PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP
INTERNAL MEMORANDUM — MATTER CLOSING
September 15, 2023
Document Type: Internal Memorandum — PRIVILEGED AND CONFIDENTIAL / ATTORNEY WORK PRODUCT
To: Firm File — Matter No. 1005-00005
From: Priya Anand, Responsible Partner; Douglas Carmichael, Billing Partner
Cc: Simone Laroche, Lead Associate; Jeffrey Park, Working Associate
Re: Matter Closing Memorandum — Cardinal Peak Industries v. Nexford Industrial Holdings Inc., Case No. 2022-L-008471, Circuit Court of Cook County, Illinois, County Department, Law Division
Calderwood & Harkness Matter Number: 1005-00005
This memorandum is prepared for internal firm purposes and constitutes attorney work product protected by the work-product doctrine. It is further subject to the attorney-client privilege to the extent it reflects confidential communications with the client. This document should not be disclosed to any person outside Calderwood & Harkness LLP without prior authorization from the Responsible Partner.
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I. PURPOSE AND SUMMARY
This memorandum documents the formal closure of Calderwood & Harkness LLP Matter No. 1005-00005 following the successful defense of Nexford Industrial Holdings Inc. ("Nexford" or "NIH") against claims brought by Cardinal Peak Industries ("CPI") in Case No. 2022-L-008471, filed in the Circuit Court of Cook County, Illinois, County Department, Law Division. The purpose of this memorandum is to provide a comprehensive record of the engagement, the factual and procedural history of the matter, the terms of the settlement, the financial results achieved on behalf of the client, the fees and costs incurred, key documents generated, and lessons learned for future practice. This memorandum will serve as the firm's definitive internal record of the matter and will be filed in the firm's document management system in accordance with applicable record-retention policies.
On September 14, 2023, the parties filed a Stipulation of Dismissal with Prejudice, dismissing all claims and counterclaims with prejudice, with each party bearing its own attorneys' fees and costs. This Stipulation marked the final disposition of the case and followed the execution of a Settlement Agreement and Mutual Release on August 18, 2023, and the simultaneous negotiation of a mutual termination of the underlying Master Supply Agreement between the parties.
Matter No. 1005-00005 was opened on August 22, 2022, upon Calderwood & Harkness's engagement by Nexford, and is being closed as of September 15, 2023. The total duration of the engagement was approximately twelve months and twenty-four days.
The result achieved is favorable and may be summarized as follows:
• CPI's Claimed Damages: $4.73 million in unpaid surcharges (plus $0.38 million in prejudgment interest, for a total claimed amount of $5.11 million).
• Settlement Amount: $1.89 million, representing approximately 40% of CPI's claimed principal amount.
• Gross Savings to Nexford: $4.73 million minus $1.89 million equals $2.84 million.
• Total Legal Costs Incurred: $272,085 (professional fees of $243,670 plus costs of $28,415).
• Net Savings to Nexford After Legal Costs: Approximately $2.568 million.
The settlement fell below the $2.0 million authority approved by the client and its private equity sponsor, Marlowe Asset Management Bluff Capital Partners, LP, and was achieved without the necessity of trial, thereby avoiding an estimated additional $350,000 to $500,000 in legal expenses and the attendant risks of an adverse judgment.
II. CLIENT AND PARTY INFORMATION
A. Client — Nexford Industrial Holdings Inc.
Full Legal Name: Nexford Industrial Holdings Inc., a corporation organized and existing under the laws of the State of Delaware and headquartered in the State of Illinois.
Principal Business Address:
4200 West Lakeshore Industrial Parkway, Suite 300 Waukegan, Illinois 60085
Delaware Charter Number: 7284159
Employer Identification Number (EIN): 36-4821097
Industry: Industrials — specifically, precision metal fabrication and engineered components. Nexford manufactures and distributes precision-fabricated metal components for use in automotive, aerospace, heavy equipment, and general industrial applications. For fiscal year 2022, Nexford reported annual revenue of approximately $287 million.
Key Client Contacts:
Private Equity Sponsor / Majority Owner:
Marlowe Asset Management Bluff Capital Partners, LP, a Delaware limited partnership, is the majority equity holder of Nexford Industrial Holdings Inc. The general partner of Marlowe Asset Management Bluff Capital Partners, LP is Marlowe Asset Management Bluff Capital Management LLC.
Marlowe Asset Management Bluff Capital Partners, LP 875 North Michigan Avenue, Suite 3600 Chicago, Illinois 60611
• Managing Partner: Conrad Yeung
• Board Observer / Principal: Diana Calloway — Ms. Calloway served as the primary point of contact at Marlowe Asset Management Bluff with respect to this matter and approved the $2.0 million settlement authority on or about July 18, 2023.
B. Adverse Party — Cardinal Peak Industries
Full Legal Name: Cardinal Peak Industries, a limited liability company organized and existing under the laws of the State of Colorado.
Principal Business Address:
1580 Ridgeline Boulevard Pueblo, Colorado 81001
Employer Identification Number (EIN): 84-3295618
Industry: Steel production and distribution. Cardinal Peak Industries operates steel production facilities and distribution operations primarily in the western and midwestern United States. For fiscal year 2022, Cardinal Peak reported annual revenue of approximately $415 million.
Key Personnel:
C. Opposing Counsel
Firm Name: Blackwood Stein & Associates LLP
Address:
717 Seventeenth Street, Suite 2200 Denver, Colorado 80202
Lead Partner: Garrett Blackwood — Mr. Blackwood served as lead counsel for Cardinal Peak Industries throughout the litigation, including at the mediation. Mr. Blackwood is a commercial litigation partner with approximately twenty-five years of experience in supply chain and commercial contract disputes.
Associate: Megan Hsu — Ms. Hsu served as the principal working associate for Cardinal Peak on the matter, handling discovery, deposition preparation, and drafting.
D. Calderwood & Harkness Engagement Team
The following timekeepers were staffed on Matter No. 1005-00005:
The matter was staffed with a lean team appropriate for a mid-range commercial dispute. Ms. Laroche handled the day-to-day management of the case, including discovery, deposition preparation, and drafting of the mediation brief. Mr. Park provided research and drafting support, including the initial case assessment memorandum, legal research memoranda on Illinois contract interpretation, and the surcharge invoice analysis. Partner-level involvement was focused on strategy, client reporting, mediation preparation, and settlement negotiations.
E. Key Third Parties
Damages Expert for Nexford:
Meridian Bridge Consulting LLC Dr. Anita Rosenthal, CPA, ABV 311 South Michigan Avenue, Suite 1500 Chicago, Illinois 60604
Dr. Rosenthal was retained on December 12, 2022 to provide damages analysis and expert testimony. Her rebuttal report, served on March 15, 2023, concluded that Nexford's maximum additional obligation beyond amounts already paid was $0.21 million. Dr. Rosenthal's analysis was instrumental in establishing Nexford's negotiating position during the mediation.
Damages Expert for CPI:
Pinnacle Economics Group LLC Dr. Theodore Voss 1900 Sixteenth Street, Suite 400 Denver, Colorado 80202
Dr. Voss submitted a damages report on behalf of Cardinal Peak on April 12, 2023, claiming total damages of $5.11 million, comprising $4.73 million in unpaid surcharges and $0.38 million in prejudgment interest.
Nexford's Independent Auditors:
Hargrove Kellner CPAs LLP Engagement Partner: Steven Margolis 500 West Monroe Street, Suite 3100 Chicago, Illinois 60661
Hargrove Kellner provided relevant financial records during the discovery phase and was consulted regarding the accounting treatment of the surcharge invoices and the settlement.
Nexford's Senior Secured Lender:
Ridgecrest National Bank, N.A. Relationship Manager: Karen Whitmore 120 North LaSalle Street Chicago, Illinois 60602
Ridgecrest National Bank is the administrative agent and lead lender under Nexford's $45 million revolving credit facility dated March 12, 2021. Settlement notice was provided to Ms. Whitmore on August 21, 2023 in compliance with Section 6.03(b) of the Credit Agreement, as the $1.89 million settlement amount exceeded the $1.0 million notice threshold for litigation settlements.
Mediation Services:
Great Lakes Dispute Resolution Center 150 North Riverside Plaza, Suite 2700 Chicago, Illinois 60606
Mediator: Hon. Catherine Lindström (Ret.) — Judge Lindström, formerly of the Circuit Court of Cook County, presided over the full-day mediation session on August 2, 2023. Judge Lindström has extensive experience mediating commercial disputes in the Chicago metropolitan area and was selected by mutual agreement of the parties.
III. MATTER BACKGROUND AND FACTUAL SUMMARY
A. The Master Supply Agreement
The dispute at the center of this matter arose under a Master Supply Agreement bearing reference number MSA-NIH-CPI-2020-001, executed on January 15, 2020, between Nexford Industrial Holdings Inc., as Buyer, and Cardinal Peak Industries, as Seller (the "MSA"). The MSA governed the terms under which Cardinal Peak would supply hot-rolled coil ("HRC") and cold-rolled coil ("CRC") steel products to Nexford for use in Nexford's precision metal fabrication operations.
The principal terms of the MSA relevant to this matter are as follows:
Term: The MSA had an initial term of three years, running from January 15, 2020 through January 14, 2023, with automatic renewal for successive one-year periods unless either party provided written notice of termination no fewer than 180 days prior to the expiration of the then-current term.
Base Pricing: The MSA established base pricing as follows:
• Hot-Rolled Coil (HRC): $620 per ton (2020 base price)
• Cold-Rolled Coil (CRC): $740 per ton (2020 base price)
Base prices were subject to quarterly adjustment in accordance with the pricing adjustment mechanism set forth in Section 7.2 of the MSA.
Estimated Annual Volume: The MSA contemplated estimated annual purchase volumes of approximately 18,000 tons of HRC and 6,500 tons of CRC, for a total estimated annual volume of approximately 24,500 tons. At base pricing, this translated to an estimated annual spend of approximately $15.97 million (HRC: $11.16 million; CRC: $4.81 million).
Governing Law: The MSA was governed by the laws of the State of Illinois, without regard to conflict-of-laws principles.
B. The Surcharge Clause — MSA Section 7.4
The surcharge pass-through provision in Section 7.4 of the MSA was the central contractual provision in dispute. Section 7.4 contained four material subsections, each of which played a critical role in Nexford's defense:
Section 7.4(a) — Surcharge Pass-Through and Notice Requirement: Section 7.4(a) authorized the Seller to pass through to the Buyer documented raw-material surcharges arising from increases in scrap, energy, and alloy costs. However, the Seller was required to deliver a written Surcharge Notice to the Buyer, accompanied by supporting documentation, no later than fifteen (15) business days after the end of the applicable calendar month in which the surcharge-triggering costs were incurred. This notice requirement was a critical condition precedent to the Seller's right to collect surcharges, and CPI's failure to comply with this deadline for seven of the fourteen disputed months formed the most significant component of Nexford's defense.
Section 7.4(b) and Exhibit C — Surcharge Methodology: Section 7.4(b) required that surcharges be calculated in accordance with the methodology set forth in Exhibit C to the MSA. Exhibit C specified that surcharges were to be calculated using two published, independently verifiable indices: (i) the Ferrous Scrap Index as published by Platts/SPI, and (ii) the Industrial Energy Cost Index. These published indices were to be applied against agreed baseline costs of $340 per ton for scrap and $48 per ton for energy. The use of published indices was deliberately chosen to provide transparency and verifiability in the surcharge calculation process. CPI's departure from this methodology — substituting an internal "blended cost" metric for the published indices required by Exhibit C — was a material breach of the contractual surcharge mechanism and formed the second pillar of Nexford's defense.
Section 7.4(c) — Cap Provision: Section 7.4(c) imposed a cap on surcharges, providing that the aggregate monthly surcharge could not exceed twelve percent (12%) of the applicable Base Price without the Buyer's prior written consent. This cap served as a risk-allocation mechanism, ensuring that Nexford's exposure to surcharge pass-throughs was bounded in the absence of affirmative consent to higher amounts. For four of the fourteen disputed months, CPI invoiced surcharges that exceeded the 12% cap without having obtained Nexford's prior written consent, and the excess above the cap formed the third element of Nexford's defense.
Section 7.4(d) — Dispute Procedure: Section 7.4(d) established a tiered dispute resolution process for surcharge disputes. The Buyer was required to notify the Seller of a disputed surcharge within thirty (30) calendar days of receipt of the applicable Surcharge Notice. Unresolved disputes were to be escalated to designated senior officers of each party for resolution, and failing resolution at the senior officer level, the dispute was to proceed to mandatory mediation in accordance with Section 14.3 of the MSA. This mandatory mediation provision ultimately facilitated the efficient resolution of this matter.
C. The Surcharge Dispute
The surcharge dispute spanned a fifteen-month period from March 2021 through May 2022. During this period, CPI invoiced surcharges totaling $6.41 million across the supply relationship. Nexford paid $1.68 million of the invoiced surcharges, representing those surcharges that Nexford determined were properly documented, timely noticed, and calculated in accordance with the Exhibit C methodology. The surcharge for April 2021 was paid in full by Nexford and was not in dispute, leaving fourteen months at issue.
The resulting claimed unpaid balance was $4.73 million ($6.41 million invoiced less $1.68 million paid). In addition, CPI claimed prejudgment interest of $0.38 million, as calculated by CPI's damages expert Dr. Theodore Voss of Pinnacle Economics Group LLC, bringing CPI's total claimed damages to $5.11 million.
The dispute arose during a period of significant volatility in steel and raw-material markets, driven in part by supply chain disruptions associated with the COVID-19 pandemic and subsequent demand recovery. Scrap and energy costs rose substantially during 2021 and into 2022, creating substantial cost pressures on steel producers including CPI. However, the MSA's surcharge mechanism was specifically designed to allocate these risks through a structured, transparent process, and CPI's failure to comply with the contractual requirements governing that process gave rise to Nexford's defenses.
D. Nexford's Defenses
Nexford's defense rested on three principal categories of contract-based defenses, each supported by detailed factual and documentary evidence:
1. Late Surcharge Notices: CPI failed to deliver compliant Surcharge Notices within the fifteen-business-day deadline prescribed by Section 7.4(a) for seven of the fourteen disputed months. In several instances, notices were delivered weeks or even months late. Nexford contended that the notice requirement was a condition precedent to CPI's entitlement to surcharge payments, and that CPI's failure to comply with this requirement excused Nexford's obligation to pay the surcharges for the affected months. The surcharges associated with the seven late-notice months totaled approximately $2.18 million.
2. Methodology Deviation: For the months in which CPI did deliver timely notices, the surcharge calculations were not performed using the published indices specified in Exhibit C (the Ferrous Scrap Index and the Industrial Energy Cost Index), as required by Section 7.4(b). Instead, CPI used an internal "blended cost" metric that aggregated CPI's actual raw-material costs across multiple facilities and product lines. This methodology was not contemplated by the MSA and produced surcharge figures that were systematically higher than those that would have resulted from the contractually specified published-index methodology. The overstated surcharge amount attributable to this methodology deviation was approximately $1.47 million.
3. Cap Exceedances: For four of the disputed months, CPI invoiced surcharges that exceeded the 12% cap set forth in Section 7.4(c) without having obtained Nexford's prior written consent. The excess surcharge amounts above the contractual cap for these four months totaled approximately $1.08 million.
It is important to note that some overlap existed among these three defense categories. For certain months, a surcharge notice was both late and calculated using the improper blended-cost methodology, and in some instances also exceeded the 12% cap. Nexford's primary litigation position, as quantified by Dr. Rosenthal's expert analysis, was that after applying all three defenses, Nexford owed at most an additional $0.21 million beyond the $1.68 million it had already paid. This position was aggressive but well-supported by the contractual language and the available documentary evidence.
IV. PROCEDURAL HISTORY AND CHRONOLOGY OF THE MATTER
A. Pre-Litigation Phase
The dispute moved from the commercial to the legal sphere in mid-2022, following months of escalating disagreement between the parties' respective procurement and sales teams regarding the surcharge invoices.
June 10, 2022: Blackwood Stein & Associates LLP, on behalf of Cardinal Peak Industries, transmitted a formal demand letter to Nexford demanding payment of $4.73 million in alleged unpaid surcharges. The demand letter set a thirty-day deadline for payment and threatened litigation in the event of non-payment.
July 5, 2022: Nexford's General Counsel, Deborah Whitfield, responded to the demand letter, rejecting CPI's demand in its entirety. Ms. Whitfield's response letter identified the late notice, methodology deviation, and cap exceedance defenses in summary form and stated Nexford's position that no additional amounts were owed.
August 8, 2022: Having received Nexford's rejection, Cardinal Peak Industries filed its Complaint in the Circuit Court of Cook County, Illinois, County Department, Law Division, initiating Case No. 2022-L-008471. The Complaint asserted three causes of action:
(1) Breach of Contract — alleging that Nexford breached the MSA by failing to pay surcharges properly invoiced under Section 7.4;
(2) Unjust Enrichment — alleging that Nexford was unjustly enriched by receiving steel products at prices that did not reflect the true cost of raw materials; and
(3) Account Stated — alleging that Nexford's partial payments and failure to timely dispute certain invoices gave rise to an account stated.
B. Engagement and Initial Defense
August 22, 2022: Following receipt of the Complaint and service of process, Nexford engaged Calderwood & Harkness LLP to represent it in the defense of the action. The matter was opened as Calderwood & Harkness Matter No. 1005-00005, with Priya Anand designated as Responsible Partner and Douglas Carmichael designated as Billing Partner. An engagement letter was executed by Deborah Whitfield on behalf of Nexford.
August 21, 2022: A conflict check memorandum was prepared and cleared prior to the formal opening of the engagement. No conflicts were identified.
August 23, 2022: A litigation hold notice was prepared and distributed to Nexford's relevant custodians, including Deborah Whitfield, Russell Okonkwo, Lydia Tran, and other personnel with possession, custody, or control of documents relevant to the MSA and the surcharge dispute. The litigation hold notice identified the categories of documents to be preserved and the custodians responsible for compliance.
August 25, 2022: Calderwood & Harkness transmitted a detailed client letter to Deborah Whitfield analyzing CPI's demand and the Complaint, evaluating the merits and risks of the three asserted claims, and recommending a defense strategy focused on the contractual defenses arising from Section 7.4 of the MSA.
August 30, 2022: An initial case assessment memorandum was prepared internally, providing a comprehensive analysis of the factual background, the applicable legal standards, Nexford's potential defenses and counterclaims, the strengths and weaknesses of each party's position, and preliminary budget estimates for defense through various procedural milestones (including a mediation track at $200,000 to $275,000 and a trial track at $350,000 to $500,000).
September 19, 2022: Calderwood & Harkness, on behalf of Nexford, timely filed an Answer and Affirmative Defenses in Case No. 2022-L-008471. The Answer denied all material allegations of the Complaint and asserted the following affirmative defenses:
(i) Waiver — CPI waived its right to collect surcharges for months in which it failed to deliver timely Surcharge Notices;
(ii) Failure of condition precedent — CPI's compliance with the notice requirements of Section 7.4(a) was a condition precedent to its entitlement to surcharge payments, and CPI failed to satisfy this condition for seven of the fourteen disputed months;
(iii) Breach by CPI of Exhibit C methodology — CPI breached the MSA by calculating surcharges using an internal blended-cost metric rather than the published-index methodology required by Exhibit C; and
(iv) 12% cap defense — CPI breached the MSA by invoicing surcharges in excess of the 12% cap without obtaining Nexford's prior written consent as required by Section 7.4(c).
C. Counterclaim
October 3, 2022: Following further analysis and in consultation with the client, Calderwood & Harkness filed a Counterclaim on behalf of Nexford. The Counterclaim asserted a claim for breach of contract based on CPI's failure to comply with the Exhibit C surcharge methodology and the Section 7.4 notice requirements. The Counterclaim sought declaratory relief — a judicial declaration that Nexford had no obligation to pay surcharges that were not properly noticed and calculated — and damages in the amount of $0.21 million, representing amounts that Nexford contended it had overpaid during the disputed period.
November 14, 2022: CPI moved to dismiss Nexford's Counterclaim on the grounds that Nexford had failed to state a claim upon which relief could be granted and that the declaratory relief sought was duplicative of Nexford's affirmative defenses. Calderwood & Harkness filed a Memorandum in Opposition to the Motion to Dismiss on November 2, 2022, arguing that the Counterclaim stated independent claims for breach of contract and that declaratory relief was appropriate to resolve the parties' ongoing dispute regarding the proper interpretation of Section 7.4. On November 14, 2022, the Court denied CPI's Motion to Dismiss in its entirety, finding that the Counterclaim stated viable claims. This early favorable ruling bolstered Nexford's negotiating leverage.
D. Discovery Phase
Formal discovery commenced in December 2022 and continued through April 2023. The discovery process included written interrogatories, document requests, and depositions.
December 5, 2022: Nexford served its First Set of Interrogatories and First Set of Requests for Production of Documents on Cardinal Peak Industries. The discovery requests were targeted at obtaining: (i) the original Surcharge Notices and supporting documentation for each disputed month; (ii) CPI's internal records regarding the "blended cost" metric used in its surcharge calculations; (iii) CPI's communications regarding the timing and content of Surcharge Notices; (iv) documentation of any written consent from Nexford to surcharges exceeding the 12% cap; and (v) the factual basis for CPI's unjust enrichment and account stated claims.
January 9, 2023: Nexford served its responses to CPI's First Set of Interrogatories and CPI's First Request for Production of Documents. Nexford's document production included the MSA, relevant purchase orders, surcharge invoices received from CPI, internal communications regarding the surcharge dispute, and financial records reflecting payments made.
January 18, 2023 — Deposition of Natalie Gunderson: The deposition of Natalie Gunderson, CPI's Vice President of Sales & Commercial, was conducted on January 18, 2023 by Simone Laroche. This deposition proved to be a pivotal event in the litigation. Ms. Gunderson made several critical admissions during her testimony:
• Ms. Gunderson acknowledged that CPI had delivered Surcharge Notices after the fifteen-business-day deadline for seven of the fourteen disputed months. She attributed the delays to staffing transitions and internal process issues at CPI, but was unable to identify any contractual basis for excusing the late delivery.
• Ms. Gunderson confirmed that CPI's surcharge calculations were performed using an internal "blended cost" metric rather than the published Ferrous Scrap Index and Industrial Energy Cost Index specified in Exhibit C to the MSA. She stated that CPI's finance team had adopted the blended-cost approach because it was "more reflective of CPI's actual cost structure," but acknowledged that this methodology was not the methodology specified in the contract.
• Ms. Gunderson was unable to identify any instance in which Nexford had provided prior written consent to surcharges exceeding the 12% cap set forth in Section 7.4(c). She acknowledged that such written consent was required by the contract and that CPI had not obtained it.
A deposition summary memorandum was prepared on January 25, 2023, documenting these and other significant admissions for use in subsequent proceedings.
January 30, 2023 — Deposition Preparation — Russell Okonkwo: Calderwood & Harkness prepared Russell Okonkwo, Nexford's Vice President of Procurement, for his deposition through a preparation session and a detailed deposition preparation memorandum.
February 7, 2023 — Deposition of Russell Okonkwo: Mr. Okonkwo was deposed by Blackwood Stein & Associates on February 7, 2023. Mr. Okonkwo's testimony was consistent with Nexford's litigation positions and he performed well as a witness. He clearly explained Nexford's reasons for disputing the surcharges, the process by which Nexford reviewed and evaluated Surcharge Notices, and the basis for Nexford's partial payments.
E. Expert Phase
December 12, 2022: Early in the engagement, Calderwood & Harkness retained Meridian Bridge Consulting LLC and its principal, Dr. Anita Rosenthal, CPA, ABV, as Nexford's damages expert. The early retention of Dr. Rosenthal allowed for prompt analysis of the surcharge invoices and CPI's calculations, which in turn informed discovery strategy and deposition preparation.
March 15, 2023: Expert reports were exchanged between the parties. Dr. Rosenthal's expert rebuttal report provided a detailed, month-by-month analysis of CPI's surcharge invoices for the fourteen disputed months. Dr. Rosenthal's report concluded that, after applying the contractually specified published-index methodology, adjusting for late notices, and enforcing the 12% cap, Nexford's maximum additional obligation beyond the $1.68 million already paid was $0.21 million. Dr. Rosenthal's analysis was thorough and well-documented, drawing directly on the published index data and the contractual provisions of the MSA.
April 12, 2023: CPI's expert, Dr. Theodore Voss of Pinnacle Economics Group LLC, submitted his damages report. Dr. Voss's report claimed total damages of $5.11 million, comprising $4.73 million in principal (the full amount of unpaid surcharges as invoiced by CPI) and $0.38 million in prejudgment interest. Dr. Voss's report adopted CPI's position that the surcharges were properly invoiced and that Nexford's defenses lacked merit. Calderwood & Harkness prepared a detailed internal memorandum on April 20, 2023, analyzing Dr. Voss's report, identifying its methodological weaknesses, and outlining rebuttal arguments.
F. Mediation and Settlement
May 22, 2023: Following the completion of expert reports and in light of the parties' respective positions, the parties jointly moved to stay the litigation pending mediation pursuant to the mandatory mediation provision in Section 14.3 of the MSA. The joint motion reflected the parties' mutual recognition that mediation offered a more efficient path to resolution than continued litigation toward trial.
June 5, 2023: The Court granted the joint motion to stay the litigation pending mediation.
June 20, 2023: Calderwood & Harkness prepared a mediation strategy memorandum for the engagement team and the client. The memorandum analyzed Nexford's litigation strengths and weaknesses, assessed the likely range of outcomes at trial, evaluated the costs and risks of continued litigation, and recommended a settlement range of $1.5 million to $2.0 million as providing favorable value relative to Nexford's risk profile.
July 18, 2023: Calderwood & Harkness, in consultation with Deborah Whitfield and Lydia Tran of Nexford, requested settlement authority of up to $2.0 million from Marlowe Asset Management Bluff Capital Partners, LP. The request was communicated to Diana Calloway, Marlowe Asset Management Bluff's Principal and Board Observer, via email, accompanied by a detailed cost-benefit analysis. Ms. Calloway approved the $2.0 million settlement authority, enabling Calderwood & Harkness to negotiate at the mediation with full authority to bind the client within the approved range.
July 26, 2023: Calderwood & Harkness submitted a confidential mediation brief to Hon. Catherine Lindström (Ret.), the mediator selected by mutual agreement of the parties. The mediation brief presented Nexford's factual narrative, legal defenses, damages analysis, and settlement position, supported by the key documents and expert analysis developed during the litigation.
August 2, 2023: A full-day mediation was conducted at the Great Lakes Dispute Resolution Center in Chicago, Illinois, before Judge Lindström. The mediation session began at 9:00 a.m. and continued through the evening. After a series of caucus sessions and intensive negotiations facilitated by Judge Lindström, the parties reached a settlement in principle. A term sheet was signed by authorized representatives of both parties at the conclusion of the mediation session, memorializing the principal terms of the settlement.
G. Post-Mediation Closing
August 4, 2023: Calderwood & Harkness transmitted a post-mediation report to the client, summarizing the mediation proceedings, the settlement terms agreed upon in principle, and the remaining steps required to formalize the settlement and close the matter.
August 18, 2023: Following the exchange and negotiation of drafts, the parties executed a formal Settlement Agreement and Mutual Release. The Settlement Agreement was drafted initially by Blackwood Stein & Associates on behalf of CPI, and Calderwood & Harkness prepared a redline reflecting Nexford's comments and proposed revisions. The parties resolved all open issues in the Settlement Agreement and the final version was executed on August 18, 2023.
August 21, 2023: Calderwood & Harkness, on behalf of Nexford, transmitted a settlement notice letter to Karen Whitmore, Relationship Manager at Ridgecrest National Bank, N.A. This notice was required under Section 6.03(b) of Nexford's $45 million revolving credit facility, dated March 12, 2021, which imposes a notice requirement for litigation settlements exceeding $1.0 million. The $1.89 million settlement amount exceeded this threshold, making the notice mandatory. The notice was timely delivered and acknowledged by Ms. Whitmore.
August 31, 2023: The MSA between Nexford and Cardinal Peak was terminated by mutual agreement, effective August 31, 2023. The MSA Termination Agreement provided for a transition period through October 31, 2023 to allow for the fulfillment of outstanding purchase orders and an orderly transition to alternative suppliers. The simultaneous negotiation of the MSA termination alongside the settlement terms was a key strategic objective, as the client wished to exit the commercial relationship with CPI and diversify its steel supply chain.
September 14, 2023: The parties filed a Stipulation of Dismissal with Prejudice in Case No. 2022-L-008471, dismissing all claims asserted in CPI's Complaint and all counterclaims asserted in Nexford's Counterclaim, with prejudice, with each party bearing its own attorneys' fees and costs. The filing of the Stipulation marked the final judicial resolution of the matter.
September 15, 2023: Calderwood & Harkness formally closed Matter No. 1005-00005.
V. SETTLEMENT TERMS SUMMARY
The material terms of the Settlement Agreement and Mutual Release executed on August 18, 2023 are summarized as follows:
Total Settlement Amount: $1,890,000.00 (one million eight hundred ninety thousand dollars). This amount represents approximately forty percent (40%) of CPI's claimed principal amount of $4.73 million.
Payment Structure: The settlement amount is payable by Nexford in two installments:
• Installment 1: $1,134,000.00 (sixty percent), due within thirty (30) days of execution of the Settlement Agreement, i.e., no later than September 17, 2023.
• Installment 2: $756,000.00 (forty percent), due within ninety (90) days of execution of the Settlement Agreement, i.e., no later than November 16, 2023.
Mutual Release: Each party granted the other a full, final, and irrevocable release of all claims, counterclaims, demands, causes of action, and liabilities arising out of or relating to the MSA, the surcharge dispute, the litigation, and the subject matter of Case No. 2022-L-008471. The release is broadly worded and encompasses known and unknown claims.
MSA Termination: The parties agreed to terminate the MSA by mutual agreement effective August 31, 2023. A separate MSA Termination Agreement was executed concurrently, providing for a transition period through October 31, 2023 to permit the fulfillment of outstanding purchase orders and an orderly transition of Nexford's steel supply needs to alternative suppliers.
Confidentiality: The terms and amount of the settlement are confidential. Neither party is permitted to make public statements regarding the terms of the settlement, the mediation proceedings, or the substance of the negotiations, except as required by law, regulation, or court order, or as reasonably necessary for financial reporting, tax compliance, or disclosure to auditors, lenders, and equity holders.
No Admission of Liability: The Settlement Agreement expressly provides that neither party admits any liability, wrongdoing, or fault by entering into the settlement. The settlement represents a compromise of disputed claims and is not to be construed as evidence of any party's liability.
Stipulation of Dismissal: The parties agreed to file a Stipulation of Dismissal with Prejudice within thirty (30) days of execution of the Settlement Agreement, dismissing all claims and counterclaims with prejudice, each party bearing its own attorneys' fees and costs. The Stipulation was filed on September 14, 2023.
VI. OUTCOME ANALYSIS
A. Financial Outcome
The following table summarizes the financial outcome of the matter:
The settlement amount of $1.89 million represents a discount of approximately sixty percent from CPI's claimed principal amount of $4.73 million. After accounting for total legal costs of $272,085, the net savings to Nexford was approximately $2.568 million relative to an adverse judgment on CPI's full claim.
B. Assessment of Result
The settlement achieved in this matter should be assessed favorably for several reasons:
Within Settlement Authority: The $1.89 million settlement fell below the $2.0 million settlement authority approved by Marlowe Asset Management Bluff Capital Partners and Nexford management, and within the $1.5 million to $2.0 million settlement range recommended in the mediation strategy memorandum.
Strong Defense Posture, Tempered by Litigation Risk: Nexford's litigation position — that its maximum additional obligation was $0.21 million — was aggressive and was supported by strong contractual defenses rooted in the specific language of MSA Section 7.4. However, practical litigation risk warranted a negotiated resolution. There was a meaningful possibility that a court might not fully accept all three overlapping defense categories. In particular, CPI was expected to argue that the late-notice defense was an unduly harsh forfeiture argument, that the blended-cost methodology was a reasonable exercise of commercial discretion under the contract, and that the 12% cap ambiguity should be resolved in CPI's favor. While we believed these arguments were ultimately unpersuasive, they presented non-trivial risks at trial.
Cost Avoidance: Settlement at the mediation stage resulted in total legal costs of $272,085, compared to an estimated trial-track cost of $350,000 to $500,000. The settlement thus avoided an additional $78,000 to $228,000 in legal expenses, plus the opportunity cost and distraction of continued litigation through trial.
Preservation of Commercial Reputation: Nexford operates in the industrial supply market, where commercial relationships and reputation are material considerations. A protracted trial against a major steel supplier, potentially involving public testimony and court filings detailing the parties' commercial dealings, could have had reputational implications. The confidential settlement avoided this risk.
Comprehensive Resolution: The simultaneous negotiation of the MSA termination and transition period alongside the settlement terms achieved a comprehensive resolution of all commercial and legal issues between the parties. Nexford was able to exit the CPI supply relationship on an orderly basis while resolving the pending litigation in a single transaction.
VII. FINANCIAL SUMMARY — FEES AND COSTS
A. Billing Rate Summary
The following standard billing rates were applicable to Matter No. 1005-00005:
These rates are consistent with the standard rates set forth in the engagement letter and were not subject to any discount or alternative fee arrangement.
B. Total Fees Billed
Total professional fees billed on Matter No. 1005-00005 were $243,670.00. This amount was within the estimated budget range of $200,000 to $275,000 established for the mediation-track resolution scenario in the Litigation Strategy and Budget Memorandum dated September 22, 2022.
C. Total Costs Advanced
Total costs advanced on behalf of the client were $28,415.00, broken down as follows:
D. Total Engagement Cost
The total engagement cost for Matter No. 1005-00005 was:
Professional Fees: $243,670.00 Costs Advanced: $28,415.00 Total Engagement Cost: $272,085.00
E. Budget Compliance
The original budget estimate for the mediation-track resolution of this matter was $200,000 to $275,000, as set forth in the Litigation Strategy and Budget Memorandum dated September 22, 2022. The actual total engagement cost of $272,085.00 fell within this estimated range, demonstrating effective budgeting and resource management throughout the engagement.
Had the matter proceeded to trial, the estimated total cost was $350,000 to $500,000. The mediation-track resolution thus resulted in significant cost savings relative to the trial-track scenario, in the range of approximately $78,000 to $228,000.
All invoices have been paid in full. There are no outstanding invoices or accounts receivable associated with this matter.
VIII. KEY DOCUMENTS AND WORK PRODUCT INDEX
The following is a comprehensive index of key documents and work product generated in connection with Matter No. 1005-00005. All documents are indexed and filed in the firm's document management system under the matter number.
Engagement and Administrative:
1. Engagement Letter (August 22, 2022)
2. Conflict Check Memorandum (August 21, 2022)
3. Litigation Hold Notice (August 23, 2022)
Client Communications and Strategy:
4. Client Letter re Demand Response Strategy (August 25, 2022)
5. Initial Case Assessment Memorandum (August 30, 2022)
6. Litigation Strategy and Budget Memorandum (September 22, 2022)
7. Status Report Letter to Client — Q4 2022 (December 20, 2022)
8. Status Report Letter to Client — Q1 2023 (March 30, 2023)
9. Email to Marlowe Asset Management Bluff re Settlement Authority Request (July 18, 2023)
10. Post-Mediation Report to Client (August 4, 2023)
Legal Research and Analysis: