1012-00005 · Stonefield Logistics Group · Insurance & Lender Notifications

quarterly-lakeshore-update-q4-2023.docx DOCUMENT Litigation

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CONFIDENTIAL

Stonefield Logistics Group Inc. 4200 Commerce Parkway, Suite 800 Fort Worth, TX 76102

January 5, 2024

VIA ELECTRONIC MAIL AND OVERNIGHT COURIER

Catherine Devereaux Senior Vice President, Loan Administration Lakeshore National Bank 135 South LaSalle Street Chicago, IL 60603

Re: Quarterly Litigation Status Update — Q4 2023 Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.)

Credit Agreement dated October 12, 2017 (amended and restated June 30, 2021) Ref. No. LNB-SLG-2017-CA-4402 Section 6.03(b) — Litigation Notification Requirement

Dear Ms. Devereaux:

This letter has been reviewed by Patrick Gallagher of Calderwood & Harkness LLP, outside litigation counsel to Stonefield Logistics Group Inc. ("Stonefield" or the "Company"), prior to transmission. This letter and its contents are provided subject to the limitations and reservations set forth herein and in prior correspondence, and nothing contained herein is intended as, or should be construed as, a waiver of any applicable privilege, including the attorney-client privilege and the work product doctrine.

I. Opening and Reference to Prior Correspondence

I am writing on behalf of Stonefield Logistics Group Inc. to provide Lakeshore National Bank ("Lakeshore"), in its capacity as Administrative Agent under the Credit Agreement referenced above, with the Company's quarterly litigation status update for the fourth quarter of 2023 (covering the period from October 1, 2023 through December 31, 2023) with respect to the above-captioned litigation matter.

As you are aware, Stonefield initially notified Lakeshore of this litigation by letter dated August 24, 2022, submitted pursuant to Section 6.03(b) of the Credit Agreement dated October 12, 2017, as amended and restated on June 30, 2021 (Ref. No. LNB-SLG-2017-CA-4402) (the "Credit Agreement"), which requires the Company to provide prompt written notice to the Administrative Agent of any litigation, investigation, or proceeding that could reasonably be expected to result in a liability in excess of $25,000,000. Subsequent quarterly updates have been provided in accordance with the schedule requested by Lakeshore in its acknowledgment letter dated August 30, 2022, the most recent of which was our Q2 2023 update dated July 10, 2023. Please note that a Q3 2023 update was not separately issued, as there were no material developments during that period warranting a standalone communication; such developments as occurred during Q3 2023 are subsumed within this Q4 update.

This update pertains to the litigation styled Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841, currently pending before the Honorable Margaret T. Calloway, United States District Judge, in the United States District Court for the Southern District of New York. As detailed in our prior notifications, the plaintiff, Vantor Holdings Corp. ("Vantor"), has asserted claims seeking damages of approximately $95,400,000 in the aggregate, encompassing alleged liquidated damages, lost profits, stranded asset costs, workforce reduction costs, and mitigation costs.

For reference, the litigation arises in connection with the Company's $425 million Senior Secured Credit Facility, consisting of a $175 million revolving credit facility and a $250 million term loan B, with Lakeshore National Bank serving as Administrative Agent for the syndicate of lenders party thereto.

As discussed in greater detail below, there have been significant developments during the fourth quarter of 2023 that the Company believes are favorable to its position in this matter.

II. Summary of Case Background

For completeness, and for the benefit of any new members of Lakeshore's loan administration team who may not have reviewed prior correspondence, the following provides a brief summary of the case background.

Vantor Holdings Corp. filed this action on August 12, 2022, in the United States District Court for the Southern District of New York, alleging that Stonefield wrongfully terminated a five-year Transportation Services Agreement dated March 15, 2019 (TSA Contract Reference No. SLG-VTS-2019-0315) (the "TSA") between Stonefield and Vantor's wholly owned operating subsidiary, Vantor Transport Services LLC ("VTS"). The TSA governed VTS's provision of dedicated freight transportation services across certain lanes in Stonefield's southeastern and mid-Atlantic distribution network.

Stonefield terminated the TSA effective March 4, 2022, for Cause pursuant to Section 13.1(a) of the TSA. The termination was based upon VTS's sustained and material failures to meet the contractually required Service Level Obligations ("SLOs") set forth in Exhibit B to the TSA during the fourth quarter of 2021 and continuing into early 2022. Specifically, VTS's performance fell materially below the agreed thresholds across multiple critical metrics, including on-time pickup rates, on-time delivery rates, tender acceptance rates, equipment availability, and cargo claims ratios. Stonefield issued a formal written notice of default on January 6, 2022, providing VTS with the sixty-day cure period required under Section 13.1(a)(ii) of the TSA. VTS failed to cure the identified deficiencies within the cure period, and the termination took effect at the expiration of that period.

Stonefield maintains — and has consistently maintained throughout this litigation — that the termination was valid, that all contractual prerequisites were satisfied, and that each of the claims asserted by Vantor is without merit.

Vantor filed an Amended Complaint on December 2, 2022, asserting claims for breach of contract, anticipatory breach, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. Stonefield filed its Answer, Affirmative Defenses, and Counterclaim for declaratory judgment on January 13, 2023. The Counterclaim seeks a judicial declaration that Stonefield's termination of the TSA was valid and effective under Section 13.1(a).

Stonefield is represented in this matter by Calderwood & Harkness LLP, 200 Park Avenue, 38th Floor, New York, NY 10166. The responsible partner is Samuel Eklund, who has led the defense effort since inception.

III. Developments During Q4 2023

The fourth quarter of 2023 was marked by a significant and, from Stonefield's perspective, potentially case-dispositive development: the withdrawal of Vantor's counsel and Vantor's subsequent failure to retain substitute counsel within the period ordered by the Court. The specific developments are described below.

A. Withdrawal of Plaintiff's Counsel

On October 3, 2023, Caldwell Royce & Shapiro LLP ("Caldwell Royce"), counsel of record for the plaintiff Vantor Holdings Corp. (located at 1 Liberty Plaza, 22nd Floor, New York, NY 10006; lead partner Harrison Caldwell), filed a Motion to Withdraw as counsel for Vantor Holdings Corp. pursuant to Local Civil Rule 1.4 of the Southern District of New York. In its motion papers, Caldwell Royce cited "irreconcilable differences" with its client as the basis for the withdrawal request, though the firm's supporting declaration did not elaborate on the specific nature of those differences, consistent with counsel's ethical obligations to maintain client confidences.

However, certain entries on the Court docket and statements made during the hearing on the withdrawal motion suggest that the withdrawal was prompted, at least in part, by a substantial fee dispute between Vantor and its counsel. In particular, Caldwell Royce's withdrawal motion referenced approximately $870,000 in unpaid legal invoices that remained outstanding notwithstanding repeated demands for payment. During the hearing held on October 16, 2023, Mr. Caldwell confirmed that his firm had made "numerous efforts over a period of months" to resolve the billing dispute with Vantor but that "no acceptable resolution was reached." These circumstances, taken together with other information described below regarding Vantor's apparent financial condition, may be relevant to Lakeshore's assessment of the overall posture of this matter.

On October 18, 2023, Judge Calloway granted the Motion to Withdraw by written order (Dkt. No. 87). In her order, Judge Calloway acknowledged Caldwell Royce's right to withdraw under the circumstances presented but expressed concern regarding the orderly progression of the case. Accordingly, the Court ordered that Vantor Holdings Corp. retain substitute counsel and cause such counsel to file a notice of appearance on the docket no later than December 17, 2023 — a period of sixty (60) days from the date of the order.

Simultaneously with the entry of the withdrawal order, Judge Calloway stayed all remaining case deadlines pending the appearance of new counsel for Vantor. For reference, the operative Case Management Order had originally set the following deadlines: (i) close of fact discovery on September 29, 2023; (ii) close of expert discovery on January 12, 2024; and (iii) dispositive motions due on March 1, 2024. All of these deadlines are now stayed and will remain so until further order of the Court. The Court's order also provided that, upon the appearance of new counsel, the parties would be directed to submit a joint proposed revised scheduling order.

B. Failure to Retain Substitute Counsel

The December 17, 2023 deadline established by Judge Calloway's order has now passed. As of the date of this letter, no attorney or law firm has filed a notice of appearance on behalf of Vantor Holdings Corp. on the docket in this matter. Moreover, no filings of any kind have been made by or on behalf of Vantor since the effective date of Caldwell Royce's withdrawal. Stonefield's defense counsel at Calderwood & Harkness has confirmed through daily docket monitoring that the case remains entirely dormant from the plaintiff's side.

As Lakeshore may be aware, under established precedent in the Southern District of New York and the Second Circuit, a corporation such as Vantor Holdings Corp. — a New York corporation — may not appear or proceed pro se in federal court and must at all times be represented by a licensed attorney admitted to practice before the court. See Rowland v. California Men's Colony, 506 U.S. 194, 201-02 (1993); Lattanzio v. COMTA, 481 F.3d 137, 139-40 (2d Cir. 2007). This means that Vantor cannot take any action to advance its claims — including filing motions, responding to motions, participating in discovery, or appearing at hearings — without first retaining and designating qualified counsel.

In light of this development, Calderwood & Harkness is preparing to file a letter with Judge Calloway on or about January 8, 2024, formally notifying the Court of Vantor's failure to comply with the October 18, 2023 order requiring the retention of substitute counsel. The letter will request that the Court schedule a status conference to address the status of the case and will invite the Court to consider dismissal of Vantor's claims for failure to prosecute pursuant to Federal Rule of Civil Procedure 41(b). It is anticipated that this letter will be filed within the next several days following the date of this correspondence.

C. Status of discovery and Expert Work

Notwithstanding the current dormancy of the case, it is appropriate to report on the status of discovery and expert work as of the end of Q4 2023, particularly as this information bears on Stonefield's preparedness in the event the case does resume.

Document discovery. Fact discovery was substantially complete prior to the withdrawal of Vantor's counsel. Over the course of the discovery period, Stonefield produced a total of 42,387 documents encompassing approximately 186,000 pages in response to Vantor's document requests. Vantor produced a total of 28,914 documents in its initial productions, followed by a supplemental production of 4,218 additional documents. Stonefield's counsel has reviewed and catalogued all productions received from Vantor and does not believe there are material outstanding document discovery obligations on either side, though certain minor disputes regarding the scope of Vantor's production remain technically open.

Depositions. A total of six depositions were taken during the calendar year 2023, as follows:

The deposition of Mr. Vantorovich, Vantor's CEO, was cut short on August 18, 2023, when the witness claimed illness approximately four and one-half hours into the examination. Stonefield's counsel objected to the premature termination and promptly moved to compel the continuation of the deposition. By order dated September 8, 2023, Judge Calloway ordered that the continuation of the Vantorovich deposition be completed no later than October 20, 2023. That deadline was not met, and the deposition remains incomplete, as a consequence of the withdrawal of Vantor's counsel and the stay of case deadlines. The completion of this deposition cannot proceed unless and until Vantor retains new counsel and the Court lifts the current stay.

Expert Reports. Expert reports have been exchanged by both parties. Vantor served the report of its damages expert, Dr. Philip Trask of Trask Greystone & Associates, on May 15, 2023. Dr. Trask opined that Vantor's total damages as a result of Stonefield's alleged wrongful termination of the TSA amount to approximately $95.4 million, calculated on the basis of lost future profits, liquidated damages under Section 14.3 of the TSA, stranded asset depreciation, workforce reduction costs, and claimed mitigation expenditures.

Stonefield served the rebuttal expert report of Dr. Evelyn Rosser of Kensington Analytics Group LLC on August 25, 2023. Dr. Rosser's report provides a thorough critique of Dr. Trask's methodology and conclusions, and opines that: (i) if the termination was valid — which Stonefield maintains it was — Vantor is entitled to no damages whatsoever (i.e., $0); and (ii) even under the most favorable alternative analytical framework for Vantor, and assuming arguendo that the termination was wrongful (which Stonefield disputes), Vantor's maximum recoverable damages would be no more than $8.2 million, primarily because Dr. Trask's projections of lost future profits are speculative, unsupported by the historical financial performance of VTS, and fail to account for the declining trajectory of VTS's business prior to termination.

Expert Depositions. Expert depositions have not been taken and cannot proceed in the absence of Vantor retaining new counsel and the Court's entry of a revised scheduling order. Calderwood & Harkness is fully prepared to depose Dr. Trask and to make Dr. Rosser available for deposition upon reasonable notice once the case resumes, if it does.

IV. Potential for Dismissal for Failure to Prosecute

As noted above, Stonefield's defense counsel at Calderwood & Harkness is actively evaluating and preparing a motion to dismiss Vantor's claims for failure to prosecute pursuant to Federal Rule of Civil Procedure 41(b). Rule 41(b) provides that, upon a defendant's motion, an action may be dismissed "[i]f the plaintiff fails to prosecute or to comply with [the Federal Rules of Civil Procedure] or a court order." In the Second Circuit, courts consider several factors in determining whether dismissal for failure to prosecute is warranted, including: (1) the duration of the plaintiff's failure to comply; (2) whether the plaintiff was provided with notice of the potential consequences; (3) whether the defendant is likely to be prejudiced by further delay; (4) whether a balancing of the court's interest in case management against the plaintiff's interest in a hearing on the merits weighs in favor of dismissal; and (5) the availability of lesser sanctions. See Baptiste v. Sommers, 768 F.3d 212, 216 (2d Cir. 2014); LeSane v. Hall's Security Analyst, Inc., 239 F.3d 206, 209 (2d Cir. 2001).

As a practical matter, this case has been effectively dormant since mid-October 2023, when Caldwell Royce's withdrawal became effective. Vantor has failed to comply with the Court's express order requiring the retention of substitute counsel within sixty days, and there is no indication on the public docket or otherwise that Vantor is making any effort to comply. Calderwood & Harkness intends to file a letter with Judge Calloway in the coming days — anticipated on or about January 8, 2024 — to formally bring the matter to the Court's attention and to request a status conference and appropriate relief.

Management believes there is a meaningful likelihood that the Court will ultimately dismiss Vantor's claims if Vantor continues to fail to retain counsel and advance the prosecution of this case. However, the Company wishes to be transparent that the precise timing and form of any such dismissal remain within the Court's discretion. It is possible that Judge Calloway may elect to issue one or more additional orders providing Vantor with further opportunities to retain counsel before dismissing the case, or that the Court may initially dismiss without prejudice rather than with prejudice, which would theoretically allow Vantor to refile its claims (subject to applicable statutes of limitations). Calderwood & Harkness will keep Stonefield and, through Stonefield, Lakeshore informed of all developments in this regard.

V. Exposure Assessment

Stonefield's exposure assessment with respect to this litigation remains unchanged from the assessments provided in prior quarterly updates. Management continues to believe, based on the advice of Calderwood & Harkness and the Company's own internal review, that Vantor's claims lack merit and that the Company has strong defenses on both liability and damages grounds.

As stated in prior updates, the Company's termination of the TSA was predicated on valid, thoroughly documented, and material breaches by VTS of its Service Level Obligations under the TSA. VTS's performance failures were sustained, spanning multiple months and multiple service metrics, and were not remediated during the contractually provided cure period. Stonefield exercised its termination rights in full compliance with the notice and cure provisions set forth in Section 13.1 of the TSA, including the delivery of a written notice of default specifying the nature of the defaults and providing the required sixty-day cure opportunity.

From a damages perspective, Stonefield's rebuttal expert, Dr. Evelyn Rosser, has opined that the maximum exposure under the most adverse scenario for Stonefield — assuming, for purposes of analysis only, that the termination was wrongful, which Stonefield disputes — is $8.2 million. This figure stands in stark contrast to the $95.4 million claimed by Vantor's expert, Dr. Trask, and reflects Dr. Rosser's conclusion that Dr. Trask's damages model is fundamentally flawed in multiple respects, including its reliance on speculative and unsupported projections of future revenue, its failure to account for the declining performance trajectory of VTS's operations, and its inappropriate inclusion of categories of alleged damages that are not recoverable as a matter of law under the TSA or under New York contract law.

Moreover, the developments during Q4 2023 described in this letter — in particular, the withdrawal of Vantor's counsel, Vantor's apparent inability or unwillingness to retain substitute counsel, and the real prospect of dismissal for failure to prosecute — have, if anything, further reduced the risk profile of this matter. The Company views these developments as strongly indicative of Vantor's deteriorating financial position and its diminishing ability and willingness to prosecute this litigation.

Based on the foregoing, no adjustment to reserves or accruals is recommended at this time. The Company continues to characterize this matter as a contingent liability with a remote probability of a material adverse outcome. This assessment is consistent with the treatment of this matter in the Company's audited financial statements and in the quarterly certifications provided under the Credit Agreement.

VI. Legal Fees and Costs

In accordance with Lakeshore's request for periodic reporting on defense costs associated with this litigation, the Company provides the following summary of fees and costs incurred through the end of Q4 2023.

Total fees and costs incurred to date for the defense of this matter are approximately $4,420,000, broken down as follows:

It should be noted that fees and costs during Q4 2023 were substantially reduced as compared to prior quarters, reflecting the case's transition to a monitoring posture following the withdrawal of Vantor's counsel in mid-October 2023. Calderwood & Harkness's Q4 2023 billings consisted primarily of monitoring the docket, analyzing the implications of the withdrawal, and preparing initial correspondence to the Court regarding Vantor's failure to retain substitute counsel.

Going forward, Calderwood & Harkness will maintain the matter on a reduced-activity monitoring basis. Costs are expected to be limited primarily to periodic docket checks, internal case status reviews, and any necessary court filings related to dismissal proceedings. Should the case resume active litigation — for example, if Vantor retains new counsel — defense costs would be expected to increase, though Stonefield anticipates that the next major phase of the litigation, if it occurs, would be dispositive motions (summary judgment), which are typically less costly than the fact and expert discovery phases that have already been completed.

VII. Insurance Coverage Status

As previously reported in Stonefield's initial notification letter and subsequent updates, the Company has no available insurance coverage for this litigation matter.

Graymark Insurance Company declined coverage under Stonefield's directors and officers liability insurance policy (Policy No. GLG-DO-2022-04871, with a $15 million aggregate limit) by letter dated October 3, 2022. Graymark's declination was based on its position that Vantor's claims arise from a commercial contract dispute — specifically, the alleged wrongful termination of the TSA — and are therefore excluded under the policy's contractual liability exclusion (Section IV(C)(7) of the policy). Stonefield's insurance broker reviewed the declination and concurred that coverage is not available under the D&O policy for claims of this nature.

Additionally, Stonefield's commercial general liability insurance policy with Brindoval Mutual Insurance Co. (Policy No. CGL-SLG-2022-11902) does not provide coverage for breach of contract claims, and no claim has been tendered under that policy.

Accordingly, all defense costs and any ultimate liability in connection with this matter are being borne directly by Stonefield. There is no change in the insurance coverage status from prior reporting periods, and no further insurance-related developments are anticipated.

VIII. Next Steps and Anticipated Timeline

Looking ahead, the Company anticipates the following next steps and timeline with respect to this matter:

1. Court Filing Regarding Failure to Retain Counsel. Calderwood & Harkness will file a letter (or, if necessary, a formal motion) with Judge Calloway in the coming days — anticipated on or about January 8, 2024 — formally bringing Vantor's failure to comply with the Court's October 18, 2023 order to the Court's attention and requesting appropriate relief, including a status conference and consideration of dismissal for failure to prosecute under Rule 41(b).

2. Continued Monitoring. Stonefield will continue quarterly docket monitoring through Calderwood & Harkness and will report any material developments to Lakeshore promptly upon their occurrence, without waiting for the next scheduled quarterly update.

3. Preparedness for Resumption of Litigation. In the event that Vantor does retain new counsel and the Court lifts the current stay, Stonefield is fully prepared to proceed to the dispositive motion phase. Calderwood & Harkness has assessed the evidentiary record developed during fact and expert discovery and believes that Stonefield has strong grounds for summary judgment on both liability and damages. Preparation of a summary judgment motion could be completed within thirty to sixty days of any order lifting the stay.

4. Next Quarterly Update. The next quarterly litigation update will be provided to Lakeshore in approximately April 2024, covering the first quarter of 2024, or sooner if material developments occur in the interim — including, in particular, any ruling by Judge Calloway on the pending request for dismissal or any appearance of new counsel on behalf of Vantor.

IX. Closing

The Company hereby confirms that it remains in full compliance with all notification, reporting, and disclosure obligations under Section 6.03(b) of the Credit Agreement (Ref. No. LNB-SLG-2017-CA-4402), and that this letter is being provided in satisfaction of those obligations with respect to the fourth quarter of 2023.

Should you have any questions regarding this update, or should you require additional information or documentation concerning this litigation matter, please do not hesitate to contact me directly at (817) 555-2400 or twren@stonefieldlogistics.com, or to contact Samuel Eklund of Calderwood & Harkness LLP at (212) 555-8700 or seklund@calderwoodharkness.com.

We appreciate Lakeshore's continued cooperation and understanding with respect to this reporting obligation, and we remain committed to keeping the Administrative Agent fully informed of all material developments.

Very truly yours,

STONEFIELD LOGISTICS GROUP INC.

By: ________

Tobias Wren General Counsel Stonefield Logistics Group Inc. 4200 Commerce Parkway, Suite 800 Fort Worth, TX 76102 Tel: (817) 555-2400

Email: twren@stonefieldlogistics.com

cc: (via electronic mail)

Marcus Denton, Chief Executive Officer, Stonefield Logistics Group Inc. Priya Ramachandran, Chief Financial Officer, Stonefield Logistics Group Inc. Samuel Eklund, Esq., Calderwood & Harkness LLP Alison Trang, Ridgeline Capital Partners, LP

Date	Deponent	Affiliation	Duration
July 10, 2023	Derek Pruitt	Vantor — VP, Business Development	Full day
July 14, 2023	Janet Kirkwood	Stonefield — VP, Carrier Relations	Full day
July 27, 2023	Raymond Hess	Stonefield — Director, Contract Compliance	Full day
August 4, 2023	Sandra Milescu	Vantor/VTS — COO	Full day
August 18, 2023	Nikolai Vantorovich	Vantor — CEO	Partial (4.5 hrs)
Category	Amount
Calderwood & Harkness LLP — attorney fees	$3,800,000
Expert fees (Kensington Analytics Group LLC)	$285,000
eDiscovery hosting and processing (Pinnacle Forensics LLC)	$195,000
Deposition costs (court reporters, videographers, transcripts)	$78,000
Travel and related expenses	$42,000
Miscellaneous costs and disbursements	$20,000
Total	$4,420,000

CONFIDENTIAL
Stonefield Logistics Group Inc. 4200 Commerce Parkway, Suite 800 Fort Worth, TX 76102
January 5, 2024
VIA ELECTRONIC MAIL AND OVERNIGHT COURIER
Catherine Devereaux Senior Vice President, Loan Administration Lakeshore National Bank 135 South LaSalle Street Chicago, IL 60603
Re: Quarterly Litigation Status Update — Q4 2023 Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.)
Credit Agreement dated October 12, 2017 (amended and restated June 30, 2021) Ref. No. LNB-SLG-2017-CA-4402 Section 6.03(b) — Litigation Notification Requirement
Dear Ms. Devereaux:
This letter has been reviewed by Patrick Gallagher of Calderwood & Harkness LLP, outside litigation counsel to Stonefield Logistics Group Inc. ("Stonefield" or the "Company"), prior to transmission. This letter and its contents are provided subject to the limitations and reservations set forth herein and in prior correspondence, and nothing contained herein is intended as, or should be construed as, a waiver of any applicable privilege, including the attorney-client privilege and the work product doctrine.
I. Opening and Reference to Prior Correspondence
I am writing on behalf of Stonefield Logistics Group Inc. to provide Lakeshore National Bank ("Lakeshore"), in its capacity as Administrative Agent under the Credit Agreement referenced above, with the Company's quarterly litigation status update for the fourth quarter of 2023 (covering the period from October 1, 2023 through December 31, 2023) with respect to the above-captioned litigation matter.
As you are aware, Stonefield initially notified Lakeshore of this litigation by letter dated August 24, 2022, submitted pursuant to Section 6.03(b) of the Credit Agreement dated October 12, 2017, as amended and restated on June 30, 2021 (Ref. No. LNB-SLG-2017-CA-4402) (the "Credit Agreement"), which requires the Company to provide prompt written notice to the Administrative Agent of any litigation, investigation, or proceeding that could reasonably be expected to result in a liability in excess of $25,000,000. Subsequent quarterly updates have been provided in accordance with the schedule requested by Lakeshore in its acknowledgment letter dated August 30, 2022, the most recent of which was our Q2 2023 update dated July 10, 2023. Please note that a Q3 2023 update was not separately issued, as there were no material developments during that period warranting a standalone communication; such developments as occurred during Q3 2023 are subsumed within this Q4 update.
This update pertains to the litigation styled Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841, currently pending before the Honorable Margaret T. Calloway, United States District Judge, in the United States District Court for the Southern District of New York. As detailed in our prior notifications, the plaintiff, Vantor Holdings Corp. ("Vantor"), has asserted claims seeking damages of approximately $95,400,000 in the aggregate, encompassing alleged liquidated damages, lost profits, stranded asset costs, workforce reduction costs, and mitigation costs.
For reference, the litigation arises in connection with the Company's $425 million Senior Secured Credit Facility, consisting of a $175 million revolving credit facility and a $250 million term loan B, with Lakeshore National Bank serving as Administrative Agent for the syndicate of lenders party thereto.
As discussed in greater detail below, there have been significant developments during the fourth quarter of 2023 that the Company believes are favorable to its position in this matter.
II. Summary of Case Background
For completeness, and for the benefit of any new members of Lakeshore's loan administration team who may not have reviewed prior correspondence, the following provides a brief summary of the case background.
Vantor Holdings Corp. filed this action on August 12, 2022, in the United States District Court for the Southern District of New York, alleging that Stonefield wrongfully terminated a five-year Transportation Services Agreement dated March 15, 2019 (TSA Contract Reference No. SLG-VTS-2019-0315) (the "TSA") between Stonefield and Vantor's wholly owned operating subsidiary, Vantor Transport Services LLC ("VTS"). The TSA governed VTS's provision of dedicated freight transportation services across certain lanes in Stonefield's southeastern and mid-Atlantic distribution network.
Stonefield terminated the TSA effective March 4, 2022, for Cause pursuant to Section 13.1(a) of the TSA. The termination was based upon VTS's sustained and material failures to meet the contractually required Service Level Obligations ("SLOs") set forth in Exhibit B to the TSA during the fourth quarter of 2021 and continuing into early 2022. Specifically, VTS's performance fell materially below the agreed thresholds across multiple critical metrics, including on-time pickup rates, on-time delivery rates, tender acceptance rates, equipment availability, and cargo claims ratios. Stonefield issued a formal written notice of default on January 6, 2022, providing VTS with the sixty-day cure period required under Section 13.1(a)(ii) of the TSA. VTS failed to cure the identified deficiencies within the cure period, and the termination took effect at the expiration of that period.
Stonefield maintains — and has consistently maintained throughout this litigation — that the termination was valid, that all contractual prerequisites were satisfied, and that each of the claims asserted by Vantor is without merit.
Vantor filed an Amended Complaint on December 2, 2022, asserting claims for breach of contract, anticipatory breach, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. Stonefield filed its Answer, Affirmative Defenses, and Counterclaim for declaratory judgment on January 13, 2023. The Counterclaim seeks a judicial declaration that Stonefield's termination of the TSA was valid and effective under Section 13.1(a).
Stonefield is represented in this matter by Calderwood & Harkness LLP, 200 Park Avenue, 38th Floor, New York, NY 10166. The responsible partner is Samuel Eklund, who has led the defense effort since inception.
III. Developments During Q4 2023
The fourth quarter of 2023 was marked by a significant and, from Stonefield's perspective, potentially case-dispositive development: the withdrawal of Vantor's counsel and Vantor's subsequent failure to retain substitute counsel within the period ordered by the Court. The specific developments are described below.
A. Withdrawal of Plaintiff's Counsel
On October 3, 2023, Caldwell Royce & Shapiro LLP ("Caldwell Royce"), counsel of record for the plaintiff Vantor Holdings Corp. (located at 1 Liberty Plaza, 22nd Floor, New York, NY 10006; lead partner Harrison Caldwell), filed a Motion to Withdraw as counsel for Vantor Holdings Corp. pursuant to Local Civil Rule 1.4 of the Southern District of New York. In its motion papers, Caldwell Royce cited "irreconcilable differences" with its client as the basis for the withdrawal request, though the firm's supporting declaration did not elaborate on the specific nature of those differences, consistent with counsel's ethical obligations to maintain client confidences.
However, certain entries on the Court docket and statements made during the hearing on the withdrawal motion suggest that the withdrawal was prompted, at least in part, by a substantial fee dispute between Vantor and its counsel. In particular, Caldwell Royce's withdrawal motion referenced approximately $870,000 in unpaid legal invoices that remained outstanding notwithstanding repeated demands for payment. During the hearing held on October 16, 2023, Mr. Caldwell confirmed that his firm had made "numerous efforts over a period of months" to resolve the billing dispute with Vantor but that "no acceptable resolution was reached." These circumstances, taken together with other information described below regarding Vantor's apparent financial condition, may be relevant to Lakeshore's assessment of the overall posture of this matter.
On October 18, 2023, Judge Calloway granted the Motion to Withdraw by written order (Dkt. No. 87). In her order, Judge Calloway acknowledged Caldwell Royce's right to withdraw under the circumstances presented but expressed concern regarding the orderly progression of the case. Accordingly, the Court ordered that Vantor Holdings Corp. retain substitute counsel and cause such counsel to file a notice of appearance on the docket no later than December 17, 2023 — a period of sixty (60) days from the date of the order.
Simultaneously with the entry of the withdrawal order, Judge Calloway stayed all remaining case deadlines pending the appearance of new counsel for Vantor. For reference, the operative Case Management Order had originally set the following deadlines: (i) close of fact discovery on September 29, 2023; (ii) close of expert discovery on January 12, 2024; and (iii) dispositive motions due on March 1, 2024. All of these deadlines are now stayed and will remain so until further order of the Court. The Court's order also provided that, upon the appearance of new counsel, the parties would be directed to submit a joint proposed revised scheduling order.
B. Failure to Retain Substitute Counsel
The December 17, 2023 deadline established by Judge Calloway's order has now passed. As of the date of this letter, no attorney or law firm has filed a notice of appearance on behalf of Vantor Holdings Corp. on the docket in this matter. Moreover, no filings of any kind have been made by or on behalf of Vantor since the effective date of Caldwell Royce's withdrawal. Stonefield's defense counsel at Calderwood & Harkness has confirmed through daily docket monitoring that the case remains entirely dormant from the plaintiff's side.
As Lakeshore may be aware, under established precedent in the Southern District of New York and the Second Circuit, a corporation such as Vantor Holdings Corp. — a New York corporation — may not appear or proceed pro se in federal court and must at all times be represented by a licensed attorney admitted to practice before the court. See Rowland v. California Men's Colony, 506 U.S. 194, 201-02 (1993); Lattanzio v. COMTA, 481 F.3d 137, 139-40 (2d Cir. 2007). This means that Vantor cannot take any action to advance its claims — including filing motions, responding to motions, participating in discovery, or appearing at hearings — without first retaining and designating qualified counsel.
In light of this development, Calderwood & Harkness is preparing to file a letter with Judge Calloway on or about January 8, 2024, formally notifying the Court of Vantor's failure to comply with the October 18, 2023 order requiring the retention of substitute counsel. The letter will request that the Court schedule a status conference to address the status of the case and will invite the Court to consider dismissal of Vantor's claims for failure to prosecute pursuant to Federal Rule of Civil Procedure 41(b). It is anticipated that this letter will be filed within the next several days following the date of this correspondence.
C. Status of discovery and Expert Work
Notwithstanding the current dormancy of the case, it is appropriate to report on the status of discovery and expert work as of the end of Q4 2023, particularly as this information bears on Stonefield's preparedness in the event the case does resume.
Document discovery. Fact discovery was substantially complete prior to the withdrawal of Vantor's counsel. Over the course of the discovery period, Stonefield produced a total of 42,387 documents encompassing approximately 186,000 pages in response to Vantor's document requests. Vantor produced a total of 28,914 documents in its initial productions, followed by a supplemental production of 4,218 additional documents. Stonefield's counsel has reviewed and catalogued all productions received from Vantor and does not believe there are material outstanding document discovery obligations on either side, though certain minor disputes regarding the scope of Vantor's production remain technically open.
Depositions. A total of six depositions were taken during the calendar year 2023, as follows:
The deposition of Mr. Vantorovich, Vantor's CEO, was cut short on August 18, 2023, when the witness claimed illness approximately four and one-half hours into the examination. Stonefield's counsel objected to the premature termination and promptly moved to compel the continuation of the deposition. By order dated September 8, 2023, Judge Calloway ordered that the continuation of the Vantorovich deposition be completed no later than October 20, 2023. That deadline was not met, and the deposition remains incomplete, as a consequence of the withdrawal of Vantor's counsel and the stay of case deadlines. The completion of this deposition cannot proceed unless and until Vantor retains new counsel and the Court lifts the current stay.
Expert Reports. Expert reports have been exchanged by both parties. Vantor served the report of its damages expert, Dr. Philip Trask of Trask Greystone & Associates, on May 15, 2023. Dr. Trask opined that Vantor's total damages as a result of Stonefield's alleged wrongful termination of the TSA amount to approximately $95.4 million, calculated on the basis of lost future profits, liquidated damages under Section 14.3 of the TSA, stranded asset depreciation, workforce reduction costs, and claimed mitigation expenditures.
Stonefield served the rebuttal expert report of Dr. Evelyn Rosser of Kensington Analytics Group LLC on August 25, 2023. Dr. Rosser's report provides a thorough critique of Dr. Trask's methodology and conclusions, and opines that: (i) if the termination was valid — which Stonefield maintains it was — Vantor is entitled to no damages whatsoever (i.e., $0); and (ii) even under the most favorable alternative analytical framework for Vantor, and assuming arguendo that the termination was wrongful (which Stonefield disputes), Vantor's maximum recoverable damages would be no more than $8.2 million, primarily because Dr. Trask's projections of lost future profits are speculative, unsupported by the historical financial performance of VTS, and fail to account for the declining trajectory of VTS's business prior to termination.
Expert Depositions. Expert depositions have not been taken and cannot proceed in the absence of Vantor retaining new counsel and the Court's entry of a revised scheduling order. Calderwood & Harkness is fully prepared to depose Dr. Trask and to make Dr. Rosser available for deposition upon reasonable notice once the case resumes, if it does.
IV. Potential for Dismissal for Failure to Prosecute
As noted above, Stonefield's defense counsel at Calderwood & Harkness is actively evaluating and preparing a motion to dismiss Vantor's claims for failure to prosecute pursuant to Federal Rule of Civil Procedure 41(b). Rule 41(b) provides that, upon a defendant's motion, an action may be dismissed "[i]f the plaintiff fails to prosecute or to comply with [the Federal Rules of Civil Procedure] or a court order." In the Second Circuit, courts consider several factors in determining whether dismissal for failure to prosecute is warranted, including: (1) the duration of the plaintiff's failure to comply; (2) whether the plaintiff was provided with notice of the potential consequences; (3) whether the defendant is likely to be prejudiced by further delay; (4) whether a balancing of the court's interest in case management against the plaintiff's interest in a hearing on the merits weighs in favor of dismissal; and (5) the availability of lesser sanctions. See Baptiste v. Sommers, 768 F.3d 212, 216 (2d Cir. 2014); LeSane v. Hall's Security Analyst, Inc., 239 F.3d 206, 209 (2d Cir. 2001).
As a practical matter, this case has been effectively dormant since mid-October 2023, when Caldwell Royce's withdrawal became effective. Vantor has failed to comply with the Court's express order requiring the retention of substitute counsel within sixty days, and there is no indication on the public docket or otherwise that Vantor is making any effort to comply. Calderwood & Harkness intends to file a letter with Judge Calloway in the coming days — anticipated on or about January 8, 2024 — to formally bring the matter to the Court's attention and to request a status conference and appropriate relief.
Management believes there is a meaningful likelihood that the Court will ultimately dismiss Vantor's claims if Vantor continues to fail to retain counsel and advance the prosecution of this case. However, the Company wishes to be transparent that the precise timing and form of any such dismissal remain within the Court's discretion. It is possible that Judge Calloway may elect to issue one or more additional orders providing Vantor with further opportunities to retain counsel before dismissing the case, or that the Court may initially dismiss without prejudice rather than with prejudice, which would theoretically allow Vantor to refile its claims (subject to applicable statutes of limitations). Calderwood & Harkness will keep Stonefield and, through Stonefield, Lakeshore informed of all developments in this regard.
V. Exposure Assessment
Stonefield's exposure assessment with respect to this litigation remains unchanged from the assessments provided in prior quarterly updates. Management continues to believe, based on the advice of Calderwood & Harkness and the Company's own internal review, that Vantor's claims lack merit and that the Company has strong defenses on both liability and damages grounds.
As stated in prior updates, the Company's termination of the TSA was predicated on valid, thoroughly documented, and material breaches by VTS of its Service Level Obligations under the TSA. VTS's performance failures were sustained, spanning multiple months and multiple service metrics, and were not remediated during the contractually provided cure period. Stonefield exercised its termination rights in full compliance with the notice and cure provisions set forth in Section 13.1 of the TSA, including the delivery of a written notice of default specifying the nature of the defaults and providing the required sixty-day cure opportunity.
From a damages perspective, Stonefield's rebuttal expert, Dr. Evelyn Rosser, has opined that the maximum exposure under the most adverse scenario for Stonefield — assuming, for purposes of analysis only, that the termination was wrongful, which Stonefield disputes — is $8.2 million. This figure stands in stark contrast to the $95.4 million claimed by Vantor's expert, Dr. Trask, and reflects Dr. Rosser's conclusion that Dr. Trask's damages model is fundamentally flawed in multiple respects, including its reliance on speculative and unsupported projections of future revenue, its failure to account for the declining performance trajectory of VTS's operations, and its inappropriate inclusion of categories of alleged damages that are not recoverable as a matter of law under the TSA or under New York contract law.
Moreover, the developments during Q4 2023 described in this letter — in particular, the withdrawal of Vantor's counsel, Vantor's apparent inability or unwillingness to retain substitute counsel, and the real prospect of dismissal for failure to prosecute — have, if anything, further reduced the risk profile of this matter. The Company views these developments as strongly indicative of Vantor's deteriorating financial position and its diminishing ability and willingness to prosecute this litigation.
Based on the foregoing, no adjustment to reserves or accruals is recommended at this time. The Company continues to characterize this matter as a contingent liability with a remote probability of a material adverse outcome. This assessment is consistent with the treatment of this matter in the Company's audited financial statements and in the quarterly certifications provided under the Credit Agreement.
VI. Legal Fees and Costs
In accordance with Lakeshore's request for periodic reporting on defense costs associated with this litigation, the Company provides the following summary of fees and costs incurred through the end of Q4 2023.
Total fees and costs incurred to date for the defense of this matter are approximately $4,420,000, broken down as follows:
It should be noted that fees and costs during Q4 2023 were substantially reduced as compared to prior quarters, reflecting the case's transition to a monitoring posture following the withdrawal of Vantor's counsel in mid-October 2023. Calderwood & Harkness's Q4 2023 billings consisted primarily of monitoring the docket, analyzing the implications of the withdrawal, and preparing initial correspondence to the Court regarding Vantor's failure to retain substitute counsel.
Going forward, Calderwood & Harkness will maintain the matter on a reduced-activity monitoring basis. Costs are expected to be limited primarily to periodic docket checks, internal case status reviews, and any necessary court filings related to dismissal proceedings. Should the case resume active litigation — for example, if Vantor retains new counsel — defense costs would be expected to increase, though Stonefield anticipates that the next major phase of the litigation, if it occurs, would be dispositive motions (summary judgment), which are typically less costly than the fact and expert discovery phases that have already been completed.
VII. Insurance Coverage Status
As previously reported in Stonefield's initial notification letter and subsequent updates, the Company has no available insurance coverage for this litigation matter.
Graymark Insurance Company declined coverage under Stonefield's directors and officers liability insurance policy (Policy No. GLG-DO-2022-04871, with a $15 million aggregate limit) by letter dated October 3, 2022. Graymark's declination was based on its position that Vantor's claims arise from a commercial contract dispute — specifically, the alleged wrongful termination of the TSA — and are therefore excluded under the policy's contractual liability exclusion (Section IV(C)(7) of the policy). Stonefield's insurance broker reviewed the declination and concurred that coverage is not available under the D&O policy for claims of this nature.
Additionally, Stonefield's commercial general liability insurance policy with Brindoval Mutual Insurance Co. (Policy No. CGL-SLG-2022-11902) does not provide coverage for breach of contract claims, and no claim has been tendered under that policy.
Accordingly, all defense costs and any ultimate liability in connection with this matter are being borne directly by Stonefield. There is no change in the insurance coverage status from prior reporting periods, and no further insurance-related developments are anticipated.
VIII. Next Steps and Anticipated Timeline
Looking ahead, the Company anticipates the following next steps and timeline with respect to this matter:
1. Court Filing Regarding Failure to Retain Counsel. Calderwood & Harkness will file a letter (or, if necessary, a formal motion) with Judge Calloway in the coming days — anticipated on or about January 8, 2024 — formally bringing Vantor's failure to comply with the Court's October 18, 2023 order to the Court's attention and requesting appropriate relief, including a status conference and consideration of dismissal for failure to prosecute under Rule 41(b).
2. Continued Monitoring. Stonefield will continue quarterly docket monitoring through Calderwood & Harkness and will report any material developments to Lakeshore promptly upon their occurrence, without waiting for the next scheduled quarterly update.
3. Preparedness for Resumption of Litigation. In the event that Vantor does retain new counsel and the Court lifts the current stay, Stonefield is fully prepared to proceed to the dispositive motion phase. Calderwood & Harkness has assessed the evidentiary record developed during fact and expert discovery and believes that Stonefield has strong grounds for summary judgment on both liability and damages. Preparation of a summary judgment motion could be completed within thirty to sixty days of any order lifting the stay.
4. Next Quarterly Update. The next quarterly litigation update will be provided to Lakeshore in approximately April 2024, covering the first quarter of 2024, or sooner if material developments occur in the interim — including, in particular, any ruling by Judge Calloway on the pending request for dismissal or any appearance of new counsel on behalf of Vantor.
IX. Closing
The Company hereby confirms that it remains in full compliance with all notification, reporting, and disclosure obligations under Section 6.03(b) of the Credit Agreement (Ref. No. LNB-SLG-2017-CA-4402), and that this letter is being provided in satisfaction of those obligations with respect to the fourth quarter of 2023.
Should you have any questions regarding this update, or should you require additional information or documentation concerning this litigation matter, please do not hesitate to contact me directly at (817) 555-2400 or twren@stonefieldlogistics.com, or to contact Samuel Eklund of Calderwood & Harkness LLP at (212) 555-8700 or seklund@calderwoodharkness.com.
We appreciate Lakeshore's continued cooperation and understanding with respect to this reporting obligation, and we remain committed to keeping the Administrative Agent fully informed of all material developments.
Very truly yours,
STONEFIELD LOGISTICS GROUP INC.
By: ________
Tobias Wren General Counsel Stonefield Logistics Group Inc. 4200 Commerce Parkway, Suite 800 Fort Worth, TX 76102 Tel: (817) 555-2400
Email: twren@stonefieldlogistics.com
cc: (via electronic mail)
Marcus Denton, Chief Executive Officer, Stonefield Logistics Group Inc. Priya Ramachandran, Chief Financial Officer, Stonefield Logistics Group Inc. Samuel Eklund, Esq., Calderwood & Harkness LLP Alison Trang, Ridgeline Capital Partners, LP
Date | Deponent | Affiliation | Duration
July 10, 2023 | Derek Pruitt | Vantor — VP, Business Development | Full day
July 14, 2023 | Janet Kirkwood | Stonefield — VP, Carrier Relations | Full day
July 27, 2023 | Raymond Hess | Stonefield — Director, Contract Compliance | Full day
August 4, 2023 | Sandra Milescu | Vantor/VTS — COO | Full day
August 18, 2023 | Nikolai Vantorovich | Vantor — CEO | Partial (4.5 hrs)
Category | Amount
Calderwood & Harkness LLP — attorney fees | $3,800,000
Expert fees (Kensington Analytics Group LLC) | $285,000
eDiscovery hosting and processing (Pinnacle Forensics LLC) | $195,000
Deposition costs (court reporters, videographers, transcripts) | $78,000
Travel and related expenses | $42,000
Miscellaneous costs and disbursements | $20,000
Total | $4,420,000

CONFIDENTIAL

VIA ELECTRONIC MAIL AND OVERNIGHT COURIER

STONEFIELD LOGISTICS GROUP INC.

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