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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

TO: Patrick Gallagher, Lead Associate, Litigation (General)

FROM: Simone Laroche, Working Associate, Litigation (General)

DATE: April 5, 2023

RE: Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.) — Analysis of Consequential Damages Waiver Under TSA Section 15.1 and Applicability to Vantor's Stranded Assets, Workforce Reduction, and Mitigation Costs Claims

MATTER NO.: 1012-00005

CLIENT: Stonefield Logistics Group Inc.

I. Executive Summary

This memorandum analyzes whether three categories of damages claimed by Vantor Holdings Corp. ("Vantor") and its wholly owned subsidiary Vantor Transport Services LLC ("VTS") in their Amended Complaint (filed December 2, 2022, Dkt. No. 24) are barred by the mutual consequential damages waiver contained in Section 15.1 of the Transportation Services Agreement dated March 15, 2019 (the "TSA," Contract Reference No. SLG-VTS-2019-0315). The TSA was executed between Stonefield Logistics Group Inc. ("Stonefield" or the "Client") as Shipper-Broker and VTS as Carrier-Provider, and it governed the parties' freight transportation relationship for a five-year term commencing April 1, 2019. Stonefield terminated the TSA on March 4, 2022, asserting Cause under Section 13.1(a). Vantor and VTS dispute the validity of that termination and have brought suit alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and related claims.

The three categories of damages at issue in this memorandum are as follows:

1. Stranded Assets and Costs: $5,200,000 — representing depreciation on tractors and trailers acquired specifically for the Stonefield contract and early termination charges on equipment leases.

2. Workforce Reduction Costs: $2,870,000 — representing severance payments and unemployment-related costs for approximately 180 drivers and support staff whom Vantor alleges were hired or dedicated to the Stonefield account and terminated following the TSA termination.

3. Mitigation Costs: $1,400,000 — representing costs incurred by Vantor and VTS in seeking replacement freight volume and engaging in business development efforts to backfill the volume lost from the Stonefield contract.

Together, these three categories total $9,470,000 of Vantor's aggregate $95,400,000 damages claim.

Conclusion: Based on the analysis set forth below, all three categories constitute consequential damages — or, in the alternative, incidental or special damages — within the scope of the Section 15.1 waiver. Vantor is contractually barred from recovering any of these amounts. The waiver is enforceable under New York law as a product of arms-length negotiation between sophisticated commercial parties, each represented by counsel. The Section 15.1 carve-out for Section 14.2 (the liquidated damages provision) does not extend to any of these three categories. This argument should be preserved as an affirmative defense — which it already has been, as Affirmative Defense No. 8 in the Answer filed January 13, 2023 (Dkt. No. 18) — and raised at the summary judgment stage as a basis for partial summary judgment eliminating $9,470,000 from Vantor's claimed damages.

The remaining damages categories — liquidated damages ($67,230,000 total, comprising $64,800,000 for two full contract years and $2,430,000 for the partial year) and lost profits ($18,700,000) — are addressed in separate memoranda and raise distinct enforceability questions not discussed here. See Memo re Enforceability of Liquidated Damages Clause Under NY Law (Sept. 19, 2022); Memo re Duplicative Damages — Liquidated Damages vs. Lost Profits (Feb. 15, 2023). Those memoranda should be read in conjunction with this one to develop a comprehensive picture of the damages landscape.

II. Background

A. The Transportation Services Agreement

The TSA was executed on March 15, 2019, between Stonefield Logistics Group Inc., in its capacity as "Shipper-Broker," and Vantor Transport Services LLC, in its capacity as "Carrier-Provider." The agreement was drafted by Ashford Meridian LLP, specifically by Lorraine Beckwith, Partner, and Troy Nakamura, Senior Associate, on behalf of Stonefield. VTS was represented by its own outside counsel during the negotiation process, and the TSA went through multiple rounds of redlining over a period of approximately four months before execution. The agreement is a comprehensive, 87-page document (including schedules and exhibits) governing the terms under which VTS would provide dedicated and spot freight transportation services across Stonefield's distribution network.

The TSA is governed by New York law, pursuant to a choice-of-law clause in Section 18.3. The parties also agreed to a forum selection clause in Section 18.4, designating either the United States District Court for the Southern District of New York or the Supreme Court of the State of New York, New York County, as the exclusive venues for any litigation arising out of or relating to the agreement. Vantor filed the present action in the Southern District of New York consistent with that provision.

The TSA provides for a five-year term running from April 1, 2019 through March 31, 2024. The agreement established an Annual Committed Volume ("ACV") of $43,200,000 per contract year, resulting in a total five-year minimum commitment of $216,000,000. This ACV represented a substantial portion of VTS's annual revenue and reflected the significance of the Stonefield account to VTS's overall business operations.

The TSA contained detailed performance requirements, including Service Level Obligations ("SLOs") set forth in Schedule B, fleet capacity minimums specified in Schedule A (requiring VTS to maintain a minimum dedicated fleet of 400 tractors and 1,200 trailers for the Stonefield account), and lane-specific pricing schedules in Schedule C. The agreement also contained an extensive termination framework in Article 13, a liquidated damages provision in Section 14.2, and the consequential damages waiver at issue in Section 15.1.

Stonefield terminated the TSA by written notice dated March 4, 2022, purportedly for Cause under Section 13.1(a), citing VTS's sustained and uncured failures to meet Service Level Obligations during the fourth quarter of 2021 (October through December 2021). At the time of termination, approximately two years and twenty-seven days remained in the original five-year term. Vantor disputes the validity of the termination and contends it was pretextual, motivated by Stonefield's desire to reduce transportation costs in the face of margin pressure from its private equity sponsor, Ridgeline Capital Partners, LP.

B. Section 15.1 — Consequential Damages Waiver

Section 15.1 of the TSA, as reflected in the executed agreement attached as Exhibit A to the Declaration of Samuel Eklund filed October 14, 2022 (Dkt. No. 12-1) in connection with Stonefield's Motion to Dismiss (Dkt. No. 12), provides in its entirety as follows:

Section 15.1 — Limitation on Consequential Damages. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR PUNITIVE DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO LOST PROFITS (EXCEPT AS EXPRESSLY PROVIDED IN SECTION 14.2), BUSINESS INTERRUPTION, LOSS OF USE, LOSS OF REVENUE, OR COST OF CAPITAL, REGARDLESS OF WHETHER SUCH DAMAGES ARE BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, OR ANY OTHER THEORY OF LIABILITY, AND REGARDLESS OF WHETHER THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE PARTIES ACKNOWLEDGE THAT THE LIMITATIONS SET FORTH IN THIS SECTION 15.1 ARE AN ESSENTIAL ELEMENT OF THE BARGAIN BETWEEN THE PARTIES AND REFLECT AN ALLOCATION OF RISK THAT IS INTEGRAL TO THE CONSIDERATION EXCHANGED HEREUNDER.

Several features of Section 15.1 warrant emphasis for purposes of this analysis:

First, the waiver is mutual — it applies equally to both the Shipper-Broker (Stonefield) and the Carrier-Provider (VTS). This mutuality is significant because it undermines any argument that the provision was imposed unilaterally or unconscionably by one party on the other.

Second, the waiver is broadly drafted. It covers five categories of damages: indirect, incidental, consequential, special, and punitive. The breadth of the enumerated categories ensures that damages of the type at issue here — stranded assets, workforce reduction costs, and mitigation costs — fall within the waiver regardless of how they are characterized. Even if Vantor were to persuade the Court that a particular category of damages is not technically "consequential," the waiver also independently bars "indirect," "incidental," and "special" damages.

Third, Section 15.1 includes an illustrative (but non-exhaustive) list of specific damages categories subject to the waiver: "lost profits (except as expressly provided in Section 14.2), business interruption, loss of use, loss of revenue, [and] cost of capital." The inclusion of "loss of use" and "cost of capital" is particularly relevant to the stranded assets claim. The inclusion of "business interruption" is particularly relevant to the workforce reduction costs claim.

Fourth, the waiver applies "regardless of whether such damages are based in contract, tort (including negligence), strict liability, or any other theory of liability." This eliminates any attempt by Vantor to circumvent the waiver by recasting its claims under an alternative legal theory.

Fifth, the waiver applies "regardless of whether the party has been advised of the possibility of such damages." This forecloses any argument that the foreseeability of these costs at the time of contracting takes them outside the scope of the waiver.

Sixth, Section 15.1 contains a narrow carve-out: "except as expressly provided in Section 14.2." This carve-out preserves the liquidated damages provision in Section 14.2, which establishes a formulaic remedy for early termination without Cause. The carve-out does not extend to lost profits generally or to any other category of consequential damages; it is limited solely to the Section 14.2 liquidated damages formula. The significance and scope of this carve-out are discussed further in Section III.C below.

Seventh, the final sentence of Section 15.1 — in which the parties "acknowledge that the limitations set forth in this Section 15.1 are an essential element of the bargain between the parties and reflect an allocation of risk that is integral to the consideration exchanged hereunder" — reinforces enforceability by establishing the parties' mutual understanding that the waiver was a bargained-for allocation of risk, not an afterthought or boilerplate term.

C. Vantor's Damages Claims at Issue

Vantor's Amended Complaint (Dkt. No. 24) and the expert report of Dr. Philip Trask of Trask Greystone & Associates (served May 15, 2023, pursuant to the Case Management Order entered February 17, 2023, Dkt. No. 29) together break down Vantor's aggregate $95,400,000 damages claim into six distinct categories. This memorandum addresses three of those categories, which are summarized below.

1. Stranded Assets and Costs — $5,200,000

Vantor alleges that it purchased or leased additional tractors and trailers to meet the TSA's minimum fleet capacity commitment of 400 tractors and 1,200 trailers as set forth in Schedule A. VTS contends that upon Stonefield's termination of the TSA, these assets lost value (in the case of purchased equipment) or generated early termination charges (in the case of leased equipment), resulting in total stranded asset costs of $5,200,000.

The Trask Greystone report identifies these costs as follows: (a) $3,450,000 in accelerated depreciation on 127 tractors and 340 trailers that VTS had purchased specifically to serve the Stonefield account, reflecting the difference between the book value at the time of termination and the estimated fair market value given the loss of the dedicated use to which the equipment had been committed; and (b) $1,750,000 in early termination charges on leases for 48 additional tractors and 175 additional trailers that VTS had leased from third-party equipment lessors with terms designed to coincide with the TSA's five-year duration.

2. Workforce Reduction Costs — $2,870,000

Vantor claims $2,870,000 in severance and unemployment-related costs for approximately 180 drivers and support staff whom Vantor and VTS allege were hired or specifically dedicated to the Stonefield account. Vantor contends that following Stonefield's termination of the TSA, VTS was forced to terminate these employees because the Stonefield freight volume they had been servicing was no longer available.

The Trask Greystone report breaks down the $2,870,000 as follows: (a) $1,940,000 in severance payments to 142 drivers and 18 dispatchers under VTS's standard severance policy (two weeks' base pay per year of service, subject to a minimum of four weeks); (b) $630,000 in unemployment insurance costs attributable to the terminated employees; and (c) $300,000 in administrative and outplacement costs associated with the reduction in force.

3. Mitigation Costs — $1,400,000

Vantor claims $1,400,000 in costs incurred by VTS in seeking replacement freight business to backfill the volume lost from the Stonefield contract. According to the Trask Greystone report, these costs include: (a) $680,000 in business development expenses, including travel, marketing materials, and sales commissions paid to VTS's commercial team in connection with efforts to secure new freight contracts; (b) $420,000 in third-party broker fees and load board subscription costs incurred to access spot market freight; and (c) $300,000 in consulting fees paid to a logistics advisory firm engaged by VTS to identify potential replacement accounts.

For purposes of this memorandum, the remaining three categories of Vantor's damages claim — liquidated damages ($64,800,000 for two full contract years plus $2,430,000 for the partial year, totaling $67,230,000), lost profits ($18,700,000), and the overlap between the lost profits claim and the liquidated damages formula — are not addressed. Those categories raise distinct enforceability questions that are the subject of separate work product. See Memo re Enforceability of Liquidated Damages Clause Under NY Law (Sept. 19, 2022); Memo re Duplicative Damages — Liquidated Damages vs. Lost Profits (Feb. 15, 2023).

III. Legal Framework: Consequential Damages Waivers Under New York Law

A. General Enforceability

New York courts consistently enforce consequential damages waivers negotiated between sophisticated commercial parties. The enforceability of such provisions is well established in New York jurisprudence, and courts routinely uphold limitations on liability where the contracting parties are commercial entities with approximately equal bargaining power, each represented by competent counsel, and the waiver provision was the product of arms-length negotiation. See Metropolitan Life Ins. Co. v. Noble Lowndes Int'l, Inc., 84 N.Y.2d 430, 436–37 (1994) (enforcing limitation of liability clause and noting that "a limitation on liability provision in a contract between sophisticated parties is generally valid"); Biotronik A.G. v. Conor Medsystems Ireland, Ltd., 22 N.Y.3d 799, 806 (2014) (reaffirming that New York law respects contractual limitations on damages negotiated by sophisticated parties).

Courts apply a strong presumption in favor of enforcing unambiguous contractual limitations on liability. The New York Court of Appeals has observed that "[w]here the parties have specifically agreed to limit damages, courts must respect that allocation of risk as part of the parties' bargain." Kalisch-Jarcho, Inc. v. City of New York, 58 N.Y.2d 377, 384–85 (1983). This principle is especially robust in the context of agreements between sophisticated commercial actors. See also Architectural Millwork of Suffolk, Inc. v. Posen Constr., Inc., 2019 WL 4934011, at *6 (S.D.N.Y. Oct. 7, 2019) (enforcing mutual consequential damages waiver in commercial construction agreement).

The enforceability of Section 15.1 in this case is particularly strong for several reasons. First, the TSA was drafted by Ashford Meridian LLP, a recognized national law firm, on behalf of Stonefield. Vantor and VTS were likewise represented by outside counsel during the negotiation of the agreement, and the TSA went through multiple rounds of redlining before execution. Second, both parties are sophisticated commercial entities. Stonefield is a mid-market logistics company with approximately $1.42 billion in fiscal year 2021 revenue, backed by Ridgeline Capital Partners, LP, a middle-market private equity firm that acquired Stonefield in October 2017 for an enterprise value of approximately $680 million. Vantor is a holding company with approximately $385 million in fiscal year 2021 revenue, and VTS is a significant transportation services provider operating across the eastern and central United States. Third, the waiver is mutual — it limits both parties' exposure equally, applying to damages sought by either the Shipper-Broker or the Carrier-Provider. This mutuality further supports enforceability because neither party can claim that the waiver was imposed unilaterally. Fourth, Section 15.1's express acknowledgment that "the limitations set forth in this Section 15.1 are an essential element of the bargain between the parties and reflect an allocation of risk that is integral to the consideration exchanged hereunder" constitutes a specific recital of bargained-for intent, which courts have recognized as significant evidence that the provision is enforceable. See Marlowe Commerce Bank Home Equity Loan, Inc., Series 2006-FM2 v. Marlowe Commerce Bank Credit & Capital, Inc., 30 N.Y.3d 572, 581 (2017) (noting the importance of recitals reflecting the parties' mutual understanding).

B. Definition and Scope of "Consequential Damages" Under New York Law

The distinction between direct damages and consequential damages is fundamental to the analysis of Section 15.1's applicability to Vantor's claims. Under New York law, this distinction traces its origins to the seminal English case Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854), which has been adopted and applied by New York courts for over a century. See Kenford Co. v. County of Erie, 73 N.Y.2d 312, 319 (1989) (applying the Hadley v. Baxendale framework); Bi-Economy Market, Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187, 192 (2008) (same).

Direct damages — sometimes referred to as "general damages" — are those that flow directly and immediately from the breach itself. They represent the natural and probable consequence of the breach and may be recovered by any injured party as a matter of course without the need to prove special circumstances. In a breach-of-contract case, direct damages typically consist of the difference between the value of the promised performance and the value of the performance actually received — that is, the benefit of the bargain. See Restatement (Second) of Contracts § 347(a) (1981) (defining expectation interest as "the loss in the value to [the injured party] of the other party's performance caused by its failure or deficiency"). In the context of a terminated services agreement, direct damages are generally measured as the difference between the contract price and the cost of substitute performance or, alternatively, the value of the contractual entitlement itself — i.e., the expected profit on the contract or the benefit the non-breaching party would have obtained had the contract been fully performed.

Consequential damages — sometimes referred to as "special damages" — are those that do not flow directly and immediately from the breach itself but rather result from the breach's effect on the non-breaching party's particular circumstances. These are secondary losses that are not the inevitable result of every breach of a similar contract but that arise because of the non-breaching party's unique situation, business arrangements, or downstream commitments. Under the Hadley v. Baxendale framework, consequential damages are recoverable only if they were within the reasonable contemplation of the parties at the time of contracting — but this foreseeability requirement is distinct from the question of whether damages are "direct" or "consequential" in nature. A loss may be entirely foreseeable and still be consequential rather than direct if it arises from the non-breaching party's particular circumstances rather than as a natural and immediate result of the breach.

New York courts have specifically classified the following types of losses as consequential damages in the commercial contract context:

• Lost business opportunities: Revenue or profits lost from third-party relationships disrupted by the breach. See Kenford Co., 73 N.Y.2d at 319–20.

• Costs of redeploying or terminating workforce: Severance costs, unemployment expenses, and other workforce-related charges incurred as a result of the breach. See Biotronik, 22 N.Y.3d at 808 (treating workforce disruption costs as consequential).

• Asset depreciation attributable to contract termination: Loss of value in assets acquired or dedicated for performance of the breached contract. See Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89, 110 (2d Cir. 2007) (applying New York law and analyzing whether asset-related losses were direct or consequential).

• Costs of seeking replacement contracts: Business development and marketing expenses incurred in an effort to replace the lost contractual relationship. See Schonfeld v. Hilliard, 218 F.3d 164, 175–76 (2d Cir. 2000) (treating costs of attempted mitigation as consequential).

The critical distinction for present purposes is that in a breach-of-contract case involving a terminated services agreement, direct damages typically consist of the expected benefit of the bargain — i.e., the value of the contractual performance that was promised but not delivered. Consequential damages, by contrast, include downstream costs such as stranded investments, workforce-related expenses, and costs incurred in attempts to mitigate the loss. The three categories of damages at issue here — stranded assets, workforce reduction costs, and mitigation costs — are all downstream consequences of the TSA's termination, not the direct value of the contractual performance Vantor was promised but did not receive.

C. Interplay Between Section 15.1 and Section 14.2 (Liquidated Damages)

The carve-out in Section 15.1 — "except as expressly provided in Section 14.2" — preserves only the liquidated damages formula as an agreed-upon remedy. It is critically important to understand the scope and limitations of this carve-out.

Section 14.2 of the TSA provides a formulaic calculation for damages in the event of termination without Cause:

Section 14.2 — Liquidated Damages. In the event that Shipper-Broker terminates this Agreement prior to the expiration of the Term other than for Cause as defined in Section 13.1(a), Shipper-Broker shall pay to Carrier-Provider, as liquidated damages, an amount equal to seventy-five percent (75%) of the Annual Committed Volume multiplied by the number of full Contract Years remaining in the Term, plus a pro rata portion of the Annual Committed Volume for any partial Contract Year remaining in the Term. The parties acknowledge and agree that the liquidated amount set forth in this Section 14.2 represents a reasonable estimate of the damages that Carrier-Provider would suffer as a result of such early termination, that the actual damages would be difficult to ascertain, and that the liquidated amount is not intended as a penalty.

The carve-out in Section 15.1 operates narrowly. By its terms, it exempts only what is "expressly provided in Section 14.2" — namely, the liquidated damages formula itself. The carve-out does not broadly exempt all consequential-type damages from the waiver. It does not reference stranded assets, workforce costs, mitigation costs, or any other category of consequential damages beyond the specific liquidated amount calculated under Section 14.2. Indeed, the carve-out does not even generally exempt "lost profits" from the waiver; rather, it exempts only the Section 14.2 liquidated amount, which may incorporate lost profits as a component of the formulaic calculation but does not permit independent recovery of lost profits outside that formula.

The existence of the liquidated damages provision in Section 14.2 actually reinforces the scope and intended breadth of the Section 15.1 waiver. The parties negotiated a specific formula as the exclusive contractual remedy for early termination without Cause precisely because consequential damages were being waived. The liquidated damages mechanism was designed to replace the need for proof of consequential damages — which would otherwise be difficult to calculate and subject to dispute — by providing a pre-agreed liquidated sum that would serve as the complete remedy for wrongful early termination. The fact that the parties went to the trouble of negotiating both a liquidated damages formula and a consequential damages waiver demonstrates that they intended to limit VTS's recovery to the agreed-upon formula rather than allowing VTS to pursue open-ended consequential damages claims.

Moreover, Section 14.2 states that the liquidated amount "represent[s] a reasonable estimate of the damages that Carrier-Provider would suffer as a result of such early termination" (emphasis added). The use of the phrase "the damages" — rather than "some of the damages" or "a portion of the damages" — implies that the formula is intended to be comprehensive and to replace, not supplement, other damages categories. If the parties had intended for VTS to recover both the liquidated amount and separate consequential damages claims (such as stranded assets, workforce costs, and mitigation costs), the carve-out would have been drafted more broadly, and the liquidated damages clause would not have characterized the liquidated amount as representing the totality of the damages VTS would suffer.

The practical implications of this framework are as follows:

• If the liquidated damages clause in Section 14.2 is enforceable, it provides the sole contractual remedy for wrongful termination, and the consequential damages waiver in Section 15.1 independently bars recovery of stranded assets, workforce reduction costs, and mitigation costs as separate damages categories.

• If the liquidated damages clause is unenforceable (as analyzed in the Memo re Enforceability of Liquidated Damages Clause Under NY Law, Sept. 19, 2022), Vantor's remedy reverts to direct/general damages only. The consequential damages waiver in Section 15.1 would continue to bar recovery of stranded assets, workforce reduction costs, and mitigation costs regardless of the enforceability of the liquidated damages clause, because the waiver operates independently of Section 14.2.

In either scenario, the three categories of damages addressed in this memorandum are barred.

With respect to the lost profits claim ($18,700,000), that category is specifically referenced in Section 15.1's waiver, which includes "lost profits" as an enumerated category of waived damages, "except as expressly provided in Section 14.2." The lost profits claim thus appears to be waived except to the extent it is subsumed within the Section 14.2 liquidated damages formula. This analysis is addressed more fully in the Memo re Duplicative Damages (Feb. 15, 2023) and is not repeated here.

IV. Analysis: Application of Section 15.1 to Each Damages Category

A. Stranded Assets and Costs ($5,200,000)

1. Nature of the Claim

Vantor claims $5,200,000 in depreciation on tractors and trailers that it alleges were acquired specifically for the Stonefield contract, together with early termination charges on equipment leases. The Trask Greystone report identifies these costs as capital expenditures made in reliance on the TSA's five-year term, breaking them down into $3,450,000 in accelerated depreciation on purchased equipment (127 tractors and 340 trailers) and $1,750,000 in early termination charges on leased equipment (48 tractors and 175 trailers). Dr. Trask's methodology calculates the depreciation component by comparing the book value of the equipment at the time of termination to its estimated fair market value, asserting that the differential represents losses attributable to the early termination because VTS would not have purchased the equipment but for the TSA's minimum fleet capacity requirements.

2. Classification as Consequential Damages

Equipment depreciation and lease termination costs are classic consequential damages under New York law. They do not represent the benefit of the bargain — i.e., the value of the transportation services contract itself, which is measured by the expected profit VTS would have earned from performing the contract for its remaining term. Rather, they represent downstream investment losses arising from VTS's particular business decision to acquire or lease dedicated equipment in order to satisfy the fleet capacity requirements of the TSA.

The critical analytical distinction here is between the value of the contractual performance (direct damages) and the secondary economic consequences of the breach on VTS's broader business operations (consequential damages). The stranded asset costs fall squarely in the latter category. VTS's decision to purchase 127 tractors and 340 trailers, and to enter into leases for an additional 48 tractors and 175 trailers, was a business decision made by VTS in its discretion. While those purchases and leases may have been made in reliance on the TSA's five-year term, they were not the direct product of the breach — they were the product of VTS's particular approach to satisfying its contractual obligations. The losses from those investments are therefore consequential, not direct, because they arise from VTS's particular circumstances rather than as a natural and immediate consequence of the breach.

This conclusion is supported by the specific categories of damages enumerated in Section 15.1. The provision expressly waives "loss of use" and "cost of capital," both of which encompass the stranded asset costs claimed by Vantor. The depreciation component ($3,450,000) represents a loss of use — the diminished value of assets that VTS can no longer use as productively as it had planned due to the termination of the Stonefield account. The lease termination component ($1,750,000) represents a cost of capital — the financial penalty incurred by VTS for exiting lease commitments that it had entered into as a capital decision in support of its performance under the TSA. Both categories fall squarely within the express language of the waiver.

Moreover, it is significant that the TSA required VTS to maintain minimum fleet capacity (400 tractors and 1,200 trailers per Schedule A), but the TSA did not dictate how VTS was to satisfy that requirement. The decision to acquire specific equipment through outright purchase versus leasing versus sourcing through owner-operators was VTS's own business judgment. VTS could have met its fleet capacity obligations through range means — including, for example, using owner-operators, subleasing equipment from third parties, or maintaining a more flexible mix of owned and leased assets. The stranded asset cost reflects VTS's particular method of satisfying the fleet commitment, not the direct value of the contract itself. This distinguishes the stranded asset costs from direct damages, which would represent the value of the bargain irrespective of how VTS chose to structure its operations.

The Second Circuit's decision in Tractebel Energy Marketing, Inc. v. AEP Power Marketing, Inc., 487 F.3d 89 (2d Cir. 2007), is instructive. In Tractebel, the court analyzed whether asset-related losses resulting from the termination of a long-term energy supply contract were direct or consequential damages. The court held that the relevant inquiry is whether the damages "are the natural and probable consequence of the breach" or whether they "result from the intervention of 'special circumstances.'" Id. at 109. The court noted that where the plaintiff incurred capital expenditures in reliance on the contract, the resulting losses upon termination were consequential because they depended on the plaintiff's particular business decisions and investment strategy. Id. at 110. The same reasoning applies here.

3. Conclusion. Stranded assets and costs of $5,200,000 are consequential damages within the meaning of Section 15.1 of the TSA. They fall within the express categories of "loss of use" and "cost of capital" enumerated in the waiver. They arise from VTS's particular business decisions regarding equipment acquisition and leasing, not from the direct value of the contractual performance promised but not delivered. They are barred by the mutual consequential damages waiver in Section 15.1.

B. Workforce Reduction Costs ($2,870,000)

1. Nature of the Claim

Vantor claims $2,870,000 in severance and unemployment-related costs for approximately 180 drivers and support staff allegedly dedicated to the Stonefield account and terminated following the TSA termination. The Trask Greystone report identifies $1,940,000 in severance payments (calculated under VTS's standard severance policy at two weeks' base pay per year of service, with a four-week minimum), $630,000 in unemployment insurance costs, and $300,000 in administrative and outplacement costs. Vantor contends that VTS hired or dedicated these employees specifically to service the Stonefield account, that the employees were surplus to VTS's needs following termination, and that VTS was forced to terminate them and incur the resulting costs as a direct consequence of Stonefield's breach.

2. Classification as Consequential Damages

Workforce reduction costs are quintessential consequential damages under New York law. Severance payments, unemployment insurance costs, and outplacement expenses arising from a reduction in force following contract termination are secondary costs flowing from the non-breaching party's particular employment practices, staffing decisions, and business structure — not from the breach itself. They depend entirely on VTS's particular circumstances: the number of employees VTS chose to hire, the terms of VTS's severance policy, VTS's inability or unwillingness to redeploy those employees to other accounts, and VTS's decision to terminate them rather than retain them in a different capacity.

The TSA did not require VTS to hire any specific number of employees. The TSA did not prescribe VTS's staffing model, compensation structure, or severance policy. The TSA did not guarantee VTS's employment practices or undertake any obligation regarding VTS's workforce. The TSA's requirements were functional: VTS was obligated to meet Service Level Obligations (on-time pickup ≥ 95%, on-time delivery ≥ 93%, tender acceptance ≥ 90%, equipment availability ≥ 85%, and cargo claims ratio ≤ 0.5%) and to maintain minimum fleet capacity. How VTS staffed its operations — how many drivers it hired, what support staff it employed, what severance terms it offered, and how it structured its workforce — was entirely within VTS's discretion. The fact that VTS chose to hire approximately 180 employees to service the Stonefield account, and that VTS chose to terminate those employees upon the TSA's termination rather than reassigning them, reflects VTS's particular business decisions, not the direct consequences of the breach.

Severance costs and unemployment expenses are paradigmatic consequential damages: they are secondary costs flowing from the non-breaching party's particular business arrangements, not the natural and direct result of the contract's termination. In any breach of a services agreement, the non-breaching party may or may not have dedicated employees to the contract; may or may not have a severance policy providing for payments upon termination; may or may not incur unemployment insurance costs; and may or may not choose to terminate employees rather than reassign them. These outcomes depend on the non-breaching party's particular circumstances, making the resulting costs consequential rather than direct.

Section 15.1 expressly waives "business interruption" damages, and workforce disruption costs are properly characterized as a species of business interruption. The forced reduction in VTS's workforce disrupted its ongoing business operations and imposed costs associated with that disruption — precisely the type of harm that the "business interruption" category of the waiver was designed to encompass.

Additionally, discovery in this matter has revealed facts that further undermine Vantor's claim that these workforce reduction costs were caused solely by Stonefield's termination of the TSA. Specifically, production documents include an email dated November 12, 2021, from Sandra Milescu (VTS's Chief Operating Officer) to Alexei Vantorovich (Vantor's CEO) (Bates No. VHC-008417), discussing VTS's unilateral reassignment of 85 tractors from Stonefield-dedicated lanes to Northwind Distribution Co. beginning in October 2021 — approximately five months before Stonefield's termination notice. This reassignment suggests that VTS had already begun redeploying personnel and assets away from the Stonefield account well before the termination, calling into question the causal link between Stonefield's termination and VTS's decision to terminate 180 employees. If VTS was already reducing its commitment to the Stonefield account and redirecting resources to Northwind Distribution, the workforce reduction costs may have been incurred in any event, regardless of whether Stonefield terminated the TSA. At minimum, the Milescu email creates a factual predicate for challenging the damages calculation even apart from the Section 15.1 waiver argument.

3. Conclusion. Workforce reduction costs of $2,870,000 are consequential damages within the meaning of Section 15.1 of the TSA. They fall within the "business interruption" category expressly enumerated in the waiver and, more broadly, constitute secondary economic consequences of the breach arising from VTS's particular employment practices and staffing decisions rather than from the direct value of the contractual performance. They are barred by the mutual consequential damages waiver in Section 15.1.

C. Mitigation Costs ($1,400,000)

1. Nature of the Claim

Vantor claims $1,400,000 in costs incurred by VTS in seeking replacement freight business to backfill the volume lost from the Stonefield contract. The Trask Greystone report identifies $680,000 in business development expenses (travel, marketing, sales commissions), $420,000 in broker fees and load board subscription costs, and $300,000 in consulting fees paid to a third-party logistics advisory firm engaged to identify potential replacement accounts. Vantor characterizes these costs as reasonable and necessary expenses incurred in fulfillment of VTS's duty to mitigate its damages following Stonefield's alleged wrongful termination.

2. Classification as Consequential Damages

Mitigation costs are, by their nature, consequential. They arise not from the breach itself — i.e., not from the loss of the value of the contractual performance — but from the non-breaching party's response to the breach and its efforts to adapt its business to the changed circumstances resulting from the termination. Mitigation costs are not the benefit of the bargain; they are downstream expenses that flow from the non-breaching party's attempt to minimize its losses. As such, they are secondary consequences of the breach that depend on the non-breaching party's particular circumstances — including the availability of replacement business, the costs of its business development efforts, and the effectiveness of those efforts — rather than on the breach itself.

Under New York law, a non-breaching party has a duty to take reasonable steps to mitigate its damages. See Wilmot v. State, 32 N.Y.2d 164, 168–69 (1973). However, while the duty to mitigate is an obligation, the costs of mitigation are generally classified as consequential or incidental damages. See Restatement (Second) of Contracts § 347(b) (1981) (defining consequential damages to include "any other loss, including incidental or consequential loss, caused by the breach"); U.C.C. § 2-715(1) (defining incidental damages to include expenses "reasonably incurred in . . . effecting 'cover'"). Both consequential and incidental damages fall squarely within the scope of Section 15.1, which waives not only "consequential" damages but also "indirect" and "incidental" damages. Mitigation costs are, at minimum, incidental damages — expenses reasonably incurred in the course of responding to the breach — and they are independently encompassed by the waiver's coverage of "incidental" damages even if they were deemed not to be "consequential" in the technical sense.

Section 15.1's express waiver of "indirect" damages provides yet another independent basis for barring the mitigation costs. The costs of seeking replacement freight are an indirect consequence of the breach: they are not the loss caused by the breach itself (the loss of the Stonefield contract's value) but rather a loss incurred in response to the breach. Indirect, incidental, and consequential — the mitigation costs fall comfortably within any of these three independently waived categories.

Moreover, there is an inherent and irreconcilable tension in Vantor's damages position that is worth highlighting. Vantor simultaneously claims: (a) mitigation costs of $1,400,000 for efforts to find replacement freight; and (b) lost profits of $18,700,000 reflecting the premise that replacement volume was not obtained (or was obtained only at significantly lower margins). To the extent Vantor's mitigation efforts were unsuccessful — which is precisely what the $18,700,000 lost profits claim implies — the $1,400,000 in mitigation costs represents failed business development expenses: money spent on efforts that, by Vantor's own account, did not succeed in replacing the Stonefield volume. Failed business development expenses are a quintessential consequential loss — they are not the value of the contractual performance that was promised but not delivered; they are the cost of an unsuccessful attempt to replace that performance with alternative business.

Conversely, to the extent Vantor's mitigation efforts were successful in securing replacement freight, the lost profits claim of $18,700,000 would need to be reduced by the value of the replacement business, and the mitigation costs would become part of the cost of obtaining that replacement — effectively an offset against the replacement revenue rather than a separate damages category. In either scenario, the mitigation costs are secondary to the primary measure of damages and are properly characterized as consequential or incidental.

Additionally, as analyzed in the Memo re Mitigation of Damages (Jan. 30, 2023), the freight market in the first and second quarters of 2022 — the period immediately following Stonefield's termination — was robust. Spot rates were approximately 35% above historical averages, and carrier capacity was in high demand due to ongoing supply chain disruptions. Under these market conditions, VTS should have been able to replace the Stonefield volume at favorable rates with minimal effort and cost. The $1,400,000 in mitigation costs claimed by Vantor is inconsistent with the available market data and suggests either that the costs were inflated, that VTS's mitigation efforts were unreasonably inefficient, or that the costs are attributable to pre-existing business development activities not genuinely connected to the loss of the Stonefield contract. In any event, this factual context provides additional support for challenging the mitigation costs claim, independent of the Section 15.1 waiver argument.

3. Conclusion. Mitigation costs of $1,400,000 are consequential (or, alternatively, incidental or indirect) damages within the meaning of Section 15.1 of the TSA. They arise from VTS's response to the breach rather than from the breach itself, depend on VTS's particular business development decisions and efforts, and fall within the express categories of waived damages enumerated in Section 15.1. They are barred by the mutual consequential damages waiver.

V. Anticipated Counterarguments and Rebuttal

Vantor can be expected to raise several counterarguments in opposition to Stonefield's invocation of the Section 15.1 waiver. Each is addressed below.

A. Vantor May Argue the Waiver Is Unenforceable as Unconscionable

Vantor may argue that the consequential damages waiver in Section 15.1 is unconscionable and therefore unenforceable. Under New York law, a finding of unconscionability requires both procedural unconscionability (inequality in bargaining power, lack of meaningful choice, or unfair surprise) and substantive unconscionability (terms that are unreasonably favorable to one party). See Gillman v. Chase Manhattan Bank, N.A., 73 N.Y.2d 1, 10 (1988). Even where one element is present, courts require a showing of both to invalidate a contractual provision.

This argument is unlikely to succeed. Both parties to the TSA are sophisticated commercial entities with substantial revenue and market presence. Stonefield had approximately $1.42 billion in fiscal year 2021 revenue and was backed by Ridgeline Capital Partners, LP, a middle-market private equity firm that acquired Stonefield in October 2017 for an enterprise value of approximately $680 million. Vantor had approximately $385 million in fiscal year 2021 revenue and operated through VTS as a significant carrier in the transportation services industry. Both parties were represented by experienced counsel during the negotiation of the TSA — Stonefield by Ashford Meridian LLP and VTS by its own outside counsel. The TSA was negotiated over approximately four months and went through multiple rounds of redlining, demonstrating that the parties had ample opportunity to review, negotiate, and revise the terms of the agreement, including Section 15.1.

The waiver is mutual: it limits both parties' exposure equally. Stonefield is as much bound by the waiver as VTS. This mutuality negates any claim that the provision was imposed unilaterally or that one party extracted an unfair advantage. New York courts do not find unconscionability in arms-length commercial contracts between sophisticated parties absent extraordinary circumstances that are not present here. See Nayal v. HIP Network Servs. IPA, Inc., 620 F. Supp. 2d 566, 571 (S.D.N.Y. 2009) ("Courts routinely enforce limitation of liability clauses in commercial contracts between sophisticated parties.").

B. Vantor May Argue These Damages Are "Direct" Rather Than "Consequential"

This is the strongest counterargument available to Vantor, and it deserves careful analysis. Vantor may contend that stranded asset costs, workforce reduction costs, and mitigation costs are "direct" damages because they were necessarily incurred to perform the TSA and were foreseeable at the time of contracting. Specifically, Vantor may argue that the equipment acquisitions and workforce hiring were required by the TSA's fleet capacity and performance requirements, and that the resulting costs upon termination are therefore the natural and direct consequence of the breach rather than secondary or consequential losses.

This argument should be rebutted on several grounds.

First, the distinction between direct and consequential damages does not turn on foreseeability alone. Foreseeability is a necessary condition for the recovery of consequential damages under the Hadley v. Baxendale framework, but it is not a sufficient condition for classifying damages as "direct." See Bi-Economy Market, 10 N.Y.3d at 192. A loss may be entirely foreseeable — indeed, it may be certain to occur — and still be consequential rather than direct if it arises from the non-breaching party's particular circumstances rather than as a natural and immediate result of the breach. The fact that Stonefield may have known (or should have known) that VTS would purchase equipment and hire employees to perform the contract does not transform the resulting losses into direct damages. Those losses remain secondary consequences of the breach that depend on VTS's particular business decisions, employment practices, and investment strategies.

Second, direct damages are the loss of the benefit of the bargain — i.e., the value of the performance Vantor was promised but did not receive. In the context of the TSA, the benefit of the bargain is measured by the expected revenue and profit VTS would have earned from performing the contract for its remaining term (approximately two years and twenty-seven days). Stranded assets, severance payments, and mitigation costs are not the benefit of the bargain; they are secondary economic consequences of the breach affecting VTS's broader business operations. The benefit of the bargain is captured by the liquidated damages formula in Section 14.2 (75% × ACV × remaining years), which was specifically designed to quantify the expected value of the contractual performance. The stranded asset, workforce reduction, and mitigation costs represent something different — they represent the downstream impact of the lost contract on VTS's existing business operations and investment decisions.

Third, even if Vantor characterizes these damages as "reliance damages" rather than "expectation damages," reliance-based recovery that is functionally consequential falls within the Section 15.1 waiver. The parties' express agreement to exclude "indirect, incidental, consequential, special, or punitive damages" and the specifically enumerated categories — "loss of use," "cost of capital," "business interruption" — covers all three categories regardless of how Vantor labels them. A party cannot avoid a consequential damages waiver simply by repackaging consequential losses as "reliance damages." The substance of the damages, not the label attached to them, controls the analysis. See Tractebel, 487 F.3d at 109 ("The label assigned to a particular measure of damages is not dispositive; what matters is the nature of the loss.").

Fourth, the breadth of the Section 15.1 waiver provides an independent safeguard against reclassification arguments. Even if a court were to conclude that one or more of these damages categories is technically "direct" rather than "consequential," the waiver also independently bars "indirect," "incidental," and "special" damages. The mitigation costs, for example, are at minimum incidental damages, which are separately and expressly waived. The stranded asset costs fall within "loss of use" and "cost of capital," both of which are specifically enumerated regardless of whether they are categorized as "direct" or "consequential." The workforce reduction costs fall within "business interruption." The cumulative breadth of the waiver's language makes it difficult for Vantor to escape the provision regardless of how it characterizes its damages.

C. Vantor May Argue the Section 14.2 Carve-Out Encompasses These Damages

Vantor may argue that the carve-out in Section 15.1 — "except as expressly provided in Section 14.2" — should be read broadly to exempt all damages recoverable in connection with wrongful termination, including stranded assets, workforce costs, and mitigation costs.

This argument is unlikely to succeed. The carve-out is narrowly drafted and limited by its terms to what is "expressly provided" in Section 14.2. Section 14.2 provides only the liquidated damages formula: 75% × ACV × remaining years (full and partial). It does not reference stranded assets. It does not reference workforce costs. It does not reference mitigation costs. It does not reference any damages category beyond the formulaic liquidated amount. The carve-out preserves the liquidated damages remedy and nothing more.

Indeed, the very purpose of the liquidated damages clause reinforces this reading. Section 14.2 states that the liquidated amount "represent[s] a reasonable estimate of the damages that Carrier-Provider would suffer as a result of such early termination" and acknowledges "that the actual damages would be difficult to ascertain." The implication is clear: the parties agreed to a single, formulaic measure of damages precisely because they recognized that actual damages (including consequential losses such as stranded assets, workforce costs, and mitigation costs) would be difficult to calculate and prove. The liquidated damages formula was intended to be the comprehensive remedy for wrongful termination, and the consequential damages waiver was designed to ensure that no additional consequential damages claims could be asserted on top of the liquidated amount. Reading the carve-out broadly to permit recovery of consequential damages in addition to the liquidated amount would defeat the purpose of both Section 14.2 and Section 15.1.

D. Vantor May Argue Stonefield Cannot Invoke Section 15.1 If Stonefield Committed a Material Breach

Vantor's Amended Complaint alleges that Stonefield committed the first material breach of the TSA through volume shortfalls, lane exclusivity violations, and a pretextual termination. If Stonefield's termination is found to be wrongful (i.e., not for valid Cause), Vantor may argue that Stonefield should not be permitted to invoke the protective provisions of the agreement, including the Section 15.1 waiver, because a party in material breach cannot benefit from the contract's favorable terms.

This argument should be rebutted on several grounds.

First, under New York law, a consequential damages waiver is a limitation on the type of remedy available, not a condition precedent to performance. It survives termination of the contract and is enforceable even where the party invoking it is found to have breached. The waiver defines the scope of available remedies — it determines what kinds of damages the non-breaching party may recover, not whether the non-breaching party is entitled to recover at all. The question of whether Stonefield breached the TSA is a question of liability; the question of what damages Vantor may recover if Stonefield did breach is a separate question of remedy. The waiver addresses the latter, not the former.

Second, New York courts have consistently held that contractual limitations on remedies, including consequential damages waivers, remain enforceable even against the breaching party. See Metropolitan Life, 84 N.Y.2d at 436–37 (enforcing limitation of liability clause against the party that committed the breach); Biotronik, 22 N.Y.3d at 806–08 (same). The rationale is that the parties bargained for the limitation as part of their overall agreement, and the limitation reflects an allocation of risk that exists independent of which party ultimately breaches.

Third, Section 15.1 does not contain any exception for breach by the invoking party. It applies broadly to damages "arising out of or related to the Agreement" regardless of which party is at fault. The waiver is mutual and unconditional — it does not state that it applies only if the invoking party has performed its obligations, nor does it provide that it is void in the event of a material breach. The absence of any such exception must be respected. See Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002) ("Courts should not, under the guise of interpretation, rewrite a contract by supplying terms the parties themselves have not included.").

Fourth, as a practical matter, Stonefield's Answer (filed January 13, 2023, Dkt. No. 18) asserts that its termination of the TSA was valid for Cause under Section 13.1(a), based on VTS's sustained and uncured failures across all five Service Level Obligations during the fourth quarter of 2021. Specifically, VTS's performance during Q4 2021 fell below the contractual thresholds on every metric:

If the Court finds that Stonefield terminated for valid Cause, the consequential damages issue may become moot because no damages of any kind would be owed by Stonefield. However, the Section 15.1 argument provides an important alternative defense: even if the termination is found to be wrongful, the consequential damages waiver independently bars recovery of $9,470,000 in stranded assets, workforce reduction costs, and mitigation costs. This provides an additional layer of protection for the client and reduces the overall damages exposure in the event of an adverse liability determination.

VI. Strategic Recommendations

A. Summary Judgment

I recommend raising the Section 15.1 consequential damages waiver as a ground for partial summary judgment on Vantor's stranded assets, workforce reduction costs, and mitigation costs claims. The consequential damages waiver argument is largely a question of contract interpretation — it turns on the meaning and scope of an unambiguous contractual provision — and is therefore well suited for resolution on summary judgment. See Fed. R. Civ. P. 56(a); W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990) ("When parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms.").

Even if disputed issues of material fact preclude full summary judgment on the validity of Stonefield's termination for Cause — particularly given the Kirkwood email dated September 22, 2021 (Bates No. SLG-004219), in which Stonefield's Vice President of Operations, Gerald Kirkwood, discussed the possibility of terminating the TSA to secure more favorable rates from alternative carriers, raising questions about Stonefield's motive for the termination — the consequential damages waiver argument is independent of the liability determination and can be resolved on summary judgment as a matter of contract interpretation.

If successful, this argument eliminates $9,470,000 from Vantor's claimed damages ($5,200,000 + $2,870,000 + $1,400,000), reducing the remaining claim from $95,400,000 to $85,930,000. Additional reductions are achievable through the liquidated damages unenforceability argument (potentially eliminating or reducing the $67,230,000 liquidated damages claim if it is found to constitute an unenforceable penalty) and the duplicative damages analysis (addressing the overlap between the $67,230,000 liquidated damages claim and the $18,700,000 lost profits claim), both of which are addressed in other memoranda. The cumulative effect of these arguments could substantially reduce Stonefield's total damages exposure.

I recommend that this argument be integrated into the broader dispositive motion strategy under development. Please refer to the Summary Judgment Roadmap Memorandum (currently in preparation and expected to be circulated by May 2023) for discussion of how this argument fits within the overall motion strategy, including the sequencing and prioritization of summary judgment arguments.

B. Expert Rebuttal

I recommend coordinating with Dr. Evelyn Rosser of Kensington Analytics Group LLC, Stonefield's retained damages expert, to ensure that her rebuttal report addresses the consequential nature of these three damages categories and excludes them from any alternative damages calculation she may prepare. The rebuttal report is due to be served by August 25, 2023, per the Case Management Order entered February 17, 2023 (Dkt. No. 29). Dr. Rosser should be instructed to: (a) identify the stranded assets, workfo

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: Patrick Gallagher, Lead Associate, Litigation (General)
FROM: Simone Laroche, Working Associate, Litigation (General)
DATE: April 5, 2023
RE: Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.) — Analysis of Consequential Damages Waiver Under TSA Section 15.1 and Applicability to Vantor's Stranded Assets, Workforce Reduction, and Mitigation Costs Claims
MATTER NO.: 1012-00005
CLIENT: Stonefield Logistics Group Inc.
I. Executive Summary
This memorandum analyzes whether three categories of damages claimed by Vantor Holdings Corp. ("Vantor") and its wholly owned subsidiary Vantor Transport Services LLC ("VTS") in their Amended Complaint (filed December 2, 2022, Dkt. No. 24) are barred by the mutual consequential damages waiver contained in Section 15.1 of the Transportation Services Agreement dated March 15, 2019 (the "TSA," Contract Reference No. SLG-VTS-2019-0315). The TSA was executed between Stonefield Logistics Group Inc. ("Stonefield" or the "Client") as Shipper-Broker and VTS as Carrier-Provider, and it governed the parties' freight transportation relationship for a five-year term commencing April 1, 2019. Stonefield terminated the TSA on March 4, 2022, asserting Cause under Section 13.1(a). Vantor and VTS dispute the validity of that termination and have brought suit alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and related claims.
The three categories of damages at issue in this memorandum are as follows:
1. Stranded Assets and Costs: $5,200,000 — representing depreciation on tractors and trailers acquired specifically for the Stonefield contract and early termination charges on equipment leases.
2. Workforce Reduction Costs: $2,870,000 — representing severance payments and unemployment-related costs for approximately 180 drivers and support staff whom Vantor alleges were hired or dedicated to the Stonefield account and terminated following the TSA termination.
3. Mitigation Costs: $1,400,000 — representing costs incurred by Vantor and VTS in seeking replacement freight volume and engaging in business development efforts to backfill the volume lost from the Stonefield contract.
Together, these three categories total $9,470,000 of Vantor's aggregate $95,400,000 damages claim.
Conclusion: Based on the analysis set forth below, all three categories constitute consequential damages — or, in the alternative, incidental or special damages — within the scope of the Section 15.1 waiver. Vantor is contractually barred from recovering any of these amounts. The waiver is enforceable under New York law as a product of arms-length negotiation between sophisticated commercial parties, each represented by counsel. The Section 15.1 carve-out for Section 14.2 (the liquidated damages provision) does not extend to any of these three categories. This argument should be preserved as an affirmative defense — which it already has been, as Affirmative Defense No. 8 in the Answer filed January 13, 2023 (Dkt. No. 18) — and raised at the summary judgment stage as a basis for partial summary judgment eliminating $9,470,000 from Vantor's claimed damages.
The remaining damages categories — liquidated damages ($67,230,000 total, comprising $64,800,000 for two full contract years and $2,430,000 for the partial year) and lost profits ($18,700,000) — are addressed in separate memoranda and raise distinct enforceability questions not discussed here. See Memo re Enforceability of Liquidated Damages Clause Under NY Law (Sept. 19, 2022); Memo re Duplicative Damages — Liquidated Damages vs. Lost Profits (Feb. 15, 2023). Those memoranda should be read in conjunction with this one to develop a comprehensive picture of the damages landscape.
II. Background
A. The Transportation Services Agreement
The TSA was executed on March 15, 2019, between Stonefield Logistics Group Inc., in its capacity as "Shipper-Broker," and Vantor Transport Services LLC, in its capacity as "Carrier-Provider." The agreement was drafted by Ashford Meridian LLP, specifically by Lorraine Beckwith, Partner, and Troy Nakamura, Senior Associate, on behalf of Stonefield. VTS was represented by its own outside counsel during the negotiation process, and the TSA went through multiple rounds of redlining over a period of approximately four months before execution. The agreement is a comprehensive, 87-page document (including schedules and exhibits) governing the terms under which VTS would provide dedicated and spot freight transportation services across Stonefield's distribution network.
The TSA is governed by New York law, pursuant to a choice-of-law clause in Section 18.3. The parties also agreed to a forum selection clause in Section 18.4, designating either the United States District Court for the Southern District of New York or the Supreme Court of the State of New York, New York County, as the exclusive venues for any litigation arising out of or relating to the agreement. Vantor filed the present action in the Southern District of New York consistent with that provision.
The TSA provides for a five-year term running from April 1, 2019 through March 31, 2024. The agreement established an Annual Committed Volume ("ACV") of $43,200,000 per contract year, resulting in a total five-year minimum commitment of $216,000,000. This ACV represented a substantial portion of VTS's annual revenue and reflected the significance of the Stonefield account to VTS's overall business operations.
The TSA contained detailed performance requirements, including Service Level Obligations ("SLOs") set forth in Schedule B, fleet capacity minimums specified in Schedule A (requiring VTS to maintain a minimum dedicated fleet of 400 tractors and 1,200 trailers for the Stonefield account), and lane-specific pricing schedules in Schedule C. The agreement also contained an extensive termination framework in Article 13, a liquidated damages provision in Section 14.2, and the consequential damages waiver at issue in Section 15.1.
Stonefield terminated the TSA by written notice dated March 4, 2022, purportedly for Cause under Section 13.1(a), citing VTS's sustained and uncured failures to meet Service Level Obligations during the fourth quarter of 2021 (October through December 2021). At the time of termination, approximately two years and twenty-seven days remained in the original five-year term. Vantor disputes the validity of the termination and contends it was pretextual, motivated by Stonefield's desire to reduce transportation costs in the face of margin pressure from its private equity sponsor, Ridgeline Capital Partners, LP.
B. Section 15.1 — Consequential Damages Waiver
Section 15.1 of the TSA, as reflected in the executed agreement attached as Exhibit A to the Declaration of Samuel Eklund filed October 14, 2022 (Dkt. No. 12-1) in connection with Stonefield's Motion to Dismiss (Dkt. No. 12), provides in its entirety as follows:
Section 15.1 — Limitation on Consequential Damages. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR PUNITIVE DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO LOST PROFITS (EXCEPT AS EXPRESSLY PROVIDED IN SECTION 14.2), BUSINESS INTERRUPTION, LOSS OF USE, LOSS OF REVENUE, OR COST OF CAPITAL, REGARDLESS OF WHETHER SUCH DAMAGES ARE BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, OR ANY OTHER THEORY OF LIABILITY, AND REGARDLESS OF WHETHER THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE PARTIES ACKNOWLEDGE THAT THE LIMITATIONS SET FORTH IN THIS SECTION 15.1 ARE AN ESSENTIAL ELEMENT OF THE BARGAIN BETWEEN THE PARTIES AND REFLECT AN ALLOCATION OF RISK THAT IS INTEGRAL TO THE CONSIDERATION EXCHANGED HEREUNDER.
Several features of Section 15.1 warrant emphasis for purposes of this analysis:
First, the waiver is mutual — it applies equally to both the Shipper-Broker (Stonefield) and the Carrier-Provider (VTS). This mutuality is significant because it undermines any argument that the provision was imposed unilaterally or unconscionably by one party on the other.
Second, the waiver is broadly drafted. It covers five categories of damages: indirect, incidental, consequential, special, and punitive. The breadth of the enumerated categories ensures that damages of the type at issue here — stranded assets, workforce reduction costs, and mitigation costs — fall within the waiver regardless of how they are characterized. Even if Vantor were to persuade the Court that a particular category of damages is not technically "consequential," the waiver also independently bars "indirect," "incidental," and "special" damages.
Third, Section 15.1 includes an illustrative (but non-exhaustive) list of specific damages categories subject to the waiver: "lost profits (except as expressly provided in Section 14.2), business interruption, loss of use, loss of revenue, [and] cost of capital." The inclusion of "loss of use" and "cost of capital" is particularly relevant to the stranded assets claim. The inclusion of "business interruption" is particularly relevant to the workforce reduction costs claim.
Fourth, the waiver applies "regardless of whether such damages are based in contract, tort (including negligence), strict liability, or any other theory of liability." This eliminates any attempt by Vantor to circumvent the waiver by recasting its claims under an alternative legal theory.
Fifth, the waiver applies "regardless of whether the party has been advised of the possibility of such damages." This forecloses any argument that the foreseeability of these costs at the time of contracting takes them outside the scope of the waiver.
Sixth, Section 15.1 contains a narrow carve-out: "except as expressly provided in Section 14.2." This carve-out preserves the liquidated damages provision in Section 14.2, which establishes a formulaic remedy for early termination without Cause. The carve-out does not extend to lost profits generally or to any other category of consequential damages; it is limited solely to the Section 14.2 liquidated damages formula. The significance and scope of this carve-out are discussed further in Section III.C below.
Seventh, the final sentence of Section 15.1 — in which the parties "acknowledge that the limitations set forth in this Section 15.1 are an essential element of the bargain between the parties and reflect an allocation of risk that is integral to the consideration exchanged hereunder" — reinforces enforceability by establishing the parties' mutual understanding that the waiver was a bargained-for allocation of risk, not an afterthought or boilerplate term.
C. Vantor's Damages Claims at Issue
Vantor's Amended Complaint (Dkt. No. 24) and the expert report of Dr. Philip Trask of Trask Greystone & Associates (served May 15, 2023, pursuant to the Case Management Order entered February 17, 2023, Dkt. No. 29) together break down Vantor's aggregate $95,400,000 damages claim into six distinct categories. This memorandum addresses three of those categories, which are summarized below.
1. Stranded Assets and Costs — $5,200,000
Vantor alleges that it purchased or leased additional tractors and trailers to meet the TSA's minimum fleet capacity commitment of 400 tractors and 1,200 trailers as set forth in Schedule A. VTS contends that upon Stonefield's termination of the TSA, these assets lost value (in the case of purchased equipment) or generated early termination charges (in the case of leased equipment), resulting in total stranded asset costs of $5,200,000.
The Trask Greystone report identifies these costs as follows: (a) $3,450,000 in accelerated depreciation on 127 tractors and 340 trailers that VTS had purchased specifically to serve the Stonefield account, reflecting the difference between the book value at the time of termination and the estimated fair market value given the loss of the dedicated use to which the equipment had been committed; and (b) $1,750,000 in early termination charges on leases for 48 additional tractors and 175 additional trailers that VTS had leased from third-party equipment lessors with terms designed to coincide with the TSA's five-year duration.
2. Workforce Reduction Costs — $2,870,000
Vantor claims $2,870,000 in severance and unemployment-related costs for approximately 180 drivers and support staff whom Vantor and VTS allege were hired or specifically dedicated to the Stonefield account. Vantor contends that following Stonefield's termination of the TSA, VTS was forced to terminate these employees because the Stonefield freight volume they had been servicing was no longer available.
The Trask Greystone report breaks down the $2,870,000 as follows: (a) $1,940,000 in severance payments to 142 drivers and 18 dispatchers under VTS's standard severance policy (two weeks' base pay per year of service, subject to a minimum of four weeks); (b) $630,000 in unemployment insurance costs attributable to the terminated employees; and (c) $300,000 in administrative and outplacement costs associated with the reduction in force.
3. Mitigation Costs — $1,400,000
Vantor claims $1,400,000 in costs incurred by VTS in seeking replacement freight business to backfill the volume lost from the Stonefield contract. According to the Trask Greystone report, these costs include: (a) $680,000 in business development expenses, including travel, marketing materials, and sales commissions paid to VTS's commercial team in connection with efforts to secure new freight contracts; (b) $420,000 in third-party broker fees and load board subscription costs incurred to access spot market freight; and (c) $300,000 in consulting fees paid to a logistics advisory firm engaged by VTS to identify potential replacement accounts.
For purposes of this memorandum, the remaining three categories of Vantor's damages claim — liquidated damages ($64,800,000 for two full contract years plus $2,430,000 for the partial year, totaling $67,230,000), lost profits ($18,700,000), and the overlap between the lost profits claim and the liquidated damages formula — are not addressed. Those categories raise distinct enforceability questions that are the subject of separate work product. See Memo re Enforceability of Liquidated Damages Clause Under NY Law (Sept. 19, 2022); Memo re Duplicative Damages — Liquidated Damages vs. Lost Profits (Feb. 15, 2023).
III. Legal Framework: Consequential Damages Waivers Under New York Law
A. General Enforceability
New York courts consistently enforce consequential damages waivers negotiated between sophisticated commercial parties. The enforceability of such provisions is well established in New York jurisprudence, and courts routinely uphold limitations on liability where the contracting parties are commercial entities with approximately equal bargaining power, each represented by competent counsel, and the waiver provision was the product of arms-length negotiation. See Metropolitan Life Ins. Co. v. Noble Lowndes Int'l, Inc., 84 N.Y.2d 430, 436–37 (1994) (enforcing limitation of liability clause and noting that "a limitation on liability provision in a contract between sophisticated parties is generally valid"); Biotronik A.G. v. Conor Medsystems Ireland, Ltd., 22 N.Y.3d 799, 806 (2014) (reaffirming that New York law respects contractual limitations on damages negotiated by sophisticated parties).
Courts apply a strong presumption in favor of enforcing unambiguous contractual limitations on liability. The New York Court of Appeals has observed that "[w]here the parties have specifically agreed to limit damages, courts must respect that allocation of risk as part of the parties' bargain." Kalisch-Jarcho, Inc. v. City of New York, 58 N.Y.2d 377, 384–85 (1983). This principle is especially robust in the context of agreements between sophisticated commercial actors. See also Architectural Millwork of Suffolk, Inc. v. Posen Constr., Inc., 2019 WL 4934011, at *6 (S.D.N.Y. Oct. 7, 2019) (enforcing mutual consequential damages waiver in commercial construction agreement).
The enforceability of Section 15.1 in this case is particularly strong for several reasons. First, the TSA was drafted by Ashford Meridian LLP, a recognized national law firm, on behalf of Stonefield. Vantor and VTS were likewise represented by outside counsel during the negotiation of the agreement, and the TSA went through multiple rounds of redlining before execution. Second, both parties are sophisticated commercial entities. Stonefield is a mid-market logistics company with approximately $1.42 billion in fiscal year 2021 revenue, backed by Ridgeline Capital Partners, LP, a middle-market private equity firm that acquired Stonefield in October 2017 for an enterprise value of approximately $680 million. Vantor is a holding company with approximately $385 million in fiscal year 2021 revenue, and VTS is a significant transportation services provider operating across the eastern and central United States. Third, the waiver is mutual — it limits both parties' exposure equally, applying to damages sought by either the Shipper-Broker or the Carrier-Provider. This mutuality further supports enforceability because neither party can claim that the waiver was imposed unilaterally. Fourth, Section 15.1's express acknowledgment that "the limitations set forth in this Section 15.1 are an essential element of the bargain between the parties and reflect an allocation of risk that is integral to the consideration exchanged hereunder" constitutes a specific recital of bargained-for intent, which courts have recognized as significant evidence that the provision is enforceable. See Marlowe Commerce Bank Home Equity Loan, Inc., Series 2006-FM2 v. Marlowe Commerce Bank Credit & Capital, Inc., 30 N.Y.3d 572, 581 (2017) (noting the importance of recitals reflecting the parties' mutual understanding).
B. Definition and Scope of "Consequential Damages" Under New York Law
The distinction between direct damages and consequential damages is fundamental to the analysis of Section 15.1's applicability to Vantor's claims. Under New York law, this distinction traces its origins to the seminal English case Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854), which has been adopted and applied by New York courts for over a century. See Kenford Co. v. County of Erie, 73 N.Y.2d 312, 319 (1989) (applying the Hadley v. Baxendale framework); Bi-Economy Market, Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187, 192 (2008) (same).
Direct damages — sometimes referred to as "general damages" — are those that flow directly and immediately from the breach itself. They represent the natural and probable consequence of the breach and may be recovered by any injured party as a matter of course without the need to prove special circumstances. In a breach-of-contract case, direct damages typically consist of the difference between the value of the promised performance and the value of the performance actually received — that is, the benefit of the bargain. See Restatement (Second) of Contracts § 347(a) (1981) (defining expectation interest as "the loss in the value to [the injured party] of the other party's performance caused by its failure or deficiency"). In the context of a terminated services agreement, direct damages are generally measured as the difference between the contract price and the cost of substitute performance or, alternatively, the value of the contractual entitlement itself — i.e., the expected profit on the contract or the benefit the non-breaching party would have obtained had the contract been fully performed.
Consequential damages — sometimes referred to as "special damages" — are those that do not flow directly and immediately from the breach itself but rather result from the breach's effect on the non-breaching party's particular circumstances. These are secondary losses that are not the inevitable result of every breach of a similar contract but that arise because of the non-breaching party's unique situation, business arrangements, or downstream commitments. Under the Hadley v. Baxendale framework, consequential damages are recoverable only if they were within the reasonable contemplation of the parties at the time of contracting — but this foreseeability requirement is distinct from the question of whether damages are "direct" or "consequential" in nature. A loss may be entirely foreseeable and still be consequential rather than direct if it arises from the non-breaching party's particular circumstances rather than as a natural and immediate result of the breach.
New York courts have specifically classified the following types of losses as consequential damages in the commercial contract context:
• Lost business opportunities: Revenue or profits lost from third-party relationships disrupted by the breach. See Kenford Co., 73 N.Y.2d at 319–20.
• Costs of redeploying or terminating workforce: Severance costs, unemployment expenses, and other workforce-related charges incurred as a result of the breach. See Biotronik, 22 N.Y.3d at 808 (treating workforce disruption costs as consequential).
• Asset depreciation attributable to contract termination: Loss of value in assets acquired or dedicated for performance of the breached contract. See Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89, 110 (2d Cir. 2007) (applying New York law and analyzing whether asset-related losses were direct or consequential).
• Costs of seeking replacement contracts: Business development and marketing expenses incurred in an effort to replace the lost contractual relationship. See Schonfeld v. Hilliard, 218 F.3d 164, 175–76 (2d Cir. 2000) (treating costs of attempted mitigation as consequential).
The critical distinction for present purposes is that in a breach-of-contract case involving a terminated services agreement, direct damages typically consist of the expected benefit of the bargain — i.e., the value of the contractual performance that was promised but not delivered. Consequential damages, by contrast, include downstream costs such as stranded investments, workforce-related expenses, and costs incurred in attempts to mitigate the loss. The three categories of damages at issue here — stranded assets, workforce reduction costs, and mitigation costs — are all downstream consequences of the TSA's termination, not the direct value of the contractual performance Vantor was promised but did not receive.
C. Interplay Between Section 15.1 and Section 14.2 (Liquidated Damages)
The carve-out in Section 15.1 — "except as expressly provided in Section 14.2" — preserves only the liquidated damages formula as an agreed-upon remedy. It is critically important to understand the scope and limitations of this carve-out.
Section 14.2 of the TSA provides a formulaic calculation for damages in the event of termination without Cause:
Section 14.2 — Liquidated Damages. In the event that Shipper-Broker terminates this Agreement prior to the expiration of the Term other than for Cause as defined in Section 13.1(a), Shipper-Broker shall pay to Carrier-Provider, as liquidated damages, an amount equal to seventy-five percent (75%) of the Annual Committed Volume multiplied by the number of full Contract Years remaining in the Term, plus a pro rata portion of the Annual Committed Volume for any partial Contract Year remaining in the Term. The parties acknowledge and agree that the liquidated amount set forth in this Section 14.2 represents a reasonable estimate of the damages that Carrier-Provider would suffer as a result of such early termination, that the actual damages would be difficult to ascertain, and that the liquidated amount is not intended as a penalty.
The carve-out in Section 15.1 operates narrowly. By its terms, it exempts only what is "expressly provided in Section 14.2" — namely, the liquidated damages formula itself. The carve-out does not broadly exempt all consequential-type damages from the waiver. It does not reference stranded assets, workforce costs, mitigation costs, or any other category of consequential damages beyond the specific liquidated amount calculated under Section 14.2. Indeed, the carve-out does not even generally exempt "lost profits" from the waiver; rather, it exempts only the Section 14.2 liquidated amount, which may incorporate lost profits as a component of the formulaic calculation but does not permit independent recovery of lost profits outside that formula.
The existence of the liquidated damages provision in Section 14.2 actually reinforces the scope and intended breadth of the Section 15.1 waiver. The parties negotiated a specific formula as the exclusive contractual remedy for early termination without Cause precisely because consequential damages were being waived. The liquidated damages mechanism was designed to replace the need for proof of consequential damages — which would otherwise be difficult to calculate and subject to dispute — by providing a pre-agreed liquidated sum that would serve as the complete remedy for wrongful early termination. The fact that the parties went to the trouble of negotiating both a liquidated damages formula and a consequential damages waiver demonstrates that they intended to limit VTS's recovery to the agreed-upon formula rather than allowing VTS to pursue open-ended consequential damages claims.
Moreover, Section 14.2 states that the liquidated amount "represent[s] a reasonable estimate of the damages that Carrier-Provider would suffer as a result of such early termination" (emphasis added). The use of the phrase "the damages" — rather than "some of the damages" or "a portion of the damages" — implies that the formula is intended to be comprehensive and to replace, not supplement, other damages categories. If the parties had intended for VTS to recover both the liquidated amount and separate consequential damages claims (such as stranded assets, workforce costs, and mitigation costs), the carve-out would have been drafted more broadly, and the liquidated damages clause would not have characterized the liquidated amount as representing the totality of the damages VTS would suffer.
The practical implications of this framework are as follows:
• If the liquidated damages clause in Section 14.2 is enforceable, it provides the sole contractual remedy for wrongful termination, and the consequential damages waiver in Section 15.1 independently bars recovery of stranded assets, workforce reduction costs, and mitigation costs as separate damages categories.
• If the liquidated damages clause is unenforceable (as analyzed in the Memo re Enforceability of Liquidated Damages Clause Under NY Law, Sept. 19, 2022), Vantor's remedy reverts to direct/general damages only. The consequential damages waiver in Section 15.1 would continue to bar recovery of stranded assets, workforce reduction costs, and mitigation costs regardless of the enforceability of the liquidated damages clause, because the waiver operates independently of Section 14.2.
In either scenario, the three categories of damages addressed in this memorandum are barred.
With respect to the lost profits claim ($18,700,000), that category is specifically referenced in Section 15.1's waiver, which includes "lost profits" as an enumerated category of waived damages, "except as expressly provided in Section 14.2." The lost profits claim thus appears to be waived except to the extent it is subsumed within the Section 14.2 liquidated damages formula. This analysis is addressed more fully in the Memo re Duplicative Damages (Feb. 15, 2023) and is not repeated here.
IV. Analysis: Application of Section 15.1 to Each Damages Category
A. Stranded Assets and Costs ($5,200,000)
1. Nature of the Claim
Vantor claims $5,200,000 in depreciation on tractors and trailers that it alleges were acquired specifically for the Stonefield contract, together with early termination charges on equipment leases. The Trask Greystone report identifies these costs as capital expenditures made in reliance on the TSA's five-year term, breaking them down into $3,450,000 in accelerated depreciation on purchased equipment (127 tractors and 340 trailers) and $1,750,000 in early termination charges on leased equipment (48 tractors and 175 trailers). Dr. Trask's methodology calculates the depreciation component by comparing the book value of the equipment at the time of termination to its estimated fair market value, asserting that the differential represents losses attributable to the early termination because VTS would not have purchased the equipment but for the TSA's minimum fleet capacity requirements.
2. Classification as Consequential Damages
Equipment depreciation and lease termination costs are classic consequential damages under New York law. They do not represent the benefit of the bargain — i.e., the value of the transportation services contract itself, which is measured by the expected profit VTS would have earned from performing the contract for its remaining term. Rather, they represent downstream investment losses arising from VTS's particular business decision to acquire or lease dedicated equipment in order to satisfy the fleet capacity requirements of the TSA.
The critical analytical distinction here is between the value of the contractual performance (direct damages) and the secondary economic consequences of the breach on VTS's broader business operations (consequential damages). The stranded asset costs fall squarely in the latter category. VTS's decision to purchase 127 tractors and 340 trailers, and to enter into leases for an additional 48 tractors and 175 trailers, was a business decision made by VTS in its discretion. While those purchases and leases may have been made in reliance on the TSA's five-year term, they were not the direct product of the breach — they were the product of VTS's particular approach to satisfying its contractual obligations. The losses from those investments are therefore consequential, not direct, because they arise from VTS's particular circumstances rather than as a natural and immediate consequence of the breach.
This conclusion is supported by the specific categories of damages enumerated in Section 15.1. The provision expressly waives "loss of use" and "cost of capital," both of which encompass the stranded asset costs claimed by Vantor. The depreciation component ($3,450,000) represents a loss of use — the diminished value of assets that VTS can no longer use as productively as it had planned due to the termination of the Stonefield account. The lease termination component ($1,750,000) represents a cost of capital — the financial penalty incurred by VTS for exiting lease commitments that it had entered into as a capital decision in support of its performance under the TSA. Both categories fall squarely within the express language of the waiver.
Moreover, it is significant that the TSA required VTS to maintain minimum fleet capacity (400 tractors and 1,200 trailers per Schedule A), but the TSA did not dictate how VTS was to satisfy that requirement. The decision to acquire specific equipment through outright purchase versus leasing versus sourcing through owner-operators was VTS's own business judgment. VTS could have met its fleet capacity obligations through range means — including, for example, using owner-operators, subleasing equipment from third parties, or maintaining a more flexible mix of owned and leased assets. The stranded asset cost reflects VTS's particular method of satisfying the fleet commitment, not the direct value of the contract itself. This distinguishes the stranded asset costs from direct damages, which would represent the value of the bargain irrespective of how VTS chose to structure its operations.
The Second Circuit's decision in Tractebel Energy Marketing, Inc. v. AEP Power Marketing, Inc., 487 F.3d 89 (2d Cir. 2007), is instructive. In Tractebel, the court analyzed whether asset-related losses resulting from the termination of a long-term energy supply contract were direct or consequential damages. The court held that the relevant inquiry is whether the damages "are the natural and probable consequence of the breach" or whether they "result from the intervention of 'special circumstances.'" Id. at 109. The court noted that where the plaintiff incurred capital expenditures in reliance on the contract, the resulting losses upon termination were consequential because they depended on the plaintiff's particular business decisions and investment strategy. Id. at 110. The same reasoning applies here.
3. Conclusion. Stranded assets and costs of $5,200,000 are consequential damages within the meaning of Section 15.1 of the TSA. They fall within the express categories of "loss of use" and "cost of capital" enumerated in the waiver. They arise from VTS's particular business decisions regarding equipment acquisition and leasing, not from the direct value of the contractual performance promised but not delivered. They are barred by the mutual consequential damages waiver in Section 15.1.
B. Workforce Reduction Costs ($2,870,000)
1. Nature of the Claim
Vantor claims $2,870,000 in severance and unemployment-related costs for approximately 180 drivers and support staff allegedly dedicated to the Stonefield account and terminated following the TSA termination. The Trask Greystone report identifies $1,940,000 in severance payments (calculated under VTS's standard severance policy at two weeks' base pay per year of service, with a four-week minimum), $630,000 in unemployment insurance costs, and $300,000 in administrative and outplacement costs. Vantor contends that VTS hired or dedicated these employees specifically to service the Stonefield account, that the employees were surplus to VTS's needs following termination, and that VTS was forced to terminate them and incur the resulting costs as a direct consequence of Stonefield's breach.
2. Classification as Consequential Damages
Workforce reduction costs are quintessential consequential damages under New York law. Severance payments, unemployment insurance costs, and outplacement expenses arising from a reduction in force following contract termination are secondary costs flowing from the non-breaching party's particular employment practices, staffing decisions, and business structure — not from the breach itself. They depend entirely on VTS's particular circumstances: the number of employees VTS chose to hire, the terms of VTS's severance policy, VTS's inability or unwillingness to redeploy those employees to other accounts, and VTS's decision to terminate them rather than retain them in a different capacity.
The TSA did not require VTS to hire any specific number of employees. The TSA did not prescribe VTS's staffing model, compensation structure, or severance policy. The TSA did not guarantee VTS's employment practices or undertake any obligation regarding VTS's workforce. The TSA's requirements were functional: VTS was obligated to meet Service Level Obligations (on-time pickup ≥ 95%, on-time delivery ≥ 93%, tender acceptance ≥ 90%, equipment availability ≥ 85%, and cargo claims ratio ≤ 0.5%) and to maintain minimum fleet capacity. How VTS staffed its operations — how many drivers it hired, what support staff it employed, what severance terms it offered, and how it structured its workforce — was entirely within VTS's discretion. The fact that VTS chose to hire approximately 180 employees to service the Stonefield account, and that VTS chose to terminate those employees upon the TSA's termination rather than reassigning them, reflects VTS's particular business decisions, not the direct consequences of the breach.
Severance costs and unemployment expenses are paradigmatic consequential damages: they are secondary costs flowing from the non-breaching party's particular business arrangements, not the natural and direct result of the contract's termination. In any breach of a services agreement, the non-breaching party may or may not have dedicated employees to the contract; may or may not have a severance policy providing for payments upon termination; may or may not incur unemployment insurance costs; and may or may not choose to terminate employees rather than reassign them. These outcomes depend on the non-breaching party's particular circumstances, making the resulting costs consequential rather than direct.
Section 15.1 expressly waives "business interruption" damages, and workforce disruption costs are properly characterized as a species of business interruption. The forced reduction in VTS's workforce disrupted its ongoing business operations and imposed costs associated with that disruption — precisely the type of harm that the "business interruption" category of the waiver was designed to encompass.
Additionally, discovery in this matter has revealed facts that further undermine Vantor's claim that these workforce reduction costs were caused solely by Stonefield's termination of the TSA. Specifically, production documents include an email dated November 12, 2021, from Sandra Milescu (VTS's Chief Operating Officer) to Alexei Vantorovich (Vantor's CEO) (Bates No. VHC-008417), discussing VTS's unilateral reassignment of 85 tractors from Stonefield-dedicated lanes to Northwind Distribution Co. beginning in October 2021 — approximately five months before Stonefield's termination notice. This reassignment suggests that VTS had already begun redeploying personnel and assets away from the Stonefield account well before the termination, calling into question the causal link between Stonefield's termination and VTS's decision to terminate 180 employees. If VTS was already reducing its commitment to the Stonefield account and redirecting resources to Northwind Distribution, the workforce reduction costs may have been incurred in any event, regardless of whether Stonefield terminated the TSA. At minimum, the Milescu email creates a factual predicate for challenging the damages calculation even apart from the Section 15.1 waiver argument.
3. Conclusion. Workforce reduction costs of $2,870,000 are consequential damages within the meaning of Section 15.1 of the TSA. They fall within the "business interruption" category expressly enumerated in the waiver and, more broadly, constitute secondary economic consequences of the breach arising from VTS's particular employment practices and staffing decisions rather than from the direct value of the contractual performance. They are barred by the mutual consequential damages waiver in Section 15.1.
C. Mitigation Costs ($1,400,000)
1. Nature of the Claim
Vantor claims $1,400,000 in costs incurred by VTS in seeking replacement freight business to backfill the volume lost from the Stonefield contract. The Trask Greystone report identifies $680,000 in business development expenses (travel, marketing, sales commissions), $420,000 in broker fees and load board subscription costs, and $300,000 in consulting fees paid to a third-party logistics advisory firm engaged to identify potential replacement accounts. Vantor characterizes these costs as reasonable and necessary expenses incurred in fulfillment of VTS's duty to mitigate its damages following Stonefield's alleged wrongful termination.
2. Classification as Consequential Damages
Mitigation costs are, by their nature, consequential. They arise not from the breach itself — i.e., not from the loss of the value of the contractual performance — but from the non-breaching party's response to the breach and its efforts to adapt its business to the changed circumstances resulting from the termination. Mitigation costs are not the benefit of the bargain; they are downstream expenses that flow from the non-breaching party's attempt to minimize its losses. As such, they are secondary consequences of the breach that depend on the non-breaching party's particular circumstances — including the availability of replacement business, the costs of its business development efforts, and the effectiveness of those efforts — rather than on the breach itself.
Under New York law, a non-breaching party has a duty to take reasonable steps to mitigate its damages. See Wilmot v. State, 32 N.Y.2d 164, 168–69 (1973). However, while the duty to mitigate is an obligation, the costs of mitigation are generally classified as consequential or incidental damages. See Restatement (Second) of Contracts § 347(b) (1981) (defining consequential damages to include "any other loss, including incidental or consequential loss, caused by the breach"); U.C.C. § 2-715(1) (defining incidental damages to include expenses "reasonably incurred in . . . effecting 'cover'"). Both consequential and incidental damages fall squarely within the scope of Section 15.1, which waives not only "consequential" damages but also "indirect" and "incidental" damages. Mitigation costs are, at minimum, incidental damages — expenses reasonably incurred in the course of responding to the breach — and they are independently encompassed by the waiver's coverage of "incidental" damages even if they were deemed not to be "consequential" in the technical sense.
Section 15.1's express waiver of "indirect" damages provides yet another independent basis for barring the mitigation costs. The costs of seeking replacement freight are an indirect consequence of the breach: they are not the loss caused by the breach itself (the loss of the Stonefield contract's value) but rather a loss incurred in response to the breach. Indirect, incidental, and consequential — the mitigation costs fall comfortably within any of these three independently waived categories.
Moreover, there is an inherent and irreconcilable tension in Vantor's damages position that is worth highlighting. Vantor simultaneously claims: (a) mitigation costs of $1,400,000 for efforts to find replacement freight; and (b) lost profits of $18,700,000 reflecting the premise that replacement volume was not obtained (or was obtained only at significantly lower margins). To the extent Vantor's mitigation efforts were unsuccessful — which is precisely what the $18,700,000 lost profits claim implies — the $1,400,000 in mitigation costs represents failed business development expenses: money spent on efforts that, by Vantor's own account, did not succeed in replacing the Stonefield volume. Failed business development expenses are a quintessential consequential loss — they are not the value of the contractual performance that was promised but not delivered; they are the cost of an unsuccessful attempt to replace that performance with alternative business.
Conversely, to the extent Vantor's mitigation efforts were successful in securing replacement freight, the lost profits claim of $18,700,000 would need to be reduced by the value of the replacement business, and the mitigation costs would become part of the cost of obtaining that replacement — effectively an offset against the replacement revenue rather than a separate damages category. In either scenario, the mitigation costs are secondary to the primary measure of damages and are properly characterized as consequential or incidental.
Additionally, as analyzed in the Memo re Mitigation of Damages (Jan. 30, 2023), the freight market in the first and second quarters of 2022 — the period immediately following Stonefield's termination — was robust. Spot rates were approximately 35% above historical averages, and carrier capacity was in high demand due to ongoing supply chain disruptions. Under these market conditions, VTS should have been able to replace the Stonefield volume at favorable rates with minimal effort and cost. The $1,400,000 in mitigation costs claimed by Vantor is inconsistent with the available market data and suggests either that the costs were inflated, that VTS's mitigation efforts were unreasonably inefficient, or that the costs are attributable to pre-existing business development activities not genuinely connected to the loss of the Stonefield contract. In any event, this factual context provides additional support for challenging the mitigation costs claim, independent of the Section 15.1 waiver argument.
3. Conclusion. Mitigation costs of $1,400,000 are consequential (or, alternatively, incidental or indirect) damages within the meaning of Section 15.1 of the TSA. They arise from VTS's response to the breach rather than from the breach itself, depend on VTS's particular business development decisions and efforts, and fall within the express categories of waived damages enumerated in Section 15.1. They are barred by the mutual consequential damages waiver.
V. Anticipated Counterarguments and Rebuttal
Vantor can be expected to raise several counterarguments in opposition to Stonefield's invocation of the Section 15.1 waiver. Each is addressed below.
A. Vantor May Argue the Waiver Is Unenforceable as Unconscionable
Vantor may argue that the consequential damages waiver in Section 15.1 is unconscionable and therefore unenforceable. Under New York law, a finding of unconscionability requires both procedural unconscionability (inequality in bargaining power, lack of meaningful choice, or unfair surprise) and substantive unconscionability (terms that are unreasonably favorable to one party). See Gillman v. Chase Manhattan Bank, N.A., 73 N.Y.2d 1, 10 (1988). Even where one element is present, courts require a showing of both to invalidate a contractual provision.
This argument is unlikely to succeed. Both parties to the TSA are sophisticated commercial entities with substantial revenue and market presence. Stonefield had approximately $1.42 billion in fiscal year 2021 revenue and was backed by Ridgeline Capital Partners, LP, a middle-market private equity firm that acquired Stonefield in October 2017 for an enterprise value of approximately $680 million. Vantor had approximately $385 million in fiscal year 2021 revenue and operated through VTS as a significant carrier in the transportation services industry. Both parties were represented by experienced counsel during the negotiation of the TSA — Stonefield by Ashford Meridian LLP and VTS by its own outside counsel. The TSA was negotiated over approximately four months and went through multiple rounds of redlining, demonstrating that the parties had ample opportunity to review, negotiate, and revise the terms of the agreement, including Section 15.1.
The waiver is mutual: it limits both parties' exposure equally. Stonefield is as much bound by the waiver as VTS. This mutuality negates any claim that the provision was imposed unilaterally or that one party extracted an unfair advantage. New York courts do not find unconscionability in arms-length commercial contracts between sophisticated parties absent extraordinary circumstances that are not present here. See Nayal v. HIP Network Servs. IPA, Inc., 620 F. Supp. 2d 566, 571 (S.D.N.Y. 2009) ("Courts routinely enforce limitation of liability clauses in commercial contracts between sophisticated parties.").
B. Vantor May Argue These Damages Are "Direct" Rather Than "Consequential"
This is the strongest counterargument available to Vantor, and it deserves careful analysis. Vantor may contend that stranded asset costs, workforce reduction costs, and mitigation costs are "direct" damages because they were necessarily incurred to perform the TSA and were foreseeable at the time of contracting. Specifically, Vantor may argue that the equipment acquisitions and workforce hiring were required by the TSA's fleet capacity and performance requirements, and that the resulting costs upon termination are therefore the natural and direct consequence of the breach rather than secondary or consequential losses.
This argument should be rebutted on several grounds.
First, the distinction between direct and consequential damages does not turn on foreseeability alone. Foreseeability is a necessary condition for the recovery of consequential damages under the Hadley v. Baxendale framework, but it is not a sufficient condition for classifying damages as "direct." See Bi-Economy Market, 10 N.Y.3d at 192. A loss may be entirely foreseeable — indeed, it may be certain to occur — and still be consequential rather than direct if it arises from the non-breaching party's particular circumstances rather than as a natural and immediate result of the breach. The fact that Stonefield may have known (or should have known) that VTS would purchase equipment and hire employees to perform the contract does not transform the resulting losses into direct damages. Those losses remain secondary consequences of the breach that depend on VTS's particular business decisions, employment practices, and investment strategies.
Second, direct damages are the loss of the benefit of the bargain — i.e., the value of the performance Vantor was promised but did not receive. In the context of the TSA, the benefit of the bargain is measured by the expected revenue and profit VTS would have earned from performing the contract for its remaining term (approximately two years and twenty-seven days). Stranded assets, severance payments, and mitigation costs are not the benefit of the bargain; they are secondary economic consequences of the breach affecting VTS's broader business operations. The benefit of the bargain is captured by the liquidated damages formula in Section 14.2 (75% × ACV × remaining years), which was specifically designed to quantify the expected value of the contractual performance. The stranded asset, workforce reduction, and mitigation costs represent something different — they represent the downstream impact of the lost contract on VTS's existing business operations and investment decisions.
Third, even if Vantor characterizes these damages as "reliance damages" rather than "expectation damages," reliance-based recovery that is functionally consequential falls within the Section 15.1 waiver. The parties' express agreement to exclude "indirect, incidental, consequential, special, or punitive damages" and the specifically enumerated categories — "loss of use," "cost of capital," "business interruption" — covers all three categories regardless of how Vantor labels them. A party cannot avoid a consequential damages waiver simply by repackaging consequential losses as "reliance damages." The substance of the damages, not the label attached to them, controls the analysis. See Tractebel, 487 F.3d at 109 ("The label assigned to a particular measure of damages is not dispositive; what matters is the nature of the loss.").
Fourth, the breadth of the Section 15.1 waiver provides an independent safeguard against reclassification arguments. Even if a court were to conclude that one or more of these damages categories is technically "direct" rather than "consequential," the waiver also independently bars "indirect," "incidental," and "special" damages. The mitigation costs, for example, are at minimum incidental damages, which are separately and expressly waived. The stranded asset costs fall within "loss of use" and "cost of capital," both of which are specifically enumerated regardless of whether they are categorized as "direct" or "consequential." The workforce reduction costs fall within "business interruption." The cumulative breadth of the waiver's language makes it difficult for Vantor to escape the provision regardless of how it characterizes its damages.
C. Vantor May Argue the Section 14.2 Carve-Out Encompasses These Damages
Vantor may argue that the carve-out in Section 15.1 — "except as expressly provided in Section 14.2" — should be read broadly to exempt all damages recoverable in connection with wrongful termination, including stranded assets, workforce costs, and mitigation costs.
This argument is unlikely to succeed. The carve-out is narrowly drafted and limited by its terms to what is "expressly provided" in Section 14.2. Section 14.2 provides only the liquidated damages formula: 75% × ACV × remaining years (full and partial). It does not reference stranded assets. It does not reference workforce costs. It does not reference mitigation costs. It does not reference any damages category beyond the formulaic liquidated amount. The carve-out preserves the liquidated damages remedy and nothing more.
Indeed, the very purpose of the liquidated damages clause reinforces this reading. Section 14.2 states that the liquidated amount "represent[s] a reasonable estimate of the damages that Carrier-Provider would suffer as a result of such early termination" and acknowledges "that the actual damages would be difficult to ascertain." The implication is clear: the parties agreed to a single, formulaic measure of damages precisely because they recognized that actual damages (including consequential losses such as stranded assets, workforce costs, and mitigation costs) would be difficult to calculate and prove. The liquidated damages formula was intended to be the comprehensive remedy for wrongful termination, and the consequential damages waiver was designed to ensure that no additional consequential damages claims could be asserted on top of the liquidated amount. Reading the carve-out broadly to permit recovery of consequential damages in addition to the liquidated amount would defeat the purpose of both Section 14.2 and Section 15.1.
D. Vantor May Argue Stonefield Cannot Invoke Section 15.1 If Stonefield Committed a Material Breach
Vantor's Amended Complaint alleges that Stonefield committed the first material breach of the TSA through volume shortfalls, lane exclusivity violations, and a pretextual termination. If Stonefield's termination is found to be wrongful (i.e., not for valid Cause), Vantor may argue that Stonefield should not be permitted to invoke the protective provisions of the agreement, including the Section 15.1 waiver, because a party in material breach cannot benefit from the contract's favorable terms.
This argument should be rebutted on several grounds.
First, under New York law, a consequential damages waiver is a limitation on the type of remedy available, not a condition precedent to performance. It survives termination of the contract and is enforceable even where the party invoking it is found to have breached. The waiver defines the scope of available remedies — it determines what kinds of damages the non-breaching party may recover, not whether the non-breaching party is entitled to recover at all. The question of whether Stonefield breached the TSA is a question of liability; the question of what damages Vantor may recover if Stonefield did breach is a separate question of remedy. The waiver addresses the latter, not the former.
Second, New York courts have consistently held that contractual limitations on remedies, including consequential damages waivers, remain enforceable even against the breaching party. See Metropolitan Life, 84 N.Y.2d at 436–37 (enforcing limitation of liability clause against the party that committed the breach); Biotronik, 22 N.Y.3d at 806–08 (same). The rationale is that the parties bargained for the limitation as part of their overall agreement, and the limitation reflects an allocation of risk that exists independent of which party ultimately breaches.
Third, Section 15.1 does not contain any exception for breach by the invoking party. It applies broadly to damages "arising out of or related to the Agreement" regardless of which party is at fault. The waiver is mutual and unconditional — it does not state that it applies only if the invoking party has performed its obligations, nor does it provide that it is void in the event of a material breach. The absence of any such exception must be respected. See Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002) ("Courts should not, under the guise of interpretation, rewrite a contract by supplying terms the parties themselves have not included.").
Fourth, as a practical matter, Stonefield's Answer (filed January 13, 2023, Dkt. No. 18) asserts that its termination of the TSA was valid for Cause under Section 13.1(a), based on VTS's sustained and uncured failures across all five Service Level Obligations during the fourth quarter of 2021. Specifically, VTS's performance during Q4 2021 fell below the contractual thresholds on every metric:
If the Court finds that Stonefield terminated for valid Cause, the consequential damages issue may become moot because no damages of any kind would be owed by Stonefield. However, the Section 15.1 argument provides an important alternative defense: even if the termination is found to be wrongful, the consequential damages waiver independently bars recovery of $9,470,000 in stranded assets, workforce reduction costs, and mitigation costs. This provides an additional layer of protection for the client and reduces the overall damages exposure in the event of an adverse liability determination.
VI. Strategic Recommendations
A. Summary Judgment
I recommend raising the Section 15.1 consequential damages waiver as a ground for partial summary judgment on Vantor's stranded assets, workforce reduction costs, and mitigation costs claims. The consequential damages waiver argument is largely a question of contract interpretation — it turns on the meaning and scope of an unambiguous contractual provision — and is therefore well suited for resolution on summary judgment. See Fed. R. Civ. P. 56(a); W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990) ("When parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms.").
Even if disputed issues of material fact preclude full summary judgment on the validity of Stonefield's termination for Cause — particularly given the Kirkwood email dated September 22, 2021 (Bates No. SLG-004219), in which Stonefield's Vice President of Operations, Gerald Kirkwood, discussed the possibility of terminating the TSA to secure more favorable rates from alternative carriers, raising questions about Stonefield's motive for the termination — the consequential damages waiver argument is independent of the liability determination and can be resolved on summary judgment as a matter of contract interpretation.
If successful, this argument eliminates $9,470,000 from Vantor's claimed damages ($5,200,000 + $2,870,000 + $1,400,000), reducing the remaining claim from $95,400,000 to $85,930,000. Additional reductions are achievable through the liquidated damages unenforceability argument (potentially eliminating or reducing the $67,230,000 liquidated damages claim if it is found to constitute an unenforceable penalty) and the duplicative damages analysis (addressing the overlap between the $67,230,000 liquidated damages claim and the $18,700,000 lost profits claim), both of which are addressed in other memoranda. The cumulative effect of these arguments could substantially reduce Stonefield's total damages exposure.
I recommend that this argument be integrated into the broader dispositive motion strategy under development. Please refer to the Summary Judgment Roadmap Memorandum (currently in preparation and expected to be circulated by May 2023) for discussion of how this argument fits within the overall motion strategy, including the sequencing and prioritization of summary judgment arguments.
B. Expert Rebuttal
I recommend coordinating with Dr. Evelyn Rosser of Kensington Analytics Group LLC, Stonefield's retained damages expert, to ensure that her rebuttal report addresses the consequential nature of these three damages categories and excludes them from any alternative damages calculation she may prepare. The rebuttal report is due to be served by August 25, 2023, per the Case Management Order entered February 17, 2023 (Dkt. No. 29). Dr. Rosser should be instructed to: (a) identify the stranded assets, workfo

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