Am. Commercial Lines, LLC v. Lubrizol Corp.

• Decision Date: 25 March 2016
• Docket Number: No. 15–3242.,15–3242.
• Citation: 817 F.3d 548
• Parties: AMERICAN COMMERCIAL LINES, LLC, Plaintiff–Appellant, v. The LUBRIZOL CORP., Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

817 F.3d 548

AMERICAN COMMERCIAL LINES, LLC, Plaintiff–Appellant,

v.The LUBRIZOL CORP., Defendant–Appellee.

No. 15–3242.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 26, 2016.

Decided March 25, 2016.

Daniel Edward Hancock, Jennifer Metzger Stinnett, Fultz, Maddox, Hovious, & Dickens, Louisville, KY, for Plaintiff–Appellant.

Jeffrey J. Lauderdale, The Lubrizol Corporation, Wickliffe, OH, for Defendant–Appellee.

Before POSNER, FLAUM, and EASTERBROOK, Circuit Judges.

POSNER, Circuit Judge.

The plaintiff and appellant in this commercial suit, American Commercial Lines (ACL), manufactures and operates tow boats and barges that ply the nation's inland waterways. The defendant, Lubrizol, manufactures industrial lubricants and additives, including a diesel-fuel additive that it calls LZ8411A. A company named VCS Chemical Corp. distributed the additive, and Lubrizol and VCS jointly persuaded ACL to buy it from VCS. Before delivery began, however, Lubrizol terminated VCS as a distributor because of suspicion that it was engaging in unethical conduct—one of Lubrizol's employees had failed to disclose to his employer that he was also a principal of VCS. But Lubrizol did not inform ACL that VCS was no longer its distributor.

No longer able to supply ACL with LZ8411A, VCS substituted an additive that ACL contends is inferior to LZ8411A. At least some of this other additive (which both Lubrizol and ACL call the "Counterfeit Additive") was produced by Afton Chemical Corp. VCS didn't inform ACL of the substitution. According to ACL's complaint, Lubrizol learned of the substitution too but also didn't inform ACL, which when it discovered the substitution brought the present suit—a diversity suit alleging a variety of violations of Indiana common law—against VCS, VCS's principal owner (who is also its CEO), and Lubrizol. ACL settled with VCS and its owner, leaving Lubrizol as the only defendant. The district judge dismissed part of the remaining suit on Lubrizol's motion to dismiss and the rest on its motion for summary judgment.

VCS is a small company, which is probably why ACL wasn't content with the size of the settlement with it and so has persisted in suing Lubrizol, making multiple claims. One is that VCS was an agent, and alternatively an apparent agent, of Lubrizol, see Gallant Ins. Co. v. Isaac, 751 N.E.2d 672, 675–77 (Ind.2001) ; Leon v. Caterpillar Industrial, Inc., 69 F.3d 1326, 1336–37 (7th Cir.1995) (Indiana law), and so VCS's substitution of the inferior additive should be imputed to Lubrizol as VCS's principal, making Lubrizol liable for VCS's fraud and breach of contract. ACL further argues that Lubrizol had, and broke, a contract with VCS to supply LZ8411A to ACL, and that ACL was a third-party beneficiary of the contract. Another claim is that Lubrizol had a quasi-contract with ACL stemming from earlier work the two firms had done jointly in testing the quality of the LZ8411A additive and its suitability for ACL's needs. Still another charge made in the complaint is that Lubrizol was guilty of constructive fraud because it had breached a duty to notify ACL of the break with VCS and the substitution of the inferior additive, and alternatively that Lubrizol committed "civil deception" by not notifying ACL. But at least ACL has abandoned an absurd claim of tortious interference with contract; it had claimed that Lubrizol's decision to terminate VCS as a distributor of Lubrizol products and thus cause VCS to breach its contracts with ACL had been motivated by "disinterested malevolence" toward ACL, "meaning that ... the defendant's conduct was not only harmful, but done with the sole intent to harm." Twin Laboratories, Inc. v. Weider Health & Fitness, 900 F.2d 566, 571 (2d Cir.1990) (New York law).

A manufacturer has no duty at common law to protect the customers of its distributors from misconduct by a distributor. ACL could have asked Lubrizol, which it knew to be VCS's supplier, for a contractual guaranty against VCS's failing to perform its contract with ACL. It didn't ask for a guaranty, apparently trusting VCS. ACL is not some helpless consumer, at the mercy of the companies it does business with; its estimated value in 2010 was $800 million. See Platinum Equity, "American Commercial Lines," www. platinumequity.com/american_commercial_ lines (visited March 24, 2016). ACL argues that by helping VCS land the LZ8411A contract with it, Lubrizol became a de facto party to the contract. But that would imply that a real estate agent who successfully brokers the sale of a house thereby becomes a seller of the house along with its client, the owner. It was natural for ACL, before deciding to buy LZ8411A from VCS, to consult the manufacturer of the additive (Lubrizol), who would be able to give more authoritative answers to questions about its quality and its suitability for use in ACL's tow boats than a distributor could give. That consultation did not create a contract between Lubrizol and ACL.

Although as the ultimate consumer ACL could expect to benefit from Lubrizol's sale of the additive to its distributor, that expectation did not make ACL a third-party beneficiary of the contract between VCS and Lubrizol. More was required. See, e.g., ...