1012-00006 · Stonefield Logistics Group · Legal Analysis

memo-enforceability-liquidated-damages.docx DOCUMENT Litigation

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP 2200 Ross Avenue, Suite 3600 Dallas, Texas 75201

INTERNAL RESEARCH MEMORANDUM

I. Executive Summary

This memorandum addresses two primary questions raised by the engagement team: (1) whether the liquidated damages provision in § 14.3 of the Dedicated Freight Services Agreement ("DFSA") executed on April 15, 2022, between Stonefield Logistics Group Inc. ("Stonefield" or "SLG") and Ridgeline Freight Carriers LLC ("Ridgeline") is enforceable under Texas law, and (2) whether the personal guaranty executed by Gerald Brashear ("Brashear") under § 14.5 of the DFSA is likewise enforceable against him individually. A subsidiary but important question is whether Stonefield may recover both the liquidated damages under § 14.3 and the re-procurement damages carved out under § 14.4 without the aggregate recovery being deemed duplicative or constituting an unenforceable penalty.

Based on my analysis of the contractual provisions, the factual record developed to date, and governing Texas precedent, I conclude as follows:

The liquidated damages provision is enforceable under the two-part Texas test. The formula of 25% of the remaining Minimum Monthly Revenue Commitment constitutes a reasonable forecast of just compensation for a breach that would cause — and has in fact caused — harm inherently difficult to estimate. These damages include, among other things, emergency re-procurement costs in a volatile freight market, disruption to Stonefield's retail distribution network across Texas and the broader 14-state footprint, transition and onboarding costs for substitute carriers, and reputational harm with downstream retail customers. The 25% figure is measured and conservative; it represents only a fraction of the total remaining contract value and is, in fact, closely approaching Stonefield's documented actual losses from re-procurement alone during the first 59 days following Ridgeline's default.

The personal guaranty is enforceable as an unconditional obligation. Brashear, as sole member and managing member of Ridgeline, executed a personal guaranty that is absolute, continuing, and irrevocable, capped at $3,000,000. That cap is well above both the liquidated damages amount of $1,381,250 and the total damages claim of $2,437,500 (including re-procurement damages of $1,056,250 under § 14.4). The guaranty was supported by adequate consideration, was executed by a sophisticated business principal, and expressly waives all suretyship defenses.

Total damages exposure is as follows:

This total is exclusive of pre-judgment interest, attorneys' fees, and costs, all of which are independently recoverable under the DFSA and applicable Texas statutes.

II. Questions Presented

A. Question One

Is the liquidated damages provision in § 14.3 of the Dedicated Freight Services Agreement dated April 15, 2022, between Stonefield Logistics Group Inc. and Ridgeline Freight Carriers LLC, enforceable under Texas law, or is it subject to invalidation as an unenforceable penalty?

B. Question Two

Is the personal guaranty executed by Gerald Brashear under § 14.5 of the DFSA enforceable against him individually, and does the scope of the guaranty extend to the liquidated damages obligation arising under § 14.3 and the re-procurement damages carved out under § 14.4?

C. Question Three

Can Stonefield recover both the liquidated damages under § 14.3 and the re-procurement damages under the § 14.4 consequential damages carve-out without the two provisions being deemed duplicative or constituting a penalty in the aggregate?

III. Brief Answers

A. Answer to Question One

Yes. The liquidated damages provision satisfies both prongs of the Texas enforceability test. As to the first prong, the harm from Ridgeline's breach — including emergency re-procurement costs on a volatile spot freight market, service disruption to Stonefield's 14-state retail distribution network, customer relationship damage, transition costs associated with onboarding replacement carriers, and intangible reputational injury — is incapable or difficult of estimation at the time of contracting. The freight logistics market was experiencing significant post-pandemic pricing volatility in April 2022 when the DFSA was executed, and the multi-faceted nature of the prospective harm (spanning quantifiable out-of-pocket costs, consequential service failures, and difficult-to-measure reputational damage) further compounds the estimation difficulty. As to the second prong, the formula of 25% of the remaining Minimum Monthly Revenue Commitment is a reasonable pre-estimate of anticipated loss, not an excessive or punitive amount. The 25% figure represents only a fraction of the economic value Stonefield stood to lose; when compared against Stonefield's actual re-procurement costs incurred during just the first 59 days following default ($1,056,250), the liquidated damages figure of $1,381,250 appears conservative, not inflated. The provision is likely to be upheld.

B. Answer to Question Two

Yes. The personal guaranty is unconditional and was signed by Brashear in his capacity as sole member and managing member of Ridgeline. It is capped at $3,000,000, well above the liquidated damages claim of $1,381,250, and well above the total damages claim of $2,437,500. The guaranty was supported by adequate consideration — namely, Stonefield's agreement to enter into the DFSA with Ridgeline, an entity whose creditworthiness Stonefield would not have accepted absent the personal guaranty of its principal. The guaranty expressly covers all obligations arising under Section 14 of the DFSA, which includes the liquidated damages provision (§ 14.3), the re-procurement damages carve-out (§ 14.4), and the attorneys' fees provision (§ 14.6). The guaranty is enforceable under Texas law as designated by the governing law provision (§ 18.1). Even if Oklahoma law were to apply by virtue of Brashear's Oklahoma residency, the guaranty would be enforceable on substantially similar grounds. There is no deficiency in consideration, scope, or execution.

C. Answer to Question Three

Yes, provided the two categories of damages address distinct injuries — which they do as drafted. The liquidated damages under § 14.3 compensate Stonefield for the loss of the bargained-for minimum revenue commitment over the remaining contract term. This is a forward-looking, estimated loss reflecting the economic value of the contractual relationship that Ridgeline's breach destroyed. By contrast, the § 14.4 carve-out addresses actual, documented, out-of-pocket re-procurement expenditures incurred during the 90-day transition period following Ridgeline's default (November 18, 2023 through January 15, 2024). These expenditures are backward-looking, actual-cost recoveries — they are distinct from and not subsumed by the liquidated damages formula. The DFSA was specifically and intentionally drafted to permit both recoveries, and the combined total of $2,437,500 represents approximately 44% of the remaining contract value of $5,525,000, which is not disproportionate given the severity and abruptness of Ridgeline's complete cessation of operations. The dual recovery is supportable under Texas law.

IV. Relevant Contractual Provisions

The following sections of the DFSA are material to the enforceability analysis. I have quoted or closely paraphrased the operative language and provided calculations as applied to the facts of this matter.

A. § 3.2 — Minimum Monthly Revenue Commitment

Section 3.2 of the DFSA established the core performance obligation that Ridgeline undertook in exchange for its position as a dedicated carrier within Stonefield's managed transportation network. Under this provision, Ridgeline committed to provide a minimum of twelve (12) dedicated Class 8 tractor-trailers, each equipped and operated by a qualified commercial driver, for Stonefield's Texas retail distribution lanes. These dedicated lanes encompass daily routes between Stonefield's distribution centers located in Dallas, Houston, San Antonio, and Austin, Texas, serving Stonefield's retail customer base in the state.

The financial parameters of the commitment are as follows:

• Minimum Monthly Revenue Commitment: $325,000 per month.

• Annual Revenue Floor: $3,900,000 ($325,000 × 12 months).

• Total Contract Value over the 36-month term (April 15, 2022 through April 14, 2025): $11,700,000 ($325,000 × 36 months).

The Minimum Monthly Revenue Commitment was not merely aspirational; it functioned as a guaranteed minimum volume obligation upon which Stonefield relied in structuring its own service commitments to downstream retail customers and in planning its fleet management and capacity allocation across its broader 14-state network.

B. § 14.3 — Liquidated Damages Provision

Section 14.3 of the DFSA provides, in pertinent part:

"In the event of Carrier's material default under this Agreement and Carrier's failure to cure such default within thirty (30) calendar days following receipt of written notice from Shipper specifying the nature of such default (the "Cure Period"), Carrier shall pay to Shipper, as liquidated damages and not as a penalty, an amount equal to the greater of (a) twenty-five percent (25%) of the remaining unpaid Minimum Monthly Revenue Commitment for the unexpired portion of the Term, calculated from the date immediately following the expiration of the Cure Period through the scheduled expiration date of the Term, or (b) Five Hundred Thousand Dollars ($500,000).

The parties acknowledge and agree that (i) a material default by Carrier would cause Shipper to suffer substantial damages, including but not limited to costs of re-procurement of substitute freight services, disruption to Shipper's distribution network and customer relationships, and reputational harm in the marketplace, (ii) such damages would be difficult or impossible to calculate with precision at the time of entering into this Agreement, and (iii) the liquidated damages amount set forth herein represents a reasonable estimate of the losses Shipper would incur as a result of such default."

Calculation as applied to the facts of this matter:

The Cure Period expired on November 17, 2023. The remaining unexpired term of the DFSA ran from November 18, 2023 through April 14, 2025 — a period of approximately seventeen (17) months.

Because the 25% calculation ($1,381,250) exceeds the $500,000 floor, the applicable liquidated damages amount is $1,381,250.

C. § 14.4 — Consequential Damages Carve-Out

Section 14.4 of the DFSA contains a mutual waiver of consequential, incidental, and indirect damages that is typical of commercial transportation agreements. However, the provision includes a critical carve-out that is operative here. The relevant language provides:

"Notwithstanding the foregoing mutual waiver of consequential, incidental, and indirect damages, the parties agree that the following categories of damages shall not be subject to such waiver and shall be recoverable by the non-defaulting party: (a) actual, documented re-procurement costs incurred by Shipper to procure substitute freight services during the ninety (90) calendar day period immediately following the date of Carrier's default (the "Transition Period"); and (b) any indemnification obligations arising under Section 12 of this Agreement."

Stonefield has documented re-procurement costs totaling $1,056,250 incurred during the Transition Period, which ran from November 18, 2023 through January 15, 2024 (approximately 59 days). These costs encompass emergency spot-market freight procurements, surge pricing premiums paid to substitute carriers during peak holiday shipping season, and substitute carrier onboarding and mobilization fees. The re-procurement cost documentation has been compiled by Stonefield's Vice President of Operations, Marcus Ellington, and is supported by invoices, rate confirmations, and purchase orders that will form the basis of the supporting affidavit to be filed with the court.

D. § 14.5 — Personal Guaranty

Section 14.5 of the DFSA contains a personal guaranty executed by Gerald Brashear. The relevant language provides:

"Gerald Brashear, as the sole member and managing member of Carrier, hereby unconditionally and irrevocably guarantees the full and prompt payment and performance of all of Carrier's obligations arising under this Section 14, including without limitation the liquidated damages obligation set forth in Section 14.3, the re-procurement costs obligation set forth in Section 14.4, and the attorneys' fees and costs obligation set forth in Section 14.6 (collectively, the "Guaranteed Obligations"), up to an aggregate maximum amount of Three Million Dollars ($3,000,000) (the "Guaranty Cap"). This guaranty is absolute, continuing, and irrevocable, and Guarantor hereby waives all defenses of suretyship, including without limitation any defense based upon the modification, amendment, or extension of the underlying obligations, any impairment of collateral, any failure of consideration, any statute of limitations defense, and any defense based upon the release or discharge of Carrier in any proceeding, including without limitation any bankruptcy or insolvency proceeding."

Brashear executed the guaranty on the same date as the DFSA (April 15, 2022) and in the same instrument. His signature appears on the signature page of the DFSA in a dedicated guarantor signature block, below the corporate signatures of both Stonefield and Ridgeline.

The $3,000,000 Guaranty Cap exceeds both the liquidated damages claim of $1,381,250 and the total damages claim of $2,437,500. When pre-judgment interest, attorneys' fees, and costs are added, the total recovery is still expected to fall well within the Guaranty Cap.

E. § 14.6 — Attorneys' Fees

Section 14.6 provides that the prevailing party in any dispute arising under Section 14 shall be entitled to recover its reasonable attorneys' fees and costs, including but not limited to filing fees, service of process costs, expert fees, and other litigation expenses. This provision is consistent with and supplemental to the statutory right to recover attorneys' fees under Texas Civil Practice & Remedies Code § 38.001.

F. § 18.1 — Governing Law

Section 18.1 of the DFSA provides that the Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any choice-of-law or conflict-of-laws provisions. This governing law provision applies to all aspects of the DFSA, including the liquidated damages provision, the consequential damages carve-out, and the personal guaranty.

G. § 18.2 — Forum Selection

Section 18.2 provides that any action or proceeding arising out of or relating to the DFSA shall be brought exclusively in the state or federal courts located in Dallas County, Texas, and the parties irrevocably consent to the personal jurisdiction and venue of such courts. Both Ridgeline and Brashear consented to this forum selection clause by executing the DFSA.

V. Factual Background

The following factual summary is based on documents currently in the file, including the DFSA, correspondence between the parties, Stonefield's internal records, and information provided by Stonefield's General Counsel, Diane Ostrowski, and Vice President of Operations, Marcus Ellington.

A. The Parties

Stonefield Logistics Group Inc. is a Texas corporation headquartered at 4100 Commerce Street, Suite 1200, Dallas, Texas 75226. Stonefield operates as a third-party logistics ("3PL") provider specializing in dedicated fleet management, intermodal drayage, and last-mile delivery services across fourteen (14) states in the Southern and Central United States. Stonefield maintains contractual relationships with approximately 340 carrier partners and reported annual revenue of approximately $485 million for fiscal year 2023. Stonefield is a portfolio company of Crestpoint Industrial Partners Fund III, LP, a private equity fund focused on middle-market logistics and supply chain investments. Stonefield's operations are material to the distribution networks of several major national and regional retail chains, and the company's business model depends on the reliability and contractual performance of its dedicated carrier partners.

Ridgeline Freight Carriers LLC is an Oklahoma limited liability company with its principal office at 7820 South Meridian Avenue, Oklahoma City, Oklahoma 73159. Ridgeline holds USDOT Number 3281947 and Motor Carrier Authority Number MC-1042886. At peak capacity, Ridgeline operated a fleet of approximately 38 Class 8 tractors and 52 dry van trailers. Ridgeline was a regional carrier focused primarily on dedicated and contract freight in the Texas-Oklahoma-Kansas corridor.

Gerald "Gerry" Brashear is the sole member and managing member of Ridgeline. He resides at 2314 Quail Creek Drive, Edmond, Oklahoma 73034. Prior to founding Ridgeline in 2017, Brashear served as operations manager at Heartland Motor Lines Inc., a regional carrier based in Tulsa, Oklahoma. Brashear is the only individual member of Ridgeline and exercises sole management authority over the company's operations and finances.

B. The Dedicated Freight Services Agreement

The DFSA was executed on April 15, 2022, and established a 36-month dedicated carrier arrangement between Stonefield and Ridgeline. The term of the DFSA runs from April 15, 2022 through April 14, 2025. Under the DFSA, Ridgeline committed to provide a minimum of twelve (12) dedicated Class 8 tractor-trailers with qualified drivers for Stonefield's Texas retail distribution lanes, encompassing daily freight routes between distribution centers in Dallas, Houston, San Antonio, and Austin, Texas. The Minimum Monthly Revenue Commitment was set at $325,000, resulting in a total contract value of $11,700,000 over the 36-month term.

The DFSA was negotiated over a period of approximately six weeks between Stonefield's procurement team (led by Marcus Ellington) and Brashear, who negotiated on behalf of Ridgeline. Both parties were represented by counsel during the negotiation process. The personal guaranty in § 14.5 was specifically requested by Stonefield as a condition of entering into the DFSA due to Ridgeline's relatively limited operating history (founded in 2017) and the size of the commitment relative to Ridgeline's total fleet capacity.

C. Performance and Deterioration

From the commencement of the DFSA in April 2022 through approximately June 2023, Ridgeline performed its obligations under the DFSA in a generally satisfactory manner, consistently providing the required minimum of twelve (12) dedicated trucks and meeting the Minimum Monthly Revenue Commitment. However, beginning in approximately July 2023, Ridgeline's performance began to deteriorate significantly. The number of dedicated trucks provided by Ridgeline fell below the twelve-truck minimum, declining gradually through the summer and fall of 2023. By October 2023, Ridgeline was providing as few as four (4) trucks on certain days, representing a reduction of more than 66% from the contractual minimum. This decline was attributable to a combination of factors, including financial distress at Ridgeline (arising from, among other things, declining revenue on other accounts, rising insurance and fuel costs, and equipment financing difficulties), loss of qualified drivers, and operational failures including maintenance backlogs and equipment breakdowns.

D. Notice of Breach and Cure Period

On October 18, 2023, Stonefield sent Ridgeline a written notice of material breach pursuant to § 14.3 of the DFSA. The notice was transmitted via both certified United States mail (with return receipt requested) and electronic mail to Brashear's designated email address. The notice identified the specific nature of the material breach — namely, Ridgeline's sustained failure to provide the minimum of twelve (12) dedicated Class 8 tractor-trailers required under § 3.2 — and demanded that Ridgeline cure the breach within the 30-day Cure Period prescribed by § 14.3.

The 30-day Cure Period expired on November 17, 2023. Ridgeline failed to cure the breach. During the Cure Period, Ridgeline's truck count remained at or below six (6) trucks, and Brashear communicated informally to Marcus Ellington that Ridgeline was experiencing "severe cash flow issues" and was "working on a plan" but could not commit to a timeline for restoration of full service. No formal cure plan was submitted, and no additional trucks were deployed.

E. Default and Cessation of Operations

November 17, 2023 is the date of default under the DFSA. Following the expiration of the Cure Period, Ridgeline's service continued to deteriorate further. On December 8, 2023, Ridgeline ceased all freight operations entirely. Brashear informed Ellington by telephone on that date that Ridgeline was "shutting down" and could no longer provide any trucks or drivers. Ridgeline's remaining equipment was reportedly being repossessed by its lenders.

F. Demand and Engagement of Counsel

On December 22, 2023, Stonefield's General Counsel, Diane Ostrowski, sent a formal demand letter to both Ridgeline and Brashear individually, demanding payment of the liquidated damages under § 14.3 in the amount of $1,381,250 and reserving all rights under the DFSA, including the right to recover re-procurement costs under § 14.4 and attorneys' fees under § 14.6. The demand letter was sent to Ridgeline's principal office address, to Brashear's residential address, and by email. No response was received.

On January 29, 2024, Calderwood & Harkness LLP was engaged by Stonefield to pursue litigation. The matter was opened under Matter Number 1012-00006.

G. Ridgeline's Current Status

As of the date of this memorandum, Ridgeline has not filed for bankruptcy protection, but based on available information, Ridgeline appears to be effectively insolvent as a going concern. The company has ceased all operations, its equipment has been repossessed, and its registered agent in Oklahoma has not responded to inquiries. Brashear has not responded to the December 22, 2023 demand letter or to subsequent communications. These circumstances suggest that Ridgeline and Brashear may not appear or answer in the forthcoming litigation, which has implications for the procedural posture of the case and the potential need for a default judgment. Those procedural considerations are addressed briefly in Section VIII below.

VI. Legal Analysis — Enforceability of Liquidated Damages Under Texas Law

A. The Two-Part Texas Test

Texas courts evaluate the enforceability of liquidated damages provisions using a well-established two-part test. Under this framework, a liquidated damages clause is enforceable if two conditions are satisfied: (1) the harm caused by the breach is incapable or difficult of estimation at the time of contracting, and (2) the amount of liquidated damages called for is a reasonable forecast of just compensation for the harm that the breach would cause.

Critically, the enforceability of a liquidated damages provision is assessed as of the time of contracting, not with the benefit of hindsight. A court does not ask whether the liquidated damages amount matches the plaintiff's actual losses with precision; rather, the court asks whether, at the time the parties entered into the agreement, the amount represented a reasonable pre-estimate of the anticipated harm. This temporal perspective is essential because it respects the parties' freedom to allocate risk prospectively and prevents the unfairness that would result from invalidating a considered contractual provision based on information that was unavailable when the provision was negotiated.

The party challenging the liquidated damages clause bears the burden of demonstrating that the clause constitutes an unenforceable penalty. This burden-allocation reflects the strong public policy in Texas favoring freedom of contract and the enforcement of bargained-for terms between commercial parties. Texas courts have consistently held that liquidated damages provisions are presumptively valid and will be enforced unless the challenging party demonstrates that the provision fails one or both prongs of the two-part test.

The Texas Supreme Court has articulated this framework as the governing standard, and the intermediate Courts of Appeals have applied it consistently across a broad range of commercial contexts, including construction contracts, real estate transactions, employment agreements, and — most relevant here — logistics and service agreements. The test balances two competing policy concerns: the desirability of enforcing freely negotiated contractual terms, and the longstanding equitable principle that courts will not enforce contractual provisions that function as penalties or forfeitures rather than as genuine pre-estimates of compensation.

B. Prong One — Whether Harm Is Incapable or Difficult of Estimation

The first prong of the Texas test asks whether the harm caused by the breach was incapable or difficult of estimation at the time the parties entered into the contract. This prong is satisfied when the nature of the anticipated breach is such that the resulting damages are inherently uncertain, multi-faceted, or dependent on future contingencies that resist precise quantification.

In this case, the harm from Ridgeline's breach is precisely the type of harm that Texas courts have recognized as incapable or difficult of estimation. The nature of the transportation logistics industry, and the specific role that Ridgeline occupied within Stonefield's managed freight network, give rise to multiple categories of harm that are inherently difficult to predict and quantify at the time of contracting.

Re-procurement costs. The most immediate and tangible harm from a dedicated carrier's sudden default is the cost of emergency sourcing of substitute carriers on the spot market. Spot freight rates are highly volatile and subject to seasonal fluctuations, fuel surcharges, driver availability, lane-specific capacity constraints, weather disruptions, and broader macroeconomic conditions. At the time the DFSA was executed in April 2022, the freight market was experiencing significant post-pandemic pricing volatility. The COVID-19 pandemic had caused unprecedented disruptions to supply chains, and the freight market was in a period of rapid correction from the extreme rate spikes of 2021 and early 2022. The direction, magnitude, and duration of future freight rate movements were inherently uncertain, making it impossible to predict with any precision what it would cost Stonefield to procure substitute freight services in the event of Ridgeline's default at some unknown future point during the 36-month term. The actual re-procurement costs incurred by Stonefield ($1,056,250 over approximately 59 days) confirm the volatility and unpredictability of these costs, which were inflated by Ridgeline's default occurring during the peak holiday shipping season (November through January).

Service disruption. Stonefield's business model depends on the reliable, on-time performance of its dedicated carrier partners. When a dedicated carrier defaults, the immediate consequences include missed delivery windows, potential stockouts at retail locations, and the cascading effects of supply chain disruptions across Stonefield's distribution network. Stonefield's downstream retail customers impose penalties for late or incomplete deliveries, and these penalties vary by customer, by season, and by the severity and duration of the disruption. At the time of contracting, it was not possible to predict when during the 36-month term a breach might occur, which of Stonefield's retail customers would be affected, what penalty provisions would be in effect at the time of the breach, or how long the disruption would last. These variables make the service disruption component of damages inherently difficult to estimate.

Reputational harm. Beyond the direct financial costs of re-procurement and service disruption, a carrier default causes reputational harm to Stonefield's standing in the 3PL market and its relationships with downstream retail customers. Stonefield's value proposition to its retail clients is the reliability and seamlessness of its managed freight services. A high-profile service failure caused by a carrier's abrupt cessation of operations undermines customer confidence and may result in the loss of existing customer contracts or the failure to win new business. Reputational harm is, by its nature, extremely difficult to quantify monetarily. It may manifest over months or years, and its effects may be diffuse and indirect. Texas courts have long recognized that reputational harm is a paradigmatic example of a category of damages that is incapable of precise estimation.

Transition costs. Even after substitute carriers are identified, there are substantial costs associated with onboarding and integrating them into Stonefield's distribution network. These costs include driver qualification and background check processes, route familiarization and training, equipment compatibility assessments, compliance verification (including FMCSA regulatory compliance, insurance documentation, and safety rating review), and the administrative burden of establishing new carrier agreements, rate schedules, and dispatch protocols. The magnitude of these transition costs depends on factors that are unknowable at the time of contracting, including the number and quality of available substitute carriers, the urgency of the transition, and the complexity of the affected lanes.

Conclusion on Prong One. The harm from Ridgeline's breach encompasses multiple categories of consequential harm — re-procurement costs subject to volatile market conditions, service disruption with cascading effects on downstream customers, intangible reputational injury, and transition costs dependent on future contingencies. This is precisely the type of multi-faceted, market-dependent, and inherently uncertain harm that the first prong of the Texas test is designed to address. Prong One is satisfied.

C. Prong Two — Whether the Liquidated Damages Amount Is a Reasonable Forecast

The second prong of the Texas test asks whether the amount of liquidated damages is a reasonable forecast of just compensation for the anticipated harm. This prong does not require mathematical precision; it requires only that the stipulated amount bear a reasonable relationship to the anticipated harm and not be grossly disproportionate to the losses that the parties could have foreseen at the time of contracting.

The 25% formula. The DFSA calculates liquidated damages as 25% of the remaining unpaid Minimum Monthly Revenue Commitment for the unexpired term. This is a measured and proportionate formula. The provision does not require payment of 100% of the remaining commitment, nor even 50%. By stipulating a recovery of only 25%, the parties implicitly acknowledged that Stonefield would mitigate a portion of its losses through re-procurement and that the full remaining contract value overstates the net harm. The choice of a percentage-based formula — as opposed to a fixed sum — is itself indicative of a good-faith effort to calibrate the damages amount to the magnitude of the harm, because the formula automatically adjusts the recovery based on the remaining term: an early breach (which would cause greater harm due to a longer period of disruption) yields a larger recovery, while a late-term breach yields a smaller one. This sliding-scale characteristic is a hallmark of a reasonable pre-estimate.

Comparison to actual damages. Although the enforceability analysis is properly conducted as of the time of contracting, Texas courts have noted that a comparison between the liquidated damages amount and the plaintiff's actual losses can serve as a useful cross-check on the reasonableness of the parties' pre-estimate. Here, the comparison strongly supports enforceability:

• Remaining Minimum Revenue Commitment: $5,525,000 (17 months × $325,000).

• Liquidated damages at 25%: $1,381,250.

• Actual documented re-procurement costs during the first approximately 59 days following default (November 18, 2023 – January 15, 2024): $1,056,250.

The actual re-procurement costs incurred during just the first 59 days of the remaining 17-month term already approach the full liquidated damages amount. If re-procurement costs were to continue at a comparable rate for the full remaining term, they would far exceed the liquidated damages figure. This comparison demonstrates that the 25% formula is, if anything, conservative relative to Stonefield's actual losses. Moreover, the re-procurement costs represent only one category of Stonefield's damages; when the additional, unquantified losses from service penalties, customer credits, reputational damage, and transition costs are considered, the total harm is almost certainly substantially greater than the liquidated damages amount.

The $500,000 floor. Section 14.3 provides that liquidated damages shall be the greater of 25% of the remaining commitment or $500,000. The alternative minimum of $500,000 functions as a de minimis recovery in cases of late-term breaches where the remaining commitment might be small. For example, if a breach occurred with only three months remaining in the term, the 25% formula would yield only $243,750 (25% × $975,000), which might undercompensate Stonefield for the fixed costs of emergency re-procurement regardless of the remaining term length. The $500,000 floor ensures a minimum recovery that reflects these irreducible fixed costs. Importantly, the floor does not render the clause a penalty: $500,000 is a reasonable estimate of the minimum cost of emergency re-procurement, transition, and service disruption that would result from a dedicated carrier's default, even near the end of the contract term. The floor is not grossly disproportionate to likely minimum harm.

Industry practice. Liquidated damages clauses are common in dedicated freight services agreements and in the broader logistics industry. The inherent difficulty of predicting re-procurement costs, service disruption, and the downstream effects of carrier defaults has led to widespread adoption of contractual damages formulae in this sector. The prevalence of such clauses in the industry supports the conclusion that the DFSA's liquidated damages provision reflects a reasonable and commercially customary approach to risk allocation.

No "look back" requirement. It bears repeating that Texas law does not require the liquidated damages amount to match actual damages with precision. The test is prospective, not retrospective. The question is whether the parties' pre-estimate was reasonable at the time of contracting, not whether it turned out to be exactly right. The parties are entitled to err in either direction — a liquidated damages amount that proves to be somewhat higher or lower than actual damages is not thereby rendered unenforceable, so long as it was within the range of reasonable estimation at the time the contract was formed.

Conclusion on Prong Two. The 25% formula is a reasonable forecast of just compensation for the harm that Ridgeline's breach was anticipated to cause. The formula is measured, proportionate, and calibrated to the remaining term. It produces a result that is consistent with — indeed, conservative relative to — Stonefield's actual losses. The $500,000 floor is a reasonable minimum that does not convert the clause into a penalty. Prong Two is satisfied.

D. The Clause Is Not an Unenforceable Penalty

Having demonstrated that both prongs of the Texas two-part test are satisfied, it is useful to address the specific factors that Texas courts consider in distinguishing an enforceable liquidated damages clause from an unenforceable penalty. Each factor supports enforceability here.

The amount bears a reasonable relationship to anticipated harm. As discussed in Sections VI.B and VI.C above, the 25% formula produces a damages amount that is proportionate to — and in fact conservative relative to — the multiple categories of harm that Ridgeline's breach was anticipated to cause.

The clause was negotiated between sophisticated commercial parties. Stonefield is a $485 million annual revenue 3PL company, and Ridgeline, though smaller, is a motor carrier with a fleet of 38 tractors, managed by a principal (Brashear) with years of industry experience. Both parties were represented by counsel during the negotiation of the DFSA. This is not a consumer contract or an adhesion agreement; it is a negotiated commercial agreement between parties with the sophistication and bargaining power to understand and evaluate the liquidated damages provision.

The DFSA expressly recites the parties' agreement that actual damages would be difficult to calculate. Section 14.3 contains an express acknowledgment by both parties that "such damages would be difficult or impossible to calculate with precision at the time of entering into this Agreement" and that "the liquidated damages amount set forth herein represents a reasonable estimate of the losses Shipper would incur as a result of such default." While Texas courts treat such recitals as probative rather than conclusive, they are nonetheless significant evidence that the parties intended the clause to function as a genuine pre-estimate of compensation, not as a penalty or deterrent.

The percentage-based formula is measured, not arbitrary. A fixed, arbitrary sum bearing no relationship to the contract value or the anticipated harm would raise red flags. Here, the damages are calculated as a percentage of the remaining contract value, which inherently scales the recovery to the magnitude of the breach and the length of the disrupted term. This mathematical relationship between the damages formula and the underlying contract economics is strong evidence of a reasonable pre-estimate.

The floor ($500,000) is not grossly disproportionate to likely minimum harm. The minimum recovery of $500,000 reflects the fixed costs of emergency re-procurement and transition that Stonefield would incur regardless of the remaining term length. This is not an outsized minimum designed to punish late-term breaches; it is a reasonable floor that ensures adequate compensation for the irreducible minimum harm caused by any breach.

There is no indication of duress, unequal bargaining power, or lack of negotiation. The DFSA was negotiated at arm's length between willing commercial parties. There is no evidence that the liquidated damages clause was imposed upon Ridgeline without discussion or that Ridgeline was unable to negotiate its terms. To the contrary, the DFSA reflects a considered allocation of risk that both parties accepted voluntarily.

Anticipated defense arguments. Even in the event that Ridgeline or Brashear later appears and contests the enforceability of the liquidated damages clause, the likely defense arguments are readily rebutted:

• Argument that 25% is excessive: This argument is rebutted by the fact that Stonefield's actual re-procurement costs during just the first 59 days following default already approach the full liquidated damages amount. A provision that yields less than the plaintiff's actual out-of-pocket costs cannot credibly be characterized as excessive.

• Argument that actual damages are calculable: This argument is rebutted by the multi-faceted nature of the harm, which includes not only quantifiable re-procurement costs but also service disruption, customer penalties, reputational damage, and transition costs — categories of harm that are inherently uncertain and resist precise estimation. The fact that some components of the harm may be calculable after the fact does not undermine the difficulty of estimation at the time of contracting.

Conclusion. The liquidated damages clause in § 14.3 is an enforceable liquidated damages provision, not an unenforceable penalty. It satisfies both prongs of the Texas two-part test and bears all the hallmarks of a genuine, reasonable pre-estimate of compensation negotiated between sophisticated commercial parties.

E. Interplay Between Liquidated Damages (§ 14.3) and Re-Procurement Damages (§ 14.4)

A defendant challenging the DFSA's damages structure may argue that recovering both the liquidated damages under § 14.3 and the actual re-procurement damages under the § 14.4 carve-out is duplicative, and that the combined recovery is so excessive as to constitute a penalty. This argument, while foreseeable, is not well-founded.

The DFSA was specifically structured to permit both recoveries. Section 14.4 expressly carves out "actual, documented re-procurement costs incurred by Shipper to procure substitute freight services during the ninety (90) calendar day period immediately following the date of Carrier's default" from the mutual consequential damages waiver. This carve-out is a distinct provision from the liquidated damages clause in § 14.3, and its inclusion in the DFSA reflects the parties' deliberate decision to provide Stonefield with two complementary forms of recovery addressing different categories of harm.

The two provisions address distinct categories of harm. The liquidated damages under § 14.3 compensate Stonefield for the loss of the bargained-for minimum revenue commitment over the remaining contract term. This is a forward-looking, estimated loss that reflects the economic value of the contractual relationship that Ridgeline's breach destroyed — value that encompasses not only the direct revenue but also the planning certainty, capacity stability, and customer assurances that the dedicated commitment provided. By contrast, the § 14.4 carve-out addresses actual, documented, out-of-pocket expenditures incurred during the 90-day Transition Period — specific, backward-looking, actual-cost recoveries for emergency re-procurement that are distinct from and not subsumed by the forward-looking liquidated damages formula. The liquidated damages do not purport to cover re-procurement costs; they cover the loss of the contractual commitment itself. The re-procurement costs do not overlap with the liquidated damages; they represent the incremental expense of procuring substitute services at premium rates during the immediate post-default period.

Texas law permits parties to structure complementary damages provisions. Texas courts respect the freedom of sophisticated commercial parties to allocate risk and structure damages provisions by agreement. Where the contract language is clear and unambiguous — as it is here — courts will enforce the parties' bargain as written. The DFSA's damages structure is internally consistent and reflects a deliberate, negotiated framework for addressing distinct categories of harm.

The combined total is not disproportionate. The combined recovery of $2,437,500 ($1,381,250 + $1,056,250) represents approximately 44% of the remaining contract value of $5,525,000. In light of the severity and abruptness of Ridgeline's breach — a complete cessation of operations during the peak holiday shipping season, with no cure attempt and no transition assistance — a recovery of 44% of the remaining contract value is not disproportionate. Stonefield lost 100% of Ridgeline's dedicated freight capacity and was forced to procure substitute services on an emergency basis at substantial premium costs. The combined recovery falls well short of full compensatory damages for the totality of Stonefield's losses, which include unquantified service penalties, customer credits, and reputational harm in addition to the re-procurement costs.

Conclusion. The dual recovery under § 14.3 and § 14.4 is supportable under Texas law and should be enforceable. The two provisions address distinct categories of harm, are clearly and deliberately separated in the DFSA, and produce a combined recovery that is reasonable in light of the severity of the breach.

VII. Legal Analysis — Enforceability of Personal Guaranty (§ 14.5)

A. Terms of the Guaranty

As set forth in Section IV.D above, Gerald Brashear executed a personal, unconditional guaranty of Carrier's obligations under Section 14 of the DFSA. The guaranty is absolute, continuing, and irrevocable. It is capped at an aggregate maximum amount of $3,000,000 (the "Guaranty Cap"). The guaranty expressly covers the liquidated damages obligation under § 14.3, the re-procurement costs obligation under § 14.4, and the attorneys' fees and costs obligation under § 14.6. The guaranty includes comprehensive waivers of suretyship defenses, including defenses based on modification of the underlying obligations, impairment of collateral, failure of consideration, statute of limitations, and release or discharge of the primary obligor in any proceeding, including bankruptcy.

B. Enforceability Under Texas Law

Texas law strongly favors the enforcement of personal guaranties according to their terms. Courts routinely uphold personal guaranties where the following conditions are present, all of which are satisfied here:

The guarantor is a sophisticated party with a direct interest in the underlying transaction. Brashear is the sole member and managing member of Ridgeline — the entity whose obligations he guaranteed. He has a direct economic interest in Ridgeline's business and is not a disinterested third party. He is an experienced business operator with years of experience in the freight transportation industry, having previously served as operations manager at Heartland Motor Lines Inc. before founding Ridgeline in 2017. He was represented by counsel during the negotiation and execution of the DFSA. There is no basis for characterizing him as an unsophisticated or uninformed guarantor.

The guaranty is supported by adequate consideration. The consideration for Brashear's personal guaranty is Stonefield's agreement to enter into the DFSA with Ridgeline. Stonefield required the personal guaranty as a condition of awarding the dedicated carrier contract to Ridgeline — a relatively small, privately held carrier with limited operating history and net worth. Without the personal guaranty, Stonefield would not have entered into the DFSA with Ridgeline. This constitutes legally sufficient consideration under Texas law. Texas courts have consistently held that the extension of credit or the execution of a contract with the primary obligor constitutes adequate consideration for a personal guaranty by the obligor's principal, particularly where the guaranty is executed contemporaneously with the underlying agreement, as it was here.

The guaranty contains clear, unambiguous language of unconditional obligation. The guaranty language leaves no room for doubt as to its nature and scope. It is stated to be "unconditional," "absolute," "continuing," and "irrevocable." It identifies the specific obligations covered (Section 14 obligations), states the maximum amount ($3,000,000), and includes comprehensive waivers of defenses. This clear and unambiguous language will be enforced according to its terms under Texas law.

The guaranty's scope expressly covers the relevant obligations. The guaranty is not limited to the liquidated damages obligation alone; it covers all obligations arising under Section 14, which includes the liquidated damages (§ 14.3), the re-procurement damages carve-out (§ 14.4), and the attorneys' fees provision (§ 14.6). The $3,000,000 Guaranty Cap is not at issue in this matter because the total claim of $2,437,500, even with the addition of pre-judgment interest, attorneys' fees, and costs, is expected to fall well within the cap.

C. Potential Defenses and Rebuttals

The following potential defenses by Brashear have been considered and are addressed in turn:

Lack of consideration. As discussed above, this defense is without merit. Stonefield's agreement to enter into the DFSA with Ridgeline constitutes adequate consideration for the personal guaranty. The guaranty was executed contemporaneously with the DFSA, and Stonefield would not have entered into the DFSA without the guaranty. Texas courts routinely reject lack-of-consideration defenses where the guaranty is given as an inducement for the creditor to enter into a transaction with the primary obligor.

Unconscionability. An unconscionability defense is unlikely to succeed given Brashear's sophistication as a business owner and operator in the freight transportation industry. Procedural unconscionability requires a showing of surprise or oppression in the contract formation process; there is no evidence of either here, as the DFSA was negotiated at arm's length over several weeks, with both parties represented by counsel. Substantive unconscionability requires a showing that the terms are unreasonably favorable to one party; the guaranty's $3,000,000 cap, while substantial, is not unreasonable in the context of an $11.7 million contract, and the guaranty covers only the specific remedial provisions of Section 14, not the entirety of the DFSA. Texas courts have consistently upheld personal guaranties of comparable scope and magnitude in commercial contexts.

Impairment of collateral and modification defenses. The guaranty expressly waives all suretyship defenses, including defenses based on impairment of collateral, modification of the underlying obligations, and release or discharge of the primary obligor. Texas law permits guarantors to waive suretyship defenses, and courts enforce such waivers when they are clearly expressed in the guaranty instrument. The waivers in § 14.5 are comprehensive and unambiguous, and they effectively foreclose the most common suretyship defenses that a guarantor might otherwise assert.

Oklahoma law considerations. Brashear resides in Oklahoma, and Ridgeline is an Oklahoma LLC. However, the DFSA's governing law provision (§ 18.1) designates Texas law as the governing law for all aspects of the Agreement, including the personal guaranty. Brashear consented to this governing law provision by executing the DFSA. Even if a court were to apply Oklahoma law to the guaranty (for example, on the theory that Brashear's personal obligation is governed by the law of his domicile rather than the governing law of the underlying contract), the result would not change. Oklahoma law, like Texas law, enforces personal guaranties according to their terms when they are supported by adequate consideration, executed by competent parties, and clearly expressed. Oklahoma courts similarly recognize the right of guarantors to waive suretyship defenses. There is no material difference between Texas and Oklahoma law on this issue that would affect the enforceability analysis.

D. Conclusion on Guaranty

The personal guaranty executed by Gerald Brashear under § 14.5 of the DFSA is enforceable under Texas law. Brashear is personally liable for the liquidated damages of $1,381,250, the re-procurement damages of $1,056,250, and any attorneys' fees and costs awarded under the DFSA and applicable Texas statutes, up to the $3,000,000 Guaranty Cap. The guaranty is unconditional, was supported by adequate consideration, was executed by a sophisticated party with a direct interest in the underlying transaction, and contains clear language that forecloses the most likely defenses.

VIII. Consideration of Default Judgment Context

Based on the factual circumstances described in Section V above — including Ridgeline's complete cessation of operations, the repossession of its equipment, Brashear's non-responsiveness to the December 22, 2023 demand letter and subsequent communications, and the apparent insolvency of Ridgeline as a going concern — it is anticipated that Ridgeline and Brashear may fail to appear and answer in the forthcoming litigation. If that occurs, Stonefield will seek entry of a default judgment.

The enforceability analysis set forth in this memorandum remains relevant in the default judgment context for several important reasons.

First, a Texas court entering a default judgment is not relieved of the obligation to ensure that the plaintiff's claims are legally sufficient. Although the defendant's failure to appear results in the admission of well-pleaded facts, the court must still satisfy itself that the allegations, taken as true, state a viable cause of action and support the relief sought. The court retains the authority — and indeed the obligation — to scrutinize the legal basis for the claimed damages, including the enforceability of a liquidated damages provision, even when the defendant does not appear to contest them.

Second, in a default judgment proceeding, the court may require the plaintiff to present evidence in support of its damages claims, particularly where the damages are unliquidated or depend on the enforceability of a contractual provision. This may take the form of an evidentiary hearing or the submission of affidavit evidence. The court may examine the liquidated damages provision sua sponte to determine whether it constitutes an enforceable liquidated damages clause or an unenforceable penalty.

Third, this memorandum supports the preparation of two critical filings: (a) the affidavit of Marcus Ellington, Stonefield's Vice President of Operations, which will attest to the facts of Ridgeline's breach, the calculation of liquidated damages, and the documentation of re-procurement costs; and (b) the motion for default judgment, which will set forth the legal basis for enforcing the liquidated damages clause and the personal guaranty. The analysis in Sections VI and VII of this memorandum provides the substantive legal framework for these filings.

Fourth, even in the default judgment context, the judgment must be sustainable on appeal. If Brashear were to move to set aside the default judgment or appeal the judgment — even belatedly — the enforceability of the liquidated damages clause and the personal guaranty would be central issues on review. The thorough analysis in this memorandum ensures that the judgment is supported by a sound legal foundation.

IX. Conclusion and Recommendations

Based on the foregoing analysis, I reach the following conclusions:

1. The liquidated damages provision in § 14.3 of the DFSA is enforceable under the two-part Texas test. The harm from Ridgeline's breach — encompassing emergency re-procurement costs in a volatile freight market, service disruption to Stonefield's retail distribution network, reputational injury, and transition costs — is incapable or difficult of estimation. The 25% formula is a reasonable forecast of just compensation that produces a result that is conservative relative to Stonefield's actual losses. The clause is not an unenforceable penalty.

2. The re-procurement damages under § 14.4 are recoverable in addition to the liquidated damages under § 14.3 because they address distinct categories of harm: the liquidated damages compensate for the forward-looking loss of the bargained-for revenue commitment, while the re-procurement damages compensate for the backward-looking, actual out-of-pocket costs of procuring substitute freight services during the Transition Period.

3. Total damages of $2,437,500 are supportable ($1,381,250 in liquidated damages plus $1,056,250 in re-procurement damages), exclusive of pre-judgment interest, attorneys' fees, and costs.

4. The personal guaranty executed by Gerald Brashear under § 14.5 is enforceable up to the $3,000,000 Guaranty Cap. Brashear is personally liable for the full amount of the claim, including attorneys' fees and costs.

Based on these conclusions, I recommend the following course of action:

(a) Proceed with filing the Original Petition in the 134th Judicial District Court of Dallas County, Texas, asserting claims for breach of the DFSA, enforcement of the liquidated damages clause (§ 14.3), recovery of re-procurement damages (§ 14.4), and enforcement of the personal guaranty (§ 14.5).

(b) Name both Ridgeline Freight Carriers LLC and Gerald Brashear individually as defendants.

(c) Prepare the supporting affidavit of Marcus Ellington, Stonefield's Vice President of Operations, detailing (i) the negotiation and execution of the DFSA, (ii) the reasonableness of the liquidated damages clause in light of the parties' circumstances and the freight market conditions prevailing at the time of contracting, (iii) the facts of Ridgeline's breach and failure to cure, (iv) the calculation of liquidated damages, and (v) the documentation of actual re-procurement costs incurred during the Transition Period. Supporting invoices, rate confirmations, and purchase orders should be attached as exhibits to the affidavit.

(d) Seek pre-judgment interest at a rate of 5.00% per annum under Texas Finance Code § 304.003, calculated from the date of default (November 17, 2023) through the date of judgment.

(e) Seek recovery of reasonable attorneys' fees and costs under § 14.6 of the DFSA and Texas Civil Practice & Remedies Code § 38.001. An affidavit of attorneys' fees should be prepared by the responsible partner or lead associate at the time the motion for default judgment or motion for summary judgment is filed.

(f) If no answer is received from either defendant within the applicable answer period following service of citation, move for entry of default judgment, supported by the affidavit evidence described above and a brief addressing the enforceability of the liquidated damages clause and personal guaranty along the lines set forth in this memorandum.

I am available to discuss this memorandum and to begin drafting the Original Petition, supporting affidavits, and related filings at the team's direction.

X. Signature block / Review Notation

Prepared by:

________________________________________

Yuki Nakamura Associate Calderwood & Harkness LLP

Date: February 8, 2024

Reviewed by:

________________________________________

Jeffrey Park Lead Associate Calderwood & Harkness LLP

Date: ________

Approved by:

________________________________________

Priya Anand Partner Calderwood & Harkness LLP

Date: ________

DISTRIBUTION: Internal only. This memorandum constitutes attorney work product prepared in anticipation of litigation and is protected from disclosure by the attorney work product doctrine. This memorandum also contains information subject to the attorney-client privilege. Do not distribute, copy, or forward without the express authorization of the responsible partner. Any inadvertent disclosure of this memorandum does not constitute a waiver of any applicable privilege or protection.

Matter:	Stonefield Logistics Group Inc. v. Ridgeline Freight Carriers LLC and Gerald Brashear
Matter Number:	1012-00006
To:	Priya Anand, Responsible Partner; Jeffrey Park, Lead Associate
From:	Yuki Nakamura, Working Associate
Date:	February 8, 2024
Re:	Enforceability of Liquidated Damages Clause (§ 14.3) and Personal Guaranty (§ 14.5) Under the Dedicated Freight Services Agreement Dated April 15, 2022
Category	Amount
Liquidated Damages (§ 14.3)	$1,381,250
Re-Procurement Damages (§ 14.4)	$1,056,250
Total	$2,437,500
Component	Calculation	Amount
Remaining months in term	November 18, 2023 – April 14, 2025	17 months
Minimum Monthly Revenue Commitment	Per § 3.2	$325,000
Remaining unpaid Minimum Monthly Revenue Commitment	17 × $325,000	$5,525,000
Liquidated damages at 25%	25% × $5,525,000	$1,381,250
Alternative floor (§ 14.3(b))	Fixed amount	$500,000
Applicable liquidated damages amount	Greater of (a) and (b)	$1,381,250

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 2200 Ross Avenue, Suite 3600 Dallas, Texas 75201
INTERNAL RESEARCH MEMORANDUM
I. Executive Summary
This memorandum addresses two primary questions raised by the engagement team: (1) whether the liquidated damages provision in § 14.3 of the Dedicated Freight Services Agreement ("DFSA") executed on April 15, 2022, between Stonefield Logistics Group Inc. ("Stonefield" or "SLG") and Ridgeline Freight Carriers LLC ("Ridgeline") is enforceable under Texas law, and (2) whether the personal guaranty executed by Gerald Brashear ("Brashear") under § 14.5 of the DFSA is likewise enforceable against him individually. A subsidiary but important question is whether Stonefield may recover both the liquidated damages under § 14.3 and the re-procurement damages carved out under § 14.4 without the aggregate recovery being deemed duplicative or constituting an unenforceable penalty.
Based on my analysis of the contractual provisions, the factual record developed to date, and governing Texas precedent, I conclude as follows:
The liquidated damages provision is enforceable under the two-part Texas test. The formula of 25% of the remaining Minimum Monthly Revenue Commitment constitutes a reasonable forecast of just compensation for a breach that would cause — and has in fact caused — harm inherently difficult to estimate. These damages include, among other things, emergency re-procurement costs in a volatile freight market, disruption to Stonefield's retail distribution network across Texas and the broader 14-state footprint, transition and onboarding costs for substitute carriers, and reputational harm with downstream retail customers. The 25% figure is measured and conservative; it represents only a fraction of the total remaining contract value and is, in fact, closely approaching Stonefield's documented actual losses from re-procurement alone during the first 59 days following Ridgeline's default.
The personal guaranty is enforceable as an unconditional obligation. Brashear, as sole member and managing member of Ridgeline, executed a personal guaranty that is absolute, continuing, and irrevocable, capped at $3,000,000. That cap is well above both the liquidated damages amount of $1,381,250 and the total damages claim of $2,437,500 (including re-procurement damages of $1,056,250 under § 14.4). The guaranty was supported by adequate consideration, was executed by a sophisticated business principal, and expressly waives all suretyship defenses.
Total damages exposure is as follows:
This total is exclusive of pre-judgment interest, attorneys' fees, and costs, all of which are independently recoverable under the DFSA and applicable Texas statutes.
II. Questions Presented
A. Question One
Is the liquidated damages provision in § 14.3 of the Dedicated Freight Services Agreement dated April 15, 2022, between Stonefield Logistics Group Inc. and Ridgeline Freight Carriers LLC, enforceable under Texas law, or is it subject to invalidation as an unenforceable penalty?
B. Question Two
Is the personal guaranty executed by Gerald Brashear under § 14.5 of the DFSA enforceable against him individually, and does the scope of the guaranty extend to the liquidated damages obligation arising under § 14.3 and the re-procurement damages carved out under § 14.4?
C. Question Three
Can Stonefield recover both the liquidated damages under § 14.3 and the re-procurement damages under the § 14.4 consequential damages carve-out without the two provisions being deemed duplicative or constituting a penalty in the aggregate?
III. Brief Answers
A. Answer to Question One
Yes. The liquidated damages provision satisfies both prongs of the Texas enforceability test. As to the first prong, the harm from Ridgeline's breach — including emergency re-procurement costs on a volatile spot freight market, service disruption to Stonefield's 14-state retail distribution network, customer relationship damage, transition costs associated with onboarding replacement carriers, and intangible reputational injury — is incapable or difficult of estimation at the time of contracting. The freight logistics market was experiencing significant post-pandemic pricing volatility in April 2022 when the DFSA was executed, and the multi-faceted nature of the prospective harm (spanning quantifiable out-of-pocket costs, consequential service failures, and difficult-to-measure reputational damage) further compounds the estimation difficulty. As to the second prong, the formula of 25% of the remaining Minimum Monthly Revenue Commitment is a reasonable pre-estimate of anticipated loss, not an excessive or punitive amount. The 25% figure represents only a fraction of the economic value Stonefield stood to lose; when compared against Stonefield's actual re-procurement costs incurred during just the first 59 days following default ($1,056,250), the liquidated damages figure of $1,381,250 appears conservative, not inflated. The provision is likely to be upheld.
B. Answer to Question Two
Yes. The personal guaranty is unconditional and was signed by Brashear in his capacity as sole member and managing member of Ridgeline. It is capped at $3,000,000, well above the liquidated damages claim of $1,381,250, and well above the total damages claim of $2,437,500. The guaranty was supported by adequate consideration — namely, Stonefield's agreement to enter into the DFSA with Ridgeline, an entity whose creditworthiness Stonefield would not have accepted absent the personal guaranty of its principal. The guaranty expressly covers all obligations arising under Section 14 of the DFSA, which includes the liquidated damages provision (§ 14.3), the re-procurement damages carve-out (§ 14.4), and the attorneys' fees provision (§ 14.6). The guaranty is enforceable under Texas law as designated by the governing law provision (§ 18.1). Even if Oklahoma law were to apply by virtue of Brashear's Oklahoma residency, the guaranty would be enforceable on substantially similar grounds. There is no deficiency in consideration, scope, or execution.
C. Answer to Question Three
Yes, provided the two categories of damages address distinct injuries — which they do as drafted. The liquidated damages under § 14.3 compensate Stonefield for the loss of the bargained-for minimum revenue commitment over the remaining contract term. This is a forward-looking, estimated loss reflecting the economic value of the contractual relationship that Ridgeline's breach destroyed. By contrast, the § 14.4 carve-out addresses actual, documented, out-of-pocket re-procurement expenditures incurred during the 90-day transition period following Ridgeline's default (November 18, 2023 through January 15, 2024). These expenditures are backward-looking, actual-cost recoveries — they are distinct from and not subsumed by the liquidated damages formula. The DFSA was specifically and intentionally drafted to permit both recoveries, and the combined total of $2,437,500 represents approximately 44% of the remaining contract value of $5,525,000, which is not disproportionate given the severity and abruptness of Ridgeline's complete cessation of operations. The dual recovery is supportable under Texas law.
IV. Relevant Contractual Provisions
The following sections of the DFSA are material to the enforceability analysis. I have quoted or closely paraphrased the operative language and provided calculations as applied to the facts of this matter.
A. § 3.2 — Minimum Monthly Revenue Commitment
Section 3.2 of the DFSA established the core performance obligation that Ridgeline undertook in exchange for its position as a dedicated carrier within Stonefield's managed transportation network. Under this provision, Ridgeline committed to provide a minimum of twelve (12) dedicated Class 8 tractor-trailers, each equipped and operated by a qualified commercial driver, for Stonefield's Texas retail distribution lanes. These dedicated lanes encompass daily routes between Stonefield's distribution centers located in Dallas, Houston, San Antonio, and Austin, Texas, serving Stonefield's retail customer base in the state.
The financial parameters of the commitment are as follows:
•  Minimum Monthly Revenue Commitment: $325,000 per month.
•  Annual Revenue Floor: $3,900,000 ($325,000 × 12 months).
•  Total Contract Value over the 36-month term (April 15, 2022 through April 14, 2025): $11,700,000 ($325,000 × 36 months).
The Minimum Monthly Revenue Commitment was not merely aspirational; it functioned as a guaranteed minimum volume obligation upon which Stonefield relied in structuring its own service commitments to downstream retail customers and in planning its fleet management and capacity allocation across its broader 14-state network.
B. § 14.3 — Liquidated Damages Provision
Section 14.3 of the DFSA provides, in pertinent part:
"In the event of Carrier's material default under this Agreement and Carrier's failure to cure such default within thirty (30) calendar days following receipt of written notice from Shipper specifying the nature of such default (the "Cure Period"), Carrier shall pay to Shipper, as liquidated damages and not as a penalty, an amount equal to the greater of (a) twenty-five percent (25%) of the remaining unpaid Minimum Monthly Revenue Commitment for the unexpired portion of the Term, calculated from the date immediately following the expiration of the Cure Period through the scheduled expiration date of the Term, or (b) Five Hundred Thousand Dollars ($500,000).
The parties acknowledge and agree that (i) a material default by Carrier would cause Shipper to suffer substantial damages, including but not limited to costs of re-procurement of substitute freight services, disruption to Shipper's distribution network and customer relationships, and reputational harm in the marketplace, (ii) such damages would be difficult or impossible to calculate with precision at the time of entering into this Agreement, and (iii) the liquidated damages amount set forth herein represents a reasonable estimate of the losses Shipper would incur as a result of such default."
Calculation as applied to the facts of this matter:
The Cure Period expired on November 17, 2023. The remaining unexpired term of the DFSA ran from November 18, 2023 through April 14, 2025 — a period of approximately seventeen (17) months.
Because the 25% calculation ($1,381,250) exceeds the $500,000 floor, the applicable liquidated damages amount is $1,381,250.
C. § 14.4 — Consequential Damages Carve-Out
Section 14.4 of the DFSA contains a mutual waiver of consequential, incidental, and indirect damages that is typical of commercial transportation agreements. However, the provision includes a critical carve-out that is operative here. The relevant language provides:
"Notwithstanding the foregoing mutual waiver of consequential, incidental, and indirect damages, the parties agree that the following categories of damages shall not be subject to such waiver and shall be recoverable by the non-defaulting party: (a) actual, documented re-procurement costs incurred by Shipper to procure substitute freight services during the ninety (90) calendar day period immediately following the date of Carrier's default (the "Transition Period"); and (b) any indemnification obligations arising under Section 12 of this Agreement."
Stonefield has documented re-procurement costs totaling $1,056,250 incurred during the Transition Period, which ran from November 18, 2023 through January 15, 2024 (approximately 59 days). These costs encompass emergency spot-market freight procurements, surge pricing premiums paid to substitute carriers during peak holiday shipping season, and substitute carrier onboarding and mobilization fees. The re-procurement cost documentation has been compiled by Stonefield's Vice President of Operations, Marcus Ellington, and is supported by invoices, rate confirmations, and purchase orders that will form the basis of the supporting affidavit to be filed with the court.
D. § 14.5 — Personal Guaranty
Section 14.5 of the DFSA contains a personal guaranty executed by Gerald Brashear. The relevant language provides:
"Gerald Brashear, as the sole member and managing member of Carrier, hereby unconditionally and irrevocably guarantees the full and prompt payment and performance of all of Carrier's obligations arising under this Section 14, including without limitation the liquidated damages obligation set forth in Section 14.3, the re-procurement costs obligation set forth in Section 14.4, and the attorneys' fees and costs obligation set forth in Section 14.6 (collectively, the "Guaranteed Obligations"), up to an aggregate maximum amount of Three Million Dollars ($3,000,000) (the "Guaranty Cap"). This guaranty is absolute, continuing, and irrevocable, and Guarantor hereby waives all defenses of suretyship, including without limitation any defense based upon the modification, amendment, or extension of the underlying obligations, any impairment of collateral, any failure of consideration, any statute of limitations defense, and any defense based upon the release or discharge of Carrier in any proceeding, including without limitation any bankruptcy or insolvency proceeding."
Brashear executed the guaranty on the same date as the DFSA (April 15, 2022) and in the same instrument. His signature appears on the signature page of the DFSA in a dedicated guarantor signature block, below the corporate signatures of both Stonefield and Ridgeline.
The $3,000,000 Guaranty Cap exceeds both the liquidated damages claim of $1,381,250 and the total damages claim of $2,437,500. When pre-judgment interest, attorneys' fees, and costs are added, the total recovery is still expected to fall well within the Guaranty Cap.
E. § 14.6 — Attorneys' Fees
Section 14.6 provides that the prevailing party in any dispute arising under Section 14 shall be entitled to recover its reasonable attorneys' fees and costs, including but not limited to filing fees, service of process costs, expert fees, and other litigation expenses. This provision is consistent with and supplemental to the statutory right to recover attorneys' fees under Texas Civil Practice & Remedies Code § 38.001.
F. § 18.1 — Governing Law
Section 18.1 of the DFSA provides that the Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to any choice-of-law or conflict-of-laws provisions. This governing law provision applies to all aspects of the DFSA, including the liquidated damages provision, the consequential damages carve-out, and the personal guaranty.
G. § 18.2 — Forum Selection
Section 18.2 provides that any action or proceeding arising out of or relating to the DFSA shall be brought exclusively in the state or federal courts located in Dallas County, Texas, and the parties irrevocably consent to the personal jurisdiction and venue of such courts. Both Ridgeline and Brashear consented to this forum selection clause by executing the DFSA.
V. Factual Background
The following factual summary is based on documents currently in the file, including the DFSA, correspondence between the parties, Stonefield's internal records, and information provided by Stonefield's General Counsel, Diane Ostrowski, and Vice President of Operations, Marcus Ellington.
A. The Parties
Stonefield Logistics Group Inc. is a Texas corporation headquartered at 4100 Commerce Street, Suite 1200, Dallas, Texas 75226. Stonefield operates as a third-party logistics ("3PL") provider specializing in dedicated fleet management, intermodal drayage, and last-mile delivery services across fourteen (14) states in the Southern and Central United States. Stonefield maintains contractual relationships with approximately 340 carrier partners and reported annual revenue of approximately $485 million for fiscal year 2023. Stonefield is a portfolio company of Crestpoint Industrial Partners Fund III, LP, a private equity fund focused on middle-market logistics and supply chain investments. Stonefield's operations are material to the distribution networks of several major national and regional retail chains, and the company's business model depends on the reliability and contractual performance of its dedicated carrier partners.
Ridgeline Freight Carriers LLC is an Oklahoma limited liability company with its principal office at 7820 South Meridian Avenue, Oklahoma City, Oklahoma 73159. Ridgeline holds USDOT Number 3281947 and Motor Carrier Authority Number MC-1042886. At peak capacity, Ridgeline operated a fleet of approximately 38 Class 8 tractors and 52 dry van trailers. Ridgeline was a regional carrier focused primarily on dedicated and contract freight in the Texas-Oklahoma-Kansas corridor.
Gerald "Gerry" Brashear is the sole member and managing member of Ridgeline. He resides at 2314 Quail Creek Drive, Edmond, Oklahoma 73034. Prior to founding Ridgeline in 2017, Brashear served as operations manager at Heartland Motor Lines Inc., a regional carrier based in Tulsa, Oklahoma. Brashear is the only individual member of Ridgeline and exercises sole management authority over the company's operations and finances.
B. The Dedicated Freight Services Agreement
The DFSA was executed on April 15, 2022, and established a 36-month dedicated carrier arrangement between Stonefield and Ridgeline. The term of the DFSA runs from April 15, 2022 through April 14, 2025. Under the DFSA, Ridgeline committed to provide a minimum of twelve (12) dedicated Class 8 tractor-trailers with qualified drivers for Stonefield's Texas retail distribution lanes, encompassing daily freight routes between distribution centers in Dallas, Houston, San Antonio, and Austin, Texas. The Minimum Monthly Revenue Commitment was set at $325,000, resulting in a total contract value of $11,700,000 over the 36-month term.
The DFSA was negotiated over a period of approximately six weeks between Stonefield's procurement team (led by Marcus Ellington) and Brashear, who negotiated on behalf of Ridgeline. Both parties were represented by counsel during the negotiation process. The personal guaranty in § 14.5 was specifically requested by Stonefield as a condition of entering into the DFSA due to Ridgeline's relatively limited operating history (founded in 2017) and the size of the commitment relative to Ridgeline's total fleet capacity.
C. Performance and Deterioration
From the commencement of the DFSA in April 2022 through approximately June 2023, Ridgeline performed its obligations under the DFSA in a generally satisfactory manner, consistently providing the required minimum of twelve (12) dedicated trucks and meeting the Minimum Monthly Revenue Commitment. However, beginning in approximately July 2023, Ridgeline's performance began to deteriorate significantly. The number of dedicated trucks provided by Ridgeline fell below the twelve-truck minimum, declining gradually through the summer and fall of 2023. By October 2023, Ridgeline was providing as few as four (4) trucks on certain days, representing a reduction of more than 66% from the contractual minimum. This decline was attributable to a combination of factors, including financial distress at Ridgeline (arising from, among other things, declining revenue on other accounts, rising insurance and fuel costs, and equipment financing difficulties), loss of qualified drivers, and operational failures including maintenance backlogs and equipment breakdowns.
D. Notice of Breach and Cure Period
On October 18, 2023, Stonefield sent Ridgeline a written notice of material breach pursuant to § 14.3 of the DFSA. The notice was transmitted via both certified United States mail (with return receipt requested) and electronic mail to Brashear's designated email address. The notice identified the specific nature of the material breach — namely, Ridgeline's sustained failure to provide the minimum of twelve (12) dedicated Class 8 tractor-trailers required under § 3.2 — and demanded that Ridgeline cure the breach within the 30-day Cure Period prescribed by § 14.3.
The 30-day Cure Period expired on November 17, 2023. Ridgeline failed to cure the breach. During the Cure Period, Ridgeline's truck count remained at or below six (6) trucks, and Brashear communicated informally to Marcus Ellington that Ridgeline was experiencing "severe cash flow issues" and was "working on a plan" but could not commit to a timeline for restoration of full service. No formal cure plan was submitted, and no additional trucks were deployed.
E. Default and Cessation of Operations
November 17, 2023 is the date of default under the DFSA. Following the expiration of the Cure Period, Ridgeline's service continued to deteriorate further. On December 8, 2023, Ridgeline ceased all freight operations entirely. Brashear informed Ellington by telephone on that date that Ridgeline was "shutting down" and could no longer provide any trucks or drivers. Ridgeline's remaining equipment was reportedly being repossessed by its lenders.
F. Demand and Engagement of Counsel
On December 22, 2023, Stonefield's General Counsel, Diane Ostrowski, sent a formal demand letter to both Ridgeline and Brashear individually, demanding payment of the liquidated damages under § 14.3 in the amount of $1,381,250 and reserving all rights under the DFSA, including the right to recover re-procurement costs under § 14.4 and attorneys' fees under § 14.6. The demand letter was sent to Ridgeline's principal office address, to Brashear's residential address, and by email. No response was received.
On January 29, 2024, Calderwood & Harkness LLP was engaged by Stonefield to pursue litigation. The matter was opened under Matter Number 1012-00006.
G. Ridgeline's Current Status
As of the date of this memorandum, Ridgeline has not filed for bankruptcy protection, but based on available information, Ridgeline appears to be effectively insolvent as a going concern. The company has ceased all operations, its equipment has been repossessed, and its registered agent in Oklahoma has not responded to inquiries. Brashear has not responded to the December 22, 2023 demand letter or to subsequent communications. These circumstances suggest that Ridgeline and Brashear may not appear or answer in the forthcoming litigation, which has implications for the procedural posture of the case and the potential need for a default judgment. Those procedural considerations are addressed briefly in Section VIII below.
VI. Legal Analysis — Enforceability of Liquidated Damages Under Texas Law
A. The Two-Part Texas Test
Texas courts evaluate the enforceability of liquidated damages provisions using a well-established two-part test. Under this framework, a liquidated damages clause is enforceable if two conditions are satisfied: (1) the harm caused by the breach is incapable or difficult of estimation at the time of contracting, and (2) the amount of liquidated damages called for is a reasonable forecast of just compensation for the harm that the breach would cause.
Critically, the enforceability of a liquidated damages provision is assessed as of the time of contracting, not with the benefit of hindsight. A court does not ask whether the liquidated damages amount matches the plaintiff's actual losses with precision; rather, the court asks whether, at the time the parties entered into the agreement, the amount represented a reasonable pre-estimate of the anticipated harm. This temporal perspective is essential because it respects the parties' freedom to allocate risk prospectively and prevents the unfairness that would result from invalidating a considered contractual provision based on information that was unavailable when the provision was negotiated.
The party challenging the liquidated damages clause bears the burden of demonstrating that the clause constitutes an unenforceable penalty. This burden-allocation reflects the strong public policy in Texas favoring freedom of contract and the enforcement of bargained-for terms between commercial parties. Texas courts have consistently held that liquidated damages provisions are presumptively valid and will be enforced unless the challenging party demonstrates that the provision fails one or both prongs of the two-part test.
The Texas Supreme Court has articulated this framework as the governing standard, and the intermediate Courts of Appeals have applied it consistently across a broad range of commercial contexts, including construction contracts, real estate transactions, employment agreements, and — most relevant here — logistics and service agreements. The test balances two competing policy concerns: the desirability of enforcing freely negotiated contractual terms, and the longstanding equitable principle that courts will not enforce contractual provisions that function as penalties or forfeitures rather than as genuine pre-estimates of compensation.
B. Prong One — Whether Harm Is Incapable or Difficult of Estimation
The first prong of the Texas test asks whether the harm caused by the breach was incapable or difficult of estimation at the time the parties entered into the contract. This prong is satisfied when the nature of the anticipated breach is such that the resulting damages are inherently uncertain, multi-faceted, or dependent on future contingencies that resist precise quantification.
In this case, the harm from Ridgeline's breach is precisely the type of harm that Texas courts have recognized as incapable or difficult of estimation. The nature of the transportation logistics industry, and the specific role that Ridgeline occupied within Stonefield's managed freight network, give rise to multiple categories of harm that are inherently difficult to predict and quantify at the time of contracting.
Re-procurement costs. The most immediate and tangible harm from a dedicated carrier's sudden default is the cost of emergency sourcing of substitute carriers on the spot market. Spot freight rates are highly volatile and subject to seasonal fluctuations, fuel surcharges, driver availability, lane-specific capacity constraints, weather disruptions, and broader macroeconomic conditions. At the time the DFSA was executed in April 2022, the freight market was experiencing significant post-pandemic pricing volatility. The COVID-19 pandemic had caused unprecedented disruptions to supply chains, and the freight market was in a period of rapid correction from the extreme rate spikes of 2021 and early 2022. The direction, magnitude, and duration of future freight rate movements were inherently uncertain, making it impossible to predict with any precision what it would cost Stonefield to procure substitute freight services in the event of Ridgeline's default at some unknown future point during the 36-month term. The actual re-procurement costs incurred by Stonefield ($1,056,250 over approximately 59 days) confirm the volatility and unpredictability of these costs, which were inflated by Ridgeline's default occurring during the peak holiday shipping season (November through January).
Service disruption. Stonefield's business model depends on the reliable, on-time performance of its dedicated carrier partners. When a dedicated carrier defaults, the immediate consequences include missed delivery windows, potential stockouts at retail locations, and the cascading effects of supply chain disruptions across Stonefield's distribution network. Stonefield's downstream retail customers impose penalties for late or incomplete deliveries, and these penalties vary by customer, by season, and by the severity and duration of the disruption. At the time of contracting, it was not possible to predict when during the 36-month term a breach might occur, which of Stonefield's retail customers would be affected, what penalty provisions would be in effect at the time of the breach, or how long the disruption would last. These variables make the service disruption component of damages inherently difficult to estimate.
Reputational harm. Beyond the direct financial costs of re-procurement and service disruption, a carrier default causes reputational harm to Stonefield's standing in the 3PL market and its relationships with downstream retail customers. Stonefield's value proposition to its retail clients is the reliability and seamlessness of its managed freight services. A high-profile service failure caused by a carrier's abrupt cessation of operations undermines customer confidence and may result in the loss of existing customer contracts or the failure to win new business. Reputational harm is, by its nature, extremely difficult to quantify monetarily. It may manifest over months or years, and its effects may be diffuse and indirect. Texas courts have long recognized that reputational harm is a paradigmatic example of a category of damages that is incapable of precise estimation.
Transition costs. Even after substitute carriers are identified, there are substantial costs associated with onboarding and integrating them into Stonefield's distribution network. These costs include driver qualification and background check processes, route familiarization and training, equipment compatibility assessments, compliance verification (including FMCSA regulatory compliance, insurance documentation, and safety rating review), and the administrative burden of establishing new carrier agreements, rate schedules, and dispatch protocols. The magnitude of these transition costs depends on factors that are unknowable at the time of contracting, including the number and quality of available substitute carriers, the urgency of the transition, and the complexity of the affected lanes.
Conclusion on Prong One. The harm from Ridgeline's breach encompasses multiple categories of consequential harm — re-procurement costs subject to volatile market conditions, service disruption with cascading effects on downstream customers, intangible reputational injury, and transition costs dependent on future contingencies. This is precisely the type of multi-faceted, market-dependent, and inherently uncertain harm that the first prong of the Texas test is designed to address. Prong One is satisfied.
C. Prong Two — Whether the Liquidated Damages Amount Is a Reasonable Forecast
The second prong of the Texas test asks whether the amount of liquidated damages is a reasonable forecast of just compensation for the anticipated harm. This prong does not require mathematical precision; it requires only that the stipulated amount bear a reasonable relationship to the anticipated harm and not be grossly disproportionate to the losses that the parties could have foreseen at the time of contracting.
The 25% formula. The DFSA calculates liquidated damages as 25% of the remaining unpaid Minimum Monthly Revenue Commitment for the unexpired term. This is a measured and proportionate formula. The provision does not require payment of 100% of the remaining commitment, nor even 50%. By stipulating a recovery of only 25%, the parties implicitly acknowledged that Stonefield would mitigate a portion of its losses through re-procurement and that the full remaining contract value overstates the net harm. The choice of a percentage-based formula — as opposed to a fixed sum — is itself indicative of a good-faith effort to calibrate the damages amount to the magnitude of the harm, because the formula automatically adjusts the recovery based on the remaining term: an early breach (which would cause greater harm due to a longer period of disruption) yields a larger recovery, while a late-term breach yields a smaller one. This sliding-scale characteristic is a hallmark of a reasonable pre-estimate.
Comparison to actual damages. Although the enforceability analysis is properly conducted as of the time of contracting, Texas courts have noted that a comparison between the liquidated damages amount and the plaintiff's actual losses can serve as a useful cross-check on the reasonableness of the parties' pre-estimate. Here, the comparison strongly supports enforceability:
•  Remaining Minimum Revenue Commitment: $5,525,000 (17 months × $325,000).
•  Liquidated damages at 25%: $1,381,250.
•  Actual documented re-procurement costs during the first approximately 59 days following default (November 18, 2023 – January 15, 2024): $1,056,250.
The actual re-procurement costs incurred during just the first 59 days of the remaining 17-month term already approach the full liquidated damages amount. If re-procurement costs were to continue at a comparable rate for the full remaining term, they would far exceed the liquidated damages figure. This comparison demonstrates that the 25% formula is, if anything, conservative relative to Stonefield's actual losses. Moreover, the re-procurement costs represent only one category of Stonefield's damages; when the additional, unquantified losses from service penalties, customer credits, reputational damage, and transition costs are considered, the total harm is almost certainly substantially greater than the liquidated damages amount.
The $500,000 floor. Section 14.3 provides that liquidated damages shall be the greater of 25% of the remaining commitment or $500,000. The alternative minimum of $500,000 functions as a de minimis recovery in cases of late-term breaches where the remaining commitment might be small. For example, if a breach occurred with only three months remaining in the term, the 25% formula would yield only $243,750 (25% × $975,000), which might undercompensate Stonefield for the fixed costs of emergency re-procurement regardless of the remaining term length. The $500,000 floor ensures a minimum recovery that reflects these irreducible fixed costs. Importantly, the floor does not render the clause a penalty: $500,000 is a reasonable estimate of the minimum cost of emergency re-procurement, transition, and service disruption that would result from a dedicated carrier's default, even near the end of the contract term. The floor is not grossly disproportionate to likely minimum harm.
Industry practice. Liquidated damages clauses are common in dedicated freight services agreements and in the broader logistics industry. The inherent difficulty of predicting re-procurement costs, service disruption, and the downstream effects of carrier defaults has led to widespread adoption of contractual damages formulae in this sector. The prevalence of such clauses in the industry supports the conclusion that the DFSA's liquidated damages provision reflects a reasonable and commercially customary approach to risk allocation.
No "look back" requirement. It bears repeating that Texas law does not require the liquidated damages amount to match actual damages with precision. The test is prospective, not retrospective. The question is whether the parties' pre-estimate was reasonable at the time of contracting, not whether it turned out to be exactly right. The parties are entitled to err in either direction — a liquidated damages amount that proves to be somewhat higher or lower than actual damages is not thereby rendered unenforceable, so long as it was within the range of reasonable estimation at the time the contract was formed.
Conclusion on Prong Two. The 25% formula is a reasonable forecast of just compensation for the harm that Ridgeline's breach was anticipated to cause. The formula is measured, proportionate, and calibrated to the remaining term. It produces a result that is consistent with — indeed, conservative relative to — Stonefield's actual losses. The $500,000 floor is a reasonable minimum that does not convert the clause into a penalty. Prong Two is satisfied.
D. The Clause Is Not an Unenforceable Penalty
Having demonstrated that both prongs of the Texas two-part test are satisfied, it is useful to address the specific factors that Texas courts consider in distinguishing an enforceable liquidated damages clause from an unenforceable penalty. Each factor supports enforceability here.
The amount bears a reasonable relationship to anticipated harm. As discussed in Sections VI.B and VI.C above, the 25% formula produces a damages amount that is proportionate to — and in fact conservative relative to — the multiple categories of harm that Ridgeline's breach was anticipated to cause.
The clause was negotiated between sophisticated commercial parties. Stonefield is a $485 million annual revenue 3PL company, and Ridgeline, though smaller, is a motor carrier with a fleet of 38 tractors, managed by a principal (Brashear) with years of industry experience. Both parties were represented by counsel during the negotiation of the DFSA. This is not a consumer contract or an adhesion agreement; it is a negotiated commercial agreement between parties with the sophistication and bargaining power to understand and evaluate the liquidated damages provision.
The DFSA expressly recites the parties' agreement that actual damages would be difficult to calculate. Section 14.3 contains an express acknowledgment by both parties that "such damages would be difficult or impossible to calculate with precision at the time of entering into this Agreement" and that "the liquidated damages amount set forth herein represents a reasonable estimate of the losses Shipper would incur as a result of such default." While Texas courts treat such recitals as probative rather than conclusive, they are nonetheless significant evidence that the parties intended the clause to function as a genuine pre-estimate of compensation, not as a penalty or deterrent.
The percentage-based formula is measured, not arbitrary. A fixed, arbitrary sum bearing no relationship to the contract value or the anticipated harm would raise red flags. Here, the damages are calculated as a percentage of the remaining contract value, which inherently scales the recovery to the magnitude of the breach and the length of the disrupted term. This mathematical relationship between the damages formula and the underlying contract economics is strong evidence of a reasonable pre-estimate.
The floor ($500,000) is not grossly disproportionate to likely minimum harm. The minimum recovery of $500,000 reflects the fixed costs of emergency re-procurement and transition that Stonefield would incur regardless of the remaining term length. This is not an outsized minimum designed to punish late-term breaches; it is a reasonable floor that ensures adequate compensation for the irreducible minimum harm caused by any breach.
There is no indication of duress, unequal bargaining power, or lack of negotiation. The DFSA was negotiated at arm's length between willing commercial parties. There is no evidence that the liquidated damages clause was imposed upon Ridgeline without discussion or that Ridgeline was unable to negotiate its terms. To the contrary, the DFSA reflects a considered allocation of risk that both parties accepted voluntarily.
Anticipated defense arguments. Even in the event that Ridgeline or Brashear later appears and contests the enforceability of the liquidated damages clause, the likely defense arguments are readily rebutted:
•  Argument that 25% is excessive: This argument is rebutted by the fact that Stonefield's actual re-procurement costs during just the first 59 days following default already approach the full liquidated damages amount. A provision that yields less than the plaintiff's actual out-of-pocket costs cannot credibly be characterized as excessive.
•  Argument that actual damages are calculable: This argument is rebutted by the multi-faceted nature of the harm, which includes not only quantifiable re-procurement costs but also service disruption, customer penalties, reputational damage, and transition costs — categories of harm that are inherently uncertain and resist precise estimation. The fact that some components of the harm may be calculable after the fact does not undermine the difficulty of estimation at the time of contracting.
Conclusion. The liquidated damages clause in § 14.3 is an enforceable liquidated damages provision, not an unenforceable penalty. It satisfies both prongs of the Texas two-part test and bears all the hallmarks of a genuine, reasonable pre-estimate of compensation negotiated between sophisticated commercial parties.
E. Interplay Between Liquidated Damages (§ 14.3) and Re-Procurement Damages (§ 14.4)
A defendant challenging the DFSA's damages structure may argue that recovering both the liquidated damages under § 14.3 and the actual re-procurement damages under the § 14.4 carve-out is duplicative, and that the combined recovery is so excessive as to constitute a penalty. This argument, while foreseeable, is not well-founded.
The DFSA was specifically structured to permit both recoveries. Section 14.4 expressly carves out "actual, documented re-procurement costs incurred by Shipper to procure substitute freight services during the ninety (90) calendar day period immediately following the date of Carrier's default" from the mutual consequential damages waiver. This carve-out is a distinct provision from the liquidated damages clause in § 14.3, and its inclusion in the DFSA reflects the parties' deliberate decision to provide Stonefield with two complementary forms of recovery addressing different categories of harm.
The two provisions address distinct categories of harm. The liquidated damages under § 14.3 compensate Stonefield for the loss of the bargained-for minimum revenue commitment over the remaining contract term. This is a forward-looking, estimated loss that reflects the economic value of the contractual relationship that Ridgeline's breach destroyed — value that encompasses not only the direct revenue but also the planning certainty, capacity stability, and customer assurances that the dedicated commitment provided. By contrast, the § 14.4 carve-out addresses actual, documented, out-of-pocket expenditures incurred during the 90-day Transition Period — specific, backward-looking, actual-cost recoveries for emergency re-procurement that are distinct from and not subsumed by the forward-looking liquidated damages formula. The liquidated damages do not purport to cover re-procurement costs; they cover the loss of the contractual commitment itself. The re-procurement costs do not overlap with the liquidated damages; they represent the incremental expense of procuring substitute services at premium rates during the immediate post-default period.
Texas law permits parties to structure complementary damages provisions. Texas courts respect the freedom of sophisticated commercial parties to allocate risk and structure damages provisions by agreement. Where the contract language is clear and unambiguous — as it is here — courts will enforce the parties' bargain as written. The DFSA's damages structure is internally consistent and reflects a deliberate, negotiated framework for addressing distinct categories of harm.
The combined total is not disproportionate. The combined recovery of $2,437,500 ($1,381,250 + $1,056,250) represents approximately 44% of the remaining contract value of $5,525,000. In light of the severity and abruptness of Ridgeline's breach — a complete cessation of operations during the peak holiday shipping season, with no cure attempt and no transition assistance — a recovery of 44% of the remaining contract value is not disproportionate. Stonefield lost 100% of Ridgeline's dedicated freight capacity and was forced to procure substitute services on an emergency basis at substantial premium costs. The combined recovery falls well short of full compensatory damages for the totality of Stonefield's losses, which include unquantified service penalties, customer credits, and reputational harm in addition to the re-procurement costs.
Conclusion. The dual recovery under § 14.3 and § 14.4 is supportable under Texas law and should be enforceable. The two provisions address distinct categories of harm, are clearly and deliberately separated in the DFSA, and produce a combined recovery that is reasonable in light of the severity of the breach.
VII. Legal Analysis — Enforceability of Personal Guaranty (§ 14.5)
A. Terms of the Guaranty
As set forth in Section IV.D above, Gerald Brashear executed a personal, unconditional guaranty of Carrier's obligations under Section 14 of the DFSA. The guaranty is absolute, continuing, and irrevocable. It is capped at an aggregate maximum amount of $3,000,000 (the "Guaranty Cap"). The guaranty expressly covers the liquidated damages obligation under § 14.3, the re-procurement costs obligation under § 14.4, and the attorneys' fees and costs obligation under § 14.6. The guaranty includes comprehensive waivers of suretyship defenses, including defenses based on modification of the underlying obligations, impairment of collateral, failure of consideration, statute of limitations, and release or discharge of the primary obligor in any proceeding, including bankruptcy.
B. Enforceability Under Texas Law
Texas law strongly favors the enforcement of personal guaranties according to their terms. Courts routinely uphold personal guaranties where the following conditions are present, all of which are satisfied here:
The guarantor is a sophisticated party with a direct interest in the underlying transaction. Brashear is the sole member and managing member of Ridgeline — the entity whose obligations he guaranteed. He has a direct economic interest in Ridgeline's business and is not a disinterested third party. He is an experienced business operator with years of experience in the freight transportation industry, having previously served as operations manager at Heartland Motor Lines Inc. before founding Ridgeline in 2017. He was represented by counsel during the negotiation and execution of the DFSA. There is no basis for characterizing him as an unsophisticated or uninformed guarantor.
The guaranty is supported by adequate consideration. The consideration for Brashear's personal guaranty is Stonefield's agreement to enter into the DFSA with Ridgeline. Stonefield required the personal guaranty as a condition of awarding the dedicated carrier contract to Ridgeline — a relatively small, privately held carrier with limited operating history and net worth. Without the personal guaranty, Stonefield would not have entered into the DFSA with Ridgeline. This constitutes legally sufficient consideration under Texas law. Texas courts have consistently held that the extension of credit or the execution of a contract with the primary obligor constitutes adequate consideration for a personal guaranty by the obligor's principal, particularly where the guaranty is executed contemporaneously with the underlying agreement, as it was here.
The guaranty contains clear, unambiguous language of unconditional obligation. The guaranty language leaves no room for doubt as to its nature and scope. It is stated to be "unconditional," "absolute," "continuing," and "irrevocable." It identifies the specific obligations covered (Section 14 obligations), states the maximum amount ($3,000,000), and includes comprehensive waivers of defenses. This clear and unambiguous language will be enforced according to its terms under Texas law.
The guaranty's scope expressly covers the relevant obligations. The guaranty is not limited to the liquidated damages obligation alone; it covers all obligations arising under Section 14, which includes the liquidated damages (§ 14.3), the re-procurement damages carve-out (§ 14.4), and the attorneys' fees provision (§ 14.6). The $3,000,000 Guaranty Cap is not at issue in this matter because the total claim of $2,437,500, even with the addition of pre-judgment interest, attorneys' fees, and costs, is expected to fall well within the cap.
C. Potential Defenses and Rebuttals
The following potential defenses by Brashear have been considered and are addressed in turn:
Lack of consideration. As discussed above, this defense is without merit. Stonefield's agreement to enter into the DFSA with Ridgeline constitutes adequate consideration for the personal guaranty. The guaranty was executed contemporaneously with the DFSA, and Stonefield would not have entered into the DFSA without the guaranty. Texas courts routinely reject lack-of-consideration defenses where the guaranty is given as an inducement for the creditor to enter into a transaction with the primary obligor.
Unconscionability. An unconscionability defense is unlikely to succeed given Brashear's sophistication as a business owner and operator in the freight transportation industry. Procedural unconscionability requires a showing of surprise or oppression in the contract formation process; there is no evidence of either here, as the DFSA was negotiated at arm's length over several weeks, with both parties represented by counsel. Substantive unconscionability requires a showing that the terms are unreasonably favorable to one party; the guaranty's $3,000,000 cap, while substantial, is not unreasonable in the context of an $11.7 million contract, and the guaranty covers only the specific remedial provisions of Section 14, not the entirety of the DFSA. Texas courts have consistently upheld personal guaranties of comparable scope and magnitude in commercial contexts.
Impairment of collateral and modification defenses. The guaranty expressly waives all suretyship defenses, including defenses based on impairment of collateral, modification of the underlying obligations, and release or discharge of the primary obligor. Texas law permits guarantors to waive suretyship defenses, and courts enforce such waivers when they are clearly expressed in the guaranty instrument. The waivers in § 14.5 are comprehensive and unambiguous, and they effectively foreclose the most common suretyship defenses that a guarantor might otherwise assert.
Oklahoma law considerations. Brashear resides in Oklahoma, and Ridgeline is an Oklahoma LLC. However, the DFSA's governing law provision (§ 18.1) designates Texas law as the governing law for all aspects of the Agreement, including the personal guaranty. Brashear consented to this governing law provision by executing the DFSA. Even if a court were to apply Oklahoma law to the guaranty (for example, on the theory that Brashear's personal obligation is governed by the law of his domicile rather than the governing law of the underlying contract), the result would not change. Oklahoma law, like Texas law, enforces personal guaranties according to their terms when they are supported by adequate consideration, executed by competent parties, and clearly expressed. Oklahoma courts similarly recognize the right of guarantors to waive suretyship defenses. There is no material difference between Texas and Oklahoma law on this issue that would affect the enforceability analysis.
D. Conclusion on Guaranty
The personal guaranty executed by Gerald Brashear under § 14.5 of the DFSA is enforceable under Texas law. Brashear is personally liable for the liquidated damages of $1,381,250, the re-procurement damages of $1,056,250, and any attorneys' fees and costs awarded under the DFSA and applicable Texas statutes, up to the $3,000,000 Guaranty Cap. The guaranty is unconditional, was supported by adequate consideration, was executed by a sophisticated party with a direct interest in the underlying transaction, and contains clear language that forecloses the most likely defenses.
VIII. Consideration of Default Judgment Context
Based on the factual circumstances described in Section V above — including Ridgeline's complete cessation of operations, the repossession of its equipment, Brashear's non-responsiveness to the December 22, 2023 demand letter and subsequent communications, and the apparent insolvency of Ridgeline as a going concern — it is anticipated that Ridgeline and Brashear may fail to appear and answer in the forthcoming litigation. If that occurs, Stonefield will seek entry of a default judgment.
The enforceability analysis set forth in this memorandum remains relevant in the default judgment context for several important reasons.
First, a Texas court entering a default judgment is not relieved of the obligation to ensure that the plaintiff's claims are legally sufficient. Although the defendant's failure to appear results in the admission of well-pleaded facts, the court must still satisfy itself that the allegations, taken as true, state a viable cause of action and support the relief sought. The court retains the authority — and indeed the obligation — to scrutinize the legal basis for the claimed damages, including the enforceability of a liquidated damages provision, even when the defendant does not appear to contest them.
Second, in a default judgment proceeding, the court may require the plaintiff to present evidence in support of its damages claims, particularly where the damages are unliquidated or depend on the enforceability of a contractual provision. This may take the form of an evidentiary hearing or the submission of affidavit evidence. The court may examine the liquidated damages provision sua sponte to determine whether it constitutes an enforceable liquidated damages clause or an unenforceable penalty.
Third, this memorandum supports the preparation of two critical filings: (a) the affidavit of Marcus Ellington, Stonefield's Vice President of Operations, which will attest to the facts of Ridgeline's breach, the calculation of liquidated damages, and the documentation of re-procurement costs; and (b) the motion for default judgment, which will set forth the legal basis for enforcing the liquidated damages clause and the personal guaranty. The analysis in Sections VI and VII of this memorandum provides the substantive legal framework for these filings.
Fourth, even in the default judgment context, the judgment must be sustainable on appeal. If Brashear were to move to set aside the default judgment or appeal the judgment — even belatedly — the enforceability of the liquidated damages clause and the personal guaranty would be central issues on review. The thorough analysis in this memorandum ensures that the judgment is supported by a sound legal foundation.
IX. Conclusion and Recommendations
Based on the foregoing analysis, I reach the following conclusions:
1.  The liquidated damages provision in § 14.3 of the DFSA is enforceable under the two-part Texas test. The harm from Ridgeline's breach — encompassing emergency re-procurement costs in a volatile freight market, service disruption to Stonefield's retail distribution network, reputational injury, and transition costs — is incapable or difficult of estimation. The 25% formula is a reasonable forecast of just compensation that produces a result that is conservative relative to Stonefield's actual losses. The clause is not an unenforceable penalty.
2.  The re-procurement damages under § 14.4 are recoverable in addition to the liquidated damages under § 14.3 because they address distinct categories of harm: the liquidated damages compensate for the forward-looking loss of the bargained-for revenue commitment, while the re-procurement damages compensate for the backward-looking, actual out-of-pocket costs of procuring substitute freight services during the Transition Period.
3.  Total damages of $2,437,500 are supportable ($1,381,250 in liquidated damages plus $1,056,250 in re-procurement damages), exclusive of pre-judgment interest, attorneys' fees, and costs.
4.  The personal guaranty executed by Gerald Brashear under § 14.5 is enforceable up to the $3,000,000 Guaranty Cap. Brashear is personally liable for the full amount of the claim, including attorneys' fees and costs.
Based on these conclusions, I recommend the following course of action:
(a) Proceed with filing the Original Petition in the 134th Judicial District Court of Dallas County, Texas, asserting claims for breach of the DFSA, enforcement of the liquidated damages clause (§ 14.3), recovery of re-procurement damages (§ 14.4), and enforcement of the personal guaranty (§ 14.5).
(b) Name both Ridgeline Freight Carriers LLC and Gerald Brashear individually as defendants.
(c) Prepare the supporting affidavit of Marcus Ellington, Stonefield's Vice President of Operations, detailing (i) the negotiation and execution of the DFSA, (ii) the reasonableness of the liquidated damages clause in light of the parties' circumstances and the freight market conditions prevailing at the time of contracting, (iii) the facts of Ridgeline's breach and failure to cure, (iv) the calculation of liquidated damages, and (v) the documentation of actual re-procurement costs incurred during the Transition Period. Supporting invoices, rate confirmations, and purchase orders should be attached as exhibits to the affidavit.
(d) Seek pre-judgment interest at a rate of 5.00% per annum under Texas Finance Code § 304.003, calculated from the date of default (November 17, 2023) through the date of judgment.
(e) Seek recovery of reasonable attorneys' fees and costs under § 14.6 of the DFSA and Texas Civil Practice & Remedies Code § 38.001. An affidavit of attorneys' fees should be prepared by the responsible partner or lead associate at the time the motion for default judgment or motion for summary judgment is filed.
(f) If no answer is received from either defendant within the applicable answer period following service of citation, move for entry of default judgment, supported by the affidavit evidence described above and a brief addressing the enforceability of the liquidated damages clause and personal guaranty along the lines set forth in this memorandum.
I am available to discuss this memorandum and to begin drafting the Original Petition, supporting affidavits, and related filings at the team's direction.
X. Signature block / Review Notation
Prepared by:
________________________________________
Yuki Nakamura Associate Calderwood & Harkness LLP
Date: February 8, 2024
Reviewed by:
________________________________________
Jeffrey Park Lead Associate Calderwood & Harkness LLP
Date: ________
Approved by:
________________________________________
Priya Anand Partner Calderwood & Harkness LLP
Date: ________
DISTRIBUTION: Internal only. This memorandum constitutes attorney work product prepared in anticipation of litigation and is protected from disclosure by the attorney work product doctrine. This memorandum also contains information subject to the attorney-client privilege. Do not distribute, copy, or forward without the express authorization of the responsible partner. Any inadvertent disclosure of this memorandum does not constitute a waiver of any applicable privilege or protection.
Matter: | Stonefield Logistics Group Inc. v. Ridgeline Freight Carriers LLC and Gerald Brashear
Matter Number: | 1012-00006
To: | Priya Anand, Responsible Partner; Jeffrey Park, Lead Associate
From: | Yuki Nakamura, Working Associate
Date: | February 8, 2024
Re: | Enforceability of Liquidated Damages Clause (§ 14.3) and Personal Guaranty (§ 14.5) Under the Dedicated Freight Services Agreement Dated April 15, 2022
Category | Amount
Liquidated Damages (§ 14.3) | $1,381,250
Re-Procurement Damages (§ 14.4) | $1,056,250
Total | $2,437,500
Component | Calculation | Amount
Remaining months in term | November 18, 2023 – April 14, 2025 | 17 months
Minimum Monthly Revenue Commitment | Per § 3.2 | $325,000
Remaining unpaid Minimum Monthly Revenue Commitment | 17 × $325,000 | $5,525,000
Liquidated damages at 25% | 25% × $5,525,000 | $1,381,250
Alternative floor (§ 14.3(b)) | Fixed amount | $500,000
Applicable liquidated damages amount | Greater of (a) and (b) | $1,381,250

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

INTERNAL RESEARCH MEMORANDUM

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