United States District Court, N.D. Illinois, Eastern Division
May 4, 2005.
MONARCH GEMS, J.B. & S. BROS., BHARGOVI, and KIRAN EXPORTS, Plaintiffs,
MALCA-AMIT USA, L.L.C. and U.S. BANCORP, Defendants.
The opinion of the court was delivered by: BLANCHE MANNING, District Judge
MEMORANDUM AND ORDER
The plaintiffs, four partnerships organized under the Indian
Partnership Act, contend that defendants Malca-Amit and U.S.
Bancorp are liable, under various contract and tort theories, for
the loss of diamonds worth over $600,000 that the defendants
allegedly agreed to deliver to a Chicago jeweler. U.S. Bancorp
and Malca-Amit USA have filed separate motions to dismiss. For
the following reasons, U.S. Bancorp's motion is denied and
Malca-Amit USA's motion is granted.
The following facts are drawn from the second amended complaint
and will be accepted as true for the purposes of the defendants'
motions to dismiss. Plaintiffs are diamond merchants located in
India. In December of 2003, they contracted with Lemuir Express,
an Indian corporation engaged in the business of transporting
goods, to deliver several shipments of diamonds from India to a
consignee in Chicago. Lemuir Express thus issued a series of
nonnegotiable air waybills covering the shipments.*fn1 The front of the waybills state that the corresponding parcels
"will be carried through Secured Delivery System of The Malca
Amit Group of Companies." The reverse side of the waybills is
marked "Terms and Conditions" and states that "`The Malca Amit
Group of Companies' includes all those companies who are members
of the Malca Amit Group of Companies' whose names appear on a
list published from time to time and kept on file. . . . Each
member of the Malca Amit Group of Companies is an independent
corporate or other business entity and is not liable for the
debts or obligations of any other member or agent of the Malca
Amit Group of Companies." Terms and Conditions at § 1.2.
In addition, the Terms and Conditions provide that the
"Customer agrees that any of the companies, persons or entities
and their agents, servants, or employees hired by Malca Amit to
fulfill its obligations under this contract . . . shall have the
benefit of every exemption from and limitation of liability and
defense to which Malca Amit is entitled. Id. at § 1.5.1.
Finally, the Terms and Conditions contain choice of law and forum
selection clauses which provide that:
The laws and competent courts of the state or country
in which the Customer executed this contract to the
exclusion of the laws of any other state or country
shall govern the validity of this contract, the
construction of its terms, and the interpretation of
the rights and duties of the parties hereto. The
competent courts of said state or country shall have
exclusive jurisdiction to the exclusion of all other
courts to determine any claim, dispute, or
disagreement arising under or in connection with this
contract, whether raised by way of claim,
counter-claim, third-party claim, interpleader, or in
any other manner whatsoever.
Id. at § 12.1. Pursuant to the waybills, Lemuir Express arranged for carriage
of the shipment from India to the United States. Malca Amit USA
accepted the diamonds once they were in the United States so it
could deliver them to a consignee in Chicago. Lemuir Express and
Malca Amit USA are connected because they entered into a
confidential agency agreement. Under that agreement, for
deliveries to the United States, Lemuir Express was required to
arrange for carriage from India to New York, whereupon Malca Amit
USA, acting as Lemuir Express' delivery agent, would complete the
delivery to the consignee. With respect to the shipments of
diamonds at issue in this lawsuit, the diamonds never made it to
the consignee, and this lawsuit followed.
A.U.S. Bankcorp's Motion to Dismiss
1. Standard on 12(b)(6) Motion to Dismiss
In ruling on a motion to dismiss pursuant to Fed.R.Civ.P.
12(b)(6), the court must assume the truth of all facts alleged in
the complaint, construing the allegations liberally and viewing
them in the light most favorable to the plaintiff. See, e.g.,
McMath v. City of Gary, 976 F.2d 1026, 1031 (7th Cir. 1992).
Dismissal is properly granted only if it is clear that no set of
facts which the plaintiff could prove consistent with the
pleadings would entitle the plaintiff to relief. Conley v.
Gibson, 355 U.S. 41, 45-46 (1957). However, the court is neither
bound by the plaintiff's legal characterization of the facts, nor
required to ignore facts set forth in the complaint that
undermine the plaintiff's claims. Scott v. O'Grady,
975 F.2d 366, 368 (7th Cir. 1992). 2. The Economic Loss Doctrine
The plaintiffs allege that U.S. Bancorp was negligent when it
acted as a consignee for the plaintiffs' diamonds. U.S. Bancorp
seeks to dismiss the plaintiffs' negligence claims, contending
that they are barred by the economic loss doctrine, which
prohibits recovery in tort for purely economic losses, subject to
certain limited exceptions. See Moorman Mfg. Co. v. Nat'l Tank
Co., 91 Ill.2d 69 (Ill. 1982) (defining the economic loss
doctrine in the context of a products liability action); see
also Congregation of the Passion v. Touche & Ross Co.,
159 Ill.2d 137, 159-60 (Ill. 1994) (extending the reach of the
economic loss doctrine to the context of service agreements where
the remedy sought by the plaintiff stems from contractual
One of the exceptions is the rule that a plaintiff may recover
despite the economic loss doctrine if the tort committed by the
defendant is based on an extracontractual duty. See Congregation
of the Passion, 159 Ill.2d at 162. The plaintiffs argue that
U.S. Bancorp owed them an extracontractual duty separate and
apart from their contractual relationship because consignees
(like U.S. Bancorp) have a fiduciary duty to consignors (like the
plaintiffs). According to the plaintiffs, because their
negligence claim is predicated on a breach of fiduciary duty, the
economic loss doctrine is inapplicable.
The court agrees. In Congregation of the Passion, which is at
the heart of the plaintiffs' arguments, the Illinois Supreme
Court stated that the economic loss doctrine is "applicable to
the service industry only where the duty of the party performing
the service is defined by the contract that he executes with his
client. Where a duty arises outside of the contract, the economic
loss doctrine does not prohibit recovery in tort for the
negligent breach of that duty." Id. The court went on to hold
that accountants owe their clients duties not only pursuant to
services contracts but also because they are members of a skilled profession and
provide additional intangible benefits to their clients. Id.
(because accountants, like attorneys, are skilled professionals,
they owe their clients a duty to exercise "reasonable
professional competence . . . independently of any contract"). It
then concluded that the "intangible" duty of exercising
reasonable professional competence exists regardless of whether
it is memorialized in the parties' contract because a claim for
negligence is based on an extracontractual duty. Id. at 164-65.
Here, U.S. Bancorp contends that it did not have an
extracontractual duty to the plaintiffs because the duties they
owed to the plaintiffs whether fiduciary or contractual
existed solely due to the existence of the parties' contract. In
other words, according to U.S. Bancorp, without the contract
covering the diamonds, they would not have owed the plaintiffs
any duties at all. Thus, U.S. Bancorp concludes that its
fiduciary obligation to the plaintiffs is tied to the contract
and cannot, by definition, be extracontractual. See Harger v.
Spirit Airlines, Inc., No. 01 C 8606, 2003 WL 21218968 at *10
(N.D. Ill. May 22, 2003) (tort claim based on the alleged
negligent loss of luggage was not extracontractual because absent
the contract of carriage, the airline had no duty to transport
its passengers' baggage in the first place)
In Illinois, however, bailment is a special relationship which
gives rise to duties that arise independent of a contractual
relationship. Thus, as the Illinois Supreme Court explained well
over 100 years ago:
[N]othing is better settled than that in many
contracts, especially those which establish peculiar
relations between the parties, as, those of
confidence and trust, the law silently annexes
certain conditions, and imposes mutual obligations
and duties, which are not all, in express terms,
provided for in the contract, yet in contemplation of
law, they are nevertheless regarded as part of the
contract, and the non-performance of them may, in an
action on the contract, be assigned as a breach
thereof. But while assumpsit [i.e., a contract claim]
will certainly lie for a breach of these duties, it is equally well settled
that case [i.e., a tort claim] will lie also.
Strictly speaking, these duties arise ex lege out of
the relation created by the contract. As familiar
illustrations of this class of contracts, which give
rise to an almost infinite variety of implied duties
and obligations, may be mentioned those between
client and attorney, physician and patient, carrier
and shipper, and, in short, every species of
bailment. In all these and analogous cases it is
conceded case is a concurrent remedy with assumpsit
for a breach of the implied duties growing out of any
of these relations.
Nevin v. Pullman Palace Car Co., 106 Ill. 222, 233 (Ill. 1883),
Mutual Service Cas. Ins. Co. v. Elizabeth State Bank,
265 F.3d 601
, 616 (7th Cir. 2001) (following Nevin). Because the
plaintiffs are claiming that U.S. Bancorp breached an obligation
that did not arise from a contract, the Moorman doctrine does
not apply. See F.D.I.C. v. Miller, 781 F.Supp. 1271, 1277 (N.D.
Ill. 1991) (Moorman doctrine did not bar breach of fiduciary duty
action). U.S. Bancorp's motion to dismiss the plaintiffs'
negligence claims is, therefore, denied.
B. Malca-Amit's Motion to Dismiss
1. Standard on 12(b)(3) Motion to Dismiss
On a motion to dismiss for improper venue based on a
forum-selection clause, the plaintiff bears the burden of
establishing that the venue it has chosen is proper. See Bremen
v. Zapata Off-Shore Co., 407 U.S. 1, 18(1972); DeJohn v. The
.TV Corp. International, 245 F.Supp.2d 913, 920 (N.D. Ill.
2003). The court takes all the allegations in the complaint as
true unless contradicted by the defendant's affidavit and may
examine facts outside the complaint. Promero, Inc. v. Mammen,
No. 02 C 1191, 2002 WL 31455970 at *7 (N.D. Ill. Nov. 1, 2002).
2. The Forum Selection Clause
As Malca Amit USA correctly notes, "a party with a valid
defense of improper venue is entitled to be dismissed from the
suit." Salton, Inc. v. Philips Domestic Appliances and Personal Care B.V., 391 F.3d 871, 881 (7th Cir. 2004). Malca Amit USA
contends that the waybills are "through" bills that govern
transportation to India to the shipments' final destinations and
that the claims against it should be dismissed for improper venue
because the forum selection clause in the waybills fixes venue in
India, where the waybills were executed. In response, the
plaintiffs cite to state law provisions regarding venue despite
the fact that they are now in federal court. They also contend
that the forum selection clause is inapplicable due to language
in the master agency agreement between Lemuir Express and the
Malca Amit Group of Companies and because they have not brought
suit under the waybills.
The forum selection clause in the master agency agreement
applies to disputes between the "forwarding party" and the
"delivering party." Agreement at ¶ 17. In this case, the
"forwarding party" and the "delivering party" are Lemuir Express
and Malca Amit USA, respectively. Id. at page 1. According to
the plaintiffs, because they elected not to sue Lemuir Express,
the forum selection clause is inapplicable.
This argument is a non-starter because the forum selection
clause that is at the heart of Malca Amit USA's motion to dismiss
is located on the waybills. The terms and conditions on the
waybills state that the plaintiffs "agree? that any of the
companies, persons or entities and their agents, servants, or
employees hired by Malca Amit to fulfill its obligations under
this contract . . . shall have the benefit of every exemption
from and limitation of liability and defense to which Malca Amit
is entitled." This provision extends the protections and immunities of a
carrier to its agents and subcontractors and thus is a "Himalaya
clause."*fn2 The court must use general principles of
contract interpretation to determine the reach of the Himalaya
clause. See Norfolk Southern Railway Co. v. Kirby,
125 S.Ct. 385, 396-97 (2004). The Supreme Court has recently stressed that
Himalaya clauses are enforceable and that when the parties
contemplate that various modes of transportation will be used to
get an item from Point A to Point B and use corresponding
language in their contract, a entity within the scope of the
clause's language is an intended beneficiary of the clause. Id.
Here, Malca Amit hired Malca Amit USA (which is another member of
the Malca Amit Group of Companies) to fulfill its obligations
under the contract, so Malca Amit USA is entitled to assert any
defenses that Malca Amit could assert.
This brings the court to the forum selection clause. The
waybills' terms and conditions provide that "[t]he laws and
competent courts of the state or country in which the Customer
executed this contract [India] to the exclusion of the laws of
any other state or country shall govern the validity of this
contract, the construction of its terms, and the interpretation
of the rights and duties of the parties hereto. The competent
courts of said state or country shall have exclusive jurisdiction
to the exclusion of all other courts to determine any claim,
dispute, or disagreement arising under or in connection with this
For a forum selection clause to be effective, the language
delineating the choice of forum must be "mandatory rather than
permissive." See Jockey Int'l, Inc. v. M/V Leverkusen Express,
217 F.Supp.2d 447, 451 (S.D.N.Y. 2002). Mandatory forum selection
clauses are presumptively valid and must be enforced unless it is unreasonable under the
circumstances to do so. Bremen v. Zapata Off-Shore Co.,
407 U.S. at 15.
The contract here uses the word "shall" in the forum selection
clause. The use of the word "shall" indicates that the forum
selection clause in the agreement is mandatory and exclusive.
Bem I, L.L.C. v. Anthropologie, Inc., 2000 WL 816789 at *8
(N.D. Ill. Jun 22, 2000) (under Illinois law, courts interpret
the word "`may" as permissive and "shall" as mandatory), aff'd
by 301 F.3d 548 (7th Cir. 2002). Of course, India's laws may
well apply to this dispute (a point which the court does not
reach), but the parties have not addressed this issue or the ways
in which Illinois and India's laws differ, so the court will
forge on without a discussion of India's rules governing forum
A party seeking to avoid a mandatory forum selection clause
must show that: (1) it is the result of fraud or overreaching;
(2) the party will be deprived of his day in court as the result
of the "grave inconvenience or unfairness of the selected forum";
(3) the party may be deprived of a remedy due to the "fundamental
unfairness" of the chosen law; or (4) the clause contravenes a
strong public policy of the forum state. DeJohn v. The .TV Corp.
International, 245 F.Supp.2d at 921. The plaintiffs do not
address any of these factors, and it is hard to see how they
would be prejudiced from proceeding in India since they are
Indian companies and gave the diamonds to Lemuir Express in
The court thus turns to the plaintiffs' final argument that
they did not file suit under the waybills, so the waybill's forum
selection clause does not govern this case. According to the
plaintiffs, they sued Malca Amit because the plaintiffs are a
third party beneficiary of the contract between Malca Amit and Lemuir Express. The plaintiffs explain
that Malca Amit lost the diamonds, not Lemuir Express, so there
is no need to bring Lemuir Express into this dispute.
Lemuir Express, however, appears to be ultimately responsible
for the lost diamonds as it issued a through bill of lading. This
type of bill of lading is issued in a foreign country to govern
shipment throughout its transportation from abroad to its final
destination in the United States. Capitol Converting Equipment,
Inc. v. LEP Transport, Inc., 965 F.2d 391, 394 (7th Cir. 1992).
A through bill of lading means that the issuer is "responsible
for the entire movement" of goods, so "[a] shipper may look to
its chosen carrier, which then bears the responsibility for
seeking compensation" from the agent which may ultimately be
responsible for the lost goods. Tempel Steel Corp. v. Landstar
Inway, Inc., 211 F.3d 1029, 1030 (7th Cir. 2000). Thus, the
plaintiffs cannot cut Lemuir Express out of this case by going
after Malca Amit USA directly. See American Patriot Ins. Agency,
Inc. v. Mutual Risk Management, Ltd., 364 F.3d 884, 889 (7th
Cir. 2004) (a plaintiff cannot defeat a forum-selection clause by
"suing an affiliate or affiliates of the party to the contract in
which the clause appears").
In sum, the waybills include a contract between the plaintiffs
and Lemuir Express. The contract, which contains a forum
selection clause fixing venue in India, governs the plaintiffs'
claims against Malca Amit arising from the missing diamonds.
Accordingly, venue as to Malca Amit USA is not proper in this
district. The court will, therefore, not reach the remaining
arguments raised in Malca Amit USA's motion to dismiss.
For the above reasons, U.S. Bancorp's motion to dismiss the
plaintiffs' negligence claims [30-1] is denied, but Malca Amit
USA's motion to dismiss for improper venue [40-1] is granted. To ensure that the record is complete, the parties shall ensure
that copies of the reverse side of the waybills are filed with
the court by May 16, 2005.