Contract analysis

I. INTRODUCTION Defendant/Counter-Plaintiff Nexford Industrial Holdings Inc. ("Nexford" or "Counter-Plaintiff"), by and through its attorneys, Calderwood & Harkness LLP, respectfully submits this Memorandum in Opposition to the Motion to Dismiss Counterclaim (the "Motion") filed by Plaintiff/Counter-Defendant Cardinal Peak Industries ("Cardinal Peak" or "Counter-Defendant") and, in support thereof, states as follows.

II. FACTUAL BACKGROUND A. The Master Supply Agreement On January 15, 2020, Nexford and Cardinal Peak entered into the Master Supply Agreement, reference number MSA-NIH-CPI-2020-001 (the "MSA"), for the supply of hot-rolled coil ("HRC") and cold-rolled coil ("CRC") steel products. (Counterclaim ¶¶ 8–10.) The MSA is a comprehensive, negotiated commercial agreement that governs the pricing, quantity, delivery, and quali

Section 7.4 of the MSA authorized Cardinal Peak, as the supplier, to pass through documented raw-material surcharges to Nexford, as the buyer, in certain defined circumstances. These surcharges were limited to three categories: scrap surcharges, energy surcharges, and alloy surcharges. (Counterclaim ¶ 14; MSA § 7.4.) Critically, however, Cardinal Peak's entitlement to pass through such surcharges was not unlimited or

Section 7.4(a) — Notice Requirement. Section 7.4(a) of the MSA required Cardinal Peak to deliver a Surcharge Notice, accompanied by supporting documentation, to Nexford no later than fifteen (15) business days after the end of the applicable month in which the surcharge was incurred. (Counterclaim ¶ 15; MSA § 7.4(a).) The supporting documentation was to include, among other things, the published index data upon which

Section 7.4(c) — Cap Provision. Section 7.4(c) of the MSA imposed a further limitation on Cardinal Peak's surcharge authority: the aggregate monthly surcharge for any product category could not exceed twelve percent (12%) of the applicable Base Price for that product category without the prior written consent of Nexford. (Counterclaim ¶ 18; MSA § 7.4(c).) For HRC, priced at a base of $620 per ton, the 12% cap equated

III. LEGAL STANDARD Cardinal Peak moves to dismiss Nexford's Counterclaim pursuant to Section 2-615 of the Illinois Code of Civil Procedure, 735 ILCS 5/2-615. A motion to dismiss under Section 2-615 tests the legal sufficiency of a complaint or counterclaim by examining whether the pleading, taken in the light most favorable to the non-movant, states a cause of action upon which relief can be granted. marshall v. Bur

IV. ARGUMENT A. Count I of the Counterclaim States a Viable Claim for Breach of Contract Under Illinois Law

1. The Elements of Breach of Contract Are Adequately Pleaded. Under Illinois law, a claim for breach of contract requires the plaintiff to plead: (a) the existence of a valid and enforceable contract; (b) performance by the plaintiff (or a valid excuse for nonperformance); (c) breach by the defendant; and (d) resulting damages. Priebe v. Top Tag, Inc., 2015 IL App (1st) 142172, ¶ 11; Henderson-Smith & Assocs., Inc. v

2. The Counterclaim Is Not Merely a Restatement of Affirmative Defenses. Cardinal Peak's principal argument in support of its Motion appears to be that Nexford's Counterclaim is duplicative of its affirmative defenses and therefore should be dismissed as redundant. This argument is legally unsound and should be rejected. Illinois law is clear that a party may plead both affirmative defenses and counterclaims arising

3. The Surcharge Notice Requirement Under Section 7.4(a) Is a Condition Precedent, and Cardinal Peak's Failure to Comply States a Breach. The Counterclaim alleges, and the Court must accept as true, that Cardinal Peak failed to deliver compliant Surcharge Notices within the mandatory 15-business-day deadline under Section 7.4(a) for seven of the fourteen disputed months. Cardinal Peak apparently contends that this al

Section 7.4(a) of the MSA provides in relevant part: "Seller may pass through documented raw-material surcharges to Buyer provided that Seller delivers to Buyer a Surcharge Notice with supporting documentation no later than fifteen (15) business days after the end of the applicable month in which the surcharge was incurred." (MSA § 7.4(a) (emphasis added).) The use of the conditional language "provided that" creates

4. Cardinal Peak's Deviation from the Exhibit C Methodology Is a Separately Pleadable Breach. The Counterclaim further alleges that Cardinal Peak breached the MSA by calculating surcharges using a methodology that deviated from the mandatory requirements of Exhibit C. This allegation is specific, well-pleaded, and states a cognizable breach of contract claim. Exhibit C to the MSA prescribed a specific and mandatory c

5. Invoicing Above the 12% Cap Without Written Consent Constitutes an Additional Breach. Finally, the Counterclaim alleges that for four months during the Disputed Period, Cardinal Peak invoiced surcharges that exceeded the 12% cap imposed by Section 7.4(c) of the MSA without obtaining Nexford's prior written consent. (Counterclaim ¶¶ 32–34.) The language of Section 7.4(c) is unambiguous: "The aggregate monthly surch

1. Illinois Declaratory Judgment Standards Are Satisfied. Count II of the Counterclaim seeks a declaratory judgment pursuant to the Illinois Declaratory Judgment Act, 735 ILCS 5/2-701, declaring the parties' respective rights and obligations under MSA Section 7.4, Exhibit C, and Section 7.4(c). The Declaratory Judgment Act provides that courts "may, in cases of actual controversy, make binding declarations of rights,

2. Declaratory Relief Is Appropriate Where Contract Interpretation Is in Dispute. Illinois courts routinely entertain declaratory judgment claims — including declaratory judgment counterclaims — in contract disputes to resolve the meaning of contested contractual provisions. See Strathmore Life Insurance v. Livorsi Marine, Inc., 222 Ill. 2d 303, 310, 856 N.E.2d 338, 342 (2006) ("[T]he declaratory judgment action is a

1. Cardinal Peak's "Failure to Mitigate" Argument Is Premature. To the extent Cardinal Peak argues that Nexford failed to mitigate its damages — for example, by continuing to pay surcharges that it knew or suspected were non-compliant — this argument is an affirmative defense, not a ground for dismissal of the Counterclaim at the pleading stage. Under Illinois law, failure to mitigate damages is an affirmative defens

2. Cardinal Peak's Argument That Nexford's Dispute Procedure Under Section 7.4(d) Bars the Counterclaim Is Without Merit. Cardinal Peak also appears to argue that Nexford's exclusive remedy for disputed surcharges is the dispute procedure set forth in Section 7.4(d) of the MSA, and that the existence of this procedure somehow bars Nexford from asserting a counterclaim for breach of contract in this litigation. This a

Section 7.4(d) provides that Nexford must notify Cardinal Peak of any disputed surcharge within thirty (30) calendar days of receipt of the Surcharge Notice, and that the parties shall attempt to resolve the dispute through good-faith negotiations. (MSA § 7.4(d).) This provision governs the internal dispute procedure between the parties; it does not limit or foreclose Nexford's right to assert a counterclaim for brea

3. Governing Law Supports the Counterclaim. The MSA is governed by Illinois law. (MSA § 14.3 and the governing law provision contained therein.) The choice-of-law provision states: "This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without regard to its conflict of laws principles." (MSA § 14.3.) As discussed above, Illinois law favors liberal construction of plea

V. CONCLUSION For all of the foregoing reasons, Defendant/Counter-Plaintiff Nexford Industrial Holdings Inc. respectfully requests that the Court deny in its entirety Cardinal Peak Industries' Motion to Dismiss the Counterclaim. Nexford's Counterclaim adequately states claims for breach of contract (Count I) and declaratory judgment (Count II), supported by specific contractual provisions — MSA Section 7.4, Exhibit C

1. Denying Plaintiff/Counter-Defendant Cardinal Peak Industries' Motion to Dismiss the Counterclaim in its entirety;

2. Permitting the Counterclaim to proceed through discovery and further proceedings in this action; and

3. Granting such other and further relief as this Court deems just and proper. Respectfully submitted, NEXFORD INDUSTRIAL HOLDINGS INC., By its attorneys, CALDERWOOD & HARKNESS LLP By: ________ Priya Anand ARDC No. 6328174 Responsible Partner Simone Laroche ARDC No. 6341892 Lead Associate Jeffrey Park ARDC No. 6355210 Associate 200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606 Telephone: (312) 555-7800 Attor