STONEFIELD LOGISTICS GROUP INC. 4200 Commerce Parkway, Suite 800 Fort Worth, Texas 76102
Telephone: (817) 555-4200 Facsimile: (817) 555-4201 www.stonefieldlogistics.com
April 29, 2022
Via Overnight Courier and Email
Harrison Caldwell, Esq. Caldwell Royce & Shapiro LLP 1 Liberty Plaza, 22nd Floor New York, New York 10006
Re: Response to Demand Letter dated April 8, 2022 — Transportation Services Agreement (Ref. No. SLG-VTS-2019-0315) between Stonefield Logistics Group Inc. and Vantor Transport Services LLC
Dear Mr. Caldwell:
I write in my capacity as General Counsel of Stonefield Logistics Group Inc. ("Stonefield") in response to your demand letter dated April 8, 2022, which was submitted on behalf of your clients, Vantor Holdings Corp. ("Vantor") and Vantor Transport Services LLC ("VTS," and together with Vantor, the "Vantor Parties"). We received your letter on April 11, 2022, and have since undertaken a thorough and careful review of the claims and allegations asserted therein, in consultation with Stonefield's senior leadership, operations team, and outside advisors.
The demand letter concerns the Transportation Services Agreement dated March 15, 2019 (the "TSA"), Contract Reference No. SLG-VTS-2019-0315, entered into between Stonefield, in its capacity as "Shipper-Broker," and VTS, in its capacity as "Carrier-Provider." As set forth in detail below, Stonefield categorically rejects Vantor's demand for payment of Ninety-Five Million Four Hundred Thousand Dollars ($95,400,000) and disputes each and every allegation of wrongful termination, breach of contract, or other wrongful conduct by Stonefield contained in your letter. Your clients' characterization of the facts and circumstances giving rise to Stonefield's termination of the TSA is inaccurate, incomplete, and at odds with the documentary record.
This letter sets forth Stonefield's position with respect to each of the principal claims raised in your demand, together with the factual and contractual basis for Stonefield's termination of the TSA.
I. STONEFIELD'S TERMINATION WAS VALID AND PROPER — SUMMARY POSITION
At the outset, Stonefield wishes to state its position clearly and without ambiguity: Stonefield's termination of the TSA on March 4, 2022, was a valid termination for Cause pursuant to Section 13.1(a) of the TSA. That section provides Stonefield with the express right to terminate the TSA upon the occurrence of a material breach by VTS that remains uncured following delivery of a written Cure Notice and the expiration of the applicable cure period.
Stonefield fully complied with each procedural prerequisite set forth in Section 13.2 of the TSA governing the delivery and content of Cure Notices. Specifically, on January 18, 2022, Stonefield delivered a detailed written Cure Notice addressed to Sandra Milescu, Chief Operating Officer of Vantor and VTS, specifying with reasonable particularity each of the material breaches at issue. The Cure Notice was delivered via overnight courier to VTS's address of record and via email to Ms. Milescu's business email address, consistent with the notice provisions of Section 18.3 of the TSA. The Cure Notice identified, among other things, VTS's sustained failures to meet its Service Level Obligations ("SLOs"), the alarming volume and frequency of cargo claims, and VTS's chronic failure to provide substitute capacity in accordance with Section 7.4 of the TSA.
The TSA provides VTS with a thirty (30) calendar-day cure period following receipt of a Cure Notice in which to remedy the identified material breaches. VTS received the Cure Notice on January 18, 2022, and accordingly, the cure period expired on February 17, 2022. VTS did not cure the identified material breaches within the cure period, nor did VTS demonstrate, by verifiable evidence or otherwise, that the identified breaches had been remediated. Having satisfied each prerequisite under Sections 13.1(a) and 13.2, Stonefield issued a formal termination letter, signed by the undersigned, on March 4, 2022, terminating the TSA effective immediately.
Accordingly, Stonefield owes no liquidated damages, lost profits, or any other amounts to Vantor or VTS in connection with the termination of the TSA. The termination was a lawful exercise of Stonefield's contractual right, supported by extensive documentation, and the Vantor Parties' attempt to recast a justified termination for Cause as a wrongful termination is without merit.
II. FACTUAL BASIS FOR TERMINATION — VTS'S MATERIAL BREACHES
Your demand letter conspicuously fails to address the well-documented and pervasive service failures by VTS that gave rise to Stonefield's termination of the TSA. These failures were not isolated incidents or minor, marginal deviations from VTS's contractual obligations. Rather, they represented a sustained, systemic, and severe pattern of underperformance that persisted over multiple months, materially harmed Stonefield's business operations and customer relationships, and ultimately left Stonefield with no commercially reasonable alternative but to exercise its termination rights. The principal categories of material breach are summarized below.
A. Service Level Obligation Failures (Q4 2021)
The TSA establishes specific, measurable Service Level Obligations in Schedule B that VTS was required to meet on an ongoing basis as a fundamental condition of its continued engagement under the agreement. VTS's actual performance during the fourth quarter of 2021 (October–December 2021) fell drastically below the contractually required thresholds across every material performance category:
1. On-Time Pickup Rate. VTS's on-time pickup rate during Q4 2021 fell to 78.2%, against the TSA-required SLO of ≥ 95%. This represents a shortfall of nearly seventeen (17) percentage points — a deficiency that is by no measure marginal or excusable.
2. On-Time Delivery Rate. VTS's on-time delivery rate during Q4 2021 fell to 81.6%, against the TSA-required SLO of ≥ 93%. Nearly one in five shipments failed to arrive at the designated destination within the contractually specified delivery window, causing cascading disruptions to Stonefield's customers' supply chains and distribution operations.
3. Tender Acceptance Rate. VTS's tender acceptance rate during Q4 2021 dropped to 71.4%, against the TSA-required SLO of ≥ 90%. This means that VTS rejected or failed to accept nearly three out of every ten freight tenders submitted by Stonefield, leaving Stonefield to scramble for alternative capacity on short notice and at significant additional cost.
4. Equipment Availability. VTS's equipment availability during Q4 2021 fell to approximately 62% of committed fleet capacity. Under the TSA, VTS committed to maintaining a minimum fleet of four hundred (400) tractors available for deployment in support of its obligations. VTS made available only approximately 248 tractors — a shortfall of approximately 152 units — against the TSA-required SLO of ≥ 85% fleet availability. This dramatic reduction in available capacity was a primary driver of VTS's failures across the other SLO categories and imposed severe operational burdens on Stonefield.
These failures were not isolated or marginal. They represented sustained, severe underperformance across every material performance category measured under the TSA, and each such failure independently constituted a material breach of VTS's obligations under the agreement. Taken together, the scope and severity of these failures were extraordinary and reflected a fundamental breakdown in VTS's ability to perform its core obligations as Carrier-Provider under the TSA.
B. Cargo Claims
In addition to the SLO failures described above, VTS experienced a significant and alarming increase in cargo loss, damage, and shortage claims during the final months of the contract relationship. During the two-month period of November through December 2021, Stonefield documented sixteen (16) separate cargo claims attributable to VTS, totaling approximately $387,400 in claimed losses. This volume of claims resulted in a claims ratio of approximately 1.07% of gross revenue for the period — more than double the maximum permissible claims ratio of ≤ 0.5% established as a Service Level Obligation under the TSA.
The frequency and severity of these claims reflected systemic failures in VTS's cargo handling, driver training, and shipment security protocols, and constituted a separate and independent material breach of VTS's obligations under the TSA.
C. Failure to Provide Substitute Capacity
Section 7.4 of the TSA expressly requires VTS to provide substitute equipment or surge capacity in the event that VTS is unable to meet Stonefield's freight volume requirements using its own fleet. This provision was a material inducement to Stonefield's entry into the TSA, as Stonefield's business model depends on reliable, consistent carrier capacity to meet its own contractual obligations to its customers.
Throughout the fourth quarter of 2021 and into early 2022, VTS chronically failed to provide substitute equipment or surge capacity as required under Section 7.4. Despite Stonefield's repeated requests — communicated through its operations team and directly to VTS's dispatching and account management personnel — VTS either failed to respond or indicated that it was unable to source additional capacity. VTS's persistent capacity shortfalls forced Stonefield to independently identify, engage, and onboard alternative carrier arrangements on an emergency basis in order to meet its own customer commitments. Stonefield incurred significant incremental costs in connection with these alternative arrangements, and the disruption to Stonefield's operations and customer relationships was substantial.
D. Failure to Cure
On January 18, 2022, Stonefield delivered the Cure Notice described above, specifying each of the foregoing material breaches with reasonable particularity, as required by Section 13.2 of the TSA. VTS was afforded the full thirty (30) calendar-day cure period provided under the TSA, which expired on February 17, 2022.
On February 14, 2022 — three days before the expiration of the cure period — Stonefield received a written response from Derek Pruitt, Vice President of Business Development at VTS. Mr. Pruitt's response acknowledged that VTS had experienced what he characterized as "operational challenges" during the relevant period. However, Mr. Pruitt's response was wholly insufficient to constitute cure under Section 13.1(a) of the TSA for the following reasons:
• The response did not include any verifiable evidence that the identified breaches had been actually remediated — that is, that VTS had restored its performance to the levels required by the SLOs set forth in the TSA.
• The response did not include any verifiable evidence of improved performance metrics for on-time pickup, on-time delivery, tender acceptance, or equipment availability.
• The response did not include any verifiable evidence that VTS had restored its committed fleet capacity to the contractually required levels or that it had taken concrete steps to do so.
• The response did not include any corrective action plan of sufficient specificity or substance to constitute cure under Section 13.1(a), nor did it set forth a credible timeline for remediation of the identified breaches.
In short, VTS's February 14, 2022 response was a general acknowledgment of problems, accompanied by vague assurances, but devoid of the concrete, verifiable evidence of actual cure that the TSA requires. Moreover, post-cure-period performance data compiled by Stonefield's operations team confirmed that VTS's service failures continued unabated through the date of termination on March 4, 2022. VTS's on-time pickup and delivery rates, tender acceptance rates, and equipment availability remained materially below the TSA-required SLOs during this period, further underscoring that no cure had been effected.
III. RESPONSE TO VANTOR'S SPECIFIC ALLEGATIONS
Your demand letter raises several specific allegations in support of the Vantor Parties' contention that Stonefield's termination was wrongful. Stonefield addresses and rejects each of these allegations in turn.
A. Allegation: Stonefield Failed to Tender Minimum Annual Committed Volume
Your demand letter asserts that Stonefield failed to meet its Annual Committed Volume ("ACV") obligations under the TSA during Contract Years 2 and 3. Stonefield rejects this assertion.
Contract Year 2 (April 2020 – March 2021). Vantor's claim that Stonefield failed to meet its ACV obligations during Contract Year 2 ignores the undisputed impact of the COVID-19 pandemic on global and domestic freight demand during 2020. In response to the pandemic's severe and unprecedented impact on freight volumes, Stonefield properly and timely invoked the force majeure provision set forth in Section 12.1 of the TSA. Stonefield's force majeure notice, delivered in accordance with the requirements of Section 12.1, covered the period from April 2020 through September 2020 — a six-month period during which Stonefield's volume obligations under the TSA were suspended by operation of the force majeure clause.
Accordingly, the adjusted ACV for Contract Year 2 was $21,600,000, calculated as the full-year ACV of $43,200,000 multiplied by the fraction 6/12, reflecting the six-month force majeure suspension period during which Stonefield's volume obligations did not apply. Stonefield's actual tenders during Contract Year 2 totaled approximately $31,800,000, exceeding the adjusted ACV by approximately $10,200,000 — or nearly 47% above the adjusted commitment. Vantor's assertion of a volume shortfall in Contract Year 2 is therefore factually incorrect and contractually baseless.
Contract Year 3 (April 2021 – Forward). Vantor's claimed volume shortfall for Contract Year 3 is based on an incomplete and misleading comparison that ignores the central and dispositive fact that VTS's own ongoing and worsening service failures during this period were the direct cause of any reduction in tender volume. VTS's failure to maintain adequate tender acceptance rates, equipment availability, and service performance compelled Stonefield to seek alternative carrier capacity in order to protect its own customer commitments and avoid further damage to its business. Stonefield was not obligated to continue tendering freight to a carrier that had demonstrated, over a sustained period, that it was unable and unwilling to perform its obligations under the TSA. To the extent any reduction in tender volume occurred, it was the direct and proximate result of VTS's own material breaches, and Vantor cannot credibly seek to hold Stonefield liable for the consequences of VTS's own failures.
Stonefield reserves its right to provide a detailed accounting of its volume tendering history at the appropriate time but denies any material breach of its volume obligations under the TSA.
B. Allegation: Stonefield Diverted Freight in Violation of Exclusivity Provisions
Your demand letter alleges that Stonefield improperly diverted freight to alternative carriers, specifically identifying Cascade Freight Systems Inc. ("Cascade") and Briarwood Trucking Co. ("Briarwood"), in purported violation of the exclusivity provisions of the TSA. Stonefield denies this allegation.
The exclusivity provisions of the TSA are set forth in Schedule C and are carefully limited in scope. Specifically, the exclusivity restrictions in Schedule C, Section 2(a), apply only to the fourteen (14) designated "Primary Lanes" — the specific origin-destination pairs enumerated in that section. Stonefield's use of Cascade and Briarwood was limited to Lanes 8 through 14, which are classified as "Secondary Lanes" under Schedule C, Section 2(b). Secondary Lanes are expressly not subject to the exclusivity restrictions set forth in Section 2(a), and Stonefield was at all times contractually permitted to engage alternative carriers with respect to freight moving on Secondary Lanes.
Vantor's assertion that Stonefield's use of alternative carriers on Secondary Lanes constituted a breach of the exclusivity provisions reflects either a misreading of the TSA or a deliberate mischaracterization of its terms. The plain language of Schedule C is unambiguous, and Stonefield's conduct was fully consistent with its rights thereunder.
Moreover, even setting aside the distinction between Primary and Secondary Lanes, Stonefield's engagement of Cascade and Briarwood was a necessary and commercially reasonable response to VTS's failure to maintain adequate tender acceptance rates and fleet capacity. When a carrier repeatedly rejects freight tenders or lacks the equipment to fulfill accepted tenders, the shipper-broker is left with no alternative but to seek capacity elsewhere in order to fulfill its own contractual obligations. Stonefield acted prudently and in accordance with its commercial obligations in doing so.
C. Allegation: Termination Was Pretextual
Your demand letter advances the remarkable assertion that Stonefield's termination of the TSA was "pretextual" — i.e., that Stonefield manufactured or exaggerated the grounds for termination in order to extricate itself from the TSA for reasons unrelated to VTS's performance. Stonefield vigorously denies this allegation.
The termination of the TSA was based solely and entirely on documented, objective, and sustained material breaches of VTS's service obligations. Each of the breaches underlying the termination was identified with specificity in the January 18, 2022 Cure Notice. Each was supported by contemporaneous data generated by Stonefield's transportation management system and verified against VTS's own reporting. And each remained uncured at the expiration of the thirty-day cure period on February 17, 2022.
Stonefield's decision to terminate was not made hastily or without due consideration. To the contrary, it was the culmination of months of deteriorating performance by VTS that directly harmed Stonefield's business operations, customer relationships, and competitive position. Prior to issuing the Cure Notice, Stonefield's operations team engaged in extensive communications with VTS personnel at multiple levels in an effort to resolve the performance deficiencies informally and avoid the need for formal contractual remedies. Those efforts were unsuccessful, and Stonefield was ultimately compelled to exercise its termination rights in order to protect its business interests.
The suggestion that Stonefield fabricated grounds for termination is not only unsupported by any evidence cited in your demand letter, but is affirmatively contradicted by the extensive documentary record of VTS's service failures. Stonefield will not dignify this allegation with further response except to state that it is prepared to defend its actions vigorously if this matter proceeds to litigation.
IV. REJECTION OF DAMAGES CLAIM
Stonefield rejects in its entirety the Vantor Parties' demand for payment of $95,400,000. The demand is without legal or factual basis, and each component of the claimed damages is addressed below.
No Liquidated Damages Are Owed. The liquidated damages provision of the TSA is set forth in Section 14.2. By its express terms, Section 14.2 applies only to terminations "other than for Cause." As set forth above, Stonefield's termination of the TSA was a valid termination for Cause pursuant to Section 13.1(a). Accordingly, Section 14.2 is not triggered, and no liquidated damages are owed.
The Liquidated Damages Provision Is Unenforceable. Even if the termination were deemed not to be for Cause — which Stonefield expressly does not concede — the liquidated damages clause in Section 14.2 would be unenforceable as a penalty under applicable New York law. Under well-established New York precedent, a liquidated damages provision is enforceable only if (a) the amount fixed is a reasonable measure of the probable loss, and (b) the actual loss is difficult or impossible to estimate at the time of contracting. See, e.g., Northpoint Holdings v. Purdy Corp., 41 N.Y.2d 354 (1977); Kestrel Corporation, 4 N.Y.3d 373 (2005). The liquidated damages formula in Section 14.2 of the TSA produces a damages figure of $67,230,000 — an amount that is grossly disproportionate to any actual harm that Vantor or VTS could plausibly have suffered as a result of the termination, particularly in light of the robust state of the freight market and VTS's ability to redeploy its assets and drivers to alternative engagements. Moreover, actual damages in a transportation services contract of this nature were readily ascertainable at the time of contracting, as the parties' revenue streams, cost structures, and margin profiles were known quantities. The Section 14.2 formula fails both prongs of the enforceability test and constitutes an unenforceable penalty.
Lost Profits Claim Is Duplicative and Unfounded. Vantor's separate claim for $18,700,000 in lost profits is duplicative of the liquidated damages claim, as both purport to compensate Vantor for the same alleged harm — namely, the loss of revenue and margin associated with the remaining term of the TSA. A party may not recover both liquidated damages and lost profits for the same breach. Moreover, the lost profits claim is based on assumptions regarding future freight volumes, rates, and margins that Stonefield believes to be unfounded, speculative, and unsupported by the historical performance of the contract.
Consequential Damages Are Barred. Vantor's claims for stranded asset costs ($5,200,000), workforce reduction costs ($2,870,000), and mitigation costs ($1,400,000) are, by their nature, consequential damages. Section 15.1 of the TSA contains a mutual waiver of consequential damages, pursuant to which each party expressly waived any right to recover "indirect, incidental, consequential, special, or punitive damages" arising out of or in connection with the TSA. Vantor's claims for stranded asset costs, workforce reduction costs, and mitigation costs fall squarely within the categories of damages waived under Section 15.1, and Vantor is contractually barred from recovering any such amounts.
Failure to Mitigate. To the extent Vantor suffered any damages as a result of the termination — which Stonefield expressly denies — Vantor has failed to take reasonable steps to mitigate such damages. The freight transportation market during the first quarter of 2022 has been, by all available measures, historically robust, with carrier demand exceeding supply across most major lanes and freight categories. VTS, as a carrier with a substantial fleet and experienced driver workforce, had ample opportunities to secure replacement freight volume through alternative shipper and broker relationships. Vantor's apparent failure to pursue such opportunities, or its decision to forego such opportunities in favor of pursuing an inflated damages claim against Stonefield, does not entitle it to recover damages that could have been avoided through reasonable mitigation efforts.
V. INVOCATION OF SECTION 16 — MANDATORY EXECUTIVE NEGOTIATION
Without waiving any of Stonefield's rights, remedies, or defenses under the TSA, at law, or in equity, and without conceding liability of any kind or to any extent, Stonefield hereby invokes the mandatory executive negotiation procedure set forth in Section 16 of the TSA.
Section 16 of the TSA provides that, prior to the initiation of any litigation or other legal proceedings arising out of or relating to the TSA, the parties shall engage in a thirty (30) day executive negotiation period. During this period, senior representatives of each party, designated in writing, shall attempt in good faith to resolve any dispute through direct negotiation. This provision is a condition precedent to the commencement of litigation, and Stonefield expects that both parties will honor this contractual commitment.
To that end, Stonefield proposes the following:
1. Stonefield's Designated Representative. Stonefield designates Marcus Denton, Chief Executive Officer of Stonefield Logistics Group Inc., as its senior representative for purposes of the executive negotiation.
2. Vantor's Designated Representative. Stonefield proposes that Nikolai Vantorovich, Chief Executive Officer and Founder of Vantor Holdings Corp., serve as Vantor's senior representative for purposes of the executive negotiation.
3. Proposed Timing. Stonefield proposes that the initial executive negotiation meeting take place within fifteen (15) business days of the date of this letter, at a mutually convenient location or, if preferred by the parties, via videoconference.
Stonefield approaches the executive negotiation process in good faith and with a genuine willingness to explore whether the parties can reach a mutually acceptable resolution of this dispute. However, Stonefield expressly reserves all of its rights under the TSA and at law in the event the executive negotiation does not result in a resolution, including without limitation the right to assert affirmative claims against Vantor and VTS arising from VTS's material breaches of the TSA and the costs and losses sustained by Stonefield as a result thereof.
VI. RESERVATION OF RIGHTS
Stonefield expressly reserves all of its rights, remedies, and defenses under the TSA, at law, and in equity, including but not limited to the following:
(a) The right to assert that the termination of the TSA was valid and effective for Cause pursuant to Section 13.1(a) of the TSA;
(b) The right to challenge the enforceability of the liquidated damages provision set forth in Section 14.2 of the TSA on the grounds that it constitutes an unenforceable penalty under applicable law;
(c) The right to assert affirmative claims against Vantor and VTS for damages, costs, and losses arising from VTS's material breaches of the TSA, including but not limited to Stonefield's incremental costs of procuring alternative carrier capacity, losses resulting from service disruptions to Stonefield's customers, and any other damages to which Stonefield may be entitled;
(d) The right to assert defenses of failure to mitigate, contributory breach, unclean hands, estoppel, waiver, and setoff, and any other defenses available at law or in equity;
(e) The right to seek recovery of attorneys' fees and costs to the extent permitted by the TSA or applicable law; and
(f) All other rights and defenses not specifically enumerated herein.
Nothing in this letter shall be deemed or construed as an admission of liability, a waiver of any right or defense, or a concession of any factual or legal issue. This letter is submitted without prejudice to any position that Stonefield may take in any future proceeding and is intended solely to respond to the Vantor Parties' demand letter and to invoke the contractual dispute resolution mechanism set forth in Section 16 of the TSA.
VII. FUTURE CORRESPONDENCE
All future correspondence regarding this matter should be directed to the undersigned at the address set forth below. If the Vantor Parties elect to proceed through outside counsel, I respectfully request that you or your designated colleague contact me directly at your earliest convenience to arrange the executive negotiation meeting contemplated by Section 16 of the TSA.
Stonefield remains prepared to engage constructively in the dispute resolution process while firmly maintaining its position that the termination of the TSA was lawful, proper, and justified.
Very truly yours,
STONEFIELD LOGISTICS GROUP INC.
By: ________
Tobias Wren General Counsel Stonefield Logistics Group Inc. 4200 Commerce Parkway, Suite 800 Fort Worth, Texas 76102 Telephone: (817) 555-4200
Email: twren@stonefieldlogistics.com
cc:
Marcus Denton, Chief Executive Officer, Stonefield Logistics Group Inc. Priya Ramachandran, Chief Financial Officer, Stonefield Logistics Group Inc.