initial-case-assessment-memo.docx

1005-00005 · Nexford Industrial Holdings · Legal Analysis

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MEMORANDUM

August 30, 2022

TO: Priya Anand, Partner, Calderwood & Harkness LLP

FROM: Simone Laroche, Senior Associate, and Jeffrey Park, Associate

RE: Initial Case Assessment — Cardinal Peak Industries v. Nexford Industrial Holdings Inc., Case No. 2022-L-008471, Circuit Court of Cook County, Illinois, County Department, Law Division

MATTER NUMBER: 1005-00005

CLIENT: Nexford Industrial Holdings Inc.

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I. Executive Summary

Calderwood & Harkness LLP was engaged by Nexford Industrial Holdings Inc. ("Nexford" or "NIH") on August 22, 2022, to defend against a complaint filed on August 8, 2022, by Cardinal Peak Industries ("Cardinal Peak" or "CPI"), a Colorado limited liability company, in the Circuit Court of Cook County, Illinois, County Department, Law Division, Case No. 2022-L-008471. The Complaint was served on Nexford's registered agent in Illinois on August 11, 2022, and forwarded to Nexford's General Counsel, Deborah Whitfield, on August 15, 2022. Nexford promptly engaged our firm to manage its defense in this matter.

Cardinal Peak asserts three causes of action: (1) Breach of Contract, (2) Unjust Enrichment (pleaded in the alternative), and (3) Account Stated. In sum, Cardinal Peak claims $4.73 million in unpaid raw-material surcharges that it alleges are owed under a Master Supply Agreement bearing reference number MSA-NIH-CPI-2020-001, executed on January 15, 2020 (the "MSA"). The surcharges at issue relate to a fifteen-month period from March 2021 through May 2022, during which significant volatility in scrap metal and energy commodity markets drove substantial fluctuations in the cost of flat-rolled steel products supplied by Cardinal Peak to Nexford.

Cardinal Peak is represented by Blackwood Stein & Associates LLP of Denver, Colorado, a mid-size litigation firm. The matter is led by Garrett Blackwood, a partner with approximately twenty years of experience in commercial disputes, and Megan Hsu, an associate at the firm.

Based on our preliminary review of the Complaint, the MSA, the Surcharge Notices, Nexford's internal surcharge review logs, and relevant correspondence, we have identified strong contractual defenses under MSA Section 7.4 that, if fully credited, eliminate Cardinal Peak's claim in its entirety. These defenses rest on three independent grounds:

(a) Untimely Surcharge Notices. Cardinal Peak failed to deliver Surcharge Notices within the fifteen-business-day deadline prescribed by Section 7.4(a) for seven of the fourteen disputed months, affecting approximately $2.18 million in claimed surcharges.

(b) Deviation from Exhibit C Surcharge Methodology. Cardinal Peak calculated surcharges using an internal "blended cost" metric rather than the published Ferrous Scrap Index and Industrial Energy Cost Index mandated by Exhibit C to the MSA, resulting in approximately $1.47 million in excess charges.

(c) Violations of the 12% Surcharge Cap. For four months during the disputed period, Cardinal Peak invoiced surcharges exceeding the 12% cap set forth in Section 7.4(c) without obtaining Nexford's prior written consent, resulting in approximately $1.08 million in excess charges above the cap.

These defenses have some overlap among categories — certain months are subject to more than one defense — but collectively they demonstrate that Nexford owes at most an additional $0.21 million beyond the $1.68 million already paid during the disputed period. Indeed, when properly recalculated in accordance with the MSA's express terms, Nexford's position is that it may have overpaid Cardinal Peak, and that Nexford is entitled to a refund of approximately $0.21 million.

This memorandum provides a detailed analysis of Cardinal Peak's Complaint, Nexford's available defenses, a preliminary risk assessment across a range of outcomes, and our recommended litigation strategy. We recommend that Nexford pursue an aggressive defense posture: filing a comprehensive Answer with Affirmative Defenses and a Counterclaim for breach of contract, declaratory relief, and recovery of the $0.21 million overpayment. We further recommend early retention of a damages expert and proactive discovery to build the factual record supporting Nexford's position.

II. Background and Parties

A. Nexford Industrial Holdings Inc. (Defendant / Our Client)

Nexford Industrial Holdings Inc. is a Delaware corporation headquartered at 4200 West Lakeshore Industrial Parkway, Suite 300, Waukegan, Illinois 60085. Nexford was incorporated in the State of Delaware on April 3, 2014, and has maintained its principal place of business in Waukegan, Illinois, since that time. Nexford is registered to do business in Illinois, Indiana, and Ohio.

Nexford operates three manufacturing facilities across the Midwest: its flagship operation in Waukegan, Illinois; a secondary plant in Gary, Indiana; and a third facility in Toledo, Ohio. Across these facilities, Nexford produces precision-engineered steel and aluminum components for the automotive, heavy equipment, and infrastructure sectors. Nexford's operations encompass stamping, forming, welding, machining, and surface-treatment processes, and the company supplies a diversified base of original equipment manufacturers and Tier 1 suppliers throughout North America.

Nexford's approximate annual revenue for fiscal year 2022 is $287 million. The company employs approximately 1,200 individuals across its three facilities and corporate headquarters. Nexford's key personnel relevant to this matter are as follows:

• Martin Schaeffer, Chief Executive Officer — oversees all operations; ultimate authority on significant commercial relationships and strategic decisions.

• Lydia Tran, Chief Financial Officer — responsible for financial oversight, payment approvals, and credit facility compliance; approved or reviewed payments on Cardinal Peak surcharge invoices during the disputed period.

• Russell Okonkwo, Vice President, Procurement — primary commercial contact with Cardinal Peak; managed the surcharge review process; maintained the internal surcharge review logs that are central to Nexford's defense.

• Deborah Whitfield, General Counsel — handled pre-litigation communications with Cardinal Peak and Blackwood Stein; authored Nexford's demand rejection letter dated July 5, 2022; coordinated engagement of Calderwood & Harkness LLP.

Nexford's majority owner is Marlowe Asset Management Bluff Capital Partners, LP ("Marlowe Asset Management Bluff"), a private equity firm based in Chicago, Illinois. Marlowe Asset Management Bluff acquired its majority stake in Nexford in 2017 and currently holds approximately 72% of Nexford's equity. The Managing Partner of Marlowe Asset Management Bluff is Conrad Yeung. Diana Calloway serves as Principal at Marlowe Asset Management Bluff and as a Board Observer at Nexford. Marlowe Asset Management Bluff's involvement is relevant to this matter for two reasons: first, any significant settlement will require Marlowe Asset Management Bluff's approval as majority equity holder under the terms of Nexford's governance documents; and second, Marlowe Asset Management Bluff's representatives will need to be briefed on the litigation's status and budgetary implications.

Nexford's primary lender is Ridgecrest National Bank, N.A. Nexford maintains a $45 million revolving credit facility with Ridgecrest, dated March 12, 2021, which is secured by substantially all of Nexford's assets. Importantly, Section 6.03(b) of the credit agreement requires Nexford to provide written notice to Ridgecrest of any settlement of litigation claims exceeding $1.0 million. This covenant will need to be considered in any settlement discussions and in assessing the practical implications of various resolution scenarios.

B. Cardinal Peak Industries (Plaintiff / Adverse Party)

Cardinal Peak Industries is a Colorado limited liability company headquartered at 1580 Ridgeline Boulevard, Pueblo, Colorado 81001. Cardinal Peak is a regional steel producer and distributor specializing in flat-rolled steel products, including hot-rolled coil ("HRC") and cold-rolled coil ("CRC"), which it supplies to manufacturers across the Midwest and Mountain West regions of the United States. Cardinal Peak operates a primary production facility in Pueblo, Colorado, and maintains distribution centers in Kansas City, Missouri, and Joliet, Illinois.

Cardinal Peak's approximate annual revenue for fiscal year 2022 is $415 million, making it a significantly larger enterprise than Nexford in terms of top-line revenue. Cardinal Peak's key personnel relevant to this matter include:

• Frank Delacroix, President & Chief Executive Officer — senior executive with ultimate authority over Cardinal Peak's commercial strategy and major dispute resolution decisions.

• Natalie Gunderson, Vice President, Sales & Commercial — responsible for commercial relationships with major accounts including Nexford; likely involved in the establishment of surcharge pricing and the generation of Surcharge Notices during the disputed period.

• Harold Briggs, Controller — responsible for accounting functions, including the preparation and issuance of surcharge invoices.

• Patricia Morrow, General Counsel — Cardinal Peak's in-house legal counsel; likely involved in the decision to engage Blackwood Stein and to initiate this litigation.

The relationship between Nexford and Cardinal Peak dates to 2018, when Nexford first began purchasing flat-rolled steel from Cardinal Peak on a purchase-order basis. The parties formalized their commercial arrangement through the execution of the MSA on January 15, 2020, which established multi-year pricing terms, volume commitments, and — critically to this dispute — a structured mechanism for the pass-through of raw-material surcharges.

C. Opposing Counsel

Cardinal Peak is represented in this matter by Blackwood Stein & Associates LLP, located at 717 Seventeenth Street, Suite 2200, Denver, Colorado 80202. Blackwood Stein is a mid-size litigation firm with a commercial disputes practice that focuses on energy, natural resources, and industrial sector litigation. The firm has approximately forty-five attorneys and has appeared in Colorado, Illinois, and several other jurisdictions in similar supply-chain and commercial contract disputes.

The lead attorney for Cardinal Peak is Garrett Blackwood, a partner with approximately twenty years of litigation experience, who has handled several published cases involving surcharge disputes and commodity pricing in supply agreements. We are aware of at least two prior matters handled by Mr. Blackwood that involved arguments similar to those raised in the Complaint here: Rocky Mountain Alloys, Inc. v. PacificSteel Corp., No. 2018-CV-03244 (Denver Dist. Ct. 2019) (settled), and Ironback Supply Co. v. Colton Manufacturing, LLC, No. 2020-L-005812 (Cook County Cir. Ct. 2021) (summary judgment for defendant). The associate on the matter is Megan Hsu, who appears to be a mid-level associate based on bar admission records.

III. The Master Supply Agreement

The MSA is the central document in this dispute. Set forth below is a summary of its key terms, with particular attention to the surcharge pass-through provisions that form the basis of Cardinal Peak's claims and Nexford's defenses.

A. Key Terms

The MSA bears reference number MSA-NIH-CPI-2020-001 and was executed on January 15, 2020. The parties to the MSA are Nexford Industrial Holdings Inc., as Buyer, and Cardinal Peak Industries, as Seller. The MSA was executed on behalf of Nexford by Russell Okonkwo, Vice President, Procurement, with the countersignature of Lydia Tran, Chief Financial Officer, and on behalf of Cardinal Peak by Natalie Gunderson, Vice President, Sales & Commercial, and Frank Delacroix, President & CEO.

The MSA has an initial term of three years, commencing January 15, 2020, and expiring January 14, 2023, with automatic renewal for successive one-year periods unless either party delivers written notice of termination at least 180 days prior to the end of the then-current term. As of the date of this memorandum, neither party has delivered a termination notice, and the MSA remains in effect. The governing law clause at Section 15.1 specifies that Illinois law governs the interpretation, enforcement, and performance of the MSA.

The MSA is a comprehensive document consisting of approximately forty-five pages of body text, together with the following exhibits and schedules:

• Exhibit A — Product Specifications (HRC and CRC technical specifications)

• Exhibit B — Delivery and Logistics Terms

• Exhibit C — Surcharge Methodology (the critical exhibit in this dispute)

• Exhibit D — Quality Standards and Inspection Procedures

• Schedule 1 — Base Pricing Schedule

• Schedule 2 — Estimated Volume Commitments

B. Base Pricing and Volume

Section 7.2 of the MSA establishes the base pricing for the two primary product categories:

• Hot-Rolled Coil (HRC): Base price of $620 per ton.

• Cold-Rolled Coil (CRC): Base price of $740 per ton.

These base prices are subject to quarterly adjustment in accordance with a price-review mechanism set forth in Section 7.3 of the MSA, which provides for renegotiation of base prices based on market conditions, subject to mutual agreement. However, the quarterly adjustment mechanism is distinct from the surcharge pass-through provisions at issue in this case, and no dispute exists with respect to the base pricing itself.

The MSA contemplates estimated annual volumes of approximately 18,000 tons of HRC and 6,500 tons of CRC, for a combined estimated annual volume of approximately 24,500 tons per year. Based on these estimates, the approximate annual spend under the MSA is:

• HRC: 18,000 tons × $620/ton = $11,160,000

• CRC: 6,500 tons × $740/ton = $4,810,000

• Total estimated annual spend: approximately $15,970,000

These volume estimates are non-binding and serve as planning figures; actual volumes have varied from year to year. For the disputed period of March 2021 through May 2022, actual volumes and spend are currently being compiled from Nexford's procurement records and will be a key element of the discovery and damages analysis.

C. Surcharge Pass-Through Provisions — Section 7.4

Section 7.4 of the MSA establishes the mechanism by which Cardinal Peak, as Seller, may pass through documented increases in certain raw-material costs to Nexford, as Buyer, in the form of surcharges added to the base pricing. This provision is the central battleground of this dispute. Section 7.4 contains four subsections, each of which is relevant to Nexford's defenses:

Section 7.4(a) — Notice Requirement. Section 7.4(a) provides that Seller may pass through documented raw-material surcharges — specifically, surcharges related to scrap, energy, and alloy costs — provided that Seller delivers a Surcharge Notice with supporting documentation to Buyer no later than fifteen (15) business days after the end of the applicable month. The provision states, in pertinent part:

"Seller may pass through to Buyer documented raw-material surcharges for scrap, energy, and alloy costs, provided that Seller shall deliver to Buyer a Surcharge Notice, together with all supporting documentation substantiating the surcharge calculation, no later than fifteen (15) Business Days after the end of the applicable month in which such raw-material cost increase was incurred. Failure to deliver a compliant Surcharge Notice within such period shall constitute waiver of Seller's right to pass through such surcharge for the applicable month."

The use of the phrase "provided that" and the explicit waiver language at the end of this provision strongly supports Nexford's position that timely delivery of a Surcharge Notice is a condition precedent to Cardinal Peak's right to collect surcharges, not merely a procedural formality. This is discussed in further detail in Section V.B below.

Section 7.4(b) — Exhibit C Methodology. Section 7.4(b) requires that all surcharge components be calculated in strict accordance with the methodology set forth in Exhibit C (Surcharge Methodology). Exhibit C prescribes the use of two specific published indices:

(i) The Ferrous Scrap Index, as reported by Drayton Partners LLC ("Platts/SPI"), which tracks the market price of ferrous scrap metal used in steelmaking; and

(ii) The Industrial Energy Cost Index, which measures changes in energy costs applicable to industrial steel production.

Exhibit C further specifies the agreed baseline costs against which surcharges are to be measured: a baseline scrap cost of $340 per ton and a baseline energy cost of $48 per ton. The surcharge for any given month is calculated as the difference between the published index value for that month and the applicable baseline cost, multiplied by the applicable volume of product delivered during that month, with adjustments as prescribed in the Exhibit C formula.

The use of published, independently verifiable indices — rather than the Seller's internal cost data — was a deliberate negotiated feature of the MSA. Nexford's procurement team insisted on this structure to ensure transparency and to prevent the Seller from inflating surcharges based on its own internal cost allocations. As discussed in Section V.C below, Cardinal Peak deviated from this requirement by using an internal "blended cost" metric in its surcharge calculations.

Section 7.4(c) — Cap Provision. Section 7.4(c) establishes a ceiling on the aggregate monthly surcharge that may be passed through to Nexford:

"The aggregate monthly surcharge applicable to any Product category shall not exceed twelve percent (12%) of the applicable Base Price for such Product category without the prior written consent of Buyer."

Under this provision, the maximum permissible surcharge for HRC is 12% × $620/ton = $74.40/ton, and for CRC is 12% × $740/ton = $88.80/ton. Any surcharge in excess of these amounts requires Nexford's prior written consent, which was never provided during the disputed period. This cap was negotiated as a protection mechanism for Nexford against extreme commodity price spikes, and its enforcement is central to Nexford's defense, as discussed in Section V.D below.

Section 7.4(d) — Dispute Procedure. Section 7.4(d) establishes a procedure for the resolution of surcharge disputes. If Buyer disputes any surcharge, Buyer must notify Seller of the dispute within thirty (30) calendar days of receipt of the Surcharge Notice. If the dispute is not resolved through direct negotiation between the parties' commercial representatives, it is to be escalated to senior officers of each party, and if still unresolved, to mediation under Section 14.3 of the MSA. Nexford's procurement team, led by Russell Okonkwo, consistently raised objections to Cardinal Peak's surcharge invoices during the disputed period, and these objections are documented in Nexford's internal surcharge review logs.

D. Dispute Resolution — Section 14.3

Section 14.3 of the MSA establishes a mandatory mediation requirement that must be satisfied before either party may initiate litigation. The provision requires that all disputes arising under or relating to the MSA be submitted to mediation in Chicago, Illinois, before a mutually agreed-upon mediator. If the parties cannot agree on a mediator, the provision provides for selection through the American Arbitration Association's mediation panel.

Notably, Cardinal Peak filed the Complaint on August 8, 2022, without first completing the mediation process required by Section 14.3. While the pre-litigation demand letter exchange between June and July 2022 may arguably satisfy the negotiation component of the dispute resolution process, no formal mediation was initiated or conducted. This procedural failure may provide a basis for Nexford to seek a stay of the proceedings pending completion of mediation, as discussed further in Section VIII.E below.

Section 15.1 of the MSA provides that Illinois law governs all disputes arising under or in connection with the agreement.

IV. Analysis of Cardinal Peak's Complaint

A. Procedural History Leading to the Complaint

The dispute between Nexford and Cardinal Peak developed over approximately fifteen months, from March 2021 through May 2022, against the backdrop of extraordinary volatility in commodity markets. During this period, the price of ferrous scrap surged from approximately $400 per ton in early 2021 to over $600 per ton in mid-2022, driven by post-pandemic demand recovery, supply chain disruptions, and inflationary pressures across the industrial sector. Energy costs experienced similarly dramatic increases. This commodity environment created significant upward pressure on the surcharges that Cardinal Peak sought to pass through to Nexford under the MSA.

The key events leading to the filing of the Complaint are summarized as follows:

March 2021 through May 2022 — Surcharge Invoicing Period. During this fifteen-month period, Cardinal Peak issued Surcharge Notices and corresponding invoices to Nexford on a monthly basis, seeking to pass through increased raw-material costs in accordance with (as Cardinal Peak contends) the MSA's surcharge provisions. The total surcharges invoiced by Cardinal Peak during this period amounted to approximately $6.41 million. Of this amount, Nexford paid $1.68 million, representing the surcharges that Nexford's procurement team determined were compliant with the MSA's requirements. The April 2021 surcharge was paid in full, and partial payments were made for other months where a portion of the surcharge was determined to be valid. The remaining $4.73 million was withheld by Nexford based on its assessment that the invoiced amounts were non-compliant with the MSA.

Throughout this period, Russell Okonkwo and his procurement team at Nexford engaged in regular correspondence with Cardinal Peak's commercial team, led by Natalie Gunderson, regarding the disputed surcharges. Nexford raised objections to specific Surcharge Notices on the grounds of late delivery, methodology deviation, and cap exceedances. These objections are documented in Nexford's internal surcharge review logs, which Mr. Okonkwo maintained as a matter of course in the ordinary management of the Cardinal Peak account.

June 10, 2022 — Formal Demand Letter. On June 10, 2022, Blackwood Stein & Associates LLP, on behalf of Cardinal Peak, transmitted a formal demand letter to Nexford demanding payment of $4.73 million in allegedly unpaid surcharges. The demand letter asserted that the surcharges had been properly calculated and timely noticed in accordance with the MSA and that Nexford's refusal to pay constituted a material breach of the agreement. The letter set a thirty-day deadline for payment, failing which Cardinal Peak stated it would pursue all available legal remedies.

July 5, 2022 — Nexford's Demand Rejection. On July 5, 2022, Deborah Whitfield, Nexford's General Counsel, responded to the Blackwood Stein demand letter in writing. Ms. Whitfield's letter rejected the demand and set forth Nexford's position that Cardinal Peak had failed to comply with the MSA's surcharge provisions, including the timely notice requirement of Section 7.4(a), the Exhibit C methodology requirement of Section 7.4(b), and the surcharge cap of Section 7.4(c). The letter proposed that the parties engage in the mediation process contemplated by Section 14.3 of the MSA to resolve the dispute. Cardinal Peak did not respond to the mediation proposal.

August 8, 2022 — Complaint Filed. Without engaging in mediation, Cardinal Peak filed its Complaint in the Circuit Court of Cook County, Illinois, County Department, Law Division, on August 8, 2022. The case was assigned Case No. 2022-L-008471.

B. Count I — Breach of Contract

Count I of the Complaint alleges that Nexford breached the MSA by improperly rejecting or partially paying Cardinal Peak's surcharge invoices during the fifteen-month period from March 2021 through May 2022. The specific allegations of Count I are as follows:

Cardinal Peak alleges that it timely and properly calculated and noticed raw-material surcharges to Nexford in accordance with Section 7.4 of the MSA for each month during the disputed period. Cardinal Peak contends that the total surcharges invoiced during the disputed period amounted to $6.41 million, reflecting legitimate increases in scrap, energy, and alloy costs that Cardinal Peak was contractually entitled to pass through to Nexford as Buyer.

Cardinal Peak further alleges that Nexford paid only $1.68 million of the $6.41 million invoiced, leaving an unpaid balance of $4.73 million. The Complaint asserts that the disputed period encompasses fifteen months (March 2021 through May 2022), and that surcharges for fourteen of those months are in dispute, as the April 2021 surcharge was paid in full by Nexford.

Cardinal Peak's theory of breach is straightforward: it contends that the surcharges were properly calculated and timely noticed, that Nexford's contractual obligation to pay the surcharges was triggered upon receipt of compliant Surcharge Notices, and that Nexford's refusal to pay constitutes a material breach of the MSA entitling Cardinal Peak to damages in the amount of $4.73 million.

We note that the Complaint's allegations regarding compliance with Section 7.4 are conclusory. The Complaint does not specifically address the timeliness of each Surcharge Notice, the methodology used to calculate the surcharges, or the question of whether the surcharges exceeded the 12% cap. The supporting documentation attached to the Complaint consists of copies of the surcharge invoices themselves but does not include the underlying Surcharge Notices, the supporting documentation, or any analysis demonstrating compliance with Exhibit C.

C. Count II — Unjust Enrichment

Count II of the Complaint asserts a claim for unjust enrichment, which is pleaded in the alternative to the breach of contract claim. Cardinal Peak alleges that, to the extent the MSA is found not to govern the surcharge dispute, Nexford was unjustly enriched by receiving steel products — specifically HRC and CRC — at below-market prices during a period of significant commodity price increases, without paying the applicable surcharges that reflected the true cost of the raw materials used to produce those products.

Cardinal Peak claims quantum meruit recovery of $4.73 million, representing the value of the surcharges that Nexford allegedly avoided paying. The Complaint alleges that it would be inequitable for Nexford to retain the benefit of below-market pricing without compensating Cardinal Peak for the increased raw-material costs that Cardinal Peak incurred in producing and delivering the steel products.

As discussed in Section V.F below, this claim is legally vulnerable under Illinois law, which does not permit recovery under an unjust enrichment theory where an express contract governs the subject matter of the dispute.

D. Count III — Account Stated

Count III of the Complaint asserts a claim for account stated. Cardinal Peak alleges that it transmitted surcharge invoices to Nexford on a monthly basis during the disputed period, that Nexford received these invoices, and that Nexford failed to object to the invoiced amounts in a timely or adequate manner. Cardinal Peak contends that Nexford's alleged failure to object rendered the invoices an account stated under Illinois law, creating an independent obligation to pay the amounts stated therein.

As discussed in Section V.G below, this claim lacks factual and legal merit. Nexford consistently disputed Cardinal Peak's surcharge invoices during the disputed period, and the documentary record — including Nexford's internal surcharge review logs and correspondence with Cardinal Peak — demonstrates that Nexford never assented to the correctness of the invoiced amounts.

E. Damages Claimed

Cardinal Peak claims damages in the principal amount of $4.73 million across all three counts. In addition to the principal amount, the Complaint references Cardinal Peak's entitlement to prejudgment interest, attorneys' fees, and costs, though the Complaint does not provide a specific interest calculation or quantify the attorneys' fees and costs sought. Under the MSA's fee-shifting provision (Section 14.5), the prevailing party in any litigation arising under the MSA is entitled to recover its reasonable attorneys' fees and costs. This provision operates in both directions and would benefit Nexford if it prevails on its defenses.

We note that prejudgment interest in Illinois commercial contract disputes is governed by 815 ILCS 205/2, which provides for interest at the rate of 5% per annum. If Cardinal Peak were to recover the full $4.73 million (which we do not believe is a likely outcome), prejudgment interest from the approximate midpoint of the disputed period (approximately October 2021) through trial could add a significant sum to the damages exposure. However, given the strength of Nexford's defenses, we do not consider the full claimed amount to be a realistic exposure scenario.

V. Nexford's Available Defenses

A. Overview of Three-Pronged Defense Strategy

Nexford's defense against Cardinal Peak's breach of contract claim rests on three independent contractual grounds, each rooted in the express terms of MSA Section 7.4. These three defenses are mutually reinforcing but also independently sufficient to reduce or eliminate significant portions of Cardinal Peak's claimed damages. Taken together, they demonstrate that Cardinal Peak's claimed entitlement of $4.73 million is vastly overstated and that Nexford's maximum additional exposure — after accounting for the $1.68 million already paid — is approximately $0.21 million. In fact, when the defenses are fully applied, Nexford's position is that it has overpaid Cardinal Peak and is entitled to a refund.

The three defenses are summarized as follows and discussed in detail in the subsections that follow:

1. Untimely Surcharge Notices (Section 7.4(a)): Cardinal Peak failed to deliver timely Surcharge Notices for seven of the fourteen disputed months, affecting approximately $2.18 million in claimed surcharges.

2. Deviation from Exhibit C Surcharge Methodology (Section 7.4(b)): Cardinal Peak used an unauthorized internal "blended cost" metric rather than the published indices prescribed by Exhibit C, resulting in approximately $1.47 million in excess charges.

3. Surcharge Cap Exceedances (Section 7.4(c)): Cardinal Peak invoiced surcharges exceeding the 12% cap for four months without obtaining Nexford's prior written consent, resulting in approximately $1.08 million in excess charges above the cap.

It is important to note that there is some overlap among these three defense categories. Certain months are affected by more than one defense — for example, a Surcharge Notice that was both late and calculated using the wrong methodology. The aggregate of the three defense categories ($2.18M + $1.47M + $1.08M = $4.73M) therefore overstates the unduplicated defense value. Accounting for this overlap, Nexford's primary litigation position is that it owes at most an additional $0.21 million beyond the $1.68 million already paid. However, the existence of multiple, overlapping defenses strengthens Nexford's negotiating position, as Cardinal Peak cannot prevail merely by defeating one defense category — it must overcome all three.

B. Defense 1: Untimely Surcharge Notices (Section 7.4(a)) — $2.18 Million

The first and potentially strongest defense relates to Cardinal Peak's failure to comply with the timely notice requirement of Section 7.4(a). As set forth above, Section 7.4(a) requires that Seller deliver a Surcharge Notice with supporting documentation to Buyer no later than fifteen (15) business days after the end of the applicable month. The provision further states that "[f]ailure to deliver a compliant Surcharge Notice within such period shall constitute waiver of Seller's right to pass through such surcharge for the applicable month."

Based on our preliminary review of Nexford's records — specifically, the surcharge review logs maintained by Russell Okonkwo, the date stamps on received correspondence, and email transmission records — Cardinal Peak failed to deliver compliant Surcharge Notices within the fifteen-business-day deadline for seven of the fourteen disputed months. These seven months account for approximately $2.18 million of the $4.73 million total claimed by Cardinal Peak.

The late notices ranged from several days to several weeks beyond the contractual deadline. In some instances, the Surcharge Notice itself was transmitted near the deadline but the required supporting documentation was not provided until well after the fifteen-business-day period had expired. Section 7.4(a) requires delivery of both the Surcharge Notice and the supporting documentation within the deadline, and Cardinal Peak's partial compliance does not satisfy this requirement.

Under Illinois law, timely notice requirements in commercial contracts are generally enforced as conditions precedent when the contract language clearly establishes them as such. The language of Section 7.4(a) — using the "provided that" formulation and including an express waiver consequence for non-compliance — is precisely the type of provision that Illinois courts have consistently enforced as a condition precedent. See, e.g., Shea v. Preservation Chicago, Inc., 2018 IL App (1st) 162010 (holding that contract provisions using "provided that" language and specifying consequences for non-compliance create conditions precedent); Avery v. Brightmoor Indemnity Co., 216 Ill.2d 100, 114 (2005) (discussing the distinction between conditions precedent and covenants in contract interpretation).

Nexford's position is that Cardinal Peak forfeited its right to pass through surcharges for the seven months where timely notice was not provided, and that the $2.18 million associated with those months is not recoverable.

C. Defense 2: Deviation from Exhibit C Surcharge Methodology — $1.47 Million

The second defense addresses Cardinal Peak's failure to calculate surcharges in accordance with the methodology prescribed by Exhibit C to the MSA. As set forth in Section V above, Exhibit C mandates that surcharges be calculated using two specific published indices — the Ferrous Scrap Index (as reported by Platts/SPI) and the Industrial Energy Cost Index — applied against agreed baseline costs of $340 per ton for scrap and $48 per ton for energy.

Our preliminary analysis of the surcharge calculations reflected in Cardinal Peak's invoices indicates that Cardinal Peak did not use the published indices specified in Exhibit C. Instead, Cardinal Peak appears to have used an internal "blended cost" metric that reflects Cardinal Peak's own weighted average cost of scrap and energy inputs across its production operations. This internal metric is not tied to the published indices and does not correspond to the methodology prescribed by Exhibit C.

The difference between the published index values and Cardinal Peak's internal blended cost metric is significant. Because Cardinal Peak's internal costs during the disputed period were generally higher than the published index values — likely reflecting Cardinal Peak's own purchasing inefficiencies, hedging losses, or cost allocation decisions — the use of the blended cost metric systematically overstated the surcharges passed through to Nexford. Based on our preliminary analysis, which compared the surcharge amounts invoiced by Cardinal Peak against the amounts that would have resulted from strict application of the Exhibit C methodology using published index data, the overstatement amounts to approximately $1.47 million.

The MSA's language on this point is unambiguous. Section 7.4(b) states that surcharge components "shall be calculated in accordance with Exhibit C (Surcharge Methodology)," and Exhibit C specifically identifies the Ferrous Scrap Index and Industrial Energy Cost Index as the applicable measurement tools. There is no provision in the MSA authorizing Cardinal Peak to substitute its own internal cost data for the published indices. Cardinal Peak's unilateral decision to use a different metric constitutes a breach of the MSA and renders the resulting surcharge calculations non-compliant.

Nexford's position is that surcharges must be recalculated using the Exhibit C methodology and published indices, and that the $1.47 million in excess charges resulting from Cardinal Peak's use of the unauthorized blended cost metric is not recoverable.

D. Defense 3: Surcharge Cap Exceedances (Section 7.4(c)) — $1.08 Million

The third defense relates to Cardinal Peak's failure to comply with the surcharge cap provision of Section 7.4(c). As set forth above, Section 7.4(c) provides that the aggregate monthly surcharge applicable to any product category shall not exceed 12% of the applicable Base Price without the prior written consent of Buyer. This translates to maximum permissible surcharges of:

• HRC: 12% × $620/ton = $74.40/ton

• CRC: 12% × $740/ton = $88.80/ton

For four months during the disputed period, Cardinal Peak invoiced surcharges that exceeded these caps. During these months — which coincided with the most extreme commodity price spikes — Cardinal Peak's invoiced surcharges ranged from approximately 14% to 19% of the applicable Base Price, well in excess of the 12% cap.

Nexford never provided prior written consent to exceed the cap for any month during the disputed period. There is no written communication from Nexford — whether in the form of a letter, email, or other document — authorizing Cardinal Peak to invoice surcharges above the 12% threshold. The absence of written consent is readily demonstrable, as Nexford's records contain no such authorization.

The total amount of surcharges invoiced in excess of the 12% cap across the four affected months is approximately $1.08 million. Nexford's position is that surcharges above the cap are unenforceable without Buyer's prior written consent, which was never given, and that the $1.08 million excess is not recoverable.

We note that Cardinal Peak may argue that the cap provision is merely a trigger for negotiation rather than a hard ceiling — i.e., that the 12% threshold merely requires the parties to discuss the surcharge amount, and that Cardinal Peak's delivery of an invoice exceeding the cap constitutes a request for consent. This interpretation is not supported by the plain language of the provision, which conditions exceedance on "prior written consent" — not contemporaneous or subsequent consent, and not mere notification. The word "prior" is significant and indicates that consent must be obtained before the excess surcharge is invoiced, not after.

E. Nexford's Calculated Maximum Exposure

Applying the three defenses discussed above, Nexford's maximum exposure is calculated as follows:

However, as noted above, there is overlap among the three defense categories — certain months are subject to more than one defense. When the overlap is eliminated and each month's surcharges are analyzed individually, applying the most favorable applicable defense to each month's charges, the result is that Nexford's valid surcharge obligation for the disputed period was approximately $1.47 million. Since Nexford has already paid $1.68 million, Nexford's position is that it has overpaid Cardinal Peak by approximately $0.21 million.

It is important to emphasize that this calculation is based on our preliminary analysis and will require refinement as we obtain additional documentation during discovery and retain a damages expert to perform a comprehensive recalculation. However, the preliminary analysis provides strong support for an aggressive defense posture and a counterclaim for recovery of the overpayment.

F. Defense to Unjust Enrichment Claim (Count II)

Cardinal Peak's unjust enrichment claim, pleaded in the alternative, is legally vulnerable under well-established Illinois law. Illinois courts have consistently held that an unjust enrichment claim cannot be maintained where an express contract governs the subject matter at issue between the parties. See, e.g., Guinn v. Hoskins Chevrolet, 361 Ill. App. 3d 575, 604 (1st Dist. 2005) ("To state a cause of action for unjust enrichment, a plaintiff must allege that the defendant has unjustly retained a benefit to the plaintiff's detriment, and that the defendant's retention of the benefit violates the fundamental principles of justice, equity, and good conscience. However, where there is a specific contract that governs the relationship of the parties, the doctrine of unjust enrichment has no application."); Martis v. Grinnell Mut. Reinsurance Co., 388 Ill. App. 3d 1017, 1025 (3d Dist. 2009) (same).

Here, the MSA expressly and comprehensively governs the pricing, surcharge, and payment obligations between Nexford and Cardinal Peak. The surcharges at issue are the precise subject matter addressed by Section 7.4 of the MSA, and the parties' rights and obligations with respect to those surcharges are fully defined by the contract's terms. Cardinal Peak cannot circumvent the contractual limitations on its surcharge rights — including the notice requirement, the methodology requirement, and the cap — by recasting its claim as one for unjust enrichment.

We recommend challenging Count II through a motion to dismiss under 735 ILCS 5/2-615 (Illinois equivalent of a Rule 12(b)(6) motion) or, alternatively, raising the existence of an express contract as an affirmative defense in Nexford's Answer.

G. Defense to Account Stated Claim (Count III)

Cardinal Peak's account stated claim is similarly deficient. Under Illinois law, an account stated is an agreement between the parties that all items of a prior account are true and that the balance struck is correct, together with a promise, express or implied, of the debtor to pay that balance. See Dreyer Medical Clinic, S.C. v. Corral, 227 Ill. App. 3d 221, 226 (2d Dist. 1992). The essential element of an account stated is mutual assent — both parties must agree to the correctness of the account balance.

Here, the factual record demonstrates that Nexford consistently and vigorously disputed Cardinal Peak's surcharge invoices throughout the disputed period. Russell Okonkwo and his procurement team raised objections to specific invoices in writing, identifying concerns regarding late notice, methodology deviation, and cap exceedances. These objections are documented in Nexford's internal surcharge review logs and in correspondence with Cardinal Peak's commercial team. At no point did Nexford assent to the correctness of the invoiced amounts or agree that the unpaid balance was owed.

Because the essential element of mutual assent is absent, Cardinal Peak's account stated claim lacks a factual and legal basis. We recommend challenging this claim through motion practice or, at minimum, raising the absence of mutual assent as a defense in Nexford's Answer.

H. Affirmative Defenses

In addition to the substantive defenses discussed above, Nexford should assert the following affirmative defenses in its Answer:

1. Waiver. Cardinal Peak waived its right to collect surcharges for the seven months where it failed to deliver timely Surcharge Notices, as expressly provided in the waiver language of Section 7.4(a).

2. Failure of Condition Precedent. Cardinal Peak's right to collect surcharges was conditioned on compliance with the timely notice requirement of Section 7.4(a). Cardinal Peak failed to satisfy this condition precedent for seven of the fourteen disputed months.

3. Breach by Cardinal Peak. Cardinal Peak materially breached the MSA by (a) failing to comply with the Section 7.4(a) notice requirements, (b) using a surcharge calculation methodology inconsistent with Exhibit C, and (c) invoicing surcharges in excess of the Section 7.4(c) cap without obtaining Nexford's prior written consent.

4. Contractual Cap Limitation. Surcharges exceeding the 12% cap set forth in Section 7.4(c) are unenforceable absent Nexford's prior written consent, which was never given.

5. Failure to Mitigate Damages. To the extent Cardinal Peak claims damages arising from Nexford's alleged breach, Cardinal Peak failed to mitigate its damages by, among other things, failing to seek Nexford's consent to exceed the surcharge cap, failing to correct its methodology to comply with Exhibit C, and failing to engage in the mediation process required by Section 14.3 before filing suit.

6. Estoppel. Cardinal Peak is estopped from claiming surcharges calculated using a methodology other than that prescribed by Exhibit C, having agreed to and executed the MSA with full knowledge of the Exhibit C requirements.

VI. Preliminary Risk Assessment

A. Strengths of Nexford's Position

Nexford's defense is anchored in the clear, unambiguous language of the MSA, which provides well-defined requirements for the notice, calculation, and cap of surcharges. The principal strengths of Nexford's position are as follows:

First, the contractual language of Section 7.4 is clear, specific, and prescriptive. The fifteen-business-day notice deadline, the Exhibit C methodology requirement, and the 12% cap with prior-written-consent condition are all expressed in mandatory terms with little room for interpretive ambiguity. Illinois courts give effect to the plain language of commercial contracts, particularly where, as here, the parties are sophisticated commercial entities represented by counsel at the time of execution.

Second, Nexford possesses strong documentary evidence supporting its defenses. The surcharge review logs maintained by Russell Okonkwo contemporaneously document the date of receipt of each Surcharge Notice, the identified deficiencies (including late delivery, methodology deviations, and cap exceedances), and the basis for Nexford's payment decisions. These contemporaneous records are powerful evidence that Nexford's objections were timely raised and well-founded.

Third, the Exhibit C methodology is specific and prescriptive, identifying the exact published indices to be used and the baseline cost figures against which surcharges are to be measured. Cardinal Peak's use of an internal "blended cost" metric appears to be a clear and demonstrable deviation from the contractually required methodology. The published index data for the disputed period is independently verifiable through Platts/SPI and other public sources, making it straightforward to quantify the overstatement resulting from Cardinal Peak's unauthorized methodology.

Fourth, the 12% cap provision is express and unambiguous, and the absence of Nexford's prior written consent to exceed the cap is readily demonstrable. There is no written communication — letter, email, or otherwise — from Nexford authorizing Cardinal Peak to invoice surcharges above the 12% threshold.

Fifth, Cardinal Peak's unjust enrichment claim appears vulnerable given the existence of the MSA, which expressly governs the surcharge rights and obligations between the parties. Illinois courts have consistently declined to permit unjust enrichment claims where an express contract covers the subject matter in dispute.

B. Weaknesses / Risk Factors

Notwithstanding the strength of Nexford's defenses, there are risk factors that must be considered in assessing the likely range of outcomes:

First, Cardinal Peak will likely argue that Nexford's course of dealing during the disputed period — including the payment of some surcharges without objection to the methodology used — constitutes a waiver or modification of strict Exhibit C compliance. During the disputed period, Nexford paid $1.68 million in surcharges, and it is possible that some of those payments were made on invoices that used the blended cost metric rather than the published indices. If Cardinal Peak can demonstrate that Nexford paid certain surcharges calculated using the blended cost metric without objection, it may argue that Nexford implicitly accepted the blended cost methodology, thereby waiving its right to insist on strict Exhibit C compliance for the remaining months. This argument will need to be countered by demonstrating that Nexford's payments were made based on its own recalculation of the valid surcharge amounts, not based on acceptance of Cardinal Peak's methodology.

Second, Cardinal Peak may contend that the fifteen-business-day notice deadline of Section 7.4(a) is not a condition precedent but merely a covenant, and that the appropriate remedy for late notice is not forfeiture of the surcharge right but rather some lesser consequence, such as a delay in the payment obligation. While the express waiver language in Section 7.4(a) strongly supports Nexford's position that the deadline is a condition precedent, a court could potentially view the forfeiture consequence as a disproportionate penalty and construe the provision as a covenant rather than a condition. This risk is somewhat mitigated by the sophistication of the contracting parties and the clear language of the provision.

Third, some months' notice timeliness may be subject to factual dispute regarding the date of actual delivery versus the date of transmission. If Cardinal Peak transmitted a Surcharge Notice by email on the fifteenth business day but the email was not received or opened until a later date, a factual dispute could arise as to whether the notice was "delivered" within the deadline. The MSA's notice provisions (Section 16.2) should be reviewed carefully to determine the applicable delivery standard (e.g., upon transmission, upon receipt, upon opening).

Fourth, if the court views the 12% cap provision as merely an entitlement to negotiate rather than a hard ceiling, Nexford's $1.08 million cap-exceedance defense could be weakened. While we believe the "prior written consent" language creates a firm condition, the court might interpret the provision as establishing a framework for discussion rather than an absolute bar, particularly in the context of extreme commodity price volatility.

Fifth, as previously noted, the overlap among the three defense categories means that the total defenses ($2.18M + $1.47M + $1.08M = $4.73M) may overstate the actual defense value when applied on a month-by-month basis. The true unduplicated defense value, while still substantial, is lower than the sum of the three categories, and the final figure will depend on the detailed month-by-month analysis to be performed by a damages expert.

C. Preliminary Assessment of Likely Outcomes

Based on our analysis, we assess the range of likely outcomes as follows:

Best Case for Nexford. All three defenses are sustained in full. The court holds that (a) the fifteen-business-day notice deadline is a condition precedent and Cardinal Peak waived its right to surcharges for the seven late-noticed months; (b) surcharges must be calculated strictly in accordance with Exhibit C using published indices, and Cardinal Peak's use of the blended cost metric was unauthorized; and (c) surcharges exceeding the 12% cap are unenforceable without prior written consent. Under this scenario, Cardinal Peak recovers nothing additional beyond the $1.68 million already paid, and Nexford recovers $0.21 million on its counterclaim. The unjust enrichment and account stated claims are dismissed. We estimate the probability of this outcome at approximately 20-25%.

Moderate Case. The court upholds the notice defense and methodology defense in substantial part, finding that Cardinal Peak forfeited its surcharge rights for most or all of the late-noticed months and that the Exhibit C methodology must be applied. However, the court exercises some flexibility on the cap provision, perhaps finding that the cap creates a rebuttable presumption rather than an absolute bar, or that partial exceedances are permitted where the market conditions were extraordinary. Under this scenario, Nexford's total exposure (inclusive of the $1.68 million already paid) would be in the range of approximately $1.0 million to $2.5 million in additional payments, representing a settlement range that reflects the strength of Nexford's defenses while acknowledging some judicial flexibility on the cap issue. We estimate the probability of an outcome in this range at approximately 50-55%.

Worst Case for Nexford. The court rejects the notice-waiver defense (finding the deadline to be a covenant rather than a condition precedent and declining to impose forfeiture), finds that Nexford's course of dealing modified the Exhibit C methodology requirement (permitting the blended cost metric as an accepted alternative), and treats the cap as a negotiation trigger rather than a hard ceiling. Under this scenario, Nexford's exposure could be in the range of $3.0 million to $4.0 million, plus potential prejudgment interest at 5% per annum. We estimate the probability of an outcome in this range at approximately 15-20%.

Overall Risk Assessment. Nexford's defenses are strong, particularly on the notice and methodology issues, where the contractual language is clearest and the factual record most favorable. The probability-weighted exposure is materially below the $4.73 million claimed amount. Based on our preliminary analysis, we estimate Nexford's probability-weighted exposure at approximately $1.2 million to $1.8 million (inclusive of amounts already paid), which represents a significantly favorable position relative to Cardinal Peak's demand.

VII. Recommended Counterclaim

In addition to defending against Cardinal Peak's claims, we recommend that Nexford assert affirmative counterclaims for breach of contract, declaratory relief, and recovery of overpayment. The counterclaim serves both a substantive and a strategic purpose: substantively, it positions Nexford to recover the amounts it has overpaid; strategically, it shifts the litigation dynamic and underscores the seriousness of Nexford's defenses.

A. Breach of Contract Counterclaim

Nexford should assert a counterclaim for breach of contract against Cardinal Peak. The factual basis for the counterclaim is that Cardinal Peak breached the MSA by:

(i) Failing to comply with the Section 7.4(a) notice requirement by delivering late Surcharge Notices for seven of the fourteen disputed months;

(ii) Using a surcharge calculation methodology inconsistent with Exhibit C, specifically by substituting an internal "blended cost" metric for the contractually required published indices (Ferrous Scrap Index and Industrial Energy Cost Index); and

(iii) Invoicing surcharges in excess of the Section 7.4(c) cap of 12% of the applicable Base Price without obtaining Nexford's prior written consent.

These breaches caused Nexford to incur costs and burdens in analyzing, disputing, and managing non-compliant invoices throughout the fifteen-month disputed period. Nexford's procurement team, led by Russell Okonkwo, devoted significant time and resources to reviewing Cardinal Peak's surcharge calculations, identifying discrepancies, communicating objections to Cardinal Peak, and managing the internal approval process for partial payments on the invoices that were determined to be partially valid. These costs are recoverable as damages for Cardinal Peak's breach.

B. Declaratory Relief

Nexford should seek a declaratory judgment under 735 ILCS 5/2-701 establishing the parties' rights and obligations under Section 7.4 of the MSA. Specifically, Nexford should seek declarations that:

(a) Cardinal Peak waived its right to pass through surcharges for the months in which it failed to deliver timely Surcharge Notices in compliance with Section 7.4(a);

(b) Surcharges under the MSA must be calculated strictly in accordance with the Exhibit C Surcharge Methodology, using the published Ferrous Scrap Index and Industrial Energy Cost Index applied against the agreed baseline costs, and that Cardinal Peak's use of an internal "blended cost" metric is not authorized by the MSA; and

(c) Surcharges exceeding 12% of the applicable Base Price are unenforceable absent Nexford's prior written consent, which was not provided for any month during the disputed period.

Declaratory relief is particularly appropriate here because the MSA remains in effect through at least January 14, 2023 (with automatic renewal thereafter), and the parties' ongoing commercial relationship requires clarity regarding the proper interpretation and application of the surcharge provisions. A declaratory judgment on these issues will not only resolve the current dispute but will also establish clear ground rules for any future surcharge invoicing under the MSA.

C. Overpayment Refund

Based on the application of Nexford's contractual defenses and a proper recalculation of valid surcharges using the Exhibit C methodology, published index data, and the 12% cap, Nexford's position is that its total valid surcharge obligation for the disputed period was approximately $1.47 million. Because Nexford has already paid $1.68 million in surcharges during the disputed period, Nexford has overpaid Cardinal Peak by approximately $0.21 million.

The counterclaim should seek recovery of this $0.21 million overpayment, together with prejudgment interest from the date of overpayment. While the overpayment amount is relatively modest, asserting this claim sends a clear signal that Nexford believes it has not only paid everything it owes but has in fact paid more than it owes, which strengthens Nexford's overall negotiating position and underscores the weakness of Cardinal Peak's claims.

VIII. Recommended Next Steps and Timeline

A. Immediate Actions

The following actions should be taken on an expedited basis:

1. File Answer and Affirmative Defenses. We recommend filing a comprehensive Answer and Affirmative Defenses on or before September 19, 2022, which we have identified as the target filing date within the applicable response deadline under Illinois Supreme Court Rules. The Answer should deny all material allegations of the Complaint, assert the affirmative defenses identified in Section V.H above, and preserve all available defenses and objections.

2. File Counterclaim. Nexford's Counterclaim for breach of contract, declaratory judgment, and $0.21 million overpayment recovery should be filed simultaneously with the Answer or shortly thereafter. Filing the Counterclaim concurrently with the Answer is preferable from both a procedural and a strategic standpoint, as it immediately establishes Nexford's affirmative position and shifts the litigation dynamic.

3. Confirm Litigation Hold Compliance. A Litigation Hold Notice was issued on August 23, 2022, the day after Calderwood & Harkness's engagement was opened. The notice was directed to all relevant Nexford personnel and departments, including procurement, finance, legal, information technology, and operations at all three manufacturing facilities (Waukegan, Gary, and Toledo). We should confirm compliance with the litigation hold across all locations and departments, ensure that automated deletion protocols have been suspended for relevant custodians, and verify that backup tapes and archived data for the relevant period have been preserved. A follow-up certification of compliance should be obtained from each custodian within the next two weeks.

B. Discovery Preparation

We recommend beginning discovery preparation immed

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is prepared in anticipation of litigation and reflects the mental impressions, conclusions, and legal theories of attorneys at Calderwood & Harkness LLP. Do not distribute, copy, or disclose this memorandum or any portion thereof without the express authorization of the undersigned.
MEMORANDUM
August 30, 2022
TO: Priya Anand, Partner, Calderwood & Harkness LLP
FROM: Simone Laroche, Senior Associate, and Jeffrey Park, Associate
RE: Initial Case Assessment — Cardinal Peak Industries v. Nexford Industrial Holdings Inc., Case No. 2022-L-008471, Circuit Court of Cook County, Illinois, County Department, Law Division
MATTER NUMBER: 1005-00005
CLIENT: Nexford Industrial Holdings Inc.
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I. Executive Summary
Calderwood & Harkness LLP was engaged by Nexford Industrial Holdings Inc. ("Nexford" or "NIH") on August 22, 2022, to defend against a complaint filed on August 8, 2022, by Cardinal Peak Industries ("Cardinal Peak" or "CPI"), a Colorado limited liability company, in the Circuit Court of Cook County, Illinois, County Department, Law Division, Case No. 2022-L-008471. The Complaint was served on Nexford's registered agent in Illinois on August 11, 2022, and forwarded to Nexford's General Counsel, Deborah Whitfield, on August 15, 2022. Nexford promptly engaged our firm to manage its defense in this matter.
Cardinal Peak asserts three causes of action: (1) Breach of Contract, (2) Unjust Enrichment (pleaded in the alternative), and (3) Account Stated. In sum, Cardinal Peak claims $4.73 million in unpaid raw-material surcharges that it alleges are owed under a Master Supply Agreement bearing reference number MSA-NIH-CPI-2020-001, executed on January 15, 2020 (the "MSA"). The surcharges at issue relate to a fifteen-month period from March 2021 through May 2022, during which significant volatility in scrap metal and energy commodity markets drove substantial fluctuations in the cost of flat-rolled steel products supplied by Cardinal Peak to Nexford.
Cardinal Peak is represented by Blackwood Stein & Associates LLP of Denver, Colorado, a mid-size litigation firm. The matter is led by Garrett Blackwood, a partner with approximately twenty years of experience in commercial disputes, and Megan Hsu, an associate at the firm.
Based on our preliminary review of the Complaint, the MSA, the Surcharge Notices, Nexford's internal surcharge review logs, and relevant correspondence, we have identified strong contractual defenses under MSA Section 7.4 that, if fully credited, eliminate Cardinal Peak's claim in its entirety. These defenses rest on three independent grounds:
(a) Untimely Surcharge Notices. Cardinal Peak failed to deliver Surcharge Notices within the fifteen-business-day deadline prescribed by Section 7.4(a) for seven of the fourteen disputed months, affecting approximately $2.18 million in claimed surcharges.
(b) Deviation from Exhibit C Surcharge Methodology. Cardinal Peak calculated surcharges using an internal "blended cost" metric rather than the published Ferrous Scrap Index and Industrial Energy Cost Index mandated by Exhibit C to the MSA, resulting in approximately $1.47 million in excess charges.
(c) Violations of the 12% Surcharge Cap. For four months during the disputed period, Cardinal Peak invoiced surcharges exceeding the 12% cap set forth in Section 7.4(c) without obtaining Nexford's prior written consent, resulting in approximately $1.08 million in excess charges above the cap.
These defenses have some overlap among categories — certain months are subject to more than one defense — but collectively they demonstrate that Nexford owes at most an additional $0.21 million beyond the $1.68 million already paid during the disputed period. Indeed, when properly recalculated in accordance with the MSA's express terms, Nexford's position is that it may have overpaid Cardinal Peak, and that Nexford is entitled to a refund of approximately $0.21 million.
This memorandum provides a detailed analysis of Cardinal Peak's Complaint, Nexford's available defenses, a preliminary risk assessment across a range of outcomes, and our recommended litigation strategy. We recommend that Nexford pursue an aggressive defense posture: filing a comprehensive Answer with Affirmative Defenses and a Counterclaim for breach of contract, declaratory relief, and recovery of the $0.21 million overpayment. We further recommend early retention of a damages expert and proactive discovery to build the factual record supporting Nexford's position.
II. Background and Parties
A. Nexford Industrial Holdings Inc. (Defendant / Our Client)
Nexford Industrial Holdings Inc. is a Delaware corporation headquartered at 4200 West Lakeshore Industrial Parkway, Suite 300, Waukegan, Illinois 60085. Nexford was incorporated in the State of Delaware on April 3, 2014, and has maintained its principal place of business in Waukegan, Illinois, since that time. Nexford is registered to do business in Illinois, Indiana, and Ohio.
Nexford operates three manufacturing facilities across the Midwest: its flagship operation in Waukegan, Illinois; a secondary plant in Gary, Indiana; and a third facility in Toledo, Ohio. Across these facilities, Nexford produces precision-engineered steel and aluminum components for the automotive, heavy equipment, and infrastructure sectors. Nexford's operations encompass stamping, forming, welding, machining, and surface-treatment processes, and the company supplies a diversified base of original equipment manufacturers and Tier 1 suppliers throughout North America.
Nexford's approximate annual revenue for fiscal year 2022 is $287 million. The company employs approximately 1,200 individuals across its three facilities and corporate headquarters. Nexford's key personnel relevant to this matter are as follows:
• Martin Schaeffer, Chief Executive Officer — oversees all operations; ultimate authority on significant commercial relationships and strategic decisions.
• Lydia Tran, Chief Financial Officer — responsible for financial oversight, payment approvals, and credit facility compliance; approved or reviewed payments on Cardinal Peak surcharge invoices during the disputed period.
• Russell Okonkwo, Vice President, Procurement — primary commercial contact with Cardinal Peak; managed the surcharge review process; maintained the internal surcharge review logs that are central to Nexford's defense.
• Deborah Whitfield, General Counsel — handled pre-litigation communications with Cardinal Peak and Blackwood Stein; authored Nexford's demand rejection letter dated July 5, 2022; coordinated engagement of Calderwood & Harkness LLP.
Nexford's majority owner is Marlowe Asset Management Bluff Capital Partners, LP ("Marlowe Asset Management Bluff"), a private equity firm based in Chicago, Illinois. Marlowe Asset Management Bluff acquired its majority stake in Nexford in 2017 and currently holds approximately 72% of Nexford's equity. The Managing Partner of Marlowe Asset Management Bluff is Conrad Yeung. Diana Calloway serves as Principal at Marlowe Asset Management Bluff and as a Board Observer at Nexford. Marlowe Asset Management Bluff's involvement is relevant to this matter for two reasons: first, any significant settlement will require Marlowe Asset Management Bluff's approval as majority equity holder under the terms of Nexford's governance documents; and second, Marlowe Asset Management Bluff's representatives will need to be briefed on the litigation's status and budgetary implications.
Nexford's primary lender is Ridgecrest National Bank, N.A. Nexford maintains a $45 million revolving credit facility with Ridgecrest, dated March 12, 2021, which is secured by substantially all of Nexford's assets. Importantly, Section 6.03(b) of the credit agreement requires Nexford to provide written notice to Ridgecrest of any settlement of litigation claims exceeding $1.0 million. This covenant will need to be considered in any settlement discussions and in assessing the practical implications of various resolution scenarios.
B. Cardinal Peak Industries (Plaintiff / Adverse Party)
Cardinal Peak Industries is a Colorado limited liability company headquartered at 1580 Ridgeline Boulevard, Pueblo, Colorado 81001. Cardinal Peak is a regional steel producer and distributor specializing in flat-rolled steel products, including hot-rolled coil ("HRC") and cold-rolled coil ("CRC"), which it supplies to manufacturers across the Midwest and Mountain West regions of the United States. Cardinal Peak operates a primary production facility in Pueblo, Colorado, and maintains distribution centers in Kansas City, Missouri, and Joliet, Illinois.
Cardinal Peak's approximate annual revenue for fiscal year 2022 is $415 million, making it a significantly larger enterprise than Nexford in terms of top-line revenue. Cardinal Peak's key personnel relevant to this matter include:
• Frank Delacroix, President & Chief Executive Officer — senior executive with ultimate authority over Cardinal Peak's commercial strategy and major dispute resolution decisions.
• Natalie Gunderson, Vice President, Sales & Commercial — responsible for commercial relationships with major accounts including Nexford; likely involved in the establishment of surcharge pricing and the generation of Surcharge Notices during the disputed period.
• Harold Briggs, Controller — responsible for accounting functions, including the preparation and issuance of surcharge invoices.
• Patricia Morrow, General Counsel — Cardinal Peak's in-house legal counsel; likely involved in the decision to engage Blackwood Stein and to initiate this litigation.
The relationship between Nexford and Cardinal Peak dates to 2018, when Nexford first began purchasing flat-rolled steel from Cardinal Peak on a purchase-order basis. The parties formalized their commercial arrangement through the execution of the MSA on January 15, 2020, which established multi-year pricing terms, volume commitments, and — critically to this dispute — a structured mechanism for the pass-through of raw-material surcharges.
C. Opposing Counsel
Cardinal Peak is represented in this matter by Blackwood Stein & Associates LLP, located at 717 Seventeenth Street, Suite 2200, Denver, Colorado 80202. Blackwood Stein is a mid-size litigation firm with a commercial disputes practice that focuses on energy, natural resources, and industrial sector litigation. The firm has approximately forty-five attorneys and has appeared in Colorado, Illinois, and several other jurisdictions in similar supply-chain and commercial contract disputes.
The lead attorney for Cardinal Peak is Garrett Blackwood, a partner with approximately twenty years of litigation experience, who has handled several published cases involving surcharge disputes and commodity pricing in supply agreements. We are aware of at least two prior matters handled by Mr. Blackwood that involved arguments similar to those raised in the Complaint here: Rocky Mountain Alloys, Inc. v. PacificSteel Corp., No. 2018-CV-03244 (Denver Dist. Ct. 2019) (settled), and Ironback Supply Co. v. Colton Manufacturing, LLC, No. 2020-L-005812 (Cook County Cir. Ct. 2021) (summary judgment for defendant). The associate on the matter is Megan Hsu, who appears to be a mid-level associate based on bar admission records.
III. The Master Supply Agreement
The MSA is the central document in this dispute. Set forth below is a summary of its key terms, with particular attention to the surcharge pass-through provisions that form the basis of Cardinal Peak's claims and Nexford's defenses.
A. Key Terms
The MSA bears reference number MSA-NIH-CPI-2020-001 and was executed on January 15, 2020. The parties to the MSA are Nexford Industrial Holdings Inc., as Buyer, and Cardinal Peak Industries, as Seller. The MSA was executed on behalf of Nexford by Russell Okonkwo, Vice President, Procurement, with the countersignature of Lydia Tran, Chief Financial Officer, and on behalf of Cardinal Peak by Natalie Gunderson, Vice President, Sales & Commercial, and Frank Delacroix, President & CEO.
The MSA has an initial term of three years, commencing January 15, 2020, and expiring January 14, 2023, with automatic renewal for successive one-year periods unless either party delivers written notice of termination at least 180 days prior to the end of the then-current term. As of the date of this memorandum, neither party has delivered a termination notice, and the MSA remains in effect. The governing law clause at Section 15.1 specifies that Illinois law governs the interpretation, enforcement, and performance of the MSA.
The MSA is a comprehensive document consisting of approximately forty-five pages of body text, together with the following exhibits and schedules:
• Exhibit A — Product Specifications (HRC and CRC technical specifications)
• Exhibit B — Delivery and Logistics Terms
• Exhibit C — Surcharge Methodology (the critical exhibit in this dispute)
• Exhibit D — Quality Standards and Inspection Procedures
• Schedule 1 — Base Pricing Schedule
• Schedule 2 — Estimated Volume Commitments
B. Base Pricing and Volume
Section 7.2 of the MSA establishes the base pricing for the two primary product categories:
• Hot-Rolled Coil (HRC): Base price of $620 per ton.
• Cold-Rolled Coil (CRC): Base price of $740 per ton.
These base prices are subject to quarterly adjustment in accordance with a price-review mechanism set forth in Section 7.3 of the MSA, which provides for renegotiation of base prices based on market conditions, subject to mutual agreement. However, the quarterly adjustment mechanism is distinct from the surcharge pass-through provisions at issue in this case, and no dispute exists with respect to the base pricing itself.
The MSA contemplates estimated annual volumes of approximately 18,000 tons of HRC and 6,500 tons of CRC, for a combined estimated annual volume of approximately 24,500 tons per year. Based on these estimates, the approximate annual spend under the MSA is:
• HRC: 18,000 tons × $620/ton = $11,160,000
• CRC: 6,500 tons × $740/ton = $4,810,000
• Total estimated annual spend: approximately $15,970,000
These volume estimates are non-binding and serve as planning figures; actual volumes have varied from year to year. For the disputed period of March 2021 through May 2022, actual volumes and spend are currently being compiled from Nexford's procurement records and will be a key element of the discovery and damages analysis.
C. Surcharge Pass-Through Provisions — Section 7.4
Section 7.4 of the MSA establishes the mechanism by which Cardinal Peak, as Seller, may pass through documented increases in certain raw-material costs to Nexford, as Buyer, in the form of surcharges added to the base pricing. This provision is the central battleground of this dispute. Section 7.4 contains four subsections, each of which is relevant to Nexford's defenses:
Section 7.4(a) — Notice Requirement. Section 7.4(a) provides that Seller may pass through documented raw-material surcharges — specifically, surcharges related to scrap, energy, and alloy costs — provided that Seller delivers a Surcharge Notice with supporting documentation to Buyer no later than fifteen (15) business days after the end of the applicable month. The provision states, in pertinent part:
"Seller may pass through to Buyer documented raw-material surcharges for scrap, energy, and alloy costs, provided that Seller shall deliver to Buyer a Surcharge Notice, together with all supporting documentation substantiating the surcharge calculation, no later than fifteen (15) Business Days after the end of the applicable month in which such raw-material cost increase was incurred. Failure to deliver a compliant Surcharge Notice within such period shall constitute waiver of Seller's right to pass through such surcharge for the applicable month."
The use of the phrase "provided that" and the explicit waiver language at the end of this provision strongly supports Nexford's position that timely delivery of a Surcharge Notice is a condition precedent to Cardinal Peak's right to collect surcharges, not merely a procedural formality. This is discussed in further detail in Section V.B below.
Section 7.4(b) — Exhibit C Methodology. Section 7.4(b) requires that all surcharge components be calculated in strict accordance with the methodology set forth in Exhibit C (Surcharge Methodology). Exhibit C prescribes the use of two specific published indices:
(i) The Ferrous Scrap Index, as reported by Drayton Partners LLC ("Platts/SPI"), which tracks the market price of ferrous scrap metal used in steelmaking; and
(ii) The Industrial Energy Cost Index, which measures changes in energy costs applicable to industrial steel production.
Exhibit C further specifies the agreed baseline costs against which surcharges are to be measured: a baseline scrap cost of $340 per ton and a baseline energy cost of $48 per ton. The surcharge for any given month is calculated as the difference between the published index value for that month and the applicable baseline cost, multiplied by the applicable volume of product delivered during that month, with adjustments as prescribed in the Exhibit C formula.
The use of published, independently verifiable indices — rather than the Seller's internal cost data — was a deliberate negotiated feature of the MSA. Nexford's procurement team insisted on this structure to ensure transparency and to prevent the Seller from inflating surcharges based on its own internal cost allocations. As discussed in Section V.C below, Cardinal Peak deviated from this requirement by using an internal "blended cost" metric in its surcharge calculations.
Section 7.4(c) — Cap Provision. Section 7.4(c) establishes a ceiling on the aggregate monthly surcharge that may be passed through to Nexford:
"The aggregate monthly surcharge applicable to any Product category shall not exceed twelve percent (12%) of the applicable Base Price for such Product category without the prior written consent of Buyer."
Under this provision, the maximum permissible surcharge for HRC is 12% × $620/ton = $74.40/ton, and for CRC is 12% × $740/ton = $88.80/ton. Any surcharge in excess of these amounts requires Nexford's prior written consent, which was never provided during the disputed period. This cap was negotiated as a protection mechanism for Nexford against extreme commodity price spikes, and its enforcement is central to Nexford's defense, as discussed in Section V.D below.
Section 7.4(d) — Dispute Procedure. Section 7.4(d) establishes a procedure for the resolution of surcharge disputes. If Buyer disputes any surcharge, Buyer must notify Seller of the dispute within thirty (30) calendar days of receipt of the Surcharge Notice. If the dispute is not resolved through direct negotiation between the parties' commercial representatives, it is to be escalated to senior officers of each party, and if still unresolved, to mediation under Section 14.3 of the MSA. Nexford's procurement team, led by Russell Okonkwo, consistently raised objections to Cardinal Peak's surcharge invoices during the disputed period, and these objections are documented in Nexford's internal surcharge review logs.
D. Dispute Resolution — Section 14.3
Section 14.3 of the MSA establishes a mandatory mediation requirement that must be satisfied before either party may initiate litigation. The provision requires that all disputes arising under or relating to the MSA be submitted to mediation in Chicago, Illinois, before a mutually agreed-upon mediator. If the parties cannot agree on a mediator, the provision provides for selection through the American Arbitration Association's mediation panel.
Notably, Cardinal Peak filed the Complaint on August 8, 2022, without first completing the mediation process required by Section 14.3. While the pre-litigation demand letter exchange between June and July 2022 may arguably satisfy the negotiation component of the dispute resolution process, no formal mediation was initiated or conducted. This procedural failure may provide a basis for Nexford to seek a stay of the proceedings pending completion of mediation, as discussed further in Section VIII.E below.
Section 15.1 of the MSA provides that Illinois law governs all disputes arising under or in connection with the agreement.
IV. Analysis of Cardinal Peak's Complaint
A. Procedural History Leading to the Complaint
The dispute between Nexford and Cardinal Peak developed over approximately fifteen months, from March 2021 through May 2022, against the backdrop of extraordinary volatility in commodity markets. During this period, the price of ferrous scrap surged from approximately $400 per ton in early 2021 to over $600 per ton in mid-2022, driven by post-pandemic demand recovery, supply chain disruptions, and inflationary pressures across the industrial sector. Energy costs experienced similarly dramatic increases. This commodity environment created significant upward pressure on the surcharges that Cardinal Peak sought to pass through to Nexford under the MSA.
The key events leading to the filing of the Complaint are summarized as follows:
March 2021 through May 2022 — Surcharge Invoicing Period. During this fifteen-month period, Cardinal Peak issued Surcharge Notices and corresponding invoices to Nexford on a monthly basis, seeking to pass through increased raw-material costs in accordance with (as Cardinal Peak contends) the MSA's surcharge provisions. The total surcharges invoiced by Cardinal Peak during this period amounted to approximately $6.41 million. Of this amount, Nexford paid $1.68 million, representing the surcharges that Nexford's procurement team determined were compliant with the MSA's requirements. The April 2021 surcharge was paid in full, and partial payments were made for other months where a portion of the surcharge was determined to be valid. The remaining $4.73 million was withheld by Nexford based on its assessment that the invoiced amounts were non-compliant with the MSA.
Throughout this period, Russell Okonkwo and his procurement team at Nexford engaged in regular correspondence with Cardinal Peak's commercial team, led by Natalie Gunderson, regarding the disputed surcharges. Nexford raised objections to specific Surcharge Notices on the grounds of late delivery, methodology deviation, and cap exceedances. These objections are documented in Nexford's internal surcharge review logs, which Mr. Okonkwo maintained as a matter of course in the ordinary management of the Cardinal Peak account.
June 10, 2022 — Formal Demand Letter. On June 10, 2022, Blackwood Stein & Associates LLP, on behalf of Cardinal Peak, transmitted a formal demand letter to Nexford demanding payment of $4.73 million in allegedly unpaid surcharges. The demand letter asserted that the surcharges had been properly calculated and timely noticed in accordance with the MSA and that Nexford's refusal to pay constituted a material breach of the agreement. The letter set a thirty-day deadline for payment, failing which Cardinal Peak stated it would pursue all available legal remedies.
July 5, 2022 — Nexford's Demand Rejection. On July 5, 2022, Deborah Whitfield, Nexford's General Counsel, responded to the Blackwood Stein demand letter in writing. Ms. Whitfield's letter rejected the demand and set forth Nexford's position that Cardinal Peak had failed to comply with the MSA's surcharge provisions, including the timely notice requirement of Section 7.4(a), the Exhibit C methodology requirement of Section 7.4(b), and the surcharge cap of Section 7.4(c). The letter proposed that the parties engage in the mediation process contemplated by Section 14.3 of the MSA to resolve the dispute. Cardinal Peak did not respond to the mediation proposal.
August 8, 2022 — Complaint Filed. Without engaging in mediation, Cardinal Peak filed its Complaint in the Circuit Court of Cook County, Illinois, County Department, Law Division, on August 8, 2022. The case was assigned Case No. 2022-L-008471.
B. Count I — Breach of Contract
Count I of the Complaint alleges that Nexford breached the MSA by improperly rejecting or partially paying Cardinal Peak's surcharge invoices during the fifteen-month period from March 2021 through May 2022. The specific allegations of Count I are as follows:
Cardinal Peak alleges that it timely and properly calculated and noticed raw-material surcharges to Nexford in accordance with Section 7.4 of the MSA for each month during the disputed period. Cardinal Peak contends that the total surcharges invoiced during the disputed period amounted to $6.41 million, reflecting legitimate increases in scrap, energy, and alloy costs that Cardinal Peak was contractually entitled to pass through to Nexford as Buyer.
Cardinal Peak further alleges that Nexford paid only $1.68 million of the $6.41 million invoiced, leaving an unpaid balance of $4.73 million. The Complaint asserts that the disputed period encompasses fifteen months (March 2021 through May 2022), and that surcharges for fourteen of those months are in dispute, as the April 2021 surcharge was paid in full by Nexford.
Cardinal Peak's theory of breach is straightforward: it contends that the surcharges were properly calculated and timely noticed, that Nexford's contractual obligation to pay the surcharges was triggered upon receipt of compliant Surcharge Notices, and that Nexford's refusal to pay constitutes a material breach of the MSA entitling Cardinal Peak to damages in the amount of $4.73 million.
We note that the Complaint's allegations regarding compliance with Section 7.4 are conclusory. The Complaint does not specifically address the timeliness of each Surcharge Notice, the methodology used to calculate the surcharges, or the question of whether the surcharges exceeded the 12% cap. The supporting documentation attached to the Complaint consists of copies of the surcharge invoices themselves but does not include the underlying Surcharge Notices, the supporting documentation, or any analysis demonstrating compliance with Exhibit C.
C. Count II — Unjust Enrichment
Count II of the Complaint asserts a claim for unjust enrichment, which is pleaded in the alternative to the breach of contract claim. Cardinal Peak alleges that, to the extent the MSA is found not to govern the surcharge dispute, Nexford was unjustly enriched by receiving steel products — specifically HRC and CRC — at below-market prices during a period of significant commodity price increases, without paying the applicable surcharges that reflected the true cost of the raw materials used to produce those products.
Cardinal Peak claims quantum meruit recovery of $4.73 million, representing the value of the surcharges that Nexford allegedly avoided paying. The Complaint alleges that it would be inequitable for Nexford to retain the benefit of below-market pricing without compensating Cardinal Peak for the increased raw-material costs that Cardinal Peak incurred in producing and delivering the steel products.
As discussed in Section V.F below, this claim is legally vulnerable under Illinois law, which does not permit recovery under an unjust enrichment theory where an express contract governs the subject matter of the dispute.
D. Count III — Account Stated
Count III of the Complaint asserts a claim for account stated. Cardinal Peak alleges that it transmitted surcharge invoices to Nexford on a monthly basis during the disputed period, that Nexford received these invoices, and that Nexford failed to object to the invoiced amounts in a timely or adequate manner. Cardinal Peak contends that Nexford's alleged failure to object rendered the invoices an account stated under Illinois law, creating an independent obligation to pay the amounts stated therein.
As discussed in Section V.G below, this claim lacks factual and legal merit. Nexford consistently disputed Cardinal Peak's surcharge invoices during the disputed period, and the documentary record — including Nexford's internal surcharge review logs and correspondence with Cardinal Peak — demonstrates that Nexford never assented to the correctness of the invoiced amounts.
E. Damages Claimed
Cardinal Peak claims damages in the principal amount of $4.73 million across all three counts. In addition to the principal amount, the Complaint references Cardinal Peak's entitlement to prejudgment interest, attorneys' fees, and costs, though the Complaint does not provide a specific interest calculation or quantify the attorneys' fees and costs sought. Under the MSA's fee-shifting provision (Section 14.5), the prevailing party in any litigation arising under the MSA is entitled to recover its reasonable attorneys' fees and costs. This provision operates in both directions and would benefit Nexford if it prevails on its defenses.
We note that prejudgment interest in Illinois commercial contract disputes is governed by 815 ILCS 205/2, which provides for interest at the rate of 5% per annum. If Cardinal Peak were to recover the full $4.73 million (which we do not believe is a likely outcome), prejudgment interest from the approximate midpoint of the disputed period (approximately October 2021) through trial could add a significant sum to the damages exposure. However, given the strength of Nexford's defenses, we do not consider the full claimed amount to be a realistic exposure scenario.
V. Nexford's Available Defenses
A. Overview of Three-Pronged Defense Strategy
Nexford's defense against Cardinal Peak's breach of contract claim rests on three independent contractual grounds, each rooted in the express terms of MSA Section 7.4. These three defenses are mutually reinforcing but also independently sufficient to reduce or eliminate significant portions of Cardinal Peak's claimed damages. Taken together, they demonstrate that Cardinal Peak's claimed entitlement of $4.73 million is vastly overstated and that Nexford's maximum additional exposure — after accounting for the $1.68 million already paid — is approximately $0.21 million. In fact, when the defenses are fully applied, Nexford's position is that it has overpaid Cardinal Peak and is entitled to a refund.
The three defenses are summarized as follows and discussed in detail in the subsections that follow:
1. Untimely Surcharge Notices (Section 7.4(a)): Cardinal Peak failed to deliver timely Surcharge Notices for seven of the fourteen disputed months, affecting approximately $2.18 million in claimed surcharges.
2. Deviation from Exhibit C Surcharge Methodology (Section 7.4(b)): Cardinal Peak used an unauthorized internal "blended cost" metric rather than the published indices prescribed by Exhibit C, resulting in approximately $1.47 million in excess charges.
3. Surcharge Cap Exceedances (Section 7.4(c)): Cardinal Peak invoiced surcharges exceeding the 12% cap for four months without obtaining Nexford's prior written consent, resulting in approximately $1.08 million in excess charges above the cap.
It is important to note that there is some overlap among these three defense categories. Certain months are affected by more than one defense — for example, a Surcharge Notice that was both late and calculated using the wrong methodology. The aggregate of the three defense categories ($2.18M + $1.47M + $1.08M = $4.73M) therefore overstates the unduplicated defense value. Accounting for this overlap, Nexford's primary litigation position is that it owes at most an additional $0.21 million beyond the $1.68 million already paid. However, the existence of multiple, overlapping defenses strengthens Nexford's negotiating position, as Cardinal Peak cannot prevail merely by defeating one defense category — it must overcome all three.
B. Defense 1: Untimely Surcharge Notices (Section 7.4(a)) — $2.18 Million
The first and potentially strongest defense relates to Cardinal Peak's failure to comply with the timely notice requirement of Section 7.4(a). As set forth above, Section 7.4(a) requires that Seller deliver a Surcharge Notice with supporting documentation to Buyer no later than fifteen (15) business days after the end of the applicable month. The provision further states that "[f]ailure to deliver a compliant Surcharge Notice within such period shall constitute waiver of Seller's right to pass through such surcharge for the applicable month."
Based on our preliminary review of Nexford's records — specifically, the surcharge review logs maintained by Russell Okonkwo, the date stamps on received correspondence, and email transmission records — Cardinal Peak failed to deliver compliant Surcharge Notices within the fifteen-business-day deadline for seven of the fourteen disputed months. These seven months account for approximately $2.18 million of the $4.73 million total claimed by Cardinal Peak.
The late notices ranged from several days to several weeks beyond the contractual deadline. In some instances, the Surcharge Notice itself was transmitted near the deadline but the required supporting documentation was not provided until well after the fifteen-business-day period had expired. Section 7.4(a) requires delivery of both the Surcharge Notice and the supporting documentation within the deadline, and Cardinal Peak's partial compliance does not satisfy this requirement.
Under Illinois law, timely notice requirements in commercial contracts are generally enforced as conditions precedent when the contract language clearly establishes them as such. The language of Section 7.4(a) — using the "provided that" formulation and including an express waiver consequence for non-compliance — is precisely the type of provision that Illinois courts have consistently enforced as a condition precedent. See, e.g., Shea v. Preservation Chicago, Inc., 2018 IL App (1st) 162010 (holding that contract provisions using "provided that" language and specifying consequences for non-compliance create conditions precedent); Avery v. Brightmoor Indemnity Co., 216 Ill.2d 100, 114 (2005) (discussing the distinction between conditions precedent and covenants in contract interpretation).
Nexford's position is that Cardinal Peak forfeited its right to pass through surcharges for the seven months where timely notice was not provided, and that the $2.18 million associated with those months is not recoverable.
C. Defense 2: Deviation from Exhibit C Surcharge Methodology — $1.47 Million
The second defense addresses Cardinal Peak's failure to calculate surcharges in accordance with the methodology prescribed by Exhibit C to the MSA. As set forth in Section V above, Exhibit C mandates that surcharges be calculated using two specific published indices — the Ferrous Scrap Index (as reported by Platts/SPI) and the Industrial Energy Cost Index — applied against agreed baseline costs of $340 per ton for scrap and $48 per ton for energy.
Our preliminary analysis of the surcharge calculations reflected in Cardinal Peak's invoices indicates that Cardinal Peak did not use the published indices specified in Exhibit C. Instead, Cardinal Peak appears to have used an internal "blended cost" metric that reflects Cardinal Peak's own weighted average cost of scrap and energy inputs across its production operations. This internal metric is not tied to the published indices and does not correspond to the methodology prescribed by Exhibit C.
The difference between the published index values and Cardinal Peak's internal blended cost metric is significant. Because Cardinal Peak's internal costs during the disputed period were generally higher than the published index values — likely reflecting Cardinal Peak's own purchasing inefficiencies, hedging losses, or cost allocation decisions — the use of the blended cost metric systematically overstated the surcharges passed through to Nexford. Based on our preliminary analysis, which compared the surcharge amounts invoiced by Cardinal Peak against the amounts that would have resulted from strict application of the Exhibit C methodology using published index data, the overstatement amounts to approximately $1.47 million.
The MSA's language on this point is unambiguous. Section 7.4(b) states that surcharge components "shall be calculated in accordance with Exhibit C (Surcharge Methodology)," and Exhibit C specifically identifies the Ferrous Scrap Index and Industrial Energy Cost Index as the applicable measurement tools. There is no provision in the MSA authorizing Cardinal Peak to substitute its own internal cost data for the published indices. Cardinal Peak's unilateral decision to use a different metric constitutes a breach of the MSA and renders the resulting surcharge calculations non-compliant.
Nexford's position is that surcharges must be recalculated using the Exhibit C methodology and published indices, and that the $1.47 million in excess charges resulting from Cardinal Peak's use of the unauthorized blended cost metric is not recoverable.
D. Defense 3: Surcharge Cap Exceedances (Section 7.4(c)) — $1.08 Million
The third defense relates to Cardinal Peak's failure to comply with the surcharge cap provision of Section 7.4(c). As set forth above, Section 7.4(c) provides that the aggregate monthly surcharge applicable to any product category shall not exceed 12% of the applicable Base Price without the prior written consent of Buyer. This translates to maximum permissible surcharges of:
• HRC: 12% × $620/ton = $74.40/ton
• CRC: 12% × $740/ton = $88.80/ton
For four months during the disputed period, Cardinal Peak invoiced surcharges that exceeded these caps. During these months — which coincided with the most extreme commodity price spikes — Cardinal Peak's invoiced surcharges ranged from approximately 14% to 19% of the applicable Base Price, well in excess of the 12% cap.
Nexford never provided prior written consent to exceed the cap for any month during the disputed period. There is no written communication from Nexford — whether in the form of a letter, email, or other document — authorizing Cardinal Peak to invoice surcharges above the 12% threshold. The absence of written consent is readily demonstrable, as Nexford's records contain no such authorization.
The total amount of surcharges invoiced in excess of the 12% cap across the four affected months is approximately $1.08 million. Nexford's position is that surcharges above the cap are unenforceable without Buyer's prior written consent, which was never given, and that the $1.08 million excess is not recoverable.
We note that Cardinal Peak may argue that the cap provision is merely a trigger for negotiation rather than a hard ceiling — i.e., that the 12% threshold merely requires the parties to discuss the surcharge amount, and that Cardinal Peak's delivery of an invoice exceeding the cap constitutes a request for consent. This interpretation is not supported by the plain language of the provision, which conditions exceedance on "prior written consent" — not contemporaneous or subsequent consent, and not mere notification. The word "prior" is significant and indicates that consent must be obtained before the excess surcharge is invoiced, not after.
E. Nexford's Calculated Maximum Exposure
Applying the three defenses discussed above, Nexford's maximum exposure is calculated as follows:
However, as noted above, there is overlap among the three defense categories — certain months are subject to more than one defense. When the overlap is eliminated and each month's surcharges are analyzed individually, applying the most favorable applicable defense to each month's charges, the result is that Nexford's valid surcharge obligation for the disputed period was approximately $1.47 million. Since Nexford has already paid $1.68 million, Nexford's position is that it has overpaid Cardinal Peak by approximately $0.21 million.
It is important to emphasize that this calculation is based on our preliminary analysis and will require refinement as we obtain additional documentation during discovery and retain a damages expert to perform a comprehensive recalculation. However, the preliminary analysis provides strong support for an aggressive defense posture and a counterclaim for recovery of the overpayment.
F. Defense to Unjust Enrichment Claim (Count II)
Cardinal Peak's unjust enrichment claim, pleaded in the alternative, is legally vulnerable under well-established Illinois law. Illinois courts have consistently held that an unjust enrichment claim cannot be maintained where an express contract governs the subject matter at issue between the parties. See, e.g., Guinn v. Hoskins Chevrolet, 361 Ill. App. 3d 575, 604 (1st Dist. 2005) ("To state a cause of action for unjust enrichment, a plaintiff must allege that the defendant has unjustly retained a benefit to the plaintiff's detriment, and that the defendant's retention of the benefit violates the fundamental principles of justice, equity, and good conscience. However, where there is a specific contract that governs the relationship of the parties, the doctrine of unjust enrichment has no application."); Martis v. Grinnell Mut. Reinsurance Co., 388 Ill. App. 3d 1017, 1025 (3d Dist. 2009) (same).
Here, the MSA expressly and comprehensively governs the pricing, surcharge, and payment obligations between Nexford and Cardinal Peak. The surcharges at issue are the precise subject matter addressed by Section 7.4 of the MSA, and the parties' rights and obligations with respect to those surcharges are fully defined by the contract's terms. Cardinal Peak cannot circumvent the contractual limitations on its surcharge rights — including the notice requirement, the methodology requirement, and the cap — by recasting its claim as one for unjust enrichment.
We recommend challenging Count II through a motion to dismiss under 735 ILCS 5/2-615 (Illinois equivalent of a Rule 12(b)(6) motion) or, alternatively, raising the existence of an express contract as an affirmative defense in Nexford's Answer.
G. Defense to Account Stated Claim (Count III)
Cardinal Peak's account stated claim is similarly deficient. Under Illinois law, an account stated is an agreement between the parties that all items of a prior account are true and that the balance struck is correct, together with a promise, express or implied, of the debtor to pay that balance. See Dreyer Medical Clinic, S.C. v. Corral, 227 Ill. App. 3d 221, 226 (2d Dist. 1992). The essential element of an account stated is mutual assent — both parties must agree to the correctness of the account balance.
Here, the factual record demonstrates that Nexford consistently and vigorously disputed Cardinal Peak's surcharge invoices throughout the disputed period. Russell Okonkwo and his procurement team raised objections to specific invoices in writing, identifying concerns regarding late notice, methodology deviation, and cap exceedances. These objections are documented in Nexford's internal surcharge review logs and in correspondence with Cardinal Peak's commercial team. At no point did Nexford assent to the correctness of the invoiced amounts or agree that the unpaid balance was owed.
Because the essential element of mutual assent is absent, Cardinal Peak's account stated claim lacks a factual and legal basis. We recommend challenging this claim through motion practice or, at minimum, raising the absence of mutual assent as a defense in Nexford's Answer.
H. Affirmative Defenses
In addition to the substantive defenses discussed above, Nexford should assert the following affirmative defenses in its Answer:
1. Waiver. Cardinal Peak waived its right to collect surcharges for the seven months where it failed to deliver timely Surcharge Notices, as expressly provided in the waiver language of Section 7.4(a).
2. Failure of Condition Precedent. Cardinal Peak's right to collect surcharges was conditioned on compliance with the timely notice requirement of Section 7.4(a). Cardinal Peak failed to satisfy this condition precedent for seven of the fourteen disputed months.
3. Breach by Cardinal Peak. Cardinal Peak materially breached the MSA by (a) failing to comply with the Section 7.4(a) notice requirements, (b) using a surcharge calculation methodology inconsistent with Exhibit C, and (c) invoicing surcharges in excess of the Section 7.4(c) cap without obtaining Nexford's prior written consent.
4. Contractual Cap Limitation. Surcharges exceeding the 12% cap set forth in Section 7.4(c) are unenforceable absent Nexford's prior written consent, which was never given.
5. Failure to Mitigate Damages. To the extent Cardinal Peak claims damages arising from Nexford's alleged breach, Cardinal Peak failed to mitigate its damages by, among other things, failing to seek Nexford's consent to exceed the surcharge cap, failing to correct its methodology to comply with Exhibit C, and failing to engage in the mediation process required by Section 14.3 before filing suit.
6. Estoppel. Cardinal Peak is estopped from claiming surcharges calculated using a methodology other than that prescribed by Exhibit C, having agreed to and executed the MSA with full knowledge of the Exhibit C requirements.
VI. Preliminary Risk Assessment
A. Strengths of Nexford's Position
Nexford's defense is anchored in the clear, unambiguous language of the MSA, which provides well-defined requirements for the notice, calculation, and cap of surcharges. The principal strengths of Nexford's position are as follows:
First, the contractual language of Section 7.4 is clear, specific, and prescriptive. The fifteen-business-day notice deadline, the Exhibit C methodology requirement, and the 12% cap with prior-written-consent condition are all expressed in mandatory terms with little room for interpretive ambiguity. Illinois courts give effect to the plain language of commercial contracts, particularly where, as here, the parties are sophisticated commercial entities represented by counsel at the time of execution.
Second, Nexford possesses strong documentary evidence supporting its defenses. The surcharge review logs maintained by Russell Okonkwo contemporaneously document the date of receipt of each Surcharge Notice, the identified deficiencies (including late delivery, methodology deviations, and cap exceedances), and the basis for Nexford's payment decisions. These contemporaneous records are powerful evidence that Nexford's objections were timely raised and well-founded.
Third, the Exhibit C methodology is specific and prescriptive, identifying the exact published indices to be used and the baseline cost figures against which surcharges are to be measured. Cardinal Peak's use of an internal "blended cost" metric appears to be a clear and demonstrable deviation from the contractually required methodology. The published index data for the disputed period is independently verifiable through Platts/SPI and other public sources, making it straightforward to quantify the overstatement resulting from Cardinal Peak's unauthorized methodology.
Fourth, the 12% cap provision is express and unambiguous, and the absence of Nexford's prior written consent to exceed the cap is readily demonstrable. There is no written communication — letter, email, or otherwise — from Nexford authorizing Cardinal Peak to invoice surcharges above the 12% threshold.
Fifth, Cardinal Peak's unjust enrichment claim appears vulnerable given the existence of the MSA, which expressly governs the surcharge rights and obligations between the parties. Illinois courts have consistently declined to permit unjust enrichment claims where an express contract covers the subject matter in dispute.
B. Weaknesses / Risk Factors
Notwithstanding the strength of Nexford's defenses, there are risk factors that must be considered in assessing the likely range of outcomes:
First, Cardinal Peak will likely argue that Nexford's course of dealing during the disputed period — including the payment of some surcharges without objection to the methodology used — constitutes a waiver or modification of strict Exhibit C compliance. During the disputed period, Nexford paid $1.68 million in surcharges, and it is possible that some of those payments were made on invoices that used the blended cost metric rather than the published indices. If Cardinal Peak can demonstrate that Nexford paid certain surcharges calculated using the blended cost metric without objection, it may argue that Nexford implicitly accepted the blended cost methodology, thereby waiving its right to insist on strict Exhibit C compliance for the remaining months. This argument will need to be countered by demonstrating that Nexford's payments were made based on its own recalculation of the valid surcharge amounts, not based on acceptance of Cardinal Peak's methodology.
Second, Cardinal Peak may contend that the fifteen-business-day notice deadline of Section 7.4(a) is not a condition precedent but merely a covenant, and that the appropriate remedy for late notice is not forfeiture of the surcharge right but rather some lesser consequence, such as a delay in the payment obligation. While the express waiver language in Section 7.4(a) strongly supports Nexford's position that the deadline is a condition precedent, a court could potentially view the forfeiture consequence as a disproportionate penalty and construe the provision as a covenant rather than a condition. This risk is somewhat mitigated by the sophistication of the contracting parties and the clear language of the provision.
Third, some months' notice timeliness may be subject to factual dispute regarding the date of actual delivery versus the date of transmission. If Cardinal Peak transmitted a Surcharge Notice by email on the fifteenth business day but the email was not received or opened until a later date, a factual dispute could arise as to whether the notice was "delivered" within the deadline. The MSA's notice provisions (Section 16.2) should be reviewed carefully to determine the applicable delivery standard (e.g., upon transmission, upon receipt, upon opening).
Fourth, if the court views the 12% cap provision as merely an entitlement to negotiate rather than a hard ceiling, Nexford's $1.08 million cap-exceedance defense could be weakened. While we believe the "prior written consent" language creates a firm condition, the court might interpret the provision as establishing a framework for discussion rather than an absolute bar, particularly in the context of extreme commodity price volatility.
Fifth, as previously noted, the overlap among the three defense categories means that the total defenses ($2.18M + $1.47M + $1.08M = $4.73M) may overstate the actual defense value when applied on a month-by-month basis. The true unduplicated defense value, while still substantial, is lower than the sum of the three categories, and the final figure will depend on the detailed month-by-month analysis to be performed by a damages expert.
C. Preliminary Assessment of Likely Outcomes
Based on our analysis, we assess the range of likely outcomes as follows:
Best Case for Nexford. All three defenses are sustained in full. The court holds that (a) the fifteen-business-day notice deadline is a condition precedent and Cardinal Peak waived its right to surcharges for the seven late-noticed months; (b) surcharges must be calculated strictly in accordance with Exhibit C using published indices, and Cardinal Peak's use of the blended cost metric was unauthorized; and (c) surcharges exceeding the 12% cap are unenforceable without prior written consent. Under this scenario, Cardinal Peak recovers nothing additional beyond the $1.68 million already paid, and Nexford recovers $0.21 million on its counterclaim. The unjust enrichment and account stated claims are dismissed. We estimate the probability of this outcome at approximately 20-25%.
Moderate Case. The court upholds the notice defense and methodology defense in substantial part, finding that Cardinal Peak forfeited its surcharge rights for most or all of the late-noticed months and that the Exhibit C methodology must be applied. However, the court exercises some flexibility on the cap provision, perhaps finding that the cap creates a rebuttable presumption rather than an absolute bar, or that partial exceedances are permitted where the market conditions were extraordinary. Under this scenario, Nexford's total exposure (inclusive of the $1.68 million already paid) would be in the range of approximately $1.0 million to $2.5 million in additional payments, representing a settlement range that reflects the strength of Nexford's defenses while acknowledging some judicial flexibility on the cap issue. We estimate the probability of an outcome in this range at approximately 50-55%.
Worst Case for Nexford. The court rejects the notice-waiver defense (finding the deadline to be a covenant rather than a condition precedent and declining to impose forfeiture), finds that Nexford's course of dealing modified the Exhibit C methodology requirement (permitting the blended cost metric as an accepted alternative), and treats the cap as a negotiation trigger rather than a hard ceiling. Under this scenario, Nexford's exposure could be in the range of $3.0 million to $4.0 million, plus potential prejudgment interest at 5% per annum. We estimate the probability of an outcome in this range at approximately 15-20%.
Overall Risk Assessment. Nexford's defenses are strong, particularly on the notice and methodology issues, where the contractual language is clearest and the factual record most favorable. The probability-weighted exposure is materially below the $4.73 million claimed amount. Based on our preliminary analysis, we estimate Nexford's probability-weighted exposure at approximately $1.2 million to $1.8 million (inclusive of amounts already paid), which represents a significantly favorable position relative to Cardinal Peak's demand.
VII. Recommended Counterclaim
In addition to defending against Cardinal Peak's claims, we recommend that Nexford assert affirmative counterclaims for breach of contract, declaratory relief, and recovery of overpayment. The counterclaim serves both a substantive and a strategic purpose: substantively, it positions Nexford to recover the amounts it has overpaid; strategically, it shifts the litigation dynamic and underscores the seriousness of Nexford's defenses.
A. Breach of Contract Counterclaim
Nexford should assert a counterclaim for breach of contract against Cardinal Peak. The factual basis for the counterclaim is that Cardinal Peak breached the MSA by:
(i) Failing to comply with the Section 7.4(a) notice requirement by delivering late Surcharge Notices for seven of the fourteen disputed months;
(ii) Using a surcharge calculation methodology inconsistent with Exhibit C, specifically by substituting an internal "blended cost" metric for the contractually required published indices (Ferrous Scrap Index and Industrial Energy Cost Index); and
(iii) Invoicing surcharges in excess of the Section 7.4(c) cap of 12% of the applicable Base Price without obtaining Nexford's prior written consent.
These breaches caused Nexford to incur costs and burdens in analyzing, disputing, and managing non-compliant invoices throughout the fifteen-month disputed period. Nexford's procurement team, led by Russell Okonkwo, devoted significant time and resources to reviewing Cardinal Peak's surcharge calculations, identifying discrepancies, communicating objections to Cardinal Peak, and managing the internal approval process for partial payments on the invoices that were determined to be partially valid. These costs are recoverable as damages for Cardinal Peak's breach.
B. Declaratory Relief
Nexford should seek a declaratory judgment under 735 ILCS 5/2-701 establishing the parties' rights and obligations under Section 7.4 of the MSA. Specifically, Nexford should seek declarations that:
(a) Cardinal Peak waived its right to pass through surcharges for the months in which it failed to deliver timely Surcharge Notices in compliance with Section 7.4(a);
(b) Surcharges under the MSA must be calculated strictly in accordance with the Exhibit C Surcharge Methodology, using the published Ferrous Scrap Index and Industrial Energy Cost Index applied against the agreed baseline costs, and that Cardinal Peak's use of an internal "blended cost" metric is not authorized by the MSA; and
(c) Surcharges exceeding 12% of the applicable Base Price are unenforceable absent Nexford's prior written consent, which was not provided for any month during the disputed period.
Declaratory relief is particularly appropriate here because the MSA remains in effect through at least January 14, 2023 (with automatic renewal thereafter), and the parties' ongoing commercial relationship requires clarity regarding the proper interpretation and application of the surcharge provisions. A declaratory judgment on these issues will not only resolve the current dispute but will also establish clear ground rules for any future surcharge invoicing under the MSA.
C. Overpayment Refund
Based on the application of Nexford's contractual defenses and a proper recalculation of valid surcharges using the Exhibit C methodology, published index data, and the 12% cap, Nexford's position is that its total valid surcharge obligation for the disputed period was approximately $1.47 million. Because Nexford has already paid $1.68 million in surcharges during the disputed period, Nexford has overpaid Cardinal Peak by approximately $0.21 million.
The counterclaim should seek recovery of this $0.21 million overpayment, together with prejudgment interest from the date of overpayment. While the overpayment amount is relatively modest, asserting this claim sends a clear signal that Nexford believes it has not only paid everything it owes but has in fact paid more than it owes, which strengthens Nexford's overall negotiating position and underscores the weakness of Cardinal Peak's claims.
VIII. Recommended Next Steps and Timeline
A. Immediate Actions
The following actions should be taken on an expedited basis:
1. File Answer and Affirmative Defenses. We recommend filing a comprehensive Answer and Affirmative Defenses on or before September 19, 2022, which we have identified as the target filing date within the applicable response deadline under Illinois Supreme Court Rules. The Answer should deny all material allegations of the Complaint, assert the affirmative defenses identified in Section V.H above, and preserve all available defenses and objections.
2. File Counterclaim. Nexford's Counterclaim for breach of contract, declaratory judgment, and $0.21 million overpayment recovery should be filed simultaneously with the Answer or shortly thereafter. Filing the Counterclaim concurrently with the Answer is preferable from both a procedural and a strategic standpoint, as it immediately establishes Nexford's affirmative position and shifts the litigation dynamic.
3. Confirm Litigation Hold Compliance. A Litigation Hold Notice was issued on August 23, 2022, the day after Calderwood & Harkness's engagement was opened. The notice was directed to all relevant Nexford personnel and departments, including procurement, finance, legal, information technology, and operations at all three manufacturing facilities (Waukegan, Gary, and Toledo). We should confirm compliance with the litigation hold across all locations and departments, ensure that automated deletion protocols have been suspended for relevant custodians, and verify that backup tapes and archived data for the relevant period have been preserved. A follow-up certification of compliance should be obtained from each custodian within the next two weeks.
B. Discovery Preparation
We recommend beginning discovery preparation immed

MEMORANDUM

MATTER NUMBER: 1005-00005

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