Inland Metals Refining Co. v. Ceres Marine Terminals, Inc.

• Decision Date: 11 February 1983
• Docket Number: No. 82 C 0839.,82 C 0839.
• Citation: 557 F. Supp. 344
• Parties: INLAND METALS REFINING CO., Plaintiff, v. CERES MARINE TERMINALS, INC., Defendant.
• Court: U.S. District Court — Northern District of Illinois

557 F. Supp. 344

INLAND METALS REFINING CO., Plaintiff, v. CERES MARINE TERMINALS, INC., Defendant.

No. 82 C 0839.

United States District Court, N.D. Illinois, E.D.

February 11, 1983.

Francis M. Pawlak, Altheimer & Gray, Kenneth R. Gaines, Roger B. Harris, Chicago, Ill., for plaintiff.

Theodore C. Robinson, Ray, Robinson, Keener & Hanninen, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Inland Metals Refining Company ("Inland") brings this two-count diversity action against Ceres Marine Terminals, Inc. ("Ceres"), seeking damages for the loss of metal inventories Inland had stored in Ceres' warehouse:

1. Count I charges "Ceres' failure to redeliver Inland's property, in the absence of any explanation therefor, constitutes a conversion of Inland's lead and zinc" (Complaint ¶ 10).

2. Count II asserts Ceres breached a contractual duty to exercise reasonable care in storing the metal.

Both sides now move for summary judgment. For the reasons stated in this memorandum opinion and order, Ceres' motion is granted as to Count I and the damage issue on Count II,¹ and Inland's motion is granted as to the liability issue on Count II.

Facts

In almost all respects there is no real dispute as to the relevant events; and any differences that do exist are nonmaterial in legal terms. Between August 3, 1977 and April 1, 1979 Inland delivered large quantities of lead and zinc to Ceres' Portage, Indiana warehouse for safekeeping, paying monthly storage fees of $1.25 per ton. Upon receipt of each lot Ceres gave Inland a form warehouse receipt ("Warehouse Receipt") containing the terms and conditions of the bailment. Warehouse Receipt § 9(a) (captioned "LIABILITY") states:

The warehouseman assumes no liability for any loss or injury to the goods stored which could not have been avoided by the exercise of reasonable care required by law of a reasonably careful man....

Warehouse Receipt § 10(a) (entitled "LIMITATIONS OF DAMAGES AND CLAIMS") provides:

The depositor declares that damages are limited to 200 times the base storage rate, provided, however, that such liability may on written request of the depositor within a reasonable time after receipt of warehouse receipt be increased on part or all of the goods hereunder, in which event a monthly charge of 20 cents per $100.00 of excess value will be made in addition to the regular monthly charge.

At no time did Inland request an increase in Ceres' contractual liability.

From May 1, 1980 through May 23, 1981 Ceres' periodic inventory checks reflected shortages in some of Inland's stored metals:

1. 270 pieces of lead on May 1, 1980;

2. 3 bundles of zinc on August 31, 1980;

3. 31 pieces of lead on April 16, 1981;

4. 2 pieces of lead on May 23, 1981.²

Ceres believed "the material was still on hand somewhere in the warehouse itself" and:

that some of the cargo could possibly have been moved to another location within the building, and the person taking the inventory at that time just had failed to pick everything up; therefore, we kept the inventory, as far as storage purposes, the same until that shortage could be verified.

Q. What facts led you to believe that the shortages in this inventory were somewhere else, could be explained by the metals being somewhere else in the warehouse?

A. Well, the inventory could have been taken by a checker who is from the ILA, and they are not always the most responsible type of people. The inventory was taken in May, which is at the start of our shipping season, again which is very busy and is very hectic, and they might have moved some of that material to make room for cargo coming off of the vessels. So at that time, we felt that there would be no adjustments made on the storage invoices until such time as it could be verified.

Ceres' Assistant Manager Richard Suranovic ("Suranovic") Dep. 32-33. Accordingly Ceres did not notify Inland of the situation.

It was Inland's May 1981 request for the return of its metals — made about a year after the first apparent shortage had been reported to Ceres — that resulted in a confirmation the shortages were real. At that point Ceres advised Inland.

Ceres attributes disappearance of the metals to theft by unknown individuals (and has submitted a theft report to the Indiana State Police).³ Inland speculates Ceres converted the metals either deliberately (for its own use) or inadvertently (by misdelivery). Neither side has proffered any solid evidentiary support for its explanation.

Current Motions

In its summary judgment motion, Inland seeks the full value of the lost metals, contending as a matter of law Ceres committed either conversion or negligence (for which it is assertedly contractually liable).⁴ Inland also urges (1) principles of equitable estoppel bar Ceres' invocation of Warehouse Receipt § 10(a)'s damages-limiting provision and (2) Ind.Code § 26-1-7-204(2) (corresponding to UCC § 7-204)⁵ renders that provision unenforceable as to losses caused by the warehouseman's acts of conversion.

Ceres' motion seeks summary judgment on Count I, emphasizing Inland's failure to adduce any evidence of Ceres' wrongful disposition of Inland's property. As for Count II:

1. Ceres claims Suranovic's deposition testimony, which outlined the general security precautions taken at its Portage warehouse, created an issue of fact.

2. Ceres also calls on Section 10(a) to restrict its liability if it were held negligent.

There is just one respect in which the parties' positions are not polar opposites. They agree that Illinois' choice-of-law rules look to Indiana law for the rule of decision on every legal question.

Count I

Despite the applicability of Indiana law, Inland places its Count I reliance on I.C.C. Metals, Inc. v. Municipal Warehouse Co., 50 N.Y.2d 657, 431 N.Y.S.2d 372, 409 N.E.2d 849 (1980) and a federal case following that New York decision. I.C.C. Metals holds proof of (1) delivery of the bailed goods to the warehouseman and (2) the warehouseman's failure to return them upon proper demand establishes a prima facie case of conversion (thereby rendering any liability-limiting provision ineffective). That prima facie case can be overcome only upon proof of some alternative explanation for the goods' disappearance. Inland concludes summary judgment (which was granted in I.C.C. Metals) is therefore warranted, given Ceres' inability to proffer enough support for its theft hypothesis to create an issue of material fact.

Ceres retorts in effect that I.C.C. Metals could carry the day were Ceres' warehouse in New York, but Indiana law is to the contrary. In Vandalia Railroad Co. v. Upson Nut Co., 55 Ind.App. 252, 101 N.E. 114 (1913) an iron manufacturer turned over a load of iron⁶ to the railroad company for shipment and delivery to the purchaser of the iron. Though no delivery took place, the evidence failed to illuminate what actually happened to the shipment.

Against that background the court (55 Ind.App. at 254-55, 101 N.E. at 114-15) began its analysis with a brief discussion of the gravamen of conversion:

A conversion by a common carrier or other bailee implies some wrongful act — a wrongful disposition or withholding of the property. There must be an affirmative wrongful act; and mere nonfeasance or failure to perform a duty imposed by contract or implied by law is not a conversion. There must be a wrongful taking or detention, or an illegal use, misuse, or assumption of ownership. A misdelivery by a carrier may be a conversion; but a mere nondelivery is not.

Under those principles the court reversed the jury's verdict against the defendant carrier. Its language might well have been written for this case (55 Ind.App. at 256-57, 101 N.E. at 115):

There is no evidence to show what was the actual disposition of the iron....

* * * * * *

What became of the iron seems to have been a mystery to plaintiff, to both defendants, to their counsel, and to the witnesses, and it is a mystery also to the writer of this opinion.... The evidence, as detailed above, is amply sufficient for the jury to find that the iron was never delivered to the purchaser. But we do not think it sufficient to show that the railroad company converted the iron. It appears that the iron was delivered to the railroad company, and that it never delivered it to the purchaser. Such evidence might make out a case of failure to deliver as a carrier; but there is no direct evidence of any positive wrongful act on the part of the railroad company, inconsistent with the bailor's ownership, which would constitute a conversion.... The most, perhaps, that can be inferred from the evidence is that the iron was lost; and a carrier is not liable for a conversion where goods are merely lost. We do not think that the jury was justified in finding from the evidence that appellant converted the car load of iron, and therefore the court erred in overruling the motion of the Railroad Company, for a new trial, and for that error the judgment must be reversed as to the Railroad Company.

In short, under Vandalia the absence of any evidence as to the iron's actual disposition exonerated the defendant of liability for conversion as a matter of law. That holding places the evidentiary burdens of going forward and of proof on the bailor: It must establish conversion as the explanation for the failure of the bailee to return the entrusted goods.

Despite its vintage Vandalia still represents the law in Indiana. Indeed 6 Ind.L.E. Conversion § 13, at 344 & n. 18 acknowledges its current vitality. It must be recalled that the UCC statutory test is whether there has been a warehouseman's "conversion to his own use" — and Inland has advanced nothing to indicate Indiana would depart from its common-law (and commonsense) reading of that concept in construing the liability-limitation clause of the UCC. Because Inland introduced "no direct evidence of any positive wrongful act" on Ceres' part, Ceres is entitled to summary...