Midwest Trading Group, Inc. v. GlobalTranz Enterprises, Inc. et al

Filing 55

MEMORANDUM Opinion and Order:For the foregoing reasons, the Court grants GlobalTranz's motion to reconsider 51 in part, and denies it in part. A status hearing is set for 3/17/2015 at 09:00 AM. Signed by the Honorable Thomas M. Durkin on 3/5/2015:Mailed notice(srn, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
MIDWEST TRADING GROUP, INC.,
Plaintiff,
v.

No. 12 C 9313

GLOBALTRANZ ENTERPRISES, INC.,
AMERICAN FREIGHT NETWORK, INC.,
AKOP KARAPETAN D/B/A V& R TRUCKING,
AND EVERTEK, INC.,

Judge Thomas M. Durkin

Defendants.
MEMORANDUM OPINION AND ORDER
Before the Court is defendant GlobalTranz Enterprises, Inc.’s (“GlobalTranz”)
motion for reconsideration. On July 23, 2014, the Court entered a Memorandum
Opinion and Order granting in part, and denying in part, GlobalTranz’s motion for
summary judgment. GlobalTranz has asked the Court to reconsider two portions of
its ruling.

First, GlobalTranz argues that the Court incorrectly held that the

Interstate Commerce Commission Termination Act (“ICCTA”), 49 U.S.C. §
14501(c)(1), does not preempt plaintiff Midwest Trading Group, Inc.’s (“Midwest”)
fraud claim.

Second, GlobalTranz argues that the Court incorrectly held that

material factual disputes precluded summary judgment on Midwest’s claim for
damages in excess of the “limitation of liability” provision of GlobalTranz’s “Freight
Broker Agreement Terms and Conditions” (“Terms and Conditions”).

For the

following reasons, the Court grants GlobalTranz’s motion to reconsider in part, and
denies it in part.
Background
The Court will assume that the reader is familiar with its prior
Memorandum Opinion and Order in this case. See Midwest Trading Grp., Inc. v.
GlobalTranz Enter., Inc., No. 12 C 9313, 2014 WL 3672932 (N.D. Ill. July 23, 2014).
Nevertheless, an overview of the facts and the relevant portions of the Court’s
opinion will be helpful.
In January 2012, West Coast Imports, Inc. (“West Coast”), acting as
Midwest’s agent, contacted GlobalTranz — a transportation broker — to arrange for
the shipment of Android tablet computers. Id. at *1. The shipment was divided
into two loads, one destined for Texas (zip code 78218) and the other for North
Carolina (zip code 27536). Id. at *2. Midwest had used GlobalTranz as a broker on
one prior occasion. Id. at *1. West Coast had previously booked over 100 shipments
with GlobalTranz on various occasions for other customers. Id. Nuria Coronado, a
West Coast employee, contends that it was her “standard practice to book all load
shipments via email directly with” Shawn Gengler, a GlobalTranz employee. R. 441 at 1 ¶ 3. Coronado attaches to her declaration an email that she sent to Gengler
with respect to the Texas shipment:
[Coronado:]
Hi Shawn Please quote[:] 6 Pallets[,] 3,710 Lbs[,] Dest. zip 78218[,]
Android Tablet[,] $250,000.00[.]
Best Regards,

Nuria Coronado.
[Gengler:]
$950 is my rate for this[.]
Id. at 8 (reformatted for clarity). It was Coronado’s “understanding based on [her]
experience with GlobalTranz that the quote included the cost of insurance.” Id. at
1-2 ¶ 4. Vinay Saboo, West Coast’s President, states that Gengler “confirmed” that
the quoted price “included insurance against the loss or theft of the tablets during
shipment.” R. 29-2 ¶ 6. Gengler states that he “did not offer and West Coast did
not request” such insurance. R. 20 at ¶ 7. GlobalTranz brokered the shipment to
American Freight, which in turn brokered the shipment to V & R Trucking.
Midwest, 2014 WL 3672932, at *2. While V & R’s driver was out of the truck eating
lunch, the tractor and trailer containing the tablets were stolen. Id. After the theft,
Saboo emailed Gengler to confirm that tablets were insured.

R. 44-3 at 2-3.

Gengler confirmed that West Coast had purchased insurance in amounts sufficient
to cover Midwest’s losses from the theft. Id. at 2. In fact, GlobalTranz had not
purchased third-party insurance and has refused to pay Midwest for the stolen
shipments, prompting this lawsuit.

Midwest alleges that GlobalTranz: (1)

fraudulently induced Midwest to enter into a contract with GlobalTranz by
misrepresenting that it would provide insurance for the shipments (Count I); (2)
negligently “fail[ed] to take steps necessary to assure” that the Android tablets were
not stolen (Count II); and (3) breached its contract by failing to obtain the insurance
that it had agreed to procure (Count III). R. 1-1 ¶¶ 20-40.

In its summary-judgment motion, GlobalTranz argued that the ICCTA
preempts Midwest’s tort claims:
[A] State, political subdivision of a State, or political authority of 2 or
more States may not enact or enforce a law, regulation, or other
provision having the force and effect of law related to a price, route, or
service of any motor carrier (other than a carrier affiliated with a
direct air carrier covered by section 41713(b)(4)) or any motor private
carrier, broker, or freight forwarder with respect to the transportation
of property.
49 U.S.C. § 14501(c)(1).

The Court reviewed the relevant controlling authority

construing § 14501(c)(1) and the comparable provision of the Airline Deregulatory
Act (“ADA”). See Midwest, 2014 WL 3972932, *4-7. 1 Applying those authorities,
the Court held that the ICCTA preempted Midwest’s negligence claim, id. at *7, but
not its fraud claim. Id. at *7-8. Although it was a close question, see id. at *7, the
Court concluded that Midwest’s fraud claim did not “relate to” GlobalTranz’s
services as broker:
Midwest’s claims do not relate to GlobalTranz’s conduct in brokering
the cargo. Rather, Midwest is claiming it was fraudulently induced
into entering into a contract with GlobalTranz—i.e., it would not have
paid GlobalTranz and allowed GlobalTranz to transport its shipments
of Android tablets if it knew GlobalTranz would not procure insurance.
That claim relates to pre-transportation conduct, as opposed to how
any contracted-for services of GlobalTranz were carried out.

See Dan’s City Used Cars, Inc. v. Pelkey, 133 S. Ct. 1769 (2013); Rowe v. N.H.
Motor Transp. Ass’n, 522 U.S. 364 (2008); Am. Airlines, Inc. v. Wolens, 513 U.S. 219
(1995); Morales v. Trans World Airlines, Inc., 504 U.S. 374 (1992); S.C. Johnson &
Son, Inc. v. Transp. Corp. of Am., Inc., 697 F.3d 544 (7th Cir. 2012); Travel All Over
the World, Inc. v. Kingdom of Saudi Arabia, 73 F.3d 1423 (7th Cir. 1996).
1

GlobalTranz did not cite any controlling authority applying the ICCTA in its
opening brief. See R. 19 at 6-8. It cited one Seventh Circuit case in its reply brief —
Travel All Over the World — and only in passing. See R. 37 at 12.

Id. The Court further concluded that “enforcing the common law prohibition on
fraud in this case will simply hold the parties to their bargained-for expectation.”
Id. at *8.

“[P]rohibiting parties from misrepresenting the terms of a contract

provides a generally-applicable rule that affects a carrier’s rates and service only in
its capacity as a member of the general public.” Id.
With respect to Midwest’s breach-of-contract claim, GlobalTranz argued that
the parties, through their course of dealing, had agreed to be bound by
GlobalTranz’s Terms and Conditions. 2 That document includes a provision limiting
GlobalTranz’s liability to an amount equal to the fees it earned in connection with
the shipment. R. 20-3 at 20. The Court held that there was a genuine dispute of
fact regarding whether the parties intended to be bound by the Terms and
Conditions. Midwest, 2014 WL 3672932, at *10-11.
Analysis
I.

Legal Standard
This Court has “inherent authority” under Rule 54(b) to reconsider its

interlocutory orders. Janusz v. City of Chi., No. 03 C 4402, 2015 WL 269934, at *4
(N.D. Ill. Jan. 20, 2015); Fed. R. Civ. P. 54(b) (Non-final orders “may be revised at
any time before the entry of a judgment adjudicating all the claims and all the
parties’ rights and liabilities.”); see also Gibbs v. Lomas, 755 F.3d 529, 535 (7th Cir.
2014) (An order denying a summary-judgment motion is interlocutory.). A motion
GlobalTranz concedes that factual issues preclude summary judgment on its
alternative argument that Midwest and West Coast expressly agreed to be bound by
the Terms and Conditions. R. 51 at 13; see also Midwest, 2014 WL 3972932, at *1011.
2

to reconsider is not, however, a proper vehicle for rehashing arguments that the
Court previously rejected. See Janusz, 2015 WL 269934, at *4. “Rather, a motion
to reconsider allows a party to direct the court’s attention to manifest errors of fact
or law, a significant change in the law or facts, the court’s misunderstanding of a
party’s argument, or a party’s contention that the court ruled on an issue that was
not properly before it.” Id.
II.

Preemption
GlobalTranz argues that the Court misapplied the Supreme Court’s decision

in Dan’s City. R. 51 at 5-6. The defendant towing company in Dan’s City towed the
plaintiff’s car from his apartment complex’s parking lot at his landlord’s request.
Dan’s City, 133 S.Ct. at 1776-77. The defendant did not know the plaintiff and was
unaware that he was hospitalized when it towed his car. Id. at 1777. The plaintiff
remained in the hospital for approximately two months, during which time the
defendant stored his car. Id. It later put the car up for auction and traded it to a
third party when the auction did not attract any bidders. Id. The plaintiff sued the
defendant for violating the New Hampshire Consumer Protection Act and breaching
its “statutory and common-law duties as a bailee to use reasonable care in disposing
of the car.”

Id.

The Supreme Court rejected the defendant’s argument that §

14501(c)(1) preempted these claims on essentially two grounds. First, the Court
held that the plaintiff’s claims did not relate to the “transportation of property.”
Title 49 defines “transportation” as follows:
Transportation. -- The term “transportation” includes —

(A) a motor vehicle, vessel, warehouse, wharf, pier, dock, yard,
property, facility, instrumentality, or equipment of any kind related to
the movement of passengers or property, or both, regardless of
ownership or an agreement concerning use; and
(B) services related to that movement, including arranging for, receipt,
delivery, elevation, transfer in transit, refrigeration, icing, ventilation,
storage, handling, packing, unpacking, and interchange of passengers
and property.
49 U.S.C. § 13102(23). The Supreme Court concluded that “storage” and “handling”
fit within this definition “only when those services ‘relat[e] to th[e] movement’ of
property.” Dan’s City, 133 S.Ct. at 1779. It observed that “[t]emporary storage of
an item in transit en route to its final destination relates to the movement of
property and therefore fits within § 13102(23)(B)’s definition.”

Id. Storage and

handling after transportation—the focal points of the plaintiff’s statutory and
common-law claims—do not. Id. Second, the Court held that the plaintiff’s claims
were “unrelated to a ‘service’ a motor carrier renders its customers.”

Id.

The

defendant’s transportation service—towing the plaintiff’s vehicle from his landlord’s
parking lot—“ended months before the conduct on which [the plaintiff’s] claims are
based.” Id.
The Court reasoned from Dan’s City that pre-transportation conduct, like
post-transportation conduct, “does not concern the transportation of property (or
relate to contracted-for services).” Midwest, 2014 WL 3672932, *7. The Court now
concludes that the rule it inferred from Dan’s City sweeps too broadly. In this case,
the relevant term in § 13102(23) is “arranging for . . . the movement of” property. A
broker arranges for the movement of property before it is moved, but that service is

nevertheless within the scope of “transportation.”

See, e.g., Prof’l Towing &

Recovery Operators of Ill. v. Box, 965 F. Supp. 2d 981, 999 (N.D. Ill. 2013) (holding
that

§

14501(c)(1) preempted state

laws requiring

the

owner’s “specific

authorization” before a towing company may “commence the towing of a damaged or
disabled vehicle”). Midwest’s claim in this case predates GlobalTranz’s performance
of the services it agreed to provide. But § 14501(c)(1) does not preempt only those
claims that arise from a broker’s performance of its services. The state law merely
has to “relate to”—i.e., have “a connection with or reference to”—the service.
Morales, 504 U.S. at 384. 3 The term “services” is also broad, encompassing “all
elements of the [motor] carrier service bargain.” Travel All, 73 F.3d at 1434. In
this case, insurance is an “element of the service bargain,” even if it is “not the main
event.” Prof’l Towing, 965 F.Supp.2d at 999; see also Treiber & Straub, Inc. v.
U.P.S., Inc., 474 F.3d 379, 387 (7th Cir. 2007) (applying the federal-common law
analog to the ADA, the court rejected the plaintiff’s attempt to distinguish between
the “shipping” elements of the bargain and shipment insurance for purposes of
preemption). Midwest’s claim that GlobalTranz misrepresented what services it
would provide “relates to” services “with respect to” “arranging for . . . the
movement of” property.

“[C]ourts describe the phrase ‘with respect to’ as synonymous with the phrases
‘with reference to,’ ‘relating to,’ ‘in connection with,’ and ‘associated with,’ and they
have held such phrases to be broader in scope than the term ‘arising out of,’ to be
broader than the concept of a causal connection, and to mean simply ‘connected by
reason of an established or discoverable relation.’” Huffington v. T.C. Grp. LLC, 637
F.3d 18, 22 (1st Cir. 2011) (quoting Coregis Ins. Co. v. Am. Health Found., Inc., 241
F.3d 123, 128-29 (2d Cir. 2001) (Sotomayor, J.) (collecting authorities)).
3

As further support for its holding, the Court stated that Midwest’s fraud
claim: (1) only seeks to “hold the parties to their bargained-for expectation”; and (2)
invokes a default rule—parties must “be honest and forthright about their
services”—that applies to the general public and is too remote from the transaction
at issue. Midwest, 2014 WL 3672932, *8 (citing S.C. Johnson, 697 F.3d at 558).
GlobalTranz argues that the Court’s reasoning is inconsistent with United Airlines,
Inc. v. Mesa Airlines, Inc., 219 F.3d 605 (7th Cir. 2000). Mesa, a regional airline,
had a “code-share” agreement with United Airlines. Id. at 606. In exchange for the
right to use United’s service marks and logos, Mesa agreed to tailor its business to
further United’s interests.

See id. (The regional airline in a code-share

arrangement must “tailor[] its schedules so that they mesh with the major carrier’s
arrivals and departures at the hub, provide[] planes appropriate to the traffic
generated by the major carrier, and agree[] to accept revenue that the major carrier
controls.”). United and Mesa later agreed to extend the term of their code-share
agreement and to expand its scope. Id. At the same time, Mesa purchased several
planes from United. Id. During the extended term, Mesa accused United of taking
more than its share of revenues and of squeezing Mesa for excessive fees.

Id.

United ultimately terminated the parties’ agreement after Mesa cut services to
certain regional markets. Id. at 607. Mesa sued United for, among other things,
fraudulently inducing it to: (1) purchase the airplanes; and (2) extend the term and
scope of the parties’ code-share agreement. Id. On appeal of the district court’s

ruling that the ADA preempted this claim, Mesa argued that it simply sought to
enforce the parties’ bargain:
[Mesa argues that its claim is not preempted] for the same reason the
Supreme Court held in Wolens that contract claims are not preempted:
§ 105(a)(1) is designed to replace regulation with voluntary
agreements, and the fact that states sometimes apply the label “tort” to
common-law doctrines that implement private agreements cannot
doom their claims . . . .
Id. at 609. The Seventh Circuit concluded, on the contrary, that Mesa’s claim was
“not by any stretch of the imagination a request to enforce the parties’ bargains; it
is a plea for the court to replace those bargains with something else.” Id.

The

Court acknowledged that “the institution of contract depends on truthfulness,” and
that the states have an interest in enforcing prohibitions against fraud. Id. The
ADA, however, preempts state laws insofar they apply these norms to “enlarge” or
“enhance” the parties’ bargain:
When all a state does is use these rules to determine whether
agreement was reached, or whether instead one party acted under
duress, it transgresses no federal rule. But when the state begins to
change the parties’ financial arrangements, as Mesa demands, it is
supplying external norms, a process that the national government has
reserved to itself in the air transportation business. Mesa does not
want to cancel the agreement and restore the status quo as of 1994. It
wants damages.
Id. at 609-10. The Seventh Circuit affirmed the district court’s order dismissing
Mesa’s fraudulent inducement claim. Id. at 611.
Although neither party has raised this issue, the Court notes that it is
unclear whether Midwest’s claim is based upon a misrepresentation of fact,
(GlobalTranz told Midwest that the quote included insurance when in fact it did

not), or so-called “promissory fraud” (GlobalTranz promised to provide insurance
but never intended to honor its promise). See JPMorgan Chase Bank, N.A. v. Asia
Pulp & Paper Co., Ltd., 707 F.3d 853, 865 (7th Cir. 2013) (A party commits
promissory fraud when it makes a promise “with no present intention of fulfilling
it.”); see also R. 1-1 at 3 ¶ 25 (“At all times when dealing with Midwest, GlobalTranz
feigned that it would actually provide insurance on the Loads when it in fact knew
that it would not.”). Insofar as Midwest is proceeding under the first theory, its
fraud claim squarely conflicts with Mesa Airlines. Midwest cannot rely on state tort
law to “replace” the parties’ bargain (an agreement that does not require
GlobalTranz to procure insurance) “with something else” (damages stemming from
Midwest’s reliance on GlobalTranz’s false statement that the agreement does
include insurance). Mesa Airlines, 219 F.3d at 609. Mesa Airlines also undermines
the Court’s reliance on S.C. Johnson. See Midwest, 2014 WL 3672932, *8. The
plaintiff in S.C. Johnson alleged that one of its employees participated in a bribery
and kickback scheme with several of the plaintiff’s transportation vendors. See S.C.
Johnson, 697 F.3d at 545. The Seventh Circuit held that § 14501(c)(1) preempted
the plaintiff’s claims for fraudulent misrepresentation by omission and conspiracy
to commit fraud, but did not preempt its state-law bribery and racketeering claims.
See id. at 557-61.

The Seventh Circuit described the non-preempted claims as

“state laws of general application that provide the backdrop for private ordering.”
Id. at 558. In doing so, it distinguished the preempted claims in Mesa Airlines:
Neither the bribery statute underlying the conspiracy theory nor the
racketeering statute provides non-bargained alternatives to the

contractual terms that the parties selected. These theories are thus not
like the ones we rejected in Mesa Airlines, where we recognized that
the plaintiffs’ theories of tortious interference with contract, breach of
fiduciary duty, and fraudulent inducement to enter a contract were, in
the final analysis, simply efforts to change the bargain that the parties
had reached.
Id.

Reading Mesa Airlines and S.C. Johnson together, it is apparent that

fraudulent inducement does not belong in the category of laws that simply “provide
the backdrop of private ordering.” Id.; cf. Midwest, 2014 WL 3672932, *8.
If, instead, Midwest is alleging promissory fraud, it faces two hurdles. First,
Illinois generally does not recognize promissory fraud as a valid tort claim. See
JPMorgan Chase, 707 F.3d at 865.

It makes an exception when the fraud “is

particularly egregious or, what may amount to the same thing, it is embedded in a
larger pattern of deceptions or enticements that reasonably induces reliance and
against which the law ought to provide a remedy.” Desnick v. Am. Broad. Co., Inc.,
44 F.3d 1345, 1354 (7th Cir. 1995); see also JPMorgan Chase, 707 F.3d at 865.
There do not appear to be any facts in the record that would support the existence of
such a scheme. See JPMorgan Chase, 707 F.3d at 865 (rejecting a party’s “gardenvariety promissory fraud” claim premised on the opposite party’s promise to secure
permanent financing); see also Speakers of Sport, Inc. v. ProServ, Inc., 178 F.3d 862,
866 (7th Cir. 1999) (“By requiring that the plaintiff show a pattern, by thus not
letting him rest on proving a single promise, the law reduces the likelihood of a
spurious suit; for a series of unfulfilled promises is better (though of course not
conclusive) evidence of fraud than a single unfulfilled promise.”). Second, even if
Midwest had alleged and supported such a scheme, Mesa Airlines and S.C. Johnson

indicate that § 14501(c)(1) preempts promissory-fraud claims. Promissory fraud is
an extra-contractual theory based upon the perception that, in some cases, ordinary
contract damages are insufficient to address the breaching party’s egregious
conduct:
The distinction [between the rule and the exception] certainly is
unsatisfactory, but it reflects an understandable ambivalence, albeit
one shared by few other states, about allowing suits to be based on
nothing more than an allegation of a fraudulent promise. There is a
risk of turning every breach of contract suit into a fraud suit, of
circumventing the limitation that the doctrine of consideration is
supposed however ineptly to place on making all promises legally
enforceable, and of thwarting the rule that denies the award of
punitive damages for breach of contract.
Desnick, 44 F.3d at 1354. Viewed in this light, promissory fraud is a state law
“supplying external norms, a process that the national government has reserved for
itself in the air transportation”—and motor-carrier—“business.” Mesa Airlines, 219
F.3d at 609-10; see also S.C. Johnson, 697 F.3d at 557 (holding that § 14501(c)(1)
preempted the plaintiff’s claims for fraudulent misrepresentation by omission and
conspiracy to commit fraud).
In sum, the court concludes § 14501(c)(1) preempts Midwest’s fraud claim.
III.

Limitation of Liability
The Court held that there was a genuine factual dispute regarding whether

the parties intended to be bound by the Terms and Conditions, including the
provision limiting GlobalTranz’s maximum liability to an amount equal to its fees
(in this case, $3,450). See Midwest, 2014 WL 3672932, *10. Its conclusion applied
to GlobalTranz’s express-contract theory and its course-of-dealing theory. Id. With

respect to this issue, GlobalTranz’s motion to reconsider simply rehashes arguments
that the Court considered and rejected in its prior opinion. See R. 51 at 13-15. The
Court declines to revisit its ruling that factual disputes preclude summary
judgment on the limitation of liability issue.
Conclusion
For the foregoing reasons, the Court grants GlobalTranz’s motion to
reconsider (R. 51) in part, and denies it in part. The Court sets a status hearing for
March 17, 2015 at 9:00 a.m.

ENTERED:

Dated: March 5, 2015

Honorable Thomas M. Durkin
United States District Judge