S.C. Johnson & Son, Inc. v. Louisville & Nashville R. Co.

• Decision Date: 10 March 1983
• Docket Number: No. 82-1061,82-1061
• Citation: 695 F.2d 253
• Parties: S.C. JOHNSON & SON, INC., Plaintiff-Appellant, v. LOUISVILLE & NASHVILLE RAILROAD COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 253

695 F.2d 253

S.C. JOHNSON & SON, INC., Plaintiff-Appellant, v. LOUISVILLE & NASHVILLE RAILROAD COMPANY, Defendant-Appellee.

No. 82-1061.

United States Court of Appeals Seventh Circuit.

Argued Sept. 21, 1982.

Decided Nov. 29, 1982.

Rehearing and Rehearing En Banc Denied March 10, 1983.

Steven C. Weiss, Chicago, Ill., for plaintiff-appellant.

Bruce C. Spitzer, Gorham, Metge, Bowman & Hourigan, Chicago, Ill., for defendant-appellee.

Before PELL, and BAUER, Circuit Judges, and CAMPBELL, ^* Senior District Judge.

PELL, Circuit Judge.

In a period of our industrial history when one sometimes finds consumer goods failing to be of the quality expected, it is refreshing to find a manufacturer being insistent upon its products not going into the stream of commerce unless those products meet its own high quality standards. Such an insistence can, of course, be directly reflected in an increase of manufacturing costs. The present case demonstrates that a hidden cost may also occur as a result of taking steps to pull defective products from the flow of commerce even though the diminished quality has come about without fault on the part of the manufacturer.

Seeking damages in such a situation, S.C. Johnson & Son (Johnson) brought suit under the Carmack Amendment, 49 U.S.C. Sec. 20(11) (recodified at 49 U.S.C. Sec. 11707), against a rail carrier for damage incurred when the carrier delivered a shipment of Johnson products some of which appeared to be frozen. The district court tried the case without a jury and held that Johnson had failed to prove the amount of damages with the requisite certainty. The court accordingly entered judgment for the defendant. Johnson now challenges this finding on two grounds: the court erred in discrediting the testimony of Johnson's main witness and in rejecting the sampling method employed by Johnson to determine the extent of the damage.

I. Facts.

Johnson manufactures a large number of household products in its plant in Racine, Wisconsin. In January 1977, Johnson shipped by the Chicago, Milwaukee, St. Paul & Pacific Railroad Company (Milwaukee Road) and the Louisville & Nashville Railroad Company (L & N) various products to a customer of Johnson, Houchens Industries, in Bowling Green, Kentucky. Johnson employees loaded the cases onto the floor of an insulated rail car. To preheat the car, the employees had previously placed the car in a heated warehouse. When loaded into the car the lading was three to four feet high. No heater was placed in the car, some of the products being of a volatile nature.

The Milwaukee Road pulled the sealed car from Johnson's warehouse on January 10, 1977. The L & N delivered the car to Houchens's rail dock on January 25. It is not clear why this 400 mile trip took 15 days to complete. Earl Felts, receiving foreman for Houchens, broke the seals and inspected approximately 20 cases of various products from the sides, top, and each end of the car. Felts found the contents of these cases appeared to be frozen. He later could not remember which products he had examined.

Houchens notified Johnson that the shipment had arrived with frozen contents. Johnson directed Houchens to return the car to Racine. This request was in accordance with Johnson's policy of conducting all quality control tests through its own quality control department in Racine. Johnson believed that a customer such as Houchens, which operates a chain of grocery stores, was not qualified to determine if Johnson products had been damaged. Houchens complied and released the resealed car to the L & N on January 26. The Milwaukee Road returned the car to Racine on February 21. ¹ Johnson employees unloaded the car and stacked the cases on pallets in the warehouse.

Fred Manske, Technical Specialist in Johnson's quality control department, was responsible for determining the extent of the loss. Manske first segregated those products not susceptible to damage from freezing and returned them to stock. Over 2,000 cases remained to be tested. Manske did not know where the cases had been located in the car. He recognized, however, that products near the perimeter of the car would freeze faster than those in the center, and so chose cases from each pallet in an attempt to obtain a representative sample from every location in the car. He followed the sampling method set forth in Military Standard 105-D ² in choosing the number of cases to inspect.

The tests conducted by Manske were simple. He tested Glade Solid, a gel-based air freshner, by checking for any free water that would leak from the gel during freezing. Glo-Coat, a floor polish, was tested by inspection for lumps or grain in the liquid. Aerosol products were tested by measuring the free water produced when the contents of the cans was sprayed. He found that all of the Glade Solid, Glo-Coat, Klear, Step Saver, Pledge Liquid, Pledge Aerosol, Favor and Jubilee had been damaged and ordered them scrapped. He also tested several products that were susceptible to freezing damage in theory, but which had never exhibited any actual damage in Manske's experience. None of these products were damaged. All of the testing was conducted in late March.

Manske took notes regarding the condition of each product as he performed the tests. Based upon these notes he prepared a memorandum for the salvage department, which was typed by his secretary. After reviewing the typed memorandum Manske disposed of the handwritten notes. He testified that he had not preserved the notes because they were illegible to anyone but himself and because all of the necessary information was contained in the memorandum.

II. Prima Facie Case under the Carmack Amendment.

Johnson sued the L & N under the Carmack Amendment for the invoice value of the goods damaged by freezing. Under that Amendment a shipper must prove the following three elements to establish a prima facie case against a common carrier: (1) delivery of the goods to the carrier in good condition, (2) arrival of the goods in a damaged condition at the final destination, and (3) the amount of damage. Missouri Pacific Railroad v. Elmore & Stahl, 377 U.S. 134, 138, 84 S.Ct. 1142, 1144, 12 L.Ed.2d 194 (1964). Once the shipper has established a prima facie case the carrier must demonstrate that it was not negligent and that the damage was caused by one of the following events: (1) an act of God, (2) an act of the public enemy, (3) an act of the shipper, (4) an act of the public authority or (5) the inherent nature or vice of the goods. 377 U.S. at 137-38, 84 S.Ct. at 1144-45.

The Carmack Amendment was enacted to "relieve shippers of the burden of searching out a particular negligent carrier from among the often numerous carriers handling an interstate shipment of goods." Reider v. Thompson, 339 U.S. 113, 119, 70 S.Ct. 499, 502, 94 L.Ed. 698 (1950). To claim the benefits of the Carmack Amendment a shipper must sue either the carrier issuing the bill of lading or the carrier delivering the goods to the final destination. 49 U.S.C. Sec. 11707(a)(1). Either of these carriers will be liable for damage caused by any carrier used during the trip. The initiating or delivering carrier may in turn seek recovery from the carrier responsible for the loss. 49 U.S.C. Sec. 11707(b).

Initially we are presented the question of whether the journey should be characterized as one complete trip or two separate trips. Although this issue is of importance neither party addressed it until part way through the trial. When the issue was raised by the court, Johnson argued that the case involved "one whole transportation problem." The L & N understandably took the contrary position, arguing that Johnson had only brought suit for damage caused on the initial trip to Bowling Green. The judge resolved the issue by allowing Johnson to amend its complaint "to allege that the damages flowing from defendant's conduct took place over the period of time from January 10th to and including February 21st." The judge noted that "whether that will fly legally we'll worry about later."

After hearing the evidence the court found that Johnson had delivered the shipment to the Milwaukee Road in good condition, that the L & N had delivered the shipment to Bowling Green in a damaged condition, and that the shipment was damaged when delivered to Racine. Based upon the L & N's failure to explain why delivery to Bowling Green was delayed the court found that the L & N had failed to establish its freedom from negligence. Nevertheless, the court held that the sampling technique set forth in Military Standard 105-D was an inappropriate means of proving the extent of damage. Furthermore, the court was unwilling to believe that Manske had actually followed the standard. The court found that only Manske's notes could establish how many products had been tested, and that the destruction of the notes justified an inference that the contents of the notes would be unfavorable to Johnson. Because the court found that Johnson had failed to prove the amount of damage at both Bowling Green and Racine it did not resolve which was the proper destination. We believe that a correct analysis of this case requires resolution of that issue.

III. One Trip or Two?

The proper characterization of this ill-fated journey is of more than academic interest. If there was but one trip, from Racine to Racine via Bowling Green, then the Milwaukee Road was both the initial and delivering carrier and the L & N is not a proper defendant under the Carmack Amendment. If, on the other hand, a new trip began when the car was released to the L & N, then Johnson has at least sued the right defendant. This characterization, however, presents Johnson with a problem similar to that confronted in Rodin v. Atchison, Topeka & Santa Fe Railway, 477 F.2d 682 (5th Cir.1973). Plaintiff in Rodin shipped Maine potatoes from various intermediate places to Chicago. The shipment arrived much the worse for wear....