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IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, LAW DIVISION

GREENFIELD AGRICULTURAL PARTNERS LLC, a Delaware limited liability company,

Plaintiff,

PRAIRIE BASIN GRAIN CO., an Illinois corporation, and DARREN K. MUSGRAVE, individually,

Defendants.

Case No. 2022-L-004831 Hon. Patricia Delacroix

PLAINTIFF'S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO STRIKE DEFENDANTS' AFFIRMATIVE DEFENSES

Filed: July 15, 2022

I. INTRODUCTION

Plaintiff Greenfield Agricultural Partners LLC ("GAP") respectfully submits this Memorandum of Law in Support of its Motion to Strike the First, Second, and Third Affirmative Defenses asserted by Defendants Prairie Basin Grain Co. ("PBGC") and Darren K. Musgrave ("Musgrave") (collectively, "Defendants") in their joint Answer and Affirmative Defenses filed on June 27, 2022 (the "Answer"). This Memorandum is submitted pursuant to Section 2-615 of the Illinois Code of Civil Procedure, 735 ILCS 5/2-615, and the applicable rules of this Court.

GAP initiated this action on May 9, 2022, by filing a four-count Verified Complaint seeking to collect $4,870,050.00 in unpaid principal, plus accrued contractual interest at a rate of 1.5% per month (18% per annum), owed by PBGC under that certain Master Grain Purchase and Off-Take Agreement dated March 15, 2019 (the "Off-Take Agreement"), and to enforce the limited personal guaranty of PBGC's payment obligations executed by Musgrave in his individual capacity as a principal of PBGC, which guaranty is capped at $2,000,000.00 (the "Personal Guaranty"). The Off-Take Agreement and the Personal Guaranty are attached to the Verified Complaint as Exhibits A and D, respectively, and are incorporated herein by reference.

The Verified Complaint asserts four counts: Count I (Breach of Contract — Off-Take Agreement, against PBGC); Count II (Breach of Personal Guaranty, against Musgrave); Count III (Account Stated, against PBGC); and Count IV (Unjust Enrichment, pleaded in the alternative, against PBGC). The factual basis for each count is straightforward: GAP delivered grain to PBGC's elevator facilities in accordance with the Off-Take Agreement; PBGC accepted delivery of that grain without objection; PBGC failed and refused to pay the corresponding invoices, totaling $4,870,050.00 in principal; and Musgrave, as guarantor, has likewise failed and refused to honor his obligations under the Personal Guaranty.

In their Answer, Defendants asserted three affirmative defenses: (1) Force Majeure, predicated on a fire at PBGC's Macon County elevator facility on October 17, 2021; (2) Commercial Impracticability, predicated on the combined effects of the elevator fire, volatile commodity basis levels, and failed hedging strategies; and (3) Failure to Mitigate Damages, alleging in conclusory fashion that GAP failed to take reasonable steps to minimize its losses after PBGC's nonpayment.

As set forth in detail below, GAP seeks to strike the First and Second Affirmative Defenses in their entirety as legally insufficient. Neither the doctrine of force majeure nor the doctrine of commercial impracticability is applicable to PBGC's obligation to pay for grain that it accepted and for which it has rendered no payment. The force majeure clause in the Off-Take Agreement, by its express terms, addresses only delays or failures in the physical "delivery or acceptance" of grain — not the obligation to pay for grain already delivered and accepted. Similarly, the doctrine of commercial impracticability does not excuse an obligation to pay money, and PBGC's financial difficulties — arising from its own hedging losses and the consequences of a fire at one of its six elevator facilities — do not rise to the level of objective impossibility required to invoke the defense.

With respect to the Third Affirmative Defense (Failure to Mitigate), GAP demonstrates that Defendants have failed to plead the defense with sufficient factual particularity, and therefore it should be stricken or, in the alternative, Defendants should be ordered to replead with greater specificity. GAP acknowledges, however, that the failure-to-mitigate defense is generally cognizable under Illinois law, and this Court may, in its discretion, permit the defense to stand subject to further development through discovery. GAP expressly reserves its right to challenge the factual merit of this defense at the summary judgment stage.

II. FACTUAL BACKGROUND

A. The Off-Take Agreement

On March 15, 2019, GAP, acting as Seller, and PBGC, acting as Buyer, entered into the Off-Take Agreement, a comprehensive five-year master agreement governing the purchase and sale of grain commodities, specifically #2 Yellow Corn and #1 Yellow Soybeans. The Off-Take Agreement has a term running from March 15, 2019, through March 14, 2024, and establishes the commercial framework under which GAP committed to deliver, and PBGC committed to purchase and accept, specified minimum annual volumes of grain at PBGC's elevator facilities located in Champaign, Macon, and Piatt Counties, Illinois.

Under Section 3.1 of the Off-Take Agreement, PBGC committed to purchase minimum annual volumes of 1,200,000 bushels of #2 Yellow Corn and 600,000 bushels of #1 Yellow Soybeans, subject to standard tolerances and adjustment provisions set forth in Section 3.2. These minimum volumes were negotiated to reflect PBGC's throughput capacity and merchandising operations at its network of elevator facilities across central Illinois.

Pricing under the Off-Take Agreement was established pursuant to Section 4.1, which provides that the purchase price for each delivery shall be determined by reference to the Chicago Board of Trade ("CBOT") nearby futures price at the time of delivery, plus or minus a negotiated quarterly basis differential. The specific basis differentials for each quarter of each contract year are set forth in Exhibit B to the Off-Take Agreement. This pricing mechanism reflects the standard practice in the grain trade, tying transaction prices to observable, publicly-quoted futures benchmarks while accounting for local basis conditions through negotiated adjustments.

Section 5.2 of the Off-Take Agreement governs payment terms. Payment for each delivery is due net thirty (30) days from the date of delivery and acceptance at the elevator facility. The term "acceptance" is defined in Section 2.1(b) to mean the physical receipt of grain at the elevator weigh station, confirmation of quality specifications by PBGC's on-site quality assurance personnel, and issuance of a scale ticket or warehouse receipt. It is undisputed that PBGC accepted all deliveries at issue in this litigation and issued scale tickets for each.

Section 7.3 of the Off-Take Agreement provides that all amounts not paid when due shall bear interest at a rate of 1.5% per month (equivalent to 18% per annum), calculated on the outstanding balance from the date payment was due until the date of actual payment in full. This contractual interest rate was negotiated at arm's length between the parties and represents a commercially reasonable rate given the credit risk inherent in grain purchase transactions of this magnitude.

Section 12.4 of the Off-Take Agreement contains a prevailing-party fee-shifting provision, which states: "In any action, suit, or proceeding arising out of or in connection with this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees, costs, and expenses from the non-prevailing party." This provision is relevant to GAP's entitlement to fees and costs in this enforcement action, although GAP does not seek an award of fees at this stage.

Section 13.1 of the Off-Take Agreement provides that the agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without regard to its conflict-of-laws provisions. Section 13.2 provides for exclusive jurisdiction in the courts of Cook County, Illinois, or the United States District Court for the Northern District of Illinois.

As part of the overall transaction, and contemporaneous with the execution of the Off-Take Agreement, Musgrave — the founder, President, and majority equity holder of PBGC — executed the Personal Guaranty, attached as Exhibit D to the Off-Take Agreement. Under the Personal Guaranty, Musgrave unconditionally guaranteed PBGC's payment obligations under the Off-Take Agreement, subject to a maximum aggregate liability cap of $2,000,000.00. The Personal Guaranty contains standard provisions including a waiver of defenses to payment, a waiver of notice and presentment, and a covenant that the guarantor's obligations are independent of and not contingent upon the validity or enforceability of any defense available to the primary obligor. The Personal Guaranty is governed by Illinois law and contains its own fee-shifting provision at Section 4(c).

B. PBGC's Payment Default

Between September 28, 2021, and January 19, 2022, GAP delivered grain to PBGC under the Off-Take Agreement in the ordinary course and in accordance with the delivery schedules established by the parties. GAP issued the following five invoices to PBGC, none of which has been paid in whole or in part:

1. Invoice GAP-2021-3187, dated September 28, 2021, for 150,000 bushels of #2 Yellow Corn delivered to PBGC's Champaign County elevator facility, in the amount of $892,500.00, with payment due on or before October 28, 2021.

2. Invoice GAP-2021-3244, dated October 15, 2021, for 75,000 bushels of #1 Yellow Soybeans delivered to PBGC's Piatt County elevator facility, in the amount of $936,750.00, with payment due on or before November 14, 2021.

3. Invoice GAP-2021-3301, dated November 12, 2021, for 200,000 bushels of #2 Yellow Corn delivered to PBGC's Champaign County and Piatt County elevator facilities, in the amount of $1,224,000.00, with payment due on or before December 12, 2021.

4. Invoice GAP-2021-3358, dated December 8, 2021, for 120,000 bushels of #2 Yellow Corn delivered to PBGC's Champaign County elevator facility, in the amount of $741,600.00, with payment due on or before January 7, 2022.

5. Invoice GAP-2022-0042, dated January 19, 2022, for 80,000 bushels of #1 Yellow Soybeans delivered to PBGC's Piatt County elevator facility, in the amount of $1,075,200.00, with payment due on or before February 18, 2022.

The total unpaid principal balance across these five invoices is $4,870,050.00. As of the date of this filing, no portion of this amount has been paid. Interest continues to accrue on each invoice at the contractual rate of 1.5% per month from its respective due date.

PBGC accepted and took delivery of all grain described in the foregoing invoices at its elevator facilities without any objection to quality, quantity, weight, moisture content, or condition. Scale tickets were issued by PBGC's elevator personnel for each delivery, confirming acceptance. At no time prior to the commencement of this litigation did PBGC raise any claim of non-conforming goods, reject any delivery, or invoke any provision of the Off-Take Agreement to dispute its obligation to pay.

Following PBGC's failure to pay the first invoice when due, GAP's credit management team initiated a series of written communications to PBGC's Chief Financial Officer, seeking payment and requesting information regarding PBGC's payment timeline. These communications, sent between November 2021 and March 2022, received only vague assurances from PBGC that payment would be forthcoming. On April 11, 2022, GAP's counsel at Calderwood & Harkness LLP transmitted a formal pre-suit demand letter to PBGC and Musgrave via certified mail, return receipt requested, and via electronic mail. The demand letter set forth each outstanding invoice, the total amount owed including accrued interest, and advised Defendants that if full payment was not received within fifteen (15) business days (i.e., by May 2, 2022), GAP would commence legal proceedings to enforce its rights under the Off-Take Agreement and the Personal Guaranty. The fifteen-day demand period expired on May 2, 2022, with no response, no payment, and no proposal for resolution from either Defendant. GAP filed this action on May 9, 2022.

C. PBGC's Asserted Affirmative Defenses

On June 27, 2022, Defendants filed their joint Answer and Affirmative Defenses through their counsel of record, Douglas M. Harkin and Nadia C. Petrov of Bartlett, Reyes Linley CPAs LLP & Harkin LLP. In addition to their responses to the allegations of the Verified Complaint, Defendants asserted three affirmative defenses, which GAP addresses in turn.

First Affirmative Defense — Force Majeure. PBGC alleges that a fire at its Macon County elevator facility, located at 2200 County Road 1400 East, Decatur, Illinois 62521, on October 17, 2021, constitutes a force majeure event under the Off-Take Agreement that excuses PBGC's payment obligations for all five unpaid invoices. PBGC alleges that the fire destroyed or severely damaged the Macon County facility, caused an estimated $3.2 million in property losses, disrupted PBGC's operations, and triggered a protracted insurance claim dispute with Triton Mutual Insurance Co. PBGC contends that these circumstances rendered it unable to fulfill its obligations under the Off-Take Agreement.

Second Affirmative Defense — Commercial Impracticability. PBGC alleges that the combination of the Macon County elevator fire, volatile corn and soybean basis levels during the fourth quarter of 2021, and the failure of PBGC's proprietary hedging strategies rendered performance under the Off-Take Agreement commercially impracticable. PBGC alleges that it sustained approximately $6.8 million in mark-to-market hedging losses during the fourth quarter of 2021, and that these losses, combined with the financial impact of the elevator fire and unfavorable basis movements, made it economically impossible for PBGC to continue performing its payment obligations.

Third Affirmative Defense — Failure to Mitigate Damages. PBGC alleges, in conclusory terms, that GAP "failed to mitigate its damages by failing to resell the grain to alternative buyers or take other reasonable steps to minimize its loss after PBGC's nonpayment." The defense contains no factual detail regarding what specific steps GAP allegedly should have taken, what alternative buyers were available, at what prices grain could have been resold, or what quantum of damages could have been avoided through mitigation efforts.

As demonstrated below, the First and Second Affirmative Defenses are legally insufficient and should be stricken in their entirety. The Third Affirmative Defense, while potentially cognizable, is pleaded with such a lack of factual specificity as to warrant being stricken or, in the alternative, repleaded.

III. LEGAL STANDARD FOR MOTION TO STRIKE AFFIRMATIVE DEFENSES

Under Section 2-615 of the Illinois Code of Civil Procedure, 735 ILCS 5/2-615, any party may move to strike a pleading or any part thereof on the ground that it is substantially insufficient in law. This standard applies with equal force to affirmative defenses asserted in an answer. See Dratewska-Zator v. Rutherford, 2013 IL App (1st) 122699, ¶ 12 ("A Section 2-615 motion to strike an affirmative defense tests the legal sufficiency of the defense."); Combined Insurance Co. of America v. Sinclair, 584 N.E.2d 1026, 1030 (Ill. App. Ct. 1st Dist. 1991) (same).

An affirmative defense is legally insufficient, and subject to being stricken, if it fails to allege facts which, if true, would constitute a complete defense to the plaintiff's cause of action. Dowd & Dowd, Ltd. v. Gleason, 181 Ill.2d 460, 486 (1998). In evaluating a motion to strike an affirmative defense, the court accepts all well-pleaded facts in the defense as true and draws all reasonable inferences in favor of the party asserting the defense. Id. However, the court is not required to accept legal conclusions unsupported by specific factual allegations, nor is the court obligated to accept factual allegations that are contradicted by the terms of the written instruments attached to or incorporated by reference in the pleadings. See Illinois Graphics Co. v. Nickum, 159 Ill.2d 469, 488 (1994); Raintree Homes, Inc. v. Village of Long Grove, 209 Ill.2d 248, 262 (2004).

An affirmative defense should be stricken where it is based on a legal theory that is not recognized under the applicable law, or where the undisputed terms of the governing contract negate the defense as a matter of law. See Kravis v. Smith Marine, Inc., 60 Ill.2d 141, 147 (1975); Hess v. Chase Manhattan Bank, USA, N.A., 220 S.W.3d 758, 772 (Mo. 2007) (cited with approval in Illinois courts for the principle that contract terms control over inconsistent affirmative defenses). Where the defense is precluded by the clear language of the contract, no amount of factual development can render it sufficient, and the defense should be stricken at the pleading stage. See Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill.2d 100, 129 (2005).

Furthermore, an affirmative defense must be pleaded with sufficient factual particularity to put the plaintiff on notice of the nature of the defense and the facts upon which it is based. While fact pleading in Illinois does not require the same specificity as federal notice pleading under Ashcroft v. Iqbal, 556 U.S. 662 (2009), an affirmative defense that consists of nothing more than bare legal conclusions, devoid of any supporting factual allegations, is insufficient and may be stricken. See marshall v. Burger King Corp., 222 Ill.2d 422, 429 (2006); Fidelity National Title Insurance Co. of New York v. Howard Savings Bank, 436 F.3d 836, 842 (7th Cir. 2006) (applying Illinois pleading standards).

IV. ARGUMENT

A. The First Affirmative Defense (Force Majeure) Should Be Stricken

PBGC's First Affirmative Defense, which invokes force majeure based on the October 17, 2021 fire at its Macon County elevator facility, is legally insufficient as a matter of law and should be stricken in its entirety. The defense fails for three independent reasons: (1) the force majeure clause in the Off-Take Agreement, by its express terms, does not excuse payment obligations; (2) the fire at one of PBGC's six elevator facilities does not excuse PBGC's obligation to pay for grain that was delivered to and accepted at PBGC's other facilities; and (3) financial inability to pay is not a force majeure event under any recognized construction of the doctrine.

1. Force Majeure Clauses Are Strictly Construed Under Illinois Law

It is well established under Illinois law that force majeure clauses are creatures of contract, not of common law, and must be strictly construed. See Thackeray Enterprises v. Allied-General Nuclear Services, 731 F. Supp. 850, 855 (N.D. Ill. 1990); Northern Illinois Gas Co. v. Energy Cooperative, Inc., 122 Ill. App. 3d 940, 949 (3d Dist. 1984). A force majeure clause operates only to excuse performance for those specific events that are enumerated within its scope; it does not serve as a blanket excuse for nonperformance in the face of any adverse circumstance. See Restatement (Second) of Contracts § 261, cmt. d (1981); Constellation Energy Services of New York, Inc. v. New Water Street Corp., 46 Misc. 3d 966, 978 (N.Y. Sup. Ct. 2014) (applying analogous principles frequently cited by Illinois courts in commercial disputes).

The party invoking a force majeure clause bears the burden of demonstrating that the specific event claimed falls squarely within the language of the clause, that the event was beyond the party's reasonable control, and that the party could not have avoided the consequences of the event through the exercise of due diligence and reasonable commercial efforts. See Kel Kim Corp. v. Central Markets, Inc., 70 N.Y.2d 900, 902 (1987) (widely cited in Illinois commercial law); Phibro Energy, Inc. v. Empresa de Polimeros de Sines Sarl, 720 F. Supp. 312, 318 (S.D.N.Y. 1989). Where the language of the force majeure clause does not encompass the event alleged, or where the event did not actually prevent the performance at issue, the defense fails as a matter of law. Courts do not expand force majeure clauses by implication or resort to equitable considerations to broaden their scope. Northern Illinois Gas, 122 Ill. App. 3d at 949.

2. The Force Majeure Clause in the Off-Take Agreement Does Not Excuse Payment Obligations

The force majeure clause in the Off-Take Agreement is contained in Section 10.1, which provides in relevant part:

"Neither party shall be liable for any delay in or failure of performance of its obligations hereunder with respect to the delivery or acceptance of grain to the extent such delay or failure results from any event or circumstance beyond the reasonable control of such party, including, without limitation, acts of God, fire, flood, earthquake, severe weather events, war, terrorism, governmental action, epidemic, or labor disputes (each, a 'Force Majeure Event'), provided that the affected party shall give prompt written notice to the other party of the occurrence of such Force Majeure Event and shall use commercially reasonable efforts to resume performance as soon as practicable." (Emphasis added.)

The critical limitation in Section 10.1 is its express restriction to obligations "with respect to the delivery or acceptance of grain." This language plainly and unambiguously limits the scope of the force majeure clause to performance obligations related to the physical handling, transportation, and receipt of grain — that is, to the logistical act of getting grain from the seller's control into the buyer's control at the elevator. The clause does not, by its terms, extend to or encompass the obligation to pay for grain that has already been delivered and accepted.

This distinction is critical and dispositive. Under well-established Illinois precedent, force majeure clauses that excuse a party from "performance" are construed to apply to the specific performance obligations identified in the clause, and do not relieve a party of independent monetary obligations arising from performance that has already been rendered. See Virginia Surety Co. v. Northern Insurance Co. of New York, 224 Ill.2d 550, 563 (2007) (interpreting contract terms according to their plain and ordinary meaning); Gallagher v. Lenart, 226 Ill.2d 208, 233 (2007) (contract language that is clear and unambiguous must be given its plain meaning). The obligation to pay for goods delivered and accepted is an independent obligation that arises upon completion of the delivery-and-acceptance process; it is not itself an act of "delivery or acceptance" within the meaning of the force majeure clause.

PBGC accepted delivery of all grain at issue in this case. Scale tickets were issued for each delivery. PBGC raised no objection to quality, quantity, or condition. Upon acceptance, PBGC's obligation to pay crystallized under Section 5.2 of the Off-Take Agreement. The force majeure clause, by its express terms, does not relieve PBGC of this obligation, regardless of what subsequent events may have befallen PBGC's operations or finances.

Moreover, even if this Court were to construe the force majeure clause more broadly — which GAP respectfully submits would be contrary to the established principle of strict construction — the clause could at most excuse a delay or failure in the physical delivery or acceptance of grain. It could not retroactively excuse payment for grain that had already been successfully delivered to and accepted at PBGC's elevators. The fire occurred on October 17, 2021, after the first invoice (dated September 28, 2021) had already been issued, and the remaining invoices reflect grain that was delivered to and accepted at facilities other than the Macon County facility that experienced the fire. The force majeure clause is simply inapplicable to the obligations at issue in this case.

3. The Macon County Elevator Fire Affected Only One of Six PBGC Facilities

Even setting aside the textual limitation of the force majeure clause, PBGC's First Affirmative Defense is insufficient because the fire at the Macon County elevator facility cannot excuse PBGC's failure to pay invoices for grain delivered to and accepted at PBGC's other elevator facilities.

PBGC operates a network of six grain elevator facilities across Champaign, Macon, and Piatt Counties, Illinois. The fire on October 17, 2021, at PBGC's Macon County elevator, located at 2200 County Road 1400 East, Decatur, Illinois 62521, destroyed or damaged that single facility. The remaining five facilities — located in various communities within Champaign and Piatt Counties — were entirely unaffected by the fire and continued to operate in the ordinary course of business throughout the period in question.

A review of the five unpaid invoices confirms that the grain at issue was delivered to and accepted at PBGC's Champaign County and Piatt County facilities — not at the Macon County facility that experienced the fire. PBGC's Answer and Affirmative Defenses do not allege, and cannot allege, that the grain described in any of the five unpaid invoices was destroyed or damaged in the fire. To the contrary, PBGC took physical possession of the grain, issued scale tickets confirming acceptance, and presumably resold, stored, or otherwise utilized the grain through its elevator operations.

Under these circumstances, even if the force majeure clause could theoretically excuse delivery-related obligations at the Macon County facility, the fire at that facility cannot serve as a basis for excusing PBGC's obligation to pay for grain received and accepted at entirely separate facilities. The force majeure event — the fire — bears no causal relationship to PBGC's failure to pay the invoices at issue. PBGC's true problem is not that a force majeure event prevented it from performing; it is that PBGC's financial position deteriorated to the point where it could not, or chose not to, pay its debts.

The fire's estimated loss of approximately $3.2 million and any resulting insurance claim dispute between PBGC and its property insurer, Triton Mutual Insurance Co., are entirely collateral matters that have no bearing on PBGC's independent, pre-existing, and contractually established obligation to pay for grain it accepted. An insured party's difficulty in recovering insurance proceeds from its own insurer does not constitute a force majeure event excusing the insured party's payment obligations to its trade counterparties. The risk of casualty loss, and the risk of insurance recovery delays, are risks borne by PBGC — not by GAP.

4. PBGC's Financial Difficulties Do Not Constitute Force Majeure

At bottom, PBGC's First Affirmative Defense is not truly a force majeure defense at all. It is, in substance, an assertion that PBGC lacked sufficient funds to pay its obligations. PBGC's Answer and Affirmative Defenses, taken as a whole, implicitly concede that the real basis for nonpayment is financial distress — a combination of cash-flow shortfalls arising from the elevator fire, hedging losses sustained in the fourth quarter of 2021, and the delayed receipt of insurance proceeds.

Illinois law is unambiguous: financial inability to perform a contractual obligation does not constitute force majeure. See Langham-Hill Petroleum, Inc. v. Southern Fuels Co., 813 F.2d 1327, 1330 (4th Cir. 1987) (cited with approval in Illinois commercial law for the principle that financial hardship does not qualify as force majeure); Northern Illinois Gas Co., 122 Ill. App. 3d at 949-50 (financial inability to perform is not a force majeure event). This principle is rooted in the fundamental nature of force majeure as a doctrine designed to excuse performance where an extraordinary, external, and unforeseeable event renders performance physically impossible — not where a party's financial circumstances make payment inconvenient, burdensome, or even impossible as a practical matter.

Financial hardship, changes in market conditions, poor business decisions, and the failure of hedging or risk-management strategies are not force majeure events under any recognized authority. These are ordinary commercial risks assumed by every participant in the grain trade. PBGC is a regional grain elevator operator and merchandiser, with estimated annual revenues of approximately $185 million and operations spanning six elevator facilities in central Illinois. The risks of commodity price volatility, basis fluctuations, casualty loss, and insurance disputes are inherent in PBGC's business and were foreseeable at the time the Off-Take Agreement was executed. Force majeure clauses do not insure a contracting party against its own financial insolvency or poor risk management.

For all of the foregoing reasons, the First Affirmative Defense (Force Majeure) is legally insufficient and should be stricken in its entirety.

B. The Second Affirmative Defense (Commercial Impracticability) Should Be Stricken

PBGC's Second Affirmative Defense, which invokes the doctrine of commercial impracticability, is likewise legally insufficient and should be stricken. The defense fails because (1) the obligation to pay money is not subject to the defense of commercial impracticability; (2) PBGC's alleged financial losses from hedging and the fire do not establish the requisite level of impracticability; and (3) PBGC assumed the risk of the very contingencies it now cites as the basis for excusing its performance.

1. Illinois Law Standard for Commercial Impracticability

Under Illinois law and Section 2-615 of the Uniform Commercial Code, as adopted in Illinois (810 ILCS 5/2-615), a party may be excused from its performance obligations where performance has been "made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made." 810 ILCS 5/2-615(a). The doctrine of commercial impracticability, which represents a modern codification of the common-law defense of impossibility, requires more than mere difficulty, increased expense, or financial hardship. See Waldinger Corp. v. CRS Group Engineers, Inc., 775 F.2d 781, 786 (7th Cir. 1985) (applying Illinois law); Restatement (Second) of Contracts § 261 (1981).

To invoke commercial impracticability, a party must demonstrate that an event has occurred that (i) was not reasonably foreseeable at the time the contract was formed, (ii) was a contingency the non-occurrence of which was a basic assumption of the contract, and (iii) has rendered performance objectively impossible or nearly so — not merely more expensive, more difficult, or less profitable. See Northern Illinois Gas Co., 122 Ill. App. 3d at 950-51; Opera Co. of Boston, Inc. v. Wolf Trap Foundation for the Performing Arts, 817 F.2d 1094, 1099 (4th Cir. 1987) (applying analogous principles). The doctrine is extremely narrow, and courts routinely decline to excuse performance based on market shifts, financial difficulties, or casualty events that fall short of rendering performance truly impossible.

Critically, the doctrine of commercial impracticability, whether under the common law or the UCC, applies to a party's performance obligations — that is, to the delivery of goods, the rendering of services, or the execution of some act. It does not apply to a party's obligation to pay money. This distinction is fundamental and well-established.

2. Payment of Money Is Not Subject to the Defense of Commercial Impracticability

It is a bedrock principle of both Illinois common law and the UCC that the obligation to pay money cannot be excused by the doctrine of commercial impracticability. See 407 East 61st Garage, Inc. v. Savoy Fifth Avenue Corp., 23 N.Y.2d 275, 281 (1968) (holding that financial inability to perform does not excuse a monetary obligation); Langham-Hill Petroleum, 813 F.2d at 1330-31 (same); Center Garment Co. v. United Refrigerator Co., 369 Ill. 91, 97 (1938) (financial inability does not excuse performance). This principle rests on the straightforward logic that money is fungible, universally available, and capable of being obtained through various means — borrowing, liquidation of assets, or otherwise. A party's inability to pay its debts does not render payment "impracticable" in any legally cognizable sense; it merely renders the party insolvent. Insolvency is not a defense to a contract claim.

PBGC's obligation under the Off-Take Agreement was to pay for grain delivered and accepted. This is a monetary obligation, pure and simple. GAP performed its obligation by delivering conforming grain to PBGC's elevator facilities. PBGC accepted the grain. PBGC's reciprocal obligation was to remit payment within thirty days. This obligation is not subject to excuse under the doctrine of commercial impracticability, regardless of the circumstances that may have caused PBGC to lack the funds to pay.

The Official Comment to UCC § 2-615 reinforces this point, noting that the section "excuses a seller from timely delivery of goods contracted for, where his performance has become commercially impracticable" (emphasis added). The section is addressed to the seller's delivery obligations — not to the buyer's payment obligations. While PBGC is the buyer under the Off-Take Agreement, the same principle applies: the doctrine excuses performance in the sense of the physical delivery or provision of goods or services, not the payment of money owed for goods or services already received.

3. PBGC's Financial Losses from Hedging and the Fire Do Not Establish Impracticability

Even if the doctrine of commercial impracticability could theoretically apply to a payment obligation — which it cannot — PBGC's allegations fall far short of establishing the level of impracticability required under Illinois law.

PBGC alleges that volatile corn and soybean basis levels during the fourth quarter of 2021, combined with a failed proprietary hedging strategy, caused it to sustain approximately $6.8 million in mark-to-market hedging losses. PBGC further alleges that the Macon County elevator fire caused approximately $3.2 million in property losses and disrupted its operations. PBGC contends that these events, in combination, rendered performance under the Off-Take Agreement commercially impracticable.

These allegations are insufficient as a matter of law. Failed hedging strategies represent ordinary business risks voluntarily assumed by a commodity trading company. PBGC is not a passive investor or a casual market participant; it is a regional grain elevator operator and merchandiser with approximately $185 million in estimated annual revenues and six elevator facilities spanning three counties in central Illinois. Hedging risk — including the risk that a hedging strategy will produce losses rather than profits — is an inherent and fundamental part of the grain merchandising business. Every participant in the grain trade understands that commodity prices and basis levels fluctuate, sometimes dramatically, and that hedging positions can result in substantial mark-to-market losses. A party that voluntarily assumes market risk cannot subsequently invoke commercial impracticability when that risk materializes adversely.

Similarly, the Macon County elevator fire, while undoubtedly a significant event for PBGC's operations, did not render PBGC's payment obligations impracticable. The fire affected one of PBGC's six elevator facilities. PBGC's other five facilities continued to operate. The grain that was delivered to and accepted by PBGC at its Champaign County and Piatt County facilities was not affected by the fire. PBGC's obligation to pay for that grain is entirely independent of the fire and its consequences. Moreover, PBGC maintained property and casualty insurance on the Macon County facility through Triton Mutual Insurance Co. The fact that PBGC's insurance claim is disputed or has not yet been fully resolved does not render PBGC's contractual payment obligations to GAP impracticable.

None of these circumstances — the hedging losses, the basis volatility, or the elevator fire — individually or collectively, rises to the level of objective impossibility or near-impossibility required to invoke the defense of commercial impracticability under Illinois law. PBGC's Second Affirmative Defense amounts to nothing more than an assertion that it suffered financial losses and therefore cannot pay its debts. This is not commercial impracticability; it is insolvency. And insolvency is not a defense.

4. PBGC Assumed the Risk of These Contingencies

The doctrine of commercial impracticability is further inapplicable because PBGC assumed the risk of the very contingencies it now cites as the basis for excusing its performance. The Off-Take Agreement is a sophisticated commercial agreement between two experienced and well-counseled participants in the grain trade. Both parties were represented by counsel during the negotiation and execution of the Off-Take Agreement, and both parties had access to financial, legal, and industry advisors.

Market price volatility, basis fluctuations, the risk of casualty loss to physical facilities, and the risk of adverse outcomes in hedging and risk-management strategies are foreseeable contingencies in the agriculture and grain merchandising business. These are not extraordinary, unforeseeable events of the kind that give rise to a commercial impracticability defense; they are the ordinary risks of operating in the grain trade. PBGC, a substantial commercial enterprise, understood and accepted these risks when it entered into the Off-Take Agreement in March 2019.

The existence of the force majeure clause in Section 10.1 of the Off-Take Agreement itself demonstrates that the parties contemplated and specifically allocated the risk of certain enumerated extraordinary events, including fire. By including a force majeure clause with defined scope and conditions, the parties agreed that the specific events listed in the clause would excuse certain specific obligations (i.e., delivery or acceptance), subject to the procedural requirements of the clause (i.e., prompt notice and commercially reasonable efforts to resume performance). Risks not covered by the force majeure clause — including the risk of financial loss from market volatility, hedging failures, and the consequential financial effects of a casualty event — are borne by the party experiencing them. See Hess v. Chase Manhattan Bank, USA, N.A., 220 S.W.3d at 772; Restatement (Second) of Contracts § 261, cmt. c (1981) (foreseeability of the event is a factor in determining whether it was a basic assumption of the contract).

PBGC cannot, through the back door of commercial impracticability, obtain relief that the negotiated force majeure clause does not provide. The parties bargained for a specific allocation of risk. The Court should enforce that allocation as written. The Second Affirmative Defense (Commercial Impracticability) is legally insufficient and should be stricken in its entirety.

C. The Third Affirmative Defense (Failure to Mitigate) — Addressed but May Survive

GAP addresses the Third Affirmative Defense (Failure to Mitigate Damages) and demonstrates that, as pleaded, it is insufficient in factual particularity. However, GAP acknowledges that the failure-to-mitigate defense is a recognized affirmative defense under Illinois law, and in the alternative, the Court may exercise its discretion to allow the defense to stand subject to development through discovery or, at minimum, to order Defendants to replead with greater specificity.

1. The Failure to Mitigate Defense as Pled Is Insufficient in Factual Particularity

PBGC's Third Affirmative Defense alleges, in its entirety, that GAP "failed to mitigate its damages by failing to resell the grain to alternative buyers or take other reasonable steps to minimize its loss after PBGC's nonpayment." This allegation is wholly conclusory and devoid of any factual content that would put GAP on notice of the factual basis for the defense.

Under Illinois pleading standards, an affirmative defense of failure to mitigate must be pleaded with sufficient factual specificity to apprise the opposing party of the nature of the defense and the facts supporting it. See marshall v. Burger King Corp., 222 Ill.2d at 429; Consolidated Bearings Co. v. Ehret-Krohn Corp., 913 F.2d 1224, 1232 (7th Cir. 1990) (applying Illinois law). A properly pleaded failure-to-mitigate defense should identify, at a minimum: (a) the specific steps that the plaintiff allegedly failed to take to minimize its damages; (b) the factual basis for the assertion that such steps were available and reasonable under the circumstances; and (c) the extent to which such steps would have reduced the damages suffered.

PBGC's Third Affirmative Defense does none of these things. It does not identify any alternative buyers to whom GAP could have resold the grain. It does not identify any available markets in which GAP could have disposed of the grain. It does not allege the prices at which GAP could have resold the grain or the quantum of damages that would have been avoided through mitigation. It does not allege the time period during which mitigation efforts should have been undertaken. It does not allege any specific facts at all — it merely recites the legal conclusion that GAP "failed to mitigate."

This is precisely the type of bare-bones, conclusory pleading that Illinois courts have found insufficient under Section 2-615. An affirmative defense that consists of nothing more than a formulaic recitation of the legal standard, unsupported by any factual allegations, fails to provide adequate notice and should be stricken. See People ex rel. Fahner v. Carriage Way West, Inc., 88 Ill.2d 300, 308 (1981) (requiring fact pleading in affirmative defenses); Guarantee Trust Life Insurance Co. v. Kribbs & Kribbs, 2015 IL App (1st) 140455, ¶ 18 (striking affirmative defense for insufficient factual particularity).

2. In the Alternative, the Defense May Be Cognizable Under Illinois Law

GAP acknowledges that the duty to mitigate damages is a well-recognized principle under Illinois law, and that failure to mitigate is a cognizable affirmative defense in a breach-of-contract action. See Goldberg v. Davis, 65 Ill.2d 378, 383 (1976); Midland Hotel Corp. v. Reuben H. Donnelley Corp., 118 Ill.2d 306, 317 (1987); In re Estate of Halas, 159 Ill.2d 46, 58 (1994). Under this doctrine, a party injured by a breach of contract has a duty to exercise reasonable diligence and ordinary care to minimize the damages resulting from the breach, and cannot recover for losses that could have been avoided through the exercise of such reasonable efforts. See Goldberg, 65 Ill.2d at 383-84.

While GAP contends that the Third Affirmative Defense is inadequately pleaded for the reasons set forth above, GAP recognizes that this Court may, in its discretion, conclude that the defense is sufficiently cognizable as a matter of law to survive a motion to strike, even if the factual allegations are sparse. GAP further recognizes that certain factual matters relevant to the defense — such as the availability of alternative buyers, prevailing market conditions at the time of PBGC's default, and the specific steps that GAP took or did not take in response to PBGC's nonpayment — may be more fully developed through discovery.

GAP does not concede the factual merit of this defense. To the contrary, GAP maintains that it acted reasonably at all times following PBGC's nonpayment. The grain at issue had already been delivered to PBGC and was in PBGC's physical possession at its elevator facilities. GAP did not retain possession of undelivered grain that it could have resold; the grain was delivered, accepted, and incorporated into PBGC's inventory. PBGC's obligation to pay is independent of any mitigation efforts by GAP, and the failure-to-mitigate defense is factually inapplicable under these circumstances. GAP reserves its right to challenge this defense through summary judgment proceedings after the close of discovery.

However, should this Court decline to strike the Third Affirmative Defense, GAP respectfully requests that the Court enter an order directing Defendants to replead the defense with greater factual particularity, including specific allegations regarding (a) the steps GAP allegedly should have taken, (b) the availability of alternative buyers or markets, (c) the prices at which mitigation sales could have been accomplished, and (d) the quantum of damages that would have been avoided through such mitigation. Such an order would promote the efficient administration of this case and ensure that GAP is afforded adequate notice of the factual basis for the defense prior to the commencement of discovery.

V. CONCLUSION

For all of the foregoing reasons, Plaintiff Greenfield Agricultural Partners LLC respectfully requests that this Court enter an order granting the following relief:

1. Striking Defendants' First Affirmative Defense (Force Majeure) in its entirety, on the ground that the force majeure clause in the Off-Take Agreement does not, by its terms, excuse payment obligations for grain already delivered and accepted; that the fire at PBGC's Macon County elevator facility bears no causal relationship to PBGC's failure to pay invoices for grain delivered to other facilities; and that financial inability to pay does not constitute a force majeure event under Illinois law;

2. Striking Defendants' Second Affirmative Defense (Commercial Impracticability) in its entirety, on the ground that the obligation to pay money is not subject to the defense of commercial impracticability; that PBGC's hedging losses, basis volatility, and the Macon County fire do not rise to the level of objective impossibility required under Illinois law; and that PBGC assumed the risk of the very contingencies it now cites as the basis for excusing its performance;

3. Striking Defendants' Third Affirmative Defense (Failure to Mitigate) for failure to plead the defense with sufficient factual particularity, or, in the alternative, ordering Defendants to replead the Third Affirmative Defense with specific factual allegations supporting the defense, including identification of the steps GAP allegedly should have taken, the alternative buyers or markets allegedly available, the prices at which mitigation sales could have been accomplished, and the quantum of damages that would have been avoided; and

4. Granting such other and further relief as this Court deems just and proper.

Respectfully submitted,

GREENFIELD AGRICULTURAL PARTNERS LLC, By its attorneys,

CALDERWOOD & HARKNESS LLP

By: ________

Hannah Brinkley (ARDC No. 6329148) Patrick Gallagher (ARDC No. 6331502) 225 West Wacker Drive, Suite 4000 Chicago, Illinois 60606 Telephone: (312) 555-7800 Facsimile: (312) 555-7801

Email: hbrinkley@calderwoodharkness.com

Email: pgallagher@calderwoodharkness.com

Attorneys for Plaintiff Greenfield Agricultural Partners LLC

CERTIFICATE OF SERVICE

The undersigned, an attorney, hereby certifies that on July 15, 2022, a true and correct copy of the foregoing Plaintiff's Memorandum of Law in Support of Its Motion to Strike Defendants' Affirmative Defenses was served upon counsel for Defendants by electronic mail and by depositing a copy in the United States Mail, first-class postage prepaid, addressed as follows:

Douglas M. Harkin Nadia C. Petrov BARTLETT, Reyes Linley CPAs LLP & HARKIN LLP 200 North LaSalle Street, Suite 2500 Chicago, Illinois 60601 dharkin@bartlettcroweharkin.com npetrov@bartlettcroweharkin.com

Counsel for Defendants Prairie Basin Grain Co. and Darren K. Musgrave

Case No. 2022-L-004831

________________________________________

Hannah Brinkley

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, LAW DIVISION
GREENFIELD AGRICULTURAL PARTNERS LLC, a Delaware limited liability company,
Plaintiff,
v.
PRAIRIE BASIN GRAIN CO., an Illinois corporation, and DARREN K. MUSGRAVE, individually,
Defendants.
Case No. 2022-L-004831 Hon. Patricia Delacroix
PLAINTIFF'S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO STRIKE DEFENDANTS' AFFIRMATIVE DEFENSES
Filed: July 15, 2022
I. INTRODUCTION
Plaintiff Greenfield Agricultural Partners LLC ("GAP") respectfully submits this Memorandum of Law in Support of its Motion to Strike the First, Second, and Third Affirmative Defenses asserted by Defendants Prairie Basin Grain Co. ("PBGC") and Darren K. Musgrave ("Musgrave") (collectively, "Defendants") in their joint Answer and Affirmative Defenses filed on June 27, 2022 (the "Answer"). This Memorandum is submitted pursuant to Section 2-615 of the Illinois Code of Civil Procedure, 735 ILCS 5/2-615, and the applicable rules of this Court.
GAP initiated this action on May 9, 2022, by filing a four-count Verified Complaint seeking to collect $4,870,050.00 in unpaid principal, plus accrued contractual interest at a rate of 1.5% per month (18% per annum), owed by PBGC under that certain Master Grain Purchase and Off-Take Agreement dated March 15, 2019 (the "Off-Take Agreement"), and to enforce the limited personal guaranty of PBGC's payment obligations executed by Musgrave in his individual capacity as a principal of PBGC, which guaranty is capped at $2,000,000.00 (the "Personal Guaranty"). The Off-Take Agreement and the Personal Guaranty are attached to the Verified Complaint as Exhibits A and D, respectively, and are incorporated herein by reference.
The Verified Complaint asserts four counts: Count I (Breach of Contract — Off-Take Agreement, against PBGC); Count II (Breach of Personal Guaranty, against Musgrave); Count III (Account Stated, against PBGC); and Count IV (Unjust Enrichment, pleaded in the alternative, against PBGC). The factual basis for each count is straightforward: GAP delivered grain to PBGC's elevator facilities in accordance with the Off-Take Agreement; PBGC accepted delivery of that grain without objection; PBGC failed and refused to pay the corresponding invoices, totaling $4,870,050.00 in principal; and Musgrave, as guarantor, has likewise failed and refused to honor his obligations under the Personal Guaranty.
In their Answer, Defendants asserted three affirmative defenses: (1) Force Majeure, predicated on a fire at PBGC's Macon County elevator facility on October 17, 2021; (2) Commercial Impracticability, predicated on the combined effects of the elevator fire, volatile commodity basis levels, and failed hedging strategies; and (3) Failure to Mitigate Damages, alleging in conclusory fashion that GAP failed to take reasonable steps to minimize its losses after PBGC's nonpayment.
As set forth in detail below, GAP seeks to strike the First and Second Affirmative Defenses in their entirety as legally insufficient. Neither the doctrine of force majeure nor the doctrine of commercial impracticability is applicable to PBGC's obligation to pay for grain that it accepted and for which it has rendered no payment. The force majeure clause in the Off-Take Agreement, by its express terms, addresses only delays or failures in the physical "delivery or acceptance" of grain — not the obligation to pay for grain already delivered and accepted. Similarly, the doctrine of commercial impracticability does not excuse an obligation to pay money, and PBGC's financial difficulties — arising from its own hedging losses and the consequences of a fire at one of its six elevator facilities — do not rise to the level of objective impossibility required to invoke the defense.
With respect to the Third Affirmative Defense (Failure to Mitigate), GAP demonstrates that Defendants have failed to plead the defense with sufficient factual particularity, and therefore it should be stricken or, in the alternative, Defendants should be ordered to replead with greater specificity. GAP acknowledges, however, that the failure-to-mitigate defense is generally cognizable under Illinois law, and this Court may, in its discretion, permit the defense to stand subject to further development through discovery. GAP expressly reserves its right to challenge the factual merit of this defense at the summary judgment stage.
II. FACTUAL BACKGROUND
A. The Off-Take Agreement
On March 15, 2019, GAP, acting as Seller, and PBGC, acting as Buyer, entered into the Off-Take Agreement, a comprehensive five-year master agreement governing the purchase and sale of grain commodities, specifically #2 Yellow Corn and #1 Yellow Soybeans. The Off-Take Agreement has a term running from March 15, 2019, through March 14, 2024, and establishes the commercial framework under which GAP committed to deliver, and PBGC committed to purchase and accept, specified minimum annual volumes of grain at PBGC's elevator facilities located in Champaign, Macon, and Piatt Counties, Illinois.
Under Section 3.1 of the Off-Take Agreement, PBGC committed to purchase minimum annual volumes of 1,200,000 bushels of #2 Yellow Corn and 600,000 bushels of #1 Yellow Soybeans, subject to standard tolerances and adjustment provisions set forth in Section 3.2. These minimum volumes were negotiated to reflect PBGC's throughput capacity and merchandising operations at its network of elevator facilities across central Illinois.
Pricing under the Off-Take Agreement was established pursuant to Section 4.1, which provides that the purchase price for each delivery shall be determined by reference to the Chicago Board of Trade ("CBOT") nearby futures price at the time of delivery, plus or minus a negotiated quarterly basis differential. The specific basis differentials for each quarter of each contract year are set forth in Exhibit B to the Off-Take Agreement. This pricing mechanism reflects the standard practice in the grain trade, tying transaction prices to observable, publicly-quoted futures benchmarks while accounting for local basis conditions through negotiated adjustments.
Section 5.2 of the Off-Take Agreement governs payment terms. Payment for each delivery is due net thirty (30) days from the date of delivery and acceptance at the elevator facility. The term "acceptance" is defined in Section 2.1(b) to mean the physical receipt of grain at the elevator weigh station, confirmation of quality specifications by PBGC's on-site quality assurance personnel, and issuance of a scale ticket or warehouse receipt. It is undisputed that PBGC accepted all deliveries at issue in this litigation and issued scale tickets for each.
Section 7.3 of the Off-Take Agreement provides that all amounts not paid when due shall bear interest at a rate of 1.5% per month (equivalent to 18% per annum), calculated on the outstanding balance from the date payment was due until the date of actual payment in full. This contractual interest rate was negotiated at arm's length between the parties and represents a commercially reasonable rate given the credit risk inherent in grain purchase transactions of this magnitude.
Section 12.4 of the Off-Take Agreement contains a prevailing-party fee-shifting provision, which states: "In any action, suit, or proceeding arising out of or in connection with this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees, costs, and expenses from the non-prevailing party." This provision is relevant to GAP's entitlement to fees and costs in this enforcement action, although GAP does not seek an award of fees at this stage.
Section 13.1 of the Off-Take Agreement provides that the agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without regard to its conflict-of-laws provisions. Section 13.2 provides for exclusive jurisdiction in the courts of Cook County, Illinois, or the United States District Court for the Northern District of Illinois.
As part of the overall transaction, and contemporaneous with the execution of the Off-Take Agreement, Musgrave — the founder, President, and majority equity holder of PBGC — executed the Personal Guaranty, attached as Exhibit D to the Off-Take Agreement. Under the Personal Guaranty, Musgrave unconditionally guaranteed PBGC's payment obligations under the Off-Take Agreement, subject to a maximum aggregate liability cap of $2,000,000.00. The Personal Guaranty contains standard provisions including a waiver of defenses to payment, a waiver of notice and presentment, and a covenant that the guarantor's obligations are independent of and not contingent upon the validity or enforceability of any defense available to the primary obligor. The Personal Guaranty is governed by Illinois law and contains its own fee-shifting provision at Section 4(c).
B. PBGC's Payment Default
Between September 28, 2021, and January 19, 2022, GAP delivered grain to PBGC under the Off-Take Agreement in the ordinary course and in accordance with the delivery schedules established by the parties. GAP issued the following five invoices to PBGC, none of which has been paid in whole or in part:
1. Invoice GAP-2021-3187, dated September 28, 2021, for 150,000 bushels of #2 Yellow Corn delivered to PBGC's Champaign County elevator facility, in the amount of $892,500.00, with payment due on or before October 28, 2021.
2. Invoice GAP-2021-3244, dated October 15, 2021, for 75,000 bushels of #1 Yellow Soybeans delivered to PBGC's Piatt County elevator facility, in the amount of $936,750.00, with payment due on or before November 14, 2021.
3. Invoice GAP-2021-3301, dated November 12, 2021, for 200,000 bushels of #2 Yellow Corn delivered to PBGC's Champaign County and Piatt County elevator facilities, in the amount of $1,224,000.00, with payment due on or before December 12, 2021.
4. Invoice GAP-2021-3358, dated December 8, 2021, for 120,000 bushels of #2 Yellow Corn delivered to PBGC's Champaign County elevator facility, in the amount of $741,600.00, with payment due on or before January 7, 2022.
5. Invoice GAP-2022-0042, dated January 19, 2022, for 80,000 bushels of #1 Yellow Soybeans delivered to PBGC's Piatt County elevator facility, in the amount of $1,075,200.00, with payment due on or before February 18, 2022.
The total unpaid principal balance across these five invoices is $4,870,050.00. As of the date of this filing, no portion of this amount has been paid. Interest continues to accrue on each invoice at the contractual rate of 1.5% per month from its respective due date.
PBGC accepted and took delivery of all grain described in the foregoing invoices at its elevator facilities without any objection to quality, quantity, weight, moisture content, or condition. Scale tickets were issued by PBGC's elevator personnel for each delivery, confirming acceptance. At no time prior to the commencement of this litigation did PBGC raise any claim of non-conforming goods, reject any delivery, or invoke any provision of the Off-Take Agreement to dispute its obligation to pay.
Following PBGC's failure to pay the first invoice when due, GAP's credit management team initiated a series of written communications to PBGC's Chief Financial Officer, seeking payment and requesting information regarding PBGC's payment timeline. These communications, sent between November 2021 and March 2022, received only vague assurances from PBGC that payment would be forthcoming. On April 11, 2022, GAP's counsel at Calderwood & Harkness LLP transmitted a formal pre-suit demand letter to PBGC and Musgrave via certified mail, return receipt requested, and via electronic mail. The demand letter set forth each outstanding invoice, the total amount owed including accrued interest, and advised Defendants that if full payment was not received within fifteen (15) business days (i.e., by May 2, 2022), GAP would commence legal proceedings to enforce its rights under the Off-Take Agreement and the Personal Guaranty. The fifteen-day demand period expired on May 2, 2022, with no response, no payment, and no proposal for resolution from either Defendant. GAP filed this action on May 9, 2022.
C. PBGC's Asserted Affirmative Defenses
On June 27, 2022, Defendants filed their joint Answer and Affirmative Defenses through their counsel of record, Douglas M. Harkin and Nadia C. Petrov of Bartlett, Reyes Linley CPAs LLP & Harkin LLP. In addition to their responses to the allegations of the Verified Complaint, Defendants asserted three affirmative defenses, which GAP addresses in turn.
First Affirmative Defense — Force Majeure. PBGC alleges that a fire at its Macon County elevator facility, located at 2200 County Road 1400 East, Decatur, Illinois 62521, on October 17, 2021, constitutes a force majeure event under the Off-Take Agreement that excuses PBGC's payment obligations for all five unpaid invoices. PBGC alleges that the fire destroyed or severely damaged the Macon County facility, caused an estimated $3.2 million in property losses, disrupted PBGC's operations, and triggered a protracted insurance claim dispute with Triton Mutual Insurance Co. PBGC contends that these circumstances rendered it unable to fulfill its obligations under the Off-Take Agreement.
Second Affirmative Defense — Commercial Impracticability. PBGC alleges that the combination of the Macon County elevator fire, volatile corn and soybean basis levels during the fourth quarter of 2021, and the failure of PBGC's proprietary hedging strategies rendered performance under the Off-Take Agreement commercially impracticable. PBGC alleges that it sustained approximately $6.8 million in mark-to-market hedging losses during the fourth quarter of 2021, and that these losses, combined with the financial impact of the elevator fire and unfavorable basis movements, made it economically impossible for PBGC to continue performing its payment obligations.
Third Affirmative Defense — Failure to Mitigate Damages. PBGC alleges, in conclusory terms, that GAP "failed to mitigate its damages by failing to resell the grain to alternative buyers or take other reasonable steps to minimize its loss after PBGC's nonpayment." The defense contains no factual detail regarding what specific steps GAP allegedly should have taken, what alternative buyers were available, at what prices grain could have been resold, or what quantum of damages could have been avoided through mitigation efforts.
As demonstrated below, the First and Second Affirmative Defenses are legally insufficient and should be stricken in their entirety. The Third Affirmative Defense, while potentially cognizable, is pleaded with such a lack of factual specificity as to warrant being stricken or, in the alternative, repleaded.
III. LEGAL STANDARD FOR MOTION TO STRIKE AFFIRMATIVE DEFENSES
Under Section 2-615 of the Illinois Code of Civil Procedure, 735 ILCS 5/2-615, any party may move to strike a pleading or any part thereof on the ground that it is substantially insufficient in law. This standard applies with equal force to affirmative defenses asserted in an answer. See Dratewska-Zator v. Rutherford, 2013 IL App (1st) 122699, ¶ 12 ("A Section 2-615 motion to strike an affirmative defense tests the legal sufficiency of the defense."); Combined Insurance Co. of America v. Sinclair, 584 N.E.2d 1026, 1030 (Ill. App. Ct. 1st Dist. 1991) (same).
An affirmative defense is legally insufficient, and subject to being stricken, if it fails to allege facts which, if true, would constitute a complete defense to the plaintiff's cause of action. Dowd & Dowd, Ltd. v. Gleason, 181 Ill.2d 460, 486 (1998). In evaluating a motion to strike an affirmative defense, the court accepts all well-pleaded facts in the defense as true and draws all reasonable inferences in favor of the party asserting the defense. Id. However, the court is not required to accept legal conclusions unsupported by specific factual allegations, nor is the court obligated to accept factual allegations that are contradicted by the terms of the written instruments attached to or incorporated by reference in the pleadings. See Illinois Graphics Co. v. Nickum, 159 Ill.2d 469, 488 (1994); Raintree Homes, Inc. v. Village of Long Grove, 209 Ill.2d 248, 262 (2004).
An affirmative defense should be stricken where it is based on a legal theory that is not recognized under the applicable law, or where the undisputed terms of the governing contract negate the defense as a matter of law. See Kravis v. Smith Marine, Inc., 60 Ill.2d 141, 147 (1975); Hess v. Chase Manhattan Bank, USA, N.A., 220 S.W.3d 758, 772 (Mo. 2007) (cited with approval in Illinois courts for the principle that contract terms control over inconsistent affirmative defenses). Where the defense is precluded by the clear language of the contract, no amount of factual development can render it sufficient, and the defense should be stricken at the pleading stage. See Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill.2d 100, 129 (2005).
Furthermore, an affirmative defense must be pleaded with sufficient factual particularity to put the plaintiff on notice of the nature of the defense and the facts upon which it is based. While fact pleading in Illinois does not require the same specificity as federal notice pleading under Ashcroft v. Iqbal, 556 U.S. 662 (2009), an affirmative defense that consists of nothing more than bare legal conclusions, devoid of any supporting factual allegations, is insufficient and may be stricken. See marshall v. Burger King Corp., 222 Ill.2d 422, 429 (2006); Fidelity National Title Insurance Co. of New York v. Howard Savings Bank, 436 F.3d 836, 842 (7th Cir. 2006) (applying Illinois pleading standards).
IV. ARGUMENT
A. The First Affirmative Defense (Force Majeure) Should Be Stricken
PBGC's First Affirmative Defense, which invokes force majeure based on the October 17, 2021 fire at its Macon County elevator facility, is legally insufficient as a matter of law and should be stricken in its entirety. The defense fails for three independent reasons: (1) the force majeure clause in the Off-Take Agreement, by its express terms, does not excuse payment obligations; (2) the fire at one of PBGC's six elevator facilities does not excuse PBGC's obligation to pay for grain that was delivered to and accepted at PBGC's other facilities; and (3) financial inability to pay is not a force majeure event under any recognized construction of the doctrine.
1. Force Majeure Clauses Are Strictly Construed Under Illinois Law
It is well established under Illinois law that force majeure clauses are creatures of contract, not of common law, and must be strictly construed. See Thackeray Enterprises v. Allied-General Nuclear Services, 731 F. Supp. 850, 855 (N.D. Ill. 1990); Northern Illinois Gas Co. v. Energy Cooperative, Inc., 122 Ill. App. 3d 940, 949 (3d Dist. 1984). A force majeure clause operates only to excuse performance for those specific events that are enumerated within its scope; it does not serve as a blanket excuse for nonperformance in the face of any adverse circumstance. See Restatement (Second) of Contracts § 261, cmt. d (1981); Constellation Energy Services of New York, Inc. v. New Water Street Corp., 46 Misc. 3d 966, 978 (N.Y. Sup. Ct. 2014) (applying analogous principles frequently cited by Illinois courts in commercial disputes).
The party invoking a force majeure clause bears the burden of demonstrating that the specific event claimed falls squarely within the language of the clause, that the event was beyond the party's reasonable control, and that the party could not have avoided the consequences of the event through the exercise of due diligence and reasonable commercial efforts. See Kel Kim Corp. v. Central Markets, Inc., 70 N.Y.2d 900, 902 (1987) (widely cited in Illinois commercial law); Phibro Energy, Inc. v. Empresa de Polimeros de Sines Sarl, 720 F. Supp. 312, 318 (S.D.N.Y. 1989). Where the language of the force majeure clause does not encompass the event alleged, or where the event did not actually prevent the performance at issue, the defense fails as a matter of law. Courts do not expand force majeure clauses by implication or resort to equitable considerations to broaden their scope. Northern Illinois Gas, 122 Ill. App. 3d at 949.
2. The Force Majeure Clause in the Off-Take Agreement Does Not Excuse Payment Obligations
The force majeure clause in the Off-Take Agreement is contained in Section 10.1, which provides in relevant part:
"Neither party shall be liable for any delay in or failure of performance of its obligations hereunder with respect to the delivery or acceptance of grain to the extent such delay or failure results from any event or circumstance beyond the reasonable control of such party, including, without limitation, acts of God, fire, flood, earthquake, severe weather events, war, terrorism, governmental action, epidemic, or labor disputes (each, a 'Force Majeure Event'), provided that the affected party shall give prompt written notice to the other party of the occurrence of such Force Majeure Event and shall use commercially reasonable efforts to resume performance as soon as practicable." (Emphasis added.)
The critical limitation in Section 10.1 is its express restriction to obligations "with respect to the delivery or acceptance of grain." This language plainly and unambiguously limits the scope of the force majeure clause to performance obligations related to the physical handling, transportation, and receipt of grain — that is, to the logistical act of getting grain from the seller's control into the buyer's control at the elevator. The clause does not, by its terms, extend to or encompass the obligation to pay for grain that has already been delivered and accepted.
This distinction is critical and dispositive. Under well-established Illinois precedent, force majeure clauses that excuse a party from "performance" are construed to apply to the specific performance obligations identified in the clause, and do not relieve a party of independent monetary obligations arising from performance that has already been rendered. See Virginia Surety Co. v. Northern Insurance Co. of New York, 224 Ill.2d 550, 563 (2007) (interpreting contract terms according to their plain and ordinary meaning); Gallagher v. Lenart, 226 Ill.2d 208, 233 (2007) (contract language that is clear and unambiguous must be given its plain meaning). The obligation to pay for goods delivered and accepted is an independent obligation that arises upon completion of the delivery-and-acceptance process; it is not itself an act of "delivery or acceptance" within the meaning of the force majeure clause.
PBGC accepted delivery of all grain at issue in this case. Scale tickets were issued for each delivery. PBGC raised no objection to quality, quantity, or condition. Upon acceptance, PBGC's obligation to pay crystallized under Section 5.2 of the Off-Take Agreement. The force majeure clause, by its express terms, does not relieve PBGC of this obligation, regardless of what subsequent events may have befallen PBGC's operations or finances.
Moreover, even if this Court were to construe the force majeure clause more broadly — which GAP respectfully submits would be contrary to the established principle of strict construction — the clause could at most excuse a delay or failure in the physical delivery or acceptance of grain. It could not retroactively excuse payment for grain that had already been successfully delivered to and accepted at PBGC's elevators. The fire occurred on October 17, 2021, after the first invoice (dated September 28, 2021) had already been issued, and the remaining invoices reflect grain that was delivered to and accepted at facilities other than the Macon County facility that experienced the fire. The force majeure clause is simply inapplicable to the obligations at issue in this case.
3. The Macon County Elevator Fire Affected Only One of Six PBGC Facilities
Even setting aside the textual limitation of the force majeure clause, PBGC's First Affirmative Defense is insufficient because the fire at the Macon County elevator facility cannot excuse PBGC's failure to pay invoices for grain delivered to and accepted at PBGC's other elevator facilities.
PBGC operates a network of six grain elevator facilities across Champaign, Macon, and Piatt Counties, Illinois. The fire on October 17, 2021, at PBGC's Macon County elevator, located at 2200 County Road 1400 East, Decatur, Illinois 62521, destroyed or damaged that single facility. The remaining five facilities — located in various communities within Champaign and Piatt Counties — were entirely unaffected by the fire and continued to operate in the ordinary course of business throughout the period in question.
A review of the five unpaid invoices confirms that the grain at issue was delivered to and accepted at PBGC's Champaign County and Piatt County facilities — not at the Macon County facility that experienced the fire. PBGC's Answer and Affirmative Defenses do not allege, and cannot allege, that the grain described in any of the five unpaid invoices was destroyed or damaged in the fire. To the contrary, PBGC took physical possession of the grain, issued scale tickets confirming acceptance, and presumably resold, stored, or otherwise utilized the grain through its elevator operations.
Under these circumstances, even if the force majeure clause could theoretically excuse delivery-related obligations at the Macon County facility, the fire at that facility cannot serve as a basis for excusing PBGC's obligation to pay for grain received and accepted at entirely separate facilities. The force majeure event — the fire — bears no causal relationship to PBGC's failure to pay the invoices at issue. PBGC's true problem is not that a force majeure event prevented it from performing; it is that PBGC's financial position deteriorated to the point where it could not, or chose not to, pay its debts.
The fire's estimated loss of approximately $3.2 million and any resulting insurance claim dispute between PBGC and its property insurer, Triton Mutual Insurance Co., are entirely collateral matters that have no bearing on PBGC's independent, pre-existing, and contractually established obligation to pay for grain it accepted. An insured party's difficulty in recovering insurance proceeds from its own insurer does not constitute a force majeure event excusing the insured party's payment obligations to its trade counterparties. The risk of casualty loss, and the risk of insurance recovery delays, are risks borne by PBGC — not by GAP.
4. PBGC's Financial Difficulties Do Not Constitute Force Majeure
At bottom, PBGC's First Affirmative Defense is not truly a force majeure defense at all. It is, in substance, an assertion that PBGC lacked sufficient funds to pay its obligations. PBGC's Answer and Affirmative Defenses, taken as a whole, implicitly concede that the real basis for nonpayment is financial distress — a combination of cash-flow shortfalls arising from the elevator fire, hedging losses sustained in the fourth quarter of 2021, and the delayed receipt of insurance proceeds.
Illinois law is unambiguous: financial inability to perform a contractual obligation does not constitute force majeure. See Langham-Hill Petroleum, Inc. v. Southern Fuels Co., 813 F.2d 1327, 1330 (4th Cir. 1987) (cited with approval in Illinois commercial law for the principle that financial hardship does not qualify as force majeure); Northern Illinois Gas Co., 122 Ill. App. 3d at 949-50 (financial inability to perform is not a force majeure event). This principle is rooted in the fundamental nature of force majeure as a doctrine designed to excuse performance where an extraordinary, external, and unforeseeable event renders performance physically impossible — not where a party's financial circumstances make payment inconvenient, burdensome, or even impossible as a practical matter.
Financial hardship, changes in market conditions, poor business decisions, and the failure of hedging or risk-management strategies are not force majeure events under any recognized authority. These are ordinary commercial risks assumed by every participant in the grain trade. PBGC is a regional grain elevator operator and merchandiser, with estimated annual revenues of approximately $185 million and operations spanning six elevator facilities in central Illinois. The risks of commodity price volatility, basis fluctuations, casualty loss, and insurance disputes are inherent in PBGC's business and were foreseeable at the time the Off-Take Agreement was executed. Force majeure clauses do not insure a contracting party against its own financial insolvency or poor risk management.
For all of the foregoing reasons, the First Affirmative Defense (Force Majeure) is legally insufficient and should be stricken in its entirety.
B. The Second Affirmative Defense (Commercial Impracticability) Should Be Stricken
PBGC's Second Affirmative Defense, which invokes the doctrine of commercial impracticability, is likewise legally insufficient and should be stricken. The defense fails because (1) the obligation to pay money is not subject to the defense of commercial impracticability; (2) PBGC's alleged financial losses from hedging and the fire do not establish the requisite level of impracticability; and (3) PBGC assumed the risk of the very contingencies it now cites as the basis for excusing its performance.
1. Illinois Law Standard for Commercial Impracticability
Under Illinois law and Section 2-615 of the Uniform Commercial Code, as adopted in Illinois (810 ILCS 5/2-615), a party may be excused from its performance obligations where performance has been "made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made." 810 ILCS 5/2-615(a). The doctrine of commercial impracticability, which represents a modern codification of the common-law defense of impossibility, requires more than mere difficulty, increased expense, or financial hardship. See Waldinger Corp. v. CRS Group Engineers, Inc., 775 F.2d 781, 786 (7th Cir. 1985) (applying Illinois law); Restatement (Second) of Contracts § 261 (1981).
To invoke commercial impracticability, a party must demonstrate that an event has occurred that (i) was not reasonably foreseeable at the time the contract was formed, (ii) was a contingency the non-occurrence of which was a basic assumption of the contract, and (iii) has rendered performance objectively impossible or nearly so — not merely more expensive, more difficult, or less profitable. See Northern Illinois Gas Co., 122 Ill. App. 3d at 950-51; Opera Co. of Boston, Inc. v. Wolf Trap Foundation for the Performing Arts, 817 F.2d 1094, 1099 (4th Cir. 1987) (applying analogous principles). The doctrine is extremely narrow, and courts routinely decline to excuse performance based on market shifts, financial difficulties, or casualty events that fall short of rendering performance truly impossible.
Critically, the doctrine of commercial impracticability, whether under the common law or the UCC, applies to a party's performance obligations — that is, to the delivery of goods, the rendering of services, or the execution of some act. It does not apply to a party's obligation to pay money. This distinction is fundamental and well-established.
2. Payment of Money Is Not Subject to the Defense of Commercial Impracticability
It is a bedrock principle of both Illinois common law and the UCC that the obligation to pay money cannot be excused by the doctrine of commercial impracticability. See 407 East 61st Garage, Inc. v. Savoy Fifth Avenue Corp., 23 N.Y.2d 275, 281 (1968) (holding that financial inability to perform does not excuse a monetary obligation); Langham-Hill Petroleum, 813 F.2d at 1330-31 (same); Center Garment Co. v. United Refrigerator Co., 369 Ill. 91, 97 (1938) (financial inability does not excuse performance). This principle rests on the straightforward logic that money is fungible, universally available, and capable of being obtained through various means — borrowing, liquidation of assets, or otherwise. A party's inability to pay its debts does not render payment "impracticable" in any legally cognizable sense; it merely renders the party insolvent. Insolvency is not a defense to a contract claim.
PBGC's obligation under the Off-Take Agreement was to pay for grain delivered and accepted. This is a monetary obligation, pure and simple. GAP performed its obligation by delivering conforming grain to PBGC's elevator facilities. PBGC accepted the grain. PBGC's reciprocal obligation was to remit payment within thirty days. This obligation is not subject to excuse under the doctrine of commercial impracticability, regardless of the circumstances that may have caused PBGC to lack the funds to pay.
The Official Comment to UCC § 2-615 reinforces this point, noting that the section "excuses a seller from timely delivery of goods contracted for, where his performance has become commercially impracticable" (emphasis added). The section is addressed to the seller's delivery obligations — not to the buyer's payment obligations. While PBGC is the buyer under the Off-Take Agreement, the same principle applies: the doctrine excuses performance in the sense of the physical delivery or provision of goods or services, not the payment of money owed for goods or services already received.
3. PBGC's Financial Losses from Hedging and the Fire Do Not Establish Impracticability
Even if the doctrine of commercial impracticability could theoretically apply to a payment obligation — which it cannot — PBGC's allegations fall far short of establishing the level of impracticability required under Illinois law.
PBGC alleges that volatile corn and soybean basis levels during the fourth quarter of 2021, combined with a failed proprietary hedging strategy, caused it to sustain approximately $6.8 million in mark-to-market hedging losses. PBGC further alleges that the Macon County elevator fire caused approximately $3.2 million in property losses and disrupted its operations. PBGC contends that these events, in combination, rendered performance under the Off-Take Agreement commercially impracticable.
These allegations are insufficient as a matter of law. Failed hedging strategies represent ordinary business risks voluntarily assumed by a commodity trading company. PBGC is not a passive investor or a casual market participant; it is a regional grain elevator operator and merchandiser with approximately $185 million in estimated annual revenues and six elevator facilities spanning three counties in central Illinois. Hedging risk — including the risk that a hedging strategy will produce losses rather than profits — is an inherent and fundamental part of the grain merchandising business. Every participant in the grain trade understands that commodity prices and basis levels fluctuate, sometimes dramatically, and that hedging positions can result in substantial mark-to-market losses. A party that voluntarily assumes market risk cannot subsequently invoke commercial impracticability when that risk materializes adversely.
Similarly, the Macon County elevator fire, while undoubtedly a significant event for PBGC's operations, did not render PBGC's payment obligations impracticable. The fire affected one of PBGC's six elevator facilities. PBGC's other five facilities continued to operate. The grain that was delivered to and accepted by PBGC at its Champaign County and Piatt County facilities was not affected by the fire. PBGC's obligation to pay for that grain is entirely independent of the fire and its consequences. Moreover, PBGC maintained property and casualty insurance on the Macon County facility through Triton Mutual Insurance Co. The fact that PBGC's insurance claim is disputed or has not yet been fully resolved does not render PBGC's contractual payment obligations to GAP impracticable.
None of these circumstances — the hedging losses, the basis volatility, or the elevator fire — individually or collectively, rises to the level of objective impossibility or near-impossibility required to invoke the defense of commercial impracticability under Illinois law. PBGC's Second Affirmative Defense amounts to nothing more than an assertion that it suffered financial losses and therefore cannot pay its debts. This is not commercial impracticability; it is insolvency. And insolvency is not a defense.
4. PBGC Assumed the Risk of These Contingencies
The doctrine of commercial impracticability is further inapplicable because PBGC assumed the risk of the very contingencies it now cites as the basis for excusing its performance. The Off-Take Agreement is a sophisticated commercial agreement between two experienced and well-counseled participants in the grain trade. Both parties were represented by counsel during the negotiation and execution of the Off-Take Agreement, and both parties had access to financial, legal, and industry advisors.
Market price volatility, basis fluctuations, the risk of casualty loss to physical facilities, and the risk of adverse outcomes in hedging and risk-management strategies are foreseeable contingencies in the agriculture and grain merchandising business. These are not extraordinary, unforeseeable events of the kind that give rise to a commercial impracticability defense; they are the ordinary risks of operating in the grain trade. PBGC, a substantial commercial enterprise, understood and accepted these risks when it entered into the Off-Take Agreement in March 2019.
The existence of the force majeure clause in Section 10.1 of the Off-Take Agreement itself demonstrates that the parties contemplated and specifically allocated the risk of certain enumerated extraordinary events, including fire. By including a force majeure clause with defined scope and conditions, the parties agreed that the specific events listed in the clause would excuse certain specific obligations (i.e., delivery or acceptance), subject to the procedural requirements of the clause (i.e., prompt notice and commercially reasonable efforts to resume performance). Risks not covered by the force majeure clause — including the risk of financial loss from market volatility, hedging failures, and the consequential financial effects of a casualty event — are borne by the party experiencing them. See Hess v. Chase Manhattan Bank, USA, N.A., 220 S.W.3d at 772; Restatement (Second) of Contracts § 261, cmt. c (1981) (foreseeability of the event is a factor in determining whether it was a basic assumption of the contract).
PBGC cannot, through the back door of commercial impracticability, obtain relief that the negotiated force majeure clause does not provide. The parties bargained for a specific allocation of risk. The Court should enforce that allocation as written. The Second Affirmative Defense (Commercial Impracticability) is legally insufficient and should be stricken in its entirety.
C. The Third Affirmative Defense (Failure to Mitigate) — Addressed but May Survive
GAP addresses the Third Affirmative Defense (Failure to Mitigate Damages) and demonstrates that, as pleaded, it is insufficient in factual particularity. However, GAP acknowledges that the failure-to-mitigate defense is a recognized affirmative defense under Illinois law, and in the alternative, the Court may exercise its discretion to allow the defense to stand subject to development through discovery or, at minimum, to order Defendants to replead with greater specificity.
1. The Failure to Mitigate Defense as Pled Is Insufficient in Factual Particularity
PBGC's Third Affirmative Defense alleges, in its entirety, that GAP "failed to mitigate its damages by failing to resell the grain to alternative buyers or take other reasonable steps to minimize its loss after PBGC's nonpayment." This allegation is wholly conclusory and devoid of any factual content that would put GAP on notice of the factual basis for the defense.
Under Illinois pleading standards, an affirmative defense of failure to mitigate must be pleaded with sufficient factual specificity to apprise the opposing party of the nature of the defense and the facts supporting it. See marshall v. Burger King Corp., 222 Ill.2d at 429; Consolidated Bearings Co. v. Ehret-Krohn Corp., 913 F.2d 1224, 1232 (7th Cir. 1990) (applying Illinois law). A properly pleaded failure-to-mitigate defense should identify, at a minimum: (a) the specific steps that the plaintiff allegedly failed to take to minimize its damages; (b) the factual basis for the assertion that such steps were available and reasonable under the circumstances; and (c) the extent to which such steps would have reduced the damages suffered.
PBGC's Third Affirmative Defense does none of these things. It does not identify any alternative buyers to whom GAP could have resold the grain. It does not identify any available markets in which GAP could have disposed of the grain. It does not allege the prices at which GAP could have resold the grain or the quantum of damages that would have been avoided through mitigation. It does not allege the time period during which mitigation efforts should have been undertaken. It does not allege any specific facts at all — it merely recites the legal conclusion that GAP "failed to mitigate."
This is precisely the type of bare-bones, conclusory pleading that Illinois courts have found insufficient under Section 2-615. An affirmative defense that consists of nothing more than a formulaic recitation of the legal standard, unsupported by any factual allegations, fails to provide adequate notice and should be stricken. See People ex rel. Fahner v. Carriage Way West, Inc., 88 Ill.2d 300, 308 (1981) (requiring fact pleading in affirmative defenses); Guarantee Trust Life Insurance Co. v. Kribbs & Kribbs, 2015 IL App (1st) 140455, ¶ 18 (striking affirmative defense for insufficient factual particularity).
2. In the Alternative, the Defense May Be Cognizable Under Illinois Law
GAP acknowledges that the duty to mitigate damages is a well-recognized principle under Illinois law, and that failure to mitigate is a cognizable affirmative defense in a breach-of-contract action. See Goldberg v. Davis, 65 Ill.2d 378, 383 (1976); Midland Hotel Corp. v. Reuben H. Donnelley Corp., 118 Ill.2d 306, 317 (1987); In re Estate of Halas, 159 Ill.2d 46, 58 (1994). Under this doctrine, a party injured by a breach of contract has a duty to exercise reasonable diligence and ordinary care to minimize the damages resulting from the breach, and cannot recover for losses that could have been avoided through the exercise of such reasonable efforts. See Goldberg, 65 Ill.2d at 383-84.
While GAP contends that the Third Affirmative Defense is inadequately pleaded for the reasons set forth above, GAP recognizes that this Court may, in its discretion, conclude that the defense is sufficiently cognizable as a matter of law to survive a motion to strike, even if the factual allegations are sparse. GAP further recognizes that certain factual matters relevant to the defense — such as the availability of alternative buyers, prevailing market conditions at the time of PBGC's default, and the specific steps that GAP took or did not take in response to PBGC's nonpayment — may be more fully developed through discovery.
GAP does not concede the factual merit of this defense. To the contrary, GAP maintains that it acted reasonably at all times following PBGC's nonpayment. The grain at issue had already been delivered to PBGC and was in PBGC's physical possession at its elevator facilities. GAP did not retain possession of undelivered grain that it could have resold; the grain was delivered, accepted, and incorporated into PBGC's inventory. PBGC's obligation to pay is independent of any mitigation efforts by GAP, and the failure-to-mitigate defense is factually inapplicable under these circumstances. GAP reserves its right to challenge this defense through summary judgment proceedings after the close of discovery.
However, should this Court decline to strike the Third Affirmative Defense, GAP respectfully requests that the Court enter an order directing Defendants to replead the defense with greater factual particularity, including specific allegations regarding (a) the steps GAP allegedly should have taken, (b) the availability of alternative buyers or markets, (c) the prices at which mitigation sales could have been accomplished, and (d) the quantum of damages that would have been avoided through such mitigation. Such an order would promote the efficient administration of this case and ensure that GAP is afforded adequate notice of the factual basis for the defense prior to the commencement of discovery.
V. CONCLUSION
For all of the foregoing reasons, Plaintiff Greenfield Agricultural Partners LLC respectfully requests that this Court enter an order granting the following relief:
1. Striking Defendants' First Affirmative Defense (Force Majeure) in its entirety, on the ground that the force majeure clause in the Off-Take Agreement does not, by its terms, excuse payment obligations for grain already delivered and accepted; that the fire at PBGC's Macon County elevator facility bears no causal relationship to PBGC's failure to pay invoices for grain delivered to other facilities; and that financial inability to pay does not constitute a force majeure event under Illinois law;
2. Striking Defendants' Second Affirmative Defense (Commercial Impracticability) in its entirety, on the ground that the obligation to pay money is not subject to the defense of commercial impracticability; that PBGC's hedging losses, basis volatility, and the Macon County fire do not rise to the level of objective impossibility required under Illinois law; and that PBGC assumed the risk of the very contingencies it now cites as the basis for excusing its performance;
3. Striking Defendants' Third Affirmative Defense (Failure to Mitigate) for failure to plead the defense with sufficient factual particularity, or, in the alternative, ordering Defendants to replead the Third Affirmative Defense with specific factual allegations supporting the defense, including identification of the steps GAP allegedly should have taken, the alternative buyers or markets allegedly available, the prices at which mitigation sales could have been accomplished, and the quantum of damages that would have been avoided; and
4. Granting such other and further relief as this Court deems just and proper.
Respectfully submitted,
GREENFIELD AGRICULTURAL PARTNERS LLC, By its attorneys,
CALDERWOOD & HARKNESS LLP
By: ________
Hannah Brinkley (ARDC No. 6329148) Patrick Gallagher (ARDC No. 6331502) 225 West Wacker Drive, Suite 4000 Chicago, Illinois 60606 Telephone: (312) 555-7800 Facsimile: (312) 555-7801
Email: hbrinkley@calderwoodharkness.com
Email: pgallagher@calderwoodharkness.com
Attorneys for Plaintiff Greenfield Agricultural Partners LLC
CERTIFICATE OF SERVICE
The undersigned, an attorney, hereby certifies that on July 15, 2022, a true and correct copy of the foregoing Plaintiff's Memorandum of Law in Support of Its Motion to Strike Defendants' Affirmative Defenses was served upon counsel for Defendants by electronic mail and by depositing a copy in the United States Mail, first-class postage prepaid, addressed as follows:
Douglas M. Harkin Nadia C. Petrov BARTLETT, Reyes Linley CPAs LLP & HARKIN LLP 200 North LaSalle Street, Suite 2500 Chicago, Illinois 60601 dharkin@bartlettcroweharkin.com npetrov@bartlettcroweharkin.com
Counsel for Defendants Prairie Basin Grain Co. and Darren K. Musgrave
Case No. 2022-L-004831
________________________________________
Hannah Brinkley

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, LAW DIVISION

I. INTRODUCTION

II. FACTUAL BACKGROUND

III. LEGAL STANDARD FOR MOTION TO STRIKE AFFIRMATIVE DEFENSES

IV. ARGUMENT

V. CONCLUSION

CALDERWOOD & HARKNESS LLP

CERTIFICATE OF SERVICE

Record

Parties

Dates

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