Opinion
02-0294-C-T/K) District Court Cause Number; IP 94-08502-JKC-11 Bankruptcy Court Cause Number; IP 97-300 Adversary Proceeding Number
December 17, 2002
Leonard Opperman Kunz Opperman, Indianapolis, IN.
Richard W Lorenz Hickam and Hickam, Spencer, IN.
ENTRY REVIEWING BANKRUPTCY JUDGE'S ORDER
This Entry is a matter of public record and is being made available to the public on the court's website, but it is not intended for commercial publication either electronically or in paper form. Although the ruling or rulings in the Entry will govern the case presently before this court, this court does not consider the discussion in this Entry to be sufficiently novel or instructive to justify commercial publication or the subsequent citation of it in other proceedings.
The Appellant, Wilson Fertilizer and Grain, Inc. ("Wilson"), requests judicial review of the Order of the Bankruptcy Court for the Southern District of Indiana entering judgment in favor of the Appellees, Sagamore National Corporation and Indiana Hi-Rail Corporation (together "IHRC") and against Wilson in the amount of $89,050.30. The court decides as follows.
I. Factual and Procedural Background
IHRC is a rail carrier which since 1990 has provided local service over the Rochester Line between Rochester and Argos, Indiana. Wilson is the only shipper (or customer) served by IHRC on this line.
IHRC filed for Chapter 11 bankruptcy protection on November 15, 1994. R. Franklin Unger was appointed Trustee for IHRC on January 5, 1995. On or about March 3, 1995, and June 2, 1995, Wilson filed two proofs of claim in the bankruptcy proceeding. The Trustee filed an objection to these claims. On or about April 28, 1997, Wilson filed its objection to the Trustee's proposed allowed claims.
The claims dispute between the parties in this case was set for an evidentiary hearing. The Trustee filed a counterclaim for demurrage charges allegedly owed by Wilson. Thereafter, he filed an adversary complaint on behalf of IHRC against Wilson, seeking to recover the invoiced amounts plus interest charged at the rate of eight percent from the invoice date. (Tr. at 42; Pl.'s Ex. 1.)
In a informal pre-hearing conference on March 9, 1988, Judge Lessen of the bankruptcy court was requested to refer the dispute to the Surface Transportation Board ("STB"). Richard W. Lorenz, counsel for IHRC, filed a verified statement asserting that Judge Lessen had concluded that a number of issues exceeded his expertise and agreed to the referral to the STB, although no written order was issued.
IHRC filed with the STB on May 13, 1998, its Petition for Declaratory Order — Assessment and Collection of Demurrage and Switching Charges (the "petition"), seeking an award of $126,100 in demurrage and switching charges pursuant to Freight Tariff 8000-C. The STB ruled that IHRC could not charge Wilson under that tariff and was limited to recovering at most $59,640 pursuant to Freight Tariff 6000-P. The STB found the demurrage invoices and worksheets and switching invoices submitted by IHRC "inadequate for determining how the charges were computed in each instance." (STB Decision of 6/14/00 at 9.) The STB said that: "IHRC must provide more details to clarify how each demurrage charge has been computed and should submit that evidence to the Bankruptcy Court, rather than the Board, as the court is better suited to determine the exact amount Wilson must remit." (Id.)
Judge Lessen of the bankruptcy court conducted a trial on August 21, 2001. IHRC's first witness was the Trustee who testified that he assumed the duties of Trustee for IHRC on January 5, 1995. (Tr. at 10.) He testified that at some point in time, he had learned that Wilson owed IHRC demurrage charges. (Id. at 11.) The Trustee defined "demurrage" as a penalty that is assessed by the railroad per rail car, usually on a daily basis, for retention of rail cars that are owned by the railroad or owned by other carriers. (Id. at 13-14.) He testified that generally a railroad allows a twenty-four hour period of free time for a customer to load or unload a car. (Tr. at 14.) The Trustee testified that IHRC generated invoices and bills for demurrage to Wilson. (Id. at 12.) He also testified that the wheel reports documented the placement of cars by the switch crews with the shipper and that information from the reports was entered into a computerized system. (Id. at 16, 21-23.) The Trustee testified that when the shipper is finished with the car, the shipper releases the car back to the railroad and the period of time from placement to release covers the use of the car. If the period of time exceeds the free time allowed by IHRC, then the shipper can be charged demurrage. (Id. at 17.)
Toward the end of the Trustee's direct examination, IHRC offered Plaintiff's Exhibit 2, which was a certified copy of its petition to the STB. The Trustee authenticated the exhibit and testified that it contained all the exhibits used by the STB in calculating and reviewing the issues of demurrage. (Tr. at 17-18.) Wilson objected to Plaintiff's Exhibit 2 based on hearsay as follows:
Your Honor, we would object to that. We believe that it's hearsay. We don't have the — if this were the decision of the STB we certainly would not have any objection, but their petition and all their allegations in front of the STB constitutes hearsay.
(Id. at 18.) The objection was overruled, and Plaintiff's Exhibit 2 was admitted into evidence. (Id.)
On cross-examination, the Trustee testified about the wheel reports (Tr. at 21-23) and the customer's release of the cars, both of which were documented in the customer service records (id. at 22-24.) He testified that the release usually was made by telephone. (Id. at 24.)
Timothy A. Yeager, a former employee of IHRC responsible for administration of customer service, was IHRC's second and only other witness at trial. He testified that IHRC's train crews placed cars at a shipper's facility. The conductor recorded the time and date of placement of the cars identified by number on a wheel report. The wheel report then was faxed to IHRC's customer service operations center where the information from the report (car number, date and time of placement, and customer location) was entered into a computerized system by Amy Russell. (Tr. at 31.) Mr. Yeager testified that once the rail cars were loaded or unloaded, the shipper was to release the cars by notifying IHRC. He testified initially on direct examination that a release would be phoned in with a follow-up faxed bill of lading. (Id. at 32.)
Mr. Yeager subsequently testified, however, that under the Trustee's direction IHRC required Wilson to fax in its releases; thus, IHRC did not set a release time until a faxed bill of lading was received. (Tr. at 32, 46.) According to IHRC's Demurrage Policy, which it circulated to its customers including Wilson, the release time could "be made by phone, fax, or directly to a member of the train crew in writing." (Pl.'s Ex. 2, Tab 2, Item 40.)
The pertinent testimony was as follows:
Q. Okay. At any point in time in your history of Indiana Hi-Rail did you either insist or request of Wilson Fertilizer Grain to fax in their releases?
A. Yes, I believe under the direction of the Trustee we were asked to keep a fax record of everything at that point in time.
(Id. at 32.)
Mr. Yeager testified that the computer generated demurrage worksheets. (Tr. at 33-34.) He identified the documents contained at Tab 6 to Plaintiff's Exhibit 2 as the invoices and demurrage worksheets which IHRC claimed substantiated its demurrage charges to Wilson. (Id. at 34, 41.) Mr. Yeager explained the information contained on the demurrage worksheets and his handwritten annotations. (Id. at 34-35, 37.) He testified that Ms. Russell entered into IHRC's computer system the delivery time from the wheel reports and the release time from the bills of lading. (Id. at 36.) The computer then calculated the actual number of days between the placement and release of the rail cars.
Under IHRC's policy, a day on which a car was placed after 7:00 a.m. was not counted as the first free day for loading, and no demurrage was charged for a day on which a car was released before 9:00 a.m. (Id. at 35, 37.)
Mr. Yeager testified that he calculated the demurrage charges from the information on the demurrage worksheets, taking into account free time, IHRC's policies regarding placement after 7:00 a.m. and release before 9:00 a.m., information provided by Ms.
Russell about any discrepancies which may have arisen as well as any other information provided to him which would have affected the calculation. (Tr. at 35-36, 39, 45.) Mr. Yeager made handwritten annotations on the side of each page of the demurrage worksheets. (Id. at 35, 38, 41.) For each car held beyond the allowed free time, demurrage was charged at the rate of twenty dollars a day for the first five days and fifty dollars a day for each additional day thereafter. (Id. at 38; Pl.'s Ex. 2, Tab 2, § 20 (Demurrage Policy § 20).) Mr. Yeager added up the demurrage charges for each month and returned the demurrage worksheets to Ms. Russell who prepared the invoices which were subsequently billed to Wilson. (Tr. at 50.)
Mr. Yeager testified that the total demurrages owed by Wilson was $59,640. (Tr. at 41.) Plaintiff's Exhibit #1, admitted at trial through Mr. Yeager's direct examination, was a spreadsheet listing the invoiced amounts for demurrage and switching charges with interest calculated at the rate of eight percent from the invoice date. (Id. at 42-44; Pl.'s Ex. 1.) IHRC sought payment for demurrage charges of $59,640 plus interest of $24,887.56 and switching charges of $3,150 plus interest of $1,372.73, for a grand total of $89,050.30. (Pl.'s Ex. 1.)
IHRC never received any complaints or disputes from Wilson about the demurrage charges (Tr. at 49), but Wilson refused to pay the invoices sent by IHRC for demurrage charges or switching charges.
Wilson complained about the services provided by IHRC. One of the complaints was that Wilson would notify IHRC that rail cars were ready for shipment and the cars would not be moved for some period of time, perhaps several days. (Tr. at 20.) Both the Trustee and Mr. Yeager testified, however, that the demurrage charge was not affected by the time at which rail cars actually were picked up by IHRC, but rather depended only on the time the cars were released by the shipper. They testified, in other words, that a customer would not be charged demurrage for any time between the release by the customer and the actual pick up by IHRC, assuming IHRC accurately recorded the release time. (Id. at 24-26, 39.)
Following trial, both parties filed proposed findings of fact and conclusions of law.
On February 11, 2002, Judge Lessen adopted and signed IHRC's proposed findings and conclusions. He ordered that judgment be granted in favor of IHRC and against Wilson in the sum of $89,050.30 inclusive of all demurrage charges, switching charges and prejudgment interest at the rate of eight percent. Wilson timely appealed to this district court.
II. Standard of Review
This court reviews the bankruptcy court's order pursuant to Bankruptcy Rule 8013, which provides that: "On an appeal the district court . . . may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." Rule 8013 further provides that: "Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous[.]"
A finding of fact is "clearly erroneous" if, although there is evidence to support it, the reviewing court, on considering the entire evidence, is left with the definite and firm conviction that a mistake has been committed. Anderson v. Bessemer City, 470 U.S. 564, 573 (1985); United States v. Gramer, 309 F.3d 972, 974 (7th Cir. 2002). Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous. Anderson, 470 U.S. at 574; In re Morris, 223 F.3d 548, 553 (7th Cir. 2000). The bankruptcy court's application of the law is reviewed de novo, see Calder v. Camp Grove State Bank, 892 F.2d 629, 631 (7th Cir. 1990), and its evidentiary rulings are reviewed for an abuse of discretion, see In re Kim, 130 F.3d 863, 865 (9th Cir. 1997).
III. Discussion
Three issues are raised for review: (1) whether the bankruptcy court abused its discretion in admitting Plaintiff's Exhibit 2 at trial over Wilson's objection; (2) whether the bankruptcy court erred in finding that IHRC sustained its burden of proving demurrage and switching charges owed by Wilson; and (3) whether the bankruptcy court erred in awarding prejudgment interest to IHRC at the rate of eight percent under Indiana Code § 34-51-4-9.
Given the court's resolution of the second issue, it need not reach the third.
A. Admission of Plaintiff's Exhibit 2
The first issue is whether Plaintiff's Exhibit 2 constitutes inadmissible hearsay which was improperly admitted at trial over Wilson's objection. Though the exhibit was offered and admitted in its entirety, what is at issue here are only the documents located at Tab 6 and Tab 9 of the petition, which are the demurrage worksheets, demurrage invoices and switching invoices offered by IHRC to substantiate its claims against Wilson.
Hearsay is "a statement, other than one made by the declarant while testifying at trial . . . offered in evidence to prove the truth of the matter asserted." Fed.R.Evid. 801(c).
A written assertion is a "statement." Fed.R.Evid. 801(a)(1). The demurrage worksheets, demurrage invoices and switching invoices fall within the definition of hearsay as they are written assertions offered to prove that Wilson owed IHRC demurrage and switching charges in the amounts reflected on the worksheets and invoices. As hearsay these documents are inadmissible unless an exception applies. See Fed.R.Evid. 802.
IHRC maintains that the demurrage worksheets and invoices are admissible under the hearsay exception for records of regularly conducted activity:
The following are not excluded by the hearsay rule, even though the declarant is available as a witness:
. . .
(6) Records of Regularly Conducted Activity.-A memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinions, or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the memorandum, report, record or data compilation, all as shown by the testimony of the custodian or other qualified witness, . . ., unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness.
Fed.R.Evid. 803(6). A court has "broad discretion in ascertaining the admissibility of business records, and its ruling should be disturbed only when that discretion is abused." United States v. Croft, 750 F.2d 1354, 1364 (7th Cir. 1985) (citations and quotation omitted).
Wilson argues that "at the time of the Bankruptcy Court's ruling there was no evidence before it that Exhibit 2 fell within any of the exceptions to the hearsay rule. Thus, Exhibit 2 was improperly admitted[.]" (Appellant's Br. at 10.) The court understands Wilson as arguing that the Trustee's testimony laid an insufficient foundation for the admission of the demurrage worksheets and the invoices. Wilson is correct on this point.
Taking the switching invoices first, none of the trial testimony laid a sufficient foundation for the admission of these invoices under Rule 803(6). The switching invoices and charges seem to have been lost in the shuffle both at trial and on appeal as the parties focused on the demurrage invoices and charges. Nonetheless, it is apparent from Wilson's objection to Plaintiff's Exhibit 2 that it objected to the admission of the switching invoices on the basis of hearsay. Thus, it is for IHRC to establish that a hearsay exception applies. IHRC has not done so. The Trustee did not testify about switching invoices or charges. Mr. Yeager did, but all he said was that at times IHRC had to charge Wilson switching charges and did so at a rate of $450. (Tr. at 40.) He offered no testimony to establish that the switching invoices satisfied Rule 803(6). Therefore, the court finds that the bankruptcy judge abused his discretion in admitting the switching invoices.
As for demurrage, though the Trustee referred to invoices for demurrage charges generated by IHRC, he made no mention of demurrage worksheets. And, what he said about invoices did not lay a sufficient foundation for the admission under Rule 803(6) of the demurrage invoices. IHRC implicitly concedes that the Trustee's testimony failed to lay a sufficient foundation for admission of the demurrage worksheets and demurrage invoices as it does not argue that a sufficient foundation was laid by the Trustee, but rather, by Mr. Yeager. Thus, the court finds that the Trustee's testimony laid an insufficient foundation for the admission of the demurrage worksheets and demurrage invoices. The bankruptcy judge therefore abused its discretion in admitting them. See United States v. Given, 164 F.3d 389, 394 (7th Cir. 1999) (court abused discretion by admitting under the business records exception to the hearsay rule documents for which an insufficient foundation was laid).
The court further finds, however, that the error in admitting the demurrage worksheets and demurrage invoices on the foundation laid was harmless because the subsequent testimony of Mr. Yeager, a former IHRC employee responsible for administration of customer service and calculation of demurrage charges, provided a sufficient foundation for the admission of the documents under Rule 803(6). Mr. Yeager testified that the time and date of placement of a car was recorded on a wheel report which was faxed to IHRC's customer service operations center and entered into the computer by Ms. Russell. He also testified that the shipper would notify IHRC of the release and Ms.
It is noted that in its reply brief Wilson did not dispute IHRC's argument that Mr. Yeager's testimony provided a sufficient foundation for the admission of the demurrage worksheets and invoices.
Russell entered the release time from the faxed bills of lading into the computer. He testified that from this information, the computer generated demurrage worksheets from which he calculated the demurrage charges. Mr. Yeager testified that he returned the demurrage worksheets to Ms. Russell who prepared the invoices which were billed to Wilson. Thus, Mr. Yeager's testimony established that the demurrage worksheets and invoices were reports, records, or data compilations of acts or events (placement and release) made at or near the time by, or from information (wheel reports and faxed releases) transmitted by, a person with knowledge. The testimony of Mr. Yeager further establishes that demurrage worksheets and invoices were kept in the course of a regularly conducted business activity and that it was the regular practice of IHRC to make the demurrage worksheets and invoices.
Wilson also argues that Exhibit 2 was inadmissible because IHRC failed to comply with the requirements of Rules 1004 and 1006. The Rules of Evidence require that a party objecting to the admissibility of evidence state "the specific ground of objection, if the specific ground was not apparent from the context." Fed.R.Evid. 103(a)(1). In objecting to Plaintiff's Exhibit 2 at trial, Wilson never raised Rule 1004 or 1006 or objected because the exhibit was not an original or was a summary, and such an objection was not apparent from the context of the objection. Thus, an objection for failure to comply with Rules 1004 and 1006 was waived.
In addition, it is unclear whether the demurrage worksheets and invoices would be considered secondary rather than primary business records; Wilson offers no authority to back its claim that these documents are not primary business records. The court, unlike Wilson, does not understand IHRC's statement that it "agrees that Tab 6 of Exhibit 2 is a collection or summary of the business records of IHR[C]" (Appellee's Br. at 3 (emphasis added)) to be a concession that the demurrage worksheets and invoices were summaries within the meaning of Rule 1006. Support for this conclusion is found in IHRC's subsequent statement that it "believes that the . . . monthly demurrage reports/billings is in fact a primary document to establish the amount of the demurrage and switching charges." (Id. at 4.)
The court finds that the testimony of Mr. Yeager provided a sufficient foundation for the admission of demurrage worksheets and demurrage invoices under Rule 803(6).
Thus, the bankruptcy court's error in admitting these documents into evidence before the laying of a sufficient foundation was harmless. However, the court finds that IHRC failed to lay a sufficient foundation for the admission of the switching invoices. Therefore, the bankruptcy court abused its discretion in admitting these invoices into evidence.
B. IHRC's Burden of Proof
Wilson contends that the bankruptcy court erred in finding that IHRC proved by a preponderance of the evidence that demurrage and switching charges of $59,640 are due and owing from Wilson. Specifically, Wilson maintains that (1) it is unclear whether Saturdays and Sundays were included or excluded for purposes of determining demurrage charges; (2) it is unclear whether the release time was determined by the date and time of a release phone call or by a faxed bill of lading; and (3) many notations and computations on the worksheets are unclear.
As for Wilson's last point, the court in many instances is unable to determine why Wilson was not charged demurrage when it appears from the demurrage worksheets and Mr. Yeager's testimony that IHRC believed it could have assessed demurrage charges against Wilson. (See, e.g., Pl.'s Ex. 2, Tab 6 at 90, 97, 100, 102, 106). Whether IHRC properly charged Wilson is another question, however.
Wilson claims that the evidence shows that IHRC sent Wilson conflicting information as to whether Saturdays and Sundays were included or excluded in the free time allowed for loading and unloading. IHRC's Demurrage Policy states that "free time will include Saturdays, Sundays and holidays (except New Years Day, Easter Sunday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day)." (Pl.'s Ex. 2, Tab 2, § 10.) Freight Tariff RPS 6004-P provides that Saturdays, Sundays and holidays will be excluded from free time. (Pl.'s Ex. 2, Tab 3, Item 610.) Wilson argues that without knowing which policy IHRC used in calculating demurrage, the bankruptcy court was unable to determine what the demurrage charges should have been, if any.
In its reply brief, Wilson argues that IHRC admitted that Mr. Yeager made the demurrage calculations for purposes of trial. Though IHRC states this in its brief, the cited page of the trial transcript provides no evidentiary support for such a statement. Other evidence presented at trial supports a reasonable inference that Mr. Yeager did not make the calculations for purposes of trial. (See, e.g., Tr. at 35-36, 38, 39, 41, 45, 50; see also Yeager Aff. ¶ 14.) Wilson has pointed to no evidence which would raise a reasonable inference to the contrary. In the end, this matters not because the court finds that IHRC did not sustain its burden in proving the charges owed by Wilson.
The bankruptcy judge could have determined whether Saturdays, Sundays and holidays were included in the free time by taking judicial notice of the calendars for the years at issue, see Fed.R.Evid. 201. This court's consideration of the calendars for the years in question as well as the demurrage worksheets reveals that sometimes Saturdays and Sundays were included in the free time, but sometimes they were not. (See, e.g., Pl.'s Ex. 2, Tab 6 at 97 (placement on 9/06/97 at 14:40 and release on 9/9/97 at 10:57 with no demurrage charged where 9/6 and 9/7 were a Saturday and Sunday, respectively); id. at 102 (no demurrage charged for Fourth of July, Saturday and Sunday where placement was on 07/03/97 at 12:15 and release was on 07/07/97 at 16:24)). Because of these inconsistencies and given the lack of evidence regarding whether Saturdays and Sundays were properly included in free time by IHRC in calculating demurrage, the bankruptcy court had insufficient evidence upon which to find that IHRC proved by a preponderance of the evidence that the demurrage charges reflected in the demurrage worksheets and invoices were actually owed by Wilson.
IHRC argues that Mr. Yeager was not questioned at trial about Saturday and Sundays. This is correct. However, IHRC bore the burden of proving how it calculated the demurrage charges and whether the charges as calculated were actually owed by Wilson.
Moreover, IHRC offered insufficient evidence to prove that its calculation of demurrage charges based on a release time established by a faxed bill of lading from Wilson was authorized or otherwise proper. As Wilson maintains, the evidence was conflicting as to how the release time by Wilson was established. IHRC's Demurrage Policy states that release may be by phone, fax, or directly to a member of the train crew; the Trustee testified that a customer could release cars by phone; Mr. Yeager initially testified that a shipper could release by phone, but then said that Wilson had to fax in its releases; Mr. Yeager also testified that the release times on the demurrage worksheets were entered into the computer by Ms. Russell from the faxed bills of lading. The bankruptcy judge did not make a finding as to how a release by Wilson was established.
Even assuming that the bankruptcy court found that the release for purpose of calculating demurrage charges to Wilson was based on the faxed bills of lading from Wilson, IHRC offered no evidence that it was authorized to impose such a requirement on Wilson despite its written demurrage policy which provided that release could be made by phone. Furthermore, there was no evidence to prove when this requirement was imposed on Wilson or when Wilson was advised of this change in IHRC's demurrage policy as applied to Wilson. IHRC argues that this requirement was necessary because of Wilson's alleged antics concerning releases by phone. It seems to this court that even assuming IHRC had the authority to unilaterally change its demurrage policy with respect to Wilson, at the very least, IHRC had to show when it changed its policy and when it informed Wilson of that change. It did not make this showing. Though Mr. Yeager testified that IHRC insisted or requested Wilson to fax in its releases, IHRC offered no evidence as to when this occurred. Without such evidence, the bankruptcy court erred in concluding that IHRC proved by a preponderance the demurrage charges owed by Wilson.
As for switching charges, this court has determined that the switching invoices were erroneously admitted into evidence, and the switching invoices were the only evidence produced to substantiate the amount claimed for switching charges. Therefore, the court concludes that IHRC has not sustained its burden of proving the switching charges owed by Wilson.
IV. Conclusion
For the foregoing reasons, the order and judgment of the bankruptcy court in favor of IHRC and against Wilson is REVERSED and this case is REMANDED for entry of judgment in favor of Wilson and against IHRC.
ALL OF WHICH IS ORDERED