloway, United States District Judge, has been scheduled for February 10, 2023. We have submitted a joint proposed Case Management Plan in coordination with opposing counsel and have filed a pre-conference letter brief summarizing Stonefield's position on case management, proposed schedules, and anticipated discovery issues.
Fourth, discovery planning has commenced in earnest in preparation for the IPC and the anticipated entry of a Case Management Order. Workstreams include the drafting of initial written discovery, coordination of document collection and review protocols with Pinnacle Forensics LLC, and continued expert engagement with Kensington Analytics Group LLC.
With the filing of Vantor's Answer to Stonefield's Counterclaim on January 27, 2023, the pleadings are now closed on all claims and counterclaims. The matter is accordingly transitioning from the pleading phase to the discovery phase, which we anticipate will be the most active and cost-intensive period of the litigation.
Overall Assessment: Stonefield's defensive position remains strong. The Answer and Counterclaim preserve all key affirmative defenses — including valid termination for Cause, unenforceability of the liquidated damages clause as a penalty, failure to mitigate, force majeure, and first material breach by VTS — and the Counterclaim for declaratory relief frames the central issue in the case on affirmative terms. We continue to believe that the factual record developed during discovery will support a motion for summary judgment on the validity of the Cause termination under TSA Section 13.1(a), and we are structuring our discovery efforts to build that record.
II. Case Background (Standing Summary)
The following is a standing summary of the key background facts and procedural posture of the matter, provided for ease of reference. This section is updated as necessary in each monthly report.
Nature of Claims. Vantor Holdings Corp. ("Vantor") alleges that Stonefield Logistics Group Inc. ("Stonefield" or the "Company") wrongfully terminated a five-year Transportation Services Agreement dated March 15, 2019 (the "TSA," Contract Ref. No. SLG-VTS-2019-0315) between Stonefield and Vantor Transport Services LLC ("VTS"), Vantor's wholly owned operating subsidiary. The TSA had a term running from April 1, 2019 through March 31, 2024. Stonefield terminated the TSA effective March 4, 2022, citing VTS's material breach of service level obligations under the contract.
Vantor's Claimed Damages. Vantor seeks approximately $95.4 million in damages, comprising the following elements:
Stonefield's Position. Stonefield maintains that the termination of the TSA was validly exercised for Cause under TSA Section 13.1(a) following VTS's sustained failure to meet service level obligations ("SLOs") across all five contractual metrics during the fourth quarter of 2021 (October through December 2021). VTS's actual performance against the contractual SLOs during Q4 2021 was as follows:
Following VTS's across-the-board failure to meet SLOs, Stonefield issued a formal Cure Notice to VTS on January 18, 2022, in accordance with TSA Section 13.1(b), providing a 30-day period within which VTS was required to cure its material breaches. VTS failed to cure within the 30-day cure period. Accordingly, Stonefield issued a termination letter effective March 4, 2022, exercising its right to terminate for Cause under TSA Section 13.1(a).
Opposing Counsel. Vantor is represented by Caldwell Royce & Shapiro LLP ("CRS"), with Harrison Caldwell serving as lead partner and Jason Whitford serving as senior associate.
III. Activity During Reporting Period
A. Filing of Answer, Affirmative Defenses, and Counterclaim (January 13, 2023)
On January 13, 2023, Calderwood & Harkness filed Stonefield's Answer and Affirmative Defenses to Vantor's Amended Complaint, together with a Counterclaim for Declaratory Judgment, with the Clerk of the United States District Court for the Southern District of New York (ECF No. 28). The filing was made in accordance with the deadline established by the Court following service of the Amended Complaint.
1. Answer. The Answer is 42 pages in length and responds to each of the 187 paragraphs of the Amended Complaint. The Answer denies all material allegations of wrongful termination, including Vantor's claims that:
• Stonefield terminated the TSA without valid Cause;
• Stonefield's stated grounds for termination were pretextual and motivated by a desire to avoid a projected rate increase;
• Stonefield breached the TSA by failing to tender the Annual Committed Volume ("ACV") of $43.2 million per year in contract years 2 and 3;
• Stonefield diverted freight to Cascade Freight Systems Inc. and Briarwood Trucking Co. in violation of the lane exclusivity provisions set forth in Schedule C to the TSA; and
• VTS's Q4 2021 performance shortfalls were attributable to Stonefield's own conduct, including alleged volume diversion and failure to provide adequate freight forecasting data.
The Answer admits certain undisputed facts, including the existence and execution of the TSA, the identities of the parties, the contractual term, the issuance of the Cure Notice, and the termination effective date, while denying the legal conclusions Vantor draws from those facts.
2. Affirmative Defenses
The Answer asserts fourteen affirmative defenses, each of which has been carefully considered and preserved to protect Stonefield's interests as the case proceeds. The affirmative defenses are as follows:
1. Valid Termination for Cause — Termination of the TSA was validly exercised for Cause under TSA Section 13.1(a), based on VTS's material breach of its service level obligations in Q4 2021 and failure to cure within the 30-day cure period following the January 18, 2022 Cure Notice.
2. Unenforceable Penalty — The liquidated damages clause in TSA Section 14.2, which yields the single largest component of Vantor's claimed damages ($67.23 million), constitutes an unenforceable penalty under New York law because the stipulated amount is grossly disproportionate to any reasonably foreseeable harm at the time of contracting and because Vantor's actual damages are readily ascertainable.
3. Failure to Mitigate Damages — Vantor and VTS failed to take reasonable steps to mitigate their alleged damages following termination of the TSA, including by failing to pursue available alternative contracts and carrier arrangements.
4. Force Majeure — TSA Section 12.1 (Force Majeure) excuses Stonefield's alleged volume shortfall during the COVID-19 period (April through September 2020), during which global supply chain disruptions materially affected Stonefield's transportation needs and rendered strict compliance with the ACV impracticable.
5. Unclean Hands — Vantor and VTS come to this Court with unclean hands, having themselves committed material breaches of the TSA, including sustained failure to meet contractual SLOs, and are not entitled to equitable relief.
6. Contributory/First Material Breach — VTS committed the first material breach of the TSA by failing to meet SLOs, thereby excusing Stonefield's subsequent performance obligations and entitling Stonefield to terminate for Cause.
7. Waiver — Vantor and/or VTS waived certain claims and defenses through their course of conduct during the performance of the TSA.
8. Estoppel — Vantor and/or VTS are estopped from asserting certain claims based on their representations and conduct.
9. Setoff — Stonefield is entitled to set off against any damages awarded the amounts VTS owes or may owe to Stonefield.
10. Bar on Consequential Damages — TSA Section 15.1 contains a mutual waiver of consequential, incidental, special, and punitive damages, which bars significant components of Vantor's claimed damages, including lost profits and certain categories of stranded costs.
11. Duplicative Recovery — Vantor seeks overlapping and duplicative categories of damages that, if awarded in full, would result in an impermissible double recovery.
12. Standing — Vantor Holdings Corp. is a non-signatory parent holding company. The TSA was executed by VTS, Vantor's wholly owned operating subsidiary. To the extent Vantor Holdings lacks standing to assert contractual claims under Federal Rule of Civil Procedure 17, its claims are barred. While VTS was subsequently added as a nominal plaintiff in the Amended Complaint, the standing defense is preserved as to Vantor Holdings individually.
13. Statute of Frauds — To the extent any of Vantor's claims are predicated on oral modifications or side agreements not reflected in the written TSA, such claims are barred by the statute of frauds.
14. Reservation of Rights — Stonefield reserves the right to assert additional affirmative defenses as discovery progresses and additional facts are developed.
3. Counterclaim for Declaratory Judgment
In addition to the Answer and Affirmative Defenses, Stonefield asserted a counterclaim seeking a declaratory judgment pursuant to 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57. Specifically, the Counterclaim requests that the Court enter a declaratory judgment that:
(i) the termination of the TSA effective March 4, 2022 was valid and exercised for Cause under TSA Section 13.1(a);
(ii) no liquidated damages or other damages are owed by Stonefield to Vantor or VTS in connection with the termination; and
(iii) VTS, not Stonefield, committed the first material breach of the TSA through its sustained failure to meet the contractual SLOs, thereby excusing Stonefield's termination of the agreement.
The Counterclaim serves a strategic purpose beyond merely restating Stonefield's defenses. By framing the central issue — whether the termination was valid and for Cause — as an affirmative claim for declaratory relief, Stonefield positions itself to present the narrative on its own terms, rather than solely in a defensive posture. The Counterclaim also provides an independent basis for seeking summary judgment on the termination-for-Cause issue, which we believe will be the critical motion in this case.
The filing of the Answer, Affirmative Defenses, and Counterclaim was reviewed and approved by Mr. Eklund prior to filing. The Answer and Counterclaim incorporate edits and comments received from Mr. Wren during the drafting process, including revisions to the factual recitations regarding the Q4 2021 SLO performance data, the Cure Notice procedures, and the characterization of VTS's interactions with Stonefield's operations team during the cure period.
B. Vantor's Answer to Counterclaim (January 27, 2023)
Vantor, through Caldwell Royce & Shapiro, filed its Answer to Stonefield's Counterclaim on January 27, 2023 (ECF No. 31). The filing was timely under the Federal Rules.
Vantor denied the material allegations of the Counterclaim and asserted its own affirmative defenses, which largely mirror the positions taken in the Amended Complaint. In particular, Vantor denied that the termination was exercised for valid Cause, denied that VTS committed the first material breach, and asserted that Stonefield's own conduct — including alleged volume shortfalls, freight diversion, and pretextual motives — renders the termination wrongful.
Our preliminary analysis of the Answer to Counterclaim indicates that it contains no surprises and advances no new theories of liability or defense that have not already been asserted in the Amended Complaint. The filing is consistent with our expectations and does not alter our assessment of the case or our litigation strategy.
With the filing of Vantor's Answer to Stonefield's Counterclaim, the pleadings are now closed on all claims and counterclaims. The matter is fully at issue and ready to proceed to discovery.
C. Prior Pleading History (Context)
For context, and as previously reported, the following developments in the pleading phase preceded the events of the current reporting period:
On October 14, 2022, Calderwood & Harkness filed a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) on behalf of Stonefield. The motion advanced two principal arguments: (1) that the liquidated damages clause in TSA Section 14.2 constitutes an unenforceable penalty as a matter of law and should be dismissed from the case; and (2) that Vantor's lost profits claim was inadequately pled, as the Complaint failed to allege the factual basis for Vantor's claimed lost profits with the specificity required under New York law.
Before the Court ruled on the motion, Vantor filed an Amended Complaint on December 2, 2022, adding new allegations beyond those contained in the original Complaint. Specifically, the Amended Complaint added claims regarding:
(i) Stonefield's alleged failure to tender the Annual Committed Volume ("ACV") of $43.2 million per year in contract years 2 (April 2020–March 2021) and 3 (April 2021–March 2022);
(ii) alleged diversion of freight to Cascade Freight Systems Inc. and Briarwood Trucking Co. in violation of the lane exclusivity provisions contained in Schedule C of the TSA; and
(iii) an allegation that the termination was pretextual and motivated by Stonefield's desire to avoid a projected 14.3% per-mile rate increase effective April 1, 2022 under the Rate Adjustment Mechanism (from $2.87 to $3.28 per mile on a weighted average basis, representing approximately $6.2 million in additional annual transportation costs for Stonefield).
Following the filing of the Amended Complaint, the Court denied Stonefield's Motion to Dismiss as moot on December 16, 2022, as is customary when an amended pleading supersedes the prior complaint.
Stonefield elected to answer the Amended Complaint rather than file a renewed Motion to Dismiss. This decision, discussed and agreed upon by Mr. Eklund, Mr. Gallagher, and Mr. Wren, was a strategic one. While a renewed 12(b)(6) motion might have been meritorious on the penalty clause issue, the additional factual allegations in the Amended Complaint — particularly those regarding volume shortfall and freight diversion — are better addressed in the context of a developed factual record. We believe discovery will produce documentary evidence, including VTS's own internal documents and performance data, that strongly supports Stonefield's defenses. Proceeding directly to discovery allows us to build that record efficiently, rather than expending resources on a motion that, even if successful, would likely result in only partial dismissal and would not resolve the core dispute.
IV. Upcoming Events and Deadlines
A. Initial Pretrial Conference — February 10, 2023
The Initial Pretrial Conference ("IPC") before Judge Calloway is scheduled for February 10, 2023, at 10:00 a.m. in Courtroom 12B of the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, New York, New York. The IPC was noticed by the Court on January 19, 2023 (ECF No. 30).
In preparation for the IPC, the following steps have been taken:
Joint Proposed Case Management Plan. Calderwood & Harkness jointly submitted a Proposed Case Management Plan with Caldwell Royce & Shapiro on February 7, 2023. The plan was coordinated by Patrick Gallagher and Jason Whitford (CRS senior associate) through a series of meet-and-confer discussions conducted in late January and early February 2023. The parties reached agreement on most scheduling issues, though certain areas of disagreement — including the scope and timing of ESI production and whether phased discovery is appropriate — are noted in the plan for the Court's resolution.
Pre-Conference Letter Brief. A pre-conference letter brief was submitted to Judge Calloway on February 9, 2023, on behalf of Stonefield. The letter brief summarizes the defendant's position on case management, the proposed discovery schedule, and anticipated discovery issues, including the scope of document production, the need for a clawback stipulation, and the treatment of third-party discovery.
The proposed discovery and case management schedule, which is subject to Court approval at or following the IPC, is as follows:
We anticipate the Court will enter a Case Management Order ("CMO") at or shortly following the IPC with firm deadlines for each phase of the litigation. Judge Calloway's chambers have indicated informally through her Courtroom Deputy that the Judge prefers to set firm deadlines and is generally disinclined to grant extensions absent a showing of good cause and diligence.
In connection with the IPC, we will request the Court's entry of a clawback stipulation pursuant to Federal Rule of Evidence 502(d) to protect against waiver of attorney-client privilege or work product protection in the event of inadvertent production of privileged documents during the course of discovery. A draft stipulation and proposed order have been prepared and circulated to opposing counsel. We do not anticipate opposition to the stipulation, as the protections it affords are mutual.
B. Discovery Planning
Discovery planning is underway in anticipation of the CMO. The following workstreams are in progress:
1. Interrogatories and Requests for Production
First sets of interrogatories (Rule 33) and requests for production of documents (Rule 34) are being drafted for service promptly following the entry of the CMO. We anticipate serving these discovery requests in early-to-mid March 2023, depending on the deadlines established in the CMO.
Key targets of our initial written discovery to Vantor and VTS include:
• The factual and documentary basis for Vantor's damages calculations, including the methodology underlying its $95.4 million aggregate claim;
• All mitigation efforts undertaken or considered by Vantor and VTS following termination of the TSA, including contacts with alternative shippers, substitute contracts entered into, and revenue derived from such alternatives;
• Fleet deployment decisions made by VTS during contract years 2 and 3, and following termination, including equipment utilization rates, driver staffing, and route assignments;
• Internal communications within Vantor and VTS regarding the Stonefield account, including communications reflecting VTS's awareness of its own SLO performance shortfalls;
• VTS's financial statements, tax returns, and management reports for fiscal years 2019 through 2022, relevant to the lost profits and stranded assets claims; and
• The factual basis for Vantor's allegation that the termination was "pretextual," including all documents and communications supporting the claim that Stonefield terminated the TSA to avoid the projected rate increase.
2. Requests for Admission
First requests for admission (Rule 36) are also being drafted, targeting undisputed facts that should narrow the issues for trial or summary judgment. Key topics include:
• VTS's Q4 2021 performance metrics across all five SLO categories (as reflected in the Stonefield-VTS Quarterly Performance Reports);
• VTS's receipt of the January 18, 2022 Cure Notice and the content thereof;
• VTS's failure to cure the identified breaches within the 30-day cure period;
• The applicability of the force majeure clause (TSA Section 12.1) to the COVID-19 period; and
• The classification of specific lanes under Schedule C (distinguishing between "Primary Lanes" subject to exclusivity restrictions and "Secondary Lanes" not subject to such restrictions).
3. Document Collection and Review
Coordination is ongoing with Pinnacle Forensics LLC ("Pinnacle"), which was engaged in September 2022 to provide eDiscovery and forensic data processing services for this matter (Project ID: PF-SLG-2022-0914). Pinnacle has processed and is hosting Stonefield's document collection on its Relativity-based eDiscovery review platform.
David Moretti, Calderwood & Harkness's Litigation Support / eDiscovery Manager assigned to this matter, is finalizing the document review protocol, which addresses:
• Responsiveness criteria and search terms;
• Privilege identification guidelines, including flagging criteria for documents involving counsel communications, legal advice, and litigation strategy;
• Coding taxonomy for substantive issue coding (e.g., SLO performance, volume commitments, lane assignments, rate adjustment, termination discussions, cure period communications);
• Technology-Assisted Review ("TAR") 2.0 methodology, including seed set selection, control set validation, iterative training rounds, and precision/recall benchmarking; and
• Quality control procedures, including random sampling and inter-reviewer agreement testing.
We anticipate that the initial phase of document review (first-pass responsiveness and privilege review) will take place during the April through June 2023 timeframe, subject to the schedule established in the CMO. Document review is expected to be a significant cost driver during this phase of the litigation, and we will provide regular budget updates as review proceeds.
4. Stonefield Document Hold
Litigation holds remain in effect for all key custodians identified in connection with this matter. The following individuals are subject to active litigation holds, all of which were issued in September 2022 upon the filing of the original Complaint:
• Tobias Wren, General Counsel
• Priya Ramachandran, Chief Financial Officer
• Carlos Medina, Senior Vice President, Operations
• Janet Kirkwood, Vice President, Carrier Relations
• Raymond Hess, Director, Contract Compliance
All custodians have acknowledged receipt of the litigation hold notices, and acknowledgments were received and documented in September 2022. We will issue periodic hold reminders to all custodians on a quarterly basis, with the next reminder scheduled for March 2023.
5. Privilege Review
Simone Laroche (Associate) is conducting a preliminary analysis of the privilege status of pre-litigation communications between Stonefield and Ashford Meridian LLP, the law firm that drafted the TSA and provided initial pre-litigation guidance to Stonefield in connection with the contemplated termination and the Cure Notice process. This analysis is necessary to determine which documents in Stonefield's collection are protected by the attorney-client privilege and must be withheld from production and logged on a privilege log, as opposed to documents that are responsive and non-privileged and must be produced.
The analysis involves reviewing the scope of Ashford Meridian's engagement, the nature of the advice provided, and whether any communications were shared with third parties in a manner that may have waived the privilege. Ms. Laroche expects to complete her preliminary analysis by mid-February 2023, and we will provide a report to Mr. Wren regarding any issues identified.
C. Deposition Planning (Preliminary)
While it is premature to schedule depositions — which will follow the exchange of initial written discovery and document productions — we have begun identifying the likely deponents on both sides. Early identification of deponents allows us to structure our document review and written discovery to develop the documentary foundation for effective depositions.
Anticipated Vantor/VTS Deponents:
• Nikolai Vantorovich — Chief Executive Officer, Vantor Holdings Corp. Corporate decision-maker with knowledge of Vantor's strategy regarding the Stonefield contract, the decision to file suit, and Vantor's damages exposure.
• Sandra Milescu — Chief Operating Officer, VTS. Responsible for VTS's day-to-day operations, including fleet management, driver staffing, and SLO compliance. Likely to have knowledge of VTS's operational challenges during Q4 2021 and the cure period.
• Derek Pruitt — Vice President, Business Development, VTS. Primary relationship manager for the Stonefield account. Handled day-to-day communications with Stonefield's operations team and is expected to have knowledge of discussions regarding volume, lane assignments, and performance issues.
• Gregory Fielding — Chief Financial Officer, VTS. Responsible for VTS's financial reporting and will be the key witness on damages-related issues, including the calculation of lost profits, stranded assets, and workforce reduction costs.
Anticipated Stonefield Deponents (expected to be noticed by Vantor):
• Janet Kirkwood — Vice President, Carrier Relations, Stonefield. Oversaw the Vantor/VTS relationship on behalf of Stonefield. Key fact witness regarding Stonefield's assessment of VTS's performance, the decision to issue the Cure Notice and ultimately terminate, and the September 22, 2021 email discussed in Section VIII below.
• Raymond Hess — Director, Contract Compliance, Stonefield. Issued the Cure Notice on January 18, 2022 and the termination letter effective March 4, 2022. Primary custodian of SLO performance tracking data and compliance records.
• Carlos Medina — Senior Vice President, Operations, Stonefield. Oversaw operational aspects of the VTS relationship, including freight tendering, lane assignments, and the use of alternative carriers.
We anticipate that deposition scheduling will be addressed after initial written discovery is served and document productions are exchanged, with depositions likely taking place during the June through August 2023 timeframe. We will prepare detailed deposition strategies and outlines as the depositions approach, and will coordinate with Mr. Wren regarding the preparation of Stonefield's witnesses.
D. Expert Engagement
Stonefield's Expert — Kensington Analytics Group LLC. Kensington Analytics Group LLC ("Kensington") has been retained as Stonefield's damages and economics rebuttal expert, pursuant to an engagement letter dated October 28, 2022. The engagement team is led by Dr. Evelyn Rosser, Managing Director and Lead Expert, with support from Michael Chung, Senior Analyst.
Dr. Rosser and Mr. Chung have been provided with background materials regarding the case, including the pleadings, the TSA and all schedules and amendments, and publicly available financial information regarding Vantor and VTS. An expert scope memorandum was delivered to Dr. Rosser on November 14, 2022, outlining the key issues on which Kensington's expertise will be required, including:
• The enforceability of the liquidated damages clause under New York law, including whether the clause meets the two-part reasonableness test;
• Alternative damages models and the proper methodology for calculating damages, if any, assuming arguendo that the termination was wrongful;
• Analysis of Vantor's mitigation efforts and the availability of alternative contracts and carrier arrangements; and
• VTS's financial condition and the question of whether VTS's alleged damages are causally connected to the termination, as opposed to pre-existing operational and financial difficulties.
Expert work will intensify following Vantor's service of its affirmative expert report, which is anticipated under the CMO schedule. We expect that Kensington will prepare a rebuttal expert report addressing and critiquing the methodology and conclusions of Vantor's damages expert.
Vantor's Expert — Trask Greystone & Associates. Based on publicly available information and disclosures in the pleadings, Vantor has retained Trask Greystone & Associates as its damages expert, with Dr. Philip Trask, Founder and Lead Expert, serving as the designated testifying expert. Dr. Trask is a well-known damages expert who has testified in several high-profile commercial disputes. We are reviewing Dr. Trask's prior testimony and publications to prepare for cross-examination and rebuttal.
V. Budget and Billing Update
The following is a summary of fees and disbursements incurred during Q4 2022 (October through December 2022), which is the most recent period for which billing has been finalized:
For reference, the current billing rates for the Calderwood & Harkness team members assigned to this matter are as follows:
The above associate rates reflect the 10% courtesy discount extended to Ridgeline Capital Partners portfolio companies pursuant to Calderwood & Harkness's institutional relationship with Ridgeline.
January 2023 Billing. January 2023 time entries are being finalized and will be reflected in the Q1 2023 billing summary. Key January activities driving fees include:
• Preparation, finalization, and filing of the Answer, Affirmative Defenses, and Counterclaim;
• Review and analysis of Vantor's Answer to Stonefield's Counterclaim;
• IPC preparation, including coordination with opposing counsel on the joint proposed Case Management Plan and preparation of the pre-conference letter brief;
• discovery planning, including drafting of initial interrogatories, document requests, and requests for admission; and
• Ongoing coordination with Pinnacle Forensics regarding document collection and review protocols.
Budget Status. The preliminary litigation budget, dated September 12, 2022 and provided to Mr. Wren and Ridgeline Capital Partners, estimated total professional fees through summary judgment at $3.5 million to $5.2 million, with an additional $400,000 to $750,000 in costs and disbursements (including expert fees, eDiscovery vendor costs, deposition transcripts, and court reporting fees). We remain within the projected range at this stage of the litigation. As anticipated, discovery is expected to be the most cost-intensive phase, with the primary cost drivers being document review (anticipated April through June 2023) and depositions (anticipated June through August 2023). We will provide updated budget projections as the CMO schedule is established and discovery proceeds.
VI. Insurance and Lender Notifications
A. Insurance Coverage
Directors and Officers Liability Coverage. Graymark Insurance Company declined coverage under Stonefield's Directors and Officers Liability Policy, Policy No. GLG-DO-1025-00008 ($15 million aggregate limit), by letter dated October 3, 2022. Graymark determined that the Vantor claims arise from a commercial contract dispute and are excluded under the policy's contractual liability exclusion (Section IV(B)(3) of the Policy). Graymark's declination letter was reviewed by Calderwood & Harkness upon receipt. As previously reported and analyzed, we do not recommend challenging the declination. The contractual liability exclusion is unambiguous and has been consistently upheld by New York courts in the context of breach-of-contract claims against corporate entities. While there may be a colorable argument that certain aspects of Vantor's allegations (e.g., the allegation of pretextual termination) sound in tort, the gravamen of the action is contractual, and we assess the likelihood of a successful coverage challenge as low.
Commercial General Liability Coverage. Stonefield's commercial general liability policy with Brindoval Mutual Insurance Co. (Policy No. CGL-SLG-2022-11902) similarly does not provide coverage for breach of contract claims. CGL policies are designed to cover bodily injury and property damage arising from the insured's operations, and commercial contract disputes fall outside the scope of coverage.
B. Lender Notification
Lakeshore National Bank ("LNB"), in its capacity as Administrative Agent under Stonefield's $425 million Senior Secured Credit Facility (Reference No. LNB-SLG-2017-CA-4402), was notified of this litigation on August 24, 2022, as required under Section 6.03(b) of the Credit Agreement. Section 6.03(b) requires prompt written notice to the Administrative Agent of the commencement of any litigation, investigation, or proceeding against the borrower that involves a potential liability in excess of $25 million.
Catherine Devereaux, Senior Vice President, Loan Administration at LNB, acknowledged receipt of the notification and requested quarterly litigation status updates. The first quarterly update, covering Q4 2022, was provided by Mr. Wren directly to Ms. Devereaux on January 12, 2023. The update reported the following:
• Stonefield's Motion to Dismiss was filed in October 2022 and was pending (subsequently denied as moot following the filing of the Amended Complaint);
• discovery was anticipated to begin in Q1 2023;
• There was no change in the exposure assessment from the initial notification; and
• Management continues to believe that Vantor's claims lack merit and intends to vigorously defend the litigation.
The next quarterly update to LNB is due in April 2023, covering Q1 2023 activity. We will coordinate with Mr. Wren on the content of that update.
VII. Settlement and Resolution
There was no settlement activity during the reporting period. Neither party initiated any settlement discussions, and no mediation or other alternative dispute resolution process has been proposed or discussed.
Stonefield's settlement authority remains at $0 to $4.5 million (nuisance value / litigation cost avoidance range), as authorized in November 2022 by Mr. Wren (General Counsel), Robert Denton (Chief Executive Officer), and Angela Trang (Managing Director, Ridgeline Capital Partners, Stonefield's controlling equity sponsor). This authority level reflects the view, shared by the Company, its management, and Ridgeline, that Vantor's claims are without merit and that the termination was validly exercised for Cause. Any settlement within this range would be undertaken solely to avoid the cost and distraction of continued litigation, not as an acknowledgment of liability.
Ridgeline Capital Partners has communicated its preference for an aggressive defense posture and does not wish to pursue settlement overtures at this stage of the litigation. This preference is consistent with the assessment that the factual record, once developed, will strongly support Stonefield's position.
For context, the maximum defensible exposure in this matter was estimated at approximately $8.2 million by Kensington Analytics Group LLC in its preliminary analysis. This figure represents the maximum amount of damages that could be sustained against Stonefield under an alternative lost-profits theory, assuming arguendo that the termination was wrongful, and after adjusting for:
• VTS's own material breaches and their contribution to the termination;
• Vantor/VTS's failure to mitigate damages by securing alternative carrier arrangements;
• The proper market-based methodology for calculating lost profits (as opposed to Vantor's inflated and speculative claim); and
• The application of the mutual consequential damages waiver in TSA Section 15.1.
This $8.2 million figure does not represent a prediction of liability, but rather a worst-case scenario under a theory that assumes wrongful termination — an assumption we believe is inconsistent with the facts and the law. The figure is provided for settlement evaluation and risk management purposes only.
We will reassess the settlement posture after document discovery and depositions provide additional insight into the strength of the parties' respective positions. In particular, the content of Vantor/VTS's internal communications regarding VTS's operational performance and awareness of SLO shortfalls, as well as the testimony of Derek Pruitt and Sandra Milescu regarding VTS's cure period activities, may materially affect the settlement calculus.
VIII. Key Risks and Considerations
We have identified the following key risks and considerations that merit continued attention as the case progresses. These are discussed with Mr. Wren and Mr. Eklund on a regular basis and are monitored as part of our ongoing case strategy.
A. The Kirkwood Email (September 22, 2021)
Janet Kirkwood's internal email to Carlos Medina dated September 22, 2021, which was identified during initial document collection, remains a significant risk factor. In the email, Ms. Kirkwood discusses the diversion of certain freight volumes from VTS to Cascade Freight Systems Inc. and Briarwood Trucking Co. and states, in relevant part, that Stonefield should consider whether to "pull the plug on the whole contract" with VTS. The email was written approximately four months before the issuance of the Cure Notice and approximately five months before the termination.
Vantor will undoubtedly seize on this email as evidence that Stonefield's decision to terminate was premeditated and motivated by bad faith — i.e., that Stonefield had already decided to terminate the TSA before the Q4 2021 performance data was compiled and before the Cure Notice process was initiated, rendering the Cure Notice and cure period a sham.
Our Position. We believe the email is manageable within the context of the broader factual record, for the following reasons:
First, the email specifically references Lanes 8 through 14, which are classified as "Secondary Lanes" under Schedule C, Section 2(b) of the TSA. Secondary Lanes are expressly excluded from the exclusivity restrictions applicable to "Primary Lanes" under Schedule C, Section 2(a). Stonefield's use of alternative carriers for Secondary Lanes is therefore contractually permitted and cannot constitute a breach of the TSA.
Second, the email reflects a legitimate operational response to VTS's declining tender acceptance rates, which had been trending downward for several quarters prior to the Q4 2021 period. Stonefield's operations team had an obligation to ensure reliable transportation services for its customers, and the diversion of certain non-exclusive lane volume to other carriers was a reasonable and commercially necessary response to VTS's performance deficiencies.
Third, under New York law, a party's subjective motive for exercising a contractual right is generally irrelevant where objective contractual grounds for the exercise of that right exist. See, e.g., Moran v. Erk, 11 N.Y.3d 452 (2008). Because objective Cause for termination existed under TSA Section 13.1(a) — as demonstrated by VTS's across-the-board SLO failures in Q4 2021 and VTS's failure to cure within the 30-day cure period — the fact that Stonefield may also have had independent business reasons for wishing to exit the relationship does not render the termination wrongful.
We will develop the factual record during discovery to contextualize the Kirkwood email within the broader pattern of VTS's declining performance and Stonefield's legitimate operational responses. We will also prepare Ms. Kirkwood thoroughly for her deposition, which we anticipate Vantor will notice.
B. Rate Adjustment Motive
Vantor alleges in the Amended Complaint that Stonefield terminated the TSA to avoid the projected 14.3% per-mile rate increase effective April 1, 2022 under the Rate Adjustment Mechanism set forth in Schedule B to the TSA. The increase would have raised the weighted average per-mile rate from $2.87 to $3.28, representing approximately $6.2 million in additional annual transportation costs for Stonefield.
This allegation is designed to support the narrative that the termination was pretextual — that is, that Stonefield terminated not because of VTS's performance deficiencies, but because of its desire to avoid higher rates. The allegation is colorable and, combined with the Kirkwood email, creates a theme that Vantor will press throughout the litigation.
Our Legal Position. As noted above, New York law does not inquire into the subjective motive of a party exercising a valid contractual right. The relevant inquiry is whether objective contractual grounds for termination existed, not whether the terminating party also had other, collateral reasons for its decision. We are confident in this legal position and intend to address it directly in any summary judgment briefing.
Factual Development. We will develop the factual record during discovery to demonstrate the genuineness of the Cause termination. In particular, we will seek testimony and documents showing that:
• The decision to issue the Cure Notice was based on the Q4 2021 performance data, which was compiled and analyzed in the ordinary course of business by Raymond Hess and the Contract Compliance team;
• VTS was given a full and genuine opportunity to cure its breaches during the 30-day cure period, and VTS's failure to cure was independently verified before the termination decision was made; and
• The rate increase, while a factor in Stonefield's broader vendor management strategy, was not the motivating factor behind the termination and was separate from the compliance-driven Cause analysis.
C. Liquidated Damages Enforceability
The enforceability of the liquidated damages clause in TSA Section 14.2 remains an area of legal uncertainty. The clause yields the single largest component of Vantor's claimed damages — $67.23 million, calculated as 75% of the ACV ($43.2 million) multiplied by the approximately 2.07 remaining contract years at the time of termination.
Under New York law, a liquidated damages clause is enforceable only if it satisfies a two-part test: (1) the amount is a reasonable estimate of the probable loss at the time of contracting, and (2) actual damages would be difficult to ascertain at the time of breach. See Truck Rent-A-Ctr., Inc. v. Purdy Corp., 41 N.Y.2d 354, 357 (1977). A clause that fails either prong is deemed an unenforceable penalty.
Our assessment is that there is a moderate probability that the Court will find the liquidated damages clause to be an unenforceable penalty. Several factors support this assessment:
• The 75%-of-ACV multiplier may be viewed as disproportionate to Vantor/VTS's actual harm from early termination, particularly given VTS's own performance deficiencies and the availability of alternative carrier contracts;
• Vantor/VTS's actual damages are arguably ascertainable through standard lost-profits and mitigation analyses, which undermines the "difficulty of ascertainment" prong; and
• The clause operates on a simple multiplier that does not account for costs saved, mitigation opportunities, or the declining time value of the remaining contract term, which may weigh against its reasonableness.
However, there are also arguments supporting enforceability, including the commercial sophistication of both parties, the arm's-length negotiation of the TSA, and the fact that transportation services contracts do involve genuine uncertainty regarding the magnitude of early-termination losses. This issue is likely to be addressed at summary judgment or, if factual disputes exist, at trial.
D. Vantor's Volume Shortfall Allegations
Vantor alleges that Stonefield failed to tender the ACV of $43.2 million per year in contract years 2 and 3. This allegation supports Vantor's broader narrative of a reciprocal breach — i.e., that even if VTS failed to meet SLOs, Stonefield itself breached the TSA by failing to fulfill its volume commitments.
Contract Year 2 (April 2020–March 2021). Our force majeure defense under TSA Section 12.1 covers the COVID-19 period (April through September 2020), during which global supply chain disruptions, government-mandated shutdowns, and dramatic declines in freight volumes materially affected Stonefield's transportation needs and rendered strict compliance with the ACV impracticable. Adjusting the CY2 ACV on a pro rata basis for the six-month force majeure period yields an adjusted ACV of approximately $21.6 million. Stonefield's actual tenders during CY2 totaled $31.8 million, which comfortably exceeds the adjusted ACV. Accordingly, we believe the volume shortfall claim for CY2 is without merit.
Contract Year 3 (April 2021–March 2022). For CY3, Vantor claims a shortfall based on $36.5 million in actual tenders against the full $43.2 million ACV. However, this comparison is misleading for two reasons. First, the TSA was terminated effective March 4, 2022, meaning CY3 ran for only approximately 11 months (April 2021 through early March 2022), not the full 12 months. The prorated ACV for 11 months would be approximately $39.6 million, reducing the claimed shortfall significantly. Second, the proper prorated comparison should account for only the 10 complete months for which full performance data is available (April 2021 through January 2022), and the prorated shortfall calculation on that basis is disputed. We will address these issues in detail during discovery and at summary judgment.
IX. Action Items and Next Steps