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PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

FROM: Yuki Nakamura, Associate, Calderwood & Harkness LLP

TO: Linda Osei, Responsible Partner; Jeffrey Park, Lead Associate

DATE: January 20, 2025

RE: Anticipated Expert Opinions of Dr. Natalie Forster, Westbrook Valuation Services Inc. — Preliminary Analysis and Potential Frye Challenges

MATTER: Meridian Infrastructure Partners LLC v. Northgate Fiber Americas Inc., Supreme Court of the State of New York, New York County, Commercial Division, Index No. 654321/2024

C&H MATTER NO.: 1022-00005

This memorandum constitutes attorney work product prepared in anticipation of litigation and is protected from disclosure under the work-product doctrine, Fed. R. Civ. P. 26(b)(3) and its New York state law analogue, CPLR § 3101(c). It reflects the mental impressions, conclusions, opinions, and legal theories of counsel. This memorandum is also protected by the attorney-client privilege to the extent it communicates confidential legal advice. No portion of this memorandum should be disclosed to any third party without the prior written consent of the undersigned or the Responsible Partner.

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I. Purpose and Scope of Memorandum

The purpose of this memorandum is to anticipate the likely expert opinions of Dr. Natalie Forster of Westbrook Valuation Services Inc. (100 Park Avenue, Suite 800, New York, NY 10017), whom Meridian Infrastructure Partners LLC ("Meridian") has designated as its damages expert in the above-captioned action, and to identify potential challenges to her methodology under the Frye standard applicable in New York state courts.

Under the current scheduling order entered by Justice Eleanor Rafferty on October 22, 2024, expert reports are due March 31, 2025, and rebuttal reports are due May 15, 2025. Because we will not have the benefit of reviewing Dr. Forster's actual report for approximately ten weeks, this memorandum is intended to serve as an early-stage analytical framework with three specific objectives. First, it is designed to guide Professor Gordon Whitfield of Pinnacle Economics LLC in preparing his rebuttal report by identifying the damages theories and methodological approaches he should be prepared to address. Second, it is intended to flag potential motion-in-limine or Frye hearing arguments that the defense team should begin developing now so that we are prepared to move expeditiously after reviewing Dr. Forster's report. Third, it provides the litigation team with a structured overview of the damages landscape to inform deposition preparation for upcoming fact witnesses, including Bridget Yeung (February 4, 2025) and Helena Bright (February 18, 2025).

In preparing this memorandum, I have relied upon the following sources:

(a) Meridian's Verified Complaint, filed July 15, 2024, together with the exhibits thereto, including the Master Construction Agreement dated February 15, 2022 (the "MCA");

(b) Meridian's discovery responses, including responses to Northgate's First and Second Sets of Interrogatories and First Set of Requests for Production;

(d) Deposition testimony of Marcus Henley, Meridian's Vice President of Field Operations, taken December 3–4, 2024;

(e) Interrogatory responses of Randall Obrecht, Meridian's Chief Financial Officer;

(f) Publicly available information regarding Dr. Forster's prior expert engagements, including court filings, published decisions, and her professional biography on the Westbrook Valuation Services website; and

(g) Our general familiarity with Westbrook Valuation Services' known methodological approaches based on prior litigation experience and publicly available expert reports attributed to the firm.

This memorandum does not address the merits of Northgate's counterclaims, which are being separately analyzed by Jeffrey Park in coordination with Professor Whitfield and Dr. Elinor Chazen. It also does not address the anticipated opinions of Meridian's construction expert, James Ochoa, PE, of Keystone Project Advisory LLC, which are the subject of a separate preliminary analysis memorandum of even date prepared by the undersigned.

II. Background on Dr. Natalie Forster and Westbrook Valuation Services Inc.

A. Professional Credentials

Based on publicly available information, Dr. Natalie Forster holds a Ph.D. in Economics from Columbia University, where her doctoral research focused on valuation methodologies in regulated industries. She has been engaged as a testifying expert in commercial damages, lost-profits analysis, and business valuation matters for approximately fifteen years, with a particular concentration in complex construction and infrastructure disputes. Her curriculum vitae, as posted on the Westbrook Valuation Services website, lists her as a Senior Managing Director and Co-Chair of the firm's Construction & Infrastructure Disputes Practice.

Westbrook Valuation Services Inc. is a New York corporation headquartered at 100 Park Avenue, Suite 800, New York, NY 10017. The firm employs approximately forty professionals and is recognized within the forensic economics community as a practice that frequently appears on the plaintiff's side in construction and contract disputes. A review of publicly available court filings indicates that Dr. Forster and her colleagues at Westbrook have testified or submitted reports in at least twenty-five matters in New York state and federal courts over the past decade, predominantly in disputes involving large-scale infrastructure projects, government contracting, and commercial construction.

We are continuing to research whether Dr. Forster has been the subject of any prior Frye or Daubert challenges in other proceedings. An initial review of publicly available decisions did not reveal any reported decisions excluding Dr. Forster's testimony, but many such motions are resolved on the record without published opinions, and our research is ongoing. We have requested that our Knowledge Management team conduct a comprehensive search of court dockets and expert databases, and we expect to have a more complete picture of her challenge history within the next two weeks. Any prior challenges, whether successful or unsuccessful, will be relevant to our own challenge strategy and will inform the framing of our Frye motion.

B. Engagement by Meridian

Dr. Forster was retained by Hargrove, Deluca & Stein LLP, Meridian's counsel of record, on behalf of Meridian. Hargrove, Deluca & Stein is led in this matter by Thomas Deluca (lead partner) and Miriam Vasquez (senior associate). Based on Meridian's initial expert disclosures served on November 15, 2024, Dr. Forster is expected to opine on damages for all four counts of Meridian's Verified Complaint. The Verified Complaint seeks a total of $200 million in damages across those four counts, and Dr. Forster's engagement letter, as described in Meridian's disclosures, encompasses the quantification of each component of that claimed damages figure.

Given the scope of her engagement and the magnitude of the claimed damages, Dr. Forster's opinions will be the centerpiece of Meridian's case at trial. If we can successfully exclude or substantially undermine her damages methodology, Meridian's ability to prove its case will be materially impaired.

III. Anticipated Opinions Mapped to Meridian's Claims

Based on our review of the Verified Complaint, the deposition testimony, and the known methodological approaches employed by Westbrook Valuation Services, we anticipate that Dr. Forster's opinions will be organized around the four counts of Meridian's Verified Complaint. This section sets forth our best current understanding of the likely structure and substance of those opinions.

A. Count I: Wrongful Termination Damages ($92,400,000)

Count I of the Verified Complaint alleges that Northgate's termination of the MCA for cause, effective May 28, 2024, was wrongful because Meridian was not in material default and because Northgate failed to comply with the cure-notice procedures set forth in MCA § 14.2. The Verified Complaint seeks $92,400,000 in damages on this count. We anticipate that Dr. Forster will decompose this figure into two principal components: a termination-for-convenience fee component and a lost-profits-on-unperformed-work component.

1. Termination-for-Convenience Fee Component ($50,424,000). We anticipate that Dr. Forster will calculate the fee that Meridian would have received under MCA § 14.3 had the termination been characterized as a termination for the Owner's convenience rather than a termination for Contractor cause under MCA § 14.2. Section 14.3 of the MCA provides that, upon a termination for the Owner's convenience, the Contractor is entitled to a termination fee equal to eight percent (8%) of the remaining unperformed contract value as of the effective date of termination. This provision was negotiated by the parties as a fixed fee intended to compensate the Contractor for demobilization costs, lost overhead absorption, and foregone profit on the terminated scope.

The expected calculation is straightforward in arithmetic terms. The total MCA contract price was $1.2 billion. As of the termination date of May 28, 2024, Meridian had earned approximately $569.7 million in contract value based on certified progress to date across Phases 1, 2, and the initial portion of Phase 3. The remaining unperformed contract value was therefore approximately $630,300,000. Applying the 8% fee rate yields a termination-for-convenience fee of $50,424,000.

Dr. Forster's opinion on this component will rest on the legal premise — which she will likely take as an assumption directed by counsel — that because the termination for cause was wrongful, it should be treated as a constructive termination for convenience, thereby triggering the § 14.3 fee. This is a premise that many construction damages experts adopt in wrongful-termination-for-cause cases, and it has some support in New York case law, although the legal question of whether the termination-for-convenience fee provision establishes a floor for wrongful-termination damages is ultimately a question for the court, not the expert. The methodological vulnerabilities of this approach are discussed in Section IV.B below.

2. Lost Profits on Unperformed Work Component ($41,976,000). The second component of Count I damages is an anticipated lost-profits claim of $41,976,000, representing the profits Meridian would have earned on the remaining $630.3 million of unperformed contract value had the MCA continued to completion. We expect Dr. Forster to employ a "but-for" analysis — that is, she will construct a hypothetical scenario in which the termination did not occur, project the revenues and costs Meridian would have incurred in completing the remaining scope, and calculate the resulting profit that Meridian was deprived of by the wrongful termination.

In constructing this "but-for" world, Dr. Forster will need to determine the appropriate profit margin to apply to the remaining contract value. Several margin benchmarks are available, and the selection of the appropriate margin is likely to be one of the most contested aspects of her analysis. Meridian's company-wide FY2023 EBITDA margin was approximately 9.5%, reflecting $58.9 million in EBITDA on total revenue of $620 million. However, we anticipate that Dr. Forster may attempt to use a higher or lower project-specific margin derived from Meridian's internal projections for the Northgate contract, which may differ from the company-wide figure due to project-specific factors such as the geographic scope of the work, the unit-rate pricing structure, and the volume of the contract.

The arithmetic of Dr. Forster's anticipated $41,976,000 figure merits examination. If we take the total Count I damages of $92,400,000 and subtract the termination-for-convenience fee of $50,424,000, the residual is $41,976,000. This figure, expressed as a percentage of the $630.3 million remaining contract value, implies a profit margin of approximately 6.66%. This is below Meridian's company-wide EBITDA margin of 9.5%, which may suggest that Dr. Forster is applying a lower, project-specific margin — or, alternatively, that she is calculating lost profits on a net basis that excludes certain overhead components or that accounts for certain acknowledged costs. It is also possible that she arrives at this figure through a different calculation methodology altogether — for example, she may calculate lost profits on the full remaining contract value at a particular margin and then net out the termination-for-convenience fee to avoid double-counting, such that the $41,976,000 represents the incremental profit above and beyond the 8% convenience fee.

Regardless of the precise methodology, we expect the following key inputs to be central to Dr. Forster's analysis:

(a) Meridian's project-level financial forecasts and budgets for the Northgate contract, including bid-level cost estimates and any updated-at-completion forecasts prepared during the course of performance;

(b) Meridian's overhead allocation methodology, including the distinction between project-level overhead and home-office overhead, and the impact of the Northgate contract on Meridian's overhead absorption rate;

(c) The breakdown of variable versus fixed costs in Meridian's cost structure, which will affect the incremental profitability of the remaining work;

(d) Crew utilization rates and labor productivity assumptions, particularly for the Phase 3 work that had barely commenced at the time of termination; and

(e) Projected unit-rate earnings on Phase 3 work, which covered 9,700 route miles across Maryland, Virginia, and Eastern Pennsylvania — a geographic footprint distinct from the Phase 1 and Phase 2 service territories.

Each of these inputs presents opportunities for challenge, as discussed in detail in Section IV.A below.

B. Count II: Unpaid Invoices ($16,500,000)

Count II of the Verified Complaint alleges that Northgate wrongfully refused to pay $16,500,000 in payment applications submitted by Meridian for Phase 3 work. We anticipate that Dr. Forster's methodology for this component will be relatively straightforward: she will present the disputed payment applications at face value, supported by Meridian's certified applications for payment (which, under the MCA, are signed by a Meridian officer certifying the accuracy and completeness of the amounts claimed), and argue that Northgate's rejection of these applications was pretextual and without contractual basis.

The relevant financial context is as follows. Meridian submitted a total of $48.2 million in Phase 3 payment applications. Northgate reviewed these applications and approved and paid $31.7 million. The remaining $16.5 million was rejected by Northgate on the grounds that the underlying work was defective and that the payment applications contained inflated unit counts that did not reflect actual quantities of fiber installed and spliced. Northgate's position — which is supported by the 287 NCRs (43 of which were classified as "critical") and by the independent quality audit conducted by Apex Quality Solutions LLC — is that the rejected payment applications sought payment for work that did not conform to the MCA's quality specifications and that the unit counts certified by Meridian were inaccurate.

We expect Dr. Forster to present the $16.5 million as a liquidated sum owed to Meridian, without independently verifying the accuracy of the unit counts or the quality of the underlying work. This approach effectively treats the contractual payment certification process as dispositive — a position that may be difficult to sustain given the extensive NCR record and the specific deficiencies identified in Northgate's rejection notices. However, Dr. Forster is likely to take the position that her role as a damages expert does not require her to make independent factual determinations about the quality of the work; rather, she will assume, at counsel's direction, that the work was conforming and that the payment applications were accurate. The defense will need to address this assumption through fact testimony and through Dr. Chazen's construction opinions.

C. Count III: Wrongful Withholding of Retainage ($56,966,667)

Count III alleges that Northgate wrongfully withholds retainage of $56,966,667. Under the MCA, Northgate retained 10% of each certified payment application as retainage, to be released upon substantial completion or, in the event of termination, in accordance with the termination provisions of the MCA. Based on total gross certified work of approximately $569,666,670, the retainage balance at termination was $56,966,667.

We anticipate that Dr. Forster will calculate the full retainage balance and opine that it became due and payable upon Northgate's wrongful termination of the MCA. Her analysis will rest on the premise — again, likely taken as an assumption from counsel — that because the termination for cause was wrongful, Northgate forfeited its right to withhold retainage as security against the Contractor's performance obligations. Under this theory, the retainage balance represents an unconditional debt owed by Northgate to Meridian, payable in full without setoff or deduction.

It is possible, though in our view unlikely given the adversarial posture of this litigation, that Dr. Forster will acknowledge certain amounts that Meridian may owe to Northgate and present the retainage claim on a net basis. More likely, she will present the full retainage balance as due and owing, leaving the question of Northgate's counterclaims and setoff rights to be addressed separately. The vulnerabilities of this approach — particularly Northgate's substantial counterclaims totaling $149 million and its contractual and common-law right of setoff — are discussed in Section IV.D below.

D. Count IV: Breach of Implied Covenant — Consequential Damages ($34,133,333)

Count IV of the Verified Complaint alleges that Northgate breached the implied covenant of good faith and fair dealing by, among other things, issuing the termination for cause in bad faith and for the purpose of replacing Meridian with a lower-cost contractor. The Verified Complaint seeks $34,133,333 in damages on this count, which represents the residual amount needed to reach the $200 million headline damages figure ($200,000,000 minus $92,400,000 minus $16,500,000 minus $56,966,667 = $34,133,333).

We anticipate that Dr. Forster's opinions on Count IV will encompass several categories of consequential damages, each of which presents distinct methodological challenges:

Loss of Bonding Capacity. Meridian's ability to obtain surety bonds is critical to its business, as most of its contracts in the fiber-optic construction market require performance and payment bonds. We expect Dr. Forster to opine that Northgate's termination for cause impaired Meridian's bonding capacity with Ironclad Surety Group Inc. (Meridian's primary surety) and potentially with other sureties in the market. She will likely quantify the revenue that Meridian lost because it was unable to bid on or secure projects that required bonding in excess of its post-termination capacity. This analysis will require assumptions about the projects Meridian would have pursued, the probability of winning those projects, and the profitability of the hypothetical work — assumptions that compound the speculative nature of the calculation.

Reputational Harm. Dr. Forster may also attempt to quantify the reputational harm suffered by Meridian as a result of the termination for cause, which became known in the fiber-optic construction industry and allegedly caused other potential clients to hesitate in awarding contracts to Meridian. Reputational harm is among the most difficult categories of damages to quantify reliably, and courts routinely scrutinize such claims for speculative assumptions and causation deficiencies.

Backlog Reduction. Meridian's project backlog dropped from approximately $1.4 billion (including the Northgate contract) to approximately $770 million following the termination. The raw backlog reduction of approximately $630 million exceeds the remaining value of the Northgate contract itself ($630.3 million), but most or all of that reduction is directly attributable to the loss of the Northgate contract rather than to any independent reputational effect. Nevertheless, Dr. Forster may attempt to attribute some portion of the backlog reduction to reputational harm beyond the direct loss of the Northgate contract — for example, by identifying specific projects that Meridian bid on but lost in the months following termination and attributing those losses to the reputational impact of the termination for cause. The evidentiary foundation for such attribution is likely to be thin, and the causal chain between the termination and any specific lost bid opportunity will be difficult to establish.

Increased Borrowing Costs. Finally, Dr. Forster may include increased borrowing costs on Meridian's $150 million revolving credit facility with Dralvecen Commercial Finance LLC. The termination for cause may have triggered adverse consequences under the financial covenants in Meridian's credit agreement — for example, if the loss of the Northgate revenue caused Meridian's debt-to-EBITDA ratio to exceed a covenant threshold, or if the termination for cause constituted a "material adverse change" event under the credit agreement. Dr. Forster would need to quantify the incremental interest expense and fees incurred as a result of any covenant breach, amendment, or repricing.

The methodological vulnerabilities of Dr. Forster's Count IV opinions are particularly acute because these categories of damages are quintessentially consequential in nature and are subject to the MCA § 20.1 mutual waiver of consequential damages, as discussed in Section IV.C below.

IV. Critical Methodological Vulnerabilities

This section identifies the principal methodological vulnerabilities in Dr. Forster's anticipated opinions, organized by damages component. These vulnerabilities provide the foundation for both our Frye challenge arguments and Professor Whitfield's substantive rebuttal.

A. Lost-Profits Methodology — "But-For" Analysis

1. Reasonable Certainty Requirement Under New York Law. Under well-established New York law, lost profits must be proven with "reasonable certainty" and cannot be merely speculative, possible, or imaginary. See Kenford Co. v. County of Erie, 67 N.Y.2d 257, 261 (1986); Ashland Mgmt. Inc. v. Janien, 82 N.Y.2d 395, 403 (1993). The reasonable-certainty requirement imposes a burden on the plaintiff to establish both the existence and the amount of lost profits with sufficient evidentiary support to remove the calculation from the realm of speculation. While mathematical precision is not required, the plaintiff must present a damages model grounded in reliable data and reasonable assumptions that permit the factfinder to determine damages without resorting to conjecture.

The key vulnerability of Dr. Forster's lost-profits model lies in the factual premise that Meridian would have completed the remaining 9,360 route miles of fiber-optic construction (18,500 total contractual route miles minus approximately 9,140 route miles completed at the time of termination) profitably and in accordance with the MCA's schedule and quality requirements. The evidentiary record raises serious questions about whether this assumption can be sustained.

At the time of termination, Meridian had achieved only approximately 3.5% completion on Phase 3, having constructed only approximately 340 of the 9,700 Phase 3 route miles. The Phase 3 work covered Maryland, Virginia, and Eastern Pennsylvania — geographic markets in which Meridian had limited prior experience and in which permitting, right-of-way acquisition, and utility coordination requirements differed materially from the Phase 1 and Phase 2 territories. Moreover, throughout its performance of Phases 1 and 2, Meridian had accumulated 287 non-conformance reports (NCRs), of which 43 were classified as "critical" — a designation reserved for defects posing a risk of service interruption or safety hazard. Meridian had also failed to meet Milestones 5, 6, and 7, incurring $49 million in liquidated damages. Against this backdrop, the assumption that Meridian would have completed the remaining work profitably and without further performance failures is, at best, an optimistic projection that will require rigorous evidentiary support.

2. Margin Assumptions. The profit margin applied to the remaining contract value is a critical input in Dr. Forster's lost-profits model, and the selection of the appropriate margin will likely be one of the most contested elements of her analysis.

If Dr. Forster uses a project-specific margin higher than Meridian's company-wide 9.5% EBITDA margin, she must justify the higher figure with project-level cost data demonstrating that the Northgate contract was more profitable than Meridian's business as a whole. Conversely, if she uses a lower project-specific margin, the basis for that figure must also be documented and defensible.

The vulnerability here is that Meridian was experiencing significant cost overruns and quality problems on the Northgate project at the time of termination, which would likely have continued to erode margins on the remaining work. The deposition testimony of Marcus Henley, Meridian's Vice President of Field Operations, taken on December 3–4, 2024, is particularly damaging on this point. Henley acknowledged under oath that Meridian experienced crew shortages during Phase 2 that adversely affected both schedule performance and work quality. He further acknowledged that certain NCR root causes were attributable to subcontractor performance that was within Meridian's control and responsibility under the MCA. These admissions undermine the assumption that Meridian could have maintained its historical profit margins on the remaining work, which was substantially larger in geographic scope and complexity than the work already completed.

The deposition testimony of Victor Sandoval, Meridian's CEO, taken on December 10–11, 2024, further undermines Dr. Forster's margin assumptions. Sandoval's testimony regarding the Corrective Action Plan submitted on March 5, 2024 is significant because the Corrective Action Plan included a request for $87 million in additional compensation from Northgate — additional compensation that Meridian contended was necessary to address the alleged owner-caused delays and scope changes that had disrupted Meridian's performance. The very existence of this request implies that Meridian itself did not believe it could complete the remaining work at the original contract price. If $87 million in additional compensation was needed merely to restore Meridian to a position where it could complete the work, the assumption that the remaining work would have been profitable at historical margins is fundamentally suspect.

3. Failure to Account for Liquidated Damages Already Accrued. As of the termination date, Northgate had assessed a total of $49 million in liquidated damages against Meridian for milestone delays, consisting of $8.225 million attributable to Phase 1 delays and $40.775 million attributable to Phase 2 delays. These liquidated damages were assessed pursuant to MCA § 12.4, which provides for per-day liquidated damages for each day of delay beyond the scheduled milestone completion date.

If Dr. Forster's lost-profits model does not account for ongoing liquidated damages exposure on the remaining milestones (Milestones 8 through 14), her model will overstate the recoverable profits on the remaining work. The aggregate liquidated damages cap under the MCA is $60 million (5% of the $1.2 billion contract price). With $49 million already assessed, only $11 million of the cap remained. However, given Meridian's demonstrated pattern of milestone delays — it had failed to meet every milestone from Milestone 5 onward — it is highly probable that further liquidated damages would have accrued on Milestones 8 through 14 had the contract continued. At minimum, the remaining $11 million of cap exposure should be deducted from any lost-profits calculation. Professor Whitfield should be prepared to demonstrate that, based on Meridian's historical delay performance, the full remaining $11 million of liquidated damages would likely have been consumed, further reducing the profitability of the remaining work.

4. Speculative Nature of Phase 3 Profitability. The Phase 3 scope encompassed 9,700 route miles across Maryland, Virginia, and Eastern Pennsylvania — a geographic footprint that was substantially distinct from the Phase 1 (New York and Connecticut) and Phase 2 (New Jersey and Eastern Pennsylvania) territories. At the time of termination, Meridian had constructed only approximately 340 of the 9,700 Phase 3 route miles, representing a completion rate of approximately 3.5%. Meridian had barely mobilized its Phase 3 crews, had not yet established its Phase 3 field offices and material staging areas, and had not yet completed the bulk of the Phase 3 permitting and right-of-way acquisition work.

Dr. Forster's projection of profits on Phase 3 will therefore necessarily rely on bid-level cost estimates and management projections rather than actual cost experience. This reliance is problematic because bid estimates for a project of this scale and complexity are inherently speculative — they are prepared at a point in time before the contractor has encountered the actual site conditions, permitting challenges, labor market dynamics, and subcontractor pricing that will determine actual costs. The variance between bid estimates and actual costs in large infrastructure projects is well-documented in the construction economics literature and is frequently significant. Relying on such estimates to project profitability for work that the contractor had barely begun — and that was located in geographic markets where the contractor had limited track record — compounds the speculative character of the analysis.

B. Termination-for-Convenience Fee as Damages Measure

Dr. Forster's anticipated reliance on the MCA § 14.3 termination-for-convenience fee as a component of wrongful-termination damages presents a separate and distinct vulnerability. The $50,424,000 termination-for-convenience fee is a contractual remedy that is available only when the Owner affirmatively exercises its right to terminate for convenience under § 14.3. It is not automatically available as a measure of damages for an alleged wrongful termination for cause. The termination-for-convenience fee is, in effect, a negotiated liquidated-damages provision that compensates the Contractor for the specific harm of having its contract terminated at the Owner's discretion and without cause; it does not purport to measure the full expectation damages that would flow from a breach of contract.

Under New York law, the appropriate measure of damages for wrongful termination of a construction contract is expectation damages — that is, the benefit of the bargain, calculated as the contract price minus the cost of completion that the contractor would have incurred. See Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490, 496 (2d Cir. 1995) (applying New York law). The termination-for-convenience fee under § 14.3 may serve as a floor for damages if the court construes the provision as establishing a minimum contractual entitlement, but this is a contested legal question that will need to be briefed and decided by the court. Dr. Forster should not be permitted to simply assume that the convenience fee is recoverable as a matter of law without engaging with this threshold issue.

Moreover, there is a potential double-counting issue if Dr. Forster seeks both the termination-for-convenience fee ($50,424,000) and lost profits ($41,976,000) as separate damages components under Count I. The termination-for-convenience fee under § 14.3 is intended to compensate for, among other things, foregone profit on the terminated scope. If lost profits represent the full benefit of the bargain — that is, the profit Meridian would have earned on the remaining $630.3 million of contract value — then the termination-for-convenience fee is subsumed within that figure and should not be awarded separately. Conversely, if the lost-profits figure is calculated net of the convenience fee, the two components may not overlap — but in that case, the lost-profits figure must be reduced accordingly, and the methodology for the netting must be transparent and defensible. The interrelationship between these two components is a critical area for Professor Whitfield's rebuttal.

C. Consequential Damages — MCA § 20.1 Waiver

The MCA § 20.1 contains a mutual waiver of consequential damages, which provides:

"Neither party shall be liable to the other for any indirect, incidental, special, or consequential damages arising out of or in connection with this Agreement, including but not limited to loss of revenue, loss of profit, loss of business opportunity, loss of goodwill, or cost of capital, whether based on breach of contract, tort (including negligence), strict liability, or any other theory, except in cases of willful misconduct, claims for indemnification under Section 18 (Intellectual Property Indemnification), or breaches of Section 19 (Confidentiality)."

The Count IV damages claim of $34,133,333 encompasses categories of damages — loss of bonding capacity, reputational harm, lost business opportunities, and increased borrowing costs — that are quintessentially consequential in nature. They do not represent the direct benefit of the bargain under the MCA; rather, they represent downstream economic effects of the termination on Meridian's broader business operations and financial condition. These are precisely the types of damages that § 20.1 was designed to exclude.

If the court enforces the § 20.1 waiver — and there is strong precedent under New York law for enforcement of such waivers in commercial contracts between sophisticated parties — Dr. Forster's opinions on Count IV may be rendered legally irrelevant in their entirety. This is a threshold legal question that may be suitable for early summary judgment, as discussed in Jeffrey Park's separate memorandum on summary judgment strategy dated January 18, 2025. We recommend that Linda flag this issue for early consideration, as a successful motion on the § 20.1 waiver would not only eliminate $34,133,333 from the damages exposure but would also moot the need to address the methodological infirmities in Dr. Forster's consequential-damages analysis.

Even if the court declines to enforce the § 20.1 waiver — for example, if Meridian successfully argues that Northgate's conduct constituted "willful misconduct" falling within the carve-out — Dr. Forster's methodology for quantifying reputational harm and lost bonding capacity will face heightened scrutiny. These categories of damages are inherently speculative and present acute causation difficulties. Specifically, any reduction in Meridian's bonding capacity or competitive position in the market could be attributable to Meridian's own performance failures — the 287 NCRs, the milestone delays, the crew shortages — rather than to the termination itself. Disentangling the effects of the termination from the effects of Meridian's underlying performance problems will require a degree of analytical precision that may exceed the capacity of any reasonably reliable damages model.

D. Retainage Claim — Setoff and Counterclaim Considerations

Dr. Forster's anticipated presentation of the $56,966,667 retainage claim as a straightforward debt owed by Northgate ignores Northgate's substantial contractual and common-law rights of setoff. Northgate's position is that the retainage is properly withheld as security against Meridian's performance obligations, including the obligations that give rise to Northgate's counterclaims.

Northgate's counterclaims total $149 million and are comprised of three components:

(a) $49 million in liquidated damages for milestone delays (Phases 1 and 2);

(b) $81.7 million in excess completion costs, representing the differential between the Crestline Construction Group Inc. replacement contract price of $712 million and the $630.3 million remaining value under the MCA; and

(c) $18.3 million in remediation costs to correct the 287 NCRs identified in the work Meridian performed prior to termination.

Under MCA § 14.2(d), upon a termination for cause, the Owner is entitled to withhold all retainage pending final resolution of the parties' respective claims and to apply retainage against any damages owed by the Contractor. Independently, under New York common law, a party to a bilateral contract may set off amounts owed by the other party against amounts claimed. See Reeves v. Phillips, 388 N.Y.S.2d 88 (App. Div. 1st Dep't 1976). Northgate's $149 million in counterclaims far exceeds the $56,966,667 retainage balance, and if the counterclaims are sustained in whole or in part, the retainage claim would be reduced or eliminated entirely.

Dr. Forster will likely take the position that the validity of Northgate's counterclaims is a question for the trier of fact and that she is not required to account for Northgate's setoff rights in her damages analysis. While this position has some technical merit — the retainage is an amount owed to Meridian that Northgate has withheld, and the counterclaims present separate questions of liability — Professor Whitfield should be prepared to present a comprehensive setoff analysis demonstrating that Northgate's counterclaims substantially exceed the retainage balance and that no net retainage is recoverable by Meridian.

E. Mitigation of Damages

Under New York law, a party claiming damages has a duty to mitigate — that is, to take reasonable steps to minimize the damages flowing from the other party's breach. See LMR Assocs. LLC v. L&M Realty Corp., 49 A.D.3d 402, 403 (1st Dep't 2008). Dr. Forster must account for Meridian's duty to mitigate in her damages model, and her failure to do so would constitute a methodological deficiency.

At the time of termination, Meridian's project backlog was approximately $770 million, excluding the Northgate contract. This backlog included other fiber-optic construction contracts, utility infrastructure projects, and government contracting work. The question of whether Meridian replaced the Northgate work with other revenue-generating projects is directly relevant to the lost-profits analysis: if Meridian redeployed the labor, equipment, and management resources that had been allocated to the Northgate project to other projects that generated comparable revenue, then Meridian's lost profits must be reduced by the profits earned on that substitute work.

This mitigation question is particularly salient given the scale of the Northgate contract relative to Meridian's overall business. Meridian's FY2023 revenue was $620 million, and the remaining Northgate contract value of $630.3 million was to be performed over an approximately two-year period — representing roughly half of Meridian's annual revenue capacity. If Meridian had the capacity to absorb $630 million of additional work into its $770 million backlog, that capacity could also have been deployed to replacement work of comparable value. Conversely, if Meridian lacked the capacity to perform the remaining Northgate work alongside its other commitments — a possibility that the deposition testimony regarding crew shortages may support — then the lost-profits claim is undermined on different grounds: Meridian may not have been able to perform the work even absent the termination, calling into question the reliability of the entire "but-for" analysis.

The upcoming deposition of Bridget Yeung, Meridian's COO, scheduled for February 4, 2025, will be critical to developing the mitigation defense. Yeung is expected to testify regarding Meridian's operational capacity, its subcontractor management capabilities, and the steps Meridian took (or failed to take) to replace the Northgate revenue stream after termination.

V. *Frye* Challenge Analysis (New York Standard)

A. Applicable Standard

Because this action is pending in the Supreme Court of the State of New York, the admissibility of expert testimony is governed by the Frye standard, as established in Frye v. United States, 293 F. 1013 (D.C. Cir. 1923), and adopted by the New York Court of Appeals. See People v. Wesley, 83 N.Y.2d 417, 422 (1994); Parker v. Mobil Oil Corp., 7 N.Y.3d 434, 446 (2006). Under Frye, expert testimony is admissible only if the methodology employed by the expert is "generally accepted" in the relevant scientific or professional community. The proponent of the expert testimony bears the burden of demonstrating general acceptance.

In the context of damages experts in commercial litigation, the relevant professional community consists of forensic economists, damages professionals, and business valuation practitioners. The Frye inquiry focuses on whether the methodology employed by the expert is generally accepted — not whether the expert's specific conclusions are correct or reliable. An expert may reach conclusions that the opposing party disputes on the merits, but the expert's testimony will not be excluded under Frye unless the methodology itself falls outside the range of generally accepted practice.

It is important to note that Frye is generally regarded as a less exacting standard than the Daubert standard applied in federal courts. Under Daubert, the court acts as a gatekeeper and may exclude expert testimony based on an assessment of the reliability and relevance of the expert's reasoning and methodology, considering factors such as testability, peer review, error rates, and general acceptance. See Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Frye does not require such a multi-factor reliability analysis; it asks only whether the methodology is generally accepted. Nevertheless, Frye still provides a meaningful basis for excluding expert testimony that is based on novel, unreliable, or speculative methodologies. New York courts have excluded damages testimony where the expert's methodology departs from generally accepted practice or where the expert's assumptions are so unsupported as to render the methodology unreliable. See, e.g., Nonnon v. City of New York, 9 N.Y.3d 825, 828 (2007); Zito v. Zabarsky, 28 A.D.3d 42, 44–45 (2d Dep't 2006).

B. Potential *Frye* Challenges to Dr. Forster's Opinions

Based on our preliminary analysis of Dr. Forster's anticipated methodology, we have identified four potential grounds for a Frye challenge. Each is discussed below.

1. Lost-Profits Model — Speculative Inputs. If Dr. Forster relies on management projections or bid-level estimates rather than actual cost data to project profitability on the Phase 3 work, her model may lack the empirical foundation that is generally considered necessary for a reliable lost-profits analysis. The generally accepted methodology for projecting lost profits in construction disputes requires the expert to rely on actual cost experience, historical financial performance, and verifiable data to the greatest extent possible. Where the expert departs from actual data and instead relies on "subjective" or "unverified" management assumptions, courts have found the resulting opinions to be speculative and have excluded them.

New York courts have been particularly vigilant in scrutinizing lost-profits testimony in cases where the claimed profits relate to future or unperformed work for which the plaintiff has no track record of performance. In such cases, the expert must demonstrate that the profit projections are grounded in objective, verifiable data — not merely in the plaintiff's optimistic forecasts or the expert's own assumptions about what the plaintiff would have achieved. If Dr. Forster's Phase 3 profitability projections are based primarily on Meridian's bid estimates, which were prepared before Meridian encountered the actual site conditions and operational challenges that plagued its Phase 1 and Phase 2 performance, the model may be vulnerable to exclusion on this ground.

2. Consequential Damages — Bonding Capacity and Reputational Harm. Methodologies for quantifying reputational harm and loss of bonding capacity are not well established in the forensic economics literature and may not satisfy the "general acceptance" requirement under Frye. These categories of damages are notoriously difficult to model because they require the expert to isolate the specific economic impact of a particular event (here, the termination for cause) from the many other factors that affect a company's reputation and competitive position in the marketplace. The causal attribution problem is compounded in this case by the fact that Meridian's own performance failures — the NCRs, the milestone delays, the crew shortages — independently contributed to any reputational harm that Meridian may have suffered.

If Dr. Forster uses a "comparable company" analysis, an "event study" methodology, or some other analytical framework to quantify reputational damages, we should scrutinize whether the chosen methodology has been recognized as generally accepted in the specific context of construction industry damages. Event studies, for example, are well established in securities fraud litigation, where they are used to measure the impact of a specific disclosure on a publicly traded company's stock price. Their application to a privately held construction company's market reputation, however, is less well established and may not satisfy Frye's general-acceptance requirement.

Similarly, loss of bonding capacity is a damages theory that requires the expert to make a series of assumptions about the projects Meridian would have pursued, the probability of winning those projects, the bonding requirements of those projects, and the profits that would have been earned. Each assumption compounds the speculative character of the analysis, and the cumulative effect may render the methodology too speculative to satisfy Frye.

3. Failure to Account for Contractor-Caused Delays and Defects. If Dr. Forster's "but-for" world assumes that Meridian would have performed the remaining work flawlessly absent the termination — that is, without the crew shortages, NCR accumulation, milestone delays, and cost overruns that characterized its actual performance — the model may be challenged on Frye grounds as methodologically unsound. A generally accepted "but-for" analysis must construct a hypothetical scenario that is consistent with the established facts. If the expert's hypothetical world is divorced from reality — for example, if it assumes away documented performance problems without explanation — the methodology is not "generally accepted" because it fails to meet the basic requirements of a reliable damages analysis.

The record in this case includes 287 NCRs (43 critical), persistent milestone delays resulting in $49 million in liquidated damages, acknowledged crew shortages, and subcontractor management failures admitted under oath by Meridian's own Vice President of Field Operations. If Dr. Forster's "but-for" model does not account for these established facts — or if it assumes that they would have been fully resolved had the contract continued — the model's reliability is fundamentally compromised, and a Frye challenge may be appropriate.

4. Double-Counting. If Dr. Forster's damages model includes both the termination-for-convenience fee ($50,424,000) and lost profits ($41,976,000) without proper adjustment to avoid overlap, or if she includes the full retainage recovery ($56,966,667) alongside full lost-profits recovery without netting, the model may impermissibly double-count certain damages components. Double-counting is a recognized methodological deficiency in damages analysis and has been identified by courts as a basis for excluding or limiting expert testimony. While double-counting may also be addressed through cross-examination and rebuttal testimony at trial, a Frye challenge may be appropriate if the double-counting is built into the structure of Dr. Forster's methodology and cannot be corrected without reconstructing the analysis from the ground up.

C. Procedural Considerations

Frye challenges in New York are typically raised via motion in limine prior to trial. In the Commercial Division, where this action is pending, such motions are frequently addressed during or after expert depositions, when the court has the benefit of both the expert's written report and the expert's deposition testimony elaborating on her methodology and assumptions. Under Justice Rafferty's individual rules, motions in limine must be filed at least thirty days prior to the pre-trial conference, which has not yet been scheduled but is expected in the fall of 2025.

Expert depositions in this matter are expected in June 2025, following the submission of expert reports (March 31, 2025) and rebuttal reports (May 15, 2025). We anticipate that Dr. Forster's deposition will be a critical opportunity to probe the specific methodological choices reflected in her report and to develop the factual record necessary to support a Frye motion.

Our recommendation is to reserve Frye challenges until after reviewing Dr. Forster's actual report and deposing her. This approach has several advantages. First, it allows us to tailor our challenge to the specific methodology she employs rather than to our anticipation of her methodology, which may differ in important respects from what she actually presents. Second, it preserves the element of strategic advantage — if we telegraph our challenge grounds too early, opposing counsel may modify Dr. Forster's approach to address the identified vulnerabilities before they are committed to her written report. Third, it ensures that we have a complete deposition record to support the motion, which will strengthen our evidentiary showing before the court.

This memorandum identifies the grounds for challenge based on anticipated methodology and is intended to serve as a framework that will be refined and supplemented upon receipt of Dr. Forster's actual report.

VI. Coordination with Professor Gordon Whitfield (Defense Damages Expert)

Professor Gordon Whitfield of Pinnacle Economics LLC (1700 Broadway, Suite 2200, New York, NY 10019) was retained by Calderwood & Harkness on behalf of Northgate on November 1, 2024. Professor Whitfield has a dual mandate in this engagement: first, to prepare an affirmative damages report quantifying Northgate's counterclaims (totaling $149 million); and second, to prepare a rebuttal of Meridian's damages claims as presented by Dr. Forster.

Based on the analysis set forth in this memorandum, Professor Whitfield's rebuttal should focus on the following specific areas:

Critique of Profit-Margin Assumptions. Professor Whitfield should critically examine Dr. Forster's profit-margin assumptions with reference to both actual project-level cost data (to the extent it is available in discovery) and Meridian's company-wide financials. The key benchmarks are Meridian's FY2023 EBITDA of $58.9 million on $620 million in revenue (yielding a 9.5% EBITDA margin) and the project-level cost data for Phases 1 and 2 of the Northgate contract. If the project-level cost data shows that Meridian was experiencing cost overruns and earning margins below its company-wide average, Professor Whitfield should use that data to demonstrate that Dr. Forster's margin assumptions are unsupported.

Double-Counting Analysis. Professor Whitfield should prepare a detailed analysis of whether and to what extent Dr. Forster's damages model double-counts the termination-for-convenience fee and lost profits. This analysis should clearly delineate the economic components of each claimed damages figure and identify any overlap. If the termination-for-convenience fee already includes a profit component (as it inherently does, given that it is calculated as a percentage of contract value), then a separate lost-profits claim on the same scope of work creates a double-counting problem that must be quantified and presented to the court.

Consequential Damages Waiver. While the enforceability of the MCA § 20.1 consequential damages waiver is ultimately a legal question, Professor Whitfield should be prepared to opine — to the extent appropriate for a damages expert — that the categories of damages claimed under Count IV (loss of bonding capacity, reputational harm, lost business opportunities, and increased borrowing costs) are consequential in nature and would typically be excluded under a mutual waiver provision of the type found in § 20.1. This opinion would support the legal argument that the Count IV damages are contractually barred.

Mitigation Analysis. Professor Whitfield should examine Meridian's post-termination backlog of approximately $770 million and conduct a detailed analysis of whether Meridian redeployed the labor, equipment, and management resources that had been allocated to the Northgate project to other revenue-generating work. This analysis will require access to Meridian's post-termination financial records, project staffing reports, and equipment utilization data, which we should seek through targeted discovery requests if not already produced.

Setoff Analysis. Professor Whitfield should present Northgate's $149 million in counterclaims as offsets against any damages award to Meridian. The three components of the counterclaims — $49 million in liquidated damages, $81.7 million in excess completion costs (representing the differential between the $712 million Crestline Construction Group replacement contract and the $630.3 million remaining MCA value), and $18.3 million in remediation costs for the 287 NCRs — should be presented in a clear, tabular format that demonstrates the net position of the parties. If Northgate's counterclaims exceed Meridian's damages, the setoff analysis should show that Meridian has no net recovery.

We should schedule a working session with Professor Whitfield within the next two weeks to share this memorandum and discuss the structure of his rebuttal report.

VII. Coordination with Dr. Elinor Chazen (Defense Construction/Delay Expert)

Dr. Elinor Chazen of Lakeview Consulting Group LLC (200 South Wacker Drive, Suite 1400, Chicago, IL 60606) was retained by Calderwood & Harkness on behalf of Northgate on October 15, 2024. Dr. Chazen is preparing a critical path analysis and delay causation opinion addressing the causes of Meridian's failure to meet Milestones 5 through 7 and the impact of those delays on the overall project schedule.

Dr. Chazen's preliminary findings, as set forth in her internal memorandum dated December 20, 2024, indicate that the project delays were predominantly Contractor-caused, attributable to Meridian's failure to maintain adequate crew levels, Meridian's subcontractor management deficiencies, and Meridian's failure to timely procure materials and equipment necessary for the Phase 2 and Phase 3 work. Dr. Chazen's analysis further indicates that the fourteen alleged unformalized scope changes identified by Meridian in its Corrective Action Plan had minimal impact on the critical path and did not materially contribute to the milestone delays.

Dr. Chazen's findings are essential to undermining the foundation of Dr. Forster's "but-for" analysis. Dr. Forster's damages model necessarily presumes that, absent the termination, Meridian would have completed the remaining work on time and within budget. If Dr. Chazen demonstrates — through a rigorous critical path analysis supported by contemporaneous project records — that Meridian's own conduct was the predominant cause of the delays that led to the termination, then Dr. Forster cannot credibly project that the remaining work would have been completed profitably. The delays were not an exogenous event imposed on Meridian by Northgate; they were the predictable consequence of Meridian's own management failures, and there is no basis to assume that those failures would have ceased had the contract continued.

We should ensure that Professor Whitfield and Dr. Chazen coordinate closely in the preparation of their respective reports. Professor Whitfield's damages rebuttal should incorporate and reference Dr. Chazen's delay causation findings, and Dr. Chazen's delay opinion should address the cost implications of Contractor-caused delays in a manner that is consistent with Professor Whitfield's margin and profitability analysis.

VIII. Comparison to Plaintiff's Construction Expert (James Ochoa, PE)

James Ochoa, PE, of Keystone Project Advisory LLC (1500 Market Street, Suite 1200, Philadelphia, PA 19102), is Meridian's designated construction expert. Based on Meridian's expert disclosures, Ochoa is expected to opine on delay causation, the reasonableness of Northgate's termination for cause, and the impact of Northgate's alleged conduct — including the fourteen alleged unformalized scope changes and alleged interference with Meridian's means and methods — on Meridian's schedule and cost performance.

Ochoa's anticipated opinions are critically important to the damages analysis because they will serve as the factual predicate for Dr. Forster's "but-for" model. Specifically, if Ochoa opines that the delays were Owner-caused and that the scope changes were material and uncompensated, those opinions will provide the foundation for Dr. Forster's assumption that Meridian would have completed the remaining work profitably absent the termination. In Dr. Forster's "but-for" world, the delays and cost overruns are assumed away because Ochoa attributes them to Northgate's conduct rather than Meridian's performance.

The converse is equally true: if Ochoa's delay opinions are successfully challenged or discredited — whether through Dr. Chazen's rebuttal, through cross-examination at deposition or trial, or through a Frye motion — the factual foundation for Dr. Forster's damages model collapses. Without a credible construction expert opinion establishing that the delays were Owner-caused, Dr. Forster cannot sustain the assumption that Meridian's remaining work would have been performed on time, within budget, and at the projected profit margins. The interdependence of the construction and damages opinions is a critical strategic consideration: our challenge to Dr. Forster's methodology is strengthened to the extent we can undermine Ochoa's opinions, and vice versa.

A separate preliminary analysis of Ochoa's anticipated opinions has been prepared by the undersigned and is being circulated under separate cover, also dated January 20, 2025. The two memoranda should be read in conjunction.

IX. Key Deposition Testimony Relevant to Damages Analysis

A. Victor Sandoval (December 10–11, 2024)

The deposition of Victor Sandoval, Meridian's Chief Executive Officer, was conducted on December 10–11, 2024 at the offices of Hargrove, Deluca & Stein LLP. Sandoval's testimony is relevant to the damages analysis in two significant respects.

First, Sandoval acknowledged under oath that the Corrective Action Plan submitted by Meridian on March 5, 2024 included a request for $87 million in additional compensation from Northgate. Sandoval testified that this additional compensation was necessary to address the impact of what Meridian characterized as owner-caused delays, unformalized scope changes, and unforeseen site conditions. The significance of this

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
FROM: Yuki Nakamura, Associate, Calderwood & Harkness LLP
TO: Linda Osei, Responsible Partner; Jeffrey Park, Lead Associate
DATE: January 20, 2025
RE: Anticipated Expert Opinions of Dr. Natalie Forster, Westbrook Valuation Services Inc. — Preliminary Analysis and Potential Frye Challenges
MATTER: Meridian Infrastructure Partners LLC v. Northgate Fiber Americas Inc., Supreme Court of the State of New York, New York County, Commercial Division, Index No. 654321/2024
C&H MATTER NO.: 1022-00005
This memorandum constitutes attorney work product prepared in anticipation of litigation and is protected from disclosure under the work-product doctrine, Fed. R. Civ. P. 26(b)(3) and its New York state law analogue, CPLR § 3101(c). It reflects the mental impressions, conclusions, opinions, and legal theories of counsel. This memorandum is also protected by the attorney-client privilege to the extent it communicates confidential legal advice. No portion of this memorandum should be disclosed to any third party without the prior written consent of the undersigned or the Responsible Partner.
Right-click to update Table of Contents
I. Purpose and Scope of Memorandum
The purpose of this memorandum is to anticipate the likely expert opinions of Dr. Natalie Forster of Westbrook Valuation Services Inc. (100 Park Avenue, Suite 800, New York, NY 10017), whom Meridian Infrastructure Partners LLC ("Meridian") has designated as its damages expert in the above-captioned action, and to identify potential challenges to her methodology under the Frye standard applicable in New York state courts.
Under the current scheduling order entered by Justice Eleanor Rafferty on October 22, 2024, expert reports are due March 31, 2025, and rebuttal reports are due May 15, 2025. Because we will not have the benefit of reviewing Dr. Forster's actual report for approximately ten weeks, this memorandum is intended to serve as an early-stage analytical framework with three specific objectives. First, it is designed to guide Professor Gordon Whitfield of Pinnacle Economics LLC in preparing his rebuttal report by identifying the damages theories and methodological approaches he should be prepared to address. Second, it is intended to flag potential motion-in-limine or Frye hearing arguments that the defense team should begin developing now so that we are prepared to move expeditiously after reviewing Dr. Forster's report. Third, it provides the litigation team with a structured overview of the damages landscape to inform deposition preparation for upcoming fact witnesses, including Bridget Yeung (February 4, 2025) and Helena Bright (February 18, 2025).
In preparing this memorandum, I have relied upon the following sources:
(a) Meridian's Verified Complaint, filed July 15, 2024, together with the exhibits thereto, including the Master Construction Agreement dated February 15, 2022 (the "MCA");
(b) Meridian's discovery responses, including responses to Northgate's First and Second Sets of Interrogatories and First Set of Requests for Production;
(c) Deposition testimony of Victor Sandoval, Meridian's Chief Executive Officer, taken December 10–11, 2024;
(d) Deposition testimony of Marcus Henley, Meridian's Vice President of Field Operations, taken December 3–4, 2024;
(e) Interrogatory responses of Randall Obrecht, Meridian's Chief Financial Officer;
(f) Publicly available information regarding Dr. Forster's prior expert engagements, including court filings, published decisions, and her professional biography on the Westbrook Valuation Services website; and
(g) Our general familiarity with Westbrook Valuation Services' known methodological approaches based on prior litigation experience and publicly available expert reports attributed to the firm.
This memorandum does not address the merits of Northgate's counterclaims, which are being separately analyzed by Jeffrey Park in coordination with Professor Whitfield and Dr. Elinor Chazen. It also does not address the anticipated opinions of Meridian's construction expert, James Ochoa, PE, of Keystone Project Advisory LLC, which are the subject of a separate preliminary analysis memorandum of even date prepared by the undersigned.
II. Background on Dr. Natalie Forster and Westbrook Valuation Services Inc.
A. Professional Credentials
Based on publicly available information, Dr. Natalie Forster holds a Ph.D. in Economics from Columbia University, where her doctoral research focused on valuation methodologies in regulated industries. She has been engaged as a testifying expert in commercial damages, lost-profits analysis, and business valuation matters for approximately fifteen years, with a particular concentration in complex construction and infrastructure disputes. Her curriculum vitae, as posted on the Westbrook Valuation Services website, lists her as a Senior Managing Director and Co-Chair of the firm's Construction & Infrastructure Disputes Practice.
Westbrook Valuation Services Inc. is a New York corporation headquartered at 100 Park Avenue, Suite 800, New York, NY 10017. The firm employs approximately forty professionals and is recognized within the forensic economics community as a practice that frequently appears on the plaintiff's side in construction and contract disputes. A review of publicly available court filings indicates that Dr. Forster and her colleagues at Westbrook have testified or submitted reports in at least twenty-five matters in New York state and federal courts over the past decade, predominantly in disputes involving large-scale infrastructure projects, government contracting, and commercial construction.
We are continuing to research whether Dr. Forster has been the subject of any prior Frye or Daubert challenges in other proceedings. An initial review of publicly available decisions did not reveal any reported decisions excluding Dr. Forster's testimony, but many such motions are resolved on the record without published opinions, and our research is ongoing. We have requested that our Knowledge Management team conduct a comprehensive search of court dockets and expert databases, and we expect to have a more complete picture of her challenge history within the next two weeks. Any prior challenges, whether successful or unsuccessful, will be relevant to our own challenge strategy and will inform the framing of our Frye motion.
B. Engagement by Meridian
Dr. Forster was retained by Hargrove, Deluca & Stein LLP, Meridian's counsel of record, on behalf of Meridian. Hargrove, Deluca & Stein is led in this matter by Thomas Deluca (lead partner) and Miriam Vasquez (senior associate). Based on Meridian's initial expert disclosures served on November 15, 2024, Dr. Forster is expected to opine on damages for all four counts of Meridian's Verified Complaint. The Verified Complaint seeks a total of $200 million in damages across those four counts, and Dr. Forster's engagement letter, as described in Meridian's disclosures, encompasses the quantification of each component of that claimed damages figure.
Given the scope of her engagement and the magnitude of the claimed damages, Dr. Forster's opinions will be the centerpiece of Meridian's case at trial. If we can successfully exclude or substantially undermine her damages methodology, Meridian's ability to prove its case will be materially impaired.
III. Anticipated Opinions Mapped to Meridian's Claims
Based on our review of the Verified Complaint, the deposition testimony, and the known methodological approaches employed by Westbrook Valuation Services, we anticipate that Dr. Forster's opinions will be organized around the four counts of Meridian's Verified Complaint. This section sets forth our best current understanding of the likely structure and substance of those opinions.
A. Count I: Wrongful Termination Damages ($92,400,000)
Count I of the Verified Complaint alleges that Northgate's termination of the MCA for cause, effective May 28, 2024, was wrongful because Meridian was not in material default and because Northgate failed to comply with the cure-notice procedures set forth in MCA § 14.2. The Verified Complaint seeks $92,400,000 in damages on this count. We anticipate that Dr. Forster will decompose this figure into two principal components: a termination-for-convenience fee component and a lost-profits-on-unperformed-work component.
1. Termination-for-Convenience Fee Component ($50,424,000). We anticipate that Dr. Forster will calculate the fee that Meridian would have received under MCA § 14.3 had the termination been characterized as a termination for the Owner's convenience rather than a termination for Contractor cause under MCA § 14.2. Section 14.3 of the MCA provides that, upon a termination for the Owner's convenience, the Contractor is entitled to a termination fee equal to eight percent (8%) of the remaining unperformed contract value as of the effective date of termination. This provision was negotiated by the parties as a fixed fee intended to compensate the Contractor for demobilization costs, lost overhead absorption, and foregone profit on the terminated scope.
The expected calculation is straightforward in arithmetic terms. The total MCA contract price was $1.2 billion. As of the termination date of May 28, 2024, Meridian had earned approximately $569.7 million in contract value based on certified progress to date across Phases 1, 2, and the initial portion of Phase 3. The remaining unperformed contract value was therefore approximately $630,300,000. Applying the 8% fee rate yields a termination-for-convenience fee of $50,424,000.
Dr. Forster's opinion on this component will rest on the legal premise — which she will likely take as an assumption directed by counsel — that because the termination for cause was wrongful, it should be treated as a constructive termination for convenience, thereby triggering the § 14.3 fee. This is a premise that many construction damages experts adopt in wrongful-termination-for-cause cases, and it has some support in New York case law, although the legal question of whether the termination-for-convenience fee provision establishes a floor for wrongful-termination damages is ultimately a question for the court, not the expert. The methodological vulnerabilities of this approach are discussed in Section IV.B below.
2. Lost Profits on Unperformed Work Component ($41,976,000). The second component of Count I damages is an anticipated lost-profits claim of $41,976,000, representing the profits Meridian would have earned on the remaining $630.3 million of unperformed contract value had the MCA continued to completion. We expect Dr. Forster to employ a "but-for" analysis — that is, she will construct a hypothetical scenario in which the termination did not occur, project the revenues and costs Meridian would have incurred in completing the remaining scope, and calculate the resulting profit that Meridian was deprived of by the wrongful termination.
In constructing this "but-for" world, Dr. Forster will need to determine the appropriate profit margin to apply to the remaining contract value. Several margin benchmarks are available, and the selection of the appropriate margin is likely to be one of the most contested aspects of her analysis. Meridian's company-wide FY2023 EBITDA margin was approximately 9.5%, reflecting $58.9 million in EBITDA on total revenue of $620 million. However, we anticipate that Dr. Forster may attempt to use a higher or lower project-specific margin derived from Meridian's internal projections for the Northgate contract, which may differ from the company-wide figure due to project-specific factors such as the geographic scope of the work, the unit-rate pricing structure, and the volume of the contract.
The arithmetic of Dr. Forster's anticipated $41,976,000 figure merits examination. If we take the total Count I damages of $92,400,000 and subtract the termination-for-convenience fee of $50,424,000, the residual is $41,976,000. This figure, expressed as a percentage of the $630.3 million remaining contract value, implies a profit margin of approximately 6.66%. This is below Meridian's company-wide EBITDA margin of 9.5%, which may suggest that Dr. Forster is applying a lower, project-specific margin — or, alternatively, that she is calculating lost profits on a net basis that excludes certain overhead components or that accounts for certain acknowledged costs. It is also possible that she arrives at this figure through a different calculation methodology altogether — for example, she may calculate lost profits on the full remaining contract value at a particular margin and then net out the termination-for-convenience fee to avoid double-counting, such that the $41,976,000 represents the incremental profit above and beyond the 8% convenience fee.
Regardless of the precise methodology, we expect the following key inputs to be central to Dr. Forster's analysis:
(a) Meridian's project-level financial forecasts and budgets for the Northgate contract, including bid-level cost estimates and any updated-at-completion forecasts prepared during the course of performance;
(b) Meridian's overhead allocation methodology, including the distinction between project-level overhead and home-office overhead, and the impact of the Northgate contract on Meridian's overhead absorption rate;
(c) The breakdown of variable versus fixed costs in Meridian's cost structure, which will affect the incremental profitability of the remaining work;
(d) Crew utilization rates and labor productivity assumptions, particularly for the Phase 3 work that had barely commenced at the time of termination; and
(e) Projected unit-rate earnings on Phase 3 work, which covered 9,700 route miles across Maryland, Virginia, and Eastern Pennsylvania — a geographic footprint distinct from the Phase 1 and Phase 2 service territories.
Each of these inputs presents opportunities for challenge, as discussed in detail in Section IV.A below.
B. Count II: Unpaid Invoices ($16,500,000)
Count II of the Verified Complaint alleges that Northgate wrongfully refused to pay $16,500,000 in payment applications submitted by Meridian for Phase 3 work. We anticipate that Dr. Forster's methodology for this component will be relatively straightforward: she will present the disputed payment applications at face value, supported by Meridian's certified applications for payment (which, under the MCA, are signed by a Meridian officer certifying the accuracy and completeness of the amounts claimed), and argue that Northgate's rejection of these applications was pretextual and without contractual basis.
The relevant financial context is as follows. Meridian submitted a total of $48.2 million in Phase 3 payment applications. Northgate reviewed these applications and approved and paid $31.7 million. The remaining $16.5 million was rejected by Northgate on the grounds that the underlying work was defective and that the payment applications contained inflated unit counts that did not reflect actual quantities of fiber installed and spliced. Northgate's position — which is supported by the 287 NCRs (43 of which were classified as "critical") and by the independent quality audit conducted by Apex Quality Solutions LLC — is that the rejected payment applications sought payment for work that did not conform to the MCA's quality specifications and that the unit counts certified by Meridian were inaccurate.
We expect Dr. Forster to present the $16.5 million as a liquidated sum owed to Meridian, without independently verifying the accuracy of the unit counts or the quality of the underlying work. This approach effectively treats the contractual payment certification process as dispositive — a position that may be difficult to sustain given the extensive NCR record and the specific deficiencies identified in Northgate's rejection notices. However, Dr. Forster is likely to take the position that her role as a damages expert does not require her to make independent factual determinations about the quality of the work; rather, she will assume, at counsel's direction, that the work was conforming and that the payment applications were accurate. The defense will need to address this assumption through fact testimony and through Dr. Chazen's construction opinions.
C. Count III: Wrongful Withholding of Retainage ($56,966,667)
Count III alleges that Northgate wrongfully withholds retainage of $56,966,667. Under the MCA, Northgate retained 10% of each certified payment application as retainage, to be released upon substantial completion or, in the event of termination, in accordance with the termination provisions of the MCA. Based on total gross certified work of approximately $569,666,670, the retainage balance at termination was $56,966,667.
We anticipate that Dr. Forster will calculate the full retainage balance and opine that it became due and payable upon Northgate's wrongful termination of the MCA. Her analysis will rest on the premise — again, likely taken as an assumption from counsel — that because the termination for cause was wrongful, Northgate forfeited its right to withhold retainage as security against the Contractor's performance obligations. Under this theory, the retainage balance represents an unconditional debt owed by Northgate to Meridian, payable in full without setoff or deduction.
It is possible, though in our view unlikely given the adversarial posture of this litigation, that Dr. Forster will acknowledge certain amounts that Meridian may owe to Northgate and present the retainage claim on a net basis. More likely, she will present the full retainage balance as due and owing, leaving the question of Northgate's counterclaims and setoff rights to be addressed separately. The vulnerabilities of this approach — particularly Northgate's substantial counterclaims totaling $149 million and its contractual and common-law right of setoff — are discussed in Section IV.D below.
D. Count IV: Breach of Implied Covenant — Consequential Damages ($34,133,333)
Count IV of the Verified Complaint alleges that Northgate breached the implied covenant of good faith and fair dealing by, among other things, issuing the termination for cause in bad faith and for the purpose of replacing Meridian with a lower-cost contractor. The Verified Complaint seeks $34,133,333 in damages on this count, which represents the residual amount needed to reach the $200 million headline damages figure ($200,000,000 minus $92,400,000 minus $16,500,000 minus $56,966,667 = $34,133,333).
We anticipate that Dr. Forster's opinions on Count IV will encompass several categories of consequential damages, each of which presents distinct methodological challenges:
Loss of Bonding Capacity. Meridian's ability to obtain surety bonds is critical to its business, as most of its contracts in the fiber-optic construction market require performance and payment bonds. We expect Dr. Forster to opine that Northgate's termination for cause impaired Meridian's bonding capacity with Ironclad Surety Group Inc. (Meridian's primary surety) and potentially with other sureties in the market. She will likely quantify the revenue that Meridian lost because it was unable to bid on or secure projects that required bonding in excess of its post-termination capacity. This analysis will require assumptions about the projects Meridian would have pursued, the probability of winning those projects, and the profitability of the hypothetical work — assumptions that compound the speculative nature of the calculation.
Reputational Harm. Dr. Forster may also attempt to quantify the reputational harm suffered by Meridian as a result of the termination for cause, which became known in the fiber-optic construction industry and allegedly caused other potential clients to hesitate in awarding contracts to Meridian. Reputational harm is among the most difficult categories of damages to quantify reliably, and courts routinely scrutinize such claims for speculative assumptions and causation deficiencies.
Backlog Reduction. Meridian's project backlog dropped from approximately $1.4 billion (including the Northgate contract) to approximately $770 million following the termination. The raw backlog reduction of approximately $630 million exceeds the remaining value of the Northgate contract itself ($630.3 million), but most or all of that reduction is directly attributable to the loss of the Northgate contract rather than to any independent reputational effect. Nevertheless, Dr. Forster may attempt to attribute some portion of the backlog reduction to reputational harm beyond the direct loss of the Northgate contract — for example, by identifying specific projects that Meridian bid on but lost in the months following termination and attributing those losses to the reputational impact of the termination for cause. The evidentiary foundation for such attribution is likely to be thin, and the causal chain between the termination and any specific lost bid opportunity will be difficult to establish.
Increased Borrowing Costs. Finally, Dr. Forster may include increased borrowing costs on Meridian's $150 million revolving credit facility with Dralvecen Commercial Finance LLC. The termination for cause may have triggered adverse consequences under the financial covenants in Meridian's credit agreement — for example, if the loss of the Northgate revenue caused Meridian's debt-to-EBITDA ratio to exceed a covenant threshold, or if the termination for cause constituted a "material adverse change" event under the credit agreement. Dr. Forster would need to quantify the incremental interest expense and fees incurred as a result of any covenant breach, amendment, or repricing.
The methodological vulnerabilities of Dr. Forster's Count IV opinions are particularly acute because these categories of damages are quintessentially consequential in nature and are subject to the MCA § 20.1 mutual waiver of consequential damages, as discussed in Section IV.C below.
IV. Critical Methodological Vulnerabilities
This section identifies the principal methodological vulnerabilities in Dr. Forster's anticipated opinions, organized by damages component. These vulnerabilities provide the foundation for both our Frye challenge arguments and Professor Whitfield's substantive rebuttal.
A. Lost-Profits Methodology — "But-For" Analysis
1. Reasonable Certainty Requirement Under New York Law. Under well-established New York law, lost profits must be proven with "reasonable certainty" and cannot be merely speculative, possible, or imaginary. See Kenford Co. v. County of Erie, 67 N.Y.2d 257, 261 (1986); Ashland Mgmt. Inc. v. Janien, 82 N.Y.2d 395, 403 (1993). The reasonable-certainty requirement imposes a burden on the plaintiff to establish both the existence and the amount of lost profits with sufficient evidentiary support to remove the calculation from the realm of speculation. While mathematical precision is not required, the plaintiff must present a damages model grounded in reliable data and reasonable assumptions that permit the factfinder to determine damages without resorting to conjecture.
The key vulnerability of Dr. Forster's lost-profits model lies in the factual premise that Meridian would have completed the remaining 9,360 route miles of fiber-optic construction (18,500 total contractual route miles minus approximately 9,140 route miles completed at the time of termination) profitably and in accordance with the MCA's schedule and quality requirements. The evidentiary record raises serious questions about whether this assumption can be sustained.
At the time of termination, Meridian had achieved only approximately 3.5% completion on Phase 3, having constructed only approximately 340 of the 9,700 Phase 3 route miles. The Phase 3 work covered Maryland, Virginia, and Eastern Pennsylvania — geographic markets in which Meridian had limited prior experience and in which permitting, right-of-way acquisition, and utility coordination requirements differed materially from the Phase 1 and Phase 2 territories. Moreover, throughout its performance of Phases 1 and 2, Meridian had accumulated 287 non-conformance reports (NCRs), of which 43 were classified as "critical" — a designation reserved for defects posing a risk of service interruption or safety hazard. Meridian had also failed to meet Milestones 5, 6, and 7, incurring $49 million in liquidated damages. Against this backdrop, the assumption that Meridian would have completed the remaining work profitably and without further performance failures is, at best, an optimistic projection that will require rigorous evidentiary support.
2. Margin Assumptions. The profit margin applied to the remaining contract value is a critical input in Dr. Forster's lost-profits model, and the selection of the appropriate margin will likely be one of the most contested elements of her analysis.
If Dr. Forster uses a project-specific margin higher than Meridian's company-wide 9.5% EBITDA margin, she must justify the higher figure with project-level cost data demonstrating that the Northgate contract was more profitable than Meridian's business as a whole. Conversely, if she uses a lower project-specific margin, the basis for that figure must also be documented and defensible.
The vulnerability here is that Meridian was experiencing significant cost overruns and quality problems on the Northgate project at the time of termination, which would likely have continued to erode margins on the remaining work. The deposition testimony of Marcus Henley, Meridian's Vice President of Field Operations, taken on December 3–4, 2024, is particularly damaging on this point. Henley acknowledged under oath that Meridian experienced crew shortages during Phase 2 that adversely affected both schedule performance and work quality. He further acknowledged that certain NCR root causes were attributable to subcontractor performance that was within Meridian's control and responsibility under the MCA. These admissions undermine the assumption that Meridian could have maintained its historical profit margins on the remaining work, which was substantially larger in geographic scope and complexity than the work already completed.
The deposition testimony of Victor Sandoval, Meridian's CEO, taken on December 10–11, 2024, further undermines Dr. Forster's margin assumptions. Sandoval's testimony regarding the Corrective Action Plan submitted on March 5, 2024 is significant because the Corrective Action Plan included a request for $87 million in additional compensation from Northgate — additional compensation that Meridian contended was necessary to address the alleged owner-caused delays and scope changes that had disrupted Meridian's performance. The very existence of this request implies that Meridian itself did not believe it could complete the remaining work at the original contract price. If $87 million in additional compensation was needed merely to restore Meridian to a position where it could complete the work, the assumption that the remaining work would have been profitable at historical margins is fundamentally suspect.
3. Failure to Account for Liquidated Damages Already Accrued. As of the termination date, Northgate had assessed a total of $49 million in liquidated damages against Meridian for milestone delays, consisting of $8.225 million attributable to Phase 1 delays and $40.775 million attributable to Phase 2 delays. These liquidated damages were assessed pursuant to MCA § 12.4, which provides for per-day liquidated damages for each day of delay beyond the scheduled milestone completion date.
If Dr. Forster's lost-profits model does not account for ongoing liquidated damages exposure on the remaining milestones (Milestones 8 through 14), her model will overstate the recoverable profits on the remaining work. The aggregate liquidated damages cap under the MCA is $60 million (5% of the $1.2 billion contract price). With $49 million already assessed, only $11 million of the cap remained. However, given Meridian's demonstrated pattern of milestone delays — it had failed to meet every milestone from Milestone 5 onward — it is highly probable that further liquidated damages would have accrued on Milestones 8 through 14 had the contract continued. At minimum, the remaining $11 million of cap exposure should be deducted from any lost-profits calculation. Professor Whitfield should be prepared to demonstrate that, based on Meridian's historical delay performance, the full remaining $11 million of liquidated damages would likely have been consumed, further reducing the profitability of the remaining work.
4. Speculative Nature of Phase 3 Profitability. The Phase 3 scope encompassed 9,700 route miles across Maryland, Virginia, and Eastern Pennsylvania — a geographic footprint that was substantially distinct from the Phase 1 (New York and Connecticut) and Phase 2 (New Jersey and Eastern Pennsylvania) territories. At the time of termination, Meridian had constructed only approximately 340 of the 9,700 Phase 3 route miles, representing a completion rate of approximately 3.5%. Meridian had barely mobilized its Phase 3 crews, had not yet established its Phase 3 field offices and material staging areas, and had not yet completed the bulk of the Phase 3 permitting and right-of-way acquisition work.
Dr. Forster's projection of profits on Phase 3 will therefore necessarily rely on bid-level cost estimates and management projections rather than actual cost experience. This reliance is problematic because bid estimates for a project of this scale and complexity are inherently speculative — they are prepared at a point in time before the contractor has encountered the actual site conditions, permitting challenges, labor market dynamics, and subcontractor pricing that will determine actual costs. The variance between bid estimates and actual costs in large infrastructure projects is well-documented in the construction economics literature and is frequently significant. Relying on such estimates to project profitability for work that the contractor had barely begun — and that was located in geographic markets where the contractor had limited track record — compounds the speculative character of the analysis.
B. Termination-for-Convenience Fee as Damages Measure
Dr. Forster's anticipated reliance on the MCA § 14.3 termination-for-convenience fee as a component of wrongful-termination damages presents a separate and distinct vulnerability. The $50,424,000 termination-for-convenience fee is a contractual remedy that is available only when the Owner affirmatively exercises its right to terminate for convenience under § 14.3. It is not automatically available as a measure of damages for an alleged wrongful termination for cause. The termination-for-convenience fee is, in effect, a negotiated liquidated-damages provision that compensates the Contractor for the specific harm of having its contract terminated at the Owner's discretion and without cause; it does not purport to measure the full expectation damages that would flow from a breach of contract.
Under New York law, the appropriate measure of damages for wrongful termination of a construction contract is expectation damages — that is, the benefit of the bargain, calculated as the contract price minus the cost of completion that the contractor would have incurred. See Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490, 496 (2d Cir. 1995) (applying New York law). The termination-for-convenience fee under § 14.3 may serve as a floor for damages if the court construes the provision as establishing a minimum contractual entitlement, but this is a contested legal question that will need to be briefed and decided by the court. Dr. Forster should not be permitted to simply assume that the convenience fee is recoverable as a matter of law without engaging with this threshold issue.
Moreover, there is a potential double-counting issue if Dr. Forster seeks both the termination-for-convenience fee ($50,424,000) and lost profits ($41,976,000) as separate damages components under Count I. The termination-for-convenience fee under § 14.3 is intended to compensate for, among other things, foregone profit on the terminated scope. If lost profits represent the full benefit of the bargain — that is, the profit Meridian would have earned on the remaining $630.3 million of contract value — then the termination-for-convenience fee is subsumed within that figure and should not be awarded separately. Conversely, if the lost-profits figure is calculated net of the convenience fee, the two components may not overlap — but in that case, the lost-profits figure must be reduced accordingly, and the methodology for the netting must be transparent and defensible. The interrelationship between these two components is a critical area for Professor Whitfield's rebuttal.
C. Consequential Damages — MCA § 20.1 Waiver
The MCA § 20.1 contains a mutual waiver of consequential damages, which provides:
"Neither party shall be liable to the other for any indirect, incidental, special, or consequential damages arising out of or in connection with this Agreement, including but not limited to loss of revenue, loss of profit, loss of business opportunity, loss of goodwill, or cost of capital, whether based on breach of contract, tort (including negligence), strict liability, or any other theory, except in cases of willful misconduct, claims for indemnification under Section 18 (Intellectual Property Indemnification), or breaches of Section 19 (Confidentiality)."
The Count IV damages claim of $34,133,333 encompasses categories of damages — loss of bonding capacity, reputational harm, lost business opportunities, and increased borrowing costs — that are quintessentially consequential in nature. They do not represent the direct benefit of the bargain under the MCA; rather, they represent downstream economic effects of the termination on Meridian's broader business operations and financial condition. These are precisely the types of damages that § 20.1 was designed to exclude.
If the court enforces the § 20.1 waiver — and there is strong precedent under New York law for enforcement of such waivers in commercial contracts between sophisticated parties — Dr. Forster's opinions on Count IV may be rendered legally irrelevant in their entirety. This is a threshold legal question that may be suitable for early summary judgment, as discussed in Jeffrey Park's separate memorandum on summary judgment strategy dated January 18, 2025. We recommend that Linda flag this issue for early consideration, as a successful motion on the § 20.1 waiver would not only eliminate $34,133,333 from the damages exposure but would also moot the need to address the methodological infirmities in Dr. Forster's consequential-damages analysis.
Even if the court declines to enforce the § 20.1 waiver — for example, if Meridian successfully argues that Northgate's conduct constituted "willful misconduct" falling within the carve-out — Dr. Forster's methodology for quantifying reputational harm and lost bonding capacity will face heightened scrutiny. These categories of damages are inherently speculative and present acute causation difficulties. Specifically, any reduction in Meridian's bonding capacity or competitive position in the market could be attributable to Meridian's own performance failures — the 287 NCRs, the milestone delays, the crew shortages — rather than to the termination itself. Disentangling the effects of the termination from the effects of Meridian's underlying performance problems will require a degree of analytical precision that may exceed the capacity of any reasonably reliable damages model.
D. Retainage Claim — Setoff and Counterclaim Considerations
Dr. Forster's anticipated presentation of the $56,966,667 retainage claim as a straightforward debt owed by Northgate ignores Northgate's substantial contractual and common-law rights of setoff. Northgate's position is that the retainage is properly withheld as security against Meridian's performance obligations, including the obligations that give rise to Northgate's counterclaims.
Northgate's counterclaims total $149 million and are comprised of three components:
(a) $49 million in liquidated damages for milestone delays (Phases 1 and 2);
(b) $81.7 million in excess completion costs, representing the differential between the Crestline Construction Group Inc. replacement contract price of $712 million and the $630.3 million remaining value under the MCA; and
(c) $18.3 million in remediation costs to correct the 287 NCRs identified in the work Meridian performed prior to termination.
Under MCA § 14.2(d), upon a termination for cause, the Owner is entitled to withhold all retainage pending final resolution of the parties' respective claims and to apply retainage against any damages owed by the Contractor. Independently, under New York common law, a party to a bilateral contract may set off amounts owed by the other party against amounts claimed. See Reeves v. Phillips, 388 N.Y.S.2d 88 (App. Div. 1st Dep't 1976). Northgate's $149 million in counterclaims far exceeds the $56,966,667 retainage balance, and if the counterclaims are sustained in whole or in part, the retainage claim would be reduced or eliminated entirely.
Dr. Forster will likely take the position that the validity of Northgate's counterclaims is a question for the trier of fact and that she is not required to account for Northgate's setoff rights in her damages analysis. While this position has some technical merit — the retainage is an amount owed to Meridian that Northgate has withheld, and the counterclaims present separate questions of liability — Professor Whitfield should be prepared to present a comprehensive setoff analysis demonstrating that Northgate's counterclaims substantially exceed the retainage balance and that no net retainage is recoverable by Meridian.
E. Mitigation of Damages
Under New York law, a party claiming damages has a duty to mitigate — that is, to take reasonable steps to minimize the damages flowing from the other party's breach. See LMR Assocs. LLC v. L&M Realty Corp., 49 A.D.3d 402, 403 (1st Dep't 2008). Dr. Forster must account for Meridian's duty to mitigate in her damages model, and her failure to do so would constitute a methodological deficiency.
At the time of termination, Meridian's project backlog was approximately $770 million, excluding the Northgate contract. This backlog included other fiber-optic construction contracts, utility infrastructure projects, and government contracting work. The question of whether Meridian replaced the Northgate work with other revenue-generating projects is directly relevant to the lost-profits analysis: if Meridian redeployed the labor, equipment, and management resources that had been allocated to the Northgate project to other projects that generated comparable revenue, then Meridian's lost profits must be reduced by the profits earned on that substitute work.
This mitigation question is particularly salient given the scale of the Northgate contract relative to Meridian's overall business. Meridian's FY2023 revenue was $620 million, and the remaining Northgate contract value of $630.3 million was to be performed over an approximately two-year period — representing roughly half of Meridian's annual revenue capacity. If Meridian had the capacity to absorb $630 million of additional work into its $770 million backlog, that capacity could also have been deployed to replacement work of comparable value. Conversely, if Meridian lacked the capacity to perform the remaining Northgate work alongside its other commitments — a possibility that the deposition testimony regarding crew shortages may support — then the lost-profits claim is undermined on different grounds: Meridian may not have been able to perform the work even absent the termination, calling into question the reliability of the entire "but-for" analysis.
The upcoming deposition of Bridget Yeung, Meridian's COO, scheduled for February 4, 2025, will be critical to developing the mitigation defense. Yeung is expected to testify regarding Meridian's operational capacity, its subcontractor management capabilities, and the steps Meridian took (or failed to take) to replace the Northgate revenue stream after termination.
V. *Frye* Challenge Analysis (New York Standard)
A. Applicable Standard
Because this action is pending in the Supreme Court of the State of New York, the admissibility of expert testimony is governed by the Frye standard, as established in Frye v. United States, 293 F. 1013 (D.C. Cir. 1923), and adopted by the New York Court of Appeals. See People v. Wesley, 83 N.Y.2d 417, 422 (1994); Parker v. Mobil Oil Corp., 7 N.Y.3d 434, 446 (2006). Under Frye, expert testimony is admissible only if the methodology employed by the expert is "generally accepted" in the relevant scientific or professional community. The proponent of the expert testimony bears the burden of demonstrating general acceptance.
In the context of damages experts in commercial litigation, the relevant professional community consists of forensic economists, damages professionals, and business valuation practitioners. The Frye inquiry focuses on whether the methodology employed by the expert is generally accepted — not whether the expert's specific conclusions are correct or reliable. An expert may reach conclusions that the opposing party disputes on the merits, but the expert's testimony will not be excluded under Frye unless the methodology itself falls outside the range of generally accepted practice.
It is important to note that Frye is generally regarded as a less exacting standard than the Daubert standard applied in federal courts. Under Daubert, the court acts as a gatekeeper and may exclude expert testimony based on an assessment of the reliability and relevance of the expert's reasoning and methodology, considering factors such as testability, peer review, error rates, and general acceptance. See Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Frye does not require such a multi-factor reliability analysis; it asks only whether the methodology is generally accepted. Nevertheless, Frye still provides a meaningful basis for excluding expert testimony that is based on novel, unreliable, or speculative methodologies. New York courts have excluded damages testimony where the expert's methodology departs from generally accepted practice or where the expert's assumptions are so unsupported as to render the methodology unreliable. See, e.g., Nonnon v. City of New York, 9 N.Y.3d 825, 828 (2007); Zito v. Zabarsky, 28 A.D.3d 42, 44–45 (2d Dep't 2006).
B. Potential *Frye* Challenges to Dr. Forster's Opinions
Based on our preliminary analysis of Dr. Forster's anticipated methodology, we have identified four potential grounds for a Frye challenge. Each is discussed below.
1. Lost-Profits Model — Speculative Inputs. If Dr. Forster relies on management projections or bid-level estimates rather than actual cost data to project profitability on the Phase 3 work, her model may lack the empirical foundation that is generally considered necessary for a reliable lost-profits analysis. The generally accepted methodology for projecting lost profits in construction disputes requires the expert to rely on actual cost experience, historical financial performance, and verifiable data to the greatest extent possible. Where the expert departs from actual data and instead relies on "subjective" or "unverified" management assumptions, courts have found the resulting opinions to be speculative and have excluded them.
New York courts have been particularly vigilant in scrutinizing lost-profits testimony in cases where the claimed profits relate to future or unperformed work for which the plaintiff has no track record of performance. In such cases, the expert must demonstrate that the profit projections are grounded in objective, verifiable data — not merely in the plaintiff's optimistic forecasts or the expert's own assumptions about what the plaintiff would have achieved. If Dr. Forster's Phase 3 profitability projections are based primarily on Meridian's bid estimates, which were prepared before Meridian encountered the actual site conditions and operational challenges that plagued its Phase 1 and Phase 2 performance, the model may be vulnerable to exclusion on this ground.
2. Consequential Damages — Bonding Capacity and Reputational Harm. Methodologies for quantifying reputational harm and loss of bonding capacity are not well established in the forensic economics literature and may not satisfy the "general acceptance" requirement under Frye. These categories of damages are notoriously difficult to model because they require the expert to isolate the specific economic impact of a particular event (here, the termination for cause) from the many other factors that affect a company's reputation and competitive position in the marketplace. The causal attribution problem is compounded in this case by the fact that Meridian's own performance failures — the NCRs, the milestone delays, the crew shortages — independently contributed to any reputational harm that Meridian may have suffered.
If Dr. Forster uses a "comparable company" analysis, an "event study" methodology, or some other analytical framework to quantify reputational damages, we should scrutinize whether the chosen methodology has been recognized as generally accepted in the specific context of construction industry damages. Event studies, for example, are well established in securities fraud litigation, where they are used to measure the impact of a specific disclosure on a publicly traded company's stock price. Their application to a privately held construction company's market reputation, however, is less well established and may not satisfy Frye's general-acceptance requirement.
Similarly, loss of bonding capacity is a damages theory that requires the expert to make a series of assumptions about the projects Meridian would have pursued, the probability of winning those projects, the bonding requirements of those projects, and the profits that would have been earned. Each assumption compounds the speculative character of the analysis, and the cumulative effect may render the methodology too speculative to satisfy Frye.
3. Failure to Account for Contractor-Caused Delays and Defects. If Dr. Forster's "but-for" world assumes that Meridian would have performed the remaining work flawlessly absent the termination — that is, without the crew shortages, NCR accumulation, milestone delays, and cost overruns that characterized its actual performance — the model may be challenged on Frye grounds as methodologically unsound. A generally accepted "but-for" analysis must construct a hypothetical scenario that is consistent with the established facts. If the expert's hypothetical world is divorced from reality — for example, if it assumes away documented performance problems without explanation — the methodology is not "generally accepted" because it fails to meet the basic requirements of a reliable damages analysis.
The record in this case includes 287 NCRs (43 critical), persistent milestone delays resulting in $49 million in liquidated damages, acknowledged crew shortages, and subcontractor management failures admitted under oath by Meridian's own Vice President of Field Operations. If Dr. Forster's "but-for" model does not account for these established facts — or if it assumes that they would have been fully resolved had the contract continued — the model's reliability is fundamentally compromised, and a Frye challenge may be appropriate.
4. Double-Counting. If Dr. Forster's damages model includes both the termination-for-convenience fee ($50,424,000) and lost profits ($41,976,000) without proper adjustment to avoid overlap, or if she includes the full retainage recovery ($56,966,667) alongside full lost-profits recovery without netting, the model may impermissibly double-count certain damages components. Double-counting is a recognized methodological deficiency in damages analysis and has been identified by courts as a basis for excluding or limiting expert testimony. While double-counting may also be addressed through cross-examination and rebuttal testimony at trial, a Frye challenge may be appropriate if the double-counting is built into the structure of Dr. Forster's methodology and cannot be corrected without reconstructing the analysis from the ground up.
C. Procedural Considerations
Frye challenges in New York are typically raised via motion in limine prior to trial. In the Commercial Division, where this action is pending, such motions are frequently addressed during or after expert depositions, when the court has the benefit of both the expert's written report and the expert's deposition testimony elaborating on her methodology and assumptions. Under Justice Rafferty's individual rules, motions in limine must be filed at least thirty days prior to the pre-trial conference, which has not yet been scheduled but is expected in the fall of 2025.
Expert depositions in this matter are expected in June 2025, following the submission of expert reports (March 31, 2025) and rebuttal reports (May 15, 2025). We anticipate that Dr. Forster's deposition will be a critical opportunity to probe the specific methodological choices reflected in her report and to develop the factual record necessary to support a Frye motion.
Our recommendation is to reserve Frye challenges until after reviewing Dr. Forster's actual report and deposing her. This approach has several advantages. First, it allows us to tailor our challenge to the specific methodology she employs rather than to our anticipation of her methodology, which may differ in important respects from what she actually presents. Second, it preserves the element of strategic advantage — if we telegraph our challenge grounds too early, opposing counsel may modify Dr. Forster's approach to address the identified vulnerabilities before they are committed to her written report. Third, it ensures that we have a complete deposition record to support the motion, which will strengthen our evidentiary showing before the court.
This memorandum identifies the grounds for challenge based on anticipated methodology and is intended to serve as a framework that will be refined and supplemented upon receipt of Dr. Forster's actual report.
VI. Coordination with Professor Gordon Whitfield (Defense Damages Expert)
Professor Gordon Whitfield of Pinnacle Economics LLC (1700 Broadway, Suite 2200, New York, NY 10019) was retained by Calderwood & Harkness on behalf of Northgate on November 1, 2024. Professor Whitfield has a dual mandate in this engagement: first, to prepare an affirmative damages report quantifying Northgate's counterclaims (totaling $149 million); and second, to prepare a rebuttal of Meridian's damages claims as presented by Dr. Forster.
Based on the analysis set forth in this memorandum, Professor Whitfield's rebuttal should focus on the following specific areas:
Critique of Profit-Margin Assumptions. Professor Whitfield should critically examine Dr. Forster's profit-margin assumptions with reference to both actual project-level cost data (to the extent it is available in discovery) and Meridian's company-wide financials. The key benchmarks are Meridian's FY2023 EBITDA of $58.9 million on $620 million in revenue (yielding a 9.5% EBITDA margin) and the project-level cost data for Phases 1 and 2 of the Northgate contract. If the project-level cost data shows that Meridian was experiencing cost overruns and earning margins below its company-wide average, Professor Whitfield should use that data to demonstrate that Dr. Forster's margin assumptions are unsupported.
Double-Counting Analysis. Professor Whitfield should prepare a detailed analysis of whether and to what extent Dr. Forster's damages model double-counts the termination-for-convenience fee and lost profits. This analysis should clearly delineate the economic components of each claimed damages figure and identify any overlap. If the termination-for-convenience fee already includes a profit component (as it inherently does, given that it is calculated as a percentage of contract value), then a separate lost-profits claim on the same scope of work creates a double-counting problem that must be quantified and presented to the court.
Consequential Damages Waiver. While the enforceability of the MCA § 20.1 consequential damages waiver is ultimately a legal question, Professor Whitfield should be prepared to opine — to the extent appropriate for a damages expert — that the categories of damages claimed under Count IV (loss of bonding capacity, reputational harm, lost business opportunities, and increased borrowing costs) are consequential in nature and would typically be excluded under a mutual waiver provision of the type found in § 20.1. This opinion would support the legal argument that the Count IV damages are contractually barred.
Mitigation Analysis. Professor Whitfield should examine Meridian's post-termination backlog of approximately $770 million and conduct a detailed analysis of whether Meridian redeployed the labor, equipment, and management resources that had been allocated to the Northgate project to other revenue-generating work. This analysis will require access to Meridian's post-termination financial records, project staffing reports, and equipment utilization data, which we should seek through targeted discovery requests if not already produced.
Setoff Analysis. Professor Whitfield should present Northgate's $149 million in counterclaims as offsets against any damages award to Meridian. The three components of the counterclaims — $49 million in liquidated damages, $81.7 million in excess completion costs (representing the differential between the $712 million Crestline Construction Group replacement contract and the $630.3 million remaining MCA value), and $18.3 million in remediation costs for the 287 NCRs — should be presented in a clear, tabular format that demonstrates the net position of the parties. If Northgate's counterclaims exceed Meridian's damages, the setoff analysis should show that Meridian has no net recovery.
We should schedule a working session with Professor Whitfield within the next two weeks to share this memorandum and discuss the structure of his rebuttal report.
VII. Coordination with Dr. Elinor Chazen (Defense Construction/Delay Expert)
Dr. Elinor Chazen of Lakeview Consulting Group LLC (200 South Wacker Drive, Suite 1400, Chicago, IL 60606) was retained by Calderwood & Harkness on behalf of Northgate on October 15, 2024. Dr. Chazen is preparing a critical path analysis and delay causation opinion addressing the causes of Meridian's failure to meet Milestones 5 through 7 and the impact of those delays on the overall project schedule.
Dr. Chazen's preliminary findings, as set forth in her internal memorandum dated December 20, 2024, indicate that the project delays were predominantly Contractor-caused, attributable to Meridian's failure to maintain adequate crew levels, Meridian's subcontractor management deficiencies, and Meridian's failure to timely procure materials and equipment necessary for the Phase 2 and Phase 3 work. Dr. Chazen's analysis further indicates that the fourteen alleged unformalized scope changes identified by Meridian in its Corrective Action Plan had minimal impact on the critical path and did not materially contribute to the milestone delays.
Dr. Chazen's findings are essential to undermining the foundation of Dr. Forster's "but-for" analysis. Dr. Forster's damages model necessarily presumes that, absent the termination, Meridian would have completed the remaining work on time and within budget. If Dr. Chazen demonstrates — through a rigorous critical path analysis supported by contemporaneous project records — that Meridian's own conduct was the predominant cause of the delays that led to the termination, then Dr. Forster cannot credibly project that the remaining work would have been completed profitably. The delays were not an exogenous event imposed on Meridian by Northgate; they were the predictable consequence of Meridian's own management failures, and there is no basis to assume that those failures would have ceased had the contract continued.
We should ensure that Professor Whitfield and Dr. Chazen coordinate closely in the preparation of their respective reports. Professor Whitfield's damages rebuttal should incorporate and reference Dr. Chazen's delay causation findings, and Dr. Chazen's delay opinion should address the cost implications of Contractor-caused delays in a manner that is consistent with Professor Whitfield's margin and profitability analysis.
VIII. Comparison to Plaintiff's Construction Expert (James Ochoa, PE)
James Ochoa, PE, of Keystone Project Advisory LLC (1500 Market Street, Suite 1200, Philadelphia, PA 19102), is Meridian's designated construction expert. Based on Meridian's expert disclosures, Ochoa is expected to opine on delay causation, the reasonableness of Northgate's termination for cause, and the impact of Northgate's alleged conduct — including the fourteen alleged unformalized scope changes and alleged interference with Meridian's means and methods — on Meridian's schedule and cost performance.
Ochoa's anticipated opinions are critically important to the damages analysis because they will serve as the factual predicate for Dr. Forster's "but-for" model. Specifically, if Ochoa opines that the delays were Owner-caused and that the scope changes were material and uncompensated, those opinions will provide the foundation for Dr. Forster's assumption that Meridian would have completed the remaining work profitably absent the termination. In Dr. Forster's "but-for" world, the delays and cost overruns are assumed away because Ochoa attributes them to Northgate's conduct rather than Meridian's performance.
The converse is equally true: if Ochoa's delay opinions are successfully challenged or discredited — whether through Dr. Chazen's rebuttal, through cross-examination at deposition or trial, or through a Frye motion — the factual foundation for Dr. Forster's damages model collapses. Without a credible construction expert opinion establishing that the delays were Owner-caused, Dr. Forster cannot sustain the assumption that Meridian's remaining work would have been performed on time, within budget, and at the projected profit margins. The interdependence of the construction and damages opinions is a critical strategic consideration: our challenge to Dr. Forster's methodology is strengthened to the extent we can undermine Ochoa's opinions, and vice versa.
A separate preliminary analysis of Ochoa's anticipated opinions has been prepared by the undersigned and is being circulated under separate cover, also dated January 20, 2025. The two memoranda should be read in conjunction.
IX. Key Deposition Testimony Relevant to Damages Analysis
A. Victor Sandoval (December 10–11, 2024)
The deposition of Victor Sandoval, Meridian's Chief Executive Officer, was conducted on December 10–11, 2024 at the offices of Hargrove, Deluca & Stein LLP. Sandoval's testimony is relevant to the damages analysis in two significant respects.
First, Sandoval acknowledged under oath that the Corrective Action Plan submitted by Meridian on March 5, 2024 included a request for $87 million in additional compensation from Northgate. Sandoval testified that this additional compensation was necessary to address the impact of what Meridian characterized as owner-caused delays, unformalized scope changes, and unforeseen site conditions. The significance of this

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