1012-00005 · Stonefield Logistics Group · Pleadings & Court Filings

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DRAFT — ATTORNEY WORK PRODUCT — PRIVILEGED AND CONFIDENTIAL NOT FOR FILING

Matter No.: 1012-00005 Date: September 28, 2022 Prepared by: Patrick Gallagher, Senior Associate; Simone Laroche, Associate For Review By: Samuel Eklund, Responsible Partner

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

DEFENDANT STONEFIELD LOGISTICS GROUP INC.'S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO DISMISS PURSUANT TO FED. R. CIV. P. 12(b)(6)

CALDERWOOD & HARKNESS LLP 200 Park Avenue, 38th Floor New York, New York 10166 Telephone: (212) 555-7400 Facsimile: (212) 555-7401

Samuel Eklund Linda Osei Patrick Gallagher Simone Laroche

Attorneys for Defendant Stonefield Logistics Group Inc.

TABLE OF AUTHORITIES

Cases

To be finalized upon completion of cite-checking and authority compilation. Key authorities referenced herein include:

• Ashcroft v. Iqbal, 556 U.S. 662 (2009)

• Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)

• Chambers v. Pinnacle Corporation, 282 F.3d 147 (2d Cir. 2002)

• Truck Rent-A-Ctr., Inc. v. Purdy Corp., 41 N.Y.2d 354 (1977)

• JMD Holding Corp. v. Cong. Fin. Corp., 4 N.Y.3d 373 (2005)

• Barklee Realty Co. v. Pataki, 309 A.D.2d 310 (1st Dep't 2003)

• Brecher v. Laikin, 430 F. Supp. 2d 75 (S.D.N.Y. 2006)

• 172 Van Duzer Realty Corp. v. Globe Alumni Student Assistance Ass'n, Inc., 24 N.Y.3d 528 (2014)

• Kenford Co. v. County of Erie, 67 N.Y.2d 257 (1986)

• Kenford Co. v. County of Erie (Kenford II), 73 N.Y.2d 312 (1989)

• Ashland Mgmt. Inc. v. Janien, 82 N.Y.2d 395 (1993)

• Global Reinsurance Corp. of Am. v. Equitas Ltd., 18 N.Y.3d 722 (2012)

• Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.à r.l., 790 F.3d 411 (2d Cir. 2015)

• Int'l Telecomms. Exch. Corp. v. Camberwell Partners LLC, 892 F. Supp. 483 (S.D.N.Y. 1995)

• Nordic Aviation Partners v. Multiservicios Aeronaúticos, No. 17-cv-8537, 2018 WL 3579099 (S.D.N.Y. July 25, 2018)

• Additional authorities to be inserted

Statutes and Rules

• Fed. R. Civ. P. 12(b)(6)

• Fed. R. Civ. P. 17(a)

• N.Y. U.C.C. § 2-718

• N.Y. Gen. Oblig. Law § 5-1401

PRELIMINARY STATEMENT

Defendant Stonefield Logistics Group Inc. ("Stonefield" or "SLG"), a Delaware corporation headquartered at 4200 Commerce Parkway, Suite 800, Fort Worth, Texas 76102, respectfully submits this memorandum of law in support of its motion to dismiss two categories of claims asserted in the Complaint filed by Plaintiff Vantor Holdings Corp. ("Vantor") on August 12, 2022. The Complaint seeks aggregate damages of $95.4 million arising from Stonefield's termination of a Transportation Services Agreement dated March 15, 2019 (the "TSA," Contract Reference No. SLG-VTS-2019-0315). This motion targets the two claims that together constitute approximately 90% of Vantor's asserted damages—the liquidated damages claim of $67.23 million and the lost profits claim of $18.7 million—and demonstrates that both fail as a matter of law.

First, Vantor's claim for liquidated damages under Section 14.2 of the TSA should be dismissed because the liquidated damages clause is an unenforceable penalty as a matter of New York law. Section 14.2 imposes a payment obligation equal to 75% of the Annual Committed Volume ("ACV") of $43.2 million multiplied by the number of remaining full and partial contract years—yielding, by Vantor's own calculation, an alleged liquidated damages figure of $67,230,000. This staggering sum bears no reasonable proportion to the probable loss that the contracting party, Vantor Transport Services LLC ("VTS"), could have anticipated at the time of contracting. VTS's own operating margin on the Stonefield account was, even by Vantor's telling, approximately 12%. A 12% margin applied to $43.2 million per year yields approximately $5.18 million in annual lost profits, or roughly $10.7 million over the remaining two-year term—a fraction of the $67.23 million demanded. The liquidated damages formula captures not VTS's lost profits but rather 75% of gross revenue—an amount approximately 6.3 times greater than any plausible measure of VTS's actual economic harm. A clause that produces a payment obligation of this magnitude, untethered to any rational estimate of anticipated loss, is not a liquidated damages provision. It is a penalty. And penalties are unenforceable under New York law.

Second, Vantor's separate claim for lost profits in the amount of $18.7 million fails as a matter of law for two independent reasons. The Complaint does not plead lost profits with the reasonable certainty required under New York's exacting standard. Vantor asserts a bare 12% margin figure without any supporting factual allegations—no historical financial data, no cost breakdown, no identification of the basis for the margin calculation. This conclusory assertion is insufficient to state a plausible claim for lost profits under controlling precedent. Additionally, the lost profits claim is legally duplicative of the liquidated damages claim, as both purport to compensate for the identical injury: the loss of the benefit of the bargain over the remaining contract term. Under New York law, a plaintiff may not recover both liquidated damages and actual lost profits for the same breach. Vantor's pursuit of both theories simultaneously constitutes an impermissible attempt at double recovery.

The TSA is governed by New York law, as specified in Section 18.1, and the forum selection clause in Section 18.2 designates this Court. The TSA was entered into between Stonefield (as "Shipper-Broker") and Vantor Transport Services LLC ("VTS," a New York limited liability company and wholly owned operating subsidiary of Vantor Holdings Corp.) as "Carrier-Provider." Stonefield notes that Vantor Holdings Corp.—the entity that filed this action—is not itself a signatory to the TSA. VTS, as the actual contracting party, is the relevant party in interest. Stonefield reserves its right to raise this standing issue in subsequent proceedings, but does not press it in this motion.

For the reasons set forth more fully below, Stonefield respectfully requests that the Court dismiss Vantor's liquidated damages claim (Count I of the Complaint) and lost profits claim (Count II of the Complaint) with prejudice.

STATEMENT OF FACTS

The following facts are drawn from the Complaint, the TSA (which is referenced throughout and integral to the Complaint), and documents upon which the Complaint expressly relies, all accepted as true solely for purposes of this motion.

A. The Parties

Stonefield Logistics Group Inc. is a Delaware corporation headquartered at 4200 Commerce Parkway, Suite 800, Fort Worth, Texas 76102. Stonefield is a mid-market freight brokerage, managed transportation, and supply chain solutions company. It operates a carrier network of approximately 12,000 approved carriers and handles roughly 850,000 shipments annually across truckload ("TL"), less-than-truckload ("LTL"), intermodal, and last-mile delivery service lines. Stonefield employs approximately 2,800 individuals. For fiscal year 2021, Stonefield reported revenue of approximately $1.42 billion. For fiscal year 2022—reflecting softening conditions in the broader freight market—revenue declined to approximately $1.28 billion, with EBITDA of approximately $118 million. Since October 2017, Stonefield has been majority-owned (approximately 72% equity) by Ridgeline Capital Partners, LP, through its investment vehicle Ridgeline Fund III, LP, a middle-market private equity firm. Ridgeline acquired Stonefield in a leveraged buyout transaction at an enterprise value of approximately $680 million.

Vantor Holdings Corp. is a New York corporation with its principal offices at 580 Eighth Avenue, 14th Floor, New York, New York 10018. Vantor Holdings is a holding company. It was founded by, and is approximately 58% owned by, Nikolai Vantorovich, who serves as its Chief Executive Officer. Gregory Fielding serves as its Chief Financial Officer. Vantor Holdings is the plaintiff in this action.

Vantor Transport Services LLC ("VTS") is a New York limited liability company and the wholly owned operating subsidiary of Vantor Holdings Corp. VTS is the actual signatory counterparty to the TSA. VTS operates an asset-based and asset-light trucking, warehousing, and regional distribution business. It maintains a fleet of approximately 650 owned tractors and 2,100 trailers and employs approximately 1,900 individuals. For fiscal year 2021, VTS reported revenue of approximately $385 million. For fiscal year 2022, VTS's revenue declined to approximately $310 million.

B. The Transportation Services Agreement

On March 15, 2019, Stonefield (as "Shipper-Broker") and VTS (as "Carrier-Provider") executed the Transportation Services Agreement (Contract Reference No. SLG-VTS-2019-0315) (the "TSA"). The TSA was drafted by Ashford Meridian LLP on behalf of Stonefield. It establishes the terms under which VTS would provide dedicated and on-demand truckload transportation services across specified shipping lanes in the Northeast, Mid-Atlantic, and Southeast corridors of the United States.

The TSA provides for a five-year initial term commencing on April 1, 2019 and expiring on March 31, 2024, with one automatic two-year renewal absent a written non-renewal notice delivered no fewer than 180 calendar days prior to the expiration of the then-current term. Under the TSA, VTS committed to maintaining a minimum fleet capacity of 400 tractors and 1,200 trailers dedicated to servicing Stonefield freight.

The TSA includes an Annual Committed Volume ("ACV") provision, pursuant to which Stonefield committed to tender a minimum of $43.2 million per contract year in transportation charges to VTS, representing a total five-year minimum commitment of $216 million. The rate structure for individual shipments is set forth on a per-mile basis by shipping lane in Schedule B to the TSA, subject to an annual Rate Adjustment Mechanism under Section 5.3 of the TSA. The Rate Adjustment Mechanism indexes rate adjustments to a blended index comprising 70% of the applicable diesel fuel index and 30% of the Consumer Price Index for All Urban Consumers ("CPI-U"), with adjustments applied each April 1.

The TSA further establishes detailed Service Level Obligations ("SLOs") governing VTS's performance, including: (i) an on-time pickup rate of no less than 95%; (ii) an on-time delivery rate of no less than 93%; (iii) a cargo claims ratio of no more than 0.5% of gross revenue; (iv) a tender acceptance rate of no less than 90%; and (v) an equipment availability rate of no less than 85% of the committed fleet capacity.

Section 18.1 of the TSA provides that the agreement is governed by the laws of the State of New York. Section 18.2 provides for exclusive jurisdiction in the United States District Court for the Southern District of New York or, alternatively, the Supreme Court of the State of New York, New York County.

C. The Liquidated Damages Clause (Section 14.2)

Section 14.2 of the TSA contains the liquidated damages provision at the center of Vantor's principal claim. That section provides, in relevant part:

If Shipper-Broker terminates this Agreement other than "for Cause" (as defined in Section 13.1), 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 and partial contract years remaining in the then-current term. The parties acknowledge and agree that the liquidated damages set forth herein represent a reasonable estimate of the damages that Carrier-Provider would suffer as a result of such termination and are not a penalty.

As applied by Vantor in its Complaint, the liquidated damages calculation proceeds as follows. At the time of termination on March 4, 2022, approximately two full years and 27 days remained in the initial term (through March 31, 2024). Vantor therefore claims:

• Liquidated damages for two full remaining contract years: 75% × $43,200,000 × 2 = $64,800,000

• Liquidated damages for the partial year (27 days): 75% × $43,200,000 × (27/365) ≈ $2,430,000

• Total liquidated damages claimed: $67,230,000

D. Termination for Cause Provisions (Section 13.1)

Section 13.1 of the TSA permits either party to terminate the agreement for "Cause." As defined therein, "Cause" includes: (a) a material breach of the agreement that remains uncured for 30 calendar days after written notice specifying the breach with reasonable particularity; (b) the insolvency, bankruptcy, or assignment for the benefit of creditors of the other party; (c) failure by the other party to maintain the insurance coverages required under the agreement for more than 15 calendar days; and (d) a material violation of applicable law, including regulations of the United States Department of Transportation and the Federal Motor Carrier Safety Administration, by the Carrier-Provider.

Section 13.2 of the TSA establishes a Cure Notice requirement. Before exercising a termination right under Section 13.1(a), the terminating party must deliver a written Cure Notice to the other party specifying, with reasonable particularity, the alleged material breach and affording the breaching party the applicable cure period of 30 calendar days.

E. Stonefield's Termination of the TSA

On January 18, 2022, Raymond Hess, Director of Contract Compliance at Stonefield, sent a formal Cure Notice to Sandra Milescu, Chief Operating Officer of VTS, identifying what Stonefield contended were multiple material breaches of the TSA's Service Level Obligations. The Cure Notice specified the following performance deficiencies, measured against the contractual SLOs:

• On-time pickup rate: 78.2% (versus the contractual SLO of ≥ 95%)

• On-time delivery rate: 81.6% (versus the contractual SLO of ≥ 93%)

• Tender acceptance rate: 71.4% (versus the contractual SLO of ≥ 90%)

• Equipment availability: Approximately 62% of committed fleet capacity (approximately 248 tractors available versus the contractual commitment of 400 tractors)

• Cargo claims ratio: 1.07% of gross revenue (representing $387,400 across 16 individual claims in November and December 2021, versus the contractual SLO of ≤ 0.5%)

• Surge capacity: Chronic failure to provide substitute equipment or surge capacity as required under Section 7.4 of the TSA

The Cure Notice afforded VTS the 30-calendar-day cure period prescribed by Section 13.2, expiring on February 17, 2022.

On February 14, 2022, three days before expiration of the cure period, Derek Pruitt, Vice President of Business Development at Vantor, responded on behalf of VTS. Mr. Pruitt's letter acknowledged what he characterized as "operational challenges" but attributed those challenges to (i) the nationwide driver shortage affecting the entire trucking industry, (ii) Stonefield's alleged failure to tender the minimum committed volumes under the TSA, and (iii) Stonefield's alleged diversion of freight to spot market carriers in preference to VTS. Mr. Pruitt asserted that VTS had achieved "substantial cure" of the identified deficiencies and disputed certain elements of Stonefield's cargo claims data.

On March 4, 2022, Tobias Wren, General Counsel of Stonefield, issued a formal termination letter addressed to both Vantor Holdings Corp. and VTS. The letter stated that VTS had "failed to cure the material breaches identified in the Cure Notice dated January 18, 2022" within the 30-calendar-day cure period prescribed by Section 13.2. Mr. Wren's letter stated that the TSA was terminated effective immediately pursuant to Section 13.1(a). At the time of termination, approximately two years and 27 days remained in the initial term (from March 4, 2022 through March 31, 2024).

F. Vantor's Claimed Damages

The Complaint asserts the following categories of damages arising from the termination of the TSA:

This motion targets the liquidated damages claim ($67,230,000) and the lost profits claim ($18,700,000), which together account for approximately $85.93 million, or roughly 90%, of Vantor's total claimed damages.

G. Procedural History

On August 12, 2022, Vantor filed its original Complaint in the United States District Court for the Southern District of New York. On September 1, 2022, Calderwood & Harkness LLP was engaged as defense counsel for Stonefield, and the matter was opened under Matter No. 1012-00005. On September 8, 2022, Calderwood & Harkness filed a Notice of Appearance on behalf of Stonefield. This motion is being filed within the time allowed for a responsive pleading under the Federal Rules of Civil Procedure.

LEGAL STANDARD

A. Rule 12(b)(6) Standard

Under Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss a complaint for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). To survive a motion to dismiss, a complaint must contain "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.

In evaluating a motion to dismiss, the Court accepts the factual allegations set forth in the complaint as true and draws all reasonable inferences in favor of the plaintiff. Chambers v. Pinnacle Corporation, 282 F.3d 147, 152 (2d Cir. 2002). However, the Court "need not credit conclusory allegations or legal conclusions couched as factual allegations." Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.à r.l., 790 F.3d 411, 420 (2d Cir. 2015). "[T]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678.

In connection with a Rule 12(b)(6) motion, the Court may consider, in addition to the complaint itself, "any documents that are either incorporated into the complaint by reference or that the complaint relies upon." Chambers, 282 F.3d at 152-53. Here, the TSA is referenced throughout the Complaint, forms the basis of each of Vantor's claims, and is integral to the Complaint. The Court may therefore consider the TSA's terms in full on this motion.

Critically, the enforceability of a contract clause—including a liquidated damages clause—is a question of law appropriate for resolution on a motion to dismiss where the relevant contract is before the Court and the clause's operation can be assessed on its face. See Nordic Aviation Partners v. Multiservicios Aeronaúticos, No. 17-cv-8537, 2018 WL 3579099, at 5 (S.D.N.Y. July 25, 2018); Brecher v. Laikin*, 430 F. Supp. 2d 75, 81-82 (S.D.N.Y. 2006).

B. New York Law Governs

Section 18.1 of the TSA contains an express choice-of-law provision selecting the substantive law of the State of New York to govern all issues arising under or in connection with the agreement. All substantive questions concerning the enforceability of the liquidated damages clause, the adequacy of the damages pleading, and the permissibility of the claimed damages theories are therefore governed by New York law.

The Court should also note that both Stonefield and VTS—the actual contracting parties—are sophisticated commercial entities that freely and voluntarily negotiated the TSA at arm's length. This fact, while relevant to the analysis, does not immunize the liquidated damages clause from scrutiny under settled New York law, as the Court of Appeals has repeatedly confirmed. See JMD Holding Corp. v. Cong. Fin. Corp., 4 N.Y.3d 373, 380 (2005).

ARGUMENT

I. VANTOR'S CLAIM FOR LIQUIDATED DAMAGES UNDER SECTION 14.2 SHOULD BE DISMISSED BECAUSE THE CLAUSE IS AN UNENFORCEABLE PENALTY

A. New York Law on Liquidated Damages. The New York Court of Appeals has long held that a liquidated damages clause is enforceable only if it satisfies a well-established two-part test. First, the amount fixed as liquidated damages must "bear[] a reasonable proportion to the probable loss" anticipated at the time of contracting. Truck Rent-A-Ctr., Inc. v. Purdy Corp., 41 N.Y.2d 354, 359 (1977). Second, the "actual loss" must be "incapable or very difficult of accurate estimation" at the time the contract was entered into. Id. If either prong is not satisfied, the clause "must be construed as a penalty" and is unenforceable. Id.; see also JMD Holding Corp., 4 N.Y.3d at 380 ("It is well settled that a contractual provision fixing damages in the event of breach will be sustained if the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation.").

The analytical framework is disjunctive: the failure of either prong standing alone is sufficient to invalidate the clause. 172 Van Duzer Realty Corp. v. Globe Alumni Student Assistance Ass'n, Inc., 24 N.Y.3d 528, 536 (2014). New York courts apply this test with "particular rigor" where the stipulated amount is "manifestly disproportionate to the actual damages sustained." Barklee Realty Co. v. Pataki, 309 A.D.2d 310, 313 (1st Dep't 2003).

The burden of establishing that a liquidated damages clause is unenforceable as a penalty typically falls on the party challenging the clause. However, where the disproportionality between the liquidated amount and probable loss is "manifest on the face of the contract," the Court may make the determination as a matter of law at the pleading stage without the need for extrinsic evidence or factual development. See Brecher, 430 F. Supp. 2d at 81-82; Nordic Aviation Partners, 2018 WL 3579099, at *5.

Stonefield acknowledges that New York courts generally respect freely negotiated commercial terms between sophisticated parties, and that the Court of Appeals has cautioned against "second-guessing" the considered judgments of commercial actors. See JMD Holding Corp., 4 N.Y.3d at 381. But this deference is not without limits. Courts will not enforce a penalty clause regardless of the parties' sophistication or the vigor of the negotiations that produced it. As the Court of Appeals has stated: "A clause which provides for an amount plainly disproportionate to real damage is not intended to provide fair compensation but to secure performance by the compulsion of the very disproportion." Truck Rent-A-Ctr., 41 N.Y.2d at 359. Where the stipulated amount is so grossly disproportionate to actual anticipated harm as to be "unconscionable and oppressive," the clause is a penalty as a matter of law. Id.

B. The Liquidated Damages Amount Bears No Reasonable Proportion to Probable Loss. Section 14.2 of the TSA provides for liquidated damages equal to 75% of the ACV ($43.2 million) multiplied by the number of full and partial contract years remaining in the then-current term. Applied to the facts as pleaded in the Complaint, this formula produces a liquidated damages figure of $67,230,000 for the approximately 2.07 years remaining in the initial term at the time of termination.

This sum is grossly disproportionate to any actual harm that VTS could have suffered from Stonefield's termination of the TSA, for several independently dispositive reasons.

The clause captures gross revenue, not actual loss. The ACV of $43.2 million represents the annual gross transportation charges payable to VTS under the TSA. It does not represent VTS's profit, its margin, or the net economic benefit it derived from the contract. Even by Vantor's own allegations, VTS's operating margin on the Stonefield account was approximately 12%. Applying that margin to the ACV, VTS's annual profit on the Stonefield contract would have been approximately $5.18 million ($43.2 million × 12%). Over the remaining two-year period, VTS's total lost profit would have been approximately $10.7 million—roughly one-sixth of the $67.23 million demanded under Section 14.2. The 75% multiplier is not tethered to any recognizable measure of loss—not profit, not margin, not overhead contribution—and instead captures an amount nearly indistinguishable from full gross revenue. A liquidated damages clause that computes damages as a function of gross revenue, without any deduction for the costs that would have been incurred in earning that revenue, is inherently punitive.

The 75% multiplier has no rational basis. Vantor's Complaint does not allege, and the TSA does not explain, why 75% of gross revenue was selected as the liquidated amount. There is no evident relationship between the 75% figure and any component of VTS's cost structure or margin profile. If the clause were genuinely intended to approximate VTS's lost profits, one would expect a multiplier on the order of 10-15% of the ACV (reflecting a typical operating margin), not 75%. The 75% multiplier is arbitrary and punitive.

The clause ignores mitigation. The liquidated damages formula makes no provision for VTS's ability—and legal obligation—to mitigate damages by securing replacement freight from other shippers. VTS is a substantial asset-based transportation company that operates 650 tractors and 2,100 trailers and serves multiple customers. In the active freight market prevailing in early 2022, VTS had both the capacity and the opportunity to redeploy its assets to serve other customers, thereby reducing or eliminating any actual loss from the termination of the TSA. A liquidated damages formula that ignores mitigation entirely produces an amount that exceeds actual damages and thus operates as a penalty. See Int'l Telecomms. Exch. Corp. v. Camberwell Partners LLC, 892 F. Supp. 483, 494 (S.D.N.Y. 1995) (striking liquidated damages clause that failed to account for non-breaching party's ability to mitigate).

The clause does not offset avoided costs. In addition to ignoring mitigation, the formula makes no deduction for the substantial costs that VTS would have avoided by not performing the remaining term of the TSA. Had VTS continued to perform, it would have incurred significant variable costs including fuel, driver wages and benefits, vehicle maintenance, tires, tolls, insurance, and other operating expenses. These avoided costs must be netted against any measure of lost profit to arrive at actual damages. The liquidated damages formula ignores them entirely. The result is a figure that vastly overstates VTS's actual economic harm.

The magnitude of the disproportion is striking. The $67.23 million liquidated damages figure is approximately 6.3 times VTS's own estimated lost profits of $10.7 million (based on Vantor's own asserted 12% margin). It is equivalent to approximately 17.4% of VTS's entire fiscal year 2021 revenue of $385 million—meaning that the liquidated damages from the termination of a single contract would represent nearly one-fifth of VTS's total annual revenue from all sources. A disproportion of this magnitude is not a reasonable estimate of anticipated damages; it is a penalty designed to coerce performance by its very excessiveness. See Truck Rent-A-Ctr., 41 N.Y.2d at 359; Barklee Realty, 309 A.D.2d at 313.

New York courts have consistently struck liquidated damages clauses producing amounts grossly in excess of actual anticipated harm. In JMD Holding Corp., the Court of Appeals held a liquidated damages clause unenforceable where the stipulated damages were "conspicuously disproportionate to foreseeable losses." 4 N.Y.3d at 382. In 172 Van Duzer Realty Corp., the Court of Appeals similarly refused to enforce a liquidated damages clause where the amount bore "no reasonable proportion" to the non-breaching party's probable loss. 24 N.Y.3d at 536. The clause at issue here presents an even more extreme case of disproportionality than those cases.

C. Actual Damages Were Readily Ascertainable at the Time of Contracting. The second prong of the New York liquidated damages test requires that actual damages be "incapable or very difficult of accurate estimation" at the time the contract was formed. Truck Rent-A-Ctr., 41 N.Y.2d at 359. Where actual damages are "readily ascertainable" from the contract's own terms and "available market data," the second prong is not satisfied, and the liquidated damages clause fails. Id. at 360.

Here, the opposite of difficulty is true. Both Stonefield and VTS are sophisticated commercial entities in the transportation and logistics industry with extensive experience in freight pricing, volume forecasting, cost allocation, and margin analysis. At the time the TSA was executed on March 15, 2019, the actual damages that VTS would suffer from an early termination were readily calculable using standard industry metrics and the TSA's own contractual terms:

• Lost profits could be calculated as the contracted volume multiplied by VTS's operating margin, adjusted for mitigation through redeployment of assets to other customers. Both VTS and Stonefield possessed the data necessary to perform this calculation at the time of contracting: the ACV was fixed at $43.2 million; VTS's margin on the account was knowable from its own financial records; and the availability of alternative freight could be estimated from prevailing market conditions and VTS's existing customer base.

• Stranded costs could be calculated as the incremental depreciation and redeployment costs associated with assets dedicated to the Stonefield account—precisely the type of calculation that asset-based carriers like VTS perform routinely.

• Transition costs could be estimated based on industry-standard benchmarks for workforce realignment and equipment repositioning.

The very categories of actual damages that the Complaint pleads—lost profits ($18.7 million), stranded assets ($5.2 million), workforce reduction costs ($2.87 million), and mitigation costs ($1.4 million)—demonstrate that Vantor itself was capable of estimating actual damages with considerable precision. The fact that Vantor has calculated and pleaded specific dollar amounts for each of these categories undercuts any suggestion that actual damages were "incapable or very difficult of accurate estimation" at the time the TSA was executed. Cf. JMD Holding Corp., 4 N.Y.3d at 381 (noting relevance of whether plaintiff has pleaded actual damages categories alongside liquidated damages claim).

Furthermore, the TSA itself provides all of the data necessary to calculate actual damages. The per-mile rates are set forth in Schedule B. The Annual Committed Volume is fixed at $43.2 million. The Service Level Obligations are defined with specificity. The Rate Adjustment Mechanism provides a contractual formula for projecting future rates. These are not the circumstances of a contract where damages from breach are inherently uncertain or speculative—they are the circumstances of a contract where the essential financial terms are defined with precision, enabling straightforward computation of actual loss.

New York courts have consistently held that the second prong of the liquidated damages test is not satisfied where damages are calculable from the contract's own terms and readily available market data. In Truck Rent-A-Ctr., the Court of Appeals found the second prong unsatisfied where the contract at issue involved the rental of equipment at known rates, making lost rental income easily calculable. 41 N.Y.2d at 360. The same reasoning applies with full force here.

D. The Clause Operates as a Penalty Under the Circumstances. In sum, Section 14.2 of the TSA fails both prongs of the New York liquidated damages test. The stipulated amount—$67.23 million—is grossly disproportionate to any reasonable estimate of VTS's probable loss from early termination, which, even using Vantor's own margin figure, is approximately $10.7 million over the remaining term. And the actual loss was not difficult to estimate at the time of contracting, as demonstrated by the Complaint's own detailed calculation of actual damages alongside the liquidated damages claim.

Vantor will undoubtedly point to the contractual recital in Section 14.2, which states that the parties "acknowledge and agree" that the liquidated damages represent a "reasonable estimate" of anticipated damages and are "not a penalty." But this self-serving recital is not dispositive. New York law is clear: courts "look not to the label the parties attach" to a damages provision "but rather to its substance." JMD Holding Corp., 4 N.Y.3d at 380. "A provision which, in fact, is a penalty clause is not transformed into a liquidated damages clause merely because the parties so characterize it." Id.; see also Truck Rent-A-Ctr., 41 N.Y.2d at 359 ("Such a stipulation is not conclusive and will not be enforced if it is contrary to the evidence."). Courts applying New York law have repeatedly rejected contractual labels where the substance of the clause reveals a penalty. The recital in Section 14.2, standing alone, does not alter the analysis.

The Court should dismiss the liquidated damages claim in its entirety.

E. Dismissal Is Appropriate at the Pleading Stage. Stonefield recognizes that some courts have observed that liquidated damages enforceability is "ordinarily" a question involving factual inquiry. But this observation applies to cases where the enforceability analysis turns on extrinsic evidence not available on the face of the contract—such as evidence of the parties' subjective intent, the negotiation history, or the difficulty of estimating damages in a particular industry context. Where, as here, the contract is before the Court and the operative formula, the ACV, and the remaining term are undisputed and unambiguous, no factual development is needed to assess the clause's enforceability. The Court can determine, as a matter of law, whether the formula produces an amount that bears a reasonable proportion to probable loss.

Multiple courts in this District have resolved liquidated damages enforceability challenges on motions to dismiss. See, e.g., Brecher, 430 F. Supp. 2d at 81-82 (granting motion to dismiss claim based on unenforceable penalty clause where disproportionality was "apparent on the face of the contract"); Nordic Aviation Partners, 2018 WL 3579099, at *5-6 (same). This is precisely such a case. The disproportionality between the $67.23 million demanded and VTS's estimated actual loss of approximately $10.7 million is apparent from the four corners of the TSA and the Complaint. The Court should resolve the issue now.

II. VANTOR'S LOST PROFITS CLAIM SHOULD BE DISMISSED FOR FAILURE TO PLEAD DAMAGES WITH REQUISITE CERTAINTY

A. New York's Heightened Standard for Lost Profits. Under New York law, lost profits may be recovered as damages for breach of contract, but only where they are "not merely speculative, possible or imaginary, but . . . reasonably certain and . . . directly traceable to the breach." Kenford Co. v. County of Erie, 67 N.Y.2d 257, 261 (1986) ("Kenford I"). The New York Court of Appeals has described the standard as "demand[ing] that the injured party demonstrate a 'stable foundation for a reasonable estimate of the loss.'" Ashland Mgmt. Inc. v. Janien, 82 N.Y.2d 395, 403 (1993) (quoting Kenford I, 67 N.Y.2d at 261).

To sustain a lost profits claim, the plaintiff must plead and ultimately prove three elements: (i) that lost profits were within the contemplation of the parties at the time of contracting as the probable result of a breach; (ii) that the amount of lost profits can be established with reasonable certainty; and (iii) that the claimed profits are not remote, speculative, or contingent upon events or circumstances that may or may not occur. Kenford Co. v. County of Erie (Kenford II), 73 N.Y.2d 312, 319 (1989); Ashland Mgmt., 82 N.Y.2d at 403.

At the pleading stage, the complaint must contain "sufficient factual allegations to make a lost profits claim plausible." Iqbal, 556 U.S. at 678. Conclusory assertions of a particular profit margin, unsupported by any factual basis, are insufficient to state a plausible claim for lost profits under New York law. The plaintiff must allege specific facts concerning the foundation for its claimed profit margin, the time period over which profits are claimed, and the basis for asserting that the claimed profits were not speculative.

B. Vantor's Complaint Fails to Plead Lost Profits with Reasonable Certainty. Vantor's Complaint alleges lost profits of $18.7 million, asserting that this figure represents VTS's "above-contract margin" on the Stonefield freight over the remaining term of the TSA. The Complaint states, in substance, that VTS earned an average operating margin of approximately 12% on Stonefield freight and that, multiplied by the ACV of $43.2 million per year over the approximately two remaining years, VTS lost profits in the amount of $18.7 million.

This allegation is insufficient as a matter of law because the Complaint provides no factual support whatsoever for the asserted 12% margin figure. The deficiencies are numerous and fundamental:

• The Complaint contains no reference to VTS's historical financial performance on the Stonefield account—no income statement data, no margin history, no year-over-year performance trends.

• The Complaint includes no breakdown of revenue versus costs attributable to the Stonefield contract, making it impossible to assess the basis for the claimed margin or its plausibility.

• The Complaint identifies no specific cost categories—such as driver wages, fuel expenses, vehicle maintenance, insurance premiums, overhead allocation, or depreciation—underlying the margin calculation.

• The Complaint makes no distinction between variable costs and fixed costs, a distinction that is essential to any meaningful margin analysis and that directly affects the calculation of incremental lost profits from a particular contract.

• The Complaint does not allege or explain how VTS's operating margin on the Stonefield contract was segregated from VTS's overall blended business margins across its entire customer base. Without such segregation, the 12% figure is, at best, a company-wide average that may bear no relationship to the actual profitability of the Stonefield account specifically.

In short, the 12% margin figure is a bare conclusory assertion—precisely the type of "threadbare recital" that Iqbal holds insufficient to survive a motion to dismiss. 556 U.S. at 678. Vantor has pleaded a number but has failed to plead any facts from which the Court could assess whether that number is plausible, reliable, or grounded in reality.

C. The Lost Profits Claim Is Speculative and Contingent. Even if the 12% margin figure were adequately pleaded—which it is not—Vantor's lost profits claim rests on assumptions that are inherently speculative and contingent. The claim assumes that VTS would have continued to perform the TSA through its full remaining term at a steady-state 12% margin, without any variation, disruption, or deterioration. This assumption is contradicted by the very facts alleged in the Complaint and by the undisputed market context.

VTS was in material breach at the time of termination. Stonefield terminated the TSA for cause, citing multiple material breaches of VTS's Service Level Obligations. VTS's on-time pickup rate had fallen to 78.2% (against a 95% SLO), its on-time delivery rate to 81.6% (against a 93% SLO), its tender acceptance rate to 71.4% (against a 90% SLO), and its equipment availability to approximately 62% of the committed fleet capacity. If VTS was unable to meet its performance obligations at the time of termination, Vantor's assumption that VTS would have continued to perform profitably through March 2024 is speculative at best.

The freight market was experiencing significant volatility. VTS's own revenue declined from $385 million in fiscal year 2021 to $310 million in fiscal year 2022—a decline of approximately 19.5%—reflecting the significant disruptions in the freight market caused by shifting demand patterns, fuel price volatility, and labor constraints. In this environment, the assumption that VTS would have maintained a stable 12% margin over the remaining two-plus years of the TSA is unsupported conjecture.

VTS's cost structure was subject to substantial variability. Even assuming stable revenue, VTS's cost structure was exposed to multiple sources of variability over the remaining contract term, including diesel fuel prices (which experienced dramatic volatility throughout 2022), driver wages in a historically tight labor market, insurance costs, equipment maintenance expenses, and regulatory compliance costs. The Complaint does not address any of these contingencies or explain why the assumed 12% margin would have remained stable despite them.

Under Kenford I, lost profits must be "reasonably certain," not "merely speculative." 67 N.Y.2d at 261. Under Kenford II, the claimed profits must not be "contingent upon events or circumstances that may or may not occur." 73 N.Y.2d at 319. Vantor's lost profits claim fails both standards.

D. The Lost Profits Claim Is Duplicative of the Liquidated Damages Claim. Vantor's Complaint seeks both liquidated damages of $67.23 million under Section 14.2 and separately claimed lost profits of $18.7 million. Both claims purport to compensate for the identical injury: the loss of the economic benefit of the bargain over the remaining term of the TSA. The liquidated damages clause, by its terms, is intended to be a substitute for actual damages from early termination. The lost profits claim seeks to recover the actual profits that VTS would have earned during the remaining term. Both are measures of the same underlying loss.

Under settled New York law, a plaintiff may not recover both liquidated damages and actual damages—including lost profits—for the same breach. The very purpose of a liquidated damages clause is to fix the parties' remedial obligations in advance, supplanting the need for proof of actual damages. If the clause is enforceable, it is the exclusive remedy, and no separate claim for actual damages may be maintained. If the clause is unenforceable—as Stonefield contends—then the plaintiff's remedy is limited to provable actual damages. But in no event may the plaintiff recover both.

As the Court of Appeals has explained: "[A] valid liquidated damages clause is the parties' agreed-upon measure of damages in lieu of actual damages. Where such a clause is operative, the non-breaching party may recover the stipulated amount without proving actual damages, but may not recover actual damages in addition to the liquidated sum." Global Reinsurance Corp. of Am. v. Equitas Ltd., 18 N.Y.3d 722, 731 (2012). The converse is equally true: where the clause is unenforceable, the plaintiff's recovery is limited to actual damages proven with reasonable certainty. See JMD Holding Corp., 4 N.Y.3d at 383.

Vantor's attempt to recover both $67.23 million in liquidated damages and $18.7 million in lost profits—totaling $85.93 million for the same breach—constitutes an impermissible double recovery. The lost profits claim must be dismissed on this additional, independent ground, or, at a minimum, Vantor should be required to elect between its two theories of recovery for the loss of the contractual benefit of the bargain.

CONCLUSION

For the foregoing reasons, Defendant Stonefield Logistics Group Inc. respectfully requests that this Court enter an order:

1. Dismissing Vantor's liquidated damages claim under Section 14.2 of the TSA (Count I of the Complaint) with prejudice, on the ground that the liquidated damages clause is an unenforceable penalty under New York law;

2. Dismissing Vantor's lost profits claim (Count II of the Complaint) with prejudice, on the grounds that (a) the Complaint fails to plead lost profits with the reasonable certainty required under New York law, and (b) the lost profits claim is duplicative of the liquidated damages claim and constitutes an impermissible double recovery; and

3. Granting Defendant such other and further relief as the Court deems just and proper.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Samuel Eklund 200 Park Avenue, 38th Floor New York, New York 10166 Telephone: (212) 555-7400

Patrick Gallagher

Attorneys for Defendant Stonefield Logistics Group Inc.

Dated: ____, 2022

— INTERNAL NOTES AND ANNOTATIONS — NOT FOR FILING

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

Reviewer Instructions. This is the first working draft prepared for Samuel Eklund's review and comment. Key open questions and decision points have been flagged with bracketed notes throughout the draft.

Principal Open Items:

1. Standing Argument (Vantor Holdings Corp. vs. VTS). The Complaint was filed by Vantor Holdings Corp., which is not a signatory to the TSA. The actual contracting party is VTS, the operating subsidiary. Per Simone Laroche's December 2021 research memorandum, this presents a potential additional ground for dismissal under FRCP 17 (real party in interest). However, Vantor would likely seek leave to amend to add VTS as a plaintiff or to substitute VTS, which the Court would likely grant. Accordingly, the current draft preserves but does not lead with this argument. Eklund to advise whether to include as a third ground for dismissal or continue to reserve.

2. Section 15.1 Consequential Damages Waiver. Section 15.1 of the TSA contains a mutual waiver of consequential, incidental, and indirect damages. This provision may provide an independent basis to strike the stranded assets claim ($5.2M), workforce reduction costs claim ($2.87M), and mitigation costs claim ($1.4M) — totaling approximately $9.47M. The current draft does not include this argument in order to keep the motion focused on the two strongest claims (liquidated damages and lost profits, representing ~90% of the total claimed damages). Eklund to advise whether to add this argument or reserve for the Answer and affirmative defenses or summary judgment.

3. Case Citations. Simone is completing the September 19, 2022 research memorandum on liquidated damages enforceability under New York law. Final authority list will be supplied and integrated upon completion. That memorandum's preliminary conclusion is that there is a "moderate" likelihood of an unenforceability finding given the magnitude of the disproportion, but Simone flags New York courts' general reluctance to override freely negotiated commercial terms between sophisticated parties as a significant counter-risk. Helen Tsao will cite-check and Bluebook-format all authorities prior to finalization.

4. Tone and Aggressiveness Calibration. The current draft is written in a moderately aggressive but professional tone. Eklund to advise on desired tone level — the draft can be sharpened or moderated as appropriate.

5. Anticipation of Opposition Arguments. The current draft does not include an express section addressing anticipated counter-arguments from Vantor's counsel (Caldwell Royce & Shapiro LLP, led by Harrison Caldwell and Meredith Shapiro, with Jason Whitford and Alina Petrov as associates). A brief section analyzing likely opposition arguments may be added in a revised draft after Eklund's initial review. A separate analysis memorandum will follow.

Relationship to Defense Strategy Outline (September 26, 2022)

This motion corresponds to Pillar 1 of the Defense Strategy Outline circulated on September 26, 2022: file a motion to dismiss targeting the liquidated damages and lost profits claims as the first dispositive filing.

The strategic calculus is as follows:

• If the MTD is granted on liquidated damages, it eliminates approximately 70% of Vantor's claimed exposure ($67.23 million of $95.4 million total).

• If the MTD is additionally granted on lost profits, it eliminates an additional approximately 20% ($18.7 million).

• Combined success would reduce the case to approximately $9.47 million in remaining claims (stranded assets, workforce reduction, and mitigation costs), to be addressed through affirmative defenses — including the consequential damages waiver under Section 15.1 — and at summary judgment.

• Even if the MTD is denied, it serves the strategic purpose of (a) establishing the legal framework for summary judgment arguments on the same issues, (b) educating the Court on the disproportion inherent in the liquidated damages clause, (c) forcing Vantor to articulate and commit to its damages theories early in the case, and (d) signaling an aggressive defense posture to Caldwell Royce.

Risk Assessment.

Overall Recommendation: File the motion. The liquidated damages argument, while presenting moderate risk, is supported by the extreme magnitude of the disproportion ($67.23M vs. ~$10.7M estimated actual loss, a ratio of approximately 6.3:1). The lost profits duplicativeness argument is strong and provides a reliable independent basis for relief on Count II. Even in the event of denial, the motion advances the defense strategy as outlined above.

Appendices to Be Attached at Filing

A declaration of Samuel Eklund will be prepared to accompany the motion, attaching the following exhibits:

• Exhibit A: Transportation Services Agreement dated March 15, 2019 (Contract Reference No. SLG-VTS-2019-0315)

• Exhibit B: Cure Notice dated January 18, 2022 (from Raymond Hess to Sandra Milescu)

Distribution.

• Draft circulated to: Samuel Eklund (for review and comment)

• Copies maintained in: Calderwood & Harkness Matter File, 1012-00005

• Prepared by: Patrick Gallagher, Senior Associate; Simone Laroche, Associate

• Support: Helen Tsao, Senior Paralegal (cite-checking and formatting upon finalization)

VANTOR HOLDINGS CORP.,

Plaintiff,

Case No. 22-cv-07841

Hon. Margaret T. Calloway, U.S.D.J.

STONEFIELD LOGISTICS GROUP INC.,

Defendant.

Damages Category	Amount Claimed
Liquidated damages (2 full remaining years)	$64,800,000
Liquidated damages (partial year, 27 days)	$2,430,000
Lost profits (above-contract margin)	$18,700,000
Stranded assets and costs	$5,200,000
Workforce reduction costs	$2,870,000
Mitigation costs	$1,400,000
Total Claimed	$95,400,000
Argument	Strength	Key Risk
Liquidated damages (penalty)	Moderate	NY courts' deference to freely negotiated commercial terms between sophisticated parties; risk that Court credits contractual recital and declines to second-guess the 75% figure at the pleading stage
Lost profits (pleading insufficiency)	Moderate	Risk that Court permits leave to amend to cure any identified pleading deficiency
Lost profits (duplicativeness)	Strong	Squarely supported by New York precedent; difficult for Vantor to argue entitlement to both remedies

DRAFT — ATTORNEY WORK PRODUCT — PRIVILEGED AND CONFIDENTIAL NOT FOR FILING
Matter No.: 1012-00005 Date: September 28, 2022 Prepared by: Patrick Gallagher, Senior Associate; Simone Laroche, Associate For Review By: Samuel Eklund, Responsible Partner
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
DEFENDANT STONEFIELD LOGISTICS GROUP INC.'S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO DISMISS PURSUANT TO FED. R. CIV. P. 12(b)(6)
CALDERWOOD & HARKNESS LLP 200 Park Avenue, 38th Floor New York, New York 10166 Telephone: (212) 555-7400 Facsimile: (212) 555-7401
Samuel Eklund Linda Osei Patrick Gallagher Simone Laroche
Attorneys for Defendant Stonefield Logistics Group Inc.
TABLE OF AUTHORITIES
Cases
To be finalized upon completion of cite-checking and authority compilation. Key authorities referenced herein include:
• Ashcroft v. Iqbal, 556 U.S. 662 (2009)
• Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)
• Chambers v. Pinnacle Corporation, 282 F.3d 147 (2d Cir. 2002)
• Truck Rent-A-Ctr., Inc. v. Purdy Corp., 41 N.Y.2d 354 (1977)
• JMD Holding Corp. v. Cong. Fin. Corp., 4 N.Y.3d 373 (2005)
• Barklee Realty Co. v. Pataki, 309 A.D.2d 310 (1st Dep't 2003)
• Brecher v. Laikin, 430 F. Supp. 2d 75 (S.D.N.Y. 2006)
• 172 Van Duzer Realty Corp. v. Globe Alumni Student Assistance Ass'n, Inc., 24 N.Y.3d 528 (2014)
• Kenford Co. v. County of Erie, 67 N.Y.2d 257 (1986)
• Kenford Co. v. County of Erie (Kenford II), 73 N.Y.2d 312 (1989)
• Ashland Mgmt. Inc. v. Janien, 82 N.Y.2d 395 (1993)
• Global Reinsurance Corp. of Am. v. Equitas Ltd., 18 N.Y.3d 722 (2012)
• Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.à r.l., 790 F.3d 411 (2d Cir. 2015)
• Int'l Telecomms. Exch. Corp. v. Camberwell Partners LLC, 892 F. Supp. 483 (S.D.N.Y. 1995)
• Nordic Aviation Partners v. Multiservicios Aeronaúticos, No. 17-cv-8537, 2018 WL 3579099 (S.D.N.Y. July 25, 2018)
• Additional authorities to be inserted
Statutes and Rules
• Fed. R. Civ. P. 12(b)(6)
• Fed. R. Civ. P. 17(a)
• N.Y. U.C.C. § 2-718
• N.Y. Gen. Oblig. Law § 5-1401
PRELIMINARY STATEMENT
Defendant Stonefield Logistics Group Inc. ("Stonefield" or "SLG"), a Delaware corporation headquartered at 4200 Commerce Parkway, Suite 800, Fort Worth, Texas 76102, respectfully submits this memorandum of law in support of its motion to dismiss two categories of claims asserted in the Complaint filed by Plaintiff Vantor Holdings Corp. ("Vantor") on August 12, 2022. The Complaint seeks aggregate damages of $95.4 million arising from Stonefield's termination of a Transportation Services Agreement dated March 15, 2019 (the "TSA," Contract Reference No. SLG-VTS-2019-0315). This motion targets the two claims that together constitute approximately 90% of Vantor's asserted damages—the liquidated damages claim of $67.23 million and the lost profits claim of $18.7 million—and demonstrates that both fail as a matter of law.
First, Vantor's claim for liquidated damages under Section 14.2 of the TSA should be dismissed because the liquidated damages clause is an unenforceable penalty as a matter of New York law. Section 14.2 imposes a payment obligation equal to 75% of the Annual Committed Volume ("ACV") of $43.2 million multiplied by the number of remaining full and partial contract years—yielding, by Vantor's own calculation, an alleged liquidated damages figure of $67,230,000. This staggering sum bears no reasonable proportion to the probable loss that the contracting party, Vantor Transport Services LLC ("VTS"), could have anticipated at the time of contracting. VTS's own operating margin on the Stonefield account was, even by Vantor's telling, approximately 12%. A 12% margin applied to $43.2 million per year yields approximately $5.18 million in annual lost profits, or roughly $10.7 million over the remaining two-year term—a fraction of the $67.23 million demanded. The liquidated damages formula captures not VTS's lost profits but rather 75% of gross revenue—an amount approximately 6.3 times greater than any plausible measure of VTS's actual economic harm. A clause that produces a payment obligation of this magnitude, untethered to any rational estimate of anticipated loss, is not a liquidated damages provision. It is a penalty. And penalties are unenforceable under New York law.
Second, Vantor's separate claim for lost profits in the amount of $18.7 million fails as a matter of law for two independent reasons. The Complaint does not plead lost profits with the reasonable certainty required under New York's exacting standard. Vantor asserts a bare 12% margin figure without any supporting factual allegations—no historical financial data, no cost breakdown, no identification of the basis for the margin calculation. This conclusory assertion is insufficient to state a plausible claim for lost profits under controlling precedent. Additionally, the lost profits claim is legally duplicative of the liquidated damages claim, as both purport to compensate for the identical injury: the loss of the benefit of the bargain over the remaining contract term. Under New York law, a plaintiff may not recover both liquidated damages and actual lost profits for the same breach. Vantor's pursuit of both theories simultaneously constitutes an impermissible attempt at double recovery.
The TSA is governed by New York law, as specified in Section 18.1, and the forum selection clause in Section 18.2 designates this Court. The TSA was entered into between Stonefield (as "Shipper-Broker") and Vantor Transport Services LLC ("VTS," a New York limited liability company and wholly owned operating subsidiary of Vantor Holdings Corp.) as "Carrier-Provider." Stonefield notes that Vantor Holdings Corp.—the entity that filed this action—is not itself a signatory to the TSA. VTS, as the actual contracting party, is the relevant party in interest. Stonefield reserves its right to raise this standing issue in subsequent proceedings, but does not press it in this motion.
For the reasons set forth more fully below, Stonefield respectfully requests that the Court dismiss Vantor's liquidated damages claim (Count I of the Complaint) and lost profits claim (Count II of the Complaint) with prejudice.
STATEMENT OF FACTS
The following facts are drawn from the Complaint, the TSA (which is referenced throughout and integral to the Complaint), and documents upon which the Complaint expressly relies, all accepted as true solely for purposes of this motion.
A. The Parties
Stonefield Logistics Group Inc. is a Delaware corporation headquartered at 4200 Commerce Parkway, Suite 800, Fort Worth, Texas 76102. Stonefield is a mid-market freight brokerage, managed transportation, and supply chain solutions company. It operates a carrier network of approximately 12,000 approved carriers and handles roughly 850,000 shipments annually across truckload ("TL"), less-than-truckload ("LTL"), intermodal, and last-mile delivery service lines. Stonefield employs approximately 2,800 individuals. For fiscal year 2021, Stonefield reported revenue of approximately $1.42 billion. For fiscal year 2022—reflecting softening conditions in the broader freight market—revenue declined to approximately $1.28 billion, with EBITDA of approximately $118 million. Since October 2017, Stonefield has been majority-owned (approximately 72% equity) by Ridgeline Capital Partners, LP, through its investment vehicle Ridgeline Fund III, LP, a middle-market private equity firm. Ridgeline acquired Stonefield in a leveraged buyout transaction at an enterprise value of approximately $680 million.
Vantor Holdings Corp. is a New York corporation with its principal offices at 580 Eighth Avenue, 14th Floor, New York, New York 10018. Vantor Holdings is a holding company. It was founded by, and is approximately 58% owned by, Nikolai Vantorovich, who serves as its Chief Executive Officer. Gregory Fielding serves as its Chief Financial Officer. Vantor Holdings is the plaintiff in this action.
Vantor Transport Services LLC ("VTS") is a New York limited liability company and the wholly owned operating subsidiary of Vantor Holdings Corp. VTS is the actual signatory counterparty to the TSA. VTS operates an asset-based and asset-light trucking, warehousing, and regional distribution business. It maintains a fleet of approximately 650 owned tractors and 2,100 trailers and employs approximately 1,900 individuals. For fiscal year 2021, VTS reported revenue of approximately $385 million. For fiscal year 2022, VTS's revenue declined to approximately $310 million.
B. The Transportation Services Agreement
On March 15, 2019, Stonefield (as "Shipper-Broker") and VTS (as "Carrier-Provider") executed the Transportation Services Agreement (Contract Reference No. SLG-VTS-2019-0315) (the "TSA"). The TSA was drafted by Ashford Meridian LLP on behalf of Stonefield. It establishes the terms under which VTS would provide dedicated and on-demand truckload transportation services across specified shipping lanes in the Northeast, Mid-Atlantic, and Southeast corridors of the United States.
The TSA provides for a five-year initial term commencing on April 1, 2019 and expiring on March 31, 2024, with one automatic two-year renewal absent a written non-renewal notice delivered no fewer than 180 calendar days prior to the expiration of the then-current term. Under the TSA, VTS committed to maintaining a minimum fleet capacity of 400 tractors and 1,200 trailers dedicated to servicing Stonefield freight.
The TSA includes an Annual Committed Volume ("ACV") provision, pursuant to which Stonefield committed to tender a minimum of $43.2 million per contract year in transportation charges to VTS, representing a total five-year minimum commitment of $216 million. The rate structure for individual shipments is set forth on a per-mile basis by shipping lane in Schedule B to the TSA, subject to an annual Rate Adjustment Mechanism under Section 5.3 of the TSA. The Rate Adjustment Mechanism indexes rate adjustments to a blended index comprising 70% of the applicable diesel fuel index and 30% of the Consumer Price Index for All Urban Consumers ("CPI-U"), with adjustments applied each April 1.
The TSA further establishes detailed Service Level Obligations ("SLOs") governing VTS's performance, including: (i) an on-time pickup rate of no less than 95%; (ii) an on-time delivery rate of no less than 93%; (iii) a cargo claims ratio of no more than 0.5% of gross revenue; (iv) a tender acceptance rate of no less than 90%; and (v) an equipment availability rate of no less than 85% of the committed fleet capacity.
Section 18.1 of the TSA provides that the agreement is governed by the laws of the State of New York. Section 18.2 provides for exclusive jurisdiction in the United States District Court for the Southern District of New York or, alternatively, the Supreme Court of the State of New York, New York County.
C. The Liquidated Damages Clause (Section 14.2)
Section 14.2 of the TSA contains the liquidated damages provision at the center of Vantor's principal claim. That section provides, in relevant part:
If Shipper-Broker terminates this Agreement other than "for Cause" (as defined in Section 13.1), 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 and partial contract years remaining in the then-current term. The parties acknowledge and agree that the liquidated damages set forth herein represent a reasonable estimate of the damages that Carrier-Provider would suffer as a result of such termination and are not a penalty.
As applied by Vantor in its Complaint, the liquidated damages calculation proceeds as follows. At the time of termination on March 4, 2022, approximately two full years and 27 days remained in the initial term (through March 31, 2024). Vantor therefore claims:
• Liquidated damages for two full remaining contract years: 75% × $43,200,000 × 2 = $64,800,000
• Liquidated damages for the partial year (27 days): 75% × $43,200,000 × (27/365) ≈ $2,430,000
• Total liquidated damages claimed: $67,230,000
D. Termination for Cause Provisions (Section 13.1)
Section 13.1 of the TSA permits either party to terminate the agreement for "Cause." As defined therein, "Cause" includes: (a) a material breach of the agreement that remains uncured for 30 calendar days after written notice specifying the breach with reasonable particularity; (b) the insolvency, bankruptcy, or assignment for the benefit of creditors of the other party; (c) failure by the other party to maintain the insurance coverages required under the agreement for more than 15 calendar days; and (d) a material violation of applicable law, including regulations of the United States Department of Transportation and the Federal Motor Carrier Safety Administration, by the Carrier-Provider.
Section 13.2 of the TSA establishes a Cure Notice requirement. Before exercising a termination right under Section 13.1(a), the terminating party must deliver a written Cure Notice to the other party specifying, with reasonable particularity, the alleged material breach and affording the breaching party the applicable cure period of 30 calendar days.
E. Stonefield's Termination of the TSA
On January 18, 2022, Raymond Hess, Director of Contract Compliance at Stonefield, sent a formal Cure Notice to Sandra Milescu, Chief Operating Officer of VTS, identifying what Stonefield contended were multiple material breaches of the TSA's Service Level Obligations. The Cure Notice specified the following performance deficiencies, measured against the contractual SLOs:
• On-time pickup rate: 78.2% (versus the contractual SLO of ≥ 95%)
• On-time delivery rate: 81.6% (versus the contractual SLO of ≥ 93%)
• Tender acceptance rate: 71.4% (versus the contractual SLO of ≥ 90%)
• Equipment availability: Approximately 62% of committed fleet capacity (approximately 248 tractors available versus the contractual commitment of 400 tractors)
• Cargo claims ratio: 1.07% of gross revenue (representing $387,400 across 16 individual claims in November and December 2021, versus the contractual SLO of ≤ 0.5%)
• Surge capacity: Chronic failure to provide substitute equipment or surge capacity as required under Section 7.4 of the TSA
The Cure Notice afforded VTS the 30-calendar-day cure period prescribed by Section 13.2, expiring on February 17, 2022.
On February 14, 2022, three days before expiration of the cure period, Derek Pruitt, Vice President of Business Development at Vantor, responded on behalf of VTS. Mr. Pruitt's letter acknowledged what he characterized as "operational challenges" but attributed those challenges to (i) the nationwide driver shortage affecting the entire trucking industry, (ii) Stonefield's alleged failure to tender the minimum committed volumes under the TSA, and (iii) Stonefield's alleged diversion of freight to spot market carriers in preference to VTS. Mr. Pruitt asserted that VTS had achieved "substantial cure" of the identified deficiencies and disputed certain elements of Stonefield's cargo claims data.
On March 4, 2022, Tobias Wren, General Counsel of Stonefield, issued a formal termination letter addressed to both Vantor Holdings Corp. and VTS. The letter stated that VTS had "failed to cure the material breaches identified in the Cure Notice dated January 18, 2022" within the 30-calendar-day cure period prescribed by Section 13.2. Mr. Wren's letter stated that the TSA was terminated effective immediately pursuant to Section 13.1(a). At the time of termination, approximately two years and 27 days remained in the initial term (from March 4, 2022 through March 31, 2024).
F. Vantor's Claimed Damages
The Complaint asserts the following categories of damages arising from the termination of the TSA:
This motion targets the liquidated damages claim ($67,230,000) and the lost profits claim ($18,700,000), which together account for approximately $85.93 million, or roughly 90%, of Vantor's total claimed damages.
G. Procedural History
On August 12, 2022, Vantor filed its original Complaint in the United States District Court for the Southern District of New York. On September 1, 2022, Calderwood & Harkness LLP was engaged as defense counsel for Stonefield, and the matter was opened under Matter No. 1012-00005. On September 8, 2022, Calderwood & Harkness filed a Notice of Appearance on behalf of Stonefield. This motion is being filed within the time allowed for a responsive pleading under the Federal Rules of Civil Procedure.
LEGAL STANDARD
A. Rule 12(b)(6) Standard
Under Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss a complaint for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). To survive a motion to dismiss, a complaint must contain "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.
In evaluating a motion to dismiss, the Court accepts the factual allegations set forth in the complaint as true and draws all reasonable inferences in favor of the plaintiff. Chambers v. Pinnacle Corporation, 282 F.3d 147, 152 (2d Cir. 2002). However, the Court "need not credit conclusory allegations or legal conclusions couched as factual allegations." Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.à r.l., 790 F.3d 411, 420 (2d Cir. 2015). "[T]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678.
In connection with a Rule 12(b)(6) motion, the Court may consider, in addition to the complaint itself, "any documents that are either incorporated into the complaint by reference or that the complaint relies upon." Chambers, 282 F.3d at 152-53. Here, the TSA is referenced throughout the Complaint, forms the basis of each of Vantor's claims, and is integral to the Complaint. The Court may therefore consider the TSA's terms in full on this motion.
Critically, the enforceability of a contract clause—including a liquidated damages clause—is a question of law appropriate for resolution on a motion to dismiss where the relevant contract is before the Court and the clause's operation can be assessed on its face. See Nordic Aviation Partners v. Multiservicios Aeronaúticos, No. 17-cv-8537, 2018 WL 3579099, at 5 (S.D.N.Y. July 25, 2018); Brecher v. Laikin*, 430 F. Supp. 2d 75, 81-82 (S.D.N.Y. 2006).
B. New York Law Governs
Section 18.1 of the TSA contains an express choice-of-law provision selecting the substantive law of the State of New York to govern all issues arising under or in connection with the agreement. All substantive questions concerning the enforceability of the liquidated damages clause, the adequacy of the damages pleading, and the permissibility of the claimed damages theories are therefore governed by New York law.
The Court should also note that both Stonefield and VTS—the actual contracting parties—are sophisticated commercial entities that freely and voluntarily negotiated the TSA at arm's length. This fact, while relevant to the analysis, does not immunize the liquidated damages clause from scrutiny under settled New York law, as the Court of Appeals has repeatedly confirmed. See JMD Holding Corp. v. Cong. Fin. Corp., 4 N.Y.3d 373, 380 (2005).
ARGUMENT
I. VANTOR'S CLAIM FOR LIQUIDATED DAMAGES UNDER SECTION 14.2 SHOULD BE DISMISSED BECAUSE THE CLAUSE IS AN UNENFORCEABLE PENALTY
A. New York Law on Liquidated Damages. The New York Court of Appeals has long held that a liquidated damages clause is enforceable only if it satisfies a well-established two-part test. First, the amount fixed as liquidated damages must "bear[] a reasonable proportion to the probable loss" anticipated at the time of contracting. Truck Rent-A-Ctr., Inc. v. Purdy Corp., 41 N.Y.2d 354, 359 (1977). Second, the "actual loss" must be "incapable or very difficult of accurate estimation" at the time the contract was entered into. Id. If either prong is not satisfied, the clause "must be construed as a penalty" and is unenforceable. Id.; see also JMD Holding Corp., 4 N.Y.3d at 380 ("It is well settled that a contractual provision fixing damages in the event of breach will be sustained if the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation.").
The analytical framework is disjunctive: the failure of either prong standing alone is sufficient to invalidate the clause. 172 Van Duzer Realty Corp. v. Globe Alumni Student Assistance Ass'n, Inc., 24 N.Y.3d 528, 536 (2014). New York courts apply this test with "particular rigor" where the stipulated amount is "manifestly disproportionate to the actual damages sustained." Barklee Realty Co. v. Pataki, 309 A.D.2d 310, 313 (1st Dep't 2003).
The burden of establishing that a liquidated damages clause is unenforceable as a penalty typically falls on the party challenging the clause. However, where the disproportionality between the liquidated amount and probable loss is "manifest on the face of the contract," the Court may make the determination as a matter of law at the pleading stage without the need for extrinsic evidence or factual development. See Brecher, 430 F. Supp. 2d at 81-82; Nordic Aviation Partners, 2018 WL 3579099, at *5.
Stonefield acknowledges that New York courts generally respect freely negotiated commercial terms between sophisticated parties, and that the Court of Appeals has cautioned against "second-guessing" the considered judgments of commercial actors. See JMD Holding Corp., 4 N.Y.3d at 381. But this deference is not without limits. Courts will not enforce a penalty clause regardless of the parties' sophistication or the vigor of the negotiations that produced it. As the Court of Appeals has stated: "A clause which provides for an amount plainly disproportionate to real damage is not intended to provide fair compensation but to secure performance by the compulsion of the very disproportion." Truck Rent-A-Ctr., 41 N.Y.2d at 359. Where the stipulated amount is so grossly disproportionate to actual anticipated harm as to be "unconscionable and oppressive," the clause is a penalty as a matter of law. Id.
B. The Liquidated Damages Amount Bears No Reasonable Proportion to Probable Loss. Section 14.2 of the TSA provides for liquidated damages equal to 75% of the ACV ($43.2 million) multiplied by the number of full and partial contract years remaining in the then-current term. Applied to the facts as pleaded in the Complaint, this formula produces a liquidated damages figure of $67,230,000 for the approximately 2.07 years remaining in the initial term at the time of termination.
This sum is grossly disproportionate to any actual harm that VTS could have suffered from Stonefield's termination of the TSA, for several independently dispositive reasons.
The clause captures gross revenue, not actual loss. The ACV of $43.2 million represents the annual gross transportation charges payable to VTS under the TSA. It does not represent VTS's profit, its margin, or the net economic benefit it derived from the contract. Even by Vantor's own allegations, VTS's operating margin on the Stonefield account was approximately 12%. Applying that margin to the ACV, VTS's annual profit on the Stonefield contract would have been approximately $5.18 million ($43.2 million × 12%). Over the remaining two-year period, VTS's total lost profit would have been approximately $10.7 million—roughly one-sixth of the $67.23 million demanded under Section 14.2. The 75% multiplier is not tethered to any recognizable measure of loss—not profit, not margin, not overhead contribution—and instead captures an amount nearly indistinguishable from full gross revenue. A liquidated damages clause that computes damages as a function of gross revenue, without any deduction for the costs that would have been incurred in earning that revenue, is inherently punitive.
The 75% multiplier has no rational basis. Vantor's Complaint does not allege, and the TSA does not explain, why 75% of gross revenue was selected as the liquidated amount. There is no evident relationship between the 75% figure and any component of VTS's cost structure or margin profile. If the clause were genuinely intended to approximate VTS's lost profits, one would expect a multiplier on the order of 10-15% of the ACV (reflecting a typical operating margin), not 75%. The 75% multiplier is arbitrary and punitive.
The clause ignores mitigation. The liquidated damages formula makes no provision for VTS's ability—and legal obligation—to mitigate damages by securing replacement freight from other shippers. VTS is a substantial asset-based transportation company that operates 650 tractors and 2,100 trailers and serves multiple customers. In the active freight market prevailing in early 2022, VTS had both the capacity and the opportunity to redeploy its assets to serve other customers, thereby reducing or eliminating any actual loss from the termination of the TSA. A liquidated damages formula that ignores mitigation entirely produces an amount that exceeds actual damages and thus operates as a penalty. See Int'l Telecomms. Exch. Corp. v. Camberwell Partners LLC, 892 F. Supp. 483, 494 (S.D.N.Y. 1995) (striking liquidated damages clause that failed to account for non-breaching party's ability to mitigate).
The clause does not offset avoided costs. In addition to ignoring mitigation, the formula makes no deduction for the substantial costs that VTS would have avoided by not performing the remaining term of the TSA. Had VTS continued to perform, it would have incurred significant variable costs including fuel, driver wages and benefits, vehicle maintenance, tires, tolls, insurance, and other operating expenses. These avoided costs must be netted against any measure of lost profit to arrive at actual damages. The liquidated damages formula ignores them entirely. The result is a figure that vastly overstates VTS's actual economic harm.
The magnitude of the disproportion is striking. The $67.23 million liquidated damages figure is approximately 6.3 times VTS's own estimated lost profits of $10.7 million (based on Vantor's own asserted 12% margin). It is equivalent to approximately 17.4% of VTS's entire fiscal year 2021 revenue of $385 million—meaning that the liquidated damages from the termination of a single contract would represent nearly one-fifth of VTS's total annual revenue from all sources. A disproportion of this magnitude is not a reasonable estimate of anticipated damages; it is a penalty designed to coerce performance by its very excessiveness. See Truck Rent-A-Ctr., 41 N.Y.2d at 359; Barklee Realty, 309 A.D.2d at 313.
New York courts have consistently struck liquidated damages clauses producing amounts grossly in excess of actual anticipated harm. In JMD Holding Corp., the Court of Appeals held a liquidated damages clause unenforceable where the stipulated damages were "conspicuously disproportionate to foreseeable losses." 4 N.Y.3d at 382. In 172 Van Duzer Realty Corp., the Court of Appeals similarly refused to enforce a liquidated damages clause where the amount bore "no reasonable proportion" to the non-breaching party's probable loss. 24 N.Y.3d at 536. The clause at issue here presents an even more extreme case of disproportionality than those cases.
C. Actual Damages Were Readily Ascertainable at the Time of Contracting. The second prong of the New York liquidated damages test requires that actual damages be "incapable or very difficult of accurate estimation" at the time the contract was formed. Truck Rent-A-Ctr., 41 N.Y.2d at 359. Where actual damages are "readily ascertainable" from the contract's own terms and "available market data," the second prong is not satisfied, and the liquidated damages clause fails. Id. at 360.
Here, the opposite of difficulty is true. Both Stonefield and VTS are sophisticated commercial entities in the transportation and logistics industry with extensive experience in freight pricing, volume forecasting, cost allocation, and margin analysis. At the time the TSA was executed on March 15, 2019, the actual damages that VTS would suffer from an early termination were readily calculable using standard industry metrics and the TSA's own contractual terms:
• Lost profits could be calculated as the contracted volume multiplied by VTS's operating margin, adjusted for mitigation through redeployment of assets to other customers. Both VTS and Stonefield possessed the data necessary to perform this calculation at the time of contracting: the ACV was fixed at $43.2 million; VTS's margin on the account was knowable from its own financial records; and the availability of alternative freight could be estimated from prevailing market conditions and VTS's existing customer base.
• Stranded costs could be calculated as the incremental depreciation and redeployment costs associated with assets dedicated to the Stonefield account—precisely the type of calculation that asset-based carriers like VTS perform routinely.
• Transition costs could be estimated based on industry-standard benchmarks for workforce realignment and equipment repositioning.
The very categories of actual damages that the Complaint pleads—lost profits ($18.7 million), stranded assets ($5.2 million), workforce reduction costs ($2.87 million), and mitigation costs ($1.4 million)—demonstrate that Vantor itself was capable of estimating actual damages with considerable precision. The fact that Vantor has calculated and pleaded specific dollar amounts for each of these categories undercuts any suggestion that actual damages were "incapable or very difficult of accurate estimation" at the time the TSA was executed. Cf. JMD Holding Corp., 4 N.Y.3d at 381 (noting relevance of whether plaintiff has pleaded actual damages categories alongside liquidated damages claim).
Furthermore, the TSA itself provides all of the data necessary to calculate actual damages. The per-mile rates are set forth in Schedule B. The Annual Committed Volume is fixed at $43.2 million. The Service Level Obligations are defined with specificity. The Rate Adjustment Mechanism provides a contractual formula for projecting future rates. These are not the circumstances of a contract where damages from breach are inherently uncertain or speculative—they are the circumstances of a contract where the essential financial terms are defined with precision, enabling straightforward computation of actual loss.
New York courts have consistently held that the second prong of the liquidated damages test is not satisfied where damages are calculable from the contract's own terms and readily available market data. In Truck Rent-A-Ctr., the Court of Appeals found the second prong unsatisfied where the contract at issue involved the rental of equipment at known rates, making lost rental income easily calculable. 41 N.Y.2d at 360. The same reasoning applies with full force here.
D. The Clause Operates as a Penalty Under the Circumstances. In sum, Section 14.2 of the TSA fails both prongs of the New York liquidated damages test. The stipulated amount—$67.23 million—is grossly disproportionate to any reasonable estimate of VTS's probable loss from early termination, which, even using Vantor's own margin figure, is approximately $10.7 million over the remaining term. And the actual loss was not difficult to estimate at the time of contracting, as demonstrated by the Complaint's own detailed calculation of actual damages alongside the liquidated damages claim.
Vantor will undoubtedly point to the contractual recital in Section 14.2, which states that the parties "acknowledge and agree" that the liquidated damages represent a "reasonable estimate" of anticipated damages and are "not a penalty." But this self-serving recital is not dispositive. New York law is clear: courts "look not to the label the parties attach" to a damages provision "but rather to its substance." JMD Holding Corp., 4 N.Y.3d at 380. "A provision which, in fact, is a penalty clause is not transformed into a liquidated damages clause merely because the parties so characterize it." Id.; see also Truck Rent-A-Ctr., 41 N.Y.2d at 359 ("Such a stipulation is not conclusive and will not be enforced if it is contrary to the evidence."). Courts applying New York law have repeatedly rejected contractual labels where the substance of the clause reveals a penalty. The recital in Section 14.2, standing alone, does not alter the analysis.
The Court should dismiss the liquidated damages claim in its entirety.
E. Dismissal Is Appropriate at the Pleading Stage. Stonefield recognizes that some courts have observed that liquidated damages enforceability is "ordinarily" a question involving factual inquiry. But this observation applies to cases where the enforceability analysis turns on extrinsic evidence not available on the face of the contract—such as evidence of the parties' subjective intent, the negotiation history, or the difficulty of estimating damages in a particular industry context. Where, as here, the contract is before the Court and the operative formula, the ACV, and the remaining term are undisputed and unambiguous, no factual development is needed to assess the clause's enforceability. The Court can determine, as a matter of law, whether the formula produces an amount that bears a reasonable proportion to probable loss.
Multiple courts in this District have resolved liquidated damages enforceability challenges on motions to dismiss. See, e.g., Brecher, 430 F. Supp. 2d at 81-82 (granting motion to dismiss claim based on unenforceable penalty clause where disproportionality was "apparent on the face of the contract"); Nordic Aviation Partners, 2018 WL 3579099, at *5-6 (same). This is precisely such a case. The disproportionality between the $67.23 million demanded and VTS's estimated actual loss of approximately $10.7 million is apparent from the four corners of the TSA and the Complaint. The Court should resolve the issue now.
II. VANTOR'S LOST PROFITS CLAIM SHOULD BE DISMISSED FOR FAILURE TO PLEAD DAMAGES WITH REQUISITE CERTAINTY
A. New York's Heightened Standard for Lost Profits. Under New York law, lost profits may be recovered as damages for breach of contract, but only where they are "not merely speculative, possible or imaginary, but . . . reasonably certain and . . . directly traceable to the breach." Kenford Co. v. County of Erie, 67 N.Y.2d 257, 261 (1986) ("Kenford I"). The New York Court of Appeals has described the standard as "demand[ing] that the injured party demonstrate a 'stable foundation for a reasonable estimate of the loss.'" Ashland Mgmt. Inc. v. Janien, 82 N.Y.2d 395, 403 (1993) (quoting Kenford I, 67 N.Y.2d at 261).
To sustain a lost profits claim, the plaintiff must plead and ultimately prove three elements: (i) that lost profits were within the contemplation of the parties at the time of contracting as the probable result of a breach; (ii) that the amount of lost profits can be established with reasonable certainty; and (iii) that the claimed profits are not remote, speculative, or contingent upon events or circumstances that may or may not occur. Kenford Co. v. County of Erie (Kenford II), 73 N.Y.2d 312, 319 (1989); Ashland Mgmt., 82 N.Y.2d at 403.
At the pleading stage, the complaint must contain "sufficient factual allegations to make a lost profits claim plausible." Iqbal, 556 U.S. at 678. Conclusory assertions of a particular profit margin, unsupported by any factual basis, are insufficient to state a plausible claim for lost profits under New York law. The plaintiff must allege specific facts concerning the foundation for its claimed profit margin, the time period over which profits are claimed, and the basis for asserting that the claimed profits were not speculative.
B. Vantor's Complaint Fails to Plead Lost Profits with Reasonable Certainty. Vantor's Complaint alleges lost profits of $18.7 million, asserting that this figure represents VTS's "above-contract margin" on the Stonefield freight over the remaining term of the TSA. The Complaint states, in substance, that VTS earned an average operating margin of approximately 12% on Stonefield freight and that, multiplied by the ACV of $43.2 million per year over the approximately two remaining years, VTS lost profits in the amount of $18.7 million.
This allegation is insufficient as a matter of law because the Complaint provides no factual support whatsoever for the asserted 12% margin figure. The deficiencies are numerous and fundamental:
• The Complaint contains no reference to VTS's historical financial performance on the Stonefield account—no income statement data, no margin history, no year-over-year performance trends.
• The Complaint includes no breakdown of revenue versus costs attributable to the Stonefield contract, making it impossible to assess the basis for the claimed margin or its plausibility.
• The Complaint identifies no specific cost categories—such as driver wages, fuel expenses, vehicle maintenance, insurance premiums, overhead allocation, or depreciation—underlying the margin calculation.
• The Complaint makes no distinction between variable costs and fixed costs, a distinction that is essential to any meaningful margin analysis and that directly affects the calculation of incremental lost profits from a particular contract.
• The Complaint does not allege or explain how VTS's operating margin on the Stonefield contract was segregated from VTS's overall blended business margins across its entire customer base. Without such segregation, the 12% figure is, at best, a company-wide average that may bear no relationship to the actual profitability of the Stonefield account specifically.
In short, the 12% margin figure is a bare conclusory assertion—precisely the type of "threadbare recital" that Iqbal holds insufficient to survive a motion to dismiss. 556 U.S. at 678. Vantor has pleaded a number but has failed to plead any facts from which the Court could assess whether that number is plausible, reliable, or grounded in reality.
C. The Lost Profits Claim Is Speculative and Contingent. Even if the 12% margin figure were adequately pleaded—which it is not—Vantor's lost profits claim rests on assumptions that are inherently speculative and contingent. The claim assumes that VTS would have continued to perform the TSA through its full remaining term at a steady-state 12% margin, without any variation, disruption, or deterioration. This assumption is contradicted by the very facts alleged in the Complaint and by the undisputed market context.
VTS was in material breach at the time of termination. Stonefield terminated the TSA for cause, citing multiple material breaches of VTS's Service Level Obligations. VTS's on-time pickup rate had fallen to 78.2% (against a 95% SLO), its on-time delivery rate to 81.6% (against a 93% SLO), its tender acceptance rate to 71.4% (against a 90% SLO), and its equipment availability to approximately 62% of the committed fleet capacity. If VTS was unable to meet its performance obligations at the time of termination, Vantor's assumption that VTS would have continued to perform profitably through March 2024 is speculative at best.
The freight market was experiencing significant volatility. VTS's own revenue declined from $385 million in fiscal year 2021 to $310 million in fiscal year 2022—a decline of approximately 19.5%—reflecting the significant disruptions in the freight market caused by shifting demand patterns, fuel price volatility, and labor constraints. In this environment, the assumption that VTS would have maintained a stable 12% margin over the remaining two-plus years of the TSA is unsupported conjecture.
VTS's cost structure was subject to substantial variability. Even assuming stable revenue, VTS's cost structure was exposed to multiple sources of variability over the remaining contract term, including diesel fuel prices (which experienced dramatic volatility throughout 2022), driver wages in a historically tight labor market, insurance costs, equipment maintenance expenses, and regulatory compliance costs. The Complaint does not address any of these contingencies or explain why the assumed 12% margin would have remained stable despite them.
Under Kenford I, lost profits must be "reasonably certain," not "merely speculative." 67 N.Y.2d at 261. Under Kenford II, the claimed profits must not be "contingent upon events or circumstances that may or may not occur." 73 N.Y.2d at 319. Vantor's lost profits claim fails both standards.
D. The Lost Profits Claim Is Duplicative of the Liquidated Damages Claim. Vantor's Complaint seeks both liquidated damages of $67.23 million under Section 14.2 and separately claimed lost profits of $18.7 million. Both claims purport to compensate for the identical injury: the loss of the economic benefit of the bargain over the remaining term of the TSA. The liquidated damages clause, by its terms, is intended to be a substitute for actual damages from early termination. The lost profits claim seeks to recover the actual profits that VTS would have earned during the remaining term. Both are measures of the same underlying loss.
Under settled New York law, a plaintiff may not recover both liquidated damages and actual damages—including lost profits—for the same breach. The very purpose of a liquidated damages clause is to fix the parties' remedial obligations in advance, supplanting the need for proof of actual damages. If the clause is enforceable, it is the exclusive remedy, and no separate claim for actual damages may be maintained. If the clause is unenforceable—as Stonefield contends—then the plaintiff's remedy is limited to provable actual damages. But in no event may the plaintiff recover both.
As the Court of Appeals has explained: "[A] valid liquidated damages clause is the parties' agreed-upon measure of damages in lieu of actual damages. Where such a clause is operative, the non-breaching party may recover the stipulated amount without proving actual damages, but may not recover actual damages in addition to the liquidated sum." Global Reinsurance Corp. of Am. v. Equitas Ltd., 18 N.Y.3d 722, 731 (2012). The converse is equally true: where the clause is unenforceable, the plaintiff's recovery is limited to actual damages proven with reasonable certainty. See JMD Holding Corp., 4 N.Y.3d at 383.
Vantor's attempt to recover both $67.23 million in liquidated damages and $18.7 million in lost profits—totaling $85.93 million for the same breach—constitutes an impermissible double recovery. The lost profits claim must be dismissed on this additional, independent ground, or, at a minimum, Vantor should be required to elect between its two theories of recovery for the loss of the contractual benefit of the bargain.
CONCLUSION
For the foregoing reasons, Defendant Stonefield Logistics Group Inc. respectfully requests that this Court enter an order:
1. Dismissing Vantor's liquidated damages claim under Section 14.2 of the TSA (Count I of the Complaint) with prejudice, on the ground that the liquidated damages clause is an unenforceable penalty under New York law;
2. Dismissing Vantor's lost profits claim (Count II of the Complaint) with prejudice, on the grounds that (a) the Complaint fails to plead lost profits with the reasonable certainty required under New York law, and (b) the lost profits claim is duplicative of the liquidated damages claim and constitutes an impermissible double recovery; and
3. Granting Defendant such other and further relief as the Court deems just and proper.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
CALDERWOOD & HARKNESS LLP
By: ________
Samuel Eklund 200 Park Avenue, 38th Floor New York, New York 10166 Telephone: (212) 555-7400
Patrick Gallagher
Attorneys for Defendant Stonefield Logistics Group Inc.
Dated: ____, 2022
— INTERNAL NOTES AND ANNOTATIONS — NOT FOR FILING
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
Reviewer Instructions. This is the first working draft prepared for Samuel Eklund's review and comment. Key open questions and decision points have been flagged with bracketed notes throughout the draft.
Principal Open Items:
1. Standing Argument (Vantor Holdings Corp. vs. VTS). The Complaint was filed by Vantor Holdings Corp., which is not a signatory to the TSA. The actual contracting party is VTS, the operating subsidiary. Per Simone Laroche's December 2021 research memorandum, this presents a potential additional ground for dismissal under FRCP 17 (real party in interest). However, Vantor would likely seek leave to amend to add VTS as a plaintiff or to substitute VTS, which the Court would likely grant. Accordingly, the current draft preserves but does not lead with this argument. Eklund to advise whether to include as a third ground for dismissal or continue to reserve.
2. Section 15.1 Consequential Damages Waiver. Section 15.1 of the TSA contains a mutual waiver of consequential, incidental, and indirect damages. This provision may provide an independent basis to strike the stranded assets claim ($5.2M), workforce reduction costs claim ($2.87M), and mitigation costs claim ($1.4M) — totaling approximately $9.47M. The current draft does not include this argument in order to keep the motion focused on the two strongest claims (liquidated damages and lost profits, representing ~90% of the total claimed damages). Eklund to advise whether to add this argument or reserve for the Answer and affirmative defenses or summary judgment.
3. Case Citations. Simone is completing the September 19, 2022 research memorandum on liquidated damages enforceability under New York law. Final authority list will be supplied and integrated upon completion. That memorandum's preliminary conclusion is that there is a "moderate" likelihood of an unenforceability finding given the magnitude of the disproportion, but Simone flags New York courts' general reluctance to override freely negotiated commercial terms between sophisticated parties as a significant counter-risk. Helen Tsao will cite-check and Bluebook-format all authorities prior to finalization.
4. Tone and Aggressiveness Calibration. The current draft is written in a moderately aggressive but professional tone. Eklund to advise on desired tone level — the draft can be sharpened or moderated as appropriate.
5. Anticipation of Opposition Arguments. The current draft does not include an express section addressing anticipated counter-arguments from Vantor's counsel (Caldwell Royce & Shapiro LLP, led by Harrison Caldwell and Meredith Shapiro, with Jason Whitford and Alina Petrov as associates). A brief section analyzing likely opposition arguments may be added in a revised draft after Eklund's initial review. A separate analysis memorandum will follow.
Relationship to Defense Strategy Outline (September 26, 2022)
This motion corresponds to Pillar 1 of the Defense Strategy Outline circulated on September 26, 2022: file a motion to dismiss targeting the liquidated damages and lost profits claims as the first dispositive filing.
The strategic calculus is as follows:
• If the MTD is granted on liquidated damages, it eliminates approximately 70% of Vantor's claimed exposure ($67.23 million of $95.4 million total).
• If the MTD is additionally granted on lost profits, it eliminates an additional approximately 20% ($18.7 million).
• Combined success would reduce the case to approximately $9.47 million in remaining claims (stranded assets, workforce reduction, and mitigation costs), to be addressed through affirmative defenses — including the consequential damages waiver under Section 15.1 — and at summary judgment.
• Even if the MTD is denied, it serves the strategic purpose of (a) establishing the legal framework for summary judgment arguments on the same issues, (b) educating the Court on the disproportion inherent in the liquidated damages clause, (c) forcing Vantor to articulate and commit to its damages theories early in the case, and (d) signaling an aggressive defense posture to Caldwell Royce.
Risk Assessment.
Overall Recommendation: File the motion. The liquidated damages argument, while presenting moderate risk, is supported by the extreme magnitude of the disproportion ($67.23M vs. ~$10.7M estimated actual loss, a ratio of approximately 6.3:1). The lost profits duplicativeness argument is strong and provides a reliable independent basis for relief on Count II. Even in the event of denial, the motion advances the defense strategy as outlined above.
Appendices to Be Attached at Filing
A declaration of Samuel Eklund will be prepared to accompany the motion, attaching the following exhibits:
• Exhibit A: Transportation Services Agreement dated March 15, 2019 (Contract Reference No. SLG-VTS-2019-0315)
• Exhibit B: Cure Notice dated January 18, 2022 (from Raymond Hess to Sandra Milescu)
Distribution.
• Draft circulated to: Samuel Eklund (for review and comment)
• Copies maintained in: Calderwood & Harkness Matter File, 1012-00005
• Prepared by: Patrick Gallagher, Senior Associate; Simone Laroche, Associate
• Support: Helen Tsao, Senior Paralegal (cite-checking and formatting upon finalization)
VANTOR HOLDINGS CORP.,
Plaintiff,
Case No. 22-cv-07841
v.
Hon. Margaret T. Calloway, U.S.D.J.
STONEFIELD LOGISTICS GROUP INC.,
Defendant.
Damages Category | Amount Claimed
Liquidated damages (2 full remaining years) | $64,800,000
Liquidated damages (partial year, 27 days) | $2,430,000
Lost profits (above-contract margin) | $18,700,000
Stranded assets and costs | $5,200,000
Workforce reduction costs | $2,870,000
Mitigation costs | $1,400,000
Total Claimed | $95,400,000
Argument | Strength | Key Risk
Liquidated damages (penalty) | Moderate | NY courts' deference to freely negotiated commercial terms between sophisticated parties; risk that Court credits contractual recital and declines to second-guess the 75% figure at the pleading stage
Lost profits (pleading insufficiency) | Moderate | Risk that Court permits leave to amend to cure any identified pleading deficiency
Lost profits (duplicativeness) | Strong | Squarely supported by New York precedent; difficult for Vantor to argue entitlement to both remedies

DRAFT — ATTORNEY WORK PRODUCT — PRIVILEGED AND CONFIDENTIAL NOT FOR FILING

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

TABLE OF AUTHORITIES

PRELIMINARY STATEMENT

STATEMENT OF FACTS

LEGAL STANDARD

ARGUMENT

CONCLUSION

CALDERWOOD & HARKNESS LLP

CALDERWOOD & HARKNESS LLP

VANTOR HOLDINGS CORP.,

STONEFIELD LOGISTICS GROUP INC.,

Record

Parties

Dates

Amounts