Opinion
IP 00-0697-C-T/G
September 28, 2001
ENTRY ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
Though this Entry is a matter of public record and is being made available to the public on the court's web site, it is not intended for commercial publication either electronically or in paper form. The reason for this caveat is to avoid adding to the research burden faced by litigants and courts. Under the law of the case doctrine, the ruling or rulings in this Entry will govern the case presently before this court. See, e.g., Trs. of Pension, Welfare, Vacation Fringe Benefits Funds of IBEW Local 701 v. Pyramid Elec., 223 F.3d 459, 468 n. 4 (7th Cir. 2000); Avitia v. Metro. Club, Inc., 49 F.3d 1219, 1227 (7th Cir. 1995). However, a district judge's decision has no precedential authority, and therefore, is not binding on other courts, on other judges in this district, or even on other cases before the same judge. See, e.g., Howard v. Wal-Mart Stores, Inc., 160 F.3d 358, 359 (7th Cir. 1998) ("a district court's decision does not have precedential authority"); Malabarba v. Chicago Tribune Co., 149 F.3d 690, 697 (7th Cir. 1998) ("district court opinions are of little or no authoritative value"); United States v. Articles of Drug Consisting of 203 Paper Bags, 818 F.2d 569, 571 (7th Cir. 1987) ("A single district court decision . . . has little precedential effect. It is not binding on the circuit, or even on other district judges in the same district."). Consequently, though this Entry correctly disposes of the legal issues addressed, this court does not consider the discussion to be sufficiently novel or instructive to justify commercial publication of the Entry or the subsequent citation of it in other proceedings.
Defendant filed a motion for summary judgment. Plaintiff opposes the motion. For the reasons explained below, the court grants Defendant's motion.
I. Factual Background
Since 1990, Kuehne Nagel, Inc. ("KNI") has been acting as a customs broker for Hurco Companies. KNI was responsible for clearing imported items through United States Customs Service ("USCS"), which included valuing and classifying the goods and preparing customs forms. On June 1, 1993, Hurco executed a power of attorney authorizing KNI to act as a customs broker on Hurco's behalf. The power of attorney contained no limitation of liability provisions. From August 1994 through November 1997, KNI filed over 230 entries on behalf of Hurco, each of which was memorialized with an invoice containing fees and expenses on one side and terms and conditions on the other. Among the terms and conditions were three paragraphs limiting KNI's liability to fifty dollars per incident and requiring notification of the company of any potential claim within ninety days.
In April 1998, the USCS audited Hurco for its 1997 customs entries. This audit revealed that KNI had failed to take appropriate steps to declare and claim duty-free status for Hurco's products. Hurco has been assessed $385,065 in duties on these goods. In addition, KNI also misclassified parts resulting in either over or underpayment of duties.
On March 26, 1998, Hurco employees met with personnel from KNI to discuss these problems. At that meeting, Hurco was assured that KNI would take the necessary steps to claim refunds on Hurco's behalf for overpayments of customs duties that resulted from misclassification between October 1994 to November 1997. However, KNI never sought the refunds and Hurco never received any refund monies. On March 23, 2000, Hurco filed this lawsuit against KNI alleging breach of contract, breach of fiduciary duty, and negligence. On November 27, 2000, KNI filed a motion for summary judgment, raising two issues: (1) whether Hurco's claims were barred by the statute of limitations and (2) whether Hurco's claims were limited or barred by provisions in the invoices that it received.
II. Summary Judgment Standard
Summary judgment should be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there are no genuine issues of material fact and that the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The motion should be granted only if no reasonable jury could return a verdict for the nonmoving party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). If the party opposing the motion bears the burden of proof at trial on an issue, that party can avoid summary judgment only by setting forth specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); see Silk v. City of Chicago, 194 F.3d 788, 798 (7th Cir. 1999). When ruling on a motion for summary judgment, the court must construe the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in favor of that party.
Anderson, 477 U.S. at 255. Speculation, however, is not the source of a reasonable inference. See Chmiel v. JC Penney Life Ins. Co., 158 F.3d 966, 968 (7th Cir. 1998) (noting that the court is not required to draw every conceivable inference from the record in favor of the non-movant, but only those inferences that are inexpensive).
III. Statute of Limitations
KNI first claims that Hurco's claims are barred by the statute of limitations. Although KNI acknowledges that Hurco has brought claims for breach of contract, breach of fiduciary duty, and negligence, KNI contends that all three claims are governed by the two-year statute of limitations for injury to personal property in Indiana Code section 34-11-2-4 because "the substance of Hurco's claims are [sic] based on negligence and breach of fiduciary duty, not breach of contract." (Def.'s Mem. at 11.) Hurco counters that its breach of contract claim is governed by the six or ten-year statute of limitations in Indiana Code sections 34-11-2-7 and -11, and that the discovery rule applies to its negligence claim.
The specific statutes of limitations are found in Indiana Code 34-11-2. Indiana Code section 34-11-2-4 provides that an action for injury to personal property must be commenced within two years after the cause of action accrues. Indiana Code section 34-11-2-7 provides that actions on oral contracts must be brought within six years after the cause of action accrues and 34-11-2-11 provides for a ten-year statute of limitations for written contracts.
Hurco has brought three claims in this case: (1) breach of contract, (2) breach of a fiduciary duty, and (3) negligence. (Compl. ¶¶ 11-22.) As a general rule, the statute of limitations for claims of breach of contract is six (oral contracts) or ten years (written contracts). See Ind. Code §§ 34-11-2-7 -11 (1998). The Complaint was filed on March 23, 2000. The earliest possible claim of breach of contract occurred in August of 1994 (Robbins Decl. ¶ 2.); therefore, the claims for breach of contract are within the statute of limitations.
Although this court is inclined to apply the ten-year statute of limitations given the written agreement, there is no need to reach that decision here where the claims are timely under either statute of limitations.
KNI contends that "the applicable statute of limitations should be ascertained by reference to the nature of the harm alleged rather than by reference to theories of recovery," quoting Whitehouse v. Quinn, 477 N.E.2d 270, 273 (Ind. 1985). KNI claims that the factual basis of Hurco's claims is negligence and breach of fiduciary duty. Although KNI is correct in its recitation of Indiana law, it fails to acknowledge more recent Indiana Supreme Court and Court of Appeals cases that have narrowed the Whitehouse rule. In Lawyers Title Insurance Co. v. Pokraka, 595 N.E.2d 244, 246-47 (Ind. 1992), the Indiana Supreme Court applied the six-year statute of limitations found in Indiana Code section 34-1-2-1 to a claim for failure to promptly file a mortgage. The court reasoned that
a specific limitation period of six years for fraud and for breach of an oral contract is provided by statute. . . . Were we to accept the reasoning of Lawyers Title here, the portions of Indiana Code section 34-1-2-1 relating to fraud and oral contracts would be unnecessary. Such an application would be tantamount to judicially repealing these six-year statutes of limitations because a recovery on theories of fraud or breach of an oral contract would always involve either personal injury or damage to property.
Id. at 247. The same is true here where the characterization of the claim as a breach of contract is not an attempt to "evade such difficulties [with statute of limitations] by reliance upon pleading technicalities." Shideler v. Dwyer, 417 N.E.2d 281, 286 (Ind. 1981). Hurco seeks to recover damages sustained as a result of KNI's failure to comply with the terms of the contract, including KNI's promise to "transact at the customshouses in any district any and all custom business. . . ." (Compl. Ex. A.) This is clearly a claim for breach of contract, subject to the statute of limitations for contracts.
A claim of breach of fiduciary duty is generally governed by Indiana code section 34-11-2-4, requiring it to be brought within two years after the cause of action accrues. Bacompt Sys., Inc. v. Ashworth, 752 N.E.2d 140, 145 (Ind. 2001). Although contract law deals solely with the intent of the parties, "in limited circumstances, such as when a contract establishes or codifies an agency relationship, courts impute fiduciary obligations." O.K. Sand Gravel, Inc. v. Martin Marietta Corp., 786 F. Supp. 1442, 1448 (S.D.Ind. 1992). In those cases, the courts require the parties to act with loyalty, candor, and honesty. See Olympia Hotels Corp. v. Johnson Wax Dev. Corp., 908 F.2d 1363, 1373 (7th Cir. 1990) (discussing the "high falutin' talk of utmost good faith and loyalty, full disclosure, [and] the punctilio of an honor most sensitive"). Therefore, this court must ascertain whether Hurco's claims are for violations of contractual or fiduciary duties. Hurco claims that "KNI breached its fiduciary duty to Hurco by failing to perform acts and breaching duties owed to Hurco, and by failing to be candid with Hurco regarding the performance of its duties." (Compl. ¶ 16.) Only the last claim constitutes a claim for a breach of a fiduciary duty — i.e., the failure to act openly, fairly, and honestly. The failure to perform acts and the breach of duties owed to Hurco refer to specific contractual obligations of KNI to Hurco. Therefore, the first two claims under breach of fiduciary duty are governed by the statute of limitations for contracts. The claim that KNI failed to act honestly is governed by the two-year statute of limitations.
This does not necessarily mean the claim is barred. Indiana follows a discovery rule for the statute of limitations for tort claims, meaning that "the cause of action of a tort claim accrues and the statute of limitations begins to run when the plaintiff knew or, in the exercise of ordinary diligence, could have discovered that an injury had been sustained as a result of the tortuous act of another." Wehling v. Citizens Nat'l Bank, 586 N.E.2d 840, 843 (Ind. 1992). The question then becomes whether Hurco knew or could have known before March 23, 1998, that KNI may not have been dealing honestly with it. It is unclear exactly when KNI failed to act honestly. However, Hurco learned of some of the errors in 1997 and requested that KNI file refunds. Accordingly, it appears that a reasonable company in Hurco's position would then be on notice of possible injuries and the statute begins to run at that point.
Hurco's negligence claim is also governed by the two-year statute of limitations for injury to personal property. Ind. Code § 34-11-2-4 (1998). Clearly, the majority of Hurco's negligence claims occurred before March 23, 1998. The question then becomes whether Hurco knew or could have known of KNI's negligence before August 23, 1998.
Hurco claims that it did not become aware of the over and underpayments of customs duties until after the audit in April 1998, and had no reason to suspect anything was amiss because of KNI's expertise as a customs broker. Indiana law requires plaintiffs to exercise reasonable diligence to ascertain whether they have a claim. See Hendrickson v. Alcoa Fuels, Inc., 735 N.E.2d 804, 815 (Ind.Ct.App. 2000); INB Nat'l Bank v. Moran Elec. Serv., Inc., 608 N.E.2d 702, 708 n. 3 (Ind.Ct.App. 1993). Here, Hurco received all of the customs entry forms, which reveal the tariff classification and the duty declared, on or about the date they were filed and the duties were paid to USCS. By reading these forms with reasonable diligence, Hurco would be aware of misclassifications on the forms and the absence of certain declarations. Hurco cannot escape the statute of limitations by claiming that they did not know the incorrect customs payments when all the information was before them.
Hurco also claims that the statute of limitations does not begin to run until the customs entries are liquidated, which can be as much as one year after the entry occurred. Apparently, this is based on Hurco's understanding that it had not been injured until the claims were liquidated. This is incorrect. Customs duties are required to be paid at the time of entry and become final within ninety days if the importer does not request a refund, much the same way taxes must be paid by the filing deadline and a refund may later be requested. See United v. Goodman, 572 F. Supp. 1284, 1287-88 (Ct. Int'l Trade 1983). In sum, Hurco may pursue a claim for breach of contract, both oral and written, but its claims of breach of fiduciary duty and negligence are barred by the statute of limitations.
IV. Limitations in the Contract
KNI also contends that Hurco's claims are barred by the terms and conditions of the invoices that were sent following each customs shipment. Specifically, KNI claims that Hurco is limited to fifty dollars per shipment in damages and that Hurco's claims against KNI are completely barred because Hurco did not present its claims in writing to KNI within ninety days of the incidents giving rise to the claims. Hurco responds that the limitations apply only to claims involving goods and that there are questions of material fact as to whether the limitation provisions apply.
The terms and conditions of service provide, in relevant part: 5.
(c) On an export or import the Company shall not in any way be responsible or liable for increased duty, penalty, fine or expense unless caused by the negligence or other fault of the Company, in which event its liability to the Customer shall be governed by the provisions of paragraphs 8-9 below.
. . . .
8. Limitation of Liability for Loss, etc. (a) The Customer agrees that the Company shall only be liable for any loss, damage, expense or delay to the goods resulting from the negligence or other fault of the Company; such liability shall be limited to an amount equal to the lesser of fifty dollars ($50.00) per entry or shipment or the fee(s) charged for the services, provided that, in the case of partial loss, such amount will be adjusted pro rata;
. . . .
(c) In instances other than (b) above, unless the Customer makes specific written arrangements with the Company to pay special compensation and declare a higher value and Company agrees in writing, liability is limited to the amount set forth in (a) above;
(d) Customer agrees that the Company shall, in no event, be liable for consequential, punitive, statutory or special damages in excess of the monetary limit provided for above.
9. Company shall not be liable under paragraph 8 for any claims not presented to it in writing within 90 days of either the date of loss or incident giving rise to the claim; no suit to recover for any claim or demand hereunder shall be maintained against the Company unless instituted within six (6) months after presentation of the said claim or such longer period provided under statute(s) of the State having jurisdiction of the matter.
Limitation of liability provisions are generally construed against the drafter. However, KNI is correct that limitation of liability clauses are routinely enforced. See Capitol Converting Equip., Inc. v. LEP Transport, Inc., 965 F.2d 391, 395-96 (7th Cir. 1992). This case is similar to Capitol Converting, where the Seventh Circuit upheld a limitation of liability provision because years of invoices containing limitations on liability had became part of the course of dealing between the two parties. In this case, Hurco and KNI had been doing business for eight years, with over 230 transactions between the two. The limitations of liability were on all of the invoices and became "part of an agreement at its inception by explicit provisions of the agreement or by tacit recognition. . . . [The provisions] reveal the bargain of the parties in fact." Id. at 396.
Hurco claims that because the provisions specifically limit recoveries for "any loss, damage, expense or delay to the goods" and its complaint does not allege any loss, damage, expense, or delay to the goods, but rather contends that "[a]s a result of KNI's negligence, Hurco overpaid hundreds of thousands of dollars of custom duties and interest it cannot recover . . . [and] also underpaid thousands of dollars of duties, and interest thereon, that Hurco now is required to pay to USCS," which renders the provision inapplicable to this case. (Compl. ¶ 9.) However, paragraph 5(c) of the agreement makes clear that the paragraphs eight and nine were also intended to limit liability "for increased duty, penalty, fine or expense." Any other reading would render 5(c) superfluous and courts must read the contract as a whole so as to give meaning to all of the contract terms. OEC-Diasonics, Inc. v. Major, 674 N.E.2d 1312, 1315 (Ind. 1996).
Hurco also claims that because it had no knowledge of the limitation of liability, it is not applicable. However, in Capitol Converting, the court ruled that "[plaintiff]'s affidavit [stating that he was not aware of any liability limitation] is insufficient to create a genuine factual dispute over whether a course of dealing as to a liability limitation existed. . . ." Id. at 395. The same is true here. Although the result may seem harsh, parties are bound by all the terms of the their contract, including those implied from course of dealing.
Finally, Hurco argues that the limitation is not part of the course of dealing because for the first three years of Hurco and KNI's dealing, limitations of liability by customs brokers were illegal under 19 C.F.R. § 111.44. 19 C.F.R. § 111.44 provided that "A broker may not limit his liability to a client with respect to a claim by the client arising out of the wrongful or negligent action of the broker. . . ." It was overturned effective December 8, 1993. The limitation provision was in all of the invoices, and parties are responsible for knowing changes in law. Modern Woodmen of America v. Craiger, 92 N.E. 113, 114 (Ind. 1910); Crabtree v. Lee, 469 N.E.2d 476, 478 (Ind.Ct.App. 1984). Regardless of any bar to limiting liability for the first three years of the contract, beginning in 1994, the invoices signified KNI's intent to limit its liability. The parties are bound by their course of dealing. Because Hurco did not comply with the terms of the invoices by presenting its claims within ninety days of the incidents giving rise to the losses, it is barred from suing KNI on these claims.
Hurco also argues that Indiana Code section 26-1-2-208(2) dealing with "course of performance" controls "course of dealing" and this transaction. However, that provision applies only to transactions involving the sale of goods and is not applicable to this case. See Ind. Code § 26-1-2-102 (1998).
The limitation provision used to read "Subject to 19 C.F.R. Part 111.44, if valid." In 1994, this provision would have had no effect given the change in the law and it was removed entirely by 1995.
KNI submitted a declaration to support its contention that "Hurco did not present any claim in writing to KNI" within ninety days of the incidents giving rise to the claims. Hurco objected to the declaration because it was not based on actual knowledge. However, in the declaration, the declarant states that these statements "are true to the best of [his] own knowledge." (Robbins Decl. ¶ 1.)
V. Conclusion
For the foregoing reasons, the Defendant's Motion for Summary Judgment is GRANTED.
KNI moved to strike Plaintiff's Surreply Brief, point headings 2 and 3, and Plaintiff's Surreply to Additional Material Facts because they were not responsive to new evidence presented in KNI's reply. Because Defendant's Motion for Summary Judgment is granted even considering the questionable items, Defendant's Motion to Strike is DENIED.