**PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT**
Dear Diana,
I am writing to request Marlowe Asset Management Bluff's approval of settlement authority up to **$2.0 million** in advance of the mediation scheduled for **August 2, 2023** before the Honorable Catherine Lindström (Ret.) at the Great Lakes Dispute Resolution Center in Chicago. Set forth below is a summary of the litigation posture, our risk assessment, and the cost-benefit analysis supporting this recommendation. For a more granular discussion, I would refer you to the Mediation Strategy Memorandum we circulated on June 20, 2023.
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**I. Background**
Cardinal Peak Industries filed this action in the Circuit Court of Cook County, Illinois (Case No. 2022-L-008471) on August 8, 2022, asserting claims for breach of contract, unjust enrichment, and account stated. The dispute arises from raw-material surcharge pass-throughs under the Master Supply Agreement (MSA-NIH-CPI-2020-001), dated January 15, 2020.
Cardinal Peak claims **$4.73 million** in unpaid surcharges for the period March 2021 through May 2022, representing the difference between total surcharges invoiced ($6.41 million) and amounts Nexford already paid ($1.68 million). Cardinal Peak's damages expert, Dr. Theodore Voss of Pinnacle Economics Group LLC, submitted a report on April 12, 2023, asserting total damages of **$5.11 million** ($4.73 million in principal plus $0.38 million in prejudgment interest).
Nexford filed a counterclaim on October 3, 2022, seeking declaratory relief and recovery of **$0.21 million** in alleged overpayment. Calderwood & Harkness represents Nexford; Blackwood Stein & Associates LLP (lead partner Garrett Blackwood) represents Cardinal Peak.
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**II. Current Litigation Posture**
The case has progressed through fact and expert discovery and is now stayed pending mediation:
- **September 19, 2022:** Answer and Affirmative Defenses filed. - **October 3, 2022:** Counterclaim filed. - **November 14, 2022:** Cardinal Peak's motion to dismiss the counterclaim denied. - **January 18, 2023:** Deposition of Natalie Gunderson (Cardinal Peak VP, Sales & Commercial). - **February 7, 2023:** Deposition of Russell Okonkwo (Nexford VP, Procurement). - **March 15, 2023:** Dr. Anita Rosenthal (Meridian Bridge Consulting LLC) submitted Nexford's rebuttal expert report. - **April 12, 2023:** Dr. Voss submitted Cardinal Peak's expert report. - **May 22, 2023:** Parties filed a joint motion to stay litigation pending mediation pursuant to MSA Section 14.3. - **June 5, 2023:** Court granted the stay. - **August 2, 2023:** Full-day mediation session scheduled.
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**III. Nexford's Defense Strengths**
We have developed three independent contractual defenses under MSA Section 7.4, each of which, if sustained, materially reduces or eliminates Cardinal Peak's recovery:
1. **Late Surcharge Notices (Section 7.4(a)).** Cardinal Peak failed to deliver compliant Surcharge Notices within the 15-business-day deadline for **7 of the 14 disputed months**, accounting for approximately **$2.18 million** of the claimed amount. Notably, Natalie Gunderson acknowledged the late delivery of these notices during her deposition.
2. **Methodology Deviation (Exhibit C).** Cardinal Peak used an internal "blended cost" metric rather than the contractually specified published indices — the Ferrous Scrap Index and Industrial Energy Cost Index — applied against the agreed baseline scrap cost of $340/ton and baseline energy cost of $48/ton. This overstatement accounts for approximately **$1.47 million**. Gunderson's testimony also acknowledged the deviation from the Exhibit C methodology.
3. **12% Surcharge Cap (Section 7.4(c)).** For **4 months**, surcharges exceeded 12% of the applicable Base Price without Nexford's prior written consent. The excess above the cap totals approximately **$1.08 million**.
There is some overlap among these three defense categories. Dr. Rosenthal's rebuttal report concludes that Nexford's maximum additional obligation is **$0.21 million** beyond the $1.68 million already paid. Additionally, the unjust enrichment claim is vulnerable to dismissal on the ground that an express contract — the MSA — governs the subject matter.
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**IV. Risk Assessment**
While our defenses are strong, candor requires acknowledging the following risks:
- **Notice deadline as directory vs. mandatory.** A court or jury could interpret the 15-business-day notice deadline as directory rather than mandatory, particularly for months where Nexford received and reviewed the invoices despite late delivery. - **Waiver / estoppel.** Cardinal Peak will argue that Nexford's course of dealing — paying certain surcharges without contemporaneous objection to timing — constitutes waiver or estoppel as to the notice requirement. - **Exhibit C ambiguity.** The "blended cost" methodology argument, while strong on the contract language, may face pushback if the court finds Exhibit C ambiguous on its face, opening the door to extrinsic evidence of the parties' intent. - **Trial uncertainty.** A jury may be sympathetic to Cardinal Peak's position that it incurred real cost increases that the MSA was designed to address, regardless of the procedural deficiencies.
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**V. Cost-Benefit Analysis**
**If the matter proceeds to trial:**
| Scenario
**Settlement at $1.89–$2.0 million:**
- Represents approximately **40%** of the $4.73 million claimed. - Achieves **gross savings of $2.73–$2.84 million** versus the full claim. - Total engagement cost through mediation estimated at approximately **$272,000** (fees of ~$243,670 plus costs of ~$28,415), within the $200,000–$275,000 mediation-track budget. - **Net savings after legal costs: approximately $2.5–$2.6 million.** - Provides certainty, eliminates ongoing management distraction, and allows orderly termination of the MSA and transition of supply arrangements.
One administrative note: any settlement exceeding $1.0 million will require notification to Ridgecrest National Bank under Section 6.03(b) of the revolving credit facility dated March 12, 2021. This is a notice requirement only and should not impede settlement.
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**VI. Mediation Logistics**
- **Date:** August 2, 2023 (full day) - **Mediator:** Hon. Catherine Lindström (Ret.) - **Venue:** Great Lakes Dispute Resolution Center, 150 North Riverside Plaza, Suite 2700, Chicago, IL - **Nexford's Mediation Team:** Priya Anand and Simone Laroche (Calderwood & Harkness); Deborah Whitfield (General Counsel); Martin Schaeffer (CEO) - **Confidential Mediation Brief:** Due to mediator by **July 26, 2023**
The previously circulated Mediation Strategy Memorandum dated June 20, 2023, contains our detailed analysis of negotiation dynamics and mediator background.
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**VII. Recommendation and Request**
Calderwood & Harkness recommends settlement authority up to **$2.0 million**, with an initial offer strategy starting significantly lower to create adequate negotiation room and a target settlement range of **$1.5–$1.9 million**. The $2.0 million ceiling provides the flexibility needed to reach resolution at mediation while representing a favorable outcome at approximately 42% of the claimed amount.
Deborah and Martin, who are copied on this email, have reviewed and support this recommendation.
I would respectfully ask that you confirm Marlowe Asset Management Bluff's approval of the $2.0 million settlement authority **at your earliest convenience, ideally by the end of the week of July 24**, so that we can finalize the mediation brief and negotiation strategy on the timeline required by Judge Lindström's procedures.
If you or Conrad have any questions or would like to discuss this further, I am happy to schedule a call at your convenience.
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Thank you for your continued guidance and support on this matter, Diana. We will keep you closely informed as we prepare for the mediation.
Best regards,
**Priya Anand** Partner Calderwood & Harkness LLP 200 South Wacker Drive, Suite 4400 Chicago, IL 60606 Phone: (312) 555-0184 Email: panand@calderwoodharkness.com
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