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Union Pacific Railroad Co. v. Pactrans Air & Sea, Inc.

United States District Court, N.D. Illinois, Eastern Division

December 20, 2017

UNION PACIFIC RAILROAD COMPANY, Plaintiff,
v.
PACTRANS AIR & SEA, INC., KETTY Y. PON, ALEXANDER PON, and CHANCE PON, Defendants.

          MEMORANDUM OPINION AND ORDER

          SHEILA FINNEGAN, UNITED STATES MAGISTRATE JUDGE.

         Plaintiff Union Pacific Railroad Company (“Union Pacific”), a Delaware corporation with its principal place of business in Omaha, Nebraska, is an interstate railroad that transports freight, including intermodal cargo. Defendant Pactrans Air & Sea, Inc. (“Pactrans”) is an Illinois freight logistics company with its principal place of business in Bensenville, Illinois. Beginning in 2010, the parties did business together in relation to the importation of shipping containers from China. This lawsuit was filed because Pactrans admittedly owes Union Pacific $5, 834, 633.21 yet has not repaid the funds and apparently lacks the financial ability to do so.

         Pactrans came to possess these funds because Union Pacific regularly transferred money to Pactrans to pay customs charges and other fees associated with the container importation process. When Union Pacific sought the return of approximately $5.8 million (after receiving a favorable ruling from the International Trade Commission that certain fees were not owed and would be refunded), it discovered that Pactrans had never paid these fees. Despite promptly demanding a refund from Pactrans, Union Pacific has not received any of the monies owed.

         In this diversity lawsuit, Union Pacific charges Pactrans, its President Kitty Pon (whose name was apparently misspelled in the complaint as “Ketty”), its secretary Alexander Pon (Kitty's husband), and employee Chance Pon (the son of Kitty and Alexander) with breach of fiduciary duty, conversion, and breach of contract. Union Pacific has also stated actions for money had and received and for an accounting, and seeks to pierce the corporate veil to access the Pons' personal assets in recovering the $5.8 million. The parties consented to the jurisdiction of the United States Magistrate Judge pursuant to 28 U.S.C. § 636(c).

         After Union Pacific responded to Defendants' motion to dismiss under Federal Rule 12(b)(6), the parties engaged a private mediator in an attempt to settle the case. When those negotiations failed, Union Pacific filed the instant motion for summary judgment even though the parties have not conducted any discovery in this case. Defendants withdrew their motion to dismiss on August 11, 2017, leaving the Court to resolve only the fully briefed motion for summary judgment. The Court has carefully reviewed the record, including arguments made during a hearing on November 3, 2017, and now grants Plaintiff's motion in part and denies it in part.

         OVERVIEW

         Before turning to the facts, it is helpful to understand that the underpinning for Union Pacific's early summary judgment motion is a Customs Power of Attorney (“Customs POA”) that it executed in favor of Pactrans on March 5, 2015. (Doc. 39, at 1) (“The only transaction that is at issue before this Court involves the Customs [POA] that was executed by Union Pacific on March 5, 2015.”). As Union Pacific sees it, this was the operative contract through which it agreed that Pactrans would serve as its agent, attorney, and customs broker, and entrusted Pactrans with $5.8 million to pay customs charges and perform other duties. In Union Pacific's view, by failing to pay the customs charges and not returning those funds, Pactrans breached that contract. Because this contract was a Power of Attorney, Union Pacific argues that Pactrans also breached fiduciary duties as a matter of law.

         Pactrans disagrees. While acknowledging that Union Pacific may have a restitution claim for overpayment, it asserts that the focus on the March 5th Customs POA is an attempt by Union Pacific to invent a tort claim in order to hold the individual defendants liable and contest dischargeability in the event of bankruptcy. This argument is premised on Kitty Pon's representation that Pactrans, which provides “import, export, warehousing, local trucking, and trade show organizing services, ” is not a licensed customs broker and so was unable to provide the customs services described in the POA. (Doc. 37, Kitty Pon Aff., ¶¶ 7, 8). As a result, Pactrans says the only authority it exercised under the March 5th Customs POA was to execute (on Union Pacific's behalf) a similar Customs POA between Union Pacific and a licensed customs broker able to provide these services, which the broker did at Pactrans' direction.

         Pactrans also alleges that Union Pacific knew the limited nature of its activities under the POA because the parties had followed the same course of conduct multiple times over the preceding five years. (Doc. 35, at 7). Moreover, Union Pacific transferred funds to pay the customs invoices without any requirement that they be segregated from other monies in Pactrans' general operating account or held in trust. Pactrans claims that since it was not acting pursuant to the Customs POA when it invoiced, collected and handled the money that Union Pacific owed for customs duties and other fees, it had no fiduciary responsibilities to Union Pacific relating to those funds and did not breach its obligations under the POA. Rather, Union Pacific “simply engaged in an arms-length transaction with a routine service provider.” (Doc. 35, at 8).

         BACKGROUND[1]

         When considering Union Pacific's summary judgment motion, the facts are viewed in a light most favorable to Pactrans. Continental Cas. Co. v. Nw. Nat. Ins. Co., 427 F.3d 1038, 1041 (7th Cir. 2005). Though the Court must assume the truth of those facts for purposes of this motion, it does not vouch for them. Arroyo v. Volvo Group N. Am., LLC, 805 F.3d 278, 281 (7th Cir. 2015).

         A. Pactrans Enters into Business with Union Pacific

         The relationship between Union Pacific and Pactrans dates back to 2010 when the parties executed a Contract for Work or Services relating to the “Stow, Load and Count of 53' Empty Dry Containers.” Under the terms of that contract, Pactrans acted as an independent contractor of Union Pacific. (Doc. 37, Kitty Pon Aff., ¶ 12). Since 2010, Pactrans has provided services to Union Pacific, “primarily relating to Union Pacific['s] importation of shipping containers from China, including arranging for Union Pacific employment of customs brokers to clear goods through customs.” (Id. ¶¶ 12, 13; Doc. 37, at 5-18).

         As noted, the usual course of dealing was for Union Pacific to execute and deliver a Customs POA to Pactrans, which Pactrans would then use to execute and deliver identical Customs POAs to licensed customs brokers “who acted on behalf of Union Pacific with respect to the importation of containers.” (Doc. 36, at 6-7 ¶ 3). For example, Union Pacific signed a Customs POA to Pactrans on June 18, 2010, and on June 23, 2010, Pactrans executed two customs power of attorney forms appointing James J. Boyle & Company as customs brokers for Union Pacific. (Doc. 37, at 19-22). Again on April 29, 2013, Union Pacific provided a Customs POA to Pactrans, and Pactrans in turn entered into a Customs POA with Jay J. Kim CHB on Union Pacific's behalf. (Id. at 23-24). The next available document shows that on March 2, 2015, Pactrans entered into a Customs POA with Nissin International Transport, U.S.A. Inc. (“Nissin”) on Union Pacific's behalf. (Doc. 37, at 25). There does not appear to be an intervening POA from Union Pacific, but three days later, Union Pacific signed the March 5th Customs POA that is at the center of this dispute and described in detail below. (Id. at 26). Shortly after this, Pactrans executed two Customs POAs with Harry F. Long, Inc. on behalf of Union Pacific (June 16, 2015 and July 6, 2015). (Id. at 27-28). Finally, on July 31, 2015, Union Pacific executed a new Customs POA in favor of Pactrans. (Id. at 29).

         B. The March 5, 2015 Customs Power of Attorney

         The March 5, 2015 Customs POA was signed by Union Pacific's Assistant Vice President - Supply, John A. Newman. It named Pactrans as its “true and lawful agent” authorized to “make, endorse, sign, declare, or swear to any entry, withdrawal, declaration, certificate, bill of lading, carnet or other document required by law or regulation in connection with the importation, transportation, or exportation of any merchandise shipped or consigned by or to [Union Pacific].” (Doc. 36, at 2 ¶ 2; Doc. 32-3). The POA further granted Pactrans the power to

sign and swear to any document and to perform any act that may be necessary or required by law or regulation in connection with the entering, clearing, lading, unlading, or operation of any vessel or other means of conveyance owned or operated by [Union Pacific]; . . . receive, endorse and collect checks issued for Customs duty refunds in [Union Pacific's] name . . . [a]nd generally to transact at the customhouses in any district any and all customs business, including ISF [importer security filing] and all billing of duty . . . giving to said agent and attorney full power and authority to do anything whatever requisite and necessary to be done in the premises as fully as [Union Pacific] could do if present and acting.

(Doc. 32-3).

         C. Pactrans Coordinates with Nissin and Invoices Union Pacific

         According to Pactrans, Nissin was appointed as customs broker for Union Pacific with respect to the 2015 shipping transactions at issue here.[2] As shipments arrived, Pactrans coordinated with Nissin regarding the determination of import duties and other fees associated with clearing the containers through customs. Pactrans and Nissin cleared all the containers through customs and the containers were delivered to Union Pacific. (Doc. 37, Kitty Pon Aff., ¶ 28).

         D. The Customs Charges

         Pactrans invoiced Union Pacific for customs duties and other fees associated with the shipments, including the Countervailing and Anti-dumping duties (the “Customs Charges”) at issue here. (Id. ¶ 24). After receiving invoices from Pactrans, Union Pacific transferred funds to Pactrans' general operating account in payment of these invoices. (Id. ¶ 25). Union Pacific did not require Pactrans to segregate or otherwise hold any of the remittance relating to customs duties and other fees in trust. (Id. ¶ 26). Pactrans received more than $15 million from Union Pacific and transferred a substantial portion of these funds to Nissin as expected. Funds not paid to Nissin were paid to ordinary course creditors or Pactrans lenders that had a security interest in funds in the operating account. (Id. ¶¶ 27-3). No distributions were made from the Union Pacific funds to the individual defendants other than “ordinary course salary and employee expense reimbursements.” (Id. ¶ 31).

         E. International Trade Commission Ruling and Request for Refund

         In May 2015, the International Trade Commission (“ITC”) determined that Union Pacific was not in fact required to pay certain Customs Charges that had been assessed by the U.S. Customs and Border Protection (“CBP”). Union Pacific remained obligated to pay those charges until the ITC's decision was published in June 2015, at which point the CBP began issuing Union Pacific refunds. (Doc. 36, at 4-5 ¶¶ 7, 8, 9). Union Pacific performed an accounting and reconciliation and discovered that Pactrans had “failed to pay all of Union Pacific's customs charges to Nissin International relating to certain of the shipments of containers, ” which Pactrans admits. This resulted in Union Pacific incurring a $4, 359 fine from the CBP. (Id. at 5 ¶¶ 10, 11).

         Union Pacific's Senior Manager for Strategic Sourcing, Marcia Tauriella, emailed Pactrans on January 5 and 13, 2016, demanding that the company issue a refund for the unpaid Customs Charges. (Id. at 5-6 ΒΆΒΆ 12, 13). Tauriella expressed concern regarding Pactrans' initial lack ...


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