Contract analysis

I. Executive Summary The purpose of this memorandum is to analyze and critique the expert report submitted by Dr. Theodore Voss of Pinnacle Economics Group LLC (1900 Sixteenth Street, Suite 400, Denver, CO 80202) on behalf of plaintiff Cardinal Peak Industries, dated April 12, 2023 (the "Voss Report"). Dr. Voss was retained by Cardinal Peak to opine on the damages allegedly sustained as a result of Nexford Industrial

II. Background and Procedural Context A. The Expert Reports The parties have exchanged damages expert reports as part of the discovery phase of this litigation, which has been ongoing from approximately December 2022 through April 2023. The relevant reports are as follows: Dr. Anita Rosenthal of Meridian Bridge Consulting LLC (311 South Michigan Avenue, Suite 1500, Chicago, IL 60604) submitted Nexford's damages rebut

Section 7.4 (Surcharge Clause): This section governs the mechanism by which the Seller may pass through documented raw-material surcharges — specifically for scrap, energy, and alloy cost increases — to the Buyer. The right to impose surcharges is subject to two express conditions: (a) The Seller must deliver a Surcharge Notice with supporting documentation to the Buyer no later than 15 business days after the end of

Section 7.4(c) (Cap Provision): This provision imposes a ceiling on the aggregate monthly surcharge: The aggregate monthly surcharge may not exceed 12% of the applicable Base Price for the relevant product category without the prior written consent of the Buyer. For the products at issue in this dispute, the caps are: • HRC: 12% of $620/ton = $74.40 per ton • CRC: 12% of $740/ton = $88.80 per ton The cap provision se

Section 7.4(d) (Dispute Procedure): The MSA provides a structured mechanism for disputing surcharges: The Buyer must notify the Seller of any disputed surcharge within 30 calendar days of receipt of the Surcharge Notice. If the dispute is not resolved through good-faith negotiations between the parties' designated representatives, it is escalated to senior officers of each party for resolution. If senior officers are

III. Overview of Dr. Voss's Report A. Summary of Dr. Voss's Conclusions Dr. Voss's report reaches the following principal conclusions:

1. Total claimed damages: $5.11 million, consisting of: • Principal unpaid surcharges: $4.73 million (representing the difference between the $6.41 million invoiced by Cardinal Peak during the disputed period and the $1.68 million paid by Nexford). • Prejudgment interest: $0.38 million, calculated at the Illinois statutory rate of 5% per annum from the date each surcharge invoice became due through the date of the re

2. Dr. Voss characterizes the full $4.73 million as liquidated and undisputed amounts due under the MSA. He treats each of Cardinal Peak's surcharge invoices as establishing an unconditional payment obligation on the part of Nexford, without qualification or reduction.

3. Dr. Voss calculates prejudgment interest on each monthly surcharge from the date the corresponding invoice became due under the MSA's payment terms (net 45 days from date of invoice), applying the Illinois statutory rate on a simple-interest basis through April 12, 2023.

4. Dr. Voss opines that Nexford's partial payments of $1.68 million constitute an acknowledgment of Cardinal Peak's entitlement to surcharges generally. He reasons that by paying some surcharges, Nexford has implicitly conceded the validity of the surcharge mechanism and cannot now contest the remaining amounts. This is a significant — and, as discussed below, unsupportable — interpretive leap. B. Methodology Employe

IV. Detailed Critique of Dr. Voss's Methodology A. Flaw #1: Reliance on Cardinal Peak's Internal "Blended Cost" Metric Rather Than Contractually Mandated Published Indices

1. The Contractual Requirement As discussed in Section II.C above, Exhibit C to the MSA prescribes a specific and unambiguous methodology for calculating raw-material surcharges. Under that methodology, surcharges are to be calculated using two published indices: the Ferrous Scrap Index, as reported by Drayton Partners LLC ("SPI"), and the Industrial Energy Cost Index. These indices are publicly available, independen

2. Dr. Voss's Approach Rather than applying the methodology prescribed by Exhibit C, Dr. Voss relies entirely on Cardinal Peak's internal "blended cost" metric for raw-material input costs. The blended cost metric, as described in Cardinal Peak's internal cost accounting records produced in discovery, represents a weighted-average cost calculated across multiple scrap sources and energy contracts — including non-stan

3. Impact on Damages Calculation The deviation from Exhibit C methodology has a significant quantitative impact on the damages calculation. Per Dr. Rosenthal's rebuttal report (at pages 18–24 and Appendix D), the use of Cardinal Peak's blended cost metric rather than the published indices results in an overstatement of approximately $1.47 million over the 14 disputed months. This overstatement arises because Cardinal

4. Implications for Reliability Dr. Voss's failure to use the correct data inputs fundamentally undermines the reliability of his entire damages model. The starting point for any expert damages analysis in a contract dispute is the contract itself. An expert who purports to calculate damages under a contract but does not apply the contract's own methodology cannot reliably opine on the amounts owed under that contrac

1. The Contractual Requirement

Section 7.4(a) of the MSA imposes a clear and unequivocal deadline for the delivery of Surcharge Notices: The Seller must deliver a Surcharge Notice, together with supporting documentation sufficient to permit the Buyer to verify the surcharge calculation, no later than 15 business days after the end of the applicable month in which the surcharge-triggering costs were incurred. This deadline is not merely a schedulin

2. Evidence of Late Notices The discovery record and deposition testimony establish that 7 of the 14 disputed months had Surcharge Notices that were delivered after the 15-business-day deadline. This finding is based on a detailed analysis of the delivery dates for each Surcharge Notice, as documented in Cardinal Peak's own records and confirmed through Nexford's correspondence files. The surcharge amounts associated

3. Dr. Voss's Treatment Dr. Voss's report makes no reference whatsoever to the timeliness of Cardinal Peak's Surcharge Notices. The report does not acknowledge Section 7.4(a)'s 15-business-day delivery requirement, does not analyze whether Cardinal Peak complied with that requirement for any of the 14 disputed months, and does not distinguish between months for which timely notices were delivered and months for which

4. Legal Significance Under Illinois law, compliance with contractual notice provisions is generally treated as a condition precedent to the exercise of contractual rights. Where a contract expressly conditions one party's right on timely notice, the failure to provide timely notice forfeits that right unless the other party has waived the requirement. See our research memorandum dated September 8, 2022 (analyzing Il

1. The Contractual Requirement

Section 7.4(c) of the MSA imposes a ceiling on the aggregate monthly surcharge that the Seller may charge without the Buyer's prior written consent: The aggregate monthly surcharge for any product category shall not exceed 12% of the applicable Base Price for that product category without the prior written consent of the Buyer. Applying this cap to the base prices established in the MSA yields the following per-ton c

2. Evidence of Cap Exceedances A review of Cardinal Peak's surcharge invoices for the 14 disputed months reveals that 4 of the 14 months had surcharges that exceeded the 12% cap. The excess above the 12% cap across these 4 months totals approximately $1.08 million. The discovery record contains no evidence of prior written consent from Nexford for any surcharge exceedance during the disputed period. No emails, letter

3. Dr. Voss's Treatment Dr. Voss does not mention the 12% cap provision anywhere in his report. He does not cite Section 7.4(c) of the MSA, does not test whether any monthly surcharge exceeded the contractual ceiling, and does not address the absence of written consent from Nexford. His report proceeds as though the cap provision does not exist. This omission is difficult to understand. The cap provision is a materia

4. Legal Significance Cap provisions in commercial supply agreements are enforceable under Illinois commercial law and are routinely upheld by Illinois courts. The cap operates as a ceiling that cannot be exceeded without the affirmative written consent specified in the contract. Amounts invoiced above the cap without the required consent are simply not recoverable — they represent surcharges that the Seller had no c

1. Dr. Voss's Prejudgment Interest Calculation Dr. Voss claims prejudgment interest of $0.38 million as a component of Cardinal Peak's total damages. He calculates this interest by applying the Illinois statutory rate of 5% per annum on a simple-interest basis from the date each surcharge invoice became due (net 45 days from the invoice date) through April 12, 2023, the date of his report. Dr. Voss's interest calcula

2. Critique. Prejudgment interest under Illinois law accrues only on amounts that are actually owed. If the principal amount is overstated — as we have demonstrated it is — then the prejudgment interest calculation is necessarily flawed as well. The interest component is derivative of the principal; it cannot be calculated reliably if the underlying principal is wrong. Given the defenses that reduce or eliminate the

V. Comparison with Dr. Rosenthal's Rebuttal Report A. Methodological Differences The differences between Dr. Rosenthal's methodology and Dr. Voss's methodology are stark and go to the core of each expert's analytical approach. Data inputs. Dr. Rosenthal used the published Ferrous Scrap Index (as reported by Platts/SPI) and the Industrial Energy Cost Index as the primary data inputs for her surcharge calculations — co

VI. Potential Grounds to Challenge Admissibility of Dr. Voss's Report A. Illinois Rule 702 / *Daubert* Considerations Illinois courts, following the adoption of the Daubert framework, evaluate expert testimony for both reliability and relevance (or "fit"). Under Illinois Rule 702, an expert's opinion must be based on sufficient facts or data, must be the product of reliable principles and methods, and must reflect a

1. Motion in limine or *Daubert* motion to exclude Dr. Voss's report. We could file a motion seeking to exclude Dr. Voss's expert report and testimony in its entirety, or in the alternative, to limit his testimony to those aspects of his analysis that are methodologically sound (which, in practice, may be a very narrow scope). The grounds for the motion would focus on the failure to apply the Exhibit C methodology, t

2. Exploitation on cross-examination. Alternatively, or in addition, the flaws in Dr. Voss's report can be exploited effectively on cross-examination at trial. Dr. Voss's inability to explain why he did not use the published indices, his failure to address the notice deadline and cap provisions, and his reliance on Cardinal Peak's own data all present powerful cross-examination opportunities. In some circumstances, i

3. Presentation at mediation. If this matter proceeds to mediation before or in lieu of trial, the critique of Dr. Voss's methodology can be presented to the mediator as a powerful tool for undermining Cardinal Peak's damages position. A mediator who understands the weaknesses in Cardinal Peak's expert's report will be better positioned to facilitate a realistic settlement discussion. We recommend discussing with Pri

VII. Implications for Settlement and Mediation Strategy Dr. Voss's report is the cornerstone of Cardinal Peak's damages case. Without a credible expert opinion supporting the $5.11 million (or even the $4.73 million principal), Cardinal Peak's ability to sustain its claims through trial or to negotiate a favorable settlement is severely compromised. Demonstrating the flaws in Dr. Voss's methodology — and the correspo

VIII. Recommendations and Next Steps Based on the analysis set forth in this memorandum, we recommend the following next steps:

1. Prepare *Daubert* / Motion in Limine Brief. We should draft a motion to exclude or limit Dr. Voss's testimony, focusing on (a) the failure to apply the Exhibit C methodology (reliance on blended cost rather than published indices), (b) the omission of the notice-compliance analysis under Section 7.4(a), and (c) the omission of the 12% cap analysis under Section 7.4(c). The brief should include a detailed compariso

2. Update Dr. Rosenthal. We should share Dr. Voss's report with Dr. Anita Rosenthal at Meridian Bridge Consulting LLC and request a supplemental analysis specifically addressing Dr. Voss's blended cost metric. The supplemental analysis should quantify, on a month-by-month basis, the differential between Cardinal Peak's blended cost figures (as used by Dr. Voss) and the published index values (as used by Dr. Rosenthal

3. Deposition of Dr. Voss. If permitted under the discovery schedule, we should consider deposing Dr. Voss. The deposition would serve to establish on the record his failure to use the contractually prescribed methodology, his lack of familiarity with the published indices, his omission of the notice-compliance and cap analyses, and his reliance on Cardinal Peak's internal data without independent verification. The d

4. Mediation Preparation. We should incorporate this critique of Dr. Voss's report into the mediation presentation materials. The weaknesses in Dr. Voss's report strengthen Nexford's position significantly and should be presented clearly and persuasively to the mediator. We recommend preparing a concise mediation brief that summarizes the three principal defenses, the quantitative impact of each defense, and the cont

5. Client Communication. We should brief Deborah Whitfield and the broader Nexford team on the findings of this memorandum at the earliest opportunity. This analysis supports the current litigation posture and provides a strong foundation for discussions regarding settlement authority. Given that Nexford's private equity sponsor, Marlowe Asset Management Bluff Capital Partners, will likely be involved in any settleme

IX. Conclusion Dr. Voss's expert report of April 12, 2023, claiming total damages of $5.11 million ($4.73 million in unpaid surcharges and $0.38 million in prejudgment interest), is fundamentally flawed in its methodology, data sources, and contractual analysis. The report relies on improper data inputs — specifically, Cardinal Peak's internal "blended cost" metric rather than the published Ferrous Scrap Index and In