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USINOR INDUSTEEL v. LEECO STEEL PRODUCTS

March 28, 2002

USINOR INDUSTEEL, A FOREIGN CORPORATION PLAINTIFF,
V.
LEECO STEEL PRODUCTS, INC., AN ILLINOIS CORPORATION DEFENDANT.



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

MEMORANDUM OPINION AND ORDER

Before the Court is Usinor Industeel's ("Usinor") Motion for Replevin. Usinor seeks to exercise its replevin right under 735 ILCS 5/19-101 et seq. to recover possession of the eighteen unpaid shipments of Creusabro 8000 steel (the "Steel Shipments"), valued in excess of one million dollars, that Usinor sold and delivered to Leeco Steel Products, Inc. ("Leeco"). If Usinor is unable to replevin the steel, it seeks its right to avoid the contract under the Convention on Contracts for the International Sale of Goods (the "CISG"). For the reasons described below, the Court denies Usinor's motion for replevin and its motion to avoid the contract under the CISG.

I. Background

A. Facts

On January 25, the Court entered a restraining order without prejudice as to any of the parties' legal positions. On February 20, the Court granted LaSalle National Bank's ("LaSalle") unopposed right to intervene, and granted injunctive relief preserving the Steel Shipments until the Court could rule on Usinor's replevin motion.

Usinor is a corporation incorporated under the laws of France with its principal place of business in France. Usinor and its parents and sister companies constitute a global leader in steel production, and produce, process and distribute stainless and flat carbon steels serving customers in the automotive, mining, construction, packaging and household appliance industries. One of Usinor's specialty steels is a brand of steel plate, Creusabro 8000, which is an advanced homogeneous, lightweight, anti-abrasive steel plate for applications involving extreme wear and tear.

Leeco is a corporation incorporated under the laws of the State of Illinois with its principal place of business in Illinois. Leeco has operations in Chicago, St. Louis, Pittsburgh, Wisconsin, South Carolina and Tennessee. Leeco is an independent steel center, specializing, securing, processing and delivering sheet and plate grades of steel.

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332, in that this dispute is between a citizen of a foreign state and a citizen of the United States and the amount in controversy exceeds $75,000.

In early February 2000, Leeco began placing orders with Usinor for the purchase and shipment of certain tonnage of Creusabro 8000. Leeco ordered the steel in order to participate in a proposed new project of Caterpillar relating to large mining vehicles. Leeco intended to sell the steel it had ordered from Usinor to either Caterpillar or Caterpillar suppliers. Caterpillar and its supplier facilities are located in, among other places, Wyoming, Mexico and Peru. Caterpillar and its suppliers intended to fabricate the steel into ultra light truck beds for use at mining facilities throughout the world.

Under Paragraph 7 of the sales agreement between Usinor and Leeco for the Steel Shipments (the "Agreement") Usinor "remain[s] the owner of the goods up to the complete and total payment of all sums due." Also, pursuant to the terms of the Agreement, Leeco was obligated to pay Usinor within 60 days following receipt of the steel. In addition, Leeco agreed that any dispute regarding the Steel Shipments would be resolved in the French court system.

Usinor states that Leeco's early enthusiasm for the Caterpillar project resulted in extraordinary demands on Usinor to deliver substantial quantities of Creusabro 8000 steel plate. Therefore, beginning in December 2000 and continuing until April 20 2001, Usinor produced and exported multiple shipments of the steel, valued at $1,188,817.30, from France to Leeco's designated locations in accordance with Leeco's delivery schedule.

At some time in the year 2000, Caterpillar notified its own suppliers, as well as Leeco and Usinor, that it was halting or considering halting, the fabrication of truck beds in the mining vehicle program. Leeco now has possession of Creusabro 8000 steel that Leeco was unable to sell to Caterpillar, although Usinor asserts it has many alternate uses. Leeco took delivery of the Steel Shipments, and Usinor asserts on information and belief, has used portions of the Steel Shipments in its operations and/or sold portions to others. Leeco has made a partial payment on the total value of only one of the Steel Shipments for the portions that it has used in its operations or sold to others. Leeco has not made a complete and total payment for the Steel Shipments, and has not returned the Steel Shipments, after demand by Usinor to do so. Currently, Leeco still owes Usinor at least $988,817.36 of the total value of the Steel Shipments. Usinor asserts on information and belief that the value of the remaining steel from the Steel Shipment in the possession of Leeco is worth substantially less than the amount of money that Leeco owes Usinor. Instead of making complete and total payment for the Steel Shipments, Usinor asserts that Leeco has instead sought to use its control over the improved steel to force Usinor to provide Leeco a refund on the steel it had purchased, but not used.

Leeco purchased the Steel Shipment using a line of credit (the "Loan") from LaSalle Bank. Usinor asserts that Leeco is in default on the Loan and has been urged by LaSalle Bank to sell the Steel Shipments to pay off any remaining debt owed by Leeco to that lender under the Loan. Usinor asserts on information and belief that Leeco may be facing insolvency through its default on the Loan and would not be able to pay any damages that Usinor might recover from Leeco for breach of the sales agreement.

B. Parties' positions

Leeco argues that the UCC, not the CISG, governs the transaction, and that replevin is not a cause of action allowed to the seller under the UCC, only reclamation within 10 days, and that those 10 days have passed. Leeco asserts that Usinor has only a reservation of a security interest, per Section 2-401(a) of the UCC. Leeco states that Usinor never perfected a purchase money security interest in the steel sold to Leeco, and that therefore, its rights are subordinate to those of LaSalle, which has a perfected security interest. Leeco argues that the CISG does not govern because "it has no application to disputes concerning the goods themselves which are sold in international trade, but governs instead only the obligations of buyers and sellers." Leeco argues that since this case involves the rights of two secured parties, LaSalle as a perfected secured creditor and Usinor as an unperfected secured creditor, Article 9 of the UCC governs the relative rights of LaSalle and Usinor in the steel. Leeco ...


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