Chicago Prime Packers v. Northam Food Trading

• Decision Date: 23 May 2005
• Docket Number: No. 04-2551.,04-2551.
• Citation: 408 F.3d 894
• Parties: CHICAGO PRIME PACKERS, INC., Plaintiff-Appellee, v. NORTHAM FOOD TRADING CO., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 894

408 F.3d 894

CHICAGO PRIME PACKERS, INC., Plaintiff-Appellee, v. NORTHAM FOOD TRADING CO., Defendant-Appellant.

No. 04-2551.

United States Court of Appeals, Seventh Circuit.

Argued January 4, 2005.

Decided May 23, 2005.

Travis J. Ketterman (argued), Whitefield & McGann, Chicago, IL, for Plaintiff-Appellant.

Kevin Q. Butler, Condon & Cook, Chicago, IL, Cornelius E. McKnight (argued), McKnight, Kitzinger, McCarty & Pravdic, Chicago, IL, for Defendant-Appellant.

Before FLAUM, Chief Judge, and EVANS and WILLIAMS, Circuit Judges.

FLAUM, Chief Judge.

Defendant-appellant Northam Food Trading Company ("Northam") contracted with plaintiff-appellee Chicago Prime Packers, Inc. ("Chicago Prime") for the purchase of 40,500 pounds of pork back ribs. Following delivery, Northam refused to pay Chicago Prime the contract price, claiming that the ribs arrived in an "off condition." Chicago Prime filed this diversity action for breach of contract against Northam. Following a bench trial, the district court awarded Chicago Prime $178,200.00, the contract price, plus prejudgment interest of $27,242.63. Northam appeals the award. For the reasons stated herein, we affirm.

I. Background

The district court found the following facts based on the stipulations of the parties and the evidence presented at trial. Because neither party contends that any of the findings of fact in this section are "clearly erroneous," we accept them as established for purposes of this appeal. See Fed.R.Civ.P. 52(a).

Chicago Prime, a Colorado corporation, and Northam, a partnership formed under the laws of Ontario, Canada, are both wholesalers of meat products. On March 30, 2001, Chicago Prime contracted to sell Northam 1,350 boxes (40,500 pounds) of pork back ribs. Northam agreed to pay $178,200.00 for the ribs, with payment due within seven days of receipt of the shipment. The contract also set forth a description of the ribs, the price, and the date and location for pick-up.

Chicago Prime purchased the ribs specified in the contract from meat processor Brookfield Farms ("Brookfield"). When a pork loin is processed at Brookfield, it is broken into various segments, one of which is the back rib. After processing, Brookfield packages back ribs "flat" (horizontally), layer by layer, in 30-pound boxes. The ribs are placed first in a blast freezer and then transferred to an outside freezer where they remain until shipped.

In addition to its own freezers, Brookfield stored the ribs at issue in this case in as many as two independent cold storage facilities: B & B Pullman Cold Storage ("B & B"), and Fulton Market Cold Storage ("Fulton"). According to Brookfield's temperature logs and quality control records for its own facilities, the ribs were maintained at acceptable temperatures and were processed and maintained in accordance with Brookfield's procedures. Records presented at trial also indicate that the ribs were stored at or below acceptable temperatures during the entire time they were in B & B's possession. The parties offered no evidence regarding storage of the ribs at Fulton.

On April 24, 2001, Brown Brother's Trucking Company ("Brown"), acting on behalf of Northam, picked up 40,500 pounds of ribs from B & B. Chicago Prime, the seller, never possessed the ribs. When Brown accepted the shipment, it signed a bill of lading, thereby acknowledging that the goods were "in apparent good order." The bill of lading also indicated, however, that the "contents and condition of contents of packages [were] unknown." The next day, Brown delivered the shipment to Northam's customer, Beacon Premium Meats ("Beacon"). Like Chicago Prime, Northam, the buyer, never possessed the ribs. Upon delivery, Beacon signed a second bill of lading acknowledging that it had received the shipment "in apparent good order," except for some problems not at issue in this case.

Under the terms of the contract, Northam was obligated to pay Chicago Prime by May 1, 2001. Sandra Burdon, who negotiated the contract on behalf of Northam, testified that, on that date, Northam had no basis for withholding payment. In fact, she thought that a check had been sent to Chicago Prime prior to May 1, 2001, but subsequently discovered that the check had not been mailed. On May 2, 2001, Chicago Prime, not having heard from Northam, demanded payment.

On May 4, 2001, Beacon began "processing" a shipment of ribs and noticed that the product appeared to be in an "off condition." Beacon asked Inspector Ken Ward of the United States Department of Agriculture ("USDA") to examine the product. Ward inspected the ribs at the Beacon facility, found that the meat "did not look good," and ordered Beacon to stop processing it. Ward then placed a "U.S. Retained" tag on the shipment, noting "yellow, green, temp[erature], abused, spoiled," and had the ribs placed in Beacon's freezer. The same day, Northam and Chicago Prime learned of a potential problem with the ribs.

Inspector Ward returned to Beacon on May 7 and 8, 2001 and examined both frozen and thawed samples of the product. On May 23, 2001, Dr. John Maltby, Ward's supervisor, also conducted an on-site inspection of the ribs. When Dr. Maltby arrived, Beacon employees were "reworking" the ribs, trying to salvage any good portions. Dr. Maltby reviewed Beacon's shipping records and temperature logs from the relevant time period and found no "anomalies" or "gaps." In addition, he examined approximately 20 cases of ribs and prepared a written report. According to this report, Beacon gave Dr. Maltby two pallets of frozen ribs untouched by Beacon, as well as some of the product that Beacon had reworked. Looking inside the intact pallets, Dr. Maltby found ribs stacked both horizontally and vertically, with some frozen individually and others frozen together in larger units. The individually frozen ribs were "putrid," while the ribs frozen in larger units were "good."

Examining samples of the thawed, reworked product, Dr. Maltby found putrid, green, slimy ribs, but no sign of temperature abuse. He concluded in his report that the inspected product was rotten, that it arrived at Beacon in a rotten condition, and that it appeared to have been "assembled from various sources." Dr. Maltby also concluded that there was no opportunity for salvage and that all of the product should be condemned. The same day, the USDA issued a Notice of Receipt of Adulterated or Misbranded Product and the entire shipment of 1,350 boxes of ribs was condemned. After Northam informed it of the results of Dr. Malby's inspection, Chicago Prime continued to demand payment and eventually filed suit.

At trial, it was undisputed that the parties entered into a valid and enforceable contract for the sale and purchase of ribs, that Chicago Prime transferred a shipment of ribs to a trucking company hired by Northam, and that Northam had not paid Chicago Prime for the ribs. Northam argued that it was relieved of its contractual payment obligation because the ribs were spoiled when its agent, Brown, received them. The district court concluded that it was Northam's burden to prove nonconformity, and held that Northam had failed to prove that the ribs from Chicago Prime were spoiled at the time of transfer to Brown. The court went on to state alternative holdings in favor of Chicago Prime based on its finding that, "even if the ribs were spoiled at the time of transfer, Northam ... failed to prove that it examined the ribs, or caused them to be examined, within as short a period as is practicable under the circumstances, or that it rejected or revoked its acceptance of the ribs within a reasonable time after it discovered or should have discovered the alleged non-conformity." Chi. Prime Packers, Inc. v. Northam Food Trading Co., 320 F.Supp.2d 702, 711 (N.D.Ill.2004). The court awarded Chicago Prime the contract price of $178,200.00, plus prejudgment interest of $27,242.63.

II. Discussion

The district court held, and the parties do not dispute, that the contract at issue is governed by the United Nations Convention on Contracts for the International Sale of Goods ("CISG"), reprinted at 15 U.S.C.A. Appendix (West 1997), a self-executing agreement between the United States and other signatories, including Canada. Under the CISG, "[t]he seller must deliver goods which are of the quantity, quality and description required by the contract," and "the goods do not conform with the contract unless they ... [a]re fit for the purposes for which goods of the same description would ordinarily be used." CISG Art. 35(1)-(2). The risk of loss passes from the seller to the buyer when the goods are transferred to the buyer's carrier. CISG Art. 67(1). While the seller is liable "for any lack of conformity which exists at the time when risk passes to the buyer," CISG Art. 36(1), the buyer bears the risk of "[l]oss of or damage to the goods after the risk has passed to the buyer ... unless the damage is due to an act or omission of the seller." CISG Art. 66. In other words, Chicago Prime is responsible for the loss if the ribs were spoiled (nonconforming) at the time Northam's agent, Brown, received them from Chicago Prime's agent, Brookfield, while Northam is responsible if they did not become spoiled until after the transfer.

The parties agree that the main factual issue before the district court was whether the ribs were spoiled at the time of transfer. On appeal, Northam makes two arguments: (1) that the district court erred in placing upon Northam the burden of proving that the ribs were spoiled at the time of transfer, and (2) that the evidence presented at trial does not support the district court's finding that the ribs became spoiled after Brown received them from Brookfield.

A. Burden of Proof

Northam asserts that Chicago Prime should bear the burden of proving that the ribs were not spoiled at the time of transfer because the quality of the goods is an essential element of Chicago Prime's...