1020-00005 · Greenfield Agricultural Partners · Motions

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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, Judge Presiding

PLAINTIFF'S REPLY IN SUPPORT OF MOTION TO STRIKE DEFENDANTS' AFFIRMATIVE DEFENSES

I. INTRODUCTION

Plaintiff Greenfield Agricultural Partners LLC ("GAP") respectfully submits this Reply in Support of its Motion to Strike the Affirmative Defenses asserted by Defendants Prairie Basin Grain Co. ("PBGC") and Darren K. Musgrave ("Musgrave," and together with PBGC, "Defendants") in their Joint Answer and Affirmative Defenses filed on June 27, 2022. GAP's Motion to Strike was filed on July 15, 2022, seeking to strike three of Defendants' affirmative defenses: (1) the First Affirmative Defense (Force Majeure); (2) the Second Affirmative Defense (Commercial Impracticability); and (3) the Third Affirmative Defense (Failure to Mitigate Damages). Defendants filed their Response in Opposition on or about August 1, 2022.

As set forth in GAP's opening memorandum, this action arises from Defendants' breach of the Master Grain Purchase and Off-Take Agreement dated March 15, 2019 (the "Off-Take Agreement"), entered into between GAP, as Seller, and PBGC, as Buyer, pursuant to which GAP delivered grain commodities to PBGC's elevator facilities for purchase and resale. PBGC has failed and refused to pay five invoices totaling $4,870,050.00 in principal, plus accrued interest at the contractual rate of 1.5% per month (18% per annum) as provided under Section 7.3 of the Off-Take Agreement. Defendant Musgrave is individually liable under his personal guaranty executed contemporaneously with the Off-Take Agreement.

Despite the opportunity to address the deficiencies identified in GAP's opening memorandum, Defendants' opposition fails to cure the fundamental legal insufficiencies that render the force majeure and commercial impracticability defenses subject to striking under Section 2-615 of the Illinois Code of Civil Procedure, 735 ILCS 5/2-615. Defendants do not — and cannot — point to any contractual language extending the force majeure clause to payment obligations. Nor can Defendants overcome the settled principle of Illinois law that financial inability to pay does not constitute commercial impracticability. The force majeure and commercial impracticability defenses are legally insufficient as a matter of law, and no amount of factual development through discovery can remedy what are, at bottom, defects of legal theory rather than factual predicate.

With respect to the Third Affirmative Defense (Failure to Mitigate), GAP acknowledges that this defense, however thin, presents factual questions that may preclude it from being stricken at this stage under Illinois pleading standards. GAP therefore does not press the motion as to the Third Affirmative Defense at this time, but preserves all arguments that this defense is ultimately without merit on the facts and will address it at summary judgment or trial, as appropriate.

II. ARGUMENT

A. The Force Majeure Defense Should Be Stricken Because the Off-Take Agreement's Force Majeure Clause Does Not Excuse Payment Obligations

1. The Force Majeure Clause Is Inapplicable to Payment Obligations. Under well-settled Illinois law, force majeure clauses are construed narrowly, and only excuse those specific obligations that fall within the express terms of the clause. Sarah Fenwick, 2016 IL App (1st) 152680, ¶ 33; Thackeray Enterprises v. Pemberton Industries, 731 F. Supp. 850, 855 (N.D. Ill. 1990) (applying Illinois law) (noting that force majeure provisions "are not general escape clauses" and must be strictly construed according to their terms). A party invoking a force majeure clause bears the burden of demonstrating that the specific obligation it seeks to excuse falls within the scope of the clause and that the triggering event is one enumerated in, or of the kind contemplated by, the contractual provision. Hess Corp. v. Porsche, 2014 IL App (1st) 122tried (internal citations omitted); see also Restatement (Second) of Contracts § 261 cmt. d (1981).

The force majeure clause contained in Section 9.1 of the Off-Take Agreement is unambiguous. It provides, in pertinent part:

"Neither Seller nor Buyer shall be liable for any delay in or failure of delivery or acceptance of Grain hereunder to the extent caused by acts of God, fire, flood, severe weather events, war, terrorism, government orders or regulations, labor disputes, transportation failures, or other causes beyond the reasonable control of the affected party . . . ."

(Off-Take Agreement § 9.1 (emphasis added).) The clause, by its plain terms, excuses only delays in or failure of "delivery or acceptance" of grain. It says nothing about payment. It does not excuse, modify, suspend, or otherwise affect the separate and independent obligation of Buyer to pay for grain that has already been delivered and accepted. The clause is limited in scope to the physical logistics of grain delivery and acceptance — the precise operations that might be disrupted by fire, flood, or similar force majeure events. Payment obligations are not so susceptible and are accordingly excluded from the clause's ambit.

Defendants' opposition fundamentally conflates PBGC's delivery and acceptance obligations with its entirely separate, independent payment obligations under Section 7 of the Off-Take Agreement. Section 7.1 provides that "[p]ayment for each Grain delivery shall be due and payable Net Thirty (30) days from the date of delivery and acceptance, as confirmed by the applicable Delivery Receipt." Section 7.3 further provides that "[a]ny amounts not paid when due shall bear interest at the rate of one and one-half percent (1.5%) per month (eighteen percent (18%) per annum) from the due date until paid in full." These payment obligations are freestanding, self-executing contractual duties that accrue upon delivery and acceptance. They are not contingent upon, nor subject to, Section 9.1's force majeure provision.

The five invoices at issue in this action are as follows:

Each of these invoices corresponds to grain that was physically delivered to and accepted at one or more of PBGC's elevator facilities, as confirmed by signed Delivery Receipts bearing the signature of PBGC's on-site facility managers. The grain in question was received, inspected, weighed, graded, and accepted by PBGC personnel before the applicable invoices were generated. Payment was due Net 30 days from the date of delivery and acceptance. By the time any payment became due, PBGC had already taken physical possession and legal title to the grain. The force majeure clause — which addresses only "delivery or acceptance" — simply has no application to obligations that arose after delivery and acceptance were already complete.

Even if the force majeure clause could theoretically be stretched to encompass payment obligations — which it cannot — Defendants have not and cannot allege that the October 17, 2021 fire at the Macon County elevator facility prevented PBGC from making monetary payments. Fire may destroy physical infrastructure; it does not destroy the ability to wire funds, issue checks, or otherwise remit payment. Defendants do not allege that PBGC's bank accounts were inaccessible, that its financial systems were destroyed, or that any physical impediment prevented the mechanical act of making payment. The defense fails on this additional, independent ground.

2. The Macon County Elevator Fire Does Not Constitute Force Majeure as to Payment. Defendants' opposition rests entirely on the fire that occurred on October 17, 2021 at PBGC's Macon County elevator facility, located at 2200 County Road 1400 East, Decatur, Illinois 62521, which resulted in an estimated loss of approximately $3.2 million. GAP does not dispute that the fire was a significant casualty event, and indeed has never contested the occurrence of the fire itself. What GAP does contest — and what Defendants have wholly failed to address — is the legal relevance of the fire to PBGC's obligation to pay for grain already delivered and accepted.

The fire affected only one of PBGC's six elevator facilities spread across Champaign, Macon, and Piatt Counties. PBGC continued to operate its remaining five facilities before, during, and after the fire. There is no allegation in the Answer or in Defendants' opposition that PBGC's entire business ceased to function as a result of the fire. To the contrary, the record reflects that PBGC continued accepting grain deliveries at other facilities through at least January 2022, when the last of the five invoices at issue (GAP-2022-0042) was generated from a delivery to PBGC's Champaign County facility. The fire, devastating as it may have been to one facility, did not prevent PBGC from operating as a going concern, receiving grain, or — critically — making payments.

Moreover, all five unpaid invoices relate to grain that was delivered to and accepted by PBGC. The fire did not destroy the delivered grain, did not render acceptance of the delivered grain impossible, and did not in any way affect the completed delivery-and-acceptance transactions underlying the invoices. The grain was already in PBGC's possession, and in many cases had already been blended, resold, or otherwise disposed of by PBGC before the fire occurred.

The fire is, at most, a casualty event affecting PBGC's physical plant and business operations at one location. It is not an event preventing the transfer of funds from PBGC to GAP. Financial hardship resulting from the fire — including the costs of repair, lost business, and the disputed insurance claim that PBGC has filed against Triton Mutual Insurance Co. — does not transform a business loss into a force majeure event excusing contractual payment obligations. If every business that suffered a fire could invoke force majeure to excuse its debts, the doctrine would swallow the entirety of commercial contract law.

Under Illinois law, financial inability to perform is not force majeure. Westmark Corporation v. Energy Coop., Inc., 122 Ill. App. 3d 940, 949-50 (3d Dist. 1984) (financial difficulty does not constitute force majeure); Waldinger Corp. v. CRS Group Eng'rs, Inc., 775 F.2d 781, 786 (7th Cir. 1985) (applying Illinois law and noting that "an impecunious party is not excused from performance merely because he lacks funds"); see also Kel Kim Corp. v. Central Mkts., Inc., 70 N.Y.2d 900, 902, 519 N.E.2d 295, 296 (1987) (widely cited authority holding that "financial difficulty, even to the point of bankruptcy, does not constitute . . . a force majeure event"). The distinction is between physical impossibility — where performance is rendered objectively impossible by an external force — and mere financial difficulty, where the obligor simply cannot afford to perform. PBGC's situation falls squarely and unambiguously in the latter category.

3. Defendants' Opposition Fails to Identify Any Contractual Basis for the Defense. Despite having the opportunity in their opposition brief to identify the specific contractual language on which the force majeure defense rests, Defendants conspicuously failed to do so. Defendants' response brief does not identify any provision of the force majeure clause — or any other provision of the Off-Take Agreement — that purportedly excuses payment for grain already delivered and accepted. Instead, Defendants resort to generalized equitable arguments about the devastating financial impact of the Macon County fire on PBGC's business, the hardship of requiring payment during a period of financial distress, and the asserted unfairness of enforcing the Off-Take Agreement under the circumstances.

These arguments, however sympathetic they may be, are legally irrelevant to the textual scope of the contractual force majeure provision. Illinois law is clear that force majeure clauses are creatures of contract, not equity, and their scope is determined by the language the parties chose to include. See Calumet Testing Servs., Inc. v. O'Brien Envtl. Energy, Inc., 2009 IL App (1st) 073aborton (unpublished order) (force majeure clause must be given effect according to its terms); Phibro Energy, Inc. v. Empresa de Polimeros de Sines Sarl, 720 F. Supp. 312, 318 (S.D.N.Y. 1989) (force majeure provision does not create a general excuse from performance; it is limited to the events and obligations specified). The parties to the Off-Take Agreement — both sophisticated commercial entities represented by counsel — negotiated a force majeure clause limited to "delivery or acceptance." They did not extend it to payment. This Court should enforce the agreement as written.

Because the force majeure defense is legally insufficient as pled and as argued in Defendants' opposition, it should be stricken.

B. The Commercial Impracticability Defense Should Be Stricken Because Financial Inability to Pay Does Not Constitute Impracticability Under Illinois Law

1. Illinois Law Requires Objective Impossibility, Not Mere Financial Difficulty. The doctrine of commercial impracticability, as codified in Section 2-615 of the Uniform Commercial Code (810 ILCS 5/2-615) and developed in Illinois common law, excuses a party's performance only where that performance has been rendered objectively impracticable by the occurrence of a contingency, the non-occurrence of which was a basic assumption on which the contract was made. Mishara Constr. Co. v. Transit-Mixed Concrete Corp., 365 Mass. 122, 128 (1974) (frequently cited in Illinois courts for the foundational elements of the impracticability doctrine); see also Restatement (Second) of Contracts § 261 (1981); Waldinger Corp., 775 F.2d at 786.

The standard is demanding and intentionally so. Illinois courts have consistently held that mere increases in cost, financial hardship, or unfavorable market conditions do not give rise to impracticability. Westmark Corporation, 122 Ill. App. 3d at 950 ("[A]n increase in cost alone is not sufficient excuse for non-performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance."); Hess Corp., 2014 IL App (1st) 122-trial; see also UCC § 2-615 cmt. 4 ("Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance."). The doctrine is reserved for extraordinary circumstances in which the very nature of performance has fundamentally changed — not for situations in which performance has merely become more expensive or less profitable.

Critically, the obligation to pay money is, by its nature, incapable of becoming "impracticable" in the sense required by the doctrine. There is no physical or objective impediment to the act of making a monetary payment. Money is fungible. A debtor's obligation to pay a sum certain does not become more difficult to perform because of external events — it becomes more difficult to afford, which is a fundamentally different question. The defense of commercial impracticability is categorically unavailable for payment obligations under Illinois law. See Waldinger Corp., 775 F.2d at 786; In re Westinghouse Elec. Corp. Uranium Contracts Litig., 517 F. Supp. 440, 453 (E.D. Va. 1981) (noting the well-established principle that "a duty to pay money is rarely if ever excused by impracticability").

2. PBGC's Financial Distress Does Not Give Rise to Commercial Impracticability. Defendants' opposition urges this Court to find impracticability based on a combination of three factors: (i) the October 17, 2021 fire at PBGC's Macon County elevator facility, resulting in approximately $3.2 million in property damage; (ii) PBGC's failed hedging strategy on short corn futures positions, which resulted in approximately $6.8 million in mark-to-market losses during Q4 2021 as corn prices surged; and (iii) the resulting cash-flow shortfalls that left PBGC unable to meet its payment obligations to GAP and other creditors. Defendants contend that these events, taken together, constituted an unforeseeable "perfect storm" that rendered PBGC's payment obligations impracticable.

This argument fails for several independent reasons.

First, these are precisely the types of financial and business risks that sophisticated commercial parties assume when entering into contracts. The Off-Take Agreement was a multi-year, multi-million-dollar grain purchase agreement between two entities engaged in commercial agriculture — an industry inherently subject to weather events, commodity price volatility, and operational risks. Fires at grain elevators, while unfortunate, are a known risk in the grain storage industry. Commodity price fluctuations are the very essence of the market in which both GAP and PBGC operate. Cash-flow challenges arising from adverse business events are a routine feature of commercial life. None of these events is so extraordinary, unforeseeable, or fundamentally different in kind from the risks inherent in the grain business as to constitute a supervening contingency excusing performance under Section 2-615.

Second, the hedging losses were the direct result of PBGC's own trading decisions. PBGC took short positions on corn futures that moved against it when corn prices rose sharply in late 2021. This is not an unforeseeable contingency — it is a failed speculative bet. Self-inflicted financial harm resulting from voluntary trading decisions cannot constitute commercial impracticability. See Gulf Oil Corp. v. FERC, 706 F.2d 444, 453 (3d Cir. 1983) (party's own conduct in creating the conditions of hardship forecloses reliance on impracticability); Alimenta (U.S.A.), Inc. v. Cargill, Inc., 861 F.2d 650, 654-55 (11th Cir. 1988) (impracticability defense unavailable where party's own choices contributed to the alleged impossibility).

Third, the fire at the Macon County facility, while a genuine casualty, affected only one of PBGC's six elevator facilities. It is, moreover, an insurable risk. That PBGC's property insurer, Triton Mutual Insurance Co., has disputed coverage — reportedly due to PBGC's alleged lapse in premium payments prior to the fire — underscores that PBGC's financial predicament is attributable to its own failures of risk management, not to an excusable supervening contingency. A party that allows its insurance to lapse and then suffers a covered loss has no one to blame but itself; such a party cannot invoke the impracticability doctrine to shift the consequences of its own negligence onto its creditors.

Fourth, PBGC's broader financial distress — including its default on its $45 million revolving credit facility with Heartland Prairie Bank, N.A., and the lender's subsequent issuance of a notice of default — is evidence of general insolvency, not impracticability of any specific contractual obligation. If financial insolvency constituted impracticability, every debtor in default could avoid its obligations by invoking the doctrine. Illinois law has never so held, and for good reason: the doctrine of impracticability exists to address situations where the nature of the performance itself has fundamentally changed, not situations where the debtor has simply run out of money. See In re Hechinger Inv. Co. of Del., 298 F.3d 219, 229 (3d Cir. 2002) (debtor's insolvency does not excuse contractual obligations under impracticability theory).

3. The Defense Fails as a Matter of Law and Should Be Stricken. Because financial inability to pay is categorically excluded from the doctrine of commercial impracticability under Illinois law, the Second Affirmative Defense is legally insufficient regardless of the factual allegations supporting it. The factual predicate offered by Defendants — the fire, the hedging losses, the insurance dispute, the bank default — does not change the legal analysis. No combination of facts demonstrating financial hardship can transform a payment obligation into an "impracticable" one, because the act of paying money is never rendered objectively impossible by the payor's lack of funds. It is rendered merely unaffordable, which is insufficient.

No amount of discovery will cure this legal deficiency. This is not a case where additional facts might change the legal calculus; it is a case where the legal doctrine simply does not reach the defense as pled. The Second Affirmative Defense should be stricken.

C. GAP's Position on the Failure-to-Mitigate Defense

1. The Failure-to-Mitigate Defense Presents Factual Issues. GAP acknowledges that the Third Affirmative Defense — failure to mitigate damages — unlike the force majeure and commercial impracticability defenses, raises factual questions that may be sufficient to withstand a motion to strike under Illinois pleading standards. Under Section 2-615 of the Code of Civil Procedure, an affirmative defense may be stricken only if it is insufficient as a matter of law. See Raintree Homes, Inc. v. Vill. of Long Grove, 209 Ill. 2d 248, 261 (2004). The mitigation defense, while factually threadbare, is not subject to the same categorical legal bar that forecloses the force majeure and impracticability defenses. Accordingly, GAP does not press its motion to strike as to the Third Affirmative Defense at this time. GAP, however, preserves all arguments that this defense is ultimately without merit and intends to address it fully at summary judgment or trial, as appropriate.

2. The Defense Is Factually Unfounded. While GAP does not seek to strike the Third Affirmative Defense at this juncture, GAP submits the following to place on the record the extent of GAP's affirmative mitigation efforts, which demonstrate that the defense lacks any factual basis.

GAP took prompt, reasonable, and commercially appropriate steps to mitigate its damages arising from PBGC's nonpayment, including the following:

• January 25, 2022: GAP's Director of Grain Operations, Caleb Jennings, sent a written demand letter via certified mail and email to PBGC's President, Darren K. Musgrave, demanding payment of the three then-outstanding invoices (GAP-2021-3187, GAP-2021-3244, and GAP-2021-3301), totaling $3,053,250.00. The demand letter informed PBGC that failure to pay within fifteen (15) days would result in GAP exercising its contractual remedies under the Off-Take Agreement.

• February 14, 2022: In response to a telephonic request from Musgrave for additional time, GAP agreed to a sixty (60)-day forbearance period, conditioned upon PBGC making a partial payment of $892,500.00 (representing the full amount of Invoice GAP-2021-3187) by no later than March 1, 2022. This forbearance was confirmed in writing by correspondence from GAP's counsel to Defendants' counsel.

• March 1, 2022: PBGC failed to make the required partial payment of $892,500.00 by the March 1, 2022 deadline, thereby breaching the forbearance agreement and rendering the entire outstanding balance immediately due and payable.

• March 8, 2022: GAP exercised its rights under Section 8.2 of the Off-Take Agreement (Adequate Assurance of Performance), suspending all further grain deliveries to PBGC pending receipt of adequate assurance of PBGC's ability and willingness to perform its payment obligations. This suspension halted further accumulation of unpaid receivables and prevented GAP's damages from growing.

GAP's suspension of deliveries on March 8, 2022 was itself a significant mitigation measure. By halting further deliveries under Section 8.2, GAP prevented additional grain from being delivered to a buyer that had demonstrated an inability or unwillingness to pay. Without this action, GAP's damages would have continued to mount with each subsequent delivery under the Off-Take Agreement. GAP acted decisively and in a commercially reasonable manner to limit its exposure.

Defendants' opposition identifies no specific, reasonable action that GAP could have taken but failed to take to reduce its damages. Defendants' argument amounts to a vague assertion that GAP should have done "more" — but they fail to articulate what "more" would have looked like. There is no allegation that GAP could have resold the grain to a third party at a comparable price, that GAP failed to pursue available contractual remedies, or that GAP unreasonably delayed in enforcing its rights. To the contrary, GAP pursued its remedies promptly, offered a reasonable forbearance, and suspended deliveries within days of PBGC's breach of the forbearance terms.

GAP reserves the right to seek summary judgment on the failure-to-mitigate defense or to address it at trial, and will do so at the appropriate time.

III. CONCLUSION

For the foregoing reasons, Plaintiff Greenfield Agricultural Partners LLC respectfully requests that this Court grant GAP's Motion to Strike and enter an order striking the First Affirmative Defense (Force Majeure) and the Second Affirmative Defense (Commercial Impracticability) from Defendants' Joint Answer and Affirmative Defenses filed June 27, 2022. Both defenses are legally insufficient as a matter of law: the force majeure clause in the Off-Take Agreement does not extend to payment obligations, and the doctrine of commercial impracticability is categorically unavailable to excuse a party's obligation to pay money.

GAP further respectfully requests 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. 6325148

Calderwood & Harkness LLP 225 West Wacker Drive, Suite 4000 Chicago, Illinois 60606 Telephone: (312) 555-4200 Facsimile: (312) 555-4201

Email: hbrinkley@calderwoodharkness.com

Attorneys for Plaintiff Greenfield Agricultural Partners LLC

Filed: August 8, 2022

CERTIFICATE OF SERVICE

I, Hannah Brinkley, an attorney, hereby certify that on August 8, 2022, I caused a true and correct copy of the foregoing Plaintiff's Reply in Support of Motion to Strike Defendants' Affirmative Defenses to be served upon the following counsel of record by electronic mail and by deposit in the United States Mail, first-class postage prepaid:

Douglas M. Harkin, Esq. Bartlett, Reyes Linley CPAs LLP & Harkin LLP 200 North LaSalle Street, Suite 2500 Chicago, Illinois 60601 Telephone: (312) 555-7800

Email: dharkin@bchlaw.com

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

________________________________________

Hannah Brinkley

Invoice No.	Delivery Date	Amount	Payment Due Date
GAP-2021-3187	September 3, 2021	$892,500.00	October 3, 2021
GAP-2021-3244	September 29, 2021	$1,018,250.00	October 29, 2021
GAP-2021-3301	October 14, 2021	$1,142,500.00	November 13, 2021
GAP-2021-3358	November 8, 2021	$937,800.00	December 8, 2021
GAP-2022-0042	January 3, 2022	$879,000.00	February 2, 2022

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, Judge Presiding
PLAINTIFF'S REPLY IN SUPPORT OF MOTION TO STRIKE DEFENDANTS' AFFIRMATIVE DEFENSES
I. INTRODUCTION
Plaintiff Greenfield Agricultural Partners LLC ("GAP") respectfully submits this Reply in Support of its Motion to Strike the Affirmative Defenses asserted by Defendants Prairie Basin Grain Co. ("PBGC") and Darren K. Musgrave ("Musgrave," and together with PBGC, "Defendants") in their Joint Answer and Affirmative Defenses filed on June 27, 2022. GAP's Motion to Strike was filed on July 15, 2022, seeking to strike three of Defendants' affirmative defenses: (1) the First Affirmative Defense (Force Majeure); (2) the Second Affirmative Defense (Commercial Impracticability); and (3) the Third Affirmative Defense (Failure to Mitigate Damages). Defendants filed their Response in Opposition on or about August 1, 2022.
As set forth in GAP's opening memorandum, this action arises from Defendants' breach of the Master Grain Purchase and Off-Take Agreement dated March 15, 2019 (the "Off-Take Agreement"), entered into between GAP, as Seller, and PBGC, as Buyer, pursuant to which GAP delivered grain commodities to PBGC's elevator facilities for purchase and resale. PBGC has failed and refused to pay five invoices totaling $4,870,050.00 in principal, plus accrued interest at the contractual rate of 1.5% per month (18% per annum) as provided under Section 7.3 of the Off-Take Agreement. Defendant Musgrave is individually liable under his personal guaranty executed contemporaneously with the Off-Take Agreement.
Despite the opportunity to address the deficiencies identified in GAP's opening memorandum, Defendants' opposition fails to cure the fundamental legal insufficiencies that render the force majeure and commercial impracticability defenses subject to striking under Section 2-615 of the Illinois Code of Civil Procedure, 735 ILCS 5/2-615. Defendants do not — and cannot — point to any contractual language extending the force majeure clause to payment obligations. Nor can Defendants overcome the settled principle of Illinois law that financial inability to pay does not constitute commercial impracticability. The force majeure and commercial impracticability defenses are legally insufficient as a matter of law, and no amount of factual development through discovery can remedy what are, at bottom, defects of legal theory rather than factual predicate.
With respect to the Third Affirmative Defense (Failure to Mitigate), GAP acknowledges that this defense, however thin, presents factual questions that may preclude it from being stricken at this stage under Illinois pleading standards. GAP therefore does not press the motion as to the Third Affirmative Defense at this time, but preserves all arguments that this defense is ultimately without merit on the facts and will address it at summary judgment or trial, as appropriate.
II. ARGUMENT
A. The Force Majeure Defense Should Be Stricken Because the Off-Take Agreement's Force Majeure Clause Does Not Excuse Payment Obligations
1. The Force Majeure Clause Is Inapplicable to Payment Obligations. Under well-settled Illinois law, force majeure clauses are construed narrowly, and only excuse those specific obligations that fall within the express terms of the clause. Sarah Fenwick, 2016 IL App (1st) 152680, ¶ 33; Thackeray Enterprises v. Pemberton Industries, 731 F. Supp. 850, 855 (N.D. Ill. 1990) (applying Illinois law) (noting that force majeure provisions "are not general escape clauses" and must be strictly construed according to their terms). A party invoking a force majeure clause bears the burden of demonstrating that the specific obligation it seeks to excuse falls within the scope of the clause and that the triggering event is one enumerated in, or of the kind contemplated by, the contractual provision. Hess Corp. v. Porsche, 2014 IL App (1st) 122tried (internal citations omitted); see also Restatement (Second) of Contracts § 261 cmt. d (1981).
The force majeure clause contained in Section 9.1 of the Off-Take Agreement is unambiguous. It provides, in pertinent part:
"Neither Seller nor Buyer shall be liable for any delay in or failure of delivery or acceptance of Grain hereunder to the extent caused by acts of God, fire, flood, severe weather events, war, terrorism, government orders or regulations, labor disputes, transportation failures, or other causes beyond the reasonable control of the affected party . . . ."
(Off-Take Agreement § 9.1 (emphasis added).) The clause, by its plain terms, excuses only delays in or failure of "delivery or acceptance" of grain. It says nothing about payment. It does not excuse, modify, suspend, or otherwise affect the separate and independent obligation of Buyer to pay for grain that has already been delivered and accepted. The clause is limited in scope to the physical logistics of grain delivery and acceptance — the precise operations that might be disrupted by fire, flood, or similar force majeure events. Payment obligations are not so susceptible and are accordingly excluded from the clause's ambit.
Defendants' opposition fundamentally conflates PBGC's delivery and acceptance obligations with its entirely separate, independent payment obligations under Section 7 of the Off-Take Agreement. Section 7.1 provides that "[p]ayment for each Grain delivery shall be due and payable Net Thirty (30) days from the date of delivery and acceptance, as confirmed by the applicable Delivery Receipt." Section 7.3 further provides that "[a]ny amounts not paid when due shall bear interest at the rate of one and one-half percent (1.5%) per month (eighteen percent (18%) per annum) from the due date until paid in full." These payment obligations are freestanding, self-executing contractual duties that accrue upon delivery and acceptance. They are not contingent upon, nor subject to, Section 9.1's force majeure provision.
The five invoices at issue in this action are as follows:
Each of these invoices corresponds to grain that was physically delivered to and accepted at one or more of PBGC's elevator facilities, as confirmed by signed Delivery Receipts bearing the signature of PBGC's on-site facility managers. The grain in question was received, inspected, weighed, graded, and accepted by PBGC personnel before the applicable invoices were generated. Payment was due Net 30 days from the date of delivery and acceptance. By the time any payment became due, PBGC had already taken physical possession and legal title to the grain. The force majeure clause — which addresses only "delivery or acceptance" — simply has no application to obligations that arose after delivery and acceptance were already complete.
Even if the force majeure clause could theoretically be stretched to encompass payment obligations — which it cannot — Defendants have not and cannot allege that the October 17, 2021 fire at the Macon County elevator facility prevented PBGC from making monetary payments. Fire may destroy physical infrastructure; it does not destroy the ability to wire funds, issue checks, or otherwise remit payment. Defendants do not allege that PBGC's bank accounts were inaccessible, that its financial systems were destroyed, or that any physical impediment prevented the mechanical act of making payment. The defense fails on this additional, independent ground.
2. The Macon County Elevator Fire Does Not Constitute Force Majeure as to Payment. Defendants' opposition rests entirely on the fire that occurred on October 17, 2021 at PBGC's Macon County elevator facility, located at 2200 County Road 1400 East, Decatur, Illinois 62521, which resulted in an estimated loss of approximately $3.2 million. GAP does not dispute that the fire was a significant casualty event, and indeed has never contested the occurrence of the fire itself. What GAP does contest — and what Defendants have wholly failed to address — is the legal relevance of the fire to PBGC's obligation to pay for grain already delivered and accepted.
The fire affected only one of PBGC's six elevator facilities spread across Champaign, Macon, and Piatt Counties. PBGC continued to operate its remaining five facilities before, during, and after the fire. There is no allegation in the Answer or in Defendants' opposition that PBGC's entire business ceased to function as a result of the fire. To the contrary, the record reflects that PBGC continued accepting grain deliveries at other facilities through at least January 2022, when the last of the five invoices at issue (GAP-2022-0042) was generated from a delivery to PBGC's Champaign County facility. The fire, devastating as it may have been to one facility, did not prevent PBGC from operating as a going concern, receiving grain, or — critically — making payments.
Moreover, all five unpaid invoices relate to grain that was delivered to and accepted by PBGC. The fire did not destroy the delivered grain, did not render acceptance of the delivered grain impossible, and did not in any way affect the completed delivery-and-acceptance transactions underlying the invoices. The grain was already in PBGC's possession, and in many cases had already been blended, resold, or otherwise disposed of by PBGC before the fire occurred.
The fire is, at most, a casualty event affecting PBGC's physical plant and business operations at one location. It is not an event preventing the transfer of funds from PBGC to GAP. Financial hardship resulting from the fire — including the costs of repair, lost business, and the disputed insurance claim that PBGC has filed against Triton Mutual Insurance Co. — does not transform a business loss into a force majeure event excusing contractual payment obligations. If every business that suffered a fire could invoke force majeure to excuse its debts, the doctrine would swallow the entirety of commercial contract law.
Under Illinois law, financial inability to perform is not force majeure. Westmark Corporation v. Energy Coop., Inc., 122 Ill. App. 3d 940, 949-50 (3d Dist. 1984) (financial difficulty does not constitute force majeure); Waldinger Corp. v. CRS Group Eng'rs, Inc., 775 F.2d 781, 786 (7th Cir. 1985) (applying Illinois law and noting that "an impecunious party is not excused from performance merely because he lacks funds"); see also Kel Kim Corp. v. Central Mkts., Inc., 70 N.Y.2d 900, 902, 519 N.E.2d 295, 296 (1987) (widely cited authority holding that "financial difficulty, even to the point of bankruptcy, does not constitute . . . a force majeure event"). The distinction is between physical impossibility — where performance is rendered objectively impossible by an external force — and mere financial difficulty, where the obligor simply cannot afford to perform. PBGC's situation falls squarely and unambiguously in the latter category.
3. Defendants' Opposition Fails to Identify Any Contractual Basis for the Defense. Despite having the opportunity in their opposition brief to identify the specific contractual language on which the force majeure defense rests, Defendants conspicuously failed to do so. Defendants' response brief does not identify any provision of the force majeure clause — or any other provision of the Off-Take Agreement — that purportedly excuses payment for grain already delivered and accepted. Instead, Defendants resort to generalized equitable arguments about the devastating financial impact of the Macon County fire on PBGC's business, the hardship of requiring payment during a period of financial distress, and the asserted unfairness of enforcing the Off-Take Agreement under the circumstances.
These arguments, however sympathetic they may be, are legally irrelevant to the textual scope of the contractual force majeure provision. Illinois law is clear that force majeure clauses are creatures of contract, not equity, and their scope is determined by the language the parties chose to include. See Calumet Testing Servs., Inc. v. O'Brien Envtl. Energy, Inc., 2009 IL App (1st) 073aborton (unpublished order) (force majeure clause must be given effect according to its terms); Phibro Energy, Inc. v. Empresa de Polimeros de Sines Sarl, 720 F. Supp. 312, 318 (S.D.N.Y. 1989) (force majeure provision does not create a general excuse from performance; it is limited to the events and obligations specified). The parties to the Off-Take Agreement — both sophisticated commercial entities represented by counsel — negotiated a force majeure clause limited to "delivery or acceptance." They did not extend it to payment. This Court should enforce the agreement as written.
Because the force majeure defense is legally insufficient as pled and as argued in Defendants' opposition, it should be stricken.
B. The Commercial Impracticability Defense Should Be Stricken Because Financial Inability to Pay Does Not Constitute Impracticability Under Illinois Law
1. Illinois Law Requires Objective Impossibility, Not Mere Financial Difficulty. The doctrine of commercial impracticability, as codified in Section 2-615 of the Uniform Commercial Code (810 ILCS 5/2-615) and developed in Illinois common law, excuses a party's performance only where that performance has been rendered objectively impracticable by the occurrence of a contingency, the non-occurrence of which was a basic assumption on which the contract was made. Mishara Constr. Co. v. Transit-Mixed Concrete Corp., 365 Mass. 122, 128 (1974) (frequently cited in Illinois courts for the foundational elements of the impracticability doctrine); see also Restatement (Second) of Contracts § 261 (1981); Waldinger Corp., 775 F.2d at 786.
The standard is demanding and intentionally so. Illinois courts have consistently held that mere increases in cost, financial hardship, or unfavorable market conditions do not give rise to impracticability. Westmark Corporation, 122 Ill. App. 3d at 950 ("[A]n increase in cost alone is not sufficient excuse for non-performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance."); Hess Corp., 2014 IL App (1st) 122-trial; see also UCC § 2-615 cmt. 4 ("Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance."). The doctrine is reserved for extraordinary circumstances in which the very nature of performance has fundamentally changed — not for situations in which performance has merely become more expensive or less profitable.
Critically, the obligation to pay money is, by its nature, incapable of becoming "impracticable" in the sense required by the doctrine. There is no physical or objective impediment to the act of making a monetary payment. Money is fungible. A debtor's obligation to pay a sum certain does not become more difficult to perform because of external events — it becomes more difficult to afford, which is a fundamentally different question. The defense of commercial impracticability is categorically unavailable for payment obligations under Illinois law. See Waldinger Corp., 775 F.2d at 786; In re Westinghouse Elec. Corp. Uranium Contracts Litig., 517 F. Supp. 440, 453 (E.D. Va. 1981) (noting the well-established principle that "a duty to pay money is rarely if ever excused by impracticability").
2. PBGC's Financial Distress Does Not Give Rise to Commercial Impracticability. Defendants' opposition urges this Court to find impracticability based on a combination of three factors: (i) the October 17, 2021 fire at PBGC's Macon County elevator facility, resulting in approximately $3.2 million in property damage; (ii) PBGC's failed hedging strategy on short corn futures positions, which resulted in approximately $6.8 million in mark-to-market losses during Q4 2021 as corn prices surged; and (iii) the resulting cash-flow shortfalls that left PBGC unable to meet its payment obligations to GAP and other creditors. Defendants contend that these events, taken together, constituted an unforeseeable "perfect storm" that rendered PBGC's payment obligations impracticable.
This argument fails for several independent reasons.
First, these are precisely the types of financial and business risks that sophisticated commercial parties assume when entering into contracts. The Off-Take Agreement was a multi-year, multi-million-dollar grain purchase agreement between two entities engaged in commercial agriculture — an industry inherently subject to weather events, commodity price volatility, and operational risks. Fires at grain elevators, while unfortunate, are a known risk in the grain storage industry. Commodity price fluctuations are the very essence of the market in which both GAP and PBGC operate. Cash-flow challenges arising from adverse business events are a routine feature of commercial life. None of these events is so extraordinary, unforeseeable, or fundamentally different in kind from the risks inherent in the grain business as to constitute a supervening contingency excusing performance under Section 2-615.
Second, the hedging losses were the direct result of PBGC's own trading decisions. PBGC took short positions on corn futures that moved against it when corn prices rose sharply in late 2021. This is not an unforeseeable contingency — it is a failed speculative bet. Self-inflicted financial harm resulting from voluntary trading decisions cannot constitute commercial impracticability. See Gulf Oil Corp. v. FERC, 706 F.2d 444, 453 (3d Cir. 1983) (party's own conduct in creating the conditions of hardship forecloses reliance on impracticability); Alimenta (U.S.A.), Inc. v. Cargill, Inc., 861 F.2d 650, 654-55 (11th Cir. 1988) (impracticability defense unavailable where party's own choices contributed to the alleged impossibility).
Third, the fire at the Macon County facility, while a genuine casualty, affected only one of PBGC's six elevator facilities. It is, moreover, an insurable risk. That PBGC's property insurer, Triton Mutual Insurance Co., has disputed coverage — reportedly due to PBGC's alleged lapse in premium payments prior to the fire — underscores that PBGC's financial predicament is attributable to its own failures of risk management, not to an excusable supervening contingency. A party that allows its insurance to lapse and then suffers a covered loss has no one to blame but itself; such a party cannot invoke the impracticability doctrine to shift the consequences of its own negligence onto its creditors.
Fourth, PBGC's broader financial distress — including its default on its $45 million revolving credit facility with Heartland Prairie Bank, N.A., and the lender's subsequent issuance of a notice of default — is evidence of general insolvency, not impracticability of any specific contractual obligation. If financial insolvency constituted impracticability, every debtor in default could avoid its obligations by invoking the doctrine. Illinois law has never so held, and for good reason: the doctrine of impracticability exists to address situations where the nature of the performance itself has fundamentally changed, not situations where the debtor has simply run out of money. See In re Hechinger Inv. Co. of Del., 298 F.3d 219, 229 (3d Cir. 2002) (debtor's insolvency does not excuse contractual obligations under impracticability theory).
3. The Defense Fails as a Matter of Law and Should Be Stricken. Because financial inability to pay is categorically excluded from the doctrine of commercial impracticability under Illinois law, the Second Affirmative Defense is legally insufficient regardless of the factual allegations supporting it. The factual predicate offered by Defendants — the fire, the hedging losses, the insurance dispute, the bank default — does not change the legal analysis. No combination of facts demonstrating financial hardship can transform a payment obligation into an "impracticable" one, because the act of paying money is never rendered objectively impossible by the payor's lack of funds. It is rendered merely unaffordable, which is insufficient.
No amount of discovery will cure this legal deficiency. This is not a case where additional facts might change the legal calculus; it is a case where the legal doctrine simply does not reach the defense as pled. The Second Affirmative Defense should be stricken.
C. GAP's Position on the Failure-to-Mitigate Defense
1. The Failure-to-Mitigate Defense Presents Factual Issues. GAP acknowledges that the Third Affirmative Defense — failure to mitigate damages — unlike the force majeure and commercial impracticability defenses, raises factual questions that may be sufficient to withstand a motion to strike under Illinois pleading standards. Under Section 2-615 of the Code of Civil Procedure, an affirmative defense may be stricken only if it is insufficient as a matter of law. See Raintree Homes, Inc. v. Vill. of Long Grove, 209 Ill. 2d 248, 261 (2004). The mitigation defense, while factually threadbare, is not subject to the same categorical legal bar that forecloses the force majeure and impracticability defenses. Accordingly, GAP does not press its motion to strike as to the Third Affirmative Defense at this time. GAP, however, preserves all arguments that this defense is ultimately without merit and intends to address it fully at summary judgment or trial, as appropriate.
2. The Defense Is Factually Unfounded. While GAP does not seek to strike the Third Affirmative Defense at this juncture, GAP submits the following to place on the record the extent of GAP's affirmative mitigation efforts, which demonstrate that the defense lacks any factual basis.
GAP took prompt, reasonable, and commercially appropriate steps to mitigate its damages arising from PBGC's nonpayment, including the following:
• January 25, 2022: GAP's Director of Grain Operations, Caleb Jennings, sent a written demand letter via certified mail and email to PBGC's President, Darren K. Musgrave, demanding payment of the three then-outstanding invoices (GAP-2021-3187, GAP-2021-3244, and GAP-2021-3301), totaling $3,053,250.00. The demand letter informed PBGC that failure to pay within fifteen (15) days would result in GAP exercising its contractual remedies under the Off-Take Agreement.
• February 14, 2022: In response to a telephonic request from Musgrave for additional time, GAP agreed to a sixty (60)-day forbearance period, conditioned upon PBGC making a partial payment of $892,500.00 (representing the full amount of Invoice GAP-2021-3187) by no later than March 1, 2022. This forbearance was confirmed in writing by correspondence from GAP's counsel to Defendants' counsel.
• March 1, 2022: PBGC failed to make the required partial payment of $892,500.00 by the March 1, 2022 deadline, thereby breaching the forbearance agreement and rendering the entire outstanding balance immediately due and payable.
• March 8, 2022: GAP exercised its rights under Section 8.2 of the Off-Take Agreement (Adequate Assurance of Performance), suspending all further grain deliveries to PBGC pending receipt of adequate assurance of PBGC's ability and willingness to perform its payment obligations. This suspension halted further accumulation of unpaid receivables and prevented GAP's damages from growing.
GAP's suspension of deliveries on March 8, 2022 was itself a significant mitigation measure. By halting further deliveries under Section 8.2, GAP prevented additional grain from being delivered to a buyer that had demonstrated an inability or unwillingness to pay. Without this action, GAP's damages would have continued to mount with each subsequent delivery under the Off-Take Agreement. GAP acted decisively and in a commercially reasonable manner to limit its exposure.
Defendants' opposition identifies no specific, reasonable action that GAP could have taken but failed to take to reduce its damages. Defendants' argument amounts to a vague assertion that GAP should have done "more" — but they fail to articulate what "more" would have looked like. There is no allegation that GAP could have resold the grain to a third party at a comparable price, that GAP failed to pursue available contractual remedies, or that GAP unreasonably delayed in enforcing its rights. To the contrary, GAP pursued its remedies promptly, offered a reasonable forbearance, and suspended deliveries within days of PBGC's breach of the forbearance terms.
GAP reserves the right to seek summary judgment on the failure-to-mitigate defense or to address it at trial, and will do so at the appropriate time.
III. CONCLUSION
For the foregoing reasons, Plaintiff Greenfield Agricultural Partners LLC respectfully requests that this Court grant GAP's Motion to Strike and enter an order striking the First Affirmative Defense (Force Majeure) and the Second Affirmative Defense (Commercial Impracticability) from Defendants' Joint Answer and Affirmative Defenses filed June 27, 2022. Both defenses are legally insufficient as a matter of law: the force majeure clause in the Off-Take Agreement does not extend to payment obligations, and the doctrine of commercial impracticability is categorically unavailable to excuse a party's obligation to pay money.
GAP further respectfully requests such other and further relief as this Court deems just and proper.
Respectfully submitted,
GREENFIELD AGRICULTURAL PARTNERS LLC, By its attorneys,
CALDERWOOD & HARKNESS LLP
CALDERWOOD & HARKNESS LLP
By: ________
Hannah Brinkley ARDC No. 6325148
Calderwood & Harkness LLP 225 West Wacker Drive, Suite 4000 Chicago, Illinois 60606 Telephone: (312) 555-4200 Facsimile: (312) 555-4201
Email: hbrinkley@calderwoodharkness.com
Attorneys for Plaintiff Greenfield Agricultural Partners LLC
Filed: August 8, 2022
CERTIFICATE OF SERVICE
I, Hannah Brinkley, an attorney, hereby certify that on August 8, 2022, I caused a true and correct copy of the foregoing Plaintiff's Reply in Support of Motion to Strike Defendants' Affirmative Defenses to be served upon the following counsel of record by electronic mail and by deposit in the United States Mail, first-class postage prepaid:
Douglas M. Harkin, Esq. Bartlett, Reyes Linley CPAs LLP & Harkin LLP 200 North LaSalle Street, Suite 2500 Chicago, Illinois 60601 Telephone: (312) 555-7800
Email: dharkin@bchlaw.com
Counsel for Defendants Prairie Basin Grain Co. and Darren K. Musgrave
________________________________________
Hannah Brinkley
Invoice No. | Delivery Date | Amount | Payment Due Date
GAP-2021-3187 | September 3, 2021 | $892,500.00 | October 3, 2021
GAP-2021-3244 | September 29, 2021 | $1,018,250.00 | October 29, 2021
GAP-2021-3301 | October 14, 2021 | $1,142,500.00 | November 13, 2021
GAP-2021-3358 | November 8, 2021 | $937,800.00 | December 8, 2021
GAP-2022-0042 | January 3, 2022 | $879,000.00 | February 2, 2022

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

PLAINTIFF'S REPLY IN SUPPORT OF MOTION TO STRIKE DEFENDANTS' AFFIRMATIVE DEFENSES

I. INTRODUCTION

II. ARGUMENT

III. CONCLUSION

CALDERWOOD & HARKNESS LLP

CALDERWOOD & HARKNESS LLP

CERTIFICATE OF SERVICE

Record

Parties

Dates

Amounts