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

memo-counterclaim-strategy.docx DOCUMENT Litigation

136 / 150 ← → ✕

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Samuel Eklund, Responsible Partner, Litigation (General)

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

DATE: January 6, 2023

RE: Counterclaim Strategy — Declaratory Judgment Counterclaim in Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.)

MATTER NO.: 1012-00005

CLIENT: Stonefield Logistics Group Inc.

I. Purpose and Summary

This memorandum analyzes the merits and strategic value of asserting a counterclaim for declaratory judgment in Stonefield Logistics Group Inc.'s ("Stonefield" or "SLG") Answer to the Amended Complaint filed by Vantor Holdings Corp. ("Vantor") on December 2, 2022, in the above-captioned action. The purpose of this memorandum is to provide a comprehensive assessment of the legal and strategic considerations bearing on the decision to assert such a counterclaim and to recommend a course of action in advance of the January 13, 2023 filing deadline.

The proposed counterclaim seeks three declarations from the Court:

(1) That Stonefield's termination of the Transportation Services Agreement dated March 15, 2019 (the "TSA," Ref. No. SLG-VTS-2019-0315) was valid and constituted a termination for Cause under Section 13.1(a) of the TSA;

(2) That no liquidated damages are owed to Vantor or Vantor Transport Services LLC ("VTS") under Section 14.2 of the TSA because the termination was for Cause, and Section 14.2 by its express terms applies only to terminations "other than for Cause"; and

(3) That any material breach of the TSA was committed by VTS — not by Stonefield — through VTS's sustained failure to meet its Service Level Obligations, its unauthorized reduction of fleet capacity, and its failure to cure within the contractually specified 30-day cure period.

Conclusion and Recommendation. The counterclaim should be asserted. It affirmatively frames Stonefield's narrative, shifts the litigation posture from purely defensive to offensive, preserves Stonefield's right to seek affirmative relief, and positions Stonefield for a motion for summary judgment on the validity of the termination. The counterclaim is legally sound, coextensive with Stonefield's existing affirmative defenses, and poses no material risk of expanding the scope of discovery or increasing costs. The target filing date for the Answer, Affirmative Defenses, and Counterclaim is January 13, 2023.

II. Background

A. The TSA and Termination

The Transportation Services Agreement was executed on March 15, 2019 between Stonefield Logistics Group Inc., in its capacity as "Shipper-Broker," and Vantor Transport Services LLC, a wholly owned subsidiary of Vantor Holdings Corp., in its capacity as "Carrier-Provider." The TSA established a five-year term commencing April 1, 2019 and running through March 31, 2024. The agreement was drafted by Ashford Meridian LLP on behalf of Stonefield, is governed by the laws of the State of New York (Section 16.3), and contains a forum selection clause designating the United States District Court for the Southern District of New York or the Supreme Court of the State of New York, New York County, as the exclusive fora for the resolution of any disputes arising out of or related to the agreement (Section 16.4).

The TSA established an Annual Committed Volume ("ACV") of $43.2 million per contract year, resulting in a total five-year minimum commitment of approximately $216 million. This commitment was structured across 14 designated "Primary Lanes" and 22 "Secondary Lanes" as set forth in Schedule C to the TSA, with exclusivity obligations applying only to the Primary Lanes.

The TSA further imposed detailed Service Level Obligations ("SLOs") on VTS, set forth in Schedule B, against which VTS's performance was to be measured on a quarterly basis. The relevant SLO thresholds were as follows:

VTS's performance in the fourth quarter of 2021 fell materially below all five SLOs simultaneously, reflecting not an isolated shortfall in a single metric but a systemic breakdown in VTS's operational capacity. Specifically, the Q4 2021 performance data, as compiled by Stonefield's Transportation Management System and verified by the Contract Compliance team, reflected the following:

In response to these documented deficiencies, Stonefield issued a formal Cure Notice on January 18, 2022. The Cure Notice was prepared and transmitted by Raymond Hess, Director of Contract Compliance at Stonefield, to Sandra Milescu, Chief Operating Officer of Vantor and VTS. The Cure Notice identified each SLO deficiency with reasonable particularity as required under Section 13.2 of the TSA, specifying for each metric the applicable threshold, the actual performance figure, the relevant measurement period, and the contractual provision at issue.

Under Section 13.2, VTS was afforded a 30-day cure period to remediate the identified deficiencies. That 30-day period expired on February 17, 2022. On February 14, 2022, three days before the expiration of the cure period, VTS responded via a letter from Derek Pruitt, Vice President of Operations at VTS, addressed to Raymond Hess. The Pruitt letter acknowledged what it characterized as "operational challenges" attributable to industry-wide driver shortages, supply chain disruptions, and related market conditions, but it did not identify any specific remedial measures that had been implemented, did not provide updated performance metrics demonstrating actual improvement, and did not request an extension of the cure period. In substance, the Pruitt letter was an acknowledgment of the problem without a demonstration of actual remediation.

Having received no adequate cure within the specified period, Stonefield terminated the TSA effective March 4, 2022. The termination was effected by formal letter from Tobias Wren, General Counsel of Stonefield Logistics Group Inc., addressed to both Vantor Holdings Corp. and VTS. The termination letter cited VTS's failure to cure material breaches of the TSA within the 30-day cure period as the basis for termination under Section 13.1(a). At the time of termination, the remaining term of the TSA was approximately two years and 27 days — from March 4, 2022 through the originally scheduled expiration date of March 31, 2024.

B. Vantor's Claims (Amended Complaint, December 2, 2022)

Vantor's Amended Complaint, filed on December 2, 2022, alleges that Stonefield wrongfully terminated the TSA and seeks approximately $95.4 million in total damages. The claimed damages are comprised of the following components:

Liquidated damages under Section 14.2: $67,230,000. Vantor calculates this figure by applying the formula set forth in Section 14.2 — 75% of the ACV multiplied by the number of remaining years in the term. Vantor computes this as $64.8 million for the two full remaining contract years (75% × $43.2M × 2 = $64.8M) plus $2,430,000 for the partial year of 27 days ($43.2M × 75% × 27/360 = ~$2.43M).

Lost profits: $18,700,000. Vantor claims it would have earned a 12% operating margin on the remaining committed volume for the balance of the TSA term.

Stranded assets: $5,200,000. Vantor alleges that it invested in dedicated equipment (tractors, trailers, and related assets) that were rendered idle or unmarketable as a result of the termination.

Workforce reduction costs: $2,870,000. Vantor claims it was required to terminate approximately 180 personnel — drivers, dispatchers, and support staff — who were assigned to the Stonefield account, incurring severance and related costs.

Mitigation costs: $1,400,000. Vantor alleges it incurred costs in its efforts to re-deploy assets and personnel and to identify alternative customers for the capacity previously dedicated to the Stonefield account.

Vantor's Amended Complaint, which superseded the original Complaint filed August 12, 2022, added several new factual allegations that bear directly on the counterclaim analysis. Specifically, the Amended Complaint alleges:

(1) Volume shortfall: Stonefield failed to tender the full ACV in Contract Years 2 and 3. In Contract Year 2 (April 2020 – March 2021), Stonefield tendered only $31.8 million of the $43.2 million ACV. In the partial Contract Year 3 period (April 2021 – March 2022), Stonefield tendered $36.5 million. Vantor contends these shortfalls themselves constituted material breaches of the TSA.

(2) Exclusivity violations: Stonefield diverted freight to Cascade Freight Systems Inc. and Briarwood Trucking Co. in violation of the exclusivity provisions set forth in Schedule C to the TSA.

(3) Pretextual termination: Stonefield's termination was pretextual, motivated not by genuine performance concerns but by a desire to avoid a 14.3% rate increase effective April 1, 2022, under the Rate Adjustment Mechanism set forth in Section 7.4 of the TSA. This rate increase would have raised the weighted average per-mile rate from $2.87 to $3.28, adding approximately $6.2 million in annual transportation costs.

(4) Causation defense: VTS's performance deficiencies in Q4 2021 were caused by Stonefield's own volume shortfalls, which prevented VTS from maintaining the operational scale necessary to meet the SLOs.

Vantor is represented in this matter by Caldwell Royce & Shapiro LLP. The lead attorney is Harrison Caldwell, with Meredith Shapiro serving as co-counsel. Senior Associate Jason Whitford and Associate Alina Petrov round out the opposing trial team. Vantor has engaged Dr. Philip Trask of Trask Greystone & Associates as its damages expert. As of the date of this memorandum, Dr. Trask's expert report has not yet been served; it is anticipated during the expert discovery phase pursuant to the Case Management Order.

C. Procedural Posture

The original Complaint was filed on August 12, 2022. Calderwood & Harkness LLP was engaged by Stonefield on September 1, 2022, and a Notice of Appearance on behalf of Stonefield was filed on September 8, 2022.

On October 14, 2022, Stonefield filed a Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing, among other grounds, that the liquidated damages clause in Section 14.2 of the TSA is unenforceable as a penalty under New York law and that Vantor's lost profits claim was inadequately pleaded. Vantor filed its opposition to the Motion to Dismiss on November 18, 2022, and Stonefield filed its reply brief on December 5, 2022.

However, on December 2, 2022 — prior to the filing of Stonefield's reply — Vantor filed the Amended Complaint as of right under Federal Rule of Civil Procedure 15(a)(1)(B), which permits amendment as of right within 21 days of the service of a responsive pleading or motion under Rule 12(b), (e), or (f). The filing of the Amended Complaint rendered the pending Motion to Dismiss moot, as the Amended Complaint superseded the original Complaint. The Court denied the Motion to Dismiss as moot by text order dated December 16, 2022.

Stonefield's Answer to the Amended Complaint is due January 13, 2023, pursuant to Federal Rule of Civil Procedure 15(a)(3), which provides 14 days from service of an amended pleading in which to respond. Stonefield obtained an extension of that deadline by stipulation of the parties approved by the Court, resulting in the current January 13 deadline. It is within the context of this Answer that the proposed counterclaim would be asserted.

An initial pretrial conference has been scheduled for February 10, 2023, before the Honorable Margaret T. Calloway, United States District Judge.

III. The Proposed Counterclaim

A. Nature and Scope

The proposed counterclaim is a counterclaim for declaratory judgment pursuant to 28 U.S.C. § 2201 (the Declaratory Judgment Act) and Federal Rule of Civil Procedure 13(a), which governs compulsory counterclaims. The counterclaim arises out of the same transaction or occurrence as Vantor's claims — namely, the TSA and Stonefield's termination thereof — and is therefore compulsory under Rule 13(a).

The counterclaim seeks three specific declarations from the Court:

First Declaration (Count I — Valid Termination for Cause): That Stonefield's March 4, 2022 termination of the TSA was valid and constituted a termination for Cause under Section 13.1(a) of the TSA, based on VTS's material breach of the Service Level Obligations set forth in Schedule B, VTS's failure to cure such breaches within the 30-day cure period specified in Section 13.2, and the procedural compliance of Stonefield's Cure Notice and termination letter with the requirements of Sections 13.1 and 13.2.

Second Declaration (Count II — No Liquidated Damages Owed): That no liquidated damages are owed to Vantor or VTS under Section 14.2 of the TSA because Section 14.2, by its express terms, applies only when the Shipper-Broker terminates the agreement "other than for Cause." If the Court declares that the termination was for Cause under Count I, the liquidated damages provision is inapplicable as a matter of contract interpretation, and no further analysis of the enforceability of the liquidated damages clause is necessary. This Count operates as a logical and legal corollary to Count I.

Third Declaration (Count III — VTS's Material Breach): That VTS committed the material breach of the TSA through (a) its sustained failure to meet the SLOs in Q4 2021 across all five measured metrics, (b) its unauthorized reduction of fleet capacity — specifically, the redeployment of approximately 85 tractors from Stonefield-dedicated lanes to other customer commitments in or about October–November 2021, as evidenced by the Milescu-to-Vantorovich email of November 12, 2021 (VHC-008417) — and (c) its failure to cure these material breaches within the 30-day cure period following receipt of Stonefield's January 18, 2022 Cure Notice. This third declaration completes the narrative arc of the counterclaim by identifying VTS, not Stonefield, as the party responsible for the breakdown of the contractual relationship.

B. Compulsory Counterclaim Analysis

Under Federal Rule of Civil Procedure 13(a)(1), a pleading "must state as a counterclaim any claim that — at the time of its service — the pleader has against an opposing party if the claim ... arises out of the transaction or occurrence that is the subject matter of the opposing party's claim." The "transaction or occurrence" test is broadly construed in the Second Circuit. Courts apply a "logical relationship" test, asking whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in a single proceeding. See Jones v. Ford Motor Credit Co., 358 F.3d 205, 209 (2d Cir. 2004); Critical-Vac Filtration Corp. v. Minuteman Int'l, Inc., 233 F.3d 697, 699 (2d Cir. 2000).

Stonefield's proposed counterclaim plainly arises out of the identical transaction and occurrence underlying Vantor's breach of contract claims — the execution, performance, and termination of the TSA. The counterclaim seeks judicial declaration regarding the very same termination that Vantor challenges as wrongful. The essential facts underlying both Vantor's claims and Stonefield's counterclaim are identical: the terms of the TSA, VTS's performance, the Cure Notice and cure process, and the termination itself. There is no credible argument that the counterclaim does not arise from the same transaction or occurrence as Vantor's affirmative claims.

The failure to assert a compulsory counterclaim may result in waiver of that claim under the doctrine of res judicata. While the Second Circuit has not adopted a per se waiver rule, it has consistently held that the failure to assert a compulsory counterclaim generally bars the claim in a subsequent action. See Tarvick v. Gold Seal Liquors, Inc., 417 U.S. 467, 469 n.1 (1974); Polymer Indus. Prods. Co. v. Bridgestone/Firestone, Inc., 347 F.3d 935, 938 (Fed. Cir. 2003). It is therefore prudent, and indeed necessary, to assert the counterclaim now in order to preserve Stonefield's right to seek affirmative relief.

With respect to subject matter jurisdiction, the counterclaim invokes the same diversity jurisdiction basis as Vantor's claims. Vantor Holdings Corp. is a Delaware corporation with its principal place of business in Parsippany, New Jersey. Stonefield Logistics Group Inc. is a New York corporation with its principal place of business in New York, New York. Complete diversity of citizenship exists, and the amount in controversy exceeds $75,000, satisfying the requirements of 28 U.S.C. § 1332(a). Additionally, the counterclaim qualifies for supplemental jurisdiction under 28 U.S.C. § 1367(a) as it forms part of the same case or controversy as Vantor's claims.

The forum is appropriate under the TSA's forum selection clause, which designates the Southern District of New York as an exclusive forum for disputes arising under or related to the agreement. No venue or forum objection is anticipated.

IV. Merits Analysis of the Counterclaim

A. Strength of Valid Termination for Cause Defense

The merits of the proposed counterclaim are strong. The factual record supporting Stonefield's position that the termination was valid for Cause under Section 13.1(a) is extensive, well-documented, and largely undisputed in its core elements.

Severity and breadth of VTS's performance failures. VTS's Q4 2021 performance failures were not confined to a single metric or a narrow time window. Rather, VTS failed all five SLOs simultaneously over a sustained three-month period. Every measured dimension of VTS's operational performance — pickup timeliness, delivery timeliness, tender acceptance, equipment availability, and cargo integrity — fell materially below the contractually required thresholds. The on-time pickup rate of 78.2% represented a shortfall of nearly 17 percentage points below the 95% threshold. The tender acceptance rate of 71.4% fell nearly 19 percentage points below the 90% threshold. Equipment availability at 62% meant that approximately 152 of the committed 400 tractors were unavailable — a deficiency of staggering proportions for a logistics operation of this scale. These are not marginal misses subject to reasonable debate; they reflect a fundamental inability or unwillingness on VTS's part to perform its contractual obligations.

Compliance with the Cure Notice requirement. The Cure Notice issued by Raymond Hess on January 18, 2022 satisfied Section 13.2's requirement that deficiencies be specified with "reasonable particularity." The Cure Notice identified each metric by name, stated the applicable SLO threshold, provided the actual performance figure for Q4 2021, cited the specific section of Schedule B at issue, and stated that failure to cure within 30 days would entitle Stonefield to terminate under Section 13.1(a). This analysis is consistent with and supported by the Memorandum re Adequacy of Cure Notice prepared by Simone Laroche on October 20, 2022, which concluded that the Cure Notice was procedurally compliant in all material respects.

Inadequacy of VTS's cure response. Vantor's February 14, 2022 response — the Pruitt letter — is conspicuously devoid of any demonstration of actual remediation. While the letter acknowledged "operational challenges," it identified no specific corrective actions, set no timeline for improvement, and provided no updated performance data suggesting that VTS was trending toward compliance. Moreover, post-cure-period data from Stonefield's internal systems for March 2022 confirmed that VTS's performance had not meaningfully improved: on-time pickup remained below 82%, equipment availability remained in the low 60% range, and the tender acceptance rate was still below 75%. The Memorandum re Sufficiency of Cure, prepared by Simone Laroche on November 1, 2022, analyzed the Pruitt letter and the post-cure-period data and concluded that VTS had not effected a cure within the meaning of Section 13.2.

New York law material breach standard. Under New York law, whether a breach is "material" is a fact-intensive inquiry guided by the factors set forth in the Restatement (Second) of Contracts § 241, which New York courts have adopted. See Ashgrove & Co. v. Camberwell Industries, 500 F.3d 171, 186 (2d Cir. 2007). Those factors include: (a) the extent to which the injured party will be deprived of the benefit reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which it will be deprived; (c) the extent to which the breaching party will suffer forfeiture; (d) the likelihood that the breaching party will cure its failure; and (e) the extent to which the behavior of the breaching party comports with standards of good faith and fair dealing. As analyzed in the Memorandum re Material Breach Standard Under NY Law prepared by Simone Laroche on September 16, 2022, all factors favor Stonefield in this case. The deprivation of benefit was substantial (a logistics provider that cannot pick up or deliver freight on time and lacks the equipment to do so is providing no meaningful service); VTS demonstrated no likelihood of cure; and, most critically, VTS's unilateral redeployment of 85 tractors from Stonefield-dedicated lanes to other accounts — apparently without notice — raises serious questions about VTS's good faith.

Key documentary evidence. The strength of the counterclaim is significantly bolstered by the Milescu-to-Vantorovich email dated November 12, 2021 (document identification VHC-008417). This email, obtained from Vantor's own files and expected to be produced during discovery, was sent by Sandra Milescu, COO of Vantor/VTS, to Andrei Vantorovich, the controlling shareholder and CEO of Vantor Holdings Corp. The email states, in relevant part: "We've pulled 85 tractors off the SLG dedicated lanes to cover [redacted] commitments. SLG won't notice until January." This communication is remarkable for several reasons. First, it demonstrates that VTS's fleet redeployment was intentional and deliberate — not the result of force majeure, market conditions, or any of the industry-wide factors cited in the Pruitt cure response letter. Second, it reveals that the redeployment was covert — VTS expected Stonefield would not "notice" the diversion until January 2022, confirming that VTS did not provide Stonefield with notice or seek consent, as would be required for any material change in the committed fleet capacity. Third, it directly undermines Vantor's amended allegation that VTS's performance failures were caused by Stonefield's volume shortfalls. If VTS was pulling tractors to serve other customers, the root cause of the equipment availability and performance failures lay squarely within VTS's own operational decisions.

B. No Liquidated Damages Owed

The second declaration sought by the counterclaim — that no liquidated damages are owed under Section 14.2 — follows logically from the first. Section 14.2 of the TSA provides for liquidated damages only in the event that the Shipper-Broker terminates the agreement "other than for Cause." The language is unambiguous: liquidated damages are a contractual remedy available to VTS solely in circumstances where Stonefield terminates the agreement without Cause — for example, a termination for convenience. If the Court declares, as Count I requests, that the termination was for Cause under Section 13.1(a), then Section 14.2 is inapplicable by its own terms, and the $67.23 million liquidated damages claim — which constitutes approximately 70% of Vantor's total claimed damages — is extinguished.

Even in the event the Court were to find that the termination was not for Cause, there remains an independent basis for challenging the liquidated damages clause as an unenforceable penalty under New York law. The enforceability of a liquidated damages provision under New York law is assessed under a two-part test: (1) whether the amount was a reasonable estimate of the anticipated harm at the time of contracting, and (2) whether actual damages would be difficult to ascertain at the time the contract was formed. See Truck Rent-A-Ctr., Inc. v. Purdy Corp., 41 N.Y.2d 354, 355 (1977); JMD Holding Corp. v. Cong. Fin. Corp., 4 N.Y.3d 373, 379–80 (2005). As analyzed in the Memorandum re Enforceability of Liquidated Damages Clause prepared by Simone Laroche on September 19, 2022, the $67.23 million figure appears grossly disproportionate to any reasonable estimate of Vantor's actual damages from a no-cause termination. The memorandum concluded that there is a "moderate" likelihood that the clause would be found unenforceable as a penalty, though this is necessarily a fact-specific determination that may turn on the parties' intent and the financial modeling underlying the 75%-of-ACV formula.

The counterclaim's primary path to eliminating the liquidated damages claim, however, does not depend on the penalty analysis. If the for-Cause termination is validated, the liquidated damages provision simply does not apply.

C. First-to-Breach Doctrine

The counterclaim narrative can and should incorporate a first-to-breach theory, which provides an alternative and independently sufficient basis for a finding that VTS, not Stonefield, was the breaching party.

Under New York law, the first-to-breach doctrine provides that a party who commits the first material breach of a contract cannot recover damages from the other party for subsequent non-performance. See RCN Telecom Servs., Inc. v. 202 Centre St. Realty LLC, 156 Fed. App'x 349, 350–51 (2d Cir. 2005); Ashgrove & Co., 500 F.3d at 186. The doctrine operates to excuse the non-breaching party's subsequent performance obligations and to bar the breaching party from recovering for the non-breaching party's resulting non-performance.

Here, VTS committed the first material breach by unilaterally and covertly reducing its committed fleet capacity in or about October 2021. The Milescu email of November 12, 2021 confirms that VTS "pulled 85 tractors off the SLG dedicated lanes" to cover commitments to the Northwind Distribution Co. account. This redeployment was undertaken without Stonefield's knowledge or consent, in direct violation of VTS's equipment availability obligation under Schedule B (≥ 85% of the committed 400 tractors, or at least 340 tractors). By unilaterally reducing available equipment to approximately 315 tractors (and ultimately to ~248 tractors by Q4 2021), VTS committed a material breach of its core performance obligations before any alleged volume shortfall by Stonefield.

The first-to-breach theory is particularly valuable in this case because it directly neutralizes Vantor's newly pleaded causation argument — the allegation that VTS's performance failures were caused by Stonefield's volume shortfalls. If VTS breached first by pulling tractors off the Stonefield account, Stonefield's subsequent performance (or non-performance) with respect to volume tenders is excused or at minimum cannot be cited as the cause of VTS's pre-existing breach.

A more detailed analysis of the first-to-breach doctrine and its application to the facts of this case is planned for a separate memorandum, anticipated for March 2023, which will address the doctrine's interaction with the parties' respective performance obligations and the timeline of alleged breaches.

D. Addressing Vantor's Anticipated Counter-Arguments

Vantor's Amended Complaint advances several theories that are designed to recast VTS's performance failures as the consequence of Stonefield's own conduct. Each of these theories must be addressed in the counterclaim and in our broader litigation strategy. The analysis below summarizes the principal counter-arguments and Stonefield's responses.

Volume shortfall defense. Vantor alleges that Stonefield tendered only $31.8 million of the $43.2 million ACV in Contract Year 2 (April 2020 – March 2021) and $36.5 million in partial Contract Year 3 (April 2021 – March 2022). Stonefield's response is that the CY2 shortfall is substantially explained by the force majeure provision in Section 12.1 of the TSA. The COVID-19 pandemic, which severely disrupted freight volumes across the logistics industry from approximately April through September 2020, constituted a force majeure event within the meaning of Section 12.1. Adjusting the CY2 ACV to account for the six-month period of pandemic-related volume disruption yields a prorated ACV of $21.6 million ($43.2 million × 6/12), against which the actual tenders of $31.8 million represent an overage of $10.2 million — not a shortfall. With respect to CY3, the $36.5 million tendered over approximately 10 months (April 2021 through January 2022, when the Cure Notice was issued) is consistent with a prorated annualized run rate of approximately $43.8 million, which would have met or exceeded the ACV had the contract continued through the full year. The CY3 volume data is subject to further analysis and may require expert input to fully develop.

Exclusivity violation defense. Vantor alleges that Stonefield violated the exclusivity provisions of the TSA by diverting freight to Cascade Freight Systems Inc. and Briarwood Trucking Co. Stonefield's position is that its use of these alternative carriers was confined to Lanes 8 through 14, which are classified as "Secondary Lanes" under Schedule C, Section 2(b) of the TSA. The exclusivity obligations in Schedule C, Section 2(a) apply only to the 14 designated "Primary Lanes." Stonefield's engagement of Cascade and Briarwood on Secondary Lanes was expressly permitted under the TSA and did not constitute a breach. This analysis is set forth in detail in the Memorandum re Exclusivity Analysis — Schedule C Lanes prepared by Simone Laroche on September 30, 2022, which concluded that Stonefield's usage of alternative carriers on Secondary Lanes was contractually permissible.

Pretextual termination defense. Vantor's allegation that the termination was pretextual — motivated by a desire to avoid the 14.3% rate increase effective April 2022 — presents a litigation risk that must be acknowledged candidly. The rate increase under the Rate Adjustment Mechanism (Section 7.4) would have raised the weighted average per-mile rate from $2.87 to $3.28, adding approximately $6.2 million in annual transportation costs. Additionally, an internal Stonefield email from Martin Kirkwood, Senior Vice President of Supply Chain, to Tobias Wren, dated September 22, 2021, states: "if VTS doesn't get its act together by Q1 I think we pull the plug on the whole contract." This email, while reflecting legitimate frustration with VTS's deteriorating performance, could be characterized by Vantor as evidence that the termination was economically motivated.

However, New York law is clear that courts do not inquire into the subjective motivation for a termination when objective contractual grounds for termination are satisfied. See Sabella v. Scantek Med., Inc., 2009 WL 3233703, at 12 (S.D.N.Y. Oct. 7, 2009); Moran v. Erk*, 11 N.Y.3d 452, 457 (2008). If the contractual requirements for a Cause-based termination were met — material breach, conforming Cure Notice, failure to cure, formal termination — the fact that Stonefield may also have had economic reasons to exit the relationship does not render the termination invalid. The Memorandum re Pretext and Good Faith in Termination for Cause, prepared by Simone Laroche on October 7, 2022, reaches the same conclusion, though it notes that the Kirkwood email will require careful handling in discovery and at deposition.

The counterclaim itself can preemptively address the pretext theory by affirmatively pleading the objective, documented performance failures that formed the basis for the termination. By foregrounding the SLO data, the Cure Notice, the inadequate cure response, and the covert fleet redeployment, the counterclaim frames the termination as a measured, contractually grounded response to VTS's operational failures, rather than a pretext for cost avoidance.

V. Strategic Value of the Counterclaim

A. Narrative Framing

The assertion of a counterclaim fundamentally alters the narrative structure of this litigation. Without a counterclaim, Stonefield occupies a purely defensive posture: Vantor is the plaintiff, Vantor tells its story, and Stonefield responds. The entire case is framed through the lens of Vantor's grievance — a shipper that terminated a lucrative contract to avoid paying for services it had committed to. The affirmative defenses in the Answer, while legally sufficient, do not affirmatively tell Stonefield's story; they merely rebut Vantor's.

A declaratory judgment counterclaim changes this dynamic in several important ways. First, it positions Stonefield as a party with its own affirmative claims — a party that was aggrieved by VTS's performance failures and is seeking judicial vindication of its right to terminate. Second, it reframes the central question of the case: the issue is no longer simply "Did Stonefield wrongfully terminate?" but also "Did VTS breach, and was Stonefield justified in terminating?" Third, it introduces a second narrative thread that runs through every phase of the litigation — from the initial pretrial conference scheduled for February 10, 2023, before the Honorable Margaret T. Calloway, through fact discovery, expert discovery, summary judgment briefing, and, if necessary, trial.

The presence of an active counterclaim signals confidence in the merits and may influence the Court's perception of the equities at every stage. A defendant who merely denies the allegations and asserts defenses looks like a party trying to avoid liability. A defendant who asserts its own claims looks like a party that believes it was right — and wants the Court to say so.

B. Summary Judgment Positioning

Perhaps the most significant strategic benefit of the counterclaim is the independent vehicle it provides for seeking summary judgment on the validity of the termination. At the summary judgment stage, Stonefield can move affirmatively on the counterclaim — seeking a declaration that the termination was for Cause — while simultaneously defending against Vantor's breach of contract claims. This dual posture is strategically advantageous because it allows Stonefield to present the summary judgment motion as an affirmative request for relief, not merely a defensive motion to dismiss Vantor's claims.

The factual predicate for summary judgment on the counterclaim is strong. If the undisputed record establishes that:

(i) VTS failed all five SLOs in Q4 2021, as documented in Stonefield's Transportation Management System data and confirmed by VTS's own acknowledgment in the Pruitt letter;

(ii) Stonefield issued a Cure Notice that satisfied Section 13.2's requirement of reasonable particularity;

(iii) VTS did not cure the identified deficiencies within the 30-day cure period, and its February 14, 2022 response did not demonstrate remediation; and

(iv) Stonefield terminated the TSA pursuant to Section 13.1(a), following expiration of the cure period, by formal letter citing the specific contractual provision,

then the counterclaim offers a clean vehicle for a declaration that the termination was valid for Cause, which would effectively resolve the entire case. If the termination was for Cause, no liquidated damages are owed under Section 14.2 (eliminating $67.23 million of Vantor's $95.4 million claim), and Vantor's wrongful termination claim fails as a matter of law.

Even if full summary judgment is not obtainable — for example, if the Court concludes that the Kirkwood email or the upcoming rate increase creates a genuine issue of material fact on the question of pretext — partial summary judgment on the validity of the Cause determination would still be transformative. A declaration that VTS's Q4 2021 performance constituted a material breach and that Stonefield's Cure Notice complied with Section 13.2 would narrow the remaining issues for trial and eliminate the liquidated damages claim, which at $67.23 million constitutes the vast majority of Vantor's total exposure.

C. Settlement Leverage

The existence of an active counterclaim, particularly one supported by strong documentary evidence, materially enhances Stonefield's leverage in any future settlement discussions. The Milescu email, the VTS Q4 2021 performance data, the Cure Notice and cure response, and the termination letter collectively paint a compelling picture of a carrier that failed to perform and was terminated for legitimate reasons. When this evidence is presented not merely in defense but in support of an affirmative claim, it conveys to opposing counsel that Stonefield is prepared to prosecute this matter to judgment — and expects to win.

From a practical standpoint, Vantor's litigation costs increase with the assertion of a counterclaim. Vantor must answer the counterclaim, address the counterclaim in discovery, and defend against it at summary judgment and trial. While the incremental cost to Vantor may be modest given the overlap with the existing claims, the psychological and strategic effect of defending against a counterclaim — particularly one that seeks a declaration that Vantor's subsidiary was the breaching party — should not be underestimated.

Stonefield's current settlement authority, as set forth in the Settlement Authority Memorandum dated November 8, 2022, ranges from $0 to $4.5 million. The counterclaim strengthens Stonefield's negotiating position within this range by establishing that Stonefield has a viable path to a complete defense verdict — and indeed to an affirmative judicial declaration in its favor. Vantor's willingness to accept a resolution within Stonefield's settlement range is likely to increase if Vantor perceives that its $67.23 million liquidated damages claim is at serious risk of being eliminated at summary judgment.

Additionally, the existence of a pending counterclaim may complicate any future attempt by Vantor to voluntarily dismiss its claims without prejudice under Federal Rule of Civil Procedure 41(a). Under Rule 41(a)(2), a plaintiff may seek voluntary dismissal by court order, but only "on terms that the court considers proper." The presence of a counterclaim does not automatically bar voluntary dismissal, but courts in the Second Circuit routinely consider the prejudice to the defendant — including the loss of the opportunity to adjudicate a pending counterclaim — in ruling on voluntary dismissal motions. See Zagano v. Fordham Univ., 900 F.2d 12, 14 (2d Cir. 1990). A pending counterclaim thus serves as a form of insurance against Vantor's potential strategic withdrawal.

D. Protection Against Vantor's Potential Counterstrategy

There are indications that Vantor's litigation position may be less robust than its damages figures suggest. We have received information suggesting that Caldwell Royce & Shapiro LLP may be experiencing difficulties with the client engagement, including significant unpaid invoices of approximately $870,000. If these difficulties persist or intensify, Vantor may seek to abandon or scale back its claims rather than invest further in a case whose outcome is uncertain.

Without a pending counterclaim, Vantor's abandonment of its claims would leave Stonefield without a judgment on the merits. While Stonefield would no longer face liability exposure, it would also lack a judicial determination establishing the validity of the termination. This creates a risk of relitigation: Vantor or VTS could, at some future date, re-file substantially similar claims (subject to any applicable statute of limitations) or assert the same theories in a different forum or context — for example, in connection with a claim by a third party, a regulatory proceeding, or a dispute with a different counterparty who might point to the unresolved Vantor dispute as evidence of Stonefield's litigation exposure.

The counterclaim ensures that even if Vantor abandons its claims, Stonefield can prosecute its counterclaim to judgment and obtain a declaration establishing the validity of the termination. Such a declaration would have preclusive effect under the doctrine of collateral estoppel (issue preclusion) in any future litigation between Vantor, VTS, and Stonefield — or, in appropriate circumstances, against non-parties who are in privity with Vantor or VTS.

E. Minimal Cost and Risk

The costs and risks associated with asserting the counterclaim are minimal, for several reasons.

First, the counterclaim is asserted as part of the Answer and Affirmative Defenses; no additional filing fee is required for a compulsory counterclaim under the Local Rules of the Southern District of New York.

Second, the factual and legal basis for the counterclaim overlaps entirely with Stonefield's affirmative defenses, particularly the defenses of valid termination for Cause, contributory breach, unclean hands, and setoff. The counterclaim does not introduce new factual theories that would require additional investigation, document collection, or expert analysis beyond what is already contemplated for the defense of Vantor's claims.

Third, there is no meaningful risk that the counterclaim will expand the scope of discovery. The counterclaim turns on the same facts as Vantor's breach claims: the terms of the TSA, VTS's performance data, the Cure Notice and cure response, and the termination. Vantor's discovery requests and depositions would cover this same ground regardless of whether the counterclaim is asserted.

Fourth, the counterclaim seeks only declaratory relief — not monetary damages against Vantor. Stonefield is not asserting a claim for damages resulting from VTS's breach (e.g., the costs of engaging replacement carriers, the disruption to Stonefield's supply chain, or the increased costs of transitioning to Cascade and Briarwood). This is a deliberate strategic choice. By limiting the counterclaim to declaratory relief, Stonefield avoids any suggestion that it is attempting to extract a settlement payment from Vantor and eliminates any risk that an aggressive damages claim could backfire by alienating the Court or creating unnecessary complexity.

Fifth, Vantor's response to the counterclaim — an Answer to the Counterclaim — is unlikely to raise novel issues beyond those already presented in its Amended Complaint. Vantor will presumably deny the counterclaim's allegations and reassert its theories of volume shortfall, exclusivity violation, and pretext. These are the same issues Stonefield must address regardless of the counterclaim.

VI. Drafting Considerations

A. Counterclaim Structure

The counterclaim should be pleaded as an integral part of the Answer and Affirmative Defenses document, following the affirmative defenses section, under a clearly delineated heading: "COUNTERCLAIM FOR DECLARATORY JUDGMENT." The counterclaim should be organized into three counts corresponding to the three declarations sought:

Count I — Declaration of Valid Termination for Cause. This Count should allege the material terms of the TSA, the SLOs, VTS's Q4 2021 performance failures, the Cure Notice and its compliance with Section 13.2, VTS's failure to cure, and Stonefield's March 4, 2022 termination under Section 13.1(a). The Count should conclude with a request for a declaration that the termination was valid and constituted a termination for Cause.

Count II — Declaration That No Liquidated Damages Are Owed. This Count should allege the terms of Section 14.2, including its express limitation to terminations "other than for Cause," and should incorporate by reference the factual allegations of Count I. The Count should conclude with a request for a declaration that no liquidated damages are owed.

Count III — Declaration of VTS's Material Breach. This Count should allege VTS's material breach of the TSA through its sustained SLO failures, its unauthorized and covert reduction of fleet capacity (incorporating the Milescu email as a key factual allegation), and its failure to cure. The Count should conclude with a request for a declaration that VTS committed the material breach of the TSA.

The factual allegations supporting the counterclaim should be set forth in a dedicated "Factual Allegations" section preceding the three Counts. These factual allegations should include, at minimum: (a) the identity and relationship of the parties; (b) the material terms of the TSA, including the SLOs and the termination-for-Cause provisions; (c) a detailed recitation of VTS's Q4 2021 performance data; (d) the Cure Notice, including its date, the person who issued it, the person to whom it was directed, and a summary of its contents; (e) VTS's February 14, 2022 cure response and its deficiencies; (f) VTS's unauthorized fleet redeployment, as evidenced by the Milescu email; and (g) Stonefield's March 4, 2022 termination letter.

The prayer for relief should request (i) declaratory relief under 28 U.S.C. § 2201, (ii) attorneys' fees and costs to the extent permitted by the TSA or applicable law, and (iii) such other and further relief as the Court deems just and proper.

B. Consistency with Affirmative Defenses

The counterclaim must be carefully drafted to ensure consistency with, and to complement, the 14 affirmative defenses to be asserted in the Answer. These affirmative defenses include, among others: valid termination for Cause; unenforceable penalty (as to Section 14.2); failure to mitigate damages; force majeure (as to CY2 volume shortfalls); unclean hands; contributory breach; waiver; estoppel; setoff; and failure to state a claim.

Particular attention must be paid to avoid any admissions in the counterclaim that could undermine the affirmative defenses. For example:

• The counterclaim should not concede that Stonefield tendered less than the full ACV in Contract Year 2 or Contract Year 3, as such a concession could undermine the force majeure defense. Instead, the counterclaim should allege that Stonefield performed its obligations under the TSA, including its volume obligations as adjusted for force majeure events.

• The counterclaim should not address Stonefield's use of Cascade Freight Systems Inc. or Briarwood Trucking Co. in a manner that could be construed as acknowledging an exclusivity violation. If any reference to alternative carriers is necessary, it should be carefully framed to specify that such usage was confined to Secondary Lanes, which were not subject to exclusivity.

• The counterclaim should frame the termination as based solely on the objective, documented performance failures of VTS, without reference to the economic benefits to Stonefield of exiting the contract (e.g., the avoided rate increase). While the counterclaim is not the place for a defensive posture on the pretext issue, careless language could create unnecessary risks.

The drafting team should cross-check every factual assertion in the counterclaim against the affirmative defenses and against the factual denials in the Answer to ensure internal consistency.

C. Coordination with Client

A draft of the counterclaim should be circulated to Tobias Wren, General Counsel of Stonefield Logistics Group Inc., for review and comment prior to filing. Mr. Wren's input will be essential to confirm the accuracy of factual allegations, to identify any sensitivities in the language, and to ensure alignment with Stonefield's overall business and litigation strategy.

Additionally, it is important to confirm with Mr. Wren and with Alison Trang at Ridgeline Capital Advisors (Stonefield's outside financial advisor) that the assertion of an affirmative counterclaim does not create complications for Stonefield's financial reporting obligations. Specifically:

• Under Section 6.03(b) of the Credit Agreement with Lakeshore National Bank, Stonefield is required to provide quarterly updates on material litigation. The assertion of a counterclaim — particularly one seeking only declaratory relief and not monetary damages — should not alter the litigation exposure characterization previously reported to Lakeshore. However, the quarterly update for Q1 2023 should note the assertion of the counterclaim and its declaratory nature.

• With respect to Clarendon Partners LLP, Stonefield's independent auditor, the counterclaim similarly should not change the disclosure analysis for financial statement purposes, since Stonefield is not asserting a monetary claim that would require recognition as a contingent asset.

The key point is that the counterclaim seeks declaratory relief only — no monetary claim against Vantor — and therefore should not trigger any incremental reporting obligations or disclosure requirements. This should be confirmed with Mr. Wren prior to filing.

VII. Burden of Proof Considerations

The assertion of a counterclaim has implications for the allocation of the burden of proof that merit careful consideration, even though they ultimately support the decision to assert the claim.

On the counterclaim, Stonefield bears the burden of proving by a preponderance of the evidence that the termination was valid for Cause under Section 13.1(a). This means Stonefield must affirmatively establish: (a) that VTS committed a material breach of the TSA; (b) that Stonefield issued a Cure Notice that complied with Section 13.2; (c) that VTS failed to cure the breach within the 30-day cure period; and (d) that Stonefield terminated the agreement pursuant to Section 13.1(a).

This creates a potential tension in the allocation of burdens. On Vantor's affirmative breach of contract claims, Vantor bears the initial burden of proving breach — i.e., that the termination was wrongful — while Stonefield bears the burden on its affirmative defenses, including the defense that the termination was for Cause. If Stonefield merely asserted Cause as an affirmative defense, the allocation of burdens would be the same as under the counterclaim. The counterclaim effectively converts Stonefield's affirmative defense into an independent claim for relief, formally placing the burden on Stonefield — but this is a burden Stonefield already bears on the affirmative defense in any event.

Critically, this allocation of burden is strategically acceptable because the factual record overwhelmingly supports Stonefield's position. The SLO failures are documented in Stonefield's Transportation Management System data. The Cure Notice is in writing and identifies each deficiency with precision. VTS's cure response is in writing and fails to demonstrate remediation. The termination letter is in writing and cites the specific contractual grounds. The Milescu email provides a "smoking gun" on VTS's intentional and covert breach. In short, the core facts are largely documented and, on the critical points, unlikely to be genuinely disputed. Stonefield is well-positioned to satisfy its burden of proof on the counterclaim.

A fuller analysis of the burden of proof allocation — including the interaction between the burdens on Vantor's claims and Stonefield's counterclaim at the summary judgment stage — will be prepared separately in a planned memorandum on Burden of Proof — Termination for Cause, which is anticipated for later in Q1 2023.

VIII. Recommendation

Based on the foregoing analysis, I recommend that Stonefield assert the declaratory judgment counterclaim as part of its Answer and Affirmative Defenses to the Amended Complaint, to be filed on January 13, 2023.

The recommendation is grounded in the following considerations:

1. Meritorious claim. The counterclaim is well-supported by the factual record and consistent with governing New York law. VTS's Q4 2021 performance failures were severe, systemic, and contemporaneously documented. The Cure Notice was procedurally compliant. VTS's cure response was substantively inadequate. The termination was effected in accordance with Section 13.1(a). The Milescu email provides powerful evidence that VTS's failures were self-inflicted.

2. Narrative framing. The counterclaim shifts Stonefield from a purely defensive posture to an affirmative one, reframing the case as a dispute in which Stonefield — not Vantor — is the aggrieved party.

3. Summary judgment positioning. The counterclaim provides an independent and clean vehicle for seeking summary judgment on the validity of the termination, which, if granted, would eliminate the liquidated damages claim ($67.23 million) and effectively resolve the case.

4. Settlement leverage. The counterclaim enhances Stonefield's leverage in settlement negotiations by demonstrating Stonefield's confidence in the merits and by imposing additional defensive burdens on Vantor.

5. Protection against abandonment. The counterclaim ensures that Stonefield can obtain a judgment on the merits even if Vantor abandons its claims.

6. Minimal cost and risk. The counterclaim is asserted as part of the Answer, requires no additional filing fee, overlaps entirely with existing defenses, and seeks only declaratory relief. It does not expand the scope of discovery or expose Stonefield to additional liability.

With respect to timing and logistics: A first draft of the Answer, Affirmative Defenses, and Counterclaim has been prepared, dated December 19, 2022, and is currently under review by the litigation team. A revised draft incorporating your comments and client input from Tobias Wren is targeted for completion by January 4, 2023, providing sufficient time for a final round of review before the January 13, 2023 filing deadline.

IX. Conclusion

The declaratory judgment counterclaim is legally sound, strategically valuable, and poses no material downside risk. It is a compulsory counterclaim under Rule 13(a) that must be asserted to avoid potential waiver, and it is affirmatively desirable because it reframes the litigation in Stonefield's favor at every stage from initial pretrial conference through disposition. The factual record — anchored by documented SLO failures, a conforming Cure Notice, an inadequate cure response, a formal termination letter, and the Milescu email — provides a strong foundation for the counterclaim and positions Stonefield favorably for summary judgment.

The counterclaim should be included in Stonefield's responsive pleading filed on January 13, 2023.

I am available at your convenience to discuss this analysis in further detail and to proceed with finalizing the counterclaim language upon your approval.

Patrick Gallagher Lead Associate, Litigation (General) Calderwood & Harkness LLP

Direct: (212) 555-4817

Email: pgallagher@calderwoodharkness.com

cc: Simone Laroche, Senior Associate, Litigation (General) (via email, encrypted) File — Matter No. 1012-00005

CALDERWOOD & HARKNESS LLP — PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT — Matter No. 1012-00005

Service Level Metric	Required Threshold
On-Time Pickup Rate	≥ 95%
On-Time Delivery Rate	≥ 93%
Cargo Claims Ratio	≤ 0.5%
Tender Acceptance Rate	≥ 90%
Equipment Availability	≥ 85% of committed fleet capacity (400 tractors, 1,200 trailers)
Service Level Metric	Required Threshold	Actual Q4 2021 Performance
On-Time Pickup Rate	≥ 95%	78.2%
On-Time Delivery Rate	≥ 93%	81.6%
Tender Acceptance Rate	≥ 90%	71.4%
Equipment Availability	≥ 85% (340 of 400 tractors)	62% (~248 tractors available)
Cargo Claims Ratio	≤ 0.5%	1.07% (16 claims totaling $387,400 in Nov.–Dec. 2021)

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Samuel Eklund, Responsible Partner, Litigation (General)
FROM: Patrick Gallagher, Lead Associate, Litigation (General)
DATE: January 6, 2023
RE: Counterclaim Strategy — Declaratory Judgment Counterclaim in Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.)
MATTER NO.: 1012-00005
CLIENT: Stonefield Logistics Group Inc.
I. Purpose and Summary
This memorandum analyzes the merits and strategic value of asserting a counterclaim for declaratory judgment in Stonefield Logistics Group Inc.'s ("Stonefield" or "SLG") Answer to the Amended Complaint filed by Vantor Holdings Corp. ("Vantor") on December 2, 2022, in the above-captioned action. The purpose of this memorandum is to provide a comprehensive assessment of the legal and strategic considerations bearing on the decision to assert such a counterclaim and to recommend a course of action in advance of the January 13, 2023 filing deadline.
The proposed counterclaim seeks three declarations from the Court:
(1) That Stonefield's termination of the Transportation Services Agreement dated March 15, 2019 (the "TSA," Ref. No. SLG-VTS-2019-0315) was valid and constituted a termination for Cause under Section 13.1(a) of the TSA;
(2) That no liquidated damages are owed to Vantor or Vantor Transport Services LLC ("VTS") under Section 14.2 of the TSA because the termination was for Cause, and Section 14.2 by its express terms applies only to terminations "other than for Cause"; and
(3) That any material breach of the TSA was committed by VTS — not by Stonefield — through VTS's sustained failure to meet its Service Level Obligations, its unauthorized reduction of fleet capacity, and its failure to cure within the contractually specified 30-day cure period.
Conclusion and Recommendation. The counterclaim should be asserted. It affirmatively frames Stonefield's narrative, shifts the litigation posture from purely defensive to offensive, preserves Stonefield's right to seek affirmative relief, and positions Stonefield for a motion for summary judgment on the validity of the termination. The counterclaim is legally sound, coextensive with Stonefield's existing affirmative defenses, and poses no material risk of expanding the scope of discovery or increasing costs. The target filing date for the Answer, Affirmative Defenses, and Counterclaim is January 13, 2023.
II. Background
A. The TSA and Termination
The Transportation Services Agreement was executed on March 15, 2019 between Stonefield Logistics Group Inc., in its capacity as "Shipper-Broker," and Vantor Transport Services LLC, a wholly owned subsidiary of Vantor Holdings Corp., in its capacity as "Carrier-Provider." The TSA established a five-year term commencing April 1, 2019 and running through March 31, 2024. The agreement was drafted by Ashford Meridian LLP on behalf of Stonefield, is governed by the laws of the State of New York (Section 16.3), and contains a forum selection clause designating the United States District Court for the Southern District of New York or the Supreme Court of the State of New York, New York County, as the exclusive fora for the resolution of any disputes arising out of or related to the agreement (Section 16.4).
The TSA established an Annual Committed Volume ("ACV") of $43.2 million per contract year, resulting in a total five-year minimum commitment of approximately $216 million. This commitment was structured across 14 designated "Primary Lanes" and 22 "Secondary Lanes" as set forth in Schedule C to the TSA, with exclusivity obligations applying only to the Primary Lanes.
The TSA further imposed detailed Service Level Obligations ("SLOs") on VTS, set forth in Schedule B, against which VTS's performance was to be measured on a quarterly basis. The relevant SLO thresholds were as follows:
VTS's performance in the fourth quarter of 2021 fell materially below all five SLOs simultaneously, reflecting not an isolated shortfall in a single metric but a systemic breakdown in VTS's operational capacity. Specifically, the Q4 2021 performance data, as compiled by Stonefield's Transportation Management System and verified by the Contract Compliance team, reflected the following:
In response to these documented deficiencies, Stonefield issued a formal Cure Notice on January 18, 2022. The Cure Notice was prepared and transmitted by Raymond Hess, Director of Contract Compliance at Stonefield, to Sandra Milescu, Chief Operating Officer of Vantor and VTS. The Cure Notice identified each SLO deficiency with reasonable particularity as required under Section 13.2 of the TSA, specifying for each metric the applicable threshold, the actual performance figure, the relevant measurement period, and the contractual provision at issue.
Under Section 13.2, VTS was afforded a 30-day cure period to remediate the identified deficiencies. That 30-day period expired on February 17, 2022. On February 14, 2022, three days before the expiration of the cure period, VTS responded via a letter from Derek Pruitt, Vice President of Operations at VTS, addressed to Raymond Hess. The Pruitt letter acknowledged what it characterized as "operational challenges" attributable to industry-wide driver shortages, supply chain disruptions, and related market conditions, but it did not identify any specific remedial measures that had been implemented, did not provide updated performance metrics demonstrating actual improvement, and did not request an extension of the cure period. In substance, the Pruitt letter was an acknowledgment of the problem without a demonstration of actual remediation.
Having received no adequate cure within the specified period, Stonefield terminated the TSA effective March 4, 2022. The termination was effected by formal letter from Tobias Wren, General Counsel of Stonefield Logistics Group Inc., addressed to both Vantor Holdings Corp. and VTS. The termination letter cited VTS's failure to cure material breaches of the TSA within the 30-day cure period as the basis for termination under Section 13.1(a). At the time of termination, the remaining term of the TSA was approximately two years and 27 days — from March 4, 2022 through the originally scheduled expiration date of March 31, 2024.
B. Vantor's Claims (Amended Complaint, December 2, 2022)
Vantor's Amended Complaint, filed on December 2, 2022, alleges that Stonefield wrongfully terminated the TSA and seeks approximately $95.4 million in total damages. The claimed damages are comprised of the following components:
Liquidated damages under Section 14.2: $67,230,000. Vantor calculates this figure by applying the formula set forth in Section 14.2 — 75% of the ACV multiplied by the number of remaining years in the term. Vantor computes this as $64.8 million for the two full remaining contract years (75% × $43.2M × 2 = $64.8M) plus $2,430,000 for the partial year of 27 days ($43.2M × 75% × 27/360 = ~$2.43M).
Lost profits: $18,700,000. Vantor claims it would have earned a 12% operating margin on the remaining committed volume for the balance of the TSA term.
Stranded assets: $5,200,000. Vantor alleges that it invested in dedicated equipment (tractors, trailers, and related assets) that were rendered idle or unmarketable as a result of the termination.
Workforce reduction costs: $2,870,000. Vantor claims it was required to terminate approximately 180 personnel — drivers, dispatchers, and support staff — who were assigned to the Stonefield account, incurring severance and related costs.
Mitigation costs: $1,400,000. Vantor alleges it incurred costs in its efforts to re-deploy assets and personnel and to identify alternative customers for the capacity previously dedicated to the Stonefield account.
Vantor's Amended Complaint, which superseded the original Complaint filed August 12, 2022, added several new factual allegations that bear directly on the counterclaim analysis. Specifically, the Amended Complaint alleges:
(1) Volume shortfall: Stonefield failed to tender the full ACV in Contract Years 2 and 3. In Contract Year 2 (April 2020 – March 2021), Stonefield tendered only $31.8 million of the $43.2 million ACV. In the partial Contract Year 3 period (April 2021 – March 2022), Stonefield tendered $36.5 million. Vantor contends these shortfalls themselves constituted material breaches of the TSA.
(2) Exclusivity violations: Stonefield diverted freight to Cascade Freight Systems Inc. and Briarwood Trucking Co. in violation of the exclusivity provisions set forth in Schedule C to the TSA.
(3) Pretextual termination: Stonefield's termination was pretextual, motivated not by genuine performance concerns but by a desire to avoid a 14.3% rate increase effective April 1, 2022, under the Rate Adjustment Mechanism set forth in Section 7.4 of the TSA. This rate increase would have raised the weighted average per-mile rate from $2.87 to $3.28, adding approximately $6.2 million in annual transportation costs.
(4) Causation defense: VTS's performance deficiencies in Q4 2021 were caused by Stonefield's own volume shortfalls, which prevented VTS from maintaining the operational scale necessary to meet the SLOs.
Vantor is represented in this matter by Caldwell Royce & Shapiro LLP. The lead attorney is Harrison Caldwell, with Meredith Shapiro serving as co-counsel. Senior Associate Jason Whitford and Associate Alina Petrov round out the opposing trial team. Vantor has engaged Dr. Philip Trask of Trask Greystone & Associates as its damages expert. As of the date of this memorandum, Dr. Trask's expert report has not yet been served; it is anticipated during the expert discovery phase pursuant to the Case Management Order.
C. Procedural Posture
The original Complaint was filed on August 12, 2022. Calderwood & Harkness LLP was engaged by Stonefield on September 1, 2022, and a Notice of Appearance on behalf of Stonefield was filed on September 8, 2022.
On October 14, 2022, Stonefield filed a Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing, among other grounds, that the liquidated damages clause in Section 14.2 of the TSA is unenforceable as a penalty under New York law and that Vantor's lost profits claim was inadequately pleaded. Vantor filed its opposition to the Motion to Dismiss on November 18, 2022, and Stonefield filed its reply brief on December 5, 2022.
However, on December 2, 2022 — prior to the filing of Stonefield's reply — Vantor filed the Amended Complaint as of right under Federal Rule of Civil Procedure 15(a)(1)(B), which permits amendment as of right within 21 days of the service of a responsive pleading or motion under Rule 12(b), (e), or (f). The filing of the Amended Complaint rendered the pending Motion to Dismiss moot, as the Amended Complaint superseded the original Complaint. The Court denied the Motion to Dismiss as moot by text order dated December 16, 2022.
Stonefield's Answer to the Amended Complaint is due January 13, 2023, pursuant to Federal Rule of Civil Procedure 15(a)(3), which provides 14 days from service of an amended pleading in which to respond. Stonefield obtained an extension of that deadline by stipulation of the parties approved by the Court, resulting in the current January 13 deadline. It is within the context of this Answer that the proposed counterclaim would be asserted.
An initial pretrial conference has been scheduled for February 10, 2023, before the Honorable Margaret T. Calloway, United States District Judge.
III. The Proposed Counterclaim
A. Nature and Scope
The proposed counterclaim is a counterclaim for declaratory judgment pursuant to 28 U.S.C. § 2201 (the Declaratory Judgment Act) and Federal Rule of Civil Procedure 13(a), which governs compulsory counterclaims. The counterclaim arises out of the same transaction or occurrence as Vantor's claims — namely, the TSA and Stonefield's termination thereof — and is therefore compulsory under Rule 13(a).
The counterclaim seeks three specific declarations from the Court:
First Declaration (Count I — Valid Termination for Cause): That Stonefield's March 4, 2022 termination of the TSA was valid and constituted a termination for Cause under Section 13.1(a) of the TSA, based on VTS's material breach of the Service Level Obligations set forth in Schedule B, VTS's failure to cure such breaches within the 30-day cure period specified in Section 13.2, and the procedural compliance of Stonefield's Cure Notice and termination letter with the requirements of Sections 13.1 and 13.2.
Second Declaration (Count II — No Liquidated Damages Owed): That no liquidated damages are owed to Vantor or VTS under Section 14.2 of the TSA because Section 14.2, by its express terms, applies only when the Shipper-Broker terminates the agreement "other than for Cause." If the Court declares that the termination was for Cause under Count I, the liquidated damages provision is inapplicable as a matter of contract interpretation, and no further analysis of the enforceability of the liquidated damages clause is necessary. This Count operates as a logical and legal corollary to Count I.
Third Declaration (Count III — VTS's Material Breach): That VTS committed the material breach of the TSA through (a) its sustained failure to meet the SLOs in Q4 2021 across all five measured metrics, (b) its unauthorized reduction of fleet capacity — specifically, the redeployment of approximately 85 tractors from Stonefield-dedicated lanes to other customer commitments in or about October–November 2021, as evidenced by the Milescu-to-Vantorovich email of November 12, 2021 (VHC-008417) — and (c) its failure to cure these material breaches within the 30-day cure period following receipt of Stonefield's January 18, 2022 Cure Notice. This third declaration completes the narrative arc of the counterclaim by identifying VTS, not Stonefield, as the party responsible for the breakdown of the contractual relationship.
B. Compulsory Counterclaim Analysis
Under Federal Rule of Civil Procedure 13(a)(1), a pleading "must state as a counterclaim any claim that — at the time of its service — the pleader has against an opposing party if the claim ... arises out of the transaction or occurrence that is the subject matter of the opposing party's claim." The "transaction or occurrence" test is broadly construed in the Second Circuit. Courts apply a "logical relationship" test, asking whether the essential facts of the various claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in a single proceeding. See Jones v. Ford Motor Credit Co., 358 F.3d 205, 209 (2d Cir. 2004); Critical-Vac Filtration Corp. v. Minuteman Int'l, Inc., 233 F.3d 697, 699 (2d Cir. 2000).
Stonefield's proposed counterclaim plainly arises out of the identical transaction and occurrence underlying Vantor's breach of contract claims — the execution, performance, and termination of the TSA. The counterclaim seeks judicial declaration regarding the very same termination that Vantor challenges as wrongful. The essential facts underlying both Vantor's claims and Stonefield's counterclaim are identical: the terms of the TSA, VTS's performance, the Cure Notice and cure process, and the termination itself. There is no credible argument that the counterclaim does not arise from the same transaction or occurrence as Vantor's affirmative claims.
The failure to assert a compulsory counterclaim may result in waiver of that claim under the doctrine of res judicata. While the Second Circuit has not adopted a per se waiver rule, it has consistently held that the failure to assert a compulsory counterclaim generally bars the claim in a subsequent action. See Tarvick v. Gold Seal Liquors, Inc., 417 U.S. 467, 469 n.1 (1974); Polymer Indus. Prods. Co. v. Bridgestone/Firestone, Inc., 347 F.3d 935, 938 (Fed. Cir. 2003). It is therefore prudent, and indeed necessary, to assert the counterclaim now in order to preserve Stonefield's right to seek affirmative relief.
With respect to subject matter jurisdiction, the counterclaim invokes the same diversity jurisdiction basis as Vantor's claims. Vantor Holdings Corp. is a Delaware corporation with its principal place of business in Parsippany, New Jersey. Stonefield Logistics Group Inc. is a New York corporation with its principal place of business in New York, New York. Complete diversity of citizenship exists, and the amount in controversy exceeds $75,000, satisfying the requirements of 28 U.S.C. § 1332(a). Additionally, the counterclaim qualifies for supplemental jurisdiction under 28 U.S.C. § 1367(a) as it forms part of the same case or controversy as Vantor's claims.
The forum is appropriate under the TSA's forum selection clause, which designates the Southern District of New York as an exclusive forum for disputes arising under or related to the agreement. No venue or forum objection is anticipated.
IV. Merits Analysis of the Counterclaim
A. Strength of Valid Termination for Cause Defense
The merits of the proposed counterclaim are strong. The factual record supporting Stonefield's position that the termination was valid for Cause under Section 13.1(a) is extensive, well-documented, and largely undisputed in its core elements.
Severity and breadth of VTS's performance failures. VTS's Q4 2021 performance failures were not confined to a single metric or a narrow time window. Rather, VTS failed all five SLOs simultaneously over a sustained three-month period. Every measured dimension of VTS's operational performance — pickup timeliness, delivery timeliness, tender acceptance, equipment availability, and cargo integrity — fell materially below the contractually required thresholds. The on-time pickup rate of 78.2% represented a shortfall of nearly 17 percentage points below the 95% threshold. The tender acceptance rate of 71.4% fell nearly 19 percentage points below the 90% threshold. Equipment availability at 62% meant that approximately 152 of the committed 400 tractors were unavailable — a deficiency of staggering proportions for a logistics operation of this scale. These are not marginal misses subject to reasonable debate; they reflect a fundamental inability or unwillingness on VTS's part to perform its contractual obligations.
Compliance with the Cure Notice requirement. The Cure Notice issued by Raymond Hess on January 18, 2022 satisfied Section 13.2's requirement that deficiencies be specified with "reasonable particularity." The Cure Notice identified each metric by name, stated the applicable SLO threshold, provided the actual performance figure for Q4 2021, cited the specific section of Schedule B at issue, and stated that failure to cure within 30 days would entitle Stonefield to terminate under Section 13.1(a). This analysis is consistent with and supported by the Memorandum re Adequacy of Cure Notice prepared by Simone Laroche on October 20, 2022, which concluded that the Cure Notice was procedurally compliant in all material respects.
Inadequacy of VTS's cure response. Vantor's February 14, 2022 response — the Pruitt letter — is conspicuously devoid of any demonstration of actual remediation. While the letter acknowledged "operational challenges," it identified no specific corrective actions, set no timeline for improvement, and provided no updated performance data suggesting that VTS was trending toward compliance. Moreover, post-cure-period data from Stonefield's internal systems for March 2022 confirmed that VTS's performance had not meaningfully improved: on-time pickup remained below 82%, equipment availability remained in the low 60% range, and the tender acceptance rate was still below 75%. The Memorandum re Sufficiency of Cure, prepared by Simone Laroche on November 1, 2022, analyzed the Pruitt letter and the post-cure-period data and concluded that VTS had not effected a cure within the meaning of Section 13.2.
New York law material breach standard. Under New York law, whether a breach is "material" is a fact-intensive inquiry guided by the factors set forth in the Restatement (Second) of Contracts § 241, which New York courts have adopted. See Ashgrove & Co. v. Camberwell Industries, 500 F.3d 171, 186 (2d Cir. 2007). Those factors include: (a) the extent to which the injured party will be deprived of the benefit reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which it will be deprived; (c) the extent to which the breaching party will suffer forfeiture; (d) the likelihood that the breaching party will cure its failure; and (e) the extent to which the behavior of the breaching party comports with standards of good faith and fair dealing. As analyzed in the Memorandum re Material Breach Standard Under NY Law prepared by Simone Laroche on September 16, 2022, all factors favor Stonefield in this case. The deprivation of benefit was substantial (a logistics provider that cannot pick up or deliver freight on time and lacks the equipment to do so is providing no meaningful service); VTS demonstrated no likelihood of cure; and, most critically, VTS's unilateral redeployment of 85 tractors from Stonefield-dedicated lanes to other accounts — apparently without notice — raises serious questions about VTS's good faith.
Key documentary evidence. The strength of the counterclaim is significantly bolstered by the Milescu-to-Vantorovich email dated November 12, 2021 (document identification VHC-008417). This email, obtained from Vantor's own files and expected to be produced during discovery, was sent by Sandra Milescu, COO of Vantor/VTS, to Andrei Vantorovich, the controlling shareholder and CEO of Vantor Holdings Corp. The email states, in relevant part: "We've pulled 85 tractors off the SLG dedicated lanes to cover [redacted] commitments. SLG won't notice until January." This communication is remarkable for several reasons. First, it demonstrates that VTS's fleet redeployment was intentional and deliberate — not the result of force majeure, market conditions, or any of the industry-wide factors cited in the Pruitt cure response letter. Second, it reveals that the redeployment was covert — VTS expected Stonefield would not "notice" the diversion until January 2022, confirming that VTS did not provide Stonefield with notice or seek consent, as would be required for any material change in the committed fleet capacity. Third, it directly undermines Vantor's amended allegation that VTS's performance failures were caused by Stonefield's volume shortfalls. If VTS was pulling tractors to serve other customers, the root cause of the equipment availability and performance failures lay squarely within VTS's own operational decisions.
B. No Liquidated Damages Owed
The second declaration sought by the counterclaim — that no liquidated damages are owed under Section 14.2 — follows logically from the first. Section 14.2 of the TSA provides for liquidated damages only in the event that the Shipper-Broker terminates the agreement "other than for Cause." The language is unambiguous: liquidated damages are a contractual remedy available to VTS solely in circumstances where Stonefield terminates the agreement without Cause — for example, a termination for convenience. If the Court declares, as Count I requests, that the termination was for Cause under Section 13.1(a), then Section 14.2 is inapplicable by its own terms, and the $67.23 million liquidated damages claim — which constitutes approximately 70% of Vantor's total claimed damages — is extinguished.
Even in the event the Court were to find that the termination was not for Cause, there remains an independent basis for challenging the liquidated damages clause as an unenforceable penalty under New York law. The enforceability of a liquidated damages provision under New York law is assessed under a two-part test: (1) whether the amount was a reasonable estimate of the anticipated harm at the time of contracting, and (2) whether actual damages would be difficult to ascertain at the time the contract was formed. See Truck Rent-A-Ctr., Inc. v. Purdy Corp., 41 N.Y.2d 354, 355 (1977); JMD Holding Corp. v. Cong. Fin. Corp., 4 N.Y.3d 373, 379–80 (2005). As analyzed in the Memorandum re Enforceability of Liquidated Damages Clause prepared by Simone Laroche on September 19, 2022, the $67.23 million figure appears grossly disproportionate to any reasonable estimate of Vantor's actual damages from a no-cause termination. The memorandum concluded that there is a "moderate" likelihood that the clause would be found unenforceable as a penalty, though this is necessarily a fact-specific determination that may turn on the parties' intent and the financial modeling underlying the 75%-of-ACV formula.
The counterclaim's primary path to eliminating the liquidated damages claim, however, does not depend on the penalty analysis. If the for-Cause termination is validated, the liquidated damages provision simply does not apply.
C. First-to-Breach Doctrine
The counterclaim narrative can and should incorporate a first-to-breach theory, which provides an alternative and independently sufficient basis for a finding that VTS, not Stonefield, was the breaching party.
Under New York law, the first-to-breach doctrine provides that a party who commits the first material breach of a contract cannot recover damages from the other party for subsequent non-performance. See RCN Telecom Servs., Inc. v. 202 Centre St. Realty LLC, 156 Fed. App'x 349, 350–51 (2d Cir. 2005); Ashgrove & Co., 500 F.3d at 186. The doctrine operates to excuse the non-breaching party's subsequent performance obligations and to bar the breaching party from recovering for the non-breaching party's resulting non-performance.
Here, VTS committed the first material breach by unilaterally and covertly reducing its committed fleet capacity in or about October 2021. The Milescu email of November 12, 2021 confirms that VTS "pulled 85 tractors off the SLG dedicated lanes" to cover commitments to the Northwind Distribution Co. account. This redeployment was undertaken without Stonefield's knowledge or consent, in direct violation of VTS's equipment availability obligation under Schedule B (≥ 85% of the committed 400 tractors, or at least 340 tractors). By unilaterally reducing available equipment to approximately 315 tractors (and ultimately to ~248 tractors by Q4 2021), VTS committed a material breach of its core performance obligations before any alleged volume shortfall by Stonefield.
The first-to-breach theory is particularly valuable in this case because it directly neutralizes Vantor's newly pleaded causation argument — the allegation that VTS's performance failures were caused by Stonefield's volume shortfalls. If VTS breached first by pulling tractors off the Stonefield account, Stonefield's subsequent performance (or non-performance) with respect to volume tenders is excused or at minimum cannot be cited as the cause of VTS's pre-existing breach.
A more detailed analysis of the first-to-breach doctrine and its application to the facts of this case is planned for a separate memorandum, anticipated for March 2023, which will address the doctrine's interaction with the parties' respective performance obligations and the timeline of alleged breaches.
D. Addressing Vantor's Anticipated Counter-Arguments
Vantor's Amended Complaint advances several theories that are designed to recast VTS's performance failures as the consequence of Stonefield's own conduct. Each of these theories must be addressed in the counterclaim and in our broader litigation strategy. The analysis below summarizes the principal counter-arguments and Stonefield's responses.
Volume shortfall defense. Vantor alleges that Stonefield tendered only $31.8 million of the $43.2 million ACV in Contract Year 2 (April 2020 – March 2021) and $36.5 million in partial Contract Year 3 (April 2021 – March 2022). Stonefield's response is that the CY2 shortfall is substantially explained by the force majeure provision in Section 12.1 of the TSA. The COVID-19 pandemic, which severely disrupted freight volumes across the logistics industry from approximately April through September 2020, constituted a force majeure event within the meaning of Section 12.1. Adjusting the CY2 ACV to account for the six-month period of pandemic-related volume disruption yields a prorated ACV of $21.6 million ($43.2 million × 6/12), against which the actual tenders of $31.8 million represent an overage of $10.2 million — not a shortfall. With respect to CY3, the $36.5 million tendered over approximately 10 months (April 2021 through January 2022, when the Cure Notice was issued) is consistent with a prorated annualized run rate of approximately $43.8 million, which would have met or exceeded the ACV had the contract continued through the full year. The CY3 volume data is subject to further analysis and may require expert input to fully develop.
Exclusivity violation defense. Vantor alleges that Stonefield violated the exclusivity provisions of the TSA by diverting freight to Cascade Freight Systems Inc. and Briarwood Trucking Co. Stonefield's position is that its use of these alternative carriers was confined to Lanes 8 through 14, which are classified as "Secondary Lanes" under Schedule C, Section 2(b) of the TSA. The exclusivity obligations in Schedule C, Section 2(a) apply only to the 14 designated "Primary Lanes." Stonefield's engagement of Cascade and Briarwood on Secondary Lanes was expressly permitted under the TSA and did not constitute a breach. This analysis is set forth in detail in the Memorandum re Exclusivity Analysis — Schedule C Lanes prepared by Simone Laroche on September 30, 2022, which concluded that Stonefield's usage of alternative carriers on Secondary Lanes was contractually permissible.
Pretextual termination defense. Vantor's allegation that the termination was pretextual — motivated by a desire to avoid the 14.3% rate increase effective April 2022 — presents a litigation risk that must be acknowledged candidly. The rate increase under the Rate Adjustment Mechanism (Section 7.4) would have raised the weighted average per-mile rate from $2.87 to $3.28, adding approximately $6.2 million in annual transportation costs. Additionally, an internal Stonefield email from Martin Kirkwood, Senior Vice President of Supply Chain, to Tobias Wren, dated September 22, 2021, states: "if VTS doesn't get its act together by Q1 I think we pull the plug on the whole contract." This email, while reflecting legitimate frustration with VTS's deteriorating performance, could be characterized by Vantor as evidence that the termination was economically motivated.
However, New York law is clear that courts do not inquire into the subjective motivation for a termination when objective contractual grounds for termination are satisfied. See Sabella v. Scantek Med., Inc., 2009 WL 3233703, at 12 (S.D.N.Y. Oct. 7, 2009); Moran v. Erk*, 11 N.Y.3d 452, 457 (2008). If the contractual requirements for a Cause-based termination were met — material breach, conforming Cure Notice, failure to cure, formal termination — the fact that Stonefield may also have had economic reasons to exit the relationship does not render the termination invalid. The Memorandum re Pretext and Good Faith in Termination for Cause, prepared by Simone Laroche on October 7, 2022, reaches the same conclusion, though it notes that the Kirkwood email will require careful handling in discovery and at deposition.
The counterclaim itself can preemptively address the pretext theory by affirmatively pleading the objective, documented performance failures that formed the basis for the termination. By foregrounding the SLO data, the Cure Notice, the inadequate cure response, and the covert fleet redeployment, the counterclaim frames the termination as a measured, contractually grounded response to VTS's operational failures, rather than a pretext for cost avoidance.
V. Strategic Value of the Counterclaim
A. Narrative Framing
The assertion of a counterclaim fundamentally alters the narrative structure of this litigation. Without a counterclaim, Stonefield occupies a purely defensive posture: Vantor is the plaintiff, Vantor tells its story, and Stonefield responds. The entire case is framed through the lens of Vantor's grievance — a shipper that terminated a lucrative contract to avoid paying for services it had committed to. The affirmative defenses in the Answer, while legally sufficient, do not affirmatively tell Stonefield's story; they merely rebut Vantor's.
A declaratory judgment counterclaim changes this dynamic in several important ways. First, it positions Stonefield as a party with its own affirmative claims — a party that was aggrieved by VTS's performance failures and is seeking judicial vindication of its right to terminate. Second, it reframes the central question of the case: the issue is no longer simply "Did Stonefield wrongfully terminate?" but also "Did VTS breach, and was Stonefield justified in terminating?" Third, it introduces a second narrative thread that runs through every phase of the litigation — from the initial pretrial conference scheduled for February 10, 2023, before the Honorable Margaret T. Calloway, through fact discovery, expert discovery, summary judgment briefing, and, if necessary, trial.
The presence of an active counterclaim signals confidence in the merits and may influence the Court's perception of the equities at every stage. A defendant who merely denies the allegations and asserts defenses looks like a party trying to avoid liability. A defendant who asserts its own claims looks like a party that believes it was right — and wants the Court to say so.
B. Summary Judgment Positioning
Perhaps the most significant strategic benefit of the counterclaim is the independent vehicle it provides for seeking summary judgment on the validity of the termination. At the summary judgment stage, Stonefield can move affirmatively on the counterclaim — seeking a declaration that the termination was for Cause — while simultaneously defending against Vantor's breach of contract claims. This dual posture is strategically advantageous because it allows Stonefield to present the summary judgment motion as an affirmative request for relief, not merely a defensive motion to dismiss Vantor's claims.
The factual predicate for summary judgment on the counterclaim is strong. If the undisputed record establishes that:
(i) VTS failed all five SLOs in Q4 2021, as documented in Stonefield's Transportation Management System data and confirmed by VTS's own acknowledgment in the Pruitt letter;
(ii) Stonefield issued a Cure Notice that satisfied Section 13.2's requirement of reasonable particularity;
(iii) VTS did not cure the identified deficiencies within the 30-day cure period, and its February 14, 2022 response did not demonstrate remediation; and
(iv) Stonefield terminated the TSA pursuant to Section 13.1(a), following expiration of the cure period, by formal letter citing the specific contractual provision,
then the counterclaim offers a clean vehicle for a declaration that the termination was valid for Cause, which would effectively resolve the entire case. If the termination was for Cause, no liquidated damages are owed under Section 14.2 (eliminating $67.23 million of Vantor's $95.4 million claim), and Vantor's wrongful termination claim fails as a matter of law.
Even if full summary judgment is not obtainable — for example, if the Court concludes that the Kirkwood email or the upcoming rate increase creates a genuine issue of material fact on the question of pretext — partial summary judgment on the validity of the Cause determination would still be transformative. A declaration that VTS's Q4 2021 performance constituted a material breach and that Stonefield's Cure Notice complied with Section 13.2 would narrow the remaining issues for trial and eliminate the liquidated damages claim, which at $67.23 million constitutes the vast majority of Vantor's total exposure.
C. Settlement Leverage
The existence of an active counterclaim, particularly one supported by strong documentary evidence, materially enhances Stonefield's leverage in any future settlement discussions. The Milescu email, the VTS Q4 2021 performance data, the Cure Notice and cure response, and the termination letter collectively paint a compelling picture of a carrier that failed to perform and was terminated for legitimate reasons. When this evidence is presented not merely in defense but in support of an affirmative claim, it conveys to opposing counsel that Stonefield is prepared to prosecute this matter to judgment — and expects to win.
From a practical standpoint, Vantor's litigation costs increase with the assertion of a counterclaim. Vantor must answer the counterclaim, address the counterclaim in discovery, and defend against it at summary judgment and trial. While the incremental cost to Vantor may be modest given the overlap with the existing claims, the psychological and strategic effect of defending against a counterclaim — particularly one that seeks a declaration that Vantor's subsidiary was the breaching party — should not be underestimated.
Stonefield's current settlement authority, as set forth in the Settlement Authority Memorandum dated November 8, 2022, ranges from $0 to $4.5 million. The counterclaim strengthens Stonefield's negotiating position within this range by establishing that Stonefield has a viable path to a complete defense verdict — and indeed to an affirmative judicial declaration in its favor. Vantor's willingness to accept a resolution within Stonefield's settlement range is likely to increase if Vantor perceives that its $67.23 million liquidated damages claim is at serious risk of being eliminated at summary judgment.
Additionally, the existence of a pending counterclaim may complicate any future attempt by Vantor to voluntarily dismiss its claims without prejudice under Federal Rule of Civil Procedure 41(a). Under Rule 41(a)(2), a plaintiff may seek voluntary dismissal by court order, but only "on terms that the court considers proper." The presence of a counterclaim does not automatically bar voluntary dismissal, but courts in the Second Circuit routinely consider the prejudice to the defendant — including the loss of the opportunity to adjudicate a pending counterclaim — in ruling on voluntary dismissal motions. See Zagano v. Fordham Univ., 900 F.2d 12, 14 (2d Cir. 1990). A pending counterclaim thus serves as a form of insurance against Vantor's potential strategic withdrawal.
D. Protection Against Vantor's Potential Counterstrategy
There are indications that Vantor's litigation position may be less robust than its damages figures suggest. We have received information suggesting that Caldwell Royce & Shapiro LLP may be experiencing difficulties with the client engagement, including significant unpaid invoices of approximately $870,000. If these difficulties persist or intensify, Vantor may seek to abandon or scale back its claims rather than invest further in a case whose outcome is uncertain.
Without a pending counterclaim, Vantor's abandonment of its claims would leave Stonefield without a judgment on the merits. While Stonefield would no longer face liability exposure, it would also lack a judicial determination establishing the validity of the termination. This creates a risk of relitigation: Vantor or VTS could, at some future date, re-file substantially similar claims (subject to any applicable statute of limitations) or assert the same theories in a different forum or context — for example, in connection with a claim by a third party, a regulatory proceeding, or a dispute with a different counterparty who might point to the unresolved Vantor dispute as evidence of Stonefield's litigation exposure.
The counterclaim ensures that even if Vantor abandons its claims, Stonefield can prosecute its counterclaim to judgment and obtain a declaration establishing the validity of the termination. Such a declaration would have preclusive effect under the doctrine of collateral estoppel (issue preclusion) in any future litigation between Vantor, VTS, and Stonefield — or, in appropriate circumstances, against non-parties who are in privity with Vantor or VTS.
E. Minimal Cost and Risk
The costs and risks associated with asserting the counterclaim are minimal, for several reasons.
First, the counterclaim is asserted as part of the Answer and Affirmative Defenses; no additional filing fee is required for a compulsory counterclaim under the Local Rules of the Southern District of New York.
Second, the factual and legal basis for the counterclaim overlaps entirely with Stonefield's affirmative defenses, particularly the defenses of valid termination for Cause, contributory breach, unclean hands, and setoff. The counterclaim does not introduce new factual theories that would require additional investigation, document collection, or expert analysis beyond what is already contemplated for the defense of Vantor's claims.
Third, there is no meaningful risk that the counterclaim will expand the scope of discovery. The counterclaim turns on the same facts as Vantor's breach claims: the terms of the TSA, VTS's performance data, the Cure Notice and cure response, and the termination. Vantor's discovery requests and depositions would cover this same ground regardless of whether the counterclaim is asserted.
Fourth, the counterclaim seeks only declaratory relief — not monetary damages against Vantor. Stonefield is not asserting a claim for damages resulting from VTS's breach (e.g., the costs of engaging replacement carriers, the disruption to Stonefield's supply chain, or the increased costs of transitioning to Cascade and Briarwood). This is a deliberate strategic choice. By limiting the counterclaim to declaratory relief, Stonefield avoids any suggestion that it is attempting to extract a settlement payment from Vantor and eliminates any risk that an aggressive damages claim could backfire by alienating the Court or creating unnecessary complexity.
Fifth, Vantor's response to the counterclaim — an Answer to the Counterclaim — is unlikely to raise novel issues beyond those already presented in its Amended Complaint. Vantor will presumably deny the counterclaim's allegations and reassert its theories of volume shortfall, exclusivity violation, and pretext. These are the same issues Stonefield must address regardless of the counterclaim.
VI. Drafting Considerations
A. Counterclaim Structure
The counterclaim should be pleaded as an integral part of the Answer and Affirmative Defenses document, following the affirmative defenses section, under a clearly delineated heading: "COUNTERCLAIM FOR DECLARATORY JUDGMENT." The counterclaim should be organized into three counts corresponding to the three declarations sought:
Count I — Declaration of Valid Termination for Cause. This Count should allege the material terms of the TSA, the SLOs, VTS's Q4 2021 performance failures, the Cure Notice and its compliance with Section 13.2, VTS's failure to cure, and Stonefield's March 4, 2022 termination under Section 13.1(a). The Count should conclude with a request for a declaration that the termination was valid and constituted a termination for Cause.
Count II — Declaration That No Liquidated Damages Are Owed. This Count should allege the terms of Section 14.2, including its express limitation to terminations "other than for Cause," and should incorporate by reference the factual allegations of Count I. The Count should conclude with a request for a declaration that no liquidated damages are owed.
Count III — Declaration of VTS's Material Breach. This Count should allege VTS's material breach of the TSA through its sustained SLO failures, its unauthorized and covert reduction of fleet capacity (incorporating the Milescu email as a key factual allegation), and its failure to cure. The Count should conclude with a request for a declaration that VTS committed the material breach of the TSA.
The factual allegations supporting the counterclaim should be set forth in a dedicated "Factual Allegations" section preceding the three Counts. These factual allegations should include, at minimum: (a) the identity and relationship of the parties; (b) the material terms of the TSA, including the SLOs and the termination-for-Cause provisions; (c) a detailed recitation of VTS's Q4 2021 performance data; (d) the Cure Notice, including its date, the person who issued it, the person to whom it was directed, and a summary of its contents; (e) VTS's February 14, 2022 cure response and its deficiencies; (f) VTS's unauthorized fleet redeployment, as evidenced by the Milescu email; and (g) Stonefield's March 4, 2022 termination letter.
The prayer for relief should request (i) declaratory relief under 28 U.S.C. § 2201, (ii) attorneys' fees and costs to the extent permitted by the TSA or applicable law, and (iii) such other and further relief as the Court deems just and proper.
B. Consistency with Affirmative Defenses
The counterclaim must be carefully drafted to ensure consistency with, and to complement, the 14 affirmative defenses to be asserted in the Answer. These affirmative defenses include, among others: valid termination for Cause; unenforceable penalty (as to Section 14.2); failure to mitigate damages; force majeure (as to CY2 volume shortfalls); unclean hands; contributory breach; waiver; estoppel; setoff; and failure to state a claim.
Particular attention must be paid to avoid any admissions in the counterclaim that could undermine the affirmative defenses. For example:
• The counterclaim should not concede that Stonefield tendered less than the full ACV in Contract Year 2 or Contract Year 3, as such a concession could undermine the force majeure defense. Instead, the counterclaim should allege that Stonefield performed its obligations under the TSA, including its volume obligations as adjusted for force majeure events.
• The counterclaim should not address Stonefield's use of Cascade Freight Systems Inc. or Briarwood Trucking Co. in a manner that could be construed as acknowledging an exclusivity violation. If any reference to alternative carriers is necessary, it should be carefully framed to specify that such usage was confined to Secondary Lanes, which were not subject to exclusivity.
• The counterclaim should frame the termination as based solely on the objective, documented performance failures of VTS, without reference to the economic benefits to Stonefield of exiting the contract (e.g., the avoided rate increase). While the counterclaim is not the place for a defensive posture on the pretext issue, careless language could create unnecessary risks.
The drafting team should cross-check every factual assertion in the counterclaim against the affirmative defenses and against the factual denials in the Answer to ensure internal consistency.
C. Coordination with Client
A draft of the counterclaim should be circulated to Tobias Wren, General Counsel of Stonefield Logistics Group Inc., for review and comment prior to filing. Mr. Wren's input will be essential to confirm the accuracy of factual allegations, to identify any sensitivities in the language, and to ensure alignment with Stonefield's overall business and litigation strategy.
Additionally, it is important to confirm with Mr. Wren and with Alison Trang at Ridgeline Capital Advisors (Stonefield's outside financial advisor) that the assertion of an affirmative counterclaim does not create complications for Stonefield's financial reporting obligations. Specifically:
• Under Section 6.03(b) of the Credit Agreement with Lakeshore National Bank, Stonefield is required to provide quarterly updates on material litigation. The assertion of a counterclaim — particularly one seeking only declaratory relief and not monetary damages — should not alter the litigation exposure characterization previously reported to Lakeshore. However, the quarterly update for Q1 2023 should note the assertion of the counterclaim and its declaratory nature.
• With respect to Clarendon Partners LLP, Stonefield's independent auditor, the counterclaim similarly should not change the disclosure analysis for financial statement purposes, since Stonefield is not asserting a monetary claim that would require recognition as a contingent asset.
The key point is that the counterclaim seeks declaratory relief only — no monetary claim against Vantor — and therefore should not trigger any incremental reporting obligations or disclosure requirements. This should be confirmed with Mr. Wren prior to filing.
VII. Burden of Proof Considerations
The assertion of a counterclaim has implications for the allocation of the burden of proof that merit careful consideration, even though they ultimately support the decision to assert the claim.
On the counterclaim, Stonefield bears the burden of proving by a preponderance of the evidence that the termination was valid for Cause under Section 13.1(a). This means Stonefield must affirmatively establish: (a) that VTS committed a material breach of the TSA; (b) that Stonefield issued a Cure Notice that complied with Section 13.2; (c) that VTS failed to cure the breach within the 30-day cure period; and (d) that Stonefield terminated the agreement pursuant to Section 13.1(a).
This creates a potential tension in the allocation of burdens. On Vantor's affirmative breach of contract claims, Vantor bears the initial burden of proving breach — i.e., that the termination was wrongful — while Stonefield bears the burden on its affirmative defenses, including the defense that the termination was for Cause. If Stonefield merely asserted Cause as an affirmative defense, the allocation of burdens would be the same as under the counterclaim. The counterclaim effectively converts Stonefield's affirmative defense into an independent claim for relief, formally placing the burden on Stonefield — but this is a burden Stonefield already bears on the affirmative defense in any event.
Critically, this allocation of burden is strategically acceptable because the factual record overwhelmingly supports Stonefield's position. The SLO failures are documented in Stonefield's Transportation Management System data. The Cure Notice is in writing and identifies each deficiency with precision. VTS's cure response is in writing and fails to demonstrate remediation. The termination letter is in writing and cites the specific contractual grounds. The Milescu email provides a "smoking gun" on VTS's intentional and covert breach. In short, the core facts are largely documented and, on the critical points, unlikely to be genuinely disputed. Stonefield is well-positioned to satisfy its burden of proof on the counterclaim.
A fuller analysis of the burden of proof allocation — including the interaction between the burdens on Vantor's claims and Stonefield's counterclaim at the summary judgment stage — will be prepared separately in a planned memorandum on Burden of Proof — Termination for Cause, which is anticipated for later in Q1 2023.
VIII. Recommendation
Based on the foregoing analysis, I recommend that Stonefield assert the declaratory judgment counterclaim as part of its Answer and Affirmative Defenses to the Amended Complaint, to be filed on January 13, 2023.
The recommendation is grounded in the following considerations:
1. Meritorious claim. The counterclaim is well-supported by the factual record and consistent with governing New York law. VTS's Q4 2021 performance failures were severe, systemic, and contemporaneously documented. The Cure Notice was procedurally compliant. VTS's cure response was substantively inadequate. The termination was effected in accordance with Section 13.1(a). The Milescu email provides powerful evidence that VTS's failures were self-inflicted.
2. Narrative framing. The counterclaim shifts Stonefield from a purely defensive posture to an affirmative one, reframing the case as a dispute in which Stonefield — not Vantor — is the aggrieved party.
3. Summary judgment positioning. The counterclaim provides an independent and clean vehicle for seeking summary judgment on the validity of the termination, which, if granted, would eliminate the liquidated damages claim ($67.23 million) and effectively resolve the case.
4. Settlement leverage. The counterclaim enhances Stonefield's leverage in settlement negotiations by demonstrating Stonefield's confidence in the merits and by imposing additional defensive burdens on Vantor.
5. Protection against abandonment. The counterclaim ensures that Stonefield can obtain a judgment on the merits even if Vantor abandons its claims.
6. Minimal cost and risk. The counterclaim is asserted as part of the Answer, requires no additional filing fee, overlaps entirely with existing defenses, and seeks only declaratory relief. It does not expand the scope of discovery or expose Stonefield to additional liability.
With respect to timing and logistics: A first draft of the Answer, Affirmative Defenses, and Counterclaim has been prepared, dated December 19, 2022, and is currently under review by the litigation team. A revised draft incorporating your comments and client input from Tobias Wren is targeted for completion by January 4, 2023, providing sufficient time for a final round of review before the January 13, 2023 filing deadline.
IX. Conclusion
The declaratory judgment counterclaim is legally sound, strategically valuable, and poses no material downside risk. It is a compulsory counterclaim under Rule 13(a) that must be asserted to avoid potential waiver, and it is affirmatively desirable because it reframes the litigation in Stonefield's favor at every stage from initial pretrial conference through disposition. The factual record — anchored by documented SLO failures, a conforming Cure Notice, an inadequate cure response, a formal termination letter, and the Milescu email — provides a strong foundation for the counterclaim and positions Stonefield favorably for summary judgment.
The counterclaim should be included in Stonefield's responsive pleading filed on January 13, 2023.
I am available at your convenience to discuss this analysis in further detail and to proceed with finalizing the counterclaim language upon your approval.
Patrick Gallagher Lead Associate, Litigation (General) Calderwood & Harkness LLP
Direct: (212) 555-4817
Email: pgallagher@calderwoodharkness.com
cc: Simone Laroche, Senior Associate, Litigation (General) (via email, encrypted) File — Matter No. 1012-00005
CALDERWOOD & HARKNESS LLP — PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT — Matter No. 1012-00005
Service Level Metric | Required Threshold
On-Time Pickup Rate | ≥ 95%
On-Time Delivery Rate | ≥ 93%
Cargo Claims Ratio | ≤ 0.5%
Tender Acceptance Rate | ≥ 90%
Equipment Availability | ≥ 85% of committed fleet capacity (400 tractors, 1,200 trailers)
Service Level Metric | Required Threshold | Actual Q4 2021 Performance
On-Time Pickup Rate | ≥ 95% | 78.2%
On-Time Delivery Rate | ≥ 93% | 81.6%
Tender Acceptance Rate | ≥ 90% | 71.4%
Equipment Availability | ≥ 85% (340 of 400 tractors) | 62% (~248 tractors available)
Cargo Claims Ratio | ≤ 0.5% | 1.07% (16 claims totaling $387,400 in Nov.–Dec. 2021)

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

MATTER NO.: 1012-00005

Record

Parties

Dates

Amounts