F.W. Hempel & Co., Inc. v. Metal World, Inc.

• Decision Date: 21 November 1983
• Docket Number: No. 82-2637,82-2637
• Parties: F.W. HEMPEL & CO., INC., a corporation, Plaintiff-Appellant, v. METAL WORLD, INC., a corporation, and Ledoux and Company, a corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 610

721 F.2d 610

F.W. HEMPEL & CO., INC., a corporation, Plaintiff-Appellant, v. METAL WORLD, INC., a corporation, and Ledoux and Company, a corporation, Defendants-Appellees.

No. 82-2637.

United States Court of Appeals Seventh Circuit.

Argued April 8, 1983.

Decided Nov. 21, 1983.

Robert E. DeRight, Jr., Alexander & Green, New York City, for plaintiff-appellant.

Stanley W. Kallmann, Gennet & Kallman, Roseland, N.J., for defendants-appellees.

Before PELL and COFFEY, Circuit Judges, and WEIGEL, District Judge. ^*

WEIGEL, District Judge.

F.W. Hempel & Co., Inc. ("Hempel") appeals from a judgment notwithstanding the verdict. This judgment in favor of appellee Ledoux and Company ("Ledoux") was rendered after a jury verdict in the United States District Court for the Southern District of Illinois by United States Magistrate Kenneth J. Meyers, sitting as the trial court, pursuant to 28 U.S.C. Sec. 636(c)(1). Our jurisdiction rests on 28 U.S.C. Sec. 1291.

Hempel is engaged in buying, selling, and trading metal commodities. Ledoux is a corporation in the business of sampling, analyzing, and reporting on its analysis of metal commodities on behalf of producers and users. ¹

On October 5, 1979, Hempel contracted in writing to purchase a quantity of "Technical Grade Molybdic Oxide" ("TGMO") from Metal World, Inc. ("Metal World"), a buyer and seller of scrap metal. This agreement conditioned payment by Hempel upon, inter alia, receipt of a "Ledoux Assay Certificate". At some point between October 5 and October 15, 1979, Ledoux entered into an oral contract with Metal World. ² Under this contract, Ledoux agreed to sample, analyze, and report on certain materials at Metal World's East St. Louis, Missouri, plant.

On October 15, 1979, James L. Buck, a Ledoux employee, arrived at Metal World's East St. Louis facility and took representative samples from 83 drums of TGMO. After completing sampling of each drum on October 15, Buck sealed each drum twice. He then sent portions of these samples to Ledoux's laboratory for analysis. A Ledoux "Weight Certificate" relating to the 83 drums examined by Buck, dated October 15, 1979, states that the material was weighed by Buck "for F.W. Hemple [sic]."

On October 26, 1979, Ledoux issued its Report of Analysis, or "Ledoux Assay Certificate" ("October 26 Report"), stating that the sampled TGMO contained 58.73% molybdenum. ³ On November 8, 1979, a Hempel representative telephoned Ledoux and requested information as to the percentage of phosphorous contained in the 83 drums sampled by Buck. This information had not been included in the October 26 Report. On November 9, 1979, Ledoux released, via telex, to Hempel its analysis of the phosphorous content.

On November 12, 1979, in reliance on the data released by Ledoux, Hempel took delivery of the 83 drums and paid Metal World $198,623.46. Hempel then directed that the drums be passed on to a trucker. On November 16, 1979, the trucker, at Hempel's instruction, delivered the drums to Powell Metals & Chemicals ("Powell") in Rockford, Illinois. Upon the arrival of the drums there, Powell rejected the shipment of all 83 drums because the material in them allegedly was not TGMO, and because several drums were damaged and/or had broken or removed seals. Hempel agreed to replace this defective shipment. Hempel then tendered the rejected material back to Metal World, but Metal World refused to take it back.

In December, 1979, Hempel retained Andrew S. McCreath & Son, Inc. ("McCreath") to take and analyze a representative sample from the 83 drums rejected by Powell. After carrying out its sampling, McCreath issued three reports. None revealed the sample to have more than 44.79% content of molybdenum, substantially below the molybdenum level reported by Ledoux.

On August 7, 1980, Hempel commenced this diversity action against Metal World and Ledoux in the United States District Court for the Southern District of Illinois. ⁴ A jury trial before Magistrate Meyers, sitting as the district court, began on April 26, 1982. On April 29, 1982, the jury returned a $147,834.52 verdict for Hempel against Ledoux on Hempel's claim that it was a third party beneficiary of the supposedly breached agreement between Metal World and Ledoux. ⁵ Judgment was entered accordingly, on May 3, 1982.

Ledoux subsequently moved for judgment notwithstanding the verdict or, alternatively, for a new trial, pursuant to Fed.R.Civ.P. 50(b). On September 7, 1982, the district court granted the motion for judgment notwithstanding the verdict, concluding that there was insufficient evidence from which the jury could have found that Hempel was a third party beneficiary of the agreement between Metal World and Ledoux. The district court also conditionally granted Ledoux's alternative motion for a new trial, in the event of an appellate reversal or vacation of the judgment notwithstanding the verdict, pursuant to Fed.R.Civ.P. 50(c)(1).

In a diversity action, it is settled that state law governs disposition of a motion for judgment notwithstanding the verdict. See Kuziw v. Lake Engineering Co., 586 F.2d 33, 35 (7th Cir.1978); Kudelka v. American Hoist & Derrick Co., 541 F.2d 651, 654 (7th Cir.1976). The parties agree that Illinois law controls on this appeal from the district court's judgment.

In Pedrick v. Peoria & Eastern Railroad Co., 37 Ill.2d 494, 229 N.E.2d 504, 513-14 (1967), the Supreme Court of Illinois stated that a trial court should enter judgment notwithstanding the verdict "only in those cases in which all of the evidence, when viewed in its aspect most favorable to the opponent, so overwhelmingly favors movant that no contrary verdict based on that evidence could ever stand." When reviewing a district court's decision on a motion for judgment notwithstanding the verdict, this Court applies the same standards as the court below did. Pinkowski v. Sherman Hotel, 313 F.2d 190, 192 (7th Cir.1963). See also Rosenberg v. Trautwein, 624 F.2d 666, 669 (5th Cir.1980); Maggipinto v. Reichman, 607 F.2d 621, 624 n. 7 (3d Cir.1979). Pedrick governs our view of the district court's decision. We are mindful, therefore, that judgment notwithstanding the verdict should rarely be entered. See Clemons v. Mitsui O.S.K. Lines, Ltd., 596 F.2d 746, 748 (7th Cir.1979), cert. denied sub nom. McCulley v. Mitsui O.S.K. Lines, Ltd., 451 U.S. 969, 101 S.Ct. 2044, 68 L.Ed.2d 347 (1981).

There is no question that the seminal and still vital Illinois authority as to third party beneficiaries is Carson Pirie Scott & Co. v. Parrett, 346 Ill. 252, 178 N.E. 498 (1931). See Altevogt v. Brinkoetter, 85 Ill.2d 44, 51 Ill.Dec. 674, 421 N.E.2d 182 (1981); Illinois Housing Development Authority v. Sjostrom & Sons, Inc., 105 Ill.App.3d 247, 61 Ill.Dec. 22, 433 N.E.2d 1350 (1982). In Carson Pirie Scott, the Supreme Court of Illinois stated, 178 N.E. at 501:

"The rule is settled in this state that, if a contract be entered into for a direct benefit of a third person not a party thereto, such third party may sue for breach thereof. The test is whether the benefit to the third person is direct to him arising from the contract. If direct, he may sue on the contract, if incidental he has no right of recovery thereon."

The Carson Pirie Scott court went on to assert:

"The rule is that the right of a third party benefited by a contract to sue thereon rests upon the liability of the promisor, and this liability must affirmatively appear from the language of the instrument when properly interpreted and construed. The liability so appearing cannot be extended or enlarged on the ground alone that the situation and circumstances of the parties justify or demand further or other liability." Id.

Thus, Carson Pirie Scott has established that a third party is a direct rather than an incidental beneficiary "only if the contracting parties have manifested in their contract an intention to confer a benefit upon the third party." Altevogt v. Brinkoetter, 421 N.E.2d at 187. See also Waterford Condominium Association v. Dunbar Corp., 104 Ill.App.3d 371, 60 Ill.Dec. 110, 432 N.E.2d 1009 (1982). The express language of the contract and the surrounding circumstances at the time the contract was executed determine whether or not the contracting parties intended to benefit a third party directly. Carson Pirie Scott, 178 N.E. at 501. See also People ex rel. Resnick v. Curtis & Davis Architects & Planners, Inc., 78 Ill.2d 381, 36 Ill.Dec. 338, 400 N.E.2d 918 (1980); Illinois Housing Development Authority, 433 N.E.2d at 1350. However, the contract need not name a particular third party beneficiary. "The contract may define a third party by description of a class, and it is sufficient if the plaintiff may be identified at the time performance is due as a member of the class intended to be benefited." Altevogt v. Brinkoetter, 421 N.E.2d at 187. Under Illinois law, there is always a strong presumption that contracting parties bargain and agree for themselves and only incidentally for third persons. See Waterford Condominium Association, 432 N.E.2d at 1011; Midwest Concrete Products Co. v. LaSalle National Bank, 94 Ill.App.3d 394, 49 Ill.Dec. 968, 418 N.E.2d 988, 990 (1981).

Thus, it is the Court's task to scrutinize the intention of the parties at the time they entered into the contract to determine whether or not a particular entity, either individually or as a member of a certain class, is a direct third party beneficiary. See Waterford Condominium Association, 432 N.E.2d at 1011; Midwest Concrete Products Co., 418 N.E.2d at 990. Our review of the record in this case has disclosed no proof that at the time Metal World and Ledoux entered into their oral agreement (sometime between October 5 and October 15, 1979), both parties intended the contract to be for the direct benefit of Hempel. ⁶ See Carson Pirie Scott, 178 N.E. at 501. Richard Becker, one of Hempel's witnesses and President of Metal World, testified that originally...