CONFIDENTIAL MEDIATION BRIEF OF RESPONDENT NEXFORD INDUSTRIAL HOLDINGS INC.
CARDINAL PEAK INDUSTRIES Plaintiff and Counterclaim Defendant,
v.
NEXFORD INDUSTRIAL HOLDINGS INC. Defendant and Counterclaimant.
Case No. 2022-L-008471
Circuit Court of Cook County, Illinois County Department, Law Division
Submitted to:
Hon. Catherine Lindström (Ret.) Mediator Great Lakes Dispute Resolution Center 150 North Riverside Plaza, Suite 2700 Chicago, Illinois 60606
Date of Submission: July 26, 2023 Mediation Date: August 2, 2023
Submitted by:
CALDERWOOD & HARKNESS LLP 200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606
Priya Anand, Responsible Partner Simone Laroche, Lead Associate Jeffrey Park, Associate
On behalf of:
NEXFORD INDUSTRIAL HOLDINGS INC. 4200 West Lakeshore Industrial Parkway, Suite 300 Waukegan, Illinois 60085
CONFIDENTIALITY LEGEND: This Mediation Brief is submitted pursuant to the confidentiality provisions of the mediation and is intended solely for the use of the Mediator, Hon. Catherine Lindström (Ret.). This document and its contents shall not be disclosed to the opposing party or used in any subsequent proceeding. The analyses, positions, assessments, and concessions contained herein are made exclusively for settlement purposes and are protected under Illinois Supreme Court Rule 2-411, the mediation agreement executed by the parties, and applicable common-law mediation privilege. No portion of this document may be offered into evidence, referenced in any pleading, or otherwise disclosed outside the mediation process.
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I. INTRODUCTION AND SUMMARY OF NEXFORD'S POSITION
Nexford Industrial Holdings Inc. ("Nexford" or "NIH"), a Delaware corporation headquartered in Waukegan, Illinois, respectfully submits this Confidential Mediation Brief in advance of the August 2, 2023 mediation session before the Honorable Catherine Lindström (Ret.). This submission is intended to provide the Mediator with a comprehensive overview of the factual background, contractual framework, and legal defenses that Nexford believes will be dispositive of the claims at issue, and to set forth Nexford's good-faith settlement posture.
Nexford is the defendant and counterclaimant in this action brought by Cardinal Peak Industries ("Cardinal Peak" or "CPI"), a Colorado limited liability company headquartered in Pueblo, Colorado. At its core, this dispute involves a straightforward question of contract compliance: whether Cardinal Peak is entitled to collect surcharges that it invoiced in violation of the express terms of the parties' Master Supply Agreement.
Cardinal Peak claims that Nexford owes $4.73 million in allegedly unpaid raw-material surcharges under the parties' Master Supply Agreement, referenced as MSA-NIH-CPI-2020-001, dated January 15, 2020 (the "MSA"). Cardinal Peak's retained expert, Dr. Theodore Voss of Pinnacle Economics Group LLC, has further calculated $0.38 million in prejudgment interest, bringing Cardinal Peak's total demand to $5.11 million. Nexford submits that these figures are grossly inflated and fundamentally inconsistent with the contract the parties negotiated.
Nexford's position — supported by the plain language of the MSA, the testimony of Cardinal Peak's own witnesses, and the independent expert analysis of Dr. Anita Rosenthal, CPA, ABV, of Meridian Bridge Consulting LLC — is that Cardinal Peak's claims are substantially overstated for three independent but overlapping reasons:
(a) Cardinal Peak failed to deliver timely Surcharge Notices as required by MSA Section 7.4(a) for seven of the fourteen disputed months, forfeiting its right to collect surcharges totaling approximately $2.18 million for those periods;
(b) Cardinal Peak deviated from the mandatory Surcharge Methodology prescribed in Exhibit C to the MSA by substituting its own internal "blended cost" metric for the contractually specified published indices, resulting in approximately $1.47 million in overstated surcharges; and
(c) Cardinal Peak exceeded the 12% surcharge cap imposed by Section 7.4(c) without obtaining Nexford's prior written consent for four months during the disputed period, accounting for approximately $1.08 million in unauthorized charges.
When the MSA is properly applied and these defenses are accounted for — with appropriate adjustments for overlapping categories — Nexford's maximum additional obligation is at most $0.21 million beyond the $1.68 million that Nexford has already paid on accepted surcharges. In other words, Nexford has substantially performed its payment obligations under the MSA. Dr. Anita Rosenthal's March 15, 2023 rebuttal report confirms this analysis in detail.
Notwithstanding the strength of its contractual defenses, Nexford approaches this mediation in good faith and is prepared to discuss a structured resolution to avoid the costs and uncertainty of trial. Nexford recognizes the value of certainty and the business disruption that continued litigation entails. Nexford is willing to pay a reasonable premium above its calculated maximum exposure to achieve finality, provided that any settlement appropriately reflects the strength of its defenses and the weakness of Cardinal Peak's claims.
By way of background, Nexford is a well-established industrials company specializing in precision metal fabrication. With approximately $287 million in annual revenue for fiscal year 2022, Nexford operates three manufacturing facilities across the Midwest and produces precision-engineered steel and aluminum components serving the automotive, heavy equipment, and infrastructure sectors. Nexford is a portfolio company of Marlowe Asset Management Bluff Capital Partners, LP, a respected middle-market private equity fund. Nexford's management team and its private equity sponsor are aligned in their commitment to resolving this dispute efficiently and on commercially reasonable terms.
II. BACKGROUND AND PARTIES
A. Nexford Industrial Holdings Inc.
Nexford Industrial Holdings Inc. is a Delaware corporation with its principal place of business at 4200 West Lakeshore Industrial Parkway, Suite 300, Waukegan, Illinois 60085. Its registered agent in Illinois is CT Statutory Services Inc., located in Springfield, Illinois.
Nexford's senior leadership team includes Martin Schaeffer, Chief Executive Officer; Lydia Tran, Chief Financial Officer; Russell Okonkwo, Vice President of Procurement; and Deborah Whitfield, General Counsel. Mr. Okonkwo, who oversees Nexford's raw-material purchasing operations, has been the primary internal point of contact regarding the surcharge dispute and maintained contemporaneous surcharge review logs that are central to Nexford's defense. Ms. Whitfield handled Nexford's initial response to Cardinal Peak's demand prior to the engagement of outside litigation counsel.
Nexford operates three manufacturing facilities in the Midwest that collectively produce precision-engineered steel and aluminum components. These components serve customers in the automotive sector (where Nexford supplies structural and drivetrain parts to Tier 1 automotive suppliers), the heavy equipment sector (where it manufactures components for construction and agricultural machinery), and the infrastructure sector (including bridge and highway construction materials). Nexford reported annual revenue of approximately $287 million for fiscal year 2022 and employs approximately 1,200 workers across its facilities.
Nexford is majority-owned by Marlowe Asset Management Bluff Capital Partners, LP, a middle-market private equity fund whose general partner is Marlowe Asset Management Bluff Capital Management LLC. The fund's Managing Partner is Conrad Yeung. Diana Calloway serves as Principal at Marlowe Asset Management Bluff and as Board Observer at Nexford. Marlowe Asset Management Bluff acquired its controlling interest in Nexford in 2019 and has since supported investments in manufacturing capacity, operational efficiency, and working capital management. The fund has been briefed on this dispute and is supportive of a reasonable resolution at mediation.
B. Cardinal Peak Industries
Cardinal Peak Industries is a Colorado limited liability company with its principal place of business at 1580 Ridgeline Boulevard, Pueblo, Colorado 81001. Cardinal Peak is a regional steel producer and distributor with annual revenue of approximately $415 million for fiscal year 2022. Its core business involves the production and distribution of flat-rolled steel products, primarily hot-rolled coil ("HRC") and cold-rolled coil ("CRC"), to manufacturers in the Midwest and Mountain West regions.
Cardinal Peak's leadership includes Frank Delacroix, President and Chief Executive Officer; Natalie Gunderson, Vice President of Sales and Commercial; Harold Briggs, Controller; and Patricia Morrow, General Counsel. Ms. Gunderson, who managed the commercial relationship with Nexford and oversaw Cardinal Peak's surcharge invoicing processes, was deposed on January 18, 2023, and provided testimony that Nexford believes is highly favorable to its defense, as discussed in detail below.
Cardinal Peak is represented in this matter by Blackwood Stein & Associates LLP, a Denver, Colorado law firm, with Lead Partner Garrett Blackwood and Associate Megan Hsu serving as principal counsel.
III. THE MASTER SUPPLY AGREEMENT
A. Key Terms of the MSA
The parties' commercial relationship is governed by the Master Supply Agreement bearing reference number MSA-NIH-CPI-2020-001, executed on January 15, 2020, between Nexford (as Buyer) and Cardinal Peak (as Seller). A complete copy of the MSA, including all exhibits, is attached hereto as Exhibit A.
The MSA established a three-year supply relationship running from January 15, 2020 through January 14, 2023, with an automatic one-year renewal provision unless either party provides written notice of termination at least 180 days prior to the end of the then-current term. The MSA is governed by Illinois law, and the parties consented to the jurisdiction of the courts of Cook County, Illinois.
Under the MSA's pricing framework, Section 7.2 established base pricing for the two primary product categories: HRC at $620 per ton and CRC at $740 per ton, as of the 2020 base year. These base prices were subject to quarterly adjustment pursuant to the mechanisms described in the MSA. The estimated annual volume under the MSA was approximately 18,000 tons of HRC and 6,500 tons of CRC, for a combined annual volume of approximately 24,500 tons. At base prices, this equated to an estimated annual spend of approximately $11.16 million for HRC (18,000 tons × $620/ton), approximately $4.81 million for CRC (6,500 tons × $740/ton), and approximately $15.97 million in total annual expenditure.
The MSA reflected a carefully negotiated allocation of pricing risk between the parties. Nexford, as a significant purchaser of steel products, required pricing predictability to manage its own customer commitments and manufacturing costs. Cardinal Peak, as a steel producer subject to volatile input costs, required a mechanism to pass through certain documented cost increases. The surcharge provision at the heart of this dispute — Section 7.4 — represents the parties' negotiated compromise on that pricing risk. Critically, the surcharge mechanism was subject to specific procedural and substantive conditions designed to protect Nexford from arbitrary or inflated cost pass-throughs. It is Cardinal Peak's failure to comply with those conditions that gives rise to the present dispute.
B. The Surcharge Clause — MSA Section 7.4
Section 7.4 of the MSA is the central provision at issue in this dispute. It reads in its relevant entirety as follows:
"Seller may pass through documented raw-material surcharges, including scrap, energy, and alloy surcharges, incurred during the applicable invoice period, provided that (a) Seller delivers to Buyer a Surcharge Notice with supporting documentation no later than fifteen (15) business days after the end of the applicable month, and (b) the surcharge components are calculated in accordance with the methodology set forth in Exhibit C (Surcharge Methodology)."
Two critical requirements embedded in this provision bear particular emphasis:
Section 7.4(a) — The 15-Business-Day Notice Requirement. Cardinal Peak's right to collect surcharges is expressly conditioned on the timely delivery of a Surcharge Notice with supporting documentation "no later than fifteen (15) business days after the end of the applicable month." This is not a mere formality or a directory guideline; it is a condition precedent to Cardinal Peak's entitlement to payment. The use of the word "provided that" in the introductory clause — followed by the notice requirement — makes clear that Cardinal Peak's right to collect surcharges arises only if and when timely notice is given. As discussed below, Cardinal Peak failed to comply with this requirement for seven of the fourteen months at issue.
Section 7.4(b) — Compliance with the Exhibit C Surcharge Methodology. The surcharge amounts must be "calculated in accordance with the methodology set forth in Exhibit C." This is not a suggestion or a general guideline — it is a mandatory computational requirement that channels the surcharge calculation through a specific, objectively verifiable framework. Cardinal Peak's unilateral departure from this methodology is at the heart of Nexford's second defense.
C. Exhibit C — Surcharge Methodology
Exhibit C to the MSA prescribes a detailed and objective methodology for calculating the surcharges that Cardinal Peak is entitled to pass through to Nexford. The methodology is built around two published, third-party indices:
(i) The Ferrous Scrap Index, as reported by Platts/SPI (now S&P Global Platts), which tracks the market price of ferrous scrap metal — the primary raw-material input for steel production; and
(ii) The Industrial Energy Cost Index, which tracks energy costs relevant to industrial manufacturing and steel production processes.
Exhibit C establishes the following baselines against which surcharges are calculated:
• Baseline scrap cost: $340 per ton
• Baseline energy cost: $48 per ton
The surcharge for any given month is calculated as the positive difference between the published index values for that month and the applicable baselines, applied to the tonnage delivered during the invoice period. If the published index values are at or below the baselines, no surcharge is due.
This methodology is explicit, objective, and leaves no room for substitution of alternative metrics. The parties selected published, third-party indices specifically to ensure transparency and verifiability and to prevent either party from manipulating surcharge calculations based on internal cost data. Cardinal Peak's decision to substitute its own internal "blended cost" metric for the contractually specified indices — a point confirmed by its own Vice President of Sales and Commercial during deposition — was a fundamental breach of Exhibit C and the MSA.
D. Section 7.4(c) — The 12% Cap Provision
Section 7.4(c) imposes an absolute ceiling on monthly surcharges absent Nexford's prior written consent:
"In no event shall the aggregate monthly surcharge exceed 12% of the applicable Base Price for the relevant product category without prior written consent of Buyer."
Applied to the base prices established under Section 7.2, this cap operates as follows:
The provision requires "prior written consent of Buyer" to exceed the cap for any given month. Verbal acquiescence, implicit acknowledgment, course of dealing, or post-hoc ratification are insufficient under the plain language of the contract. The requirement of "prior" consent means that the consent must be obtained before the surcharge is invoiced, and the requirement that the consent be "written" forecloses any argument based on informal communications or conduct. As discussed below, Cardinal Peak never obtained Nexford's prior written consent to exceed the 12% cap for any month during the disputed period.
E. Section 7.4(d) — Dispute Procedure
Section 7.4(d) establishes a procedural framework for disputing surcharges:
Buyer must notify Seller of any disputed surcharge within thirty (30) calendar days of receipt of the Surcharge Notice. Unresolved disputes are to be escalated to senior officers of the respective parties for negotiation. If the senior officers are unable to resolve the dispute within a further thirty (30) calendar day period, the dispute is to be submitted to mediation under Section 14.3.
Nexford scrupulously complied with this dispute procedure. Russell Okonkwo's surcharge review logs document that each deficient Surcharge Notice was flagged and that written dispute notices were transmitted to Cardinal Peak within the 30-day window prescribed by Section 7.4(d). These contemporaneous dispute notices are attached as Exhibit E.
F. Section 14.3 — Dispute Resolution
Section 14.3 of the MSA establishes mandatory mediation in Chicago, Illinois as a prerequisite to litigation. No party may initiate litigation until the mediation process has been completed or the parties have reached an impasse.
This mediation fulfills the contractual prerequisite of Section 14.3. The Mediator should note, however, that Cardinal Peak filed its Complaint in the Circuit Court of Cook County on August 8, 2022 — before the parties had completed the mediation process required by the MSA. Following the filing of Nexford's Answer and Counterclaim, the parties jointly moved to stay the litigation pending this mediation session, and the Court granted the stay on June 5, 2023. Cardinal Peak's premature filing of suit, before exhausting the contractually mandated dispute resolution procedures, is relevant context for the Mediator's assessment of the parties' respective good faith and reasonableness.
IV. FACTUAL NARRATIVE — THE SURCHARGE DISPUTE
A. The Disputed Period: March 2021 through May 2022
The dispute encompasses a fifteen-month period from March 2021 through May 2022 — a period of significant volatility in steel markets driven by pandemic-related supply chain disruptions, surging demand from infrastructure spending, and energy price fluctuations. During this period, Cardinal Peak issued monthly surcharge invoices reflecting what it claimed were increased raw-material costs.
Of the fifteen months in the period, the surcharge for one month — April 2021 — was paid in full by Nexford and is not at issue in this proceeding. The remaining fourteen months are the subject of the present dispute. A comprehensive spreadsheet analyzing each of the fourteen disputed months, including delivery dates, invoiced amounts, defense categorizations, and calculated amounts under the proper Exhibit C methodology, is attached hereto as Exhibit B.
The financial contours of the dispute are as follows:
As set forth in detail in Sections VI and VII below, Nexford's defenses reduce Cardinal Peak's legitimate claim to at most $0.21 million above the amount already paid — a figure that Nexford's own expert, Dr. Rosenthal, has independently verified.
B. Nexford's Contemporaneous Review Process
Nexford's procurement team, led by Vice President Russell Okonkwo, maintained a rigorous process for reviewing each monthly Surcharge Notice received from Cardinal Peak. Mr. Okonkwo maintained detailed surcharge review logs — contemporaneous business records — in which each Surcharge Notice was analyzed along three dimensions:
(1) Timeliness: Was the Surcharge Notice received within fifteen business days of the end of the applicable month, as required by Section 7.4(a)?
(2) Exhibit C Compliance: Were the surcharge components calculated using the published Ferrous Scrap Index (Platts/SPI) and the Industrial Energy Cost Index, with the baselines of $340/ton (scrap) and $48/ton (energy) prescribed by Exhibit C?
(3) Cap Conformity: Did the aggregate monthly surcharge fall within the 12% cap established by Section 7.4(c), and if not, had Nexford provided prior written consent to the exceedance?
When a Surcharge Notice satisfied all three requirements — as was the case for the $1.68 million in surcharges that Nexford paid — Nexford processed payment in the ordinary course of business. Nexford's track record of paying $1.68 million in properly documented and calculated surcharges demonstrates its good faith and its willingness to honor its contractual obligations. Nexford did not refuse to pay surcharges as a matter of policy or to gain commercial leverage; it refused to pay only those surcharges that were deficient under the plain terms of the MSA.
When a Surcharge Notice was found to be deficient on any of the three criteria, Mr. Okonkwo flagged the deficiency in his review logs and transmitted written dispute notices to Cardinal Peak's commercial team within the 30-calendar-day window required by Section 7.4(d). These dispute notices identified the specific deficiency — late delivery, methodology deviation, or cap exceedance — and requested corrective action. Cardinal Peak's failure to cure these deficiencies, or to provide any persuasive justification for its departures from the MSA, is what ultimately gave rise to the escalation that led to this dispute.
C. Cardinal Peak's Demand and Litigation
On June 10, 2022, Blackwood Stein & Associates LLP, acting 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 characterized Nexford's nonpayment as a willful breach of the MSA and threatened litigation if payment was not received within thirty days.
On July 5, 2022, Nexford's General Counsel, Deborah Whitfield, responded in writing, rejecting Cardinal Peak's demand and outlining Nexford's contractual defenses in detail. Ms. Whitfield's letter identified the specific months for which Surcharge Notices had been delivered late, the specific instances of deviation from the Exhibit C methodology, and the specific months in which the 12% cap had been exceeded without written consent. The letter expressed Nexford's willingness to engage in the mediation process contemplated by Section 14.3 of the MSA.
Rather than pursuing the contractually mandated mediation process, Cardinal Peak filed its Complaint in the Circuit Court of Cook County on August 8, 2022, asserting claims for breach of contract, unjust enrichment, and account stated. The Complaint was assigned Case No. 2022-L-008471.
Calderwood & Harkness LLP was engaged on August 22, 2022 to defend Nexford and to prosecute its counterclaims.
V. PROCEDURAL HISTORY
The procedural history of this case confirms that both the factual record and the litigation posture strongly favor Nexford's position. The key milestones are as follows:
September 19, 2022: Nexford, through Calderwood & Harkness LLP, filed its Answer and Affirmative Defenses to Cardinal Peak's Complaint. Nexford's affirmative defenses include waiver (Cardinal Peak's failure to comply with conditions precedent constitutes a waiver of its right to collect the disputed surcharges), failure of condition precedent (the 15-business-day notice requirement), breach of Exhibit C methodology, and the 12% surcharge cap defense. A copy of the Answer, Affirmative Defenses, and Counterclaim is attached as Exhibit F.
October 3, 2022: Nexford filed its Counterclaim against Cardinal Peak for breach of contract, alleging that Cardinal Peak's failure to comply with the Exhibit C methodology and notice requirements constituted a material breach of the MSA. The Counterclaim seeks declaratory relief confirming that Nexford has satisfied its contractual obligations, as well as a $0.21 million overpayment refund in the alternative.
November 14, 2022: Cardinal Peak filed a Motion to Dismiss Nexford's Counterclaim, arguing that Nexford had failed to state a claim upon which relief could be granted. The Court denied the motion, finding that Nexford had plausibly alleged contract defenses and claims that warranted further factual development. The Court's denial of the motion is significant — it indicates that the Court views Nexford's position as having sufficient merit to survive threshold scrutiny.
December 2022 – April 2023: The parties conducted written discovery, including interrogatories and document production requests, and took fact depositions of key witnesses. The discovery process produced documentary evidence and testimony that Nexford believes strongly supports its position.
January 18, 2023: Deposition of Natalie Gunderson, Cardinal Peak's Vice President of Sales and Commercial. Ms. Gunderson's testimony included critical admissions regarding the timeliness of Cardinal Peak's Surcharge Notices and the use of the internal blended cost metric rather than the published indices required by Exhibit C. Excerpts from Ms. Gunderson's deposition transcript are attached as Exhibit D.
February 7, 2023: Deposition of Russell Okonkwo, Nexford's Vice President of Procurement. Mr. Okonkwo testified regarding his surcharge review process, the contemporaneous review logs he maintained, and the dispute notices transmitted to Cardinal Peak.
March 15, 2023: Expert reports were exchanged. Dr. Anita Rosenthal, CPA, ABV, of Meridian Bridge Consulting LLC, submitted her damages rebuttal report on behalf of Nexford. Dr. Rosenthal's report reconstructed the proper surcharge calculations using the published indices prescribed by Exhibit C, applied the 15-business-day notice requirement, applied the 12% cap, and concluded that Nexford's maximum additional obligation is $0.21 million. A copy of Dr. Rosenthal's rebuttal report is attached as Exhibit C (to this brief).
April 12, 2023: Cardinal Peak's retained expert, Dr. Theodore Voss of Pinnacle Economics Group LLC, submitted his damages report claiming total damages of $5.11 million, consisting of $4.73 million in principal and $0.38 million in prejudgment interest. As discussed in Section VII below, Dr. Voss's analysis suffers from fundamental methodological flaws.
May 22, 2023: The parties jointly moved to stay the litigation pending mediation pursuant to MSA Section 14.3.
June 5, 2023: The Court granted the stay, permitting the parties to proceed to mediation before resuming litigation activity.
The case is now at the mediation stage, with the factual record well-developed through depositions and documentary discovery, and with competing expert reports framing the parties' respective damages positions.
VI. NEXFORD'S CONTRACT DEFENSES
Nexford's defense rests on three independent but overlapping grounds, each of which eliminates a significant portion of Cardinal Peak's claimed damages. Taken together, these defenses reduce Cardinal Peak's legitimate claim to zero (or, accounting for overlap, to at most $0.21 million above amounts already paid). Each defense is grounded in the plain language of the MSA and supported by the factual record, including Cardinal Peak's own witness testimony.
A. Defense One: Failure to Deliver Timely Surcharge Notices (Section 7.4(a)) — $2.18 Million
MSA Section 7.4(a) requires Cardinal Peak to deliver Surcharge Notices with supporting documentation "no later than fifteen (15) business days after the end of the applicable month." As discussed in Section III.B above, this requirement is a condition precedent to Cardinal Peak's right to collect surcharges. The use of the phrase "provided that" in the introductory clause of Section 7.4 makes clear that the right to pass through surcharges arises only when the enumerated conditions — including timely notice — are satisfied.
For seven of the fourteen disputed months, Cardinal Peak failed to deliver the Surcharge Notice within the fifteen-business-day deadline. In some instances, the Surcharge Notice was delivered days late; in others, the delay was measured in weeks. The surcharges attributable to these seven late-notice months total approximately $2.18 million.
This defense is powerfully supported by the deposition testimony of Cardinal Peak's own key witness. During her January 18, 2023 deposition, Natalie Gunderson — Cardinal Peak's Vice President of Sales and Commercial, who oversaw the surcharge invoicing process — was asked about Cardinal Peak's internal processes for issuing Surcharge Notices. Ms. Gunderson candidly admitted that Cardinal Peak's internal processes for issuing Surcharge Notices were "not always consistent" and confirmed late delivery for multiple months during the disputed period. When pressed on the specific months for which delivery was late, Ms. Gunderson was unable to provide a coherent explanation for the delays, attributing them variously to "staffing transitions," "system issues," and "the general chaos of the supply chain environment."
While Nexford is sympathetic to the operational challenges that all companies faced during the pandemic period, those challenges do not excuse noncompliance with a contractual condition precedent. The MSA was executed in January 2020, and the parties had the opportunity to negotiate the notice timeline with full awareness of the operational realities of their respective businesses. The fifteen-business-day deadline was the negotiated term, and Cardinal Peak was obligated to comply with it.
Under Illinois law, strict compliance with contractual notice provisions is required when the provision is a condition precedent. See, e.g., Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill. 2d 100, 129 (2005) (holding that compliance with contractual conditions precedent is mandatory and that failure to comply results in forfeiture of the right the condition was designed to protect); MidAmerica Bank, FSB v. Charter One Mortgage Corp., 2013 IL App (1st) 120994, ¶ 37 (enforcing contractual notice deadline as a condition precedent). Cardinal Peak's failure to deliver timely Surcharge Notices for seven months extinguishes its right to collect surcharges for those months.
This defense alone accounts for $2.18 million of the $4.73 million Cardinal Peak claims.
B. Defense Two: Deviation from Exhibit C Surcharge Methodology — $1.47 Million
MSA Section 7.4(b) requires that surcharges be "calculated in accordance with the methodology set forth in Exhibit C." As described in Section III.C above, Exhibit C prescribes the use of two published, third-party indices — the Ferrous Scrap Index (Platts/SPI) and the Industrial Energy Cost Index — with baselines of $340 per ton (scrap) and $48 per ton (energy). Surcharges are to be calculated as the positive difference between the published index values and these baselines, applied to the applicable tonnage.
Cardinal Peak deviated from this methodology by using an internal "blended cost" metric that incorporated Cardinal Peak's actual procurement costs — including its own negotiated scrap purchase prices, its specific energy contracts, and other internal cost components — rather than the contractually specified published indices. This "blended cost" metric systematically overstated the surcharges because Cardinal Peak's actual procurement costs, particularly during the volatile 2021-2022 period, exceeded the published index values for certain inputs. The result was that Cardinal Peak invoiced Nexford for surcharges that were higher than what the Exhibit C methodology would have produced.
The difference between Cardinal Peak's blended cost calculations and the proper Exhibit C calculations accounts for approximately $1.47 million in overstated surcharges across the fourteen disputed months.
This defense is again supported by Cardinal Peak's own witness testimony. During her deposition, Natalie Gunderson admitted that Cardinal Peak's pricing team used a blended cost metric for surcharge calculations, and she acknowledged that this metric was not prescribed by Exhibit C. Specifically, when asked whether the blended cost metric was the same as the Exhibit C methodology, Ms. Gunderson testified: "It's — it's similar in concept, but it uses our actual costs rather than the published indices." When further asked whether Cardinal Peak had obtained Nexford's agreement to use a different methodology, Ms. Gunderson acknowledged that no such agreement had been reached.
Dr. Anita Rosenthal's rebuttal report provides a detailed, month-by-month reconstruction of the proper Exhibit C calculations using the published Ferrous Scrap Index and Industrial Energy Cost Index values for each month of the disputed period. For each month, Dr. Rosenthal compared the surcharge amount that would have resulted from the Exhibit C methodology with the surcharge amount that Cardinal Peak actually invoiced. The aggregate difference — $1.47 million — represents the total overstatement attributable to Cardinal Peak's unauthorized use of its internal blended cost metric.
The MSA's requirement that surcharges be calculated in accordance with the Exhibit C methodology is not a technicality — it is a substantive protection designed to ensure that surcharge pass-throughs are based on objective, publicly verifiable data rather than the supplier's self-reported internal costs. The parties deliberately chose published indices over internal cost data to prevent precisely the kind of overstatement that occurred here. Cardinal Peak's unilateral substitution of its own internal metric undermines the entire purpose of the Exhibit C framework and cannot be sanctioned.
C. Defense Three: Surcharges Exceeding the 12% Cap Without Written Consent (Section 7.4(c)) — $1.08 Million
Section 7.4(c) imposes a hard ceiling on monthly surcharges: the aggregate monthly surcharge may not exceed 12% of the applicable Base Price for the relevant product category unless Nexford has provided its "prior written consent." As calculated in Section III.D above, this cap is $74.40 per ton for HRC and $88.80 per ton for CRC.
For four months during the disputed period, the surcharges invoiced by Cardinal Peak exceeded the 12% cap for the applicable product category. The aggregate excess above the 12% cap for these four months totals approximately $1.08 million.
Cardinal Peak never obtained Nexford's prior written consent to exceed the cap for any of these months — or, for that matter, for any month during the entire term of the MSA. There are no emails, letters, memoranda, or other written instruments in which Nexford authorized Cardinal Peak to exceed the 12% surcharge cap. Nexford's surcharge review logs, maintained by Russell Okonkwo, document that the cap exceedances were flagged in real time and that disputes were communicated to Cardinal Peak promptly.
The 12% cap is an important risk-allocation mechanism. It protects Nexford from exposure to extraordinary surcharge volatility that could disrupt its own pricing commitments to downstream customers. By capping the maximum surcharge at 12% of the base price absent written consent, the parties ensured that Nexford would retain control over its exposure to cost pass-throughs. Cardinal Peak cannot override this protection by simply invoicing amounts above the cap and then claiming breach when Nexford declines to pay.
Cardinal Peak may argue that the extraordinary market conditions during 2021-2022 — when steel prices experienced historic volatility — justified exceeding the cap. However, the 12% cap provision makes no exception for market conditions. If Cardinal Peak believed the cap was insufficient to protect its margins during a period of extreme volatility, the appropriate course was to seek Nexford's written consent, as the MSA requires. Cardinal Peak's failure to do so is dispositive.
D. Overlap Among Defenses and Nexford's Maximum Exposure Calculation
Nexford acknowledges that some overlap exists among the three defense categories. Certain months during the disputed period implicate more than one defense — for example, a month in which the Surcharge Notice was delivered late may also be a month in which the blended cost metric was used and the 12% cap was exceeded. Simply adding the three defense amounts ($2.18M + $1.47M + $1.08M = $4.73M) would produce a figure that exceeds Cardinal Peak's total claim and would involve duplicative counting.
When all three defenses are properly applied — eliminating duplicative counting by treating each month's deficiencies as a single disallowance — the analysis proceeds as follows:
• Cardinal Peak's total claimed unpaid surcharges: $4,730,000
• Less: Late-notice months (Defense One): ($2,180,000)
• Less: Methodology deviation on remaining months (Defense Two): ($1,470,000)
• Less: Cap exceedances on remaining months (Defense Three): ($1,080,000)
• Subtotal before overlap adjustment: $0
• Overlap adjustment (months with multiple defenses): +$210,000
• Nexford's maximum additional obligation: $210,000
In other words, even accepting Cardinal Peak's invoiced tonnages and applying the most generous interpretation of the overlapping defenses, Nexford's maximum additional obligation above the $1.68 million already paid is $0.21 million. This is the figure confirmed by Dr. Rosenthal's independent analysis.
Nexford filed a counterclaim for this $0.21 million as an overpayment refund, asserting that when all defenses are properly applied, Nexford has either fully satisfied its contractual obligations or overpaid by a modest amount. In the alternative, Nexford seeks declaratory relief confirming that it has substantially performed its payment obligations under the MSA.
VII. CRITIQUE OF CARDINAL PEAK'S EXPERT REPORT (DR. THEODORE VOSS, PINNACLE ECONOMICS GROUP LLC)
A. Summary of the Voss Report
Cardinal Peak's retained damages expert, Dr. Theodore Voss of Pinnacle Economics Group LLC, submitted his expert report on April 12, 2023. Dr. Voss calculates total damages of $5.11 million, consisting of $4.73 million in principal (the full amount of Cardinal Peak's claimed unpaid surcharges) and $0.38 million in prejudgment interest.
Dr. Voss's report relies entirely on Cardinal Peak's internal invoicing data and the blended cost calculations generated by Cardinal Peak's pricing team. He accepts at face value Cardinal Peak's position that all Surcharge Notices were delivered timely and that Cardinal Peak's internal surcharge methodology was consistent with the MSA's requirements. In short, Dr. Voss's analysis uncritically adopts Cardinal Peak's factual premises without independent verification.
B. Methodological Flaws
Dr. Voss's report suffers from four fundamental methodological flaws that render its conclusions unreliable:
First, Dr. Voss used Cardinal Peak's internal blended cost data rather than the contractually mandated published Ferrous Scrap Index and Industrial Energy Cost Index. This is a fatal error. The MSA does not permit surcharges based on Cardinal Peak's actual internal costs; it requires surcharges calculated using published, third-party indices as set forth in Exhibit C. By adopting Cardinal Peak's blended cost calculations, Dr. Voss's analysis necessarily incorporates the $1.47 million overstatement resulting from the deviation from Exhibit C. An expert report that ignores the contract's plain terms cannot provide a reliable measure of damages.
Second, Dr. Voss made no independent verification of Surcharge Notice delivery dates. His report simply assumed that all Surcharge Notices were delivered within the fifteen-business-day deadline prescribed by Section 7.4(a). This assumption is flatly contradicted by the documentary record — including Cardinal Peak's own email timestamps and delivery confirmations — and by the deposition testimony of Ms. Gunderson, who admitted that Cardinal Peak's notice processes were "not always consistent." An expert who fails to verify a foundational factual premise cannot offer a credible damages opinion.
Third, Dr. Voss failed to apply the 12% cap under Section 7.4(c) or to account for the absence of Nexford's written consent for the four months in which the cap was exceeded. The cap is an express contractual limitation on the surcharges that Cardinal Peak may pass through. Any damages calculation that ignores this limitation is, by definition, overstated.
Fourth, Dr. Voss computed prejudgment interest of $0.38 million without accounting for the fact that the disputed surcharges were — and remain — the subject of a legitimate contractual dispute. Under Illinois law, prejudgment interest is not available where the amount owed is genuinely in dispute. See Lozman v. Putnam, 379 Ill. App. 3d 596, 609 (1st Dist. 2008) (holding that prejudgment interest is appropriate only where the amount due is fixed or easily computed and the debtor's delay in payment is vexatious). Here, the amount owed has been in genuine dispute since the very first month of the disputed period, as evidenced by Nexford's contemporaneous dispute notices under Section 7.4(d). Dr. Voss's inclusion of prejudgment interest in his damages figure is inappropriate and should be disregarded.
C. Comparison with Dr. Rosenthal's Rebuttal Analysis
Dr. Anita Rosenthal, CPA, ABV, of Meridian Bridge Consulting LLC, was retained by Nexford to analyze the surcharge dispute and to prepare a damages rebuttal. Dr. Rosenthal's credentials are impeccable: she is a Certified Public Accountant licensed in Illinois, holds an Accreditation in Business Valuation from the American Institute of Certified Public Accountants, and has over twenty years of experience in commercial damages analysis, including extensive work in supply chain disputes and pricing controversies. She is based at Meridian Bridge Consulting LLC, 311 South Michigan Avenue, Suite 1500, Chicago, Illinois 60604.
Dr. Rosenthal's rebuttal report, submitted on March 15, 2023 and attached hereto as Exhibit C (to this brief), takes a fundamentally different and far more rigorous approach than Dr. Voss's analysis:
(1) Dr. Rosenthal reconstructed proper surcharge calculations for each of the fourteen disputed months using the published Ferrous Scrap Index (Platts/SPI) and the Industrial Energy Cost Index, as required by Exhibit C to the MSA. She obtained the relevant index data directly from the published sources and verified the calculations independently.
(2) Dr. Rosenthal applied the fifteen-business-day notice requirement of Section 7.4(a) to determine which Surcharge Notices were timely and which were not. Based on her review of the documentary record — including email timestamps, courier receipts, and Cardinal Peak's own internal correspondence — she identified seven months for which the Surcharge Notice was delivered after the deadline.
(3) Dr. Rosenthal applied the 12% cap of Section 7.4(c) to each month of the disputed period and identified four months in which the invoiced surcharges exceeded the cap. She verified that Nexford had not provided prior written consent for any of these exceedances.
(4) Based on this analysis, Dr. Rosenthal concluded that Nexford's maximum additional obligation is $0.21 million above the $1.68 million already paid — a conclusion fully supported by the documentary record and the MSA's plain language.
The contrast between the two expert analyses could not be starker. Dr. Voss accepted Cardinal Peak's data and assumptions at face value; Dr. Rosenthal independently verified every element of her analysis against the contractual requirements and the documentary record. The Mediator should give significant weight to Dr. Rosenthal's conclusions.
VIII. CARDINAL PEAK'S UNJUST ENRICHMENT AND ACCOUNT STATED CLAIMS ARE MERITLESS
In addition to its breach of contract claim, Cardinal Peak has asserted claims for unjust enrichment and account stated. Both claims are legally deficient and should be given no weight in the mediation.
A. Unjust Enrichment
Under well-settled Illinois law, an unjust enrichment claim cannot be maintained where an express contract governs the subject matter in dispute. See HPI Health Care Services, Inc. v. Mt. Vernon Hospital, Inc., 131 Ill. 2d 145, 160 (1989) ("Where a specific contract governs the relationship of the parties, the doctrine of unjust enrichment has no application."); Gagnon v. Schickel, 2012 IL App (1st) 120645, ¶ 25 (same). This rule reflects the fundamental principle that parties who have allocated their rights and obligations through an express agreement may not circumvent the terms of that agreement by invoking quasi-contractual remedies.
Here, the MSA expressly governs the very subject matter of Cardinal Peak's unjust enrichment claim — namely, the pass-through of raw-material surcharges. The MSA's surcharge provisions (Section 7.4 and Exhibit C) establish the conditions under which Cardinal Peak may invoice surcharges, the methodology for calculating those surcharges, and the cap on surcharge amounts. These provisions represent the parties' negotiated allocation of pricing risk. Cardinal Peak cannot circumvent its own failures to comply with these contractual conditions by recasting its breach of contract claim as a quasi-contractual unjust enrichment claim. The unjust enrichment claim fails as a matter of law.
B. Account Stated
Cardinal Peak's account stated claim is equally meritless. Under Illinois law, an account stated is an agreement between the parties that a stated balance is correct and is due and owing from one party to the other. See Torkie-Tork, Inc. v. Wyatt Jewelry Co., 316 Ill. App. 3d 36, 43 (1st Dist. 2000). The essential element of an account stated is mutual assent to the balance — both parties must agree that the stated amount is correct and due.
Nexford never assented to Cardinal Peak's surcharge calculations. To the contrary, Nexford timely disputed the deficient Surcharge Notices through written dispute notices transmitted within the 30-calendar-day window required by Section 7.4(d). These contemporaneous dispute notices — copies of which are attached as Exhibit E — demonstrate that Nexford consistently and promptly objected to Cardinal Peak's surcharge calculations. An "account" cannot be "stated" where one party has repeatedly and contemporaneously disputed the amounts at issue. Cardinal Peak's account stated claim is without factual or legal basis.
IX. NEXFORD'S WILLINGNESS TO RESOLVE THE DISPUTE
A. Litigation Risk Assessment — Nexford's Strengths
Nexford's litigation position is strong. The key factors supporting Nexford's confidence in its defenses include:
• Plain contractual language. Each of Nexford's three defenses is grounded in the express terms of the MSA. The fifteen-business-day notice requirement, the Exhibit C methodology, and the 12% cap with prior written consent are all clearly stated conditions. Contract interpretation in Illinois begins and ends with the plain language of the agreement, and that language overwhelmingly favors Nexford.
• Key admissions from Cardinal Peak's own witness. Natalie Gunderson's January 18, 2023 deposition testimony includes admissions that Cardinal Peak's Surcharge Notice delivery was "not always consistent," that Cardinal Peak used a blended cost metric not prescribed by Exhibit C, and that no written consent was obtained to exceed the 12% cap. These admissions from Cardinal Peak's Vice President of Sales and Commercial are devastating to Cardinal Peak's claims.
• Expert support. Dr. Rosenthal's comprehensive rebuttal report independently reconstructs the proper surcharge calculations and confirms Nexford's maximum additional obligation at $0.21 million. Dr. Rosenthal's methodology is rigorous and transparent, and her conclusions are supported by the documentary record.
• Court's denial of Cardinal Peak's motion to dismiss. The Court's denial of Cardinal Peak's motion to dismiss Nexford's counterclaim on November 14, 2022 signals that the Court views Nexford's contract defenses as having sufficient merit to warrant full adjudication. While the denial of a motion to dismiss is not a ruling on the merits, it indicates that the Court takes Nexford's defenses seriously.
• Weakness of Cardinal Peak's alternative claims. The unjust enrichment and account stated claims are legally deficient for the reasons discussed in Section VIII and should not factor into Cardinal Peak's settlement leverage.
B. Litigation Risk Assessment — Potential Risks
Notwithstanding the strength of its position, Nexford candidly acknowledges the inherent uncertainties of trial and identifies the following potential risks for the Mediator's consideration:
• Characterization of the notice requirement. There is some possibility — though Nexford believes it is remote — that a fact-finder could view the fifteen-business-day notice requirement of Section 7.4(a) as a directory provision rather than a mandatory condition precedent. If the Court were to characterize the notice requirement as directory, Cardinal Peak's late-notice months ($2.18 million) would not be automatically excluded, although Nexford would retain its other defenses.
• Reasonableness of the blended cost methodology. There is a modest risk that a fact-finder could find that Cardinal Peak's blended cost methodology was a reasonable approximation of the published indices during a period of extraordinary market volatility, notwithstanding the plain language of Exhibit C requiring the use of published indices. Nexford believes this argument conflicts with the MSA's express terms, but it acknowledges that a sympathetic fact-finder might give some weight to it.
• Costs of continued litigation. Continued litigation through trial would involve substantial additional costs. Nexford estimates that the remaining pre-trial and trial expenses — including motion practice, trial preparation, trial itself, and potential post-trial proceedings — would range from $350,000 to $500,000 in attorneys' fees and expert costs.
• Business disruption. Ongoing litigation creates business disruption and management distraction for Nexford's executive team, including demands on the time of Mr. Okonkwo, Ms. Tran, and other senior personnel who would be required to participate in trial preparation and testimony.
These risk factors, while modest, inform Nexford's willingness to engage constructively in settlement discussions.
C. Settlement Posture
Nexford is prepared to engage in good-faith negotiations to resolve this dispute at mediation. Nexford's approach to settlement is guided by the following principles:
Nexford's primary position is that it owes, at most, $0.21 million beyond the $1.68 million already paid. This is the figure supported by the contractual analysis, the documentary record, and Dr. Rosenthal's expert report. However, Nexford recognizes the value of certainty, the cost savings of avoiding trial, and the benefit of preserving the parties' ability to transition their commercial relationship in an orderly manner.
Nexford is open to discussing a structured settlement that appropriately reflects the strength of its defenses and the weakness of Cardinal Peak's claims. Nexford does not believe it should be asked to pay anywhere near the $4.73 million (or $5.11 million with interest) that Cardinal Peak has demanded. The Mediator should appreciate the significant gap between Cardinal Peak's claim and Nexford's assessment of its maximum exposure — a gap of approximately $4.52 million (or $4.90 million including interest). Any reasonable settlement must acknowledge that the great majority of Cardinal Peak's claim is not supported by the contract.
Nexford is willing to pay a reasonable premium above its calculated maximum exposure of $0.21 million to achieve finality, avoid further litigation costs, and permit the parties to transition their commercial relationship in an orderly manner. The magnitude of that premium should be informed by the strength of Nexford's defenses, the litigation risks identified above, and the costs that both parties would avoid by settling.
Any settlement should include the following terms:
(a) Mutual release of all claims and counterclaims arising out of or related to the surcharge dispute, the MSA, and the pending litigation;
(b) Termination of the MSA on agreed terms, with an appropriate transition period for any outstanding purchase orders to be fulfilled and wound down in an orderly manner;
(c) Confidentiality provisions prohibiting either party from disclosing the terms of the settlement;
(d) No admission of liability by either party;
(e) A stipulation of dismissal with prejudice of all claims and counterclaims in Case No. 2022-L-008471.
D. Additional Considerations
The Mediator should be aware of two additional considerations relevant to Nexford's settlement authority:
Lender notification requirement. Nexford's senior secured lender, Ridgecrest National Bank, N.A., requires notice under Section 6.03(b) of the credit agreement (dated March 12, 2021; $45 million revolving credit facility) for any settlement exceeding $1.0 million. Nexford will comply with this notification requirement in connection with any settlement, but the requirement may necessitate a brief period between the execution of a settlement agreement and the effectuation of payment, depending on the settlement amount.
Private equity sponsor. Marlowe Asset Management Bluff Capital Partners, LP, Nexford's majority equity owner, has been fully briefed on the mediation and the dispute. Marlowe Asset Management Bluff is supportive of a reasonable resolution that protects Nexford's interests while achieving finality. Diana Calloway, Principal at Marlowe Asset Management Bluff and Board Observer at Nexford, will be available by telephone during the mediation session if needed to address any questions regarding the PE sponsor's position.
X. CONCLUSION
Cardinal Peak's claimed damages of $4.73 million — and its total demand of $5.11 million including prejudgment interest — are vastly overstated. The claim rests on invoices that were untimely, calculations that departed from the contractual methodology, and surcharges that exceeded the contractual cap without written consent. When the Master Supply Agreement is properly applied, Nexford's maximum additional obligation is at most $0.21 million beyond the $1.68 million it has already paid.
The MSA's plain language, the deposition testimony of Cardinal Peak's own Vice President of Sales and Commercial, and the independent expert analysis of Dr. Anita Rosenthal all confirm this conclusion. Cardinal Peak's alternative claims for unjust enrichment and account stated are legally deficient and add nothing to its settlement leverage.
Nexford approaches this mediation in good faith and with a genuine desire to achieve a fair and efficient resolution. Nexford is prepared to discuss a settlement that reflects the merits of its position while providing both parties with the certainty and finality that trial cannot guarantee. Nexford respectfully requests that the Mediator consider the strength of its contractual defenses — and the substantial gap between Cardinal Peak's demand and Nexford's documented maximum exposure — in facilitating the parties' negotiations toward a just and reasonable outcome.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Priya Anand Responsible Partner
Simone Laroche Lead Associate