1020-00005 · Greenfield Agricultural Partners · Case Management

memo-defense-counsel-withdrawal.docx DOCUMENT Litigation

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

INTERNAL MEMORANDUM

TO: Francesca Morano, Partner

FROM: Patrick Gallagher, Associate

DATE: November 10, 2022

RE: Impact of Defense Counsel Withdrawal — Greenfield Agricultural Partners LLC v. Prairie Basin Grain Co. et al., Circuit Court of Cook County, Illinois, Case No. 2022-L-004831

MATTER NO.: C&H Matter No. 1020-00005

PRIVILEGE DESIGNATION: This memorandum is a privileged attorney work product prepared in anticipation of litigation and for the purpose of providing legal advice to Satterfield & Cohn LLP attorneys working on the above-referenced matter. It is not intended for disclosure to third parties and should not be forwarded, copied, or distributed outside the firm without the express authorization of the responsible partner. Any inadvertent disclosure does not constitute a waiver of the attorney work product doctrine or any other applicable privilege.

I. Purpose

This memorandum analyzes the procedural and strategic implications of the filing by Bartlett, Reyes Linley CPAs LLP & Harkin LLP ("BCH") of a Motion to Withdraw as counsel for defendants Prairie Basin Grain Co. ("PBGC") and Darren K. Musgrave ("Musgrave") in the above-captioned action. The motion was filed on November 4, 2022, and cites non-payment of legal fees as the sole basis for withdrawal. As of the date of this memorandum, the Honorable Patricia Delacroix has not yet ruled on the motion. However, based on the stated grounds and the well-established precedent permitting counsel withdrawal under such circumstances, we anticipate that the motion will be granted, likely with a brief transitional period for defendants to retain substitute counsel.

This memorandum addresses the following issues arising from the anticipated withdrawal:

(a) the procedural consequences for PBGC as a corporate entity that will be unable to appear pro se;

(b) the procedural consequences for Musgrave as an individual defendant who retains the right to proceed without counsel;

(d) strategic considerations for our client, Greenfield Agricultural Partners LLC ("GAP"), in light of PBGC's deteriorating financial condition and the significant collectability challenges that any judgment will present; and

(e) recommended next steps to preserve GAP's rights and position the case for the most favorable outcome achievable under the circumstances.

The analysis set forth below reflects the information available as of the date of this memorandum and should be revisited as developments unfold, particularly with respect to any ruling on the withdrawal motion, PBGC's financial trajectory, and the potential initiation of insolvency proceedings.

II. Background

A. Current Posture of the Litigation

GAP commenced this action by filing its Complaint on May 9, 2022, in the Circuit Court of Cook County, Illinois, asserting four counts against the defendants:

Count I — Breach of Contract (Off-Take Agreement) against PBGC. GAP alleges that PBGC breached the Off-Take Agreement dated March 15, 2019 (the "Off-Take Agreement"), by failing to pay for grain delivered and accepted under the agreement. The principal amount claimed is $4,870,050.00, representing five unpaid invoices for grain shipments delivered between October 2021 and January 2022. GAP further seeks contractual interest at the rate of 1.5% per month (18% per annum), as provided by Section 7.3 of the Off-Take Agreement, which states that all amounts not paid within thirty (30) days of the invoice date shall accrue interest at one and one-half percent (1.5%) per month from the due date until paid in full.

Count II — Breach of Personal Guaranty against Darren K. Musgrave. GAP alleges that Musgrave executed a personal guaranty of PBGC's obligations under the Off-Take Agreement, which guaranty is set forth as Exhibit D to the Off-Take Agreement (the "Musgrave Guaranty"). The Musgrave Guaranty provides that Musgrave's liability is capped at $2,000,000.00 in aggregate. GAP seeks to recover up to the guaranty cap amount from Musgrave personally based on PBGC's failure to pay the amounts owing under the Off-Take Agreement.

Count III — Account Stated against PBGC. GAP alleges that it rendered periodic statements of account to PBGC reflecting the amounts owed for grain delivered, that PBGC received and retained those statements without objection for a reasonable period, and that the account became a stated account in the amount of $4,870,050.00 plus accrued interest.

Count IV — Unjust Enrichment (alternative) against PBGC. Pleaded in the alternative, this count alleges that PBGC accepted delivery of grain shipments under the Off-Take Agreement but failed to pay for them, thereby receiving a benefit at GAP's expense under circumstances making it unjust for PBGC to retain the benefit without paying fair value.

Service of the Complaint and Summons was completed on May 24, 2022. PBGC was served through its registered agent, Ridgeline Corporate Services LLC, at 77 West Washington Street, Suite 1420, Chicago, Illinois 60602. Musgrave was personally served at his residence, 1188 Windermere Lane, Champaign, Illinois 61822. Proofs of service were filed with the court on May 31, 2022, and no challenge to the sufficiency of service has been raised.

On June 27, 2022, PBGC and Musgrave, represented by BCH — specifically, partner Douglas M. Harkin and associate Nadia C. Petrov — filed a joint Answer and Affirmative Defenses. The Answer denied the material allegations of the Complaint and asserted three affirmative defenses: (1) force majeure, based on the October 17, 2021 fire at PBGC's Macon County grain elevator facility, which defendants contended excused performance under the Off-Take Agreement; (2) commercial impracticability, under the same factual predicate; and (3) failure to mitigate damages, alleging that GAP failed to take reasonable steps to cover or resell the grain that PBGC declined to accept or pay for under the remaining term of the Off-Take Agreement.

On July 18, 2022, GAP filed a Motion to Strike Defendants' First and Second Affirmative Defenses (force majeure and commercial impracticability), arguing that the Off-Take Agreement's force majeure clause, Section 9.2, did not encompass the type of casualty event alleged, that the fire affected only one of PBGC's multiple elevator facilities and did not render performance impossible, and that the commercial impracticability defense was foreclosed by the express contractual allocation of risk. Following full briefing, the Honorable Patricia Delacroix granted GAP's Motion to Strike on August 22, 2022, in a ruling from the bench. Judge Delacroix found that the force majeure clause was narrowly drafted, that the fire did not fall within any of the enumerated force majeure events, and that the commercial impracticability defense was precluded where the parties had expressly allocated the risk of performance through the terms of the Off-Take Agreement. Only the third affirmative defense — failure to mitigate damages — survived.

A Case Management Conference was held before Judge Delacroix on September 12, 2022. The court established a discovery schedule, including deadlines for written discovery, depositions, and expert disclosures. Pursuant to that schedule, GAP served its First Set of Interrogatories and First Request for Production of Documents on PBGC and Musgrave on September 30, 2022. GAP subsequently served Requests for Admission on October 14, 2022. The Requests for Admission seek admissions on the following matters:

(i) the authenticity and enforceability of the Off-Take Agreement dated March 15, 2019;

(ii) the authenticity and enforceability of the Musgrave Guaranty (Exhibit D to the Off-Take Agreement);

(iii) the issuance, delivery, and receipt of five specific invoices: Invoice No. GAP-2021-3187, Invoice No. GAP-2021-3244, Invoice No. GAP-2021-3301, Invoice No. GAP-2021-3358, and Invoice No. GAP-2022-0042;

(iv) the delivery and acceptance by PBGC of the grain shipments corresponding to each of the five invoices; and

(v) the amounts stated on each invoice as correctly reflecting the quantities delivered and the contract prices applicable thereto.

As of the date of this memorandum, PBGC has not responded to any of the outstanding discovery requests. While the applicable response deadlines have not yet expired, they are approaching. Given the filing of BCH's Motion to Withdraw and the apparent financial distress of both PBGC and Musgrave, it is uncertain whether timely responses will be served.

B. BCH's Motion to Withdraw

On November 4, 2022, BCH filed a Motion to Withdraw as Counsel for both PBGC and Musgrave. The motion was filed by Douglas M. Harkin and Nadia C. Petrov, who are the only BCH attorneys of record in this matter. The motion states that BCH seeks leave to withdraw on the ground that PBGC and Musgrave have failed to pay BCH's legal fees and that the attorney-client relationship has been impaired to the extent that continued representation is not feasible. The motion does not specify the amount of unpaid fees but represents that multiple invoices remain outstanding and that BCH has communicated with both defendants regarding the non-payment without resolution.

The stated basis for withdrawal — non-payment of legal fees — is well recognized under Illinois Supreme Court Rule 13 and Illinois Rule of Professional Conduct 1.16(b)(5) as a permissible ground for withdrawal, provided that the withdrawal can be accomplished without material adverse effect on the interests of the client and the court grants leave. In practice, withdrawal motions premised on non-payment are routinely granted, subject to conditions designed to protect the interests of the opposing party and the orderly progress of the litigation. Such conditions typically include a requirement that the withdrawing firm provide the client with copies of the case file, a specified period (usually 21 to 28 days) for the client to retain substitute counsel, and notice to the opposing party of the withdrawal.

The non-payment ground cited by BCH is consistent with the information our firm has gathered regarding PBGC's severe financial distress. As discussed in greater detail in Section III.D below, PBGC ceased paying trade creditors in January 2022, and its financial condition has continued to deteriorate throughout 2022. BCH's inability to collect its legal fees from either PBGC or Musgrave provides additional confirmation of the defendants' worsening financial position.

We anticipate that Judge Delacroix will grant BCH's Motion to Withdraw, likely at the next available hearing date, with a brief period — 21 to 28 days is customary — for the defendants to retain substitute counsel before any further proceedings are scheduled. I will monitor the court's docket for the scheduling of a hearing on the motion and will promptly advise you when a ruling is entered.

III. Analysis

A. PBGC's Inability to Appear Pro Se as a Corporation

Under well-settled Illinois law, a corporation or other artificial entity cannot appear in court or conduct litigation in a pro se capacity. A corporation must at all times be represented by a licensed attorney admitted to practice in the State of Illinois. This principle has been consistently applied by Illinois courts and reflects the fundamental distinction between a natural person's right of self-representation and a corporation's status as an artificial entity that can act only through authorized agents. See Shareholders of Pelayo v. Pelayo, 2013 IL App (1st) 130040, ¶ 18 (reaffirming the longstanding rule that a corporation cannot appear pro se in Illinois courts); see also Raintree Homes, Inc. v. Village of Long Grove, 209 Ill. 2d 248, 262 (2004) (noting that a corporate party that appears without counsel is subject to dismissal of its pleadings); Downtown Disposal Services, Inc. v. City of Chicago, 2012 IL 112040, ¶ 16.

PBGC is an Illinois corporation. If BCH's Motion to Withdraw is granted and PBGC does not retain substitute counsel within the time period set by the court, PBGC will be unable to participate in any aspect of the litigation. Specifically, PBGC will lack the capacity to:

• file any responsive pleading, motion, or brief;

• serve responses to GAP's outstanding discovery requests (First Set of Interrogatories, First Request for Production of Documents, and Requests for Admission);

• appear at hearings, depositions, or other proceedings;

• oppose any motion filed by GAP, including a motion for default, a motion for summary judgment, or a motion for sanctions;

• present or support its surviving affirmative defense of failure to mitigate damages; and

• participate in any settlement discussions or mediation.

The practical consequence is that PBGC's sole surviving affirmative defense — failure to mitigate — will go unsupported. No evidence will be presented, no argument will be advanced, and no opposition will be filed. The defense will effectively be waived by PBGC's failure to prosecute it through counsel.

Moreover, if PBGC fails to retain substitute counsel and the court enters an order striking PBGC's appearance, the path to entry of a default judgment against PBGC on all four counts becomes straightforward, subject to a prove-up hearing on damages as discussed in Section III.C below.

It is worth noting that even if an officer, director, or shareholder of PBGC — such as Musgrave, who holds 72% of PBGC's outstanding shares — were to attempt to appear on behalf of PBGC, that appearance would be improper and would be stricken by the court. The prohibition on corporate pro se representation admits of no exception for a controlling shareholder or principal of the entity.

B. Musgrave's Status as an Individual Defendant

Unlike PBGC, Darren K. Musgrave, as an individual defendant, retains the constitutional and statutory right to appear pro se in the Cook County action. An individual litigant in Illinois is entitled to represent himself or herself in civil proceedings without the assistance of counsel, subject to the requirement that the pro se litigant comply with all applicable procedural rules and court orders to the same extent as a represented party.

However, several practical considerations bear on the likelihood and implications of Musgrave proceeding pro se:

Prior Joint Representation. Throughout this litigation, Musgrave has been jointly represented with PBGC through BCH. The defense strategy, including the now-stricken force majeure and commercial impracticability defenses and the surviving failure-to-mitigate defense, was developed and presented by BCH on behalf of both defendants. Once BCH withdraws, Musgrave will need to independently assess his defense posture, familiarize himself with the procedural posture of the case, and determine whether to retain separate counsel or attempt to defend the guaranty claim on his own.

Financial Capacity. The fact that Musgrave, along with PBGC, has failed to pay BCH's legal fees raises a significant question about his financial capacity to retain substitute counsel. If Musgrave cannot afford new counsel, he may have no choice but to proceed pro se — or to default.

Limited Exposure. Musgrave's personal exposure in this action is limited to Count II (Breach of Personal Guaranty), with liability capped at $2,000,000.00 under the terms of the Musgrave Guaranty. While $2,000,000 is a substantial sum, it is less than half of the total principal amount at issue in the case. Musgrave may calculate that the cost of retaining new counsel to defend the guaranty claim is not justified, particularly if he believes he has limited personal assets available to satisfy a judgment.

Sophistication and Ability. We have limited information regarding Musgrave's sophistication in legal matters. As a majority owner and former CEO of a commercial grain trading company, he presumably possesses some degree of business acumen. However, navigating the discovery process, motion practice, and trial preparation as a pro se litigant in a commercial dispute of this magnitude presents formidable challenges for any non-attorney.

In sum, while Musgrave is legally entitled to proceed pro se, the practical obstacles and the uncertainty surrounding his financial resources make it at least plausible that he will either fail to participate actively in the case or will participate in a limited and potentially ineffective manner.

C. Potential for Default

1. Default Against PBGC

If PBGC fails to retain substitute counsel within the deadline established by the court upon granting BCH's withdrawal, GAP may move for entry of default against PBGC pursuant to 735 ILCS 5/2-1301. Under Illinois law, a default may be entered against a party that has failed to appear, plead, or otherwise defend the action. In the case of a corporate defendant that is unrepresented by counsel, the failure to retain substitute counsel within the court's prescribed time frame constitutes a failure to defend, warranting entry of default.

Upon entry of default against PBGC, GAP would be entitled to proceed to a prove-up hearing to establish its damages. At the prove-up hearing, GAP would present the following evidence:

(a) the Off-Take Agreement dated March 15, 2019, establishing the contractual relationship between GAP and PBGC, including the pricing terms, delivery obligations, and payment terms;

(b) the five unpaid invoices, totaling $4,870,050.00 in principal:

• Invoice No. GAP-2021-3187

• Invoice No. GAP-2021-3244

• Invoice No. GAP-2021-3301

• Invoice No. GAP-2021-3358

• Invoice No. GAP-2022-0042

(c) delivery records, bills of lading, and weight tickets confirming that GAP delivered the grain quantities reflected in each invoice and that PBGC accepted delivery;

(d) a calculation of accrued contractual interest at the rate of 1.5% per month (18% per annum) from each invoice's due date through the date of the prove-up hearing, pursuant to Section 7.3 of the Off-Take Agreement; and

(e) attorneys' fees and costs incurred by GAP in prosecuting this action, recoverable under Section 12.4 of the Off-Take Agreement, which contains a prevailing-party fee-shifting provision. As of the current billing period, total fees and costs billed by this firm on C&H Matter No. 1020-00005 are continuing to accrue and are approaching the level that, at matter close, will total approximately $302,037.85.

The prove-up process in a default case is generally straightforward and can typically be accomplished through the testimony of a single witness (such as GAP's controller or accounts receivable manager) supported by the documentary evidence described above. Given the relatively uncomplicated nature of the damages calculation — contractual principal, contractual interest, and contractual attorneys' fees — we do not anticipate significant difficulties at the prove-up stage.

2. Default Against Musgrave

Entry of default against Musgrave individually would require a showing that he has failed to plead or otherwise defend the action. If Musgrave opts to appear pro se following BCH's withdrawal, he will remain an active party and default will not be appropriate so long as he continues to participate. However, if Musgrave fails to retain substitute counsel, fails to file a pro se appearance, and fails to respond to pending discovery or court orders, GAP could move for entry of default against him as well.

Any default judgment against Musgrave on Count II would be subject to the $2,000,000.00 liability cap specified in the Musgrave Guaranty. GAP could not recover more than that amount from Musgrave under the guaranty, regardless of the total damages established at prove-up.

3. Effect of Deemed Admissions on Default or Summary Judgment

An additional procedural mechanism that may significantly advance GAP's position — whether by default or summary judgment — involves the Requests for Admission served on October 14, 2022. Under 735 ILCS 5/2-1012, a party upon whom requests for admission are served must respond within 28 days of service (or such other period as the court may order). If the responding party fails to serve timely responses, the matters set forth in the requests are deemed admitted.

As noted above, GAP's Requests for Admission seek admissions regarding the authenticity of the Off-Take Agreement, the issuance and receipt of each of the five unpaid invoices, the delivery and acceptance of grain corresponding to each invoice, and the amounts stated on each invoice. If PBGC fails to respond to these requests within the applicable deadline — an outcome that appears increasingly likely given BCH's withdrawal and PBGC's apparent inability to retain substitute counsel — the following facts will be conclusively established for purposes of this action:

(i) the Off-Take Agreement is authentic and enforceable;

(ii) each of the five invoices was issued by GAP and received by PBGC;

(iii) the grain shipments corresponding to each invoice were delivered by GAP and accepted by PBGC; and

(iv) the amounts stated on each invoice correctly reflect the quantities delivered and the contract prices applicable thereto.

These deemed admissions would eliminate virtually all contested issues of fact on the breach of contract and account stated claims and would substantially simplify either the prove-up process following default or a motion for summary judgment. In particular, the deemed admissions would foreclose any future attempt by PBGC (through substitute counsel, if retained) to contest the amounts owed, the delivery of grain, or the validity of the underlying agreement.

We should monitor the response deadline for the Requests for Admission closely. If no responses are received by the deadline, we should promptly document the deemed admissions and incorporate them into any subsequent motion.

D. Strategic Considerations Regarding Judgment Enforcement and Collectability

While the procedural pathway to a default judgment against PBGC appears relatively clear, the more significant question for GAP is whether any judgment obtained will be collectible. The analysis below addresses the substantial obstacles to collection that GAP is likely to face.

1. PBGC's Financial Condition

PBGC has been in severe financial distress since the fourth quarter of 2021. The distress is attributable to a confluence of adverse events:

The Macon County Elevator Fire. On October 17, 2021, a fire destroyed a significant portion of PBGC's grain elevator facility located at 2200 County Road 1400 East, Decatur, Illinois 62521. The fire resulted in estimated losses of approximately $3.2 million, including the destruction of stored grain inventory and damage to the elevator structure and equipment. Critically, PBGC's insurance carrier, Triton Mutual Insurance Co., has disputed coverage for the fire losses, alleging that PBGC failed to maintain current premium payments and that the applicable insurance policy had lapsed prior to the fire. As a result, PBGC has not received insurance proceeds for the fire losses and may never do so.

Failed Hedging Strategy. In the fourth quarter of 2021, PBGC suffered substantial losses from a failed hedging strategy involving short positions in corn futures. As corn prices rose sharply during this period, PBGC's short positions generated estimated mark-to-market losses of approximately $6.8 million. These losses compounded the financial impact of the elevator fire and severely eroded PBGC's working capital and liquidity.

Margin Compression. PBGC experienced further financial pressure from volatile corn and soybean basis levels throughout late 2021 and early 2022, which compressed its operating margins on grain trading activities and reduced its ability to generate cash flow from operations to service its obligations.

The combined effect of these events was catastrophic to PBGC's financial position. PBGC ceased paying its trade creditors in January 2022 — several months before GAP filed the instant Complaint. PBGC's failure to pay GAP's invoices is part of a broader pattern of default on its commercial obligations.

2. Senior Secured Lender's Position

PBGC's principal lender is Heartland Prairie Bank, N.A., headquartered at 300 East Main Street, Decatur, Illinois 62521. Heartland Prairie Bank is the senior secured lender to PBGC under a Revolving Credit and Term Loan Agreement dated June 1, 2018 (the "Credit Agreement"), with an aggregate commitment of $45,000,000.00. As of the most recent information available to us, the outstanding balance under the Credit Agreement is approximately $31,400,000.00.

Heartland Prairie Bank holds a prior perfected security interest under UCC Article 9 over substantially all of PBGC's assets, including but not limited to accounts receivable, inventory (including stored grain), equipment, fixtures, general intangibles, and proceeds thereof. The security interest was perfected by the filing of UCC-1 financing statements with the Illinois Secretary of State, and there is no indication that the filings have lapsed or are otherwise defective.

In approximately April 2022, Heartland Prairie Bank declared PBGC in default under the Credit Agreement based on PBGC's failure to comply with financial covenants and payment obligations. The declaration of default gives Heartland Prairie Bank the right to accelerate the outstanding balance, exercise its remedies under the Credit Agreement and the UCC, and seek the appointment of a receiver over PBGC's assets.

3. PBGC's Balance Sheet Insolvency

Based on the information available to our firm, PBGC's estimated total liabilities are in the range of $58 million to $62 million, while its estimated total assets are in the range of $35 million to $40 million. This represents a balance sheet shortfall of approximately $18 million to $27 million. PBGC appears to be deeply insolvent on both a balance sheet basis and a cash flow basis.

4. GAP's Unsecured Position

GAP's claim of $4,870,050.00 (plus interest) constitutes an unsecured trade receivable. GAP does not hold a security interest in any of PBGC's assets, nor does GAP have any priority or preferential claim. In any enforcement scenario — whether through a judgment lien, wage or account garnishment, a citation to discover assets, or supplementary proceedings — Heartland Prairie Bank's prior perfected security interest would take priority over GAP's unsecured judgment. As a practical matter, given that Heartland Prairie Bank is owed approximately $31.4 million against a senior secured position on substantially all of PBGC's assets, and given that PBGC's total assets are estimated at $35–40 million, there is likely little or no residual value available for unsecured creditors after satisfaction of Heartland Prairie Bank's secured claim and other priority obligations.

5. Risk of Receivership or Bankruptcy

Given the scale of PBGC's financial distress, Heartland Prairie Bank's declaration of default, and the substantial shortfall between PBGC's assets and liabilities, there is a significant risk that PBGC will be placed into receivership or will file for bankruptcy protection in the near term. We understand from publicly available sources and industry contacts that Heartland Prairie Bank has been actively evaluating its remedial options, and the filing of a receivership petition or the commencement of foreclosure proceedings appears to be a question of when, not whether.

A receivership proceeding initiated by Heartland Prairie Bank would likely result in the appointment of a receiver with authority over all of PBGC's assets and operations. An Illinois state court receivership would impose limitations on GAP's ability to pursue or enforce a judgment against PBGC's assets, as the receiver would control the disposition of those assets for the benefit of all creditors in accordance with their respective priorities.

Alternatively, if PBGC itself files a voluntary petition under Chapter 7 or Chapter 11 of the United States Bankruptcy Code, or if an involuntary petition is filed against PBGC by its creditors, the automatic stay provisions of 11 U.S.C. § 362 would immediately halt all collection efforts, including the pending Cook County action, and require GAP to assert its claims through the bankruptcy process. As an unsecured creditor, GAP's recovery in bankruptcy would depend on the amount of assets available for distribution after satisfaction of all secured and priority claims — a recovery that, based on PBGC's current balance sheet, is likely to be modest at best.

6. Musgrave's Personal Resources

The enforceability and practical value of the Musgrave Guaranty depend on the extent of Musgrave's personal assets available to satisfy a judgment. Musgrave's known assets include:

• his 72% ownership interest in PBGC, which, given PBGC's deep insolvency, is almost certainly worth nothing;

• his personal residence at 1188 Windermere Lane, Champaign, Illinois 61822, the value of which is unknown but which may be subject to a mortgage and would be partially shielded by the Illinois homestead exemption (currently $15,000 under 735 ILCS 5/12-901, though this amount is per individual and would not significantly impair enforcement against a property of substantial value); and

• any other personal investments, bank accounts, retirement accounts, or real property, regarding which we currently have no information.

Discovery directed at Musgrave's personal finances could be pursued through supplementary proceedings post-judgment under 735 ILCS 5/2-1402, including a citation to discover assets. However, the practical value of the Musgrave Guaranty — and therefore the utility of pursuing the guaranty claim to judgment — remains uncertain without more complete information about Musgrave's personal balance sheet.

7. Cost-Benefit Analysis

GAP has already incurred significant legal fees in prosecuting this action, and fees will continue to accrue through any prove-up proceeding or motion practice. The incremental cost of pursuing a default judgment against PBGC is likely to be modest — principally the preparation of a motion for default, compilation of the prove-up evidence, and attendance at the prove-up hearing. However, as discussed above, the resulting judgment may be effectively uncollectible if PBGC's assets are consumed by Heartland Prairie Bank's secured claim and the costs of any insolvency proceeding.

The cost-benefit calculus must therefore weigh the relatively low incremental cost of obtaining a default judgment against the uncertain — and potentially negligible — recovery prospects. On balance, obtaining the judgment remains advisable for several reasons: (i) it preserves GAP's rights and creates an enforceable obligation; (ii) a judgment is a prerequisite to participating in any future receivership or bankruptcy proceeding (or, alternatively, a proof of claim based on the underlying contract may be filed directly); (iii) the judgment may have value if circumstances change — for example, if the insurance dispute between PBGC and Triton Mutual is resolved in PBGC's favor, additional assets may become available; and (iv) the judgment against PBGC may support or strengthen the enforcement of the separate guaranty claim against Musgrave.

Notwithstanding the foregoing, if a receivership or bankruptcy filing appears imminent, GAP should be prepared to pivot from the Cook County litigation to asserting claims in the insolvency proceeding. The preparation required for a prove-up — assembling the underlying contracts, invoices, delivery records, and interest calculations — will be substantially the same as the preparation required for filing a proof of claim in a receivership or bankruptcy.

E. Effect on discovery

The outstanding discovery requests — the First Set of Interrogatories and First Request for Production of Documents served September 30, 2022, and the Requests for Admission served October 14, 2022 — remain pending as of the date of this memorandum. The impact of BCH's withdrawal on the discovery process is as follows:

If BCH's withdrawal is granted, PBGC will be unable to serve discovery responses unless and until it retains substitute counsel. Given the financial circumstances discussed above, the retention of substitute counsel by PBGC appears unlikely.

The Requests for Admission are subject to a 28-day response deadline under 735 ILCS 5/2-1012. If no responses are served within the applicable period (or any extension granted by the court), the matters set forth in the Requests for Admission will be deemed admitted. As discussed in Section III.C.3 above, the deemed admissions would conclusively establish the authenticity of the Off-Take Agreement, the issuance and receipt of all five unpaid invoices, the delivery and acceptance of grain, and the amounts owed — effectively resolving all material factual disputes in GAP's favor on the breach of contract and account stated claims.

Similarly, if PBGC fails to respond to the First Set of Interrogatories or the First Request for Production of Documents within the applicable deadlines, GAP may move to compel responses or, alternatively, seek sanctions including the entry of default as a sanction for discovery abuse under Illinois Supreme Court Rule 219(c).

GAP should closely monitor all response deadlines and, if no responses are received, take prompt action to invoke the consequences of the defendants' discovery failures. The convergence of BCH's withdrawal, PBGC's inability to appear without counsel, and the approaching discovery deadlines creates a powerful set of procedural tools that GAP can deploy to advance toward judgment.

IV. Recommended Next Steps

Based on the foregoing analysis, I recommend the following actions:

1. Monitor the Motion to Withdraw. We should closely monitor the court's docket for the scheduling and disposition of BCH's Motion to Withdraw. If the motion is granted, we should note the specific deadline the court sets for PBGC and Musgrave to retain substitute counsel and calendar that date for follow-up. We should also review any conditions the court imposes in its order granting the motion.

2. Track discovery Deadlines. We should calendar the response deadlines for the First Set of Interrogatories and First Request for Production of Documents (served September 30, 2022) and the Requests for Admission (served October 14, 2022). If no responses are received by the applicable deadlines, we should prepare a motion to compel discovery responses or, in the alternative, a motion for sanctions, including potential entry of default as a sanction for failure to comply with discovery obligations. With respect to the Requests for Admission, we should prepare a letter or memorandum confirming the deemed admissions and file it with the court in connection with any subsequent motion.

3. Prepare for Default Motion. If PBGC fails to retain substitute counsel by the court's deadline, we should promptly prepare and file a motion for entry of default against PBGC pursuant to 735 ILCS 5/2-1301. Concurrently, we should prepare a petition for prove-up of damages, including the principal amount of $4,870,050.00, accrued contractual interest at 1.5% per month from each invoice's due date through the date of prove-up, and attorneys' fees and costs recoverable under Section 12.4 of the Off-Take Agreement. We should begin assembling the prove-up evidence package now — including the Off-Take Agreement, the five invoices, delivery and acceptance records, the contractual interest calculation, and the fee petition — so that we are prepared to proceed on an expedited basis once the conditions for default are satisfied.

4. Monitor PBGC's Financial Situation. We should actively monitor public filings, court dockets, and industry sources for any indication of a receivership petition, bankruptcy filing, or other insolvency proceeding involving PBGC. Given the information available regarding Heartland Prairie Bank's default declaration and PBGC's balance sheet insolvency, we should regard the initiation of such a proceeding as probable in the near term. If such a proceeding is commenced, GAP will need to immediately assess the impact on the Cook County action — including whether the automatic stay (in bankruptcy) or an analogous court order (in receivership) prohibits further proceedings — and transition to asserting GAP's claims in the insolvency forum. We should begin preparing a draft proof of claim for use in a receivership or bankruptcy proceeding so that GAP can act quickly if needed.

5. Evaluate Musgrave Guaranty Enforcement. We should separately evaluate the potential value of the guaranty claim against Musgrave. If Musgrave appears pro se and subsequently defaults — or if a default judgment is entered against him for failure to defend — GAP could obtain a judgment of up to $2,000,000.00 that may be more readily collectible than a judgment against the insolvent PBGC. To the extent information becomes available regarding Musgrave's personal assets (through public records searches, real property records, or other means), we should analyze whether enforcement of a guaranty judgment would yield a meaningful recovery. If so, the guaranty claim against Musgrave may represent GAP's best opportunity for actual collection in this matter.

6. Update Client. We should prepare a client communication to GAP's principals — Thomas R. Greenfield, Margaret A. Greenfield-Wu, and Caleb Jennings — advising them of BCH's withdrawal motion, the procedural implications for the litigation, the collectability challenges we anticipate, and our recommended strategy. The client communication should be candid about the difficulty of collecting any judgment against PBGC while highlighting the potential value of the guaranty claim against Musgrave and the importance of positioning GAP's claim for any future insolvency proceeding. I will prepare a draft of this communication for your review.

V. Conclusion

BCH's motion to withdraw as counsel for PBGC and Musgrave, if granted as anticipated, will leave PBGC without the ability to defend this action. As a corporation, PBGC cannot appear pro se, and its severe financial distress makes the retention of substitute counsel unlikely. This creates a clear procedural pathway to entry of default judgment against PBGC on all four counts.

However, the value of any such judgment is clouded by significant collectability concerns. PBGC is deeply insolvent, with estimated liabilities of $58–62 million against estimated assets of $35–40 million. Heartland Prairie Bank, N.A., holds a prior perfected security interest over substantially all of PBGC's assets securing approximately $31.4 million in outstanding obligations. GAP's claim of $4,870,050.00 is an unsecured trade receivable that would rank behind Heartland Prairie Bank's secured claim and other priority obligations in any distribution. The prospects for meaningful recovery from PBGC are, candidly, limited.

The most likely near-term development is the initiation of a receivership or bankruptcy proceeding involving PBGC, which would supersede the Cook County litigation and require GAP to assert its claims through the insolvency process. We should be prepared for this contingency and should begin the preliminary work necessary to file a timely proof of claim.

The guaranty claim against Musgrave, while capped at $2,000,000.00, may represent a more viable path to recovery if Musgrave possesses personal assets sufficient to satisfy a judgment. Further investigation into Musgrave's personal financial condition is warranted.

In total, GAP's claim at stake in this litigation is approximately $5.2 million, comprising $4,870,050.00 in principal, accrued contractual interest at 18% per annum from the respective invoice due dates (which continues to accrue), and attorneys' fees and costs recoverable under the Off-Take Agreement's prevailing-party provision. GAP's recovery prospects as an unsecured creditor in any insolvency proceeding are uncertain and potentially limited to a fraction of the total claim.

We recommend proceeding methodically — monitoring the withdrawal ruling, preserving the deemed admissions that will result from PBGC's failure to respond to the Requests for Admission, and positioning for default judgment — while remaining prepared to pivot to a receivership or bankruptcy claims process if and when an insolvency proceeding is commenced. This dual-track approach allows GAP to preserve all available remedies and maximize its recovery potential under what are, regrettably, challenging circumstances.

I am available to discuss this memorandum and the recommended next steps at your convenience.

Distribution: Internal — Francesca Morano only

Copies to file: C&H Matter No. 1020-00005

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
INTERNAL MEMORANDUM
TO: Francesca Morano, Partner
FROM: Patrick Gallagher, Associate
DATE: November 10, 2022
RE: Impact of Defense Counsel Withdrawal — Greenfield Agricultural Partners LLC v. Prairie Basin Grain Co. et al., Circuit Court of Cook County, Illinois, Case No. 2022-L-004831
MATTER NO.: C&H Matter No. 1020-00005
PRIVILEGE DESIGNATION: This memorandum is a privileged attorney work product prepared in anticipation of litigation and for the purpose of providing legal advice to Satterfield & Cohn LLP attorneys working on the above-referenced matter. It is not intended for disclosure to third parties and should not be forwarded, copied, or distributed outside the firm without the express authorization of the responsible partner. Any inadvertent disclosure does not constitute a waiver of the attorney work product doctrine or any other applicable privilege.
I. Purpose
This memorandum analyzes the procedural and strategic implications of the filing by Bartlett, Reyes Linley CPAs LLP & Harkin LLP ("BCH") of a Motion to Withdraw as counsel for defendants Prairie Basin Grain Co. ("PBGC") and Darren K. Musgrave ("Musgrave") in the above-captioned action. The motion was filed on November 4, 2022, and cites non-payment of legal fees as the sole basis for withdrawal. As of the date of this memorandum, the Honorable Patricia Delacroix has not yet ruled on the motion. However, based on the stated grounds and the well-established precedent permitting counsel withdrawal under such circumstances, we anticipate that the motion will be granted, likely with a brief transitional period for defendants to retain substitute counsel.
This memorandum addresses the following issues arising from the anticipated withdrawal:
(a) the procedural consequences for PBGC as a corporate entity that will be unable to appear pro se;
(b) the procedural consequences for Musgrave as an individual defendant who retains the right to proceed without counsel;
(c) the potential for entry of default judgment against one or both defendants;
(d) strategic considerations for our client, Greenfield Agricultural Partners LLC ("GAP"), in light of PBGC's deteriorating financial condition and the significant collectability challenges that any judgment will present; and
(e) recommended next steps to preserve GAP's rights and position the case for the most favorable outcome achievable under the circumstances.
The analysis set forth below reflects the information available as of the date of this memorandum and should be revisited as developments unfold, particularly with respect to any ruling on the withdrawal motion, PBGC's financial trajectory, and the potential initiation of insolvency proceedings.
II. Background
A. Current Posture of the Litigation
GAP commenced this action by filing its Complaint on May 9, 2022, in the Circuit Court of Cook County, Illinois, asserting four counts against the defendants:
Count I — Breach of Contract (Off-Take Agreement) against PBGC. GAP alleges that PBGC breached the Off-Take Agreement dated March 15, 2019 (the "Off-Take Agreement"), by failing to pay for grain delivered and accepted under the agreement. The principal amount claimed is $4,870,050.00, representing five unpaid invoices for grain shipments delivered between October 2021 and January 2022. GAP further seeks contractual interest at the rate of 1.5% per month (18% per annum), as provided by Section 7.3 of the Off-Take Agreement, which states that all amounts not paid within thirty (30) days of the invoice date shall accrue interest at one and one-half percent (1.5%) per month from the due date until paid in full.
Count II — Breach of Personal Guaranty against Darren K. Musgrave. GAP alleges that Musgrave executed a personal guaranty of PBGC's obligations under the Off-Take Agreement, which guaranty is set forth as Exhibit D to the Off-Take Agreement (the "Musgrave Guaranty"). The Musgrave Guaranty provides that Musgrave's liability is capped at $2,000,000.00 in aggregate. GAP seeks to recover up to the guaranty cap amount from Musgrave personally based on PBGC's failure to pay the amounts owing under the Off-Take Agreement.
Count III — Account Stated against PBGC. GAP alleges that it rendered periodic statements of account to PBGC reflecting the amounts owed for grain delivered, that PBGC received and retained those statements without objection for a reasonable period, and that the account became a stated account in the amount of $4,870,050.00 plus accrued interest.
Count IV — Unjust Enrichment (alternative) against PBGC. Pleaded in the alternative, this count alleges that PBGC accepted delivery of grain shipments under the Off-Take Agreement but failed to pay for them, thereby receiving a benefit at GAP's expense under circumstances making it unjust for PBGC to retain the benefit without paying fair value.
Service of the Complaint and Summons was completed on May 24, 2022. PBGC was served through its registered agent, Ridgeline Corporate Services LLC, at 77 West Washington Street, Suite 1420, Chicago, Illinois 60602. Musgrave was personally served at his residence, 1188 Windermere Lane, Champaign, Illinois 61822. Proofs of service were filed with the court on May 31, 2022, and no challenge to the sufficiency of service has been raised.
On June 27, 2022, PBGC and Musgrave, represented by BCH — specifically, partner Douglas M. Harkin and associate Nadia C. Petrov — filed a joint Answer and Affirmative Defenses. The Answer denied the material allegations of the Complaint and asserted three affirmative defenses: (1) force majeure, based on the October 17, 2021 fire at PBGC's Macon County grain elevator facility, which defendants contended excused performance under the Off-Take Agreement; (2) commercial impracticability, under the same factual predicate; and (3) failure to mitigate damages, alleging that GAP failed to take reasonable steps to cover or resell the grain that PBGC declined to accept or pay for under the remaining term of the Off-Take Agreement.
On July 18, 2022, GAP filed a Motion to Strike Defendants' First and Second Affirmative Defenses (force majeure and commercial impracticability), arguing that the Off-Take Agreement's force majeure clause, Section 9.2, did not encompass the type of casualty event alleged, that the fire affected only one of PBGC's multiple elevator facilities and did not render performance impossible, and that the commercial impracticability defense was foreclosed by the express contractual allocation of risk. Following full briefing, the Honorable Patricia Delacroix granted GAP's Motion to Strike on August 22, 2022, in a ruling from the bench. Judge Delacroix found that the force majeure clause was narrowly drafted, that the fire did not fall within any of the enumerated force majeure events, and that the commercial impracticability defense was precluded where the parties had expressly allocated the risk of performance through the terms of the Off-Take Agreement. Only the third affirmative defense — failure to mitigate damages — survived.
A Case Management Conference was held before Judge Delacroix on September 12, 2022. The court established a discovery schedule, including deadlines for written discovery, depositions, and expert disclosures. Pursuant to that schedule, GAP served its First Set of Interrogatories and First Request for Production of Documents on PBGC and Musgrave on September 30, 2022. GAP subsequently served Requests for Admission on October 14, 2022. The Requests for Admission seek admissions on the following matters:
(i) the authenticity and enforceability of the Off-Take Agreement dated March 15, 2019;
(ii) the authenticity and enforceability of the Musgrave Guaranty (Exhibit D to the Off-Take Agreement);
(iii) the issuance, delivery, and receipt of five specific invoices: Invoice No. GAP-2021-3187, Invoice No. GAP-2021-3244, Invoice No. GAP-2021-3301, Invoice No. GAP-2021-3358, and Invoice No. GAP-2022-0042;
(iv) the delivery and acceptance by PBGC of the grain shipments corresponding to each of the five invoices; and
(v) the amounts stated on each invoice as correctly reflecting the quantities delivered and the contract prices applicable thereto.
As of the date of this memorandum, PBGC has not responded to any of the outstanding discovery requests. While the applicable response deadlines have not yet expired, they are approaching. Given the filing of BCH's Motion to Withdraw and the apparent financial distress of both PBGC and Musgrave, it is uncertain whether timely responses will be served.
B. BCH's Motion to Withdraw
On November 4, 2022, BCH filed a Motion to Withdraw as Counsel for both PBGC and Musgrave. The motion was filed by Douglas M. Harkin and Nadia C. Petrov, who are the only BCH attorneys of record in this matter. The motion states that BCH seeks leave to withdraw on the ground that PBGC and Musgrave have failed to pay BCH's legal fees and that the attorney-client relationship has been impaired to the extent that continued representation is not feasible. The motion does not specify the amount of unpaid fees but represents that multiple invoices remain outstanding and that BCH has communicated with both defendants regarding the non-payment without resolution.
The stated basis for withdrawal — non-payment of legal fees — is well recognized under Illinois Supreme Court Rule 13 and Illinois Rule of Professional Conduct 1.16(b)(5) as a permissible ground for withdrawal, provided that the withdrawal can be accomplished without material adverse effect on the interests of the client and the court grants leave. In practice, withdrawal motions premised on non-payment are routinely granted, subject to conditions designed to protect the interests of the opposing party and the orderly progress of the litigation. Such conditions typically include a requirement that the withdrawing firm provide the client with copies of the case file, a specified period (usually 21 to 28 days) for the client to retain substitute counsel, and notice to the opposing party of the withdrawal.
The non-payment ground cited by BCH is consistent with the information our firm has gathered regarding PBGC's severe financial distress. As discussed in greater detail in Section III.D below, PBGC ceased paying trade creditors in January 2022, and its financial condition has continued to deteriorate throughout 2022. BCH's inability to collect its legal fees from either PBGC or Musgrave provides additional confirmation of the defendants' worsening financial position.
We anticipate that Judge Delacroix will grant BCH's Motion to Withdraw, likely at the next available hearing date, with a brief period — 21 to 28 days is customary — for the defendants to retain substitute counsel before any further proceedings are scheduled. I will monitor the court's docket for the scheduling of a hearing on the motion and will promptly advise you when a ruling is entered.
III. Analysis
A. PBGC's Inability to Appear Pro Se as a Corporation
Under well-settled Illinois law, a corporation or other artificial entity cannot appear in court or conduct litigation in a pro se capacity. A corporation must at all times be represented by a licensed attorney admitted to practice in the State of Illinois. This principle has been consistently applied by Illinois courts and reflects the fundamental distinction between a natural person's right of self-representation and a corporation's status as an artificial entity that can act only through authorized agents. See Shareholders of Pelayo v. Pelayo, 2013 IL App (1st) 130040, ¶ 18 (reaffirming the longstanding rule that a corporation cannot appear pro se in Illinois courts); see also Raintree Homes, Inc. v. Village of Long Grove, 209 Ill. 2d 248, 262 (2004) (noting that a corporate party that appears without counsel is subject to dismissal of its pleadings); Downtown Disposal Services, Inc. v. City of Chicago, 2012 IL 112040, ¶ 16.
PBGC is an Illinois corporation. If BCH's Motion to Withdraw is granted and PBGC does not retain substitute counsel within the time period set by the court, PBGC will be unable to participate in any aspect of the litigation. Specifically, PBGC will lack the capacity to:
• file any responsive pleading, motion, or brief;
• serve responses to GAP's outstanding discovery requests (First Set of Interrogatories, First Request for Production of Documents, and Requests for Admission);
• appear at hearings, depositions, or other proceedings;
• oppose any motion filed by GAP, including a motion for default, a motion for summary judgment, or a motion for sanctions;
• present or support its surviving affirmative defense of failure to mitigate damages; and
• participate in any settlement discussions or mediation.
The practical consequence is that PBGC's sole surviving affirmative defense — failure to mitigate — will go unsupported. No evidence will be presented, no argument will be advanced, and no opposition will be filed. The defense will effectively be waived by PBGC's failure to prosecute it through counsel.
Moreover, if PBGC fails to retain substitute counsel and the court enters an order striking PBGC's appearance, the path to entry of a default judgment against PBGC on all four counts becomes straightforward, subject to a prove-up hearing on damages as discussed in Section III.C below.
It is worth noting that even if an officer, director, or shareholder of PBGC — such as Musgrave, who holds 72% of PBGC's outstanding shares — were to attempt to appear on behalf of PBGC, that appearance would be improper and would be stricken by the court. The prohibition on corporate pro se representation admits of no exception for a controlling shareholder or principal of the entity.
B. Musgrave's Status as an Individual Defendant
Unlike PBGC, Darren K. Musgrave, as an individual defendant, retains the constitutional and statutory right to appear pro se in the Cook County action. An individual litigant in Illinois is entitled to represent himself or herself in civil proceedings without the assistance of counsel, subject to the requirement that the pro se litigant comply with all applicable procedural rules and court orders to the same extent as a represented party.
However, several practical considerations bear on the likelihood and implications of Musgrave proceeding pro se:
Prior Joint Representation. Throughout this litigation, Musgrave has been jointly represented with PBGC through BCH. The defense strategy, including the now-stricken force majeure and commercial impracticability defenses and the surviving failure-to-mitigate defense, was developed and presented by BCH on behalf of both defendants. Once BCH withdraws, Musgrave will need to independently assess his defense posture, familiarize himself with the procedural posture of the case, and determine whether to retain separate counsel or attempt to defend the guaranty claim on his own.
Financial Capacity. The fact that Musgrave, along with PBGC, has failed to pay BCH's legal fees raises a significant question about his financial capacity to retain substitute counsel. If Musgrave cannot afford new counsel, he may have no choice but to proceed pro se — or to default.
Limited Exposure. Musgrave's personal exposure in this action is limited to Count II (Breach of Personal Guaranty), with liability capped at $2,000,000.00 under the terms of the Musgrave Guaranty. While $2,000,000 is a substantial sum, it is less than half of the total principal amount at issue in the case. Musgrave may calculate that the cost of retaining new counsel to defend the guaranty claim is not justified, particularly if he believes he has limited personal assets available to satisfy a judgment.
Sophistication and Ability. We have limited information regarding Musgrave's sophistication in legal matters. As a majority owner and former CEO of a commercial grain trading company, he presumably possesses some degree of business acumen. However, navigating the discovery process, motion practice, and trial preparation as a pro se litigant in a commercial dispute of this magnitude presents formidable challenges for any non-attorney.
In sum, while Musgrave is legally entitled to proceed pro se, the practical obstacles and the uncertainty surrounding his financial resources make it at least plausible that he will either fail to participate actively in the case or will participate in a limited and potentially ineffective manner.
C. Potential for Default
1. Default Against PBGC
If PBGC fails to retain substitute counsel within the deadline established by the court upon granting BCH's withdrawal, GAP may move for entry of default against PBGC pursuant to 735 ILCS 5/2-1301. Under Illinois law, a default may be entered against a party that has failed to appear, plead, or otherwise defend the action. In the case of a corporate defendant that is unrepresented by counsel, the failure to retain substitute counsel within the court's prescribed time frame constitutes a failure to defend, warranting entry of default.
Upon entry of default against PBGC, GAP would be entitled to proceed to a prove-up hearing to establish its damages. At the prove-up hearing, GAP would present the following evidence:
(a) the Off-Take Agreement dated March 15, 2019, establishing the contractual relationship between GAP and PBGC, including the pricing terms, delivery obligations, and payment terms;
(b) the five unpaid invoices, totaling $4,870,050.00 in principal:
• Invoice No. GAP-2021-3187
• Invoice No. GAP-2021-3244
• Invoice No. GAP-2021-3301
• Invoice No. GAP-2021-3358
• Invoice No. GAP-2022-0042
(c) delivery records, bills of lading, and weight tickets confirming that GAP delivered the grain quantities reflected in each invoice and that PBGC accepted delivery;
(d) a calculation of accrued contractual interest at the rate of 1.5% per month (18% per annum) from each invoice's due date through the date of the prove-up hearing, pursuant to Section 7.3 of the Off-Take Agreement; and
(e) attorneys' fees and costs incurred by GAP in prosecuting this action, recoverable under Section 12.4 of the Off-Take Agreement, which contains a prevailing-party fee-shifting provision. As of the current billing period, total fees and costs billed by this firm on C&H Matter No. 1020-00005 are continuing to accrue and are approaching the level that, at matter close, will total approximately $302,037.85.
The prove-up process in a default case is generally straightforward and can typically be accomplished through the testimony of a single witness (such as GAP's controller or accounts receivable manager) supported by the documentary evidence described above. Given the relatively uncomplicated nature of the damages calculation — contractual principal, contractual interest, and contractual attorneys' fees — we do not anticipate significant difficulties at the prove-up stage.
2. Default Against Musgrave
Entry of default against Musgrave individually would require a showing that he has failed to plead or otherwise defend the action. If Musgrave opts to appear pro se following BCH's withdrawal, he will remain an active party and default will not be appropriate so long as he continues to participate. However, if Musgrave fails to retain substitute counsel, fails to file a pro se appearance, and fails to respond to pending discovery or court orders, GAP could move for entry of default against him as well.
Any default judgment against Musgrave on Count II would be subject to the $2,000,000.00 liability cap specified in the Musgrave Guaranty. GAP could not recover more than that amount from Musgrave under the guaranty, regardless of the total damages established at prove-up.
3. Effect of Deemed Admissions on Default or Summary Judgment
An additional procedural mechanism that may significantly advance GAP's position — whether by default or summary judgment — involves the Requests for Admission served on October 14, 2022. Under 735 ILCS 5/2-1012, a party upon whom requests for admission are served must respond within 28 days of service (or such other period as the court may order). If the responding party fails to serve timely responses, the matters set forth in the requests are deemed admitted.
As noted above, GAP's Requests for Admission seek admissions regarding the authenticity of the Off-Take Agreement, the issuance and receipt of each of the five unpaid invoices, the delivery and acceptance of grain corresponding to each invoice, and the amounts stated on each invoice. If PBGC fails to respond to these requests within the applicable deadline — an outcome that appears increasingly likely given BCH's withdrawal and PBGC's apparent inability to retain substitute counsel — the following facts will be conclusively established for purposes of this action:
(i) the Off-Take Agreement is authentic and enforceable;
(ii) each of the five invoices was issued by GAP and received by PBGC;
(iii) the grain shipments corresponding to each invoice were delivered by GAP and accepted by PBGC; and
(iv) the amounts stated on each invoice correctly reflect the quantities delivered and the contract prices applicable thereto.
These deemed admissions would eliminate virtually all contested issues of fact on the breach of contract and account stated claims and would substantially simplify either the prove-up process following default or a motion for summary judgment. In particular, the deemed admissions would foreclose any future attempt by PBGC (through substitute counsel, if retained) to contest the amounts owed, the delivery of grain, or the validity of the underlying agreement.
We should monitor the response deadline for the Requests for Admission closely. If no responses are received by the deadline, we should promptly document the deemed admissions and incorporate them into any subsequent motion.
D. Strategic Considerations Regarding Judgment Enforcement and Collectability
While the procedural pathway to a default judgment against PBGC appears relatively clear, the more significant question for GAP is whether any judgment obtained will be collectible. The analysis below addresses the substantial obstacles to collection that GAP is likely to face.
1. PBGC's Financial Condition
PBGC has been in severe financial distress since the fourth quarter of 2021. The distress is attributable to a confluence of adverse events:
The Macon County Elevator Fire. On October 17, 2021, a fire destroyed a significant portion of PBGC's grain elevator facility located at 2200 County Road 1400 East, Decatur, Illinois 62521. The fire resulted in estimated losses of approximately $3.2 million, including the destruction of stored grain inventory and damage to the elevator structure and equipment. Critically, PBGC's insurance carrier, Triton Mutual Insurance Co., has disputed coverage for the fire losses, alleging that PBGC failed to maintain current premium payments and that the applicable insurance policy had lapsed prior to the fire. As a result, PBGC has not received insurance proceeds for the fire losses and may never do so.
Failed Hedging Strategy. In the fourth quarter of 2021, PBGC suffered substantial losses from a failed hedging strategy involving short positions in corn futures. As corn prices rose sharply during this period, PBGC's short positions generated estimated mark-to-market losses of approximately $6.8 million. These losses compounded the financial impact of the elevator fire and severely eroded PBGC's working capital and liquidity.
Margin Compression. PBGC experienced further financial pressure from volatile corn and soybean basis levels throughout late 2021 and early 2022, which compressed its operating margins on grain trading activities and reduced its ability to generate cash flow from operations to service its obligations.
The combined effect of these events was catastrophic to PBGC's financial position. PBGC ceased paying its trade creditors in January 2022 — several months before GAP filed the instant Complaint. PBGC's failure to pay GAP's invoices is part of a broader pattern of default on its commercial obligations.
2. Senior Secured Lender's Position
PBGC's principal lender is Heartland Prairie Bank, N.A., headquartered at 300 East Main Street, Decatur, Illinois 62521. Heartland Prairie Bank is the senior secured lender to PBGC under a Revolving Credit and Term Loan Agreement dated June 1, 2018 (the "Credit Agreement"), with an aggregate commitment of $45,000,000.00. As of the most recent information available to us, the outstanding balance under the Credit Agreement is approximately $31,400,000.00.
Heartland Prairie Bank holds a prior perfected security interest under UCC Article 9 over substantially all of PBGC's assets, including but not limited to accounts receivable, inventory (including stored grain), equipment, fixtures, general intangibles, and proceeds thereof. The security interest was perfected by the filing of UCC-1 financing statements with the Illinois Secretary of State, and there is no indication that the filings have lapsed or are otherwise defective.
In approximately April 2022, Heartland Prairie Bank declared PBGC in default under the Credit Agreement based on PBGC's failure to comply with financial covenants and payment obligations. The declaration of default gives Heartland Prairie Bank the right to accelerate the outstanding balance, exercise its remedies under the Credit Agreement and the UCC, and seek the appointment of a receiver over PBGC's assets.
3. PBGC's Balance Sheet Insolvency
Based on the information available to our firm, PBGC's estimated total liabilities are in the range of $58 million to $62 million, while its estimated total assets are in the range of $35 million to $40 million. This represents a balance sheet shortfall of approximately $18 million to $27 million. PBGC appears to be deeply insolvent on both a balance sheet basis and a cash flow basis.
4. GAP's Unsecured Position
GAP's claim of $4,870,050.00 (plus interest) constitutes an unsecured trade receivable. GAP does not hold a security interest in any of PBGC's assets, nor does GAP have any priority or preferential claim. In any enforcement scenario — whether through a judgment lien, wage or account garnishment, a citation to discover assets, or supplementary proceedings — Heartland Prairie Bank's prior perfected security interest would take priority over GAP's unsecured judgment. As a practical matter, given that Heartland Prairie Bank is owed approximately $31.4 million against a senior secured position on substantially all of PBGC's assets, and given that PBGC's total assets are estimated at $35–40 million, there is likely little or no residual value available for unsecured creditors after satisfaction of Heartland Prairie Bank's secured claim and other priority obligations.
5. Risk of Receivership or Bankruptcy
Given the scale of PBGC's financial distress, Heartland Prairie Bank's declaration of default, and the substantial shortfall between PBGC's assets and liabilities, there is a significant risk that PBGC will be placed into receivership or will file for bankruptcy protection in the near term. We understand from publicly available sources and industry contacts that Heartland Prairie Bank has been actively evaluating its remedial options, and the filing of a receivership petition or the commencement of foreclosure proceedings appears to be a question of when, not whether.
A receivership proceeding initiated by Heartland Prairie Bank would likely result in the appointment of a receiver with authority over all of PBGC's assets and operations. An Illinois state court receivership would impose limitations on GAP's ability to pursue or enforce a judgment against PBGC's assets, as the receiver would control the disposition of those assets for the benefit of all creditors in accordance with their respective priorities.
Alternatively, if PBGC itself files a voluntary petition under Chapter 7 or Chapter 11 of the United States Bankruptcy Code, or if an involuntary petition is filed against PBGC by its creditors, the automatic stay provisions of 11 U.S.C. § 362 would immediately halt all collection efforts, including the pending Cook County action, and require GAP to assert its claims through the bankruptcy process. As an unsecured creditor, GAP's recovery in bankruptcy would depend on the amount of assets available for distribution after satisfaction of all secured and priority claims — a recovery that, based on PBGC's current balance sheet, is likely to be modest at best.
6. Musgrave's Personal Resources
The enforceability and practical value of the Musgrave Guaranty depend on the extent of Musgrave's personal assets available to satisfy a judgment. Musgrave's known assets include:
• his 72% ownership interest in PBGC, which, given PBGC's deep insolvency, is almost certainly worth nothing;
• his personal residence at 1188 Windermere Lane, Champaign, Illinois 61822, the value of which is unknown but which may be subject to a mortgage and would be partially shielded by the Illinois homestead exemption (currently $15,000 under 735 ILCS 5/12-901, though this amount is per individual and would not significantly impair enforcement against a property of substantial value); and
• any other personal investments, bank accounts, retirement accounts, or real property, regarding which we currently have no information.
Discovery directed at Musgrave's personal finances could be pursued through supplementary proceedings post-judgment under 735 ILCS 5/2-1402, including a citation to discover assets. However, the practical value of the Musgrave Guaranty — and therefore the utility of pursuing the guaranty claim to judgment — remains uncertain without more complete information about Musgrave's personal balance sheet.
7. Cost-Benefit Analysis
GAP has already incurred significant legal fees in prosecuting this action, and fees will continue to accrue through any prove-up proceeding or motion practice. The incremental cost of pursuing a default judgment against PBGC is likely to be modest — principally the preparation of a motion for default, compilation of the prove-up evidence, and attendance at the prove-up hearing. However, as discussed above, the resulting judgment may be effectively uncollectible if PBGC's assets are consumed by Heartland Prairie Bank's secured claim and the costs of any insolvency proceeding.
The cost-benefit calculus must therefore weigh the relatively low incremental cost of obtaining a default judgment against the uncertain — and potentially negligible — recovery prospects. On balance, obtaining the judgment remains advisable for several reasons: (i) it preserves GAP's rights and creates an enforceable obligation; (ii) a judgment is a prerequisite to participating in any future receivership or bankruptcy proceeding (or, alternatively, a proof of claim based on the underlying contract may be filed directly); (iii) the judgment may have value if circumstances change — for example, if the insurance dispute between PBGC and Triton Mutual is resolved in PBGC's favor, additional assets may become available; and (iv) the judgment against PBGC may support or strengthen the enforcement of the separate guaranty claim against Musgrave.
Notwithstanding the foregoing, if a receivership or bankruptcy filing appears imminent, GAP should be prepared to pivot from the Cook County litigation to asserting claims in the insolvency proceeding. The preparation required for a prove-up — assembling the underlying contracts, invoices, delivery records, and interest calculations — will be substantially the same as the preparation required for filing a proof of claim in a receivership or bankruptcy.
E. Effect on discovery
The outstanding discovery requests — the First Set of Interrogatories and First Request for Production of Documents served September 30, 2022, and the Requests for Admission served October 14, 2022 — remain pending as of the date of this memorandum. The impact of BCH's withdrawal on the discovery process is as follows:
If BCH's withdrawal is granted, PBGC will be unable to serve discovery responses unless and until it retains substitute counsel. Given the financial circumstances discussed above, the retention of substitute counsel by PBGC appears unlikely.
The Requests for Admission are subject to a 28-day response deadline under 735 ILCS 5/2-1012. If no responses are served within the applicable period (or any extension granted by the court), the matters set forth in the Requests for Admission will be deemed admitted. As discussed in Section III.C.3 above, the deemed admissions would conclusively establish the authenticity of the Off-Take Agreement, the issuance and receipt of all five unpaid invoices, the delivery and acceptance of grain, and the amounts owed — effectively resolving all material factual disputes in GAP's favor on the breach of contract and account stated claims.
Similarly, if PBGC fails to respond to the First Set of Interrogatories or the First Request for Production of Documents within the applicable deadlines, GAP may move to compel responses or, alternatively, seek sanctions including the entry of default as a sanction for discovery abuse under Illinois Supreme Court Rule 219(c).
GAP should closely monitor all response deadlines and, if no responses are received, take prompt action to invoke the consequences of the defendants' discovery failures. The convergence of BCH's withdrawal, PBGC's inability to appear without counsel, and the approaching discovery deadlines creates a powerful set of procedural tools that GAP can deploy to advance toward judgment.
IV. Recommended Next Steps
Based on the foregoing analysis, I recommend the following actions:
1. Monitor the Motion to Withdraw. We should closely monitor the court's docket for the scheduling and disposition of BCH's Motion to Withdraw. If the motion is granted, we should note the specific deadline the court sets for PBGC and Musgrave to retain substitute counsel and calendar that date for follow-up. We should also review any conditions the court imposes in its order granting the motion.
2. Track discovery Deadlines. We should calendar the response deadlines for the First Set of Interrogatories and First Request for Production of Documents (served September 30, 2022) and the Requests for Admission (served October 14, 2022). If no responses are received by the applicable deadlines, we should prepare a motion to compel discovery responses or, in the alternative, a motion for sanctions, including potential entry of default as a sanction for failure to comply with discovery obligations. With respect to the Requests for Admission, we should prepare a letter or memorandum confirming the deemed admissions and file it with the court in connection with any subsequent motion.
3. Prepare for Default Motion. If PBGC fails to retain substitute counsel by the court's deadline, we should promptly prepare and file a motion for entry of default against PBGC pursuant to 735 ILCS 5/2-1301. Concurrently, we should prepare a petition for prove-up of damages, including the principal amount of $4,870,050.00, accrued contractual interest at 1.5% per month from each invoice's due date through the date of prove-up, and attorneys' fees and costs recoverable under Section 12.4 of the Off-Take Agreement. We should begin assembling the prove-up evidence package now — including the Off-Take Agreement, the five invoices, delivery and acceptance records, the contractual interest calculation, and the fee petition — so that we are prepared to proceed on an expedited basis once the conditions for default are satisfied.
4. Monitor PBGC's Financial Situation. We should actively monitor public filings, court dockets, and industry sources for any indication of a receivership petition, bankruptcy filing, or other insolvency proceeding involving PBGC. Given the information available regarding Heartland Prairie Bank's default declaration and PBGC's balance sheet insolvency, we should regard the initiation of such a proceeding as probable in the near term. If such a proceeding is commenced, GAP will need to immediately assess the impact on the Cook County action — including whether the automatic stay (in bankruptcy) or an analogous court order (in receivership) prohibits further proceedings — and transition to asserting GAP's claims in the insolvency forum. We should begin preparing a draft proof of claim for use in a receivership or bankruptcy proceeding so that GAP can act quickly if needed.
5. Evaluate Musgrave Guaranty Enforcement. We should separately evaluate the potential value of the guaranty claim against Musgrave. If Musgrave appears pro se and subsequently defaults — or if a default judgment is entered against him for failure to defend — GAP could obtain a judgment of up to $2,000,000.00 that may be more readily collectible than a judgment against the insolvent PBGC. To the extent information becomes available regarding Musgrave's personal assets (through public records searches, real property records, or other means), we should analyze whether enforcement of a guaranty judgment would yield a meaningful recovery. If so, the guaranty claim against Musgrave may represent GAP's best opportunity for actual collection in this matter.
6. Update Client. We should prepare a client communication to GAP's principals — Thomas R. Greenfield, Margaret A. Greenfield-Wu, and Caleb Jennings — advising them of BCH's withdrawal motion, the procedural implications for the litigation, the collectability challenges we anticipate, and our recommended strategy. The client communication should be candid about the difficulty of collecting any judgment against PBGC while highlighting the potential value of the guaranty claim against Musgrave and the importance of positioning GAP's claim for any future insolvency proceeding. I will prepare a draft of this communication for your review.
V. Conclusion
BCH's motion to withdraw as counsel for PBGC and Musgrave, if granted as anticipated, will leave PBGC without the ability to defend this action. As a corporation, PBGC cannot appear pro se, and its severe financial distress makes the retention of substitute counsel unlikely. This creates a clear procedural pathway to entry of default judgment against PBGC on all four counts.
However, the value of any such judgment is clouded by significant collectability concerns. PBGC is deeply insolvent, with estimated liabilities of $58–62 million against estimated assets of $35–40 million. Heartland Prairie Bank, N.A., holds a prior perfected security interest over substantially all of PBGC's assets securing approximately $31.4 million in outstanding obligations. GAP's claim of $4,870,050.00 is an unsecured trade receivable that would rank behind Heartland Prairie Bank's secured claim and other priority obligations in any distribution. The prospects for meaningful recovery from PBGC are, candidly, limited.
The most likely near-term development is the initiation of a receivership or bankruptcy proceeding involving PBGC, which would supersede the Cook County litigation and require GAP to assert its claims through the insolvency process. We should be prepared for this contingency and should begin the preliminary work necessary to file a timely proof of claim.
The guaranty claim against Musgrave, while capped at $2,000,000.00, may represent a more viable path to recovery if Musgrave possesses personal assets sufficient to satisfy a judgment. Further investigation into Musgrave's personal financial condition is warranted.
In total, GAP's claim at stake in this litigation is approximately $5.2 million, comprising $4,870,050.00 in principal, accrued contractual interest at 18% per annum from the respective invoice due dates (which continues to accrue), and attorneys' fees and costs recoverable under the Off-Take Agreement's prevailing-party provision. GAP's recovery prospects as an unsecured creditor in any insolvency proceeding are uncertain and potentially limited to a fraction of the total claim.
We recommend proceeding methodically — monitoring the withdrawal ruling, preserving the deemed admissions that will result from PBGC's failure to respond to the Requests for Admission, and positioning for default judgment — while remaining prepared to pivot to a receivership or bankruptcy claims process if and when an insolvency proceeding is commenced. This dual-track approach allows GAP to preserve all available remedies and maximize its recovery potential under what are, regrettably, challenging circumstances.
I am available to discuss this memorandum and the recommended next steps at your convenience.
Distribution: Internal — Francesca Morano only
Copies to file: C&H Matter No. 1020-00005
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