PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT PREPARED IN ANTICIPATION OF LITIGATION EXPERT CONSULTATION MATERIALS PURSUANT TO FED. R. CIV. P. 26(b)(4)
This document is a privileged and confidential communication prepared by counsel in anticipation of litigation. It constitutes attorney work product and is protected from disclosure under Fed. R. Civ. P. 26(b)(3) and the expert consultation protections of Fed. R. Civ. P. 26(b)(4). Any unauthorized review, use, disclosure, or distribution is strictly prohibited.
MEMORANDUM
May 25, 2023
FROM: Patrick Gallagher, Lead Associate, Litigation (General) Calderwood & Harkness LLP 200 Park Avenue, 38th Floor New York, NY 10166
TO: Dr. Evelyn Rosser, Managing Director Kensington Analytics Group LLC 1700 Market Street, Suite 2800 Philadelphia, PA 19103
Michael Chung, Senior Analyst Kensington Analytics Group LLC 1700 Market Street, Suite 2800 Philadelphia, PA 19103
RE: Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.) — Rebuttal Issues for Expert Report of Dr. Philip Trask (Trask Greystone & Associates)
Matter No.: 1012-00005
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I. Introduction and Purpose
This memorandum is directed to Kensington Analytics Group LLC ("KAG") for the purpose of identifying and assigning specific areas requiring rebuttal analysis in response to the expert report of Dr. Philip Trask, Founder and Lead Expert of Trask Greystone & Associates. Dr. Trask's report was served by plaintiff Vantor Holdings Corp. ("Vantor") on May 15, 2023, and purports to quantify Vantor's alleged damages in the amount of approximately $95.4 million. As set forth in detail below, Calderwood & Harkness LLP ("C&H") has identified significant methodological weaknesses and analytical deficiencies in Dr. Trask's report that must be addressed through a comprehensive rebuttal expert report to be submitted on behalf of our client, Stonefield Logistics Group Inc.
KAG was retained as an expert consulting and testifying firm on behalf of Stonefield pursuant to the engagement letter dated October 28, 2022, executed by Dr. Rosser on behalf of KAG and by Samuel Eklund, Partner, on behalf of C&H. The prior scope memorandum dated November 14, 2022, from the undersigned to Dr. Rosser, outlined KAG's initial engagement parameters for reviewing the Transportation Services Agreement, analyzing the operative damages theories, and preparing to respond to any plaintiff's expert report. The present memorandum supplements and expands upon that prior scope memorandum in light of the specific content of the Trask report, which is now in hand.
Stonefield Logistics Group Inc. ("Stonefield" or "SLG"), the defendant in this action, is a Delaware corporation headquartered at 4200 Commerce Parkway, Suite 800, Fort Worth, Texas 76102. Stonefield is a mid-market freight brokerage, managed transportation, and supply chain solutions company with annual revenues of approximately $1.42 billion (FY 2021) and $1.28 billion (FY 2022). Stonefield operates across the continental United States, with particular concentration in the Northeast, Mid-Atlantic, Southeast, and Great Lakes corridors.
Vantor filed this breach-of-contract action alleging wrongful termination of a five-year Transportation Services Agreement dated March 15, 2019 (the "TSA," Contract Reference No. SLG-VTS-2019-0315) between SLG, in its capacity as "Shipper-Broker," and Vantor Transport Services LLC ("VTS"), a wholly owned subsidiary of Vantor, in its capacity as "Carrier-Provider." The TSA established a dedicated transportation arrangement under which VTS was to provide truckload and less-than-truckload carriage services across designated freight lanes for a five-year term commencing April 1, 2019, through March 31, 2024. The total five-year minimum volume commitment under the TSA was $216 million, yielding an annualized contract value ("ACV") of $43.2 million.
Stonefield terminated the TSA effective March 4, 2022, citing VTS's material breach of its service level obligations and failure to cure following a formal cure notice issued on January 18, 2022. Vantor contends that the termination was wrongful and that Stonefield's true motivation was to avoid an impending rate adjustment that would have increased SLG's annual transportation costs by approximately $6.2 million. Stonefield disputes this characterization and maintains that its termination was fully justified under the TSA's termination-for-cause provisions.
Dr. Trask's report quantifies Vantor's claimed damages at approximately $95.4 million across six categories, including liquidated damages, lost profits, stranded asset costs, workforce reduction costs, and mitigation costs. As discussed in further detail below, C&H's internal analysis of the Trask report, completed on May 22, 2023, has identified significant methodological weaknesses, including duplicative recovery theories, unsupported margin assumptions, failure to account for VTS's own material breaches, inadequate mitigation analysis, and improper classification of consequential damages. This memorandum translates those findings into specific assignments for KAG's rebuttal report.
With respect to timing, the rebuttal expert report deadline under the Case Management Order entered by the Honorable Margaret T. Calloway, United States District Judge, on February 17, 2023, is expected to fall within the expert discovery period, with all expert discovery to be completed by January 12, 2024. However, in order to allow adequate time for expert depositions and any supplemental briefing that may be required, we aim to serve the rebuttal report by late August 2023. Accordingly, we request that KAG target completion of a draft rebuttal report by approximately August 10, 2023, with the expectation that C&H will return comments within five business days and the final report will be served on or before August 25, 2023.
We ask that KAG review this memorandum carefully and, as discussed in Section IX below, schedule a call with the undersigned and Simone Laroche, Working Associate, within one week of receipt to discuss the rebuttal framework, any questions regarding the enclosed materials, and any preliminary observations KAG may have regarding the scope of work described herein.
II. Summary of Dr. Trask's Damages Model
Before turning to KAG's specific rebuttal assignments, it is useful to summarize the structure and content of the Trask report in order to provide context for the analyses that follow. Dr. Trask's report, which was served on May 15, 2023, runs to 147 pages, exclusive of appendices, and presents a damages model organized around six discrete categories of claimed loss. Dr. Trask opines that the total damages suffered by Vantor as a result of Stonefield's allegedly wrongful termination of the TSA amount to approximately $95,400,000. The breakdown of these claimed damages by category is set forth below.
A. Liquidated Damages — Two Full Remaining Years ($64,800,000)
The largest component of Dr. Trask's damages model is a claim for liquidated damages under TSA Section 14.2. That provision establishes a formula for calculating liquidated damages in the event of early termination by either party without cause or in breach of the agreement. The formula provides that liquidated damages shall equal seventy-five percent (75%) of the ACV multiplied by the number of full remaining contract years.
Dr. Trask calculates this amount as follows: The TSA's total five-year minimum commitment of $216,000,000, divided by five years, yields an ACV of $43,200,000 per year. Termination occurred on March 4, 2022. The TSA was originally scheduled to expire on March 31, 2024. Dr. Trask treats the period from March 4, 2022, through March 31, 2024, as encompassing two full remaining contract years, and applies the Section 14.2 formula to arrive at a liquidated damages figure of:
75% × $43,200,000 × 2 = $64,800,000
B. Partial-Year Liquidated Damages ($2,430,000)
In addition to the two-full-year calculation described above, Dr. Trask separately calculates liquidated damages for the 27-day stub period from March 4, 2022 (the date of termination) through March 31, 2022 (the end of Contract Year 3). Dr. Trask applies a pro rata version of the same formula, yielding:
75% × $43,200,000 × (27/365) ≈ $2,396,712
Dr. Trask rounds this figure to $2,430,000. While the basis for this rounding is not explained in the Trask report, it appears to incorporate a minor upward adjustment that Dr. Trask characterizes as reflecting "administrative costs associated with the abrupt transition."
The total liquidated damages claimed by Dr. Trask across both subcomponents is therefore:
$64,800,000 + $2,430,000 = $67,230,000
C. Lost Profits ($18,700,000)
Dr. Trask's second major damages category is a claim for lost profits on the remaining committed freight volume under the TSA. Dr. Trask calculates lost profits by assuming an average operating margin of 12% applied to the approximately $86.4 million in freight volume committed for the remaining two contract years ($43.2M × 2). This calculation yields a base lost-profits figure of approximately $10,368,000, which Dr. Trask then adjusts upward to $18,700,000 based on his assumption that VTS's margins would have improved significantly following the April 2022 rate adjustment. Specifically, Dr. Trask incorporates the projected 14.3% rate increase (from a weighted average of $2.87 per mile to $3.28 per mile) and assumes that this increase would flow substantially to VTS's bottom line without a commensurate increase in variable costs. The reasonableness of this assumption is discussed in Section III.C below and is a significant area of rebuttal.
D. Stranded Assets & Costs ($5,200,000)
Dr. Trask claims $5,200,000 in stranded asset costs, representing accelerated depreciation on tractors and trailers that VTS acquired specifically for the SLG contract and lease termination costs for equipment dedicated to SLG lanes. Dr. Trask's calculation relies on VTS's internal capital expenditure records and equipment lease agreements, but does not appear to account for the residual value of the equipment or its potential redeployment to other VTS accounts following the termination.
E. Workforce Reduction Costs ($2,870,000)
Dr. Trask includes $2,870,000 in workforce reduction costs, consisting of severance payments and unemployment insurance costs for approximately 180 drivers and support staff terminated by VTS following the termination of the TSA. Dr. Trask presents these costs as direct damages arising from the loss of the SLG contract.
F. Mitigation Costs ($1,400,000)
Finally, Dr. Trask claims $1,400,000 in mitigation costs incurred by Vantor and VTS in seeking replacement freight volumes to offset the loss of the SLG contract. These costs include business development expenses, proposal preparation costs, and related expenditures. Notably, Dr. Trask includes these costs as damages without analyzing the effectiveness of the mitigation efforts or the replacement revenue that was (or could have been) obtained.
The following table summarizes the Trask damages model:
III. Priority Rebuttal Areas and Specific Assignments
Based on C&H's internal analysis and the preliminary scope of work discussed with Dr. Rosser and Mr. Chung, we have identified eight priority rebuttal areas. Each area is discussed below, together with the specific analytical assignments for KAG. We ask that KAG address each of these areas in its rebuttal report, organized in a manner that responds systematically to the corresponding portions of the Trask report.
A. Rebuttal Area 1: Enforceability of Liquidated Damages Clause — Economic Analysis
The single largest component of Dr. Trask's damages model is the liquidated damages claim of $67,230,000 under TSA Section 14.2. Stonefield's legal position, which will be argued separately to the Court, is that this clause constitutes an unenforceable penalty under New York law. KAG's role in this area is to provide the economic analysis that supports this legal argument.
KAG should analyze whether the liquidated damages formula set forth in TSA Section 14.2 produces results that bear a reasonable relationship to the anticipated or actual harm that VTS would suffer from early termination of the TSA. The clause calculates damages mechanically as 75% of the ACV multiplied by the number of remaining contract years. The TSA includes contractual language in which the 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 that the liquidated damages "are not a penalty." However, such boilerplate recitations are not dispositive under New York law if the actual operation of the clause produces results that are grossly disproportionate to the harm suffered.
Under the well-established New York enforceability test, a liquidated damages provision will be upheld only if: (1) the amount of liquidated damages is a reasonable estimate of the probable loss at the time of contracting; and (2) actual damages from a breach were difficult to ascertain at the time of contracting. KAG should opine specifically on the second prong — whether, at the time the TSA was executed on March 15, 2019, actual damages from early termination were genuinely "difficult to ascertain." Given VTS's historical financial data, its cost structure, and the availability of freight market indices, it may be the case that a reasonably precise estimate of actual damages was, in fact, ascertainable at the time of contracting.
The key quantitative analysis for KAG in this area is a comparison of the $67.23 million liquidated damages figure to VTS's actual economic losses from the termination. If the liquidated damages amount is grossly disproportionate to VTS's actual harm — which, as discussed in the remaining rebuttal areas, we believe it is — this supports Stonefield's argument that the clause operates as an unenforceable penalty rather than a genuine pre-estimate of loss.
To perform this comparison, KAG should model VTS's actual expected profits on the SLG contract for the remaining term, using VTS's own financial records from discovery. The relevant documents are identified in Section V below and include VTS's income statements, balance sheets, and account-level profitability reports (to the extent available in the production). KAG should calculate the net economic value that VTS would have derived from the remaining two years of the TSA, properly accounting for all variable and fixed costs, and compare this figure to the $67.23 million liquidated damages claim. We anticipate that the analysis will show a significant disparity — potentially an order of magnitude — between the liquidated damages amount and VTS's actual lost economic value.
It is noteworthy that Dr. Trask's report treats the liquidated damages clause as fully enforceable without conducting any independent legal or economic analysis of proportionality. Dr. Trask simply applies the contractual formula and arrives at his figure. KAG's rebuttal should contrast this approach with a rigorous economic analysis of the clause's proportionality, and should clearly identify the basis for KAG's opinion that the formula produces a result that is disproportionate to VTS's actual harm.
B. Rebuttal Area 2: Duplicative Recovery — Liquidated Damages and Lost Profits
A critical structural deficiency in the Trask report is that it claims both liquidated damages ($67,230,000) and lost profits ($18,700,000), for a combined total of $85,930,000 attributable to overlapping contract value. KAG should analyze whether these two categories of damages compensate for the same underlying harm — namely, the lost economic value of the TSA — and therefore represent an impermissible double recovery.
The purpose of a liquidated damages clause is to serve as a contractual substitute for actual damages, providing certainty and avoiding the need for complex damages calculations in the event of a breach. Under New York precedent, a party generally cannot recover both liquidated damages (which are designed to approximate the full measure of actual damages, including lost profits) and actual lost profits on the same contract. To permit recovery of both would be to compensate the plaintiff twice for the same loss.
KAG should demonstrate the economic overlap between the liquidated damages and lost profits categories in the Trask report. Specifically, KAG should show that the 75% ACV multiplier in the liquidated damages formula already incorporates an implicit profit component — indeed, 75% of ACV substantially exceeds any reasonable estimate of VTS's actual lost profits on the SLG contract. Layering a separate lost-profits claim of $18.7 million on top of the liquidated damages claim results in a total recovery that would place Vantor in a position significantly better than it would have occupied had the TSA been performed to term. KAG should opine that awarding both categories would result in an impermissible windfall to Vantor and would violate the fundamental principle that contract damages are intended to be compensatory, not punitive.
In presenting this analysis, KAG should clearly identify the economic content of the liquidated damages formula (i.e., what portion of the 75% ACV multiplier effectively compensates for lost revenue, lost margin, and other components of economic value) and compare this to the separate lost-profits calculation. The degree of overlap between these two categories should be quantified to the extent possible.
C. Rebuttal Area 3: Lost Profits — Margin Analysis
Even setting aside the duplicative-recovery issue discussed above, Dr. Trask's lost-profits calculation is independently flawed due to its reliance on an inflated operating margin assumption. Dr. Trask assumes a 12% average operating margin on SLG freight, which KAG should scrutinize carefully using VTS's actual financial data.
1. Blended vs. Account-Specific Margins. Dr. Trask appears to derive his 12% margin assumption from VTS's blended corporate operating margin, calculated across VTS's entire portfolio of carrier accounts. However, not all accounts are equally profitable, and the margin on the SLG account may differ significantly from VTS's overall corporate margin. Freight brokerage and managed transportation relationships involve varying degrees of lane density, equipment utilization, driver compensation, and overhead allocation, all of which affect account-level profitability. KAG should perform an account-level margin analysis for the SLG account specifically, using the VTS financial records and account profitability reports identified in Section V. We believe this analysis will show that VTS's actual margin on the SLG account was materially lower than 12%, particularly in light of the following cost categories that must be properly accounted for:
(i) Driver wages, benefits, and per diem payments for drivers assigned to SLG dedicated lanes;
(ii) Fuel costs, which were rising significantly during the relevant period and which directly affected VTS's cost of performance on SLG freight;
(iii) Equipment maintenance and depreciation for tractors and trailers dedicated to SLG lanes;
(iv) Insurance costs, including cargo insurance, general liability, and workers' compensation premiums attributable to SLG operations; and
(v) Overhead allocation, including dispatch, compliance, safety, and administrative functions attributable to the SLG account.
2. Rate Adjustment and Margin Inflation. Additionally, Dr. Trask inflates his margin assumption by incorporating the projected April 2022 rate adjustment. The TSA's rate adjustment mechanism, set forth in Section 5.3, provides for annual rate adjustments each April 1, indexed to a blend of 70% diesel fuel index and 30% CPI-U (Consumer Price Index for All Urban Consumers). An analysis prepared by Ashford Meridian LLP in February 2022 projected that the April 2022 adjustment would result in a 14.3% increase in the weighted average per-mile rate, from $2.87 per mile to $3.28 per mile, adding approximately $6.2 million in annual transportation costs.
Dr. Trask assumes that this rate increase would have flowed substantially to VTS's bottom line, thereby increasing VTS's operating margins. However, this assumption ignores the fundamental purpose and structure of the rate adjustment mechanism. The rate adjustment is indexed to cost indices (diesel fuel and CPI-U) that reflect increases in the very costs that VTS incurs in performing the contract. In other words, the rate increase was designed to compensate VTS for higher input costs — not to enhance VTS's profitability. KAG should analyze whether VTS's variable costs (particularly fuel and labor) would have risen commensurately with the rate increase, such that the net margin impact of the rate adjustment would have been minimal or negligible. Given that the index weighting is 70% diesel fuel — the single largest variable cost for a truckload carrier — and 30% CPI-U — a broad inflation measure that captures wage and other cost pressures — we expect that the analysis will show that the rate increase would have been substantially offset by increased costs, with little or no margin improvement for VTS.
KAG should present a detailed margin analysis that (a) calculates VTS's actual historical margins on the SLG account, (b) projects margins forward for the remaining contract term using account-specific cost data, and (c) analyzes the net margin impact of the April 2022 rate adjustment after accounting for the corresponding increase in VTS's cost structure.
D. Rebuttal Area 4: Vantor's Own Breaches — Impact on Damages Calculation
A fundamental flaw in the Trask report is its complete failure to account for VTS's own material breaches of the TSA, which should reduce or eliminate any damages awarded to Vantor. KAG should analyze the impact of VTS's performance failures and contractual breaches on the damages calculation.
1. The Milescu Email and Fleet Diversion. The most significant piece of evidence on this issue is the email from Sandra Milescu, Chief Operating Officer of Vantor and VTS, to Nikolai Vantorovich, Chief Executive Officer of Vantor, dated November 12, 2021 (document reference VHC-008417). In that email, Ms. Milescu wrote: "We've pulled 85 tractors off the SLG dedicated lanes to cover [redacted] commitments. SLG won't notice until January." Supplemental discovery produced on June 22, 2023, pursuant to the Court's order of June 9, 2023, revealed that VTS redirected these 85 tractors to the Northwind Distribution Co. account in October 2021.
This unilateral diversion of dedicated fleet capacity had immediate and severe consequences for VTS's performance on the SLG contract. Under the TSA, VTS was contractually required to maintain minimum fleet capacity of 400 tractors and 1,200 trailers dedicated to SLG operations. By the fourth quarter of 2021, following the diversion to Northwind, actual tractor availability on SLG lanes had fallen to approximately 248 tractors — just 62% of the 400-tractor commitment, and well below the 85% Service Level Obligation ("SLO") threshold for equipment availability.
2. Service Level Failures. The fleet diversion directly caused VTS to fall materially below all five of its Service Level Obligations under the TSA during Q4 2021:
The cargo claims ratio of 1.07% was based on 16 separate claims totaling $387,400 during November and December 2021 alone, more than double the permissible threshold. These performance failures were pervasive and sustained, reflecting a systemic degradation of VTS's service quality on the SLG account.
3. Analytical Assignments for KAG. KAG should model the impact of VTS's own performance failures on the value that VTS would have derived from the remaining contract term. A carrier that was already unable — or, as the evidence suggests, unwilling — to meet its contractual commitments cannot claim the full economic value of the contract as damages. Specifically, KAG should:
(a) Analyze whether VTS's Q4 2021 performance failures, had they continued (as the evidence suggests they would have, given that the fleet diversion was not reversed), would have entitled Stonefield to terminate the TSA under the cure-and-termination provisions, thereby limiting VTS's recovery to the period before such termination;
(b) Model the reduced revenue and profit that VTS would have earned during the remaining contract term, given its demonstrated inability to meet SLO thresholds, including reduced tender volumes, performance penalties, and potential offsets under the TSA's SLO penalty provisions;
(c) Analyze how VTS's prior breach — the unilateral reduction of fleet capacity in October 2021, which preceded and caused the performance failures that gave rise to Stonefield's cure notice and ultimate termination — affects the damages calculation under the "first-to-breach" doctrine. Under this doctrine, a party that first materially breaches a contract cannot recover damages for the other party's subsequent termination. KAG should analyze the economic implications of this doctrine for the damages calculation, recognizing that the legal application of the doctrine is ultimately a question for the Court.
The core point for KAG's rebuttal is that Dr. Trask's damages model assumes that VTS would have performed the TSA flawlessly for the remaining two years and earned the full value of the contract, when the evidence demonstrates that VTS had already materially compromised its ability to perform and was actively diverting resources away from the SLG account. Any reasonable damages model must account for this reality.
E. Rebuttal Area 5: Stonefield's Volume Tenders — Force Majeure Adjustment
Dr. Trask's report incorporates Vantor's allegation that Stonefield failed to tender the full ACV to VTS during Contract Years 2 and 3, asserting aggregate shortfalls of $18.1 million ($11.4 million in CY2 and $6.7 million in CY3). Dr. Trask presents these alleged shortfalls as evidence that Stonefield was already in breach of the TSA prior to termination, and appears to use them as a basis for inflating certain damage categories. KAG should analyze the proper volume baseline for each contract year, with particular attention to the force majeure adjustment.
1. Contract Year 2 (April 2020 – March 2021). The unadjusted ACV for CY2 was $43.2 million. However, on or about April 6, 2020, Stonefield invoked the force majeure provision of the TSA (Section 12.1) due to the COVID-19 pandemic, which caused severe disruptions to freight volumes, supply chains, and business operations across the logistics industry. The force majeure declaration covered the period from April 2020 through September 2020, a span of approximately six months. During this period, Stonefield's obligation to tender the minimum annual volume was suspended pursuant to the express terms of Section 12.1.
KAG should calculate the adjusted ACV for CY2 to account for the six-month force majeure period. The force majeure reduces the obligation period from twelve months to six months, yielding an adjusted ACV of:
$43,200,000 × (6/12) = $21,600,000
Actual tenders during CY2 totaled $31.8 million, reflecting an overage of $10.2 million above the adjusted ACV. Accordingly, Stonefield not only met but exceeded its adjusted volume commitment in CY2. Dr. Trask's calculation of an $11.4 million shortfall is based on comparing actual tenders to the unadjusted ACV and improperly disregards the force majeure adjustment.
2. Contract Year 3 (April 2021 – March 2022). CY3 is a partial contract year because the TSA was terminated on March 4, 2022, ten months into the twelve-month period. Actual tenders through January 2022 (the last full month before termination) totaled $36.5 million. Vantor calculates a $6.7 million shortfall against the full $43.2 million ACV, but this comparison is misleading for two reasons. First, since CY3 was a partial year due to termination, the ACV should be prorated to the actual period of performance. Second, and more fundamentally, VTS's own performance failures — including its abysmal tender acceptance rate of 71.4% (well below the 90% SLO) and equipment unavailability of 62% (well below the 85% SLO) — contributed to any shortfall in tendered volume. When a carrier is rejecting nearly 30% of tendered loads and cannot provide equipment for more than a third of the contract requirements, it is unreasonable to attribute any resulting volume shortfall solely to the shipper-broker.
3. Causal disconnect. If Vantor asserts that Stonefield's alleged volume shortfalls were the cause of VTS's performance failures (i.e., that SLG's reduced volume caused VTS to redeploy assets elsewhere), KAG should demonstrate the causal disconnect. The Milescu email of November 12, 2021, and the supplemental discovery documents establish that VTS diverted 85 tractors to the Northwind Distribution Co. account in October 2021 — before any alleged CY3 shortfall could have materialized. The fleet diversion was an affirmative, commercially motivated decision to serve a different customer, not a response to reduced SLG volumes. KAG should present a timeline analysis demonstrating this causal sequence and refuting any suggestion that Stonefield's tendering behavior drove VTS's performance failures.
F. Rebuttal Area 6: Failure to Mitigate
Dr. Trask's report contains no meaningful mitigation analysis. This is a critical deficiency that KAG must address in detail. Under New York law, a plaintiff asserting breach-of-contract damages has an affirmative duty to take reasonable steps to mitigate its losses, and any failure to do so reduces the plaintiff's recovery by the amount of damages that could have been avoided through reasonable mitigation efforts.
1. Market Conditions at Time of Termination. KAG should analyze the freight market conditions prevailing at the time of the TSA's termination (March 2022) and in the months immediately following. As KAG is likely aware, the first and second quarters of 2022 were characterized by exceptionally favorable conditions for carriers:
• Spot market rates for truckload freight were elevated approximately 35% above historical averages, driven by sustained post-pandemic demand and ongoing supply chain disruptions;
• Freight demand remained robust, with strong volumes across virtually all major freight corridors, including the Northeast and Mid-Atlantic regions where VTS has significant operational presence;
• Capacity remained tight, with carrier capacity utilization at historically high levels, meaning carriers with available equipment were well-positioned to capture incremental business at premium rates.
In this market environment, VTS — which operates a fleet of approximately 650 owned tractors and 2,100 trailers, with additional capacity through owner-operator relationships — was exceptionally well-positioned to obtain replacement freight volume on favorable terms. VTS's established regional presence in the Northeast and Mid-Atlantic corridors, its existing infrastructure, and its available equipment capacity (particularly the 85 tractors returned from Northwind, as well as equipment freed up by the loss of the SLG contract) should have enabled VTS to capture significant replacement revenue within a relatively short period of time.
2. Deposition Testimony Regarding Mitigation. The deposition testimony obtained to date underscores Vantor's failure to mitigate. Derek Pruitt, Vice President of Business Development for Vantor, testified at his deposition on July 10, 2023, that he "could not identify specific mitigation steps" taken by VTS after the termination of the TSA. This admission is striking, as Mr. Pruitt is the individual most directly responsible for securing new business for VTS. Sandra Milescu, Chief Operating Officer of Vantor and VTS, testified at her deposition on August 4, 2023, that the tractor reassignment to Northwind Distribution Co. was "temporary" and driven by "commercial necessity." Yet, conspicuously, VTS apparently did not redeploy these same tractors — or any other available equipment — to seek replacement freight for the lost SLG volume. The combined effect of this testimony is that VTS neither maintained its fleet commitment to SLG nor used the diverted or freed-up equipment to pursue replacement business.
3. Analytical Assignment. KAG should model the replacement revenue that VTS could reasonably have obtained had it made diligent efforts to mitigate its losses following the TSA termination. This analysis should take into account the prevailing market conditions described above, VTS's fleet capacity, its regional presence, and the replacement rates available in the market during Q1–Q2 2022. KAG should then calculate the mitigation offset — i.e., the amount by which any damages award should be reduced to account for VTS's failure to mitigate. We anticipate that this offset will be substantial, given the highly favorable market conditions that prevailed at the time of termination and VTS's significant available capacity.
G. Rebuttal Area 7: Consequential Damages — Barred Under TSA Section 15.1
Dr. Trask's damages model includes three categories of damages that Stonefield contends are consequential (or indirect and incidental) in nature and are therefore barred by the mutual consequential damages waiver set forth in TSA Section 15.1. That provision states that "in no event shall either party be liable to the other for any indirect, incidental, special, or consequential damages arising out of or in connection with this Agreement, including without limitation lost profits (other than direct lost profits arising from the termination of this Agreement), diminution in value, or loss of goodwill." The three categories at issue are:
1. Classification Analysis. KAG should opine on the proper classification of these damages categories. From an economic standpoint, stranded asset costs (accelerated depreciation and lease termination expenses), workforce reduction costs (severance and unemployment expenses), and mitigation costs (business development expenses incurred in seeking replacement volume) are all consequences that flow indirectly from the termination of the TSA. They are not the direct economic value lost under the contract itself, but rather the downstream costs of adjusting VTS's operations in response to the termination. As such, they fall within the category of consequential or incidental damages that the parties expressly agreed to waive under Section 15.1.
KAG should classify each of these categories as consequential (indirect, incidental) rather than direct, and should opine that they fall outside the scope of any permissible recovery under the TSA's consequential damages waiver. This opinion should be grounded in economic analysis of the nature and causal relationship of each cost category, rather than purely legal characterization, which will be addressed separately in Stonefield's legal briefing.
2. Alternative Quantification. Even if the Court were to permit some or all of these claims notwithstanding the Section 15.1 waiver, KAG should analyze whether the amounts claimed by Dr. Trask are properly documented and economically supportable. In particular:
(a) Stranded Assets: Vantor's claim of $5.2 million for stranded assets should be offset by the residual value of the equipment at the time of termination, as well as any redeployment of the equipment to other VTS accounts. Tractors and trailers have significant residual value, and VTS's fleet management records should indicate whether the equipment was redeployed, sold, or otherwise utilized following the termination. If VTS failed to realize the residual value of the equipment through sale, re-lease, or redeployment, this failure further evidences a lack of mitigation.
(b) Workforce Reduction Costs: The claim for $2.87 million in severance and unemployment costs for approximately 180 drivers and support staff should be analyzed in light of whether these employees could have been retained and deployed on replacement freight accounts. Given the tight driver market that prevailed in early 2022, it is questionable whether VTS actually needed to terminate 180 drivers rather than reassigning them to other accounts or retaining them in anticipation of securing replacement freight.
(c) Mitigation Costs: The claim for $1.4 million in mitigation costs should be analyzed for reasonableness and proper documentation. Moreover, the inclusion of mitigation costs as a damages category is internally inconsistent with Vantor's failure to undertake meaningful mitigation efforts, as discussed in Section III.F above.
H. Rebuttal Area 8: Alternative Damages Model — Maximum Exposure
Regardless of the outcome of the specific rebuttal analyses described above, it is important for KAG to present an affirmative alternative damages model that reflects Stonefield's maximum potential exposure in the event the Court were to find (arguendo) that Stonefield's termination of the TSA was wrongful and the liquidated damages clause unenforceable.
This alternative model should serve as a "worst case" damages ceiling for Stonefield, calculated using sound economic methodology and realistic assumptions. The model should:
(a) Calculate VTS's lost profits using account-specific margins derived from VTS's actual financial data for the SLG account, rather than the blended corporate margins employed by Dr. Trask;
(b) Deduct for VTS's own performance deficiencies, which would have reduced the volume of freight that VTS could reasonably have expected to handle during the remaining contract term, given its demonstrated inability to meet SLO thresholds;
(c) Apply a proper mitigation offset based on the replacement revenue that VTS could reasonably have obtained in the favorable freight market conditions prevailing at the time of termination and in the months thereafter;
(d) Account for the force majeure-adjusted volume baselines described in Section III.E above, rather than assuming full unadjusted ACV for all remaining contract years; and
(e) Offset for Vantor's contributory breach, including the diversion of 85 tractors to the Northwind Distribution Co. account in October 2021, which directly caused VTS's performance failures and precipitated Stonefield's termination.
Per the preliminary discussions between C&H and KAG and the scope outlined in the November 14, 2022 scope memorandum, we anticipate that this alternative model should yield a maximum damages figure significantly below Dr. Trask's $95.4 million claim. Our preliminary assessment, based on C&H's internal review, suggests a range of $0 (if Stonefield's termination is found to be valid, in which case no damages are owed) to no more than approximately $8.2 million under the worst-case alternative lost-profits theory. KAG should independently verify and refine this estimate based on its own analysis of the financial data.
The alternative damages model should be presented in a clear, tabular format that permits side-by-side comparison with the Trask model, so that the Court and the jury can readily understand the magnitude of the overstatement in Dr. Trask's report.
IV. Key Depositions and Testimony to Consider
In preparing the rebuttal report, KAG should review the transcripts of the following depositions, which contain testimony relevant to the damages analysis. C&H will provide full deposition transcripts and any deposition exhibits through the secure document transfer platform described in Section IX below.
1. Derek Pruitt — Vice President, Business Development, Vantor
Deposition taken July 10, 2023 (duration: approximately 7 hours). Mr. Pruitt made key admissions that VTS "struggled" to maintain committed fleet capacity on the SLG account during Q4 2021. He was unable to identify specific mitigation steps undertaken by VTS or Vantor following the termination of the TSA. Mr. Pruitt's testimony is particularly relevant to Rebuttal Areas 4 (VTS's own breaches) and 6 (failure to mitigate).
2. Janet Kirkwood — Vice President, Carrier Relations, Stonefield
Deposition taken July 14, 2023 (duration: approximately 6.5 hours). Ms. Kirkwood confirmed that Stonefield diverted certain freight volume to Cascade Freight Systems Inc. and Briarwood Trucking Co. following VTS's performance failures, but testified that this diversion was limited to Lanes 8 through 14 (classified as "Secondary Lanes" under Schedule C to the TSA and not subject to VTS exclusivity). Ms. Kirkwood acknowledged awareness of the upcoming April 2022 rate adjustment but denied that the rate adjustment influenced Stonefield's decision to terminate the TSA. This testimony is relevant to Rebuttal Areas 4 and 5.
3. Raymond Hess — Director, Contract Compliance, Stonefield
Deposition taken July 27, 2023 (duration: approximately 5 hours). Mr. Hess testified that the performance metrics cited in Stonefield's January 18, 2022 cure notice were derived directly from VTS's own Carrier Performance Portal data, and that VTS did not dispute the accuracy of these metrics in its February 14, 2022 response to the cure notice. This testimony is relevant to Rebuttal Area 4 and supports the reliability of the Q4 2021 performance data summarized in Section III.D above.
4. Sandra Milescu — Chief Operating Officer, Vantor/VTS
Deposition taken August 4, 2023 (duration: approximately 7 hours). Ms. Milescu confirmed that 85 tractors were reassigned from the SLG dedicated lanes to the Northwind Distribution Co. account in October 2021. She characterized the reassignment as "temporary" and driven by "commercial necessity," but she could not explain why Stonefield was not notified of the reassignment despite the TSA's notification requirements. Ms. Milescu's testimony is central to Rebuttal Areas 4 (VTS's own breaches) and 6 (failure to mitigate) and should be reviewed carefully by KAG.
5. Nikolai Vantorovich — Chief Executive Officer, Vantor
Deposition taken August 18, 2023 (duration: approximately 4.5 hours, partially completed). Mr. Vantorovich claimed illness, and the deposition was suspended before completion. During the completed portion, Mr. Vantorovich testified that he was "not involved in day-to-day fleet decisions" and deferred to Ms. Milescu on operational matters. He expressed frustration with what he characterized as Stonefield's volume declines but did not recall the specifics of the November 12, 2021 email from Ms. Milescu (VHC-008417). The Court has ordered the completion of Mr. Vantorovich's deposition by October 20, 2023. KAG should be aware that additional testimony may be forthcoming and should be prepared to incorporate any relevant admissions into the rebuttal report if the completion deposition occurs before the report is finalized.
V. Key Documents Enclosed / To Be Provided
The following documents from the discovery productions in this action are being provided to KAG under the Protective Order entered by Judge Calloway on February 17, 2023, and are subject to the privilege and work product protections applicable to expert consultation materials under Fed. R. Civ. P. 26(b)(4). KAG is reminded that all documents designated "Confidential" or "Highly Confidential — Attorneys' Eyes Only" under the Protective Order must be handled in accordance with the terms of that order and the KAG engagement letter. Documents will be transmitted via the Pinnacle Forensics LLC secure platform, as described in Section IX below, unless otherwise arranged.
A. VTS Financial and Operational Documents (from Vantor Productions)
1. VTS income statements and balance sheets for Fiscal Year 2019, Fiscal Year 2020, Fiscal Year 2021, and available Fiscal Year 2022 data. These documents were produced as part of Vantor's first document production on April 28, 2023 (consisting of 28,914 documents comprising approximately 112,000 pages), with supplemental documents produced on June 22, 2023 (consisting of 4,218 additional documents).
2. VTS account-level profitability reports for the SLG account, to the extent such reports are available in the production. If account-level profitability reports are not available, KAG should identify what alternative data sources or analytical methods can be used to reconstruct account-specific margins.
3. VTS fleet management records for the period Q3 2021 through Q1 2022, including fleet deployment schedules, tractor and trailer utilization reports, and maintenance records for equipment assigned to SLG lanes.
4. VTS Carrier Performance Portal data for Q4 2021, including the metrics for on-time pickup, on-time delivery, tender acceptance, equipment availability, and cargo claims.
5. VTS Q4 2021 Performance Report — an internal VTS document that confirms actual performance metrics materially below all SLO thresholds. This report was produced as part of the supplemental production and appears to be VTS's own contemporaneous assessment of its performance during this critical period.
6. Fleet redeployment records produced pursuant to Judge Calloway's June 9, 2023 order, documenting the reassignment of 85 tractors to the Northwind Distribution Co. account in October 2021, including any internal approvals, fleet deployment orders, or related communications.
7. Vantor Holdings Corp. consolidated revenue data: FY 2021 approximately $385 million; FY 2022 approximately $310 million (the decline reflecting the loss of the SLG contract and broader market conditions).
B. Stonefield Financial and Operational Documents (from Stonefield Production)
1. SLG consolidated revenue data: FY 2021 approximately $1.42 billion; FY 2022 approximately $1.28 billion; FY 2022 EBITDA approximately $118 million.
2. SLG volume tender records for Contract Years 1, 2, and 3, documenting the actual freight volumes tendered to VTS under the TSA on a monthly and quarterly basis.
3. SLG force majeure notice and related correspondence from April 2020, including the initial notice invoking TSA Section 12.1 and any subsequent communications regarding the scope and duration of the force majeure period.
4. SLG Cure Notice dated January 18, 2022, from Raymond Hess (Director, Contract Compliance, Stonefield) to Sandra Milescu (COO, Vantor/VTS), setting forth the specific SLO failures and demanding cure within the contractually specified cure period.
5. Vantor's response to the Cure Notice dated February 14, 2022, from Derek Pruitt (VP, Business Development, Vantor) to Janet Kirkwood (VP, Carrier Relations, Stonefield), which acknowledged receipt of the cure notice but, as Mr. Hess testified, did not dispute the accuracy of the underlying performance metrics.
6. SLG termination letter dated March 4, 2022, from Tobias Wren (General Counsel, Stonefield) to Vantor/VTS, formally terminating the TSA effective immediately based on VTS's failure to cure the material breaches identified in the January 18, 2022 cure notice.
C. Key Internal Communications
1. Sandra Milescu email to Nikolai Vantorovich, dated November 12, 2021 (Bates No. VHC-008417): "We've pulled 85 tractors off the SLG dedicated lanes to cover [redacted] commitments. SLG won't notice until January." This is the central document establishing VTS's deliberate diversion of dedicated fleet capacity and is relevant to Rebuttal Areas 4, 5, and 6.
2. Janet Kirkwood email to Carlos Medina, dated September 22, 2021, regarding the diversion of freight volume to Cascade Freight Systems Inc. and Briarwood Trucking Co. on Lanes 8 through 14 (Secondary Lanes). Note: This is a Stonefield internal email that Vantor may reference as evidence that Stonefield was engaged in premeditated termination planning. KAG should be aware of this document for context, but the rebuttal report should focus on economic and damages issues rather than motive. If KAG believes this document has relevance to the economic analysis (e.g., if Vantor argues the Lane 8–14 diversion reduced VTS's volume), KAG should address it in that context.
D. TSA and Related Contract Documents
1. Transportation Services Agreement dated March 15, 2019 (Contract Reference No. SLG-VTS-2019-0315), including all schedules and appendices. Of particular relevance are:
• Schedule B (Rate Structure), setting forth the per-mile rates by lane, equipment type, and service level;
• Schedule C (Exclusivity/Lane Designations), designating Primary Lanes (subject to VTS exclusivity) and Secondary Lanes (not subject to exclusivity);
• Section 5.3 (Rate Adjustment Mechanism), providing for annual rate adjustments each April 1, indexed to a blend of 70% diesel fuel index and 30% CPI-U;
• Section 12.1 (Force Majeure), governing the rights and obligations of the parties during a force majeure event;
• Section 14.2 (Liquidated Damages), setting forth the formula for calculating liquidated damages upon early termination;
• Section 15.1 (Consequential Damages Waiver), providing for a mutual waiver of indirect, incidental, special, and consequential damages.
2. Ashford Meridian LLP rate adjustment analysis memorandum, dated February 2022, projecting an April 2022 rate increase of 14.3%, from a weighted average of $2.87 per mile to $3.28 per mile, which would add approximately $6.2 million in annual transportation costs to Stonefield's expenditure under the TSA.
E. Trask Greystone Expert Report
1. Full report of Dr. Philip Trask, Founder and Lead Expert, Trask Greystone & Associates, served on behalf of Vantor Holdings Corp. on May 15, 2023, together with all appendices, supporting data, and workpapers.
F. Market Data
1. Freight market indices and spot rate data for Q1 through Q2 2022, to support the mitigation analysis described in Rebuttal Area 6. If KAG does not have independent access to the relevant industry data sources (e.g., Tarrant Software, Dunmore Systems, Tidewater Services Inc.), C&H will source and provide the necessary data. Please advise at the initial call whether KAG requires C&H to obtain this data or whether KAG has its own subscriptions.
VI. Format and Structure of Rebuttal Report
To ensure maximum effectiveness and compliance with applicable procedural requirements, KAG's rebuttal report should adhere to the following format and structural guidelines.
1. Organization. The rebuttal report should be organized to address each of the six damages categories in Dr. Trask's report, in the same order as presented in his report, followed by KAG's affirmative alternative damages model. This parallel structure will facilitate the Court's and the jury's ability to compare the competing expert analyses on a category-by-category basis.
2. Section Structure. For each damages category, the rebuttal report should:
(a) Identify the specific methodology employed by Dr. Trask;
(b) Explain the deficiency or deficiencies in Dr. Trask's methodology, with reference to specific data, assumptions, or analytical errors;
(c) Present KAG's alternative analysis, including the data sources, methodology, and assumptions employed by KAG; and
(d) Quantify the impact on damages — i.e., state KAG's opinion as to the proper damages figure for that category (which may be $0 for certain categories) and the difference between KAG's figure and Dr. Trask's figure.
3. Summary Tables. The report should include clear summary tables comparing Dr. Trask's claimed damages to KAG's rebuttal figures for each category, as well as an aggregate comparison showing the total claimed damages versus KAG's total rebuttal figure.
4. Testifying Expert. Dr. Rosser should be designated as the testifying expert and should be prepared to testify at deposition and, if necessary, at trial regarding all opinions expressed in the report. Mr. Chung may be identified as supporting the analysis under Dr. Rosser's supervision but should not be designated as a separate testifying expert unless we determine that such designation is advisable.
5. Rule 26(a)(2)(B) Compliance. The report must comply with the requirements of Federal Rule of Civil Procedure 26(a)(2)(B), including:
(a) A complete statement of all opinions the witness will express and the basis and reasons for them;
(b) The facts or data considered by the witness in forming the opinions;
(c) Any exhibits that will be used to summarize or support the opinions;
(d) The qualifications of the witness, including a list of all publications authored in the previous ten years;
(e) A list of all other cases in which, during the previous four years, the witness testified as an expert at trial or by deposition; and
(f) A statement of the compensation to be paid for the study and testimony in the case.
We will provide a template for the Rule 26(a)(2)(B) disclosures and will work with KAG to ensure that the report is complete in all respects.
VII. Budget and Timeline
1. Budget. The prior budget estimate for KAG's engagement, as set forth in the October 28, 2022 retention letter, was $180,000 to $250,000 for the full scope of work, including review of the plaintiff's expert report, preparation of the rebuttal expert report, and deposition preparation and testimony. Applicable hourly rates, as established in the retention letter, are $625 per hour for Dr. Rosser and $375 per hour for Mr. Chung. In light of the specific scope and complexity of the rebuttal analysis outlined in this memorandum — particularly the eight priority rebuttal areas and the alternative damages model — we ask that KAG provide an updated budget estimate reflecting the anticipated hours and total fees for this phase of the engagement. If the updated estimate exceeds the original range, please provide a detailed explanation of the additional work required and the associated cost drivers, so that we may obtain client approval as needed.
2. Timeline. The following target dates apply to the rebuttal report phase of KAG's engagement:
Expert deposition preparation will be scheduled following service of the final report. Based on the current case schedule and anticipated notice periods, we anticipate that Dr. Rosser's deposition will be taken in the October through November 2023 timeframe. C&H will coordinate with Vantor's counsel on scheduling and will provide KAG with advance notice and preparation sessions as the deposition date approaches.
If KAG foresees any difficulty meeting the August 10, 2023 draft deadline, please notify the undersigned immediately so that we can discuss options and, if necessary, seek an extension of the case schedule from the Court.
VIII. Confidentiality and Privilege Reminder
We take this opportunity to remind KAG of the confidentiality and privilege obligations that govern our engagement and all communications related to this matter.
All communications between C&H and KAG, including this memorandum and any responses, interim analyses, draft reports, and working papers, are protected by the attorney work product doctrine and the consulting and testifying expert protections of Federal Rule of Civil Procedure 26(b)(4). These protections exist to ensure that counsel's mental impressions, legal theories, and strategic analysis — as reflected in communications with retained experts — remain shielded from discovery by opposing counsel.
All documents provided to KAG in connection with this engagement are subject to the Protective Order and Clawback Agreement (Federal Rule of Evidence 502(d) order) entered on February 17, 2023, by Judge Calloway. Documents designated as "Confidential" or "Highly Confidential — Attorneys' Eyes Only" under the Protective Order must be handled in strict accordance with the terms of that order. KAG personnel who access such materials must have executed the appropriate acknowledgment forms required under the Protective Order.
KAG should not disclose any materials received from C&H, or any work product generated in connection with this engagement, to any third party without the prior written authorization of C&H. This prohibition includes, without limitation, any disclosure to other clients, other counsel, academic colleagues, industry contacts, or publication outlets.
All draft reports and communications regarding draft reports — including interim analyses, preliminary calculations, emails discussing draft opinions, and marked-up versions of report sections — are protected work product and should be maintained by KAG separately from final report materials. These draft materials are not discoverable absent extraordinary circumstances and should not be commingled with the final report or its supporting files. Upon completion of the final report, KAG should confirm that all draft materials are segregated and preserved in accordance with KAG's document retention policies and C&H's litigation hold instructions.
IX. Contact Information and Next Steps
For all communications regarding the rebuttal report and this memorandum, the primary point of contact at C&H is:
Patrick Gallagher, Lead Associate Calderwood & Harkness LLP 200 Park Avenue, 38th Floor New York, NY 10166 Telephone: (212) 555-7800 (direct)
Email: p.gallagher@calderwoodharkness.com
Also available and authorized to communicate with KAG on matters related to this engagement are:
Simone Laroche, Working Associate Calderwood & Harkness LLP (same address) Telephone: (212) 555-7814
Email: s.laroche@calderwoodharkness.com
Ms. Laroche performed the detailed analysis of the Trask report that underlies many of the rebuttal assignments described in this memorandum and is the best point of contact for technical questions regarding the Trask methodology and data.
Samuel Eklund, Partner (Responsible Partner) Calderwood & Harkness LLP (same address) Telephone: (212) 555-7702
Email: s.eklund@calderwoodharkness.com
Initial Call. We request that Dr. Rosser and Mr. Chung schedule a call with Mr. Gallagher and Ms. Laroche within one week of receipt of this memorandum (i.e., on or before June 1, 2023) to discuss the rebuttal framework, prioritize the analytical workstreams, address any questions regarding the enclosed materials, and establish a working cadence for the draft report period.
Document Transfer. C&H will arrange for the secure transfer of all documents listed in Section V above via the Pinnacle Forensics LLC platform (Project ID: PF-SLG-2022-0914). If encrypted file transfer is preferred for any category of documents, please coordinate through:
David Moretti, Litigation Support / eDiscovery Manager Calderwood & Harkness LLP (same address) Telephone: (212) 555-7850
Email: d.moretti@calderwoodharkness.com
Mr. Moretti will provide login credentials and access instructions for the Pinnacle Forensics platform. Please confirm that KAG's systems and personnel are set up to receive materials through this platform, or advise if alternative arrangements are needed.