1005-00005 · Nexford Industrial Holdings · Pleadings

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

ANSWER AND AFFIRMATIVE DEFENSES OF DEFENDANT NEXFORD INDUSTRIAL HOLDINGS INC.

Filed: September 19, 2022

PRELIMINARY STATEMENT

Defendant Nexford Industrial Holdings Inc. ("Nexford" or "Defendant"), by and through its attorneys, Calderwood & Harkness LLP, 200 South Wacker Drive, Suite 4400, Chicago, Illinois 60606, hereby files this Answer and Affirmative Defenses to the Complaint filed by Plaintiff Cardinal Peak Industries ("Cardinal Peak" or "Plaintiff") on August 8, 2022, and in support thereof states as follows:

Nexford denies all liability asserted by Cardinal Peak in each and every count of the Complaint. Nexford affirmatively states that it has fully complied with its obligations under the Master Supply Agreement dated January 15, 2020, bearing Reference No. MSA-NIH-CPI-2020-001 (the "MSA"), which governs the supply of steel products between the parties and which forms the basis of the claims at issue in this action.

To the extent any surcharge amounts remain in dispute between the parties, it is Cardinal Peak—not Nexford—that has breached the MSA by failing to comply with the contractually mandated surcharge notice requirements, the calculation methodology expressly prescribed in Exhibit C to the MSA, and the pricing caps that the parties bargained for and agreed to at the inception of their commercial relationship. Cardinal Peak's Complaint is an improper attempt to shift the consequences of its own contractual non-compliance onto Nexford, and Nexford respectfully submits that the Complaint should be dismissed in its entirety for the reasons set forth herein.

PART I ANSWER TO COMPLAINT

I. RESPONSES TO COUNT I — BREACH OF CONTRACT

A. Responses to Jurisdictional and Introductory Allegations. Paragraph 1. Nexford admits that Nexford Industrial Holdings Inc. is a corporation duly organized and existing under the laws of the State of Delaware, with its principal place of business located at 4200 West Lakeshore Industrial Parkway, Suite 300, Waukegan, Illinois 60085.

Paragraph 2. Nexford admits, upon information and belief, that Cardinal Peak Industries is a Colorado limited liability company with its principal headquarters located at 1580 Ridgeline Boulevard, Pueblo, Colorado 81001.

Paragraph 3. Nexford admits that this Court has subject matter and personal jurisdiction over this action and that venue is proper in Cook County, Illinois. Nexford further states that jurisdiction and venue are consistent with Section 14.3 of the MSA, which provides, among other things, that the laws of the State of Illinois shall govern the agreement and that any disputes arising thereunder shall be resolved in the courts of Cook County, Illinois.

Paragraph 4. Nexford admits that the parties entered into a Master Supply Agreement effective January 15, 2020, bearing Reference No. MSA-NIH-CPI-2020-001, for an initial term of three (3) years, commencing on January 15, 2020, and expiring on January 14, 2023, with automatic one-year renewal provisions as set forth in Section 2.1 of the MSA. Nexford further admits that the MSA governs the supply, purchase, and delivery of hot-rolled coil ("HRC") and cold-rolled coil ("CRC") steel products from Cardinal Peak to Nexford. The MSA speaks for itself, and Nexford denies any characterization of the MSA's terms that is inconsistent with the plain language of that agreement.

Paragraph 5. Nexford admits that the MSA established base prices of Six Hundred Twenty Dollars ($620.00) per ton for HRC products and Seven Hundred Forty Dollars ($740.00) per ton for CRC products, and that such base prices were subject to quarterly adjustment in accordance with the provisions of Section 7.2 of the MSA. To the extent Cardinal Peak's allegations characterize the base price adjustment mechanism in any manner inconsistent with the plain language of Section 7.2, Nexford denies such allegations.

Paragraph 6. Nexford admits that Section 7.4 of the MSA contains provisions regarding the pass-through of certain raw-material surcharges, including surcharges for scrap, energy, and alloy costs. Nexford further admits that Section 7.4 establishes the framework and conditions under which such surcharges may be invoiced by Seller and become due and payable by Buyer.

Paragraph 7. Nexford denies that Section 7.4 entitles Cardinal Peak to pass through surcharges without limitation or without strict compliance with the conditions precedent set forth therein. To the contrary, the MSA imposes multiple express requirements that must be satisfied before any surcharge obligation arises on the part of Nexford as Buyer. These conditions are not mere formalities; they are material terms of the MSA that were the product of arm's-length negotiation between sophisticated commercial parties.

Paragraph 8. Nexford states that Section 7.4(a) of the MSA expressly requires that the Seller deliver a Surcharge Notice, together with supporting documentation sufficient to permit verification of the claimed surcharge amounts, no later than fifteen (15) business days after the end of the applicable calendar month for which the surcharge is claimed. This notice requirement is a condition precedent to Seller's entitlement to payment of any surcharge amounts.

Paragraph 9. Nexford states that Section 7.4(b) of the MSA requires that all surcharge components be calculated in strict accordance with the methodology set forth in Exhibit C to the MSA, entitled "Surcharge Methodology." Exhibit C prescribes the use of the published Ferrous Scrap Index, as reported by Bramwell Industries ("Platts/SPI"), and the Industrial Energy Cost Index, as the sole reference indices for the calculation of scrap and energy surcharges, respectively. The methodology further provides that such indices shall be applied to agreed baseline figures, specifically a baseline scrap cost of Three Hundred Forty Dollars ($340.00) per ton and a baseline energy cost of Forty-Eight Dollars ($48.00) per ton. Any deviation from this prescribed methodology renders the resulting surcharge calculations non-compliant and unenforceable under the MSA.

Paragraph 10. Nexford states that Section 7.4(c) of the MSA provides that in no event shall the aggregate monthly surcharge exceed twelve percent (12%) of the applicable Base Price for the relevant product category without the prior written consent of Buyer. This cap was a material term negotiated by the parties to allocate the risk of extraordinary raw-material cost fluctuations and to provide pricing predictability to Nexford as Buyer.

B. Responses to Allegations Regarding Surcharge Invoices. Paragraph 11. Nexford admits that Cardinal Peak invoiced surcharges to Nexford during the period beginning in or around March 2021 and extending through May 2022 (the "Disputed Period").

Paragraph 12. Nexford admits that Cardinal Peak invoiced total surcharges of approximately Six Million Four Hundred Ten Thousand Dollars ($6,410,000.00) during the Disputed Period, as reflected in the invoices attached to the Complaint. Nexford states that the precise aggregate amount of surcharges invoiced is a matter of accounting and is subject to verification during the course of discovery.

Paragraph 13. Nexford admits that it paid approximately One Million Six Hundred Eighty Thousand Dollars ($1,680,000.00) in surcharge amounts during the Disputed Period. Nexford states that these payments represented the full amount of surcharges that Nexford determined, in the exercise of its contractual rights and after careful review and verification, to be validly invoiced and payable in accordance with the terms and conditions of the MSA.

Paragraph 14. Nexford denies that the remaining approximately Four Million Seven Hundred Thirty Thousand Dollars ($4,730,000.00)—that is, the difference between the $6,410,000.00 invoiced and the $1,680,000.00 paid—represents a valid, enforceable obligation of Nexford. Nexford states that the amounts withheld were withheld lawfully, in strict accordance with Nexford's rights under the MSA, because the underlying surcharge invoices failed to comply with one or more of the mandatory conditions of Section 7.4.

Paragraph 15. Nexford denies that it "improperly rejected or only partially paid" any surcharge invoices, as alleged in the Complaint. Nexford states that it lawfully withheld payment of surcharges that did not comply with the express conditions of Section 7.4 of the MSA. Nexford's partial payments reflected Nexford's good-faith determination of the amounts validly owed after applying the contractually mandated calculation methodology, notice requirements, and surcharge caps.

Paragraph 16. Nexford specifically denies that Cardinal Peak delivered compliant Surcharge Notices within the fifteen (15) business-day deadline prescribed by Section 7.4(a) of the MSA for seven (7) of the fourteen (14) months that fall within the Disputed Period. For these seven months, Cardinal Peak delivered its Surcharge Notices after the contractual deadline had expired. The surcharges associated with these seven months of late and non-compliant notices total approximately Two Million One Hundred Eighty Thousand Dollars ($2,180,000.00) of the total amount claimed by Cardinal Peak. Nexford was not obligated to accept or pay surcharges for which the requisite notices were not timely delivered.

Paragraph 17. Nexford specifically denies that Cardinal Peak calculated the surcharges at issue in accordance with the Exhibit C Surcharge Methodology. Instead of utilizing the published Ferrous Scrap Index (as reported by Platts/SPI) and the Industrial Energy Cost Index, as expressly required by Exhibit C, Cardinal Peak used an internal "blended cost" metric that is not referenced in, authorized by, or consistent with the MSA or Exhibit C. This unilateral methodological deviation resulted in a systematic overstatement of surcharges by approximately One Million Four Hundred Seventy Thousand Dollars ($1,470,000.00) across the Disputed Period. Nexford was under no contractual obligation to accept surcharge calculations based on an index or methodology other than that prescribed in Exhibit C.

Paragraph 18. Nexford specifically denies that Cardinal Peak was entitled to impose surcharges exceeding the twelve percent (12%) cap set forth in Section 7.4(c) of the MSA without Nexford's prior written consent. For four (4) months during the Disputed Period, the surcharges invoiced by Cardinal Peak exceeded the 12% cap for the applicable product category. Nexford did not provide prior written consent to any surcharge exceedance above the 12% cap for any of these months or for any month during the Disputed Period. The excess amounts invoiced above the 12% cap for these four months total approximately One Million Eighty Thousand Dollars ($1,080,000.00).

Paragraph 19. Nexford denies that it breached any provision of the MSA or that it failed to perform any obligation owed to Cardinal Peak under the MSA. Nexford has at all times acted in good faith and in strict compliance with its contractual obligations.

Paragraph 20. Nexford states that, based on its analysis of the surcharge invoices using the contractually mandated Exhibit C methodology, the contractual notice deadlines, and the 12% surcharge cap, Nexford's calculated maximum valid additional surcharge obligation, after application of all contractual defenses, is approximately Two Hundred Ten Thousand Dollars ($210,000.00) beyond the $1,680,000.00 already paid. Nexford further states that, given the methodological overstatements identified in Cardinal Peak's invoices, Nexford may have in fact overpaid surcharges during portions of the Disputed Period. Nexford reserves its right to seek recovery of any such overpayment through setoff, recoupment, or counterclaim.

C. Responses to Allegations Regarding Damages. Paragraph 21. Nexford denies that Cardinal Peak is entitled to damages in the amount of Four Million Seven Hundred Thirty Thousand Dollars ($4,730,000.00) or any other amount whatsoever. The claimed damages are predicated on surcharge invoices that do not comply with the express terms and conditions of the MSA.

Paragraph 22. Nexford denies that Cardinal Peak has suffered any cognizable injury as a result of Nexford's conduct. Nexford has paid all surcharge amounts that were validly invoiced and properly supported in accordance with the MSA.

Paragraph 23. Nexford states that any amounts withheld by Nexford were withheld in accordance with the express terms of the MSA, as is Nexford's contractual right under the agreement. Nexford's exercise of its contractual rights does not give rise to any liability, whether in contract, quasi-contract, or otherwise.

II. RESPONSES TO COUNT II — UNJUST ENRICHMENT

Paragraph 24. Nexford admits that it received steel products, including HRC and CRC products, from Cardinal Peak during the Disputed Period, in accordance with the terms and conditions of the MSA and the purchase orders issued thereunder.

Paragraph 25. Nexford denies that it was unjustly enriched at Cardinal Peak's expense or at all. Nexford paid for all steel products received from Cardinal Peak in accordance with the pricing provisions of the MSA, including the base prices and all validly invoiced and compliant surcharges.

Paragraph 26. Nexford denies that it retained any benefit to which Cardinal Peak is entitled beyond the payments already made by Nexford. All payments made by Nexford were calculated and remitted in accordance with the MSA.

Paragraph 27. Nexford states that Cardinal Peak's unjust enrichment claim is barred as a matter of law because the parties' rights and obligations are governed by an express written contract—the MSA—which covers the exact subject matter at issue in this litigation, namely the pricing, surcharge, and payment terms for the supply of steel products. Under well-established Illinois law, a plaintiff cannot maintain a claim for unjust enrichment where an express contract governs the relationship between the parties with respect to the subject matter in dispute. See, e.g., Gagnon v. Schickel, 2012 IL App (1st) 120645; Nesby v. Strathmore Life Insurance, 346 Ill. App. 3d 564, 567 (2004). Because the MSA expressly addresses every aspect of the surcharge pass-through at issue—including notice requirements, calculation methodology, caps, dispute resolution, and payment obligations—Cardinal Peak's unjust enrichment claim is duplicative of its breach of contract claim and fails to state a cognizable cause of action.

Paragraph 28. Nexford denies each and every remaining allegation of Count II of the Complaint not specifically admitted herein.

III. RESPONSES TO COUNT III — ACCOUNT STATED

Paragraph 29. Nexford denies that an account stated exists between the parties with respect to the disputed surcharge invoices. An account stated requires, among other things, a mutual agreement or acquiescence by both parties as to the correctness of the account balance. No such agreement or acquiescence exists here.

Paragraph 30. Nexford states that it timely disputed the surcharge invoices at issue, as required by Section 7.4(d) of the MSA. Section 7.4(d) provides that Buyer must notify Seller of any disputed surcharge within thirty (30) calendar days of receipt of the Surcharge Notice. Nexford complied with this requirement for each of the disputed surcharge invoices. Nexford's written dispute notices were transmitted to Cardinal Peak's designated commercial contact and its accounts receivable department within the contractual timeframe.

Paragraph 31. Nexford further states that its disputes were communicated to Cardinal Peak and were not resolved through the escalation procedure set forth in Section 7.4(d) of the MSA, which provides for escalation first to senior officers of the respective parties and then, if the dispute remains unresolved, to mediation in accordance with Section 14.3 of the MSA. Cardinal Peak filed this lawsuit without completing the contractually agreed-upon dispute resolution process.

Paragraph 32. Nexford denies that the invoices at issue were retained by Nexford without objection for any period sufficient to establish an account stated under Illinois law. To the contrary, Nexford promptly and consistently objected to the non-compliant surcharge invoices, and no meeting of the minds or mutual agreement as to the balance due ever occurred.

Paragraph 33. Nexford denies each and every remaining allegation of Count III of the Complaint not specifically admitted herein.

IV. GENERAL DENIAL

Nexford denies each and every allegation of the Complaint not specifically admitted herein. To the extent any allegation has not been addressed in this Answer, such allegation is denied.

Nexford reserves the right to amend this Answer and to assert additional defenses, including but not limited to additional affirmative defenses and counterclaims, as the facts and circumstances may warrant based on the results of discovery in this action.

PART II AFFIRMATIVE DEFENSES

Without waiving any of the foregoing denials, and without assuming any burden of proof that would otherwise rest with Plaintiff, Defendant Nexford Industrial Holdings Inc. asserts the following Affirmative Defenses:

FIRST AFFIRMATIVE DEFENSE

Waiver / Failure to Comply with Section 7.4(a) Notice Requirements. Cardinal Peak's claims are barred, in whole or in part, because Cardinal Peak failed to deliver compliant Surcharge Notices within fifteen (15) business days after the end of the applicable calendar month, as required by Section 7.4(a) of the MSA. The timely delivery of a Surcharge Notice, together with supporting documentation sufficient to permit verification of the claimed surcharge amounts, is a condition precedent to Seller's right to pass through surcharges under the MSA. The parties negotiated and agreed to this requirement to ensure that Nexford would have prompt and documented notice of any surcharge claims, enabling Nexford to verify the claimed amounts against published market indices and to plan its own financial and procurement activities accordingly.

For seven (7) of the fourteen (14) months that fall within the Disputed Period of March 2021 through May 2022, Cardinal Peak delivered its Surcharge Notices after the contractual deadline had expired. These late notices were not accompanied by any request for or grant of an extension of time. Cardinal Peak made no effort to seek Nexford's consent to late delivery, nor did Cardinal Peak provide any justification for its failure to comply with the express timeline.

The surcharges associated with these seven (7) months of late and non-compliant notices total approximately Two Million One Hundred Eighty Thousand Dollars ($2,180,000.00). By failing to comply with the mandatory notice requirements set forth in Section 7.4(a), Cardinal Peak waived its right to collect surcharges for those months. Accordingly, Cardinal Peak's claims for surcharges attributable to these months should be dismissed.

SECOND AFFIRMATIVE DEFENSE

Failure of Condition Precedent. Cardinal Peak's right to pass through surcharges was expressly subject to multiple conditions precedent set forth in Section 7.4 of the MSA. These conditions precedent include, but are not limited to:

(a) the timely delivery of Surcharge Notices with supporting documentation within fifteen (15) business days after the end of the applicable month, as required by Section 7.4(a);

(b) the calculation of surcharges in strict accordance with the methodology prescribed in Exhibit C to the MSA (the "Surcharge Methodology"), as required by Section 7.4(b); and

(c) compliance with the twelve percent (12%) aggregate monthly surcharge cap set forth in Section 7.4(c), absent the prior written consent of Buyer to exceed such cap.

Cardinal Peak failed to satisfy these conditions precedent for a substantial portion of the surcharges at issue in this action. The failure to satisfy a condition precedent relieves Nexford of any obligation to perform the corresponding obligation—here, payment of the non-compliant surcharges. To the extent Cardinal Peak did not comply with the express conditions for surcharge pass-throughs, it has no contractual entitlement to payment, and its claims must fail.

THIRD AFFIRMATIVE DEFENSE

Breach by Cardinal Peak of Exhibit C Surcharge Methodology. Cardinal Peak breached the MSA by failing to calculate surcharges in accordance with the methodology prescribed in Exhibit C (Surcharge Methodology) to the MSA. This breach is material and excuses Nexford's obligation to pay the improperly calculated surcharges.

Exhibit C requires that surcharges be calculated using two specific, independently verifiable published indices:

(a) the published Ferrous Scrap Index, as reported by Bramwell Industries ("Platts/SPI"), for the calculation of scrap-related surcharges; and

(b) the Industrial Energy Cost Index, for the calculation of energy-related surcharges.

These indices are to be applied to the agreed baseline figures negotiated by the parties: a baseline scrap cost of Three Hundred Forty Dollars ($340.00) per ton and a baseline energy cost of Forty-Eight Dollars ($48.00) per ton. The use of published, third-party indices was a deliberate choice by the parties to ensure objectivity, transparency, and verifiability in the surcharge calculation process.

Instead of using the contractually mandated published indices, Cardinal Peak unilaterally substituted an internal "blended cost" metric that is not referenced in, authorized by, or consistent with the MSA or Exhibit C. Cardinal Peak's blended cost metric appears to incorporate Cardinal Peak's own proprietary cost data, including costs attributable to procurement inefficiencies, logistical premiums, and other factors that are not contemplated by the Exhibit C methodology. This unilateral methodological deviation resulted in a systematic overstatement of surcharges by approximately One Million Four Hundred Seventy Thousand Dollars ($1,470,000.00) across the Disputed Period.

Nexford is not obligated to pay surcharges calculated using a methodology that does not conform to the express terms of the MSA. Cardinal Peak's decision to substitute its own internal metric for the agreed-upon published indices constitutes a breach of the MSA and bars recovery of the improperly calculated surcharge amounts.

FOURTH AFFIRMATIVE DEFENSE

Surcharge Cap — Section 7.4(c). Section 7.4(c) of the MSA provides, in clear and unambiguous terms, that in no event shall the aggregate monthly surcharge exceed twelve percent (12%) of the applicable Base Price for the relevant product category without the prior written consent of Buyer. This cap was a material term of the MSA, negotiated at arm's length, and was designed to protect Nexford against extraordinary or unanticipated surcharge exposure and to provide budgetary certainty in Nexford's downstream pricing and operations.

For four (4) months during the Disputed Period, Cardinal Peak invoiced surcharges that exceeded the 12% cap for the applicable product category. In each instance, the aggregate monthly surcharge invoiced by Cardinal Peak exceeded 12% of the applicable Base Price—that is, 12% of $620.00 per ton for HRC products ($74.40 per ton) or 12% of $740.00 per ton for CRC products ($88.80 per ton), as applicable.

Nexford did not provide prior written consent to any surcharge exceedance above the 12% cap for any of these four months or for any other month during the term of the MSA. Cardinal Peak did not request such consent. No waiver of the cap, whether express, implied, or by course of dealing, occurred at any time.

The excess amounts invoiced above the 12% cap for these four months total approximately One Million Eighty Thousand Dollars ($1,080,000.00). Cardinal Peak is not entitled to recover surcharges in excess of the 12% cap absent the required prior written consent of Nexford, which was never obtained. Accordingly, Cardinal Peak's claims for amounts exceeding the cap should be dismissed.

FIFTH AFFIRMATIVE DEFENSE

No Unjust Enrichment Where Express Contract Governs. Cardinal Peak's unjust enrichment claim, set forth as Count II of the Complaint, is barred as a matter of law because the MSA is an express contract that governs the subject matter of the dispute. The subject matter at issue in this litigation—namely, the pricing, surcharge, and payment obligations between the parties arising out of the supply of steel products—is squarely within the scope of the MSA.

Under established Illinois law, a plaintiff cannot pursue a claim for unjust enrichment where the parties' relationship is governed by an express contract covering the same subject matter. See Hayes Mechanical, Inc. v. First Indus., L.P., 351 Ill. App. 3d 1, 10-11 (1st Dist. 2004); Gagnon v. Schickel, 2012 IL App (1st) 120645, ¶ 21. The rationale for this rule is well-settled: where parties have defined their respective rights and obligations through an express agreement, the law will not impose quasi-contractual obligations that are inconsistent with or duplicative of the parties' bargain.

The MSA, executed on January 15, 2020, expressly and comprehensively addresses all terms relevant to the surcharge dispute, including the conditions for surcharge pass-throughs, the calculation methodology, the notice requirements, the surcharge cap, the dispute resolution procedures, and the payment obligations. Because the MSA governs the precise subject matter at issue, Cardinal Peak's unjust enrichment claim is duplicative, impermissible, and should be dismissed with prejudice.

SIXTH AFFIRMATIVE DEFENSE

No Account Stated. Cardinal Peak's account stated claim, set forth as Count III of the Complaint, fails as a matter of law and fact because Nexford timely and consistently disputed the surcharge invoices at issue.

Under Illinois law, an account stated is an agreement between parties who have had prior transactions that the items of an account are true and that the balance struck is correct. An account stated requires, at a minimum, a mutual assent or acquiescence to the correctness of the stated balance. See Dreyer Medical Clinic, S.C. v. Corral, 227 Ill. App. 3d 221, 227 (2d Dist. 1992). Where one party promptly objects to the stated amounts, no account stated can arise.

Here, Section 7.4(d) of the MSA provides that 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 first to senior officers of the respective parties, and then to mediation in accordance with the dispute resolution provisions of Section 14.3 of the MSA. Nexford consistently and timely objected to Cardinal Peak's surcharge invoices throughout the Disputed Period, delivering written dispute notices within the 30-day contractual window for each of the contested invoices.

Because Nexford promptly disputed the surcharge invoices, there was no meeting of the minds, no mutual assent, and no acquiescence as to the amounts claimed by Cardinal Peak. The essential elements of an account stated are therefore absent, and Count III of the Complaint should be dismissed.

SEVENTH AFFIRMATIVE DEFENSE

Setoff and Recoupment. Nexford is entitled to setoff and/or recoupment against any amounts that may be awarded to Cardinal Peak in this action. During the Disputed Period, Nexford made payments on certain surcharge invoices that were calculated by Cardinal Peak using the non-compliant blended cost methodology rather than the Exhibit C methodology. To the extent that those payments exceeded the amounts that would have been due under the contractually mandated Exhibit C methodology, Nexford overpaid Cardinal Peak.

Nexford estimates that it is entitled to a setoff and/or recoupment in the amount of approximately Two Hundred Ten Thousand Dollars ($210,000.00), or such other amount as may be established through discovery and proven at trial. To the extent that Cardinal Peak is entitled to any recovery in this action, which Nexford denies, such recovery must be reduced by the amount of any overpayment made by Nexford.

Nexford reserves the right to assert additional setoff and recoupment claims, or to assert formal counterclaims, as the facts and circumstances may warrant based upon the results of discovery.

EIGHTH AFFIRMATIVE DEFENSE

Failure to Mitigate Damages. Cardinal Peak failed to take reasonable steps to mitigate its alleged damages, as required under Illinois law. Among other things, Cardinal Peak:

(a) failed to comply with the dispute resolution procedures set forth in Section 7.4(d) and Section 14.3 of the MSA in a timely and good-faith manner, which procedures were specifically designed to resolve surcharge disputes without the need for litigation;

(b) continued to invoice surcharges using a non-compliant blended cost methodology after Nexford raised specific, written objections to that methodology, rather than correcting its invoices to conform to the Exhibit C methodology;

(c) failed to resubmit corrected Surcharge Notices using the contractually mandated indices, even after Nexford identified the methodological deficiencies and requested that Cardinal Peak recalculate the surcharges; and

(d) failed to take other reasonable actions to reduce or avoid the claimed damages.

To the extent Cardinal Peak has suffered any damages, which Nexford denies, those damages were caused or exacerbated by Cardinal Peak's own failure to mitigate and should be reduced accordingly.

NINTH AFFIRMATIVE DEFENSE

Reservation of Rights. Nexford reserves the right to assert additional affirmative defenses as may become available or apparent through the course of discovery in this matter. Discovery is in its early stages, and Nexford anticipates that additional facts, documents, and testimony may give rise to defenses not yet identified. Nexford's assertion of the foregoing affirmative defenses is without prejudice to its right to amend this Answer and Affirmative Defenses to add further defenses at any time as permitted by the Illinois Code of Civil Procedure and the rules of this Court.

PART III PRAYER FOR RELIEF

WHEREFORE, Defendant Nexford Industrial Holdings Inc. respectfully requests that this Court:

1. Enter judgment in favor of Nexford and against Cardinal Peak on all counts of the Complaint, including Count I (Breach of Contract), Count II (Unjust Enrichment), and Count III (Account Stated);

2. Dismiss Counts I, II, and III of the Complaint with prejudice;

3. Award Nexford its costs of suit, including reasonable attorneys' fees, to the extent permitted by applicable law or by the terms of the MSA;

4. Award Nexford setoff and/or recoupment in such amounts as may be proven at trial or established through the course of this proceeding; and

5. Grant such other and further relief as this Court deems just, equitable, and appropriate under the circumstances.

Respectfully submitted,

September 19, 2022

CALDERWOOD & HARKNESS LLP

By: ________

Priya Anand Responsible Partner

200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606 Telephone: (312) 555-7200 Facsimile: (312) 555-7201 panand@calderwoodharkness.com

Douglas Carmichael (Of Counsel) dcarmichael@calderwoodharkness.com

Simone Laroche, Senior Associate slaroche@calderwoodharkness.com

Jeffrey Park, Associate jpark@calderwoodharkness.com

Attorneys for Defendant Nexford Industrial Holdings Inc.

CERTIFICATE OF SERVICE

The undersigned, an attorney, hereby certifies that on September 19, 2022, a true and correct copy of the foregoing Answer and Affirmative Defenses of Defendant Nexford Industrial Holdings Inc. was served upon counsel for Plaintiff Cardinal Peak Industries by electronic filing through the Odyssey eFileIL system and by electronic mail, addressed as follows:

Garrett Blackwood, Esq. Blackwood Stein & Associates LLP 717 Seventeenth Street, Suite 2200 Denver, Colorado 80202 Telephone: (303) 555-4100

Email: gblackwood@blackwoodstein.com

Attorneys for Plaintiff Cardinal Peak Industries

Under penalties as provided by law pursuant to Section 1-109 of the Illinois Code of Civil Procedure, 735 ILCS 5/1-109, the undersigned certifies that the statements set forth in this Certificate of Service are true and correct.

________________________________________

Simone Laroche Senior Associate Calderwood & Harkness LLP 200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606

Date: September 19, 2022

CARDINAL PEAK INDUSTRIES,

a Colorado limited liability company,

Plaintiff,

Case No. 2022-L-008471

NEXFORD INDUSTRIAL HOLDINGS INC.,

a Delaware corporation,

Defendant.

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, LAW DIVISION
ANSWER AND AFFIRMATIVE DEFENSES OF DEFENDANT NEXFORD INDUSTRIAL HOLDINGS INC.
Filed: September 19, 2022
PRELIMINARY STATEMENT
Defendant Nexford Industrial Holdings Inc. ("Nexford" or "Defendant"), by and through its attorneys, Calderwood & Harkness LLP, 200 South Wacker Drive, Suite 4400, Chicago, Illinois 60606, hereby files this Answer and Affirmative Defenses to the Complaint filed by Plaintiff Cardinal Peak Industries ("Cardinal Peak" or "Plaintiff") on August 8, 2022, and in support thereof states as follows:
Nexford denies all liability asserted by Cardinal Peak in each and every count of the Complaint. Nexford affirmatively states that it has fully complied with its obligations under the Master Supply Agreement dated January 15, 2020, bearing Reference No. MSA-NIH-CPI-2020-001 (the "MSA"), which governs the supply of steel products between the parties and which forms the basis of the claims at issue in this action.
To the extent any surcharge amounts remain in dispute between the parties, it is Cardinal Peak—not Nexford—that has breached the MSA by failing to comply with the contractually mandated surcharge notice requirements, the calculation methodology expressly prescribed in Exhibit C to the MSA, and the pricing caps that the parties bargained for and agreed to at the inception of their commercial relationship. Cardinal Peak's Complaint is an improper attempt to shift the consequences of its own contractual non-compliance onto Nexford, and Nexford respectfully submits that the Complaint should be dismissed in its entirety for the reasons set forth herein.
PART I ANSWER TO COMPLAINT
I. RESPONSES TO COUNT I — BREACH OF CONTRACT
A. Responses to Jurisdictional and Introductory Allegations.  Paragraph 1. Nexford admits that Nexford Industrial Holdings Inc. is a corporation duly organized and existing under the laws of the State of Delaware, with its principal place of business located at 4200 West Lakeshore Industrial Parkway, Suite 300, Waukegan, Illinois 60085.
Paragraph 2. Nexford admits, upon information and belief, that Cardinal Peak Industries is a Colorado limited liability company with its principal headquarters located at 1580 Ridgeline Boulevard, Pueblo, Colorado 81001.
Paragraph 3. Nexford admits that this Court has subject matter and personal jurisdiction over this action and that venue is proper in Cook County, Illinois. Nexford further states that jurisdiction and venue are consistent with Section 14.3 of the MSA, which provides, among other things, that the laws of the State of Illinois shall govern the agreement and that any disputes arising thereunder shall be resolved in the courts of Cook County, Illinois.
Paragraph 4. Nexford admits that the parties entered into a Master Supply Agreement effective January 15, 2020, bearing Reference No. MSA-NIH-CPI-2020-001, for an initial term of three (3) years, commencing on January 15, 2020, and expiring on January 14, 2023, with automatic one-year renewal provisions as set forth in Section 2.1 of the MSA. Nexford further admits that the MSA governs the supply, purchase, and delivery of hot-rolled coil ("HRC") and cold-rolled coil ("CRC") steel products from Cardinal Peak to Nexford. The MSA speaks for itself, and Nexford denies any characterization of the MSA's terms that is inconsistent with the plain language of that agreement.
Paragraph 5. Nexford admits that the MSA established base prices of Six Hundred Twenty Dollars ($620.00) per ton for HRC products and Seven Hundred Forty Dollars ($740.00) per ton for CRC products, and that such base prices were subject to quarterly adjustment in accordance with the provisions of Section 7.2 of the MSA. To the extent Cardinal Peak's allegations characterize the base price adjustment mechanism in any manner inconsistent with the plain language of Section 7.2, Nexford denies such allegations.
Paragraph 6. Nexford admits that Section 7.4 of the MSA contains provisions regarding the pass-through of certain raw-material surcharges, including surcharges for scrap, energy, and alloy costs. Nexford further admits that Section 7.4 establishes the framework and conditions under which such surcharges may be invoiced by Seller and become due and payable by Buyer.
Paragraph 7. Nexford denies that Section 7.4 entitles Cardinal Peak to pass through surcharges without limitation or without strict compliance with the conditions precedent set forth therein. To the contrary, the MSA imposes multiple express requirements that must be satisfied before any surcharge obligation arises on the part of Nexford as Buyer. These conditions are not mere formalities; they are material terms of the MSA that were the product of arm's-length negotiation between sophisticated commercial parties.
Paragraph 8. Nexford states that Section 7.4(a) of the MSA expressly requires that the Seller deliver a Surcharge Notice, together with supporting documentation sufficient to permit verification of the claimed surcharge amounts, no later than fifteen (15) business days after the end of the applicable calendar month for which the surcharge is claimed. This notice requirement is a condition precedent to Seller's entitlement to payment of any surcharge amounts.
Paragraph 9. Nexford states that Section 7.4(b) of the MSA requires that all surcharge components be calculated in strict accordance with the methodology set forth in Exhibit C to the MSA, entitled "Surcharge Methodology." Exhibit C prescribes the use of the published Ferrous Scrap Index, as reported by Bramwell Industries ("Platts/SPI"), and the Industrial Energy Cost Index, as the sole reference indices for the calculation of scrap and energy surcharges, respectively. The methodology further provides that such indices shall be applied to agreed baseline figures, specifically a baseline scrap cost of Three Hundred Forty Dollars ($340.00) per ton and a baseline energy cost of Forty-Eight Dollars ($48.00) per ton. Any deviation from this prescribed methodology renders the resulting surcharge calculations non-compliant and unenforceable under the MSA.
Paragraph 10. Nexford states that Section 7.4(c) of the MSA provides that in no event shall the aggregate monthly surcharge exceed twelve percent (12%) of the applicable Base Price for the relevant product category without the prior written consent of Buyer. This cap was a material term negotiated by the parties to allocate the risk of extraordinary raw-material cost fluctuations and to provide pricing predictability to Nexford as Buyer.
B. Responses to Allegations Regarding Surcharge Invoices.  Paragraph 11. Nexford admits that Cardinal Peak invoiced surcharges to Nexford during the period beginning in or around March 2021 and extending through May 2022 (the "Disputed Period").
Paragraph 12. Nexford admits that Cardinal Peak invoiced total surcharges of approximately Six Million Four Hundred Ten Thousand Dollars ($6,410,000.00) during the Disputed Period, as reflected in the invoices attached to the Complaint. Nexford states that the precise aggregate amount of surcharges invoiced is a matter of accounting and is subject to verification during the course of discovery.
Paragraph 13. Nexford admits that it paid approximately One Million Six Hundred Eighty Thousand Dollars ($1,680,000.00) in surcharge amounts during the Disputed Period. Nexford states that these payments represented the full amount of surcharges that Nexford determined, in the exercise of its contractual rights and after careful review and verification, to be validly invoiced and payable in accordance with the terms and conditions of the MSA.
Paragraph 14. Nexford denies that the remaining approximately Four Million Seven Hundred Thirty Thousand Dollars ($4,730,000.00)—that is, the difference between the $6,410,000.00 invoiced and the $1,680,000.00 paid—represents a valid, enforceable obligation of Nexford. Nexford states that the amounts withheld were withheld lawfully, in strict accordance with Nexford's rights under the MSA, because the underlying surcharge invoices failed to comply with one or more of the mandatory conditions of Section 7.4.
Paragraph 15. Nexford denies that it "improperly rejected or only partially paid" any surcharge invoices, as alleged in the Complaint. Nexford states that it lawfully withheld payment of surcharges that did not comply with the express conditions of Section 7.4 of the MSA. Nexford's partial payments reflected Nexford's good-faith determination of the amounts validly owed after applying the contractually mandated calculation methodology, notice requirements, and surcharge caps.
Paragraph 16. Nexford specifically denies that Cardinal Peak delivered compliant Surcharge Notices within the fifteen (15) business-day deadline prescribed by Section 7.4(a) of the MSA for seven (7) of the fourteen (14) months that fall within the Disputed Period. For these seven months, Cardinal Peak delivered its Surcharge Notices after the contractual deadline had expired. The surcharges associated with these seven months of late and non-compliant notices total approximately Two Million One Hundred Eighty Thousand Dollars ($2,180,000.00) of the total amount claimed by Cardinal Peak. Nexford was not obligated to accept or pay surcharges for which the requisite notices were not timely delivered.
Paragraph 17. Nexford specifically denies that Cardinal Peak calculated the surcharges at issue in accordance with the Exhibit C Surcharge Methodology. Instead of utilizing the published Ferrous Scrap Index (as reported by Platts/SPI) and the Industrial Energy Cost Index, as expressly required by Exhibit C, Cardinal Peak used an internal "blended cost" metric that is not referenced in, authorized by, or consistent with the MSA or Exhibit C. This unilateral methodological deviation resulted in a systematic overstatement of surcharges by approximately One Million Four Hundred Seventy Thousand Dollars ($1,470,000.00) across the Disputed Period. Nexford was under no contractual obligation to accept surcharge calculations based on an index or methodology other than that prescribed in Exhibit C.
Paragraph 18. Nexford specifically denies that Cardinal Peak was entitled to impose surcharges exceeding the twelve percent (12%) cap set forth in Section 7.4(c) of the MSA without Nexford's prior written consent. For four (4) months during the Disputed Period, the surcharges invoiced by Cardinal Peak exceeded the 12% cap for the applicable product category. Nexford did not provide prior written consent to any surcharge exceedance above the 12% cap for any of these months or for any month during the Disputed Period. The excess amounts invoiced above the 12% cap for these four months total approximately One Million Eighty Thousand Dollars ($1,080,000.00).
Paragraph 19. Nexford denies that it breached any provision of the MSA or that it failed to perform any obligation owed to Cardinal Peak under the MSA. Nexford has at all times acted in good faith and in strict compliance with its contractual obligations.
Paragraph 20. Nexford states that, based on its analysis of the surcharge invoices using the contractually mandated Exhibit C methodology, the contractual notice deadlines, and the 12% surcharge cap, Nexford's calculated maximum valid additional surcharge obligation, after application of all contractual defenses, is approximately Two Hundred Ten Thousand Dollars ($210,000.00) beyond the $1,680,000.00 already paid. Nexford further states that, given the methodological overstatements identified in Cardinal Peak's invoices, Nexford may have in fact overpaid surcharges during portions of the Disputed Period. Nexford reserves its right to seek recovery of any such overpayment through setoff, recoupment, or counterclaim.
C. Responses to Allegations Regarding Damages.  Paragraph 21. Nexford denies that Cardinal Peak is entitled to damages in the amount of Four Million Seven Hundred Thirty Thousand Dollars ($4,730,000.00) or any other amount whatsoever. The claimed damages are predicated on surcharge invoices that do not comply with the express terms and conditions of the MSA.
Paragraph 22. Nexford denies that Cardinal Peak has suffered any cognizable injury as a result of Nexford's conduct. Nexford has paid all surcharge amounts that were validly invoiced and properly supported in accordance with the MSA.
Paragraph 23. Nexford states that any amounts withheld by Nexford were withheld in accordance with the express terms of the MSA, as is Nexford's contractual right under the agreement. Nexford's exercise of its contractual rights does not give rise to any liability, whether in contract, quasi-contract, or otherwise.
II. RESPONSES TO COUNT II — UNJUST ENRICHMENT
Paragraph 24. Nexford admits that it received steel products, including HRC and CRC products, from Cardinal Peak during the Disputed Period, in accordance with the terms and conditions of the MSA and the purchase orders issued thereunder.
Paragraph 25. Nexford denies that it was unjustly enriched at Cardinal Peak's expense or at all. Nexford paid for all steel products received from Cardinal Peak in accordance with the pricing provisions of the MSA, including the base prices and all validly invoiced and compliant surcharges.
Paragraph 26. Nexford denies that it retained any benefit to which Cardinal Peak is entitled beyond the payments already made by Nexford. All payments made by Nexford were calculated and remitted in accordance with the MSA.
Paragraph 27. Nexford states that Cardinal Peak's unjust enrichment claim is barred as a matter of law because the parties' rights and obligations are governed by an express written contract—the MSA—which covers the exact subject matter at issue in this litigation, namely the pricing, surcharge, and payment terms for the supply of steel products. Under well-established Illinois law, a plaintiff cannot maintain a claim for unjust enrichment where an express contract governs the relationship between the parties with respect to the subject matter in dispute. See, e.g., Gagnon v. Schickel, 2012 IL App (1st) 120645; Nesby v. Strathmore Life Insurance, 346 Ill. App. 3d 564, 567 (2004). Because the MSA expressly addresses every aspect of the surcharge pass-through at issue—including notice requirements, calculation methodology, caps, dispute resolution, and payment obligations—Cardinal Peak's unjust enrichment claim is duplicative of its breach of contract claim and fails to state a cognizable cause of action.
Paragraph 28. Nexford denies each and every remaining allegation of Count II of the Complaint not specifically admitted herein.
III. RESPONSES TO COUNT III — ACCOUNT STATED
Paragraph 29. Nexford denies that an account stated exists between the parties with respect to the disputed surcharge invoices. An account stated requires, among other things, a mutual agreement or acquiescence by both parties as to the correctness of the account balance. No such agreement or acquiescence exists here.
Paragraph 30. Nexford states that it timely disputed the surcharge invoices at issue, as required by Section 7.4(d) of the MSA. Section 7.4(d) provides that Buyer must notify Seller of any disputed surcharge within thirty (30) calendar days of receipt of the Surcharge Notice. Nexford complied with this requirement for each of the disputed surcharge invoices. Nexford's written dispute notices were transmitted to Cardinal Peak's designated commercial contact and its accounts receivable department within the contractual timeframe.
Paragraph 31. Nexford further states that its disputes were communicated to Cardinal Peak and were not resolved through the escalation procedure set forth in Section 7.4(d) of the MSA, which provides for escalation first to senior officers of the respective parties and then, if the dispute remains unresolved, to mediation in accordance with Section 14.3 of the MSA. Cardinal Peak filed this lawsuit without completing the contractually agreed-upon dispute resolution process.
Paragraph 32. Nexford denies that the invoices at issue were retained by Nexford without objection for any period sufficient to establish an account stated under Illinois law. To the contrary, Nexford promptly and consistently objected to the non-compliant surcharge invoices, and no meeting of the minds or mutual agreement as to the balance due ever occurred.
Paragraph 33. Nexford denies each and every remaining allegation of Count III of the Complaint not specifically admitted herein.
IV. GENERAL DENIAL
Nexford denies each and every allegation of the Complaint not specifically admitted herein. To the extent any allegation has not been addressed in this Answer, such allegation is denied.
Nexford reserves the right to amend this Answer and to assert additional defenses, including but not limited to additional affirmative defenses and counterclaims, as the facts and circumstances may warrant based on the results of discovery in this action.
PART II AFFIRMATIVE DEFENSES
Without waiving any of the foregoing denials, and without assuming any burden of proof that would otherwise rest with Plaintiff, Defendant Nexford Industrial Holdings Inc. asserts the following Affirmative Defenses:
FIRST AFFIRMATIVE DEFENSE
Waiver / Failure to Comply with Section 7.4(a) Notice Requirements.  Cardinal Peak's claims are barred, in whole or in part, because Cardinal Peak failed to deliver compliant Surcharge Notices within fifteen (15) business days after the end of the applicable calendar month, as required by Section 7.4(a) of the MSA. The timely delivery of a Surcharge Notice, together with supporting documentation sufficient to permit verification of the claimed surcharge amounts, is a condition precedent to Seller's right to pass through surcharges under the MSA. The parties negotiated and agreed to this requirement to ensure that Nexford would have prompt and documented notice of any surcharge claims, enabling Nexford to verify the claimed amounts against published market indices and to plan its own financial and procurement activities accordingly.
For seven (7) of the fourteen (14) months that fall within the Disputed Period of March 2021 through May 2022, Cardinal Peak delivered its Surcharge Notices after the contractual deadline had expired. These late notices were not accompanied by any request for or grant of an extension of time. Cardinal Peak made no effort to seek Nexford's consent to late delivery, nor did Cardinal Peak provide any justification for its failure to comply with the express timeline.
The surcharges associated with these seven (7) months of late and non-compliant notices total approximately Two Million One Hundred Eighty Thousand Dollars ($2,180,000.00). By failing to comply with the mandatory notice requirements set forth in Section 7.4(a), Cardinal Peak waived its right to collect surcharges for those months. Accordingly, Cardinal Peak's claims for surcharges attributable to these months should be dismissed.
SECOND AFFIRMATIVE DEFENSE
Failure of Condition Precedent.  Cardinal Peak's right to pass through surcharges was expressly subject to multiple conditions precedent set forth in Section 7.4 of the MSA. These conditions precedent include, but are not limited to:
(a) the timely delivery of Surcharge Notices with supporting documentation within fifteen (15) business days after the end of the applicable month, as required by Section 7.4(a);
(b) the calculation of surcharges in strict accordance with the methodology prescribed in Exhibit C to the MSA (the "Surcharge Methodology"), as required by Section 7.4(b); and
(c) compliance with the twelve percent (12%) aggregate monthly surcharge cap set forth in Section 7.4(c), absent the prior written consent of Buyer to exceed such cap.
Cardinal Peak failed to satisfy these conditions precedent for a substantial portion of the surcharges at issue in this action. The failure to satisfy a condition precedent relieves Nexford of any obligation to perform the corresponding obligation—here, payment of the non-compliant surcharges. To the extent Cardinal Peak did not comply with the express conditions for surcharge pass-throughs, it has no contractual entitlement to payment, and its claims must fail.
THIRD AFFIRMATIVE DEFENSE
Breach by Cardinal Peak of Exhibit C Surcharge Methodology.  Cardinal Peak breached the MSA by failing to calculate surcharges in accordance with the methodology prescribed in Exhibit C (Surcharge Methodology) to the MSA. This breach is material and excuses Nexford's obligation to pay the improperly calculated surcharges.
Exhibit C requires that surcharges be calculated using two specific, independently verifiable published indices:
(a) the published Ferrous Scrap Index, as reported by Bramwell Industries ("Platts/SPI"), for the calculation of scrap-related surcharges; and
(b) the Industrial Energy Cost Index, for the calculation of energy-related surcharges.
These indices are to be applied to the agreed baseline figures negotiated by the parties: a baseline scrap cost of Three Hundred Forty Dollars ($340.00) per ton and a baseline energy cost of Forty-Eight Dollars ($48.00) per ton. The use of published, third-party indices was a deliberate choice by the parties to ensure objectivity, transparency, and verifiability in the surcharge calculation process.
Instead of using the contractually mandated published indices, Cardinal Peak unilaterally substituted an internal "blended cost" metric that is not referenced in, authorized by, or consistent with the MSA or Exhibit C. Cardinal Peak's blended cost metric appears to incorporate Cardinal Peak's own proprietary cost data, including costs attributable to procurement inefficiencies, logistical premiums, and other factors that are not contemplated by the Exhibit C methodology. This unilateral methodological deviation resulted in a systematic overstatement of surcharges by approximately One Million Four Hundred Seventy Thousand Dollars ($1,470,000.00) across the Disputed Period.
Nexford is not obligated to pay surcharges calculated using a methodology that does not conform to the express terms of the MSA. Cardinal Peak's decision to substitute its own internal metric for the agreed-upon published indices constitutes a breach of the MSA and bars recovery of the improperly calculated surcharge amounts.
FOURTH AFFIRMATIVE DEFENSE
Surcharge Cap — Section 7.4(c).  Section 7.4(c) of the MSA provides, in clear and unambiguous terms, that in no event shall the aggregate monthly surcharge exceed twelve percent (12%) of the applicable Base Price for the relevant product category without the prior written consent of Buyer. This cap was a material term of the MSA, negotiated at arm's length, and was designed to protect Nexford against extraordinary or unanticipated surcharge exposure and to provide budgetary certainty in Nexford's downstream pricing and operations.
For four (4) months during the Disputed Period, Cardinal Peak invoiced surcharges that exceeded the 12% cap for the applicable product category. In each instance, the aggregate monthly surcharge invoiced by Cardinal Peak exceeded 12% of the applicable Base Price—that is, 12% of $620.00 per ton for HRC products ($74.40 per ton) or 12% of $740.00 per ton for CRC products ($88.80 per ton), as applicable.
Nexford did not provide prior written consent to any surcharge exceedance above the 12% cap for any of these four months or for any other month during the term of the MSA. Cardinal Peak did not request such consent. No waiver of the cap, whether express, implied, or by course of dealing, occurred at any time.
The excess amounts invoiced above the 12% cap for these four months total approximately One Million Eighty Thousand Dollars ($1,080,000.00). Cardinal Peak is not entitled to recover surcharges in excess of the 12% cap absent the required prior written consent of Nexford, which was never obtained. Accordingly, Cardinal Peak's claims for amounts exceeding the cap should be dismissed.
FIFTH AFFIRMATIVE DEFENSE
No Unjust Enrichment Where Express Contract Governs.  Cardinal Peak's unjust enrichment claim, set forth as Count II of the Complaint, is barred as a matter of law because the MSA is an express contract that governs the subject matter of the dispute. The subject matter at issue in this litigation—namely, the pricing, surcharge, and payment obligations between the parties arising out of the supply of steel products—is squarely within the scope of the MSA.
Under established Illinois law, a plaintiff cannot pursue a claim for unjust enrichment where the parties' relationship is governed by an express contract covering the same subject matter. See Hayes Mechanical, Inc. v. First Indus., L.P., 351 Ill. App. 3d 1, 10-11 (1st Dist. 2004); Gagnon v. Schickel, 2012 IL App (1st) 120645, ¶ 21. The rationale for this rule is well-settled: where parties have defined their respective rights and obligations through an express agreement, the law will not impose quasi-contractual obligations that are inconsistent with or duplicative of the parties' bargain.
The MSA, executed on January 15, 2020, expressly and comprehensively addresses all terms relevant to the surcharge dispute, including the conditions for surcharge pass-throughs, the calculation methodology, the notice requirements, the surcharge cap, the dispute resolution procedures, and the payment obligations. Because the MSA governs the precise subject matter at issue, Cardinal Peak's unjust enrichment claim is duplicative, impermissible, and should be dismissed with prejudice.
SIXTH AFFIRMATIVE DEFENSE
No Account Stated.  Cardinal Peak's account stated claim, set forth as Count III of the Complaint, fails as a matter of law and fact because Nexford timely and consistently disputed the surcharge invoices at issue.
Under Illinois law, an account stated is an agreement between parties who have had prior transactions that the items of an account are true and that the balance struck is correct. An account stated requires, at a minimum, a mutual assent or acquiescence to the correctness of the stated balance. See Dreyer Medical Clinic, S.C. v. Corral, 227 Ill. App. 3d 221, 227 (2d Dist. 1992). Where one party promptly objects to the stated amounts, no account stated can arise.
Here, Section 7.4(d) of the MSA provides that 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 first to senior officers of the respective parties, and then to mediation in accordance with the dispute resolution provisions of Section 14.3 of the MSA. Nexford consistently and timely objected to Cardinal Peak's surcharge invoices throughout the Disputed Period, delivering written dispute notices within the 30-day contractual window for each of the contested invoices.
Because Nexford promptly disputed the surcharge invoices, there was no meeting of the minds, no mutual assent, and no acquiescence as to the amounts claimed by Cardinal Peak. The essential elements of an account stated are therefore absent, and Count III of the Complaint should be dismissed.
SEVENTH AFFIRMATIVE DEFENSE
Setoff and Recoupment.  Nexford is entitled to setoff and/or recoupment against any amounts that may be awarded to Cardinal Peak in this action. During the Disputed Period, Nexford made payments on certain surcharge invoices that were calculated by Cardinal Peak using the non-compliant blended cost methodology rather than the Exhibit C methodology. To the extent that those payments exceeded the amounts that would have been due under the contractually mandated Exhibit C methodology, Nexford overpaid Cardinal Peak.
Nexford estimates that it is entitled to a setoff and/or recoupment in the amount of approximately Two Hundred Ten Thousand Dollars ($210,000.00), or such other amount as may be established through discovery and proven at trial. To the extent that Cardinal Peak is entitled to any recovery in this action, which Nexford denies, such recovery must be reduced by the amount of any overpayment made by Nexford.
Nexford reserves the right to assert additional setoff and recoupment claims, or to assert formal counterclaims, as the facts and circumstances may warrant based upon the results of discovery.
EIGHTH AFFIRMATIVE DEFENSE
Failure to Mitigate Damages.  Cardinal Peak failed to take reasonable steps to mitigate its alleged damages, as required under Illinois law. Among other things, Cardinal Peak:
(a) failed to comply with the dispute resolution procedures set forth in Section 7.4(d) and Section 14.3 of the MSA in a timely and good-faith manner, which procedures were specifically designed to resolve surcharge disputes without the need for litigation;
(b) continued to invoice surcharges using a non-compliant blended cost methodology after Nexford raised specific, written objections to that methodology, rather than correcting its invoices to conform to the Exhibit C methodology;
(c) failed to resubmit corrected Surcharge Notices using the contractually mandated indices, even after Nexford identified the methodological deficiencies and requested that Cardinal Peak recalculate the surcharges; and
(d) failed to take other reasonable actions to reduce or avoid the claimed damages.
To the extent Cardinal Peak has suffered any damages, which Nexford denies, those damages were caused or exacerbated by Cardinal Peak's own failure to mitigate and should be reduced accordingly.
NINTH AFFIRMATIVE DEFENSE
Reservation of Rights.  Nexford reserves the right to assert additional affirmative defenses as may become available or apparent through the course of discovery in this matter. Discovery is in its early stages, and Nexford anticipates that additional facts, documents, and testimony may give rise to defenses not yet identified. Nexford's assertion of the foregoing affirmative defenses is without prejudice to its right to amend this Answer and Affirmative Defenses to add further defenses at any time as permitted by the Illinois Code of Civil Procedure and the rules of this Court.
PART III PRAYER FOR RELIEF
WHEREFORE, Defendant Nexford Industrial Holdings Inc. respectfully requests that this Court:
1.  Enter judgment in favor of Nexford and against Cardinal Peak on all counts of the Complaint, including Count I (Breach of Contract), Count II (Unjust Enrichment), and Count III (Account Stated);
2.  Dismiss Counts I, II, and III of the Complaint with prejudice;
3.  Award Nexford its costs of suit, including reasonable attorneys' fees, to the extent permitted by applicable law or by the terms of the MSA;
4.  Award Nexford setoff and/or recoupment in such amounts as may be proven at trial or established through the course of this proceeding; and
5.  Grant such other and further relief as this Court deems just, equitable, and appropriate under the circumstances.
Respectfully submitted,
September 19, 2022
CALDERWOOD & HARKNESS LLP
By: ________
Priya Anand Responsible Partner
200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606 Telephone: (312) 555-7200 Facsimile: (312) 555-7201 panand@calderwoodharkness.com
Douglas Carmichael (Of Counsel) dcarmichael@calderwoodharkness.com
Simone Laroche, Senior Associate slaroche@calderwoodharkness.com
Jeffrey Park, Associate jpark@calderwoodharkness.com
Attorneys for Defendant Nexford Industrial Holdings Inc.
CERTIFICATE OF SERVICE
The undersigned, an attorney, hereby certifies that on September 19, 2022, a true and correct copy of the foregoing Answer and Affirmative Defenses of Defendant Nexford Industrial Holdings Inc. was served upon counsel for Plaintiff Cardinal Peak Industries by electronic filing through the Odyssey eFileIL system and by electronic mail, addressed as follows:
Garrett Blackwood, Esq. Blackwood Stein & Associates LLP 717 Seventeenth Street, Suite 2200 Denver, Colorado 80202 Telephone: (303) 555-4100
Email: gblackwood@blackwoodstein.com
Attorneys for Plaintiff Cardinal Peak Industries
Under penalties as provided by law pursuant to Section 1-109 of the Illinois Code of Civil Procedure, 735 ILCS 5/1-109, the undersigned certifies that the statements set forth in this Certificate of Service are true and correct.
________________________________________
Simone Laroche Senior Associate Calderwood & Harkness LLP 200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606
Date: September 19, 2022
CARDINAL PEAK INDUSTRIES,
a Colorado limited liability company,
Plaintiff,
Case No. 2022-L-008471
v.
NEXFORD INDUSTRIAL HOLDINGS INC.,
a Delaware corporation,
Defendant.