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PACIFIC TALL SHIPS CO. v. KUEHNE & NAGEL

November 30, 1999

PACIFIC TALL SHIPS COMPANY, AN ILLINOIS CORPORATION, PLAINTIFF,
v.
KUEHNE & NAGEL INC., A NEW YORK CORPORATION; BLUE ANCHOR LINE DIVISION OF TRANSPAC CONTAINER SYSTEM LTD., AN UNKNOWN FOREIGN ENTITY; NACORA INSURANCE BROKERS INC., A NEW JERSEY CORPORATION; FIREMAN'S FUND INSURANCE CO., A CALIFORNIA INSURANCE CORPORATION, DEFENDANTS



The opinion of the court was delivered by: Castillo, District Judge.

  MEMORANDUM OPINION AND ORDER

This dispute arises out of the transport of seventy-six model ships. The plaintiff, Pacific Tall Ships Company ("Tall Ships"), pursues recovery of the value of the damaged model ships from the defendants: Kuehne & Nagel, Inc. ("K & N"), Blue Anchor Line Division ("Blue Anchor"), Fireman's Fund Insurance Company ("Fireman's"), and Nacora Insurance Brokers, Inc. ("Nacora"). Presently before the Court are four separate summary judgment motions; one from each defendant. After careful consideration, we deny K & N's partial summary judgment motion, we grant in part and deny in part Blue Anchor's summary judment motion, and we grant summary judgment in favor of Fireman's and Nacora.

FACTS COMMON TO EACH MOTION

Because each of the defendants' motions presents arguments unique to itself we analyze each summary judgment motion separately below. Additionally, we reserve a more detailed description of the facts relevant to each motion. Here, we set forth only the general contours of the case.

Tall Ships hired K & N to arrange the shipment of seventy-six model wooden ships from the Philippines to Lemont, Illinois. K & N, pursuant to its contract with Tall Ships, obtained insurance coverage for the cargo under an open-marine cargo policy issued to K & N by Fireman's Fund. Prior to shipping, K & N erroneously told Tall Ships that United States Customs required fumigation and referred Tall Ships to Mighty Men Fumigators. Mighty Men fumigated the cargo by placing phosphine tablets in the container used to transport the cargo. Three days later, Blue Anchor actually shipped the goods. When the model ships arrived in Lemont, they were completely ruined because the container holding the cargo was not properly ventilated, as required by the fumigation method used by Mighty Men. After Fireman's denied Tall Ships' insurance claim, Tall Ships filed this lawsuit against K & N, Blue Anchor, Fireman's, and Nacora. Nacora is K & N's in-house insurance broker.

SUMMARY JUDGMENT STANDARDS

Summary judgment is proper only when the record shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). A defendant does not need to produce evidence demonstrating the absence of a factual question, but can be discharged by pointing out the absence of evidence to support the plaintiffs case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). When ruling on a motion for summary judgment, we must view all of the evidence in a light most favorable to the non-moving party, and draw all inferences in the non-movant's favor. Wolf v. Buss America, Inc., 77 F.3d 914, 918 (7th Cir. 1996). A genuine issue for trial exists when "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). But, if the evidence is merely colorable, is not sufficiently probative, or merely raises some metaphysical doubt as to the material facts, the court may grant summary judgment. Id. at 249-50, 106 S.Ct. 2505. Weighing evidence, determining credibility and drawing reasonable inferences are jury functions, not those of a judge deciding a motion for summary judgment. Id. at 255, 106 S.Ct. 2505.

I. Tall Ships v. K & N

K & N's sole claim for partial summary judgment rests on a contract term purportedly limiting K & N's potential liability to $50 per shipment, regardless of K & N's performance under the contract. The liability limitation is on the reverse side of K & N's credit application form, which Tall Ships filled out and submitted in 1996, as well as on the reverse side of each invoice K & N sent to Tall Ships. K & N claims that Tall Ships, by signing the credit application, expressly consented to be bound by the terms and conditions of service for each of its shipments. Tall Ships responds that the limited liability provision should not be enforced because (1) Tall Ships never received actual notice of the provision, and (2) K & N effectively waived the provision through its prior course of dealings with Tall Ships. We conclude that a genuine issue exists as to the enforceability of the liability limitation and deny K & N's motion for partial summary judgment.

A. Facts

K & N argues that Tall Ships consented to the liability limitation when Dennis Egan, Tall Ships' president, signed a two-sided credit application on April 17, 1996. The front side of the credit application contains the following proviso: "CREDIT TERMS & POLICY: I/WE UNDERSTAND AND AGREE TO TERMS AND CONDITIONS OF SERVICE AS STATED ON THE REVERSE SIDE OF THIS CREDIT APPLICATION." (R. 93, Tall Ships Ex. BB, Credit Application (emphasis in original).) The back of the credit application contains the following limitation:

  8. Limitation of $50 Per Shipment. The Customer agrees
  that the Company shall in no event be liable for any
  loss, damage, expense or delay to the goods resulting
  from the negligence or other fault of the Company for
  any amount in excess of $50.00 per shipment (or the
  invoice value, if less) and any partial loss or damage
  for which the Company may be liable shall be adjusted
  pro rata on the basis of such valuation.

K & N also points to evidence of over twenty prior transactions with Tall Ships, where for each transaction Tall Ships was given an invoice containing an identical liability limitation. (R. 93, Tall Ships Ex. JJ.)

Tall Ships counters that they were not aware of the liability limitation provision. Specifically, Tall Ships claims it did not receive the invoice for the shipment in question until after the shipment was made. Regarding the credit application and previous invoices, Tall Ships maintains that K & N never told it about the liability limitation provision; it did not independently discover the limitation; and, in fact, K & N generally faxed only the front side of the invoices to Tall Ships.

Additionally, Tall Ships submits evidence demonstrating that, on three prior occasions, it presented damage claims to K & N, and K & N never invoked the $50 limitation. Each of the three prior damage claims was for an amount far higher than $50: the claims were for $400, $641.24, and $2,800. The record is unclear as to the resolution of the claims, but contains a flurry of documents regarding these claims in which K & N does not once invoke the liability limitation. According to Tall Ships, this "prior course of dealings" shows that K & N effectively waived enforcement of the term limiting its liability to $50.

B. Analysis

Parties to a contract may agree to limit the liability of one party, and courts will enforce such agreements. For example, a court in this district enforced a contractual term identical to that at issue in this case, and limited K & N's liability to $50 based on the parties' prior course of dealings. Independent Mach., Inc. v. Kuehne & Nagel, Inc., 867 F. Supp. 752 (N.D.Ill. 1994); see also Capitol Converting Equip., Inc. v. LEP Transp., Inc., 965 F.2d 391 (7th Cir. 1992) (enforcing contractual term limiting shipping agent's liability to $50 per package). In both Capitol Concverting and Independent Machinery, the parties had engaged in numerous prior transactions, each of which was governed by a contract containing a provision limiting the shipping agent's liability. Capitol Converting, 965 F.2d at 395 (Capitol "had engaged in `hundreds of transactions' with LEP" and "each invoice it received from LEP (and paid) contained the same term limiting LEP's liability."); Independent Mach., 867 F. Supp. at 764 ("[T]he shipment was not an isolated transaction, but rather the most recent of a series of deals in which the same terms had appeared on prior invoices."). Thus, in these two cases, a prior course of dealings between the parties established the shipper's knowledge of the contractual term and its enforceability in the disputed case.

Applying these standards to this case, Tall Ships has established a genuine issue as to the enforceability of K & N's liability limitation provision. Although K & N relies on its twenty prior transactions with Tall Ships to establish the contractual term, Tall Ships has submitted evidence that its copies of the invoices for those prior transactions did not actually contain the limitation provision because K & N faxed only the front side of those invoices to Tall Ships. This evidence is sufficient to create a factual issue about whether the parties' prior course of dealings actually included the contractual term at issue.

Furthermore, even if the invoices for the twenty prior transactions each contained the provision and Tall Ships knew about it, Tall Ships presents evidence that K & N waived enforcement of the provision by failing to invoke it when Tall Ships submitted its three damage claims, each in excess of $50. Tall Ships may have relied on K & N's failure to invoke the provision when deciding to hire K & N to coordinate this shipment.

For these reasons, we deny K & N's motion for partial ...


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