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MONARCH GEMS v. MALCA-AMIT USA

May 4, 2005.

MONARCH GEMS, J.B. & S. BROS., BHARGOVI, and KIRAN EXPORTS, Plaintiffs,
v.
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.

I. Background

  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.

  II. Discussion

  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 liability).

  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, ...

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