Koch Fuels, Inc. v. Cargo of 13,000 Barrels of No. 2 Oil, s. 82-1542

• Decision Date: 13 April 1983
• Docket Number: 82-1550,Nos. 82-1542,s. 82-1542
• Citation: 704 F.2d 1038
• Parties: KOCH FUELS, INC., Appellee, v. CARGO OF 13,000 BARRELS OF NO. 2 OIL, MORE OR LESS, IN REM, and Inland Oil & Transport Co., Appellant. KOCH INDUSTRIES, INC., Appellant, Koch Fuels, Inc., v. CARGO OF 13,000 BARRELS OF NO. 2 OIL, MORE OR LESS, IN REM, and Inland Oil & Transport Co., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1038

704 F.2d 1038

1986 A.M.C. 256

KOCH FUELS, INC., Appellee, v. CARGO OF 13,000 BARRELS OF NO. 2 OIL, MORE OR LESS, IN REM, and Inland Oil & Transport Co., Appellant.

KOCH INDUSTRIES, INC., Appellant, Koch Fuels, Inc., v. CARGO OF 13,000 BARRELS OF NO. 2 OIL, MORE OR LESS, IN REM, and Inland Oil & Transport Co., Appellee.

Nos. 82-1542, 82-1550.

United States Court of Appeals Eighth Circuit.

Submitted Jan. 12, 1983.

Decided April 13, 1983.

Shepherd, Sandberg & Phoenix, P.C., John S. Sandberg, St. Louis, Mo., for appellant Koch Industries, Inc. and Koch Fuels, Inc.

Mark G. Arnold, Joseph P. Conran, Husch, Eppenberger, Donohue, Elson & Cornfeld, St. Louis, Mo., for appellee cross-appellant Inland Oil & Transport Co.

Before BRIGHT, ARNOLD and JOHN R. GIBSON, Circuit Judges.

BRIGHT, Circuit Judge.

This appeal and cross-appeal arise out of a dispute between plaintiff-appellant Koch Industries, Inc., and intervenor, counter-claimant, and cross-appellant Inland Oil & Transport Co. (Inland) over an alleged agreement to charter a barge for transporting a shipment of oil. Koch Industries initiated an in rem action for possession of a cargo of oil, and, pursuant to Rule 9(h) of the Federal Rules of Civil Procedure, ¹ designated its claim as one within the district court's ² admiralty jurisdiction. Inland intervened, filed a claim to the cargo, and filed a counterclaim against Koch Industries, seeking damages for breach of the charter agreement. On Inland's motion, the trial court severed Inland's in personam claims ³ and ordered them tried to a jury, which returned a verdict for Inland on its counterclaim in the amount of $35,000. Following the jury trial, the trial court considered the remaining claims under its admiralty jurisdiction, and held that the oil belonged to Koch Fuels, Inc., a subsidiary of Koch Industries which Koch Industries had joined as a party plaintiff. The court found Inland liable for conversion and entered judgment against Inland for $35,756.54.

On appeal, Koch Industries claims the trial court erred in severing Inland's counterclaim and granting Inland a jury trial thereon after Koch Industries had designated its claim as one in admiralty. Inland cross-appeals, claiming that the court erred in holding Inland liable for conversion and that the court wrongfully directed a verdict against Inland on its claim against Koch Industries for fraud. We affirm the judgment of the district court, 530 F.Supp. 1074.

I. Background.

Koch Industries, a Kansas corporation, is the sole owner of its subsidiary, Koch Fuels. Inland, a Missouri corporation, operates a barge line. On February 26, 1980, Roger Elliott, an officer of Koch Industries, contacted Jane Novak, an employee of Inland, about transporting a shipment of oil from Union Oil Company in LeMont, Illinois, to a Chicago terminal operated by Koch Fuels. Elliott and Novak tentatively agreed that Koch Industries would charter a barge for $800 per day, and that Novak would send a telex message setting forth the terms of the agreement. Novak mentioned that the telex would include some additional terms relating to insurance and indemnity.

Upon receiving the telex, Elliott and two other officers of Koch Industries found Inland's terms of warranty and indemnity unacceptable. They attempted to call Novak to propose terms they considered acceptable, but Novak had left work for the day. According to the terms of Inland's telex, Koch Industries was to acknowledge acceptance of the charter by return telex. Koch Industries did not send an acknowledgement.

Apparently, however, Elliott did not foresee any insurmountable problems in arriving at an acceptable agreement. Earlier that afternoon, before Koch Industries had received Inland's telex, officials of both companies contacted the Union Oil refinery. Officials at the three companies made preparatory arrangements for dock space at Union Oil to load the barge with oil, and Inland retrieved one of its barges from a shipyard where the barge had been docked for repairs. Although Koch Industries objected to the language contained in Inland's telex, Elliott testified at trial that upon receiving the telex, he made no attempt to halt the arrangements made previously that afternoon.

On the morning of the next day, February 27, Union Oil personnel began pumping oil onto the barge. Sometime that morning, however, Union Oil personnel discovered a pinhole leak in one of the compartments of the barge. Union Oil contacted both Novak and Elliott, and both agreed that the oil would have to be pumped back to Union Oil's refinery, and the barge returned to its shipyard to repair the leak. While pumping the oil off the barge, the pump broke down, and the barge, still laden with its cargo, had to be returned to its shipyard for repairs to the pump. The pump remained broken for two days, until February 29. Sometime on February 27, Union Oil officials measured the amount of oil on the barge at 554,171 gallons. The district court could not determine from the evidence, however, whether the Union Oil officials measured the oil before or after they began pumping it back to the refinery. ⁴ Koch Industries paid Union Oil for 554,171 gallons of oil.

Before the barge could be returned to the Union Oil docks to resume pumping off the oil, relations between Koch Industries and Inland broke down. Koch Industries notified Inland that it no longer wished to ship the oil. Inland maintained that, under its purported telex agreement with Koch Industries, Koch Industries had assumed responsibility for charter hire, barge repair, and all other liability incurred in connection with the barge since February 26. Furthermore, Inland stated that it considered the barge redelivered to Inland by Koch Industries and the cargo abandoned. Inland refused to discharge the oil unless Koch Industries agreed to indemnify Inland and put up $60,000 as security for the losses Inland incurred in securing and repairing the barge. Inland also refused to allow Koch Industries' surveyor to measure the oil on the barge. On March 4 or 5, Inland had the barge towed to St. Louis, stored the oil, and notified Koch Industries that it intended to store the oil at Koch Industries' expense until the parties "resolved" the issues.

Koch Industries maintained that it had never accepted Inland's initial offer of charter, denied liability for any expenses, and demanded that Inland return the oil. On March 13, 1980, Koch Industries initiated its in rem action seeking a declaration of ownership and possession of the cargo. Inland intervened as defendant, filed its answer and claim to the cargo, and filed its counterclaim against Koch Industries. Koch Industries, in turn, amended its in rem complaint to allege in personam claims of conversion directly against Inland. Pursuant to Rule 9(h), Koch Industries designated its entire claim as one in admiralty. ⁵ After requiring Koch Industries to post bond, the court ordered the oil delivered to Koch Industries. Thereafter, Inland delivered 512,719 gallons of oil to Koch Industries.

On Koch Industries' motion, the court allowed Koch Industries to amend its complaint and add Koch Fuels, its subsidiary, as a party plaintiff. Prior to trial, the court granted summary judgment against Koch Industries on its claim to the oil. Basing its holding on deposition testimony, the court concluded that Koch Industries had never owned the oil. In addition, the court ruled that Inland's counterclaim presented common law claims entitling Inland to a jury trial, and granted Inland a separate trial on its counterclaim.

Following the jury trial, in which the jury awarded Inland $35,000 on its counterclaim against Koch Industries, the court tried the issue of ownership of the cargo and held that: (1) Koch Fuels owned the oil; (2) Koch Industries had acted as agent for Koch Fuels; (3) Inland wrongfully converted the oil on February 29 (when Inland did not return the barge to Union Oil's docks after the barge pump was repaired); and (4) Koch Industries was entitled to the fair market value of the difference between the amount of oil for which Koch Industries paid Union Oil and the amount Inland returned to Koch Industries. The court entered judgment against Inland of $35,756.54, plus prejudgment interest.

II. Discussion.

A. Inland's Right to a Jury Trial.

Koch Industries contends that the trial court abused its discretion in granting Inland a jury trial on Inland's counterclaim. Koch Industries argues that because the two claims arose out of the same sequence of events, and Koch Industries had elected under Rule 9(h) to proceed within the admiralty jurisdiction of the court, the Rule 9(h) election entitled Koch Industries to a bench trial of the entire suit.

The seventh amendment does not require jury trials in cases based on claims in admiralty. Fitzgerald v. United States Lines, 374 U.S. 16, 20, 83 S.Ct. 1646, 1650, 10 L.Ed.2d 720 (1963). Ordinarily, admiralty claims are tried to the court. An admiralty claim that is also cognizable as a civil claim, however, may be brought as an ordinary civil action. In these cases, the right to trial by jury attaches. Atlantic & Gulf Stevedores, Inc. v. Ellerman Lines, Ltd., 369 U.S. 355, 359-60, 82 S.Ct. 780, 783-784, 7 L.Ed.2d 798 (1962).

Under Rule 9(h), a plaintiff whose claim could be brought in federal court either in admiralty or under some alternative cause of action may designate the claim as one in admiralty. Generally, such an election precludes a jury trial. As the Advisory Committee Note to Rule 9(h) explains:

One of the important procedural consequences [of a Rule 9(h) election] is that in the civil action either party may demand a jury trial, while in the suit in admiralty there is no right to jury trial except as provided by statute. [Fed.R.Civ.P. 9(h) advisory committee note.]

Although there is no constitutional right to a jury trial in an admiralty case, neither is there a prohibition...