Redmond v. Igt, Inc. (In re GMJ Global Logistics, Inc.)

• Decision Date: 24 September 2013
• Docket Number: Adv. No. 12–06078,Case No. 12–20078
• Citation: 498 B.R. 290
• Parties: In re: GMJ Global Logistics, Inc., et al., Debtor, Christopher J. Redmond, Chapter 11 Trustee of Debtor Sports Associated Transportation, Inc., Plaintiff, v. IGT, Inc., Defendant.
• Court: U.S. Bankruptcy Court — District of Kansas

498 B.R. 290

In re: GMJ Global Logistics, Inc., et al., Debtor,Christopher J. Redmond, Chapter 11 Trustee of Debtor Sports Associated Transportation, Inc., Plaintiff,

v.IGT, Inc., Defendant.

Case No. 12–20078

Adv. No. 12–06078

United States Bankruptcy Court, D. Kansas.

September 24, 2013

David M. Buffo, Christopher C. Miles, P. Glen Smith, Husch Blackwell LLP, Kansas City, MO, for Plaintiff.

Lisa Epps Dade, Spencer Fane Britt & Browne LLP, Kansas City, MO, Brent Wm. Primus, Primus Law Office, PA, Minneapolis, MN, for Defendant.

MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT IGT'S MOTION FOR SUMMARY JUDGMENT

ROBERT D. BERGER, U.S. BANKRUPTCY JUDGE

This matter comes before the Court on Defendant IGT's Motion for Summary Judgment.¹ After reviewing the pleadings and considering the oral arguments heard on August 7, 2013, the Court is prepared to rule.

Introduction

The Trustee sued Defendant to recover $87,339.49 that IGT owes Sports Associated Transportation (Debtor).² IGT responded with its counterclaim against Debtor for $408,788.32 and requested that this Court set-off the debts pursuant to 11 U.S.C. § 553. IGT also asserted the doctrine of recoupment. IGT timely filed the Motion for Summary Judgment presently before this Court. For the reasons set forth below, the Motion is granted. Judgment shall be entered in favor of Defendant IGT.

Findings of Fact

Defendant IGT manufactures and distributes gambling devices and related products. IGT's manufacturing facility is located in Reno, Nevada. IGT's business model requires the shipment of its products from its manufacturing facility to its customers and, in certain cases, those products are returned to IGT. To accomplish this task, IGT entered into a Confidential Transportation Agreement (Agreement) ³ with Debtor in 2002. Pursuant to paragraph 2(b) of the Agreement, Debtor agreed to “promptly and efficiently receive, transport and deliver safely and with reasonable dispatch and without delay, the goods entrusted to it hereunder....” In addition to agreeing to transport IGT's goods, Debtor also agreed “not to interline or use other motor carriers, or brokers, or to use ‘substituted services' by rail for SHIPPER'S [IGT's] goods without prior written agreement of SHIPPER.” ⁴ Throughout the Agreement, Debtor was referred to as “CARRIER.” Under the Agreement, Debtor is the carrier and not a broker.

Despite this explicit agreement, Debtor in fact acted as a broker. Throughout the course of the contract, Debtor contracted with various carriers to transport IGT's products.⁵ The carriers would then send their invoices to Debtor, who would add a broker's fee and forward the invoices to IGT.

A third key provision of the Agreement covered indemnification. The provision states:

CARRIER shall at all times indemnify, defend and hold harmless SHIPPER, its agents and employees against and from any and all settlements, losses, damages, costs, counsel fees and all other expenses relating to or arising from any and all claims of every nature or character (including, but without limitations, claims for bodily injury, death and damage to property, clean-up costs from commodity spills and damage to the environment) asserted against SHIPPER (a) by any agent or employee of CARRIER or (b) by any other person. The provisions of this paragraph shall survive cancellation, termination, or expiration of this Agreement.⁶

By virtue of this provision, IGT seeks indemnification from Debtor.

Although Debtor operated as a broker instead of a carrier, the parties otherwise performed in accordance with the contract from 2002 until sometime in 2011. According to IGT, in the fall of 2011 various motor carriers (Carriers) contacted IGT seeking payment for freight charges that Debtor had failed to pay. Debtor had failed to pay these Carriers even though IGT had already paid Debtor. Once IGT learned that Debtor was not paying the Carriers, IGT stopped paying Debtor. Even though Debtor had stopped paying most of the carriers at this time, it still paid a few of them.⁷ The Trustee initiated this adversary proceeding to recover the $87,339.49 from the outstanding invoices that IGT did not pay.

As to the shipments for which Debtor did not pay the Carriers, those Carriers turned to IGT for payment. The Carriers' claims against IGT totaled $693,743.92. IGT paid $408,788.32 to settle them. Because IGT had to pay the cost of these shipments twice, once to Debtor and once to the Carriers directly, IGT has a claim against the estate for $408,788.32 for breach of contract and for indemnification. IGT concedes that it owes the Debtor $87,339.49 and asks this Court to set off that amount against IGT's claim.

Debtor does not dispute that it did not pay the above carrier charges even though IGT provided Debtor the funds to pay them. Instead, Debtor alleges that IGT had no obligation to pay the Carriers directly and therefore Debtor is not required to indemnify IGT.

Conclusions of Law

A. Summary Judgment Standard

Summary judgment is appropriate if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law.⁸ The moving party bears the initial burden of demonstrating, by reference to pleadings, depositions, answers to interrogatories, admissions, and affidavits, the absence of genuine issues of material fact.⁹ In making this determination, the Court draws all reasonable inferences in favor of the non-moving party.¹⁰ Once a properly supported summary judgment motion is filed, the opposing party “must respond with specific facts showing the existence of a genuine factual issue to be tried” and “may not rest on the allegations contained in his complaint.” ¹¹

Defendant IGT moved for summary judgment. For the reasons set forth below, IGT has satisfied its burden as required by Fed.R.Civ.P. 56 and Fed. R. Bankr.P. 7056.

B. Debtor's Claims Against IGT

Debtor asserts that IGT owes it $87,339.49 pursuant to the Agreement. This claim arises from IGT's refusal to pay the invoices sent by Debtor to IGT. IGT does not contest for purposes of this motion that Debtor paid the invoiced charges directly to the Carriers. Because the Agreement required IGT to pay the Debtor, the Court finds that IGT owes Debtor $87,339.49.

C. IGT's Claims Against Debtor

IGT asserts that it has a claim against the estate for $408,788.32. The issue is whether IGT was required to settle the claims with the Carriers or whether only the Debtor was liable to the Carriers and therefore the claim should be disallowed. Both parties agree that the majority view, as outlined in Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co.,¹² generally places liability on the shipper in cases such as this one. However, Debtor argues that the facts here present an exception to the general rule, and therefore IGT has a legal defense that precludes IGT from being liable to the Carriers. Debtor claims that because IGT signed the non-recourse provisionon at least some of the bills of lading, IGT is not entitled to claim the entire $408,788.32 against the estate. The Court finds that Illinios Steel Co. v. Baltimore & O.R. Co.¹³ precludes this defense and that IGT was liable to the Carriers. Summary judgment in favor of IGT is appropriate on this issue.

1. Shipping Contracts

Shipping contracts often involve two agreements that operate in tandem. These are the shipping agreement and the bill of lading. The shipping agreement governs the rights and obligations between a shipper and a carrier over the course of multiple transactions. The bill of lading, on the other hand, only controls the shipment of the goods described on its face. The bill of lading “is the basic transportation contract between the shipper-consignor and the carrier; its terms and conditions bind the shipper and all connecting carriers.” ¹⁴ Although it is often the case that the shipper and carrier are the parties to both the shipping agreement and the bill of lading, when there is a third party broker involved, the coordination of these agreements is less clear. In this case, the dispute is between IGT and the Carriers, so the shipping agreement has only a minor role, which the Court will discuss in section C.3, infra.

2. The Bill of Lading

The Trustee's argument arises from two conflicting provisions within the bills of lading signed by IGT and the Carriers. These are the “prepaid” and “nonrecourse” ¹⁵ provisions. A bill of lading marked “prepaid” signifies that the charges for transportation service rendered at the request of a consignor (shipper) will be paid by the consignor. All of the shipments from IGT to its customers were prepaid shipments. The alternative provision is a collect shipment. In a collect shipment, the consignee (the person receiving the shipment) is primarily liable for payment at the time of delivery. The default conditions of a standard bill of lading are summarized as follows:

The bill of lading provides that the owner or consignee shall pay the freight and all other lawful charges upon the transported property and that the consignor remains liable to the carrier for all lawful charges. The bill of lading, however, also contains “nonrecourse” and “prepaid” provisions that, if marked by the parties, release the consignor and consignee from liability for the freight charges. If the nonrecourse clause is signed by the consignor and no provision is made for the payment of freight, delivery of the shipment to the consignee relieves the consignor of liability. Similarly, when the prepaid provision on the bill of lading has been marked and the consignee has already paid its bill to the consignor, the consignee is not liable to the carrier for payment of the freight charges.¹⁶

Here, the shipment charges that IGT settled with the Carriers were for prepaid shipments. On some of these shipments, the nonrecourse provision was also signed by IGT. According to the Trustee, by signing the nonrecourse provision, IGT...