Indemnity Insurance Co. of North America v. Hanjin Shipping Co.

In the
United States Court of Appeals
For the Seventh Circuit
____________

Nos. 02-2822 & 02-2933
INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, as
Subrogee of Lowe’s Companies, Inc.,

Plaintiff-Appellee, Cross-Appellant,

v.

HANJIN SHIPPING COMPANY,
Defendant-Appellant,

and

O’HARE SERVICES and CHANNEL DISTRIBUTION,
Defendants, Cross-Appellees.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 00 C 5226—Charles R. Norgle, Sr., Judge.

ARGUED FEBRUARY 14, 2003—DECIDED OCTOBER 31, 2003

Before FLAUM, Chief Judge, and DIANE P. WOOD and
EVANS, Circuit Judges.
DIANE P. WOOD, Circuit Judge. When a container of tools
disappeared while it was in transit between China and
the Indiana warehouse of the ultimate purchaser, L.G.
2 Nos. 02-2822 & 02-2933

Sourcing, Inc., the inevitable process of finger-pointing
began. The cargo, as is common today, was shipped under
an intermodal waybill and was packed in a container that
could easily be transferred from one carrier to the next. All
went well until the U.S. Customs Service decided to inspect
the container in a facility near Chicago’s O’Hare Interna-
tional Airport. While in the custody of private agents of the
Customs Service, the container vanished. It was found some
time later in a nearby city, empty. The purchaser re-
ceived full payment for the loss from its insurer, Indemnity
Insurance Company. Indemnity, standing in the shoes of its
customer, in turn sued the shipping company, Hanjin, and
the various parties involved in the diversion to the customs
inspection facility, seeking indemnification.
After a bench trial, the district court ruled that Hanjin
was responsible for the full amount of the loss. Indemnity
Ins. Co. of North America v. Hanjin Shipping Co., 206 F.
Supp. 2d 927 (N.D. Ill. 2002). Our review of the relevant
language in the waybill, in the light of the law governing
this type of transaction, convinces us that this was error.
We therefore reverse the verdict against Hanjin. In addi-
tion, Indemnity has cross-appealed from the district court’s
judgment dismissing its claims against O’Hare Services and
Channel Distribution, two of the companies involved in the
customs inspection process. We also reverse that judgment,
and remand for further proceedings.

I
L.G. Sourcing, a subsidiary of Lowe’s Companies, Inc.,
wanted to purchase some Black & Decker power tools that
were manufactured in a plant located in Shenzhen, China.
(For convenience, we generally refer to both L.G. Sourcing
and Lowe’s itself as Lowe’s, as there is no material distinc-
tion between them for present purposes.) As part of the
deal, Lowe’s contracted with Hanjin Shipping Company to
Nos. 02-2822 & 02-2933 3

transport a container holding the tools from China to
Lowe’s warehouse in North Vernon, Indiana. The waybill
covered all legs of the journey and thus involved both sea
and land transport—in short, it was an intermodal contract.
It named “BDC International Limited, D/B Black & Decker
International Corp.,” as the shipper, and L.G. Sourcing,
Inc., as the consignee. In a space on the waybill labeled
“Notify Party”, it gave the name of Fritz Companies, Inc., of
Savannah, Georgia. In some of the fine print, the waybill
said:
[d]elivery will be made to the Consignee named, or the
authorized agents, on production of proof of identity at
the place of delivery. . . . Should the Consignee require
delivery elsewhere than at the place of delivery shown
above, then written instruction must be given by the
Consignee to the Carrier or his agent. Should delivery
be required to be made to a party other than that
named as Consignee authorization must be given in
writing by the Shipper to the Carrier or his agent.
Finally, as we explain in greater detail below, the waybill
provided that it was to be governed by the International
Convention for the Unification of Certain Rules of Law
Relating to Bills of Lading, concluded in Brussels on August
25, 1924 (commonly known as the Hague Rules), which is
generally in force in the United States. See 51 Stat. 233
(1924).
Initially, the shipment proceeded uneventfully. After the
container arrived by ship in Long Beach, California, it was
transported by rail to Chicago, where it was scheduled to be
picked up by a motor carrier and taken to the Indiana
warehouse. Prior to its arrival in Chicago, however, the U.S.
Customs Service notified Fritz, which was Lowe’s agent and
customs broker, that this particular container had been
selected for an intensive customs examination. Fritz, which
had a written power of attorney from Lowe’s to perform all
4 Nos. 02-2822 & 02-2933

services necessary to effect the entry and clearance of
Lowe’s goods, accordingly notified Hanjin in writing that
the goods were to be released to Land Container, a trucking
company, for delivery to O’Hare Services. O’Hare Services
was one of four companies operating a Centralized Exami-
nation Station for U.S. Customs in the Chicago area.
O’Hare Services in turn subcontracted with a company
called Channel Distribution for the performance of the
tedious work of inspecting the contents of the container and
storing it until it could resume its journey to the ultimate
consignee.
In order to carry out the required inspection, Fritz began
on August 2, 1999, by paying Hanjin the collect ocean
freight due on the shipment. It then instructed Hanjin to
deliver the container to Land Container, which on August
25, 1999, in accordance with Fritz’s order, took the con-
tainer to the Centralized Inspection Station (operated by
Channel) used by O’Hare Services. On August 26, Customs
Service officials examined the contents of the container and
released it from custody. At that point, the shipment was
intact and in good order. Channel then moved the container
from the bonded customs area of its lot to the open yard.
The district court found as a fact that “[a]fter Customs
completed its inspection, it notified both Fritz and Hanjin
that the container and its contents were released and ready
to be picked up.” This finding is troublesome, as all of the
testimony at the trial indicated that Customs notified Fritz,
but not Hanjin, and that Fritz may have communicated this
message to Hanjin. Nevertheless, this discrepancy does not
matter in the end, because the testimony from the wit-
nesses called by Channel and O’Hare Services was that
Channel would release the container only upon receipt of a
delivery order from Fritz. No such order was forthcoming.
One Fritz employee testified that they were waiting for a
pick-up number from Hanjin, but she never explained why
Hanjin would have had such a number.
Nos. 02-2822 & 02-2933 5

For over a week, the container sat in Channel’s unpro-
tected yard, awaiting pickup from an authorized party. As
of September 3, Channel’s yard check report showed that it
was still on the premises in apparent good condition. The
news was not so good at the next yard check, which oc-
curred on September 7. By then, the container was missing.
On September 10, the Indiana State Police notified Hanjin
that they had discovered the empty container in Calumet
City, Indiana. Hanjin verified the fact that the container
was no longer in Channel’s lot. The goods were never
recovered.

II
Lowe’s submitted a claim for the lost shipment with its
insurance company, Indemnity, which paid the claim and
became subrogated to Lowe’s rights to recover. In its
capacity as subrogee, Indemnity filed this suit against
Hanjin, O’Hare Services, and Channel. (At one point Fritz
was also a defendant, but it was dismissed before trial and
is no longer involved in the litigation.) Count I asserted a
claim against Hanjin under the Carriage of Goods by Sea
Act (COGSA), 46 U.S.C. app. § 1300 et seq. Count II was
against Fritz, and thus no longer relevant. Count III raised
a common law bailment claim against O’Hare Services, and
Count IV raised a common law negligence theory against
O’Hare Services. Counts V and VI, respectively, raised the
same two theories against Channel. Finally, Counts VII and
VIII asserted that Indemnity was entitled to recover from
Hanjin and O’Hare Services (again, respectively) under the
Carmack Amendment, 49 U.S.C. § 14706.
With the exception of the claim against Fritz, the remain-
der of Indemnity’s case was heard in a bench trial. The
district court’s jurisdiction rested on 28 U.S.C. § 1337,
because of the COGSA and Carmack Amendment allega-
tions in the complaint. It exercised supplemental jurisdic-
6 Nos. 02-2822 & 02-2933

tion, see 28 U.S.C. § 1367, over the common law theories.
The court rejected the argument that it also had admiralty
jurisdiction over the case, under 28 U.S.C. § 1333, because
it concluded that this was a mixed contract involving
elements of both ocean and land carriage, and because the
loss occurred during the inland carriage portion of the
transaction. It also commented that the parties were not
seeking to invoke its diversity jurisdiction under 28 U.S.C.
§ 1332 and that the record is devoid of the necessary
evidence to determine whether diversity even exists.
On the merits, the district court first concluded that
Hanjin could not be liable under the Carmack Amendment,
because that law is inapplicable to a contract of carriage
like this one, which originated outside the United States
and was handled under a foreign through bill of lading.
Capitol Converting Equip., Inc. v. LEP Transport, Inc., 965
F.2d 391, 394 (7th Cir. 1992). The court also rejected the
suggestion that there is a body of federal common law
governing Indemnity’s claim against Hanjin, and that this
law supports a finding of liability. Next, it ruled that
COGSA by its terms did not apply to this loss, because it
covers only the period during which goods are aboard a
ship. Because of a clause paramount in the waybill, how-
ever, the court ruled that the parties had effectively
adopted COGSA as the rule governing the entire transac-
tion. This meant that the case against Hanjin was ulti-
mately a simple breach of contract action and was governed
by state law (either Illinois or Indiana, with no material
difference between the two). The contract required Hanjin
to deliver the goods to Lowe’s in Indiana; it did not do so,
and the court found nothing in COGSA that excused
Hanjin’s nonperformance. It therefore entered judgment in
Indemnity’s favor for $236,032.71. It dismissed Indemnity’s
bailment and negligence claims against Channel and
O’Hare Services, thereby resolving the entire case. Hanjin
has appealed from the judgment rendered against it, and
Nos. 02-2822 & 02-2933 7

Indemnity has cross-appealed from the adverse judgment in
favor of Channel and O’Hare Services.

III
We take up Hanjin’s appeal first. Hanjin urges us to find
that the district court erred as a matter of law in holding
that it did not make a valid delivery of the goods when it
turned them over to Land Container in accordance with the
written instructions it had received from Fritz. Since nei-
ther Fritz, as Lowe’s agent, nor Lowe’s itself, ever issued
the further written instructions that would have permitted
Hanjin to complete the shipment, Hanjin claims it is not
responsible for the fact that the goods never reached their
ultimate destination. In the alternative, Hanjin argues that
the law of the contract excused it from delivering the goods
to Lowe’s Indiana warehouse, because the owner of the
goods (through its agent Fritz) diverted them to O’Hare
Services. This diversion, it continues, amounted to an act or
fault of the owner of the goods under all applicable laws.
Either way, Hanjin claims that it should not be liable for
any of the loss, and that the district court’s judgment for
$236,032.71 must be reversed.
We agree with the district court that when all is said and
done, this is a simple contract action, and that an Illinois
court applying its own choice-of-law rules would have
selected either Indiana law or the law of the forum. No one
has pointed out any salient differences between those two
bodies of law, and so we will look to both, as the district
court did. Both Illinois and Indiana require contracts to be
interpreted as a whole. See, e.g., OEC-Diasonics, Inc. v.
Major, 674 N.E.2d 1312, 1315 (Ind. 1996); Martindell v.
Lake Shore Nat’l Bank, 154 N.E.2d 683, 689 (Ill. 1958);
Premier Title Co. v. Donahue, 765 N.E.2d 513, 516 (Ill. App.
Ct. 2002); Indiana Gaming Co., LP v. Blevins, 724 N.E.2d
274, 278 (Ind. Ct. App. 2000). In so doing, the courts of both
8 Nos. 02-2822 & 02-2933

states stress that meaning must be given to all terms of the
contract, and that the court should accept the interpretation
that best harmonizes its provisions. See Martindell, supra;
OEC-Diasonics, supra. Furthermore, both Illinois and
Indiana permit parties to choose an applicable law for their
contract. See, e.g., Allen v. Great Am. Reserve Ins. Co., 766
N.E.2d 1157, 1162 (Ind. 2002) (Indiana choice of law
doctrine favors contractual stipulations as to governing
law); Cap Gemini America, Inc. v. Judd, 597 N.E.2d 1272,
1287 (Ind. Ct. App. 1992); Int’l Surplus Lines Ins. Co. v.
Pioneer Life Ins. Co. of Ill., 568 N.E.2d 9, 14 (Ill. App. Ct.
1990) (indicating that Illinois follows the RESTATEMENT
(SECOND) of CONFLICTS § 187 (1971) regarding the freedom
of parties to choose applicable law).
While the situation before us does not present a conven-
tional contractual choice of law clause, in which the parties
select “the law of State X” or “Country Y” as the applicable
law, we think that the choice of the Hague Rules in the
agreement is closely analogous to those conventional
clauses and thus enforceable. To say that the Hague Rules
“apply,” however, does not answer another question, which
is to how much of the contract do they apply? Two possibili-
ties exist: the parties might have been stipulating that the
Hague Rules applied only to the international ocean
shipment portion of the transaction, or they might have
been stipulating that the Hague Rules applied to the entire
transaction, including the overland legs. In order to answer
which of these is the proper interpretation of the contract,
we turn first to the language of the agreement.
The contract of carriage is contained in the non-negotiable
waybill that Hanjin issued to L.G. Sourcing, which named
Fritz as the party to notify on L.G. Sourcing’s behalf.
Whether the district court interpreted this waybill correctly
is a question of law, which we review de novo. See, e.g., Sea-
Land Service, Inc. v. Lozen Int’l, LLC, 285 F.3d 808, 813
(9th Cir. 2002) (de novo review of bill of lading); see also
Nos. 02-2822 & 02-2933 9

Shelby County State Bank v. Van Diest Supply Co., 303 F.3d
832, 835 (7th Cir. 2002) (interpretation of contracts subject
to de novo review). The waybill contains a paramount
clause, which reads in part as follows:
(a) This Waybill is not a bill of lading and no bill of
lading will be issued. However, it is agreed that the
Hague Rules contained in the International Convention
for the Unification of certain rules relating to Bills of
Lading, dated Brussels the 25th August 1924 as en-
acted in the country of shipment shall apply to this
Waybill. When no such enactment is in force in the
country of shipment, the corresponding legislation of
the country of destination shall apply, but in respect of
shipments to which no such enactments are compulso-
rily applicable, the terms of the said Convention shall
apply in exactly the same way.
* * *
(c) The Carrier shall in no case be responsible for loss of
or damage to the Goods howsoever arising before
receipt of the Goods by the Carrier at the place of
receipt or after delivery by the Carrier at the place of
delivery.
(d) It is agreed that whenever the Brussels Convention
and the Brussels Protocol or statutes incorporating
same use the words “Bill of Lading” they shall be read
and interpreted as meaning “Waybill.”
* * *
The Hague Rules to which the waybill refers were, for all
purposes relevant to this case, incorporated into U.S. law in
COGSA. See, e.g., Groupe Chegaray/V. De Chalus v. P&O
Containers, 251 F.3d 1359, 1362 (11th Cir. 2001); Spartus
Corp. v. S/S Yafo, 590 F.2d 1310, 1315 (5th Cir. 1979). See
also Carriage of Goods by Sea: Hearing on S. 1152 Before
the Senate Committee on Commerce, 74th Cong., 1st Sess.
10 Nos. 02-2822 & 02-2933

(1935); S. Rep. No. 742, 74th Cong., 1st Sess. (1935); H.R.
Rep. No. 2218, 74th Cong., 2d Sess. (1936).
The first question we must address is whether the
parties, through the language in this waybill, effectively
extended the Hague Rules—essentially COGSA here—to
the overland part of the voyage. There is nothing in COGSA
itself that would preclude such an agreement. To the
contrary, the statute specifically states:
Nothing contained in this chapter shall prevent a
carrier or a shipper from entering into any agreement
. . . as to the responsibility and liability of the carrier or
the ship for the loss or damage to or in connection with
the custody and care and handling of goods prior to the
loading on and subsequent to the discharge from the
ship on which the goods are carried by sea.
46 U.S.C. app. § 1307. Indemnity argues that, notwith-
standing this possibility, the language of the waybill set
forth above does nothing more than state the truism that
COGSA applies to the ocean shipping portion of this
transaction.
As the Supreme Court made clear in Vimar Seguros y
Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 534
(1995), the substance of COGSA is mandatory law that the
parties to a transaction within its scope cannot modify by
agreement. COGSA applies to “[e]very bill of lading or
similar document which is evidence of a contract for the
carriage of goods by sea to or from ports of the United
States, in foreign trade. . . .” 46 U.S.C. app. § 1300 (empha-
sis added). Thus, no matter what law a Chinese court might
have applied to this matter had a problem arisen before the
shipment left China, COGSA provided the governing law for
a tribunal in the United States with a dispute before it
concerning a shipment on board a vessel bound to a port in
the United States. Any clause purporting to relieve the
parties of liability under COGSA would have been “null and
Nos. 02-2822 & 02-2933 11

void and of no effect.” Id., § 1303(8). Thus, with respect to
the ocean voyage, the parties had no power either to
stipulate to some other body of contract law or to some
other version of the international rules governing bills of
lading, such as the later Hague-Visby Rules1 or the Ham-
burg Rules.2
Other things being equal, this suggests that the parties
were trying to accomplish something beyond a stipulation
that the Hague Rules applied to the ocean portion of the
contract of carriage. Otherwise, their agreement would have
accomplished little or nothing. We realize that Hanjin
might have used this waybill for shipments to destinations
other than the United States, however, and so it is impor-
tant to look further. Reading the waybill as a whole, we
conclude that it can be read only as a document adopting
the Hague Rules for the entire shipment, both inland and
ocean. On the face of the waybill, it specifies that the place
of receipt of the goods is Shenzhen, China; that pre-carriage
is to be performed by Tak Lee Fat, that the port of loading
is to be Yantian and the designated ship is one of Hanjin’s
vessels, that the port of discharge is Long Beach, California,
and that the place of delivery “by on carrier” is North
Vernon, Indiana. The waybill also indicates that the last of
these boxes is to be completed “only when used for
multimodal or through transportation.” Thus, when on the
reverse side of the waybill one finds the statement that the
Hague Rules “shall apply to this Waybill,” the only reason-
able way to read that language is as an agreement to apply
those rules to all phases of the trip. This makes eminent

1
Protocol to Amend the 1924 International Convention for the
Unification of Certain Rules of Law Relating to Bills of Lading,
signed at Brussels February 23, 1968, and entered into force June
23, 1977.
2
United Nations Convention on the Carriage of Goods by Sea,
signed at Hamburg on March 31, 1978.
12 Nos. 02-2822 & 02-2933

good sense, as compared with the inefficient alternative of
applying different substantive law to the container depend-
ing on whether it is sitting on board a ship, on a rail car, or
on a truck.
Hanjin’s duty under the waybill was to deliver the
container either to Lowe’s at the North Vernon, Indiana,
warehouse, or to follow any superseding written instruc-
tions for delivery that it received from Lowe’s customs
broker, Fritz. See Servicios-Expoarma, C.A. v. Indus.
Maritime Carriers, Inc., 135 F.3d 984, 992 (5th Cir. 1998)
(“ ‘Delivery’ [under COGSA] occurs when the carrier places
the cargo into the custody of whomever is legally entitled to
receive it from the carrier.”). Unless it breached that duty,
it cannot be liable under the contract. Once Fritz issued the
written instructions to Hanjin telling it to deliver the
container to Land Container, Hanjin was both entitled to
and required to turn the container over to the specified
trucking company. Indeed, the Customs Service had the
authority to require this inspection, see 19 U.S.C. § 1581
(authorizing customs officers to examine all cargos entering
the United States and to use all necessary force to compel
compliance), and Hanjin had a duty to cooperate. See 19
U.S.C. § 1433 (vessels or vehicles arriving in U.S. ports or
at the border must report arrival to customs facilities and
person); id. § 1436 (unlawful to fail to comply with § 1433).
It was entirely predictable to the parties that the U.S.
Customs Service might choose to inspect the contents of the
container and thereby require a temporary diversion of the
container from the planned itinerary. Hanjin had no reason
to think that the instructions it received from Fritz were
suspicious or unreasonable.
Thus, the question comes down to whether Hanjin’s
failure to retrieve the container from Channel’s premises
after the inspection was completed amounted to a breach of
the contract of carriage. Hanjin argues that it had no way
of knowing when the container was ready for pick-up,
Nos. 02-2822 & 02-2933 13

because no one notified it that the inspection was com-
pleted. As we noted above, Fritz may have passed this
message along informally, but Fritz never followed up with
the formal written instructions to Channel that would have
been required for Channel to release the container to
another party. One Fritz employee, Lois Walker, testified
that it was her “understanding that they [i.e., the cargo]
were not picked up because Hanjin did not supply the pick-
up number that was needed for the trucker, the house
trucker to go in and pull the box. And also they did not see
a Customs release in their system.” The lack of a Customs
release in Fritz’s system was certainly not Hanjin’s fault,
and in any event the district court seems to have resolved
this point against Fritz in its finding of fact that Customs
notified Fritz that the container was ready for pick-up.
Walker’s assumption that Fritz was waiting for a pick-up
number from Hanjin makes little sense, given the fact that
Fritz was the party that had made all the arrangements for
the shipment and thus was in possession of all relevant
documentation. Fritz chose O’Hare Services, which in turn
chose Channel, as the responsible parties, and there is
nothing in this record to indicate that Fritz had no power to
instruct Channel on who would be authorized to pick up the
released container. Indeed, every scrap of evidence is to the
contrary, starting with the language of the waybill, which
confers the power to give instructions on Fritz, and continu-
ing with the law of COGSA and the general law on proper
delivery. That is enough, in our view, to require reversal of
the district court’s judgment against Hanjin.
One might be able to reach the same result through the
act of shipper defense recognized in COGSA, 46 U.S.C. app.
§ 1304(2)(i), which provides that
[n]either the carrier nor the ship shall be responsible
for loss or damage arising or resulting from—
(i) Act or omission of the shipper or owner of the goods,
his agent or representative.
14 Nos. 02-2822 & 02-2933

This defense is also recognized in Illinois law. See Meyer v.
Rozran, 77 N.E.2d 454, 457 (Ill. App. Ct. 1948) (“A common
carrier is an insurer of goods entrusted to him and account-
able for the loss thereof or any damage thereto unless
shown to have happened by the act of God or the public
enemy or to have occasioned [sic] by an act of the shipper or
someone in his position.”). Although the shipper was
technically Black & Decker, Lowe’s was the consignee, and
Fritz was the customs broker. The latter two parties
arranged all of the shipment details on Black & Decker’s
behalf. Both Lowe’s and Fritz may therefore have been
acting as the shipper’s agents for purposes of this doctrine.
It was Fritz, the agent or representative of the shipper, who
instructed Hanjin to divert the goods to this particular
customs yard, thereby setting in motion the events that led
to its disappearance. We need not finally resolve this, given
our decision that Hanjin was not legally responsible for the
ultimate nondelivery of the container to the Indiana
warehouse.

IV
We turn finally to the cross-appeal filed by Indemnity, in
which it claims that the district court should not have
dismissed its claims against O’Hare Services and Channel
Distribution. It relies on the general law of bailment, and
within that body of law, the rules governing negligence on
the bailee’s part. Although there is an implicit choice of law
question here as well, the parties seem to assume that
Illinois law governs this aspect of the case. That assumption
is reasonable, given the fact that the transfer of the con-
tainer to the custody of O’Hare Services and Channel took
place in Illinois and the theft from the premises was
obviously also in Illinois. Following the choice of law rules
that the state courts of Illinois would use, it is easy to
conclude that Illinois has the most significant relation to
Nos. 02-2822 & 02-2933 15

this aspect of the case. Wreglesworth ex rel. Wreglesworth v.
Arctco, Inc., 738 N.E.2d 964, 971 (Ill. App. Ct. 2000). We
therefore proceed on that basis.
Indemnity argues that it has stated a prima facie case for
bailment, and that there is a presumption of negligence
arising from the fact that the container was not returned.
A bailment “is the delivery of property for some purpose
upon a contract, express or implied, that after the purpose
has been fulfilled, the property shall be redelivered to the
bailor, or otherwise dealt with according to his directions,
or kept until he reclaims it.” American Ambassador Cas. Co.
v. Jackson, 692 N.E.2d 717, 721 (Ill. App. Ct. 1998) (cita-
tions omitted). In order to prevail on a bailment claim,
Indemnity must show (1) an express or implied agreement
to create a bailment, (2) delivery of the property in good
condition, (3) acceptance of the property by the bailee, and
(4) the bailee’s failure to return the property, or the return
of the property in damaged condition. Id. Once the plaintiff
has satisfied these requirements, there is a presumption of
bailee negligence that may be rebutted if the defendant-
bailee presents “sufficient evidence to support a finding that
the presumed fact did not exist and that the defendant was
free from fault.” Id.
Channel and O’Hare Services respond with several
arguments. First, Channel insists that it was merely a
company that contracted with the true bailee, O’Hare
Services, and thus is not liable under the law of bailment.
O’Hare Services makes a mirror-image argument, claiming
that although it was the licensed Customs Examination
Station, it had subcontracted out all responsibility to
Channel and thus there was no evidence that O’Hare
Services itself ever agreed to accept or receive the con-
tainer. O’Hare Services adds that it was never in exclusive
physical possession of the container, even if it played some
role in the inspection process. The net effect of these
arguments, were we to accept both of them, is that no one
16 Nos. 02-2822 & 02-2933

could be held responsible, as both Channel and O’Hare
Services have claimed that the other was at fault. But of
course some entity must have had the goods when they
were taken, and it was not either Lowe’s or Hanjin. Finally
Channel and O’Hare Services argue that even if each one
was a bailee, they rebutted the presumption of negligence
by showing that their handling of the container was in
accordance with Customs rules and industry standards.
The district court granted judgment as a matter of law for
both O’Hare Services and Channel. We must therefore take
the facts in the light most favorable to Indemnity, for
purposes of appellate review, and our review is de novo.
Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d
714, 721 (7th Cir. 2003). From that point of view, the record
shows that the security measures Channel used for this
container were less than those it had at its own disposal.
For example, gates equipped with locks were left unlocked,
and pins were not used to make it more difficult to steal the
container. Leaving unsecured containers out in a yard with
unlocked gates might be an unreasonable way to handle a
cargo valued in the hundreds of thousands of dollars.
Furthermore, this is not a case in which lawyers with 20/20
hindsight imagine an ideal world with perfect security
measures. It is a question of Channel’s failure to use
precautions it had readily at hand. Perhaps, of course,
Channel has an explanation for its lack of concern. The
evidence of industry custom in this record is thin. But on
the record as it stands, we think it was wrong to find as a
matter of law that neither O’Hare Services nor Channel
could have been found to be negligent bailees. On remand,
the parties will have an opportunity to explore further the
question whether O’Hare Services, as the authorized
inspector, bears principal responsibility as the bailee, or if
Channel was either the primary or a co-equal bailee. Even
if O’Hare Services was the original bailee, the parties can
also explore the question whether Channel should be
viewed as merely a subcontractor of O’Hare Services, or if
Nos. 02-2822 & 02-2933 17

Channel should be regarded as a sub-bailee that owed the
same kind of duties to O’Hare Services as O’Hare Services
owed to the shipper.

V
For the reasons we have explained, we find that the
judgment against Hanjin must be REVERSED. The judgment
dismissing O’Hare Services and Channel Distribution is
VACATED and that part of the case is REMANDED to the
district court for further proceedings consistent with this
opinion.

A true Copy:
Teste:

________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit

USCA-02-C-0072—10-31-03