Alliance Logistics, Incorporat v. New Prime, Incorporated ( 2010 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 09-3489
A LLIANCE 3PL C ORPORATION, formerly known
as Alliance Logistics, Inc.,
Plaintiff-Appellee,
v.
N EW P RIME, INC., doing business as Prime, Inc.,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 07 C 4944—Elaine E. Bucklo, Judge.
A RGUED F EBRUARY 18, 2010—D ECIDED A UGUST 2, 2010
Before E ASTERBROOK, Chief Judge, and K ANNE and
R OVNER, Circuit Judges.
E ASTERBROOK, Chief Judge. Alliance 3PL Corporation
handles the transportation needs of its customers. It
purchases transportation services from air, water, and
land carriers, and it allocates this capacity to customers
that need to move their own goods or supplies. Alliance
may be able to consolidate multiple customers’ ship-
2 No. 09-3489
ments into full loads, reducing the cost per ton-mile;
even if it cannot do this, a transport-management
service enables customers to concentrate on their core
businesses and stop fretting about shipping. The 3PL
business (for third-party logistics management) is an
aspect of the division of labor. The Wikipedia entry “3PL”
describes other functions that firms such as Alliance
perform; today’s dispute arises from its role in ar-
ranging for transportation, and we need not discuss
warehousing, inventory control, and additional services
in the 3PL business.
Until spring 2003 Loders Croklaan USA, a producer
of fats and oils used by the food industry, dealt directly
with motor carriers. Prime, Inc., was among the carriers
that Loders used to move its products to customers from
1998 through 2003. (Some of this transportation was on
bills of lading from Loders and some was arranged
and paid for by its customers, such as Pillsbury.) In
March 2003 Loders hired Alliance to manage its ship-
ping. Alliance employed Prime to haul some of Loders’s
output. The contract between Alliance and Prime, signed
in 2000 when Alliance first used some of Prime’s
services (obviously for customers other than Loders, which
was not yet one of Alliance’s clients), contains what
the parties call a back-solicitation clause:
[Prime] shall not solicit traffic from any shipper,
consignee, or customer of [Alliance] where [Prime]
first knew the availability of such traffic as a
result of [Alliance’s] efforts or the traffic of [Alli-
ance], consignee, or customer of [Alliance] was
first tendered to [Prime] by [Alliance].
No. 09-3489 3
A jury concluded that Prime violated this clause by
carrying bulk goods for Loders after the Loders-Alliance
contract ended in 2007, and it awarded Alliance about
$2.2 million in damages. The district court denied
Prime’s motions under Fed. R. Civ. P. 50 and 59.
Prime carried freight for Loders while the Alliance
contract was in effect and submitted a bid to Loders to do
the same work after the Alliance contract ended. The
parties debate whether Prime “solicited” this business:
Prime says that Loders took the initiative (the contract
between Alliance and Loders did not prohibit Loders
from placing business with carriers that Alliance had
used), while Alliance says that Prime inveigled Loders to
request a bid and thus effectively solicited Loders’s
business. Like the district court, we think that the evi-
dence allowed a reasonable jury to resolve that question
in Alliance’s favor.
It is undisputed that Prime had carried some of Loders’s
goods (including bulk cargo in tankers) for years before
Loders hired Alliance to manage its shipping. This leads
Prime to contend that it did not “first know the avail-
ability of such traffic as a result of” Alliance’s efforts. A
back-solicitation clause ensures that a carrier (such as
Prime) introduced to a shipper (such as Loders) through
a 3PL won’t poach the business; it effectively allocates
to the 3PL the property right in information about
which shippers need what transportation service. But
Prime did not learn about Loders, or its business, through
Alliance; Prime already had that information because
it had been picking up freight from Loders since 1998.
4 No. 09-3489
Whether Loders, Pillsbury, or someone else arranged
for any given shipment during 1998 to 2003, and
whether those shipments were arranged by long-term
contract or spot transactions, the fact remains that
Prime’s knowledge of Loders’s business was acquired
independent of Alliance.
Prime contended that it was entitled to summary judg-
ment because it did not learn about Loders’s traffic
through Alliance. The 3PL replied that Loders sub-
stantially increased the volume of its bulk shipping in
tankers during 2005 and 2006, while the Loders-Alliance
contract was in place, and that Prime had increased
the size of its own tanker fleet as a result. Alliance con-
tended that Prime learned of this incremental “traffic”
through Alliance, and that the back-solicitation clause
therefore blocked Prime from carrying any freight
for Loders (or at least any more of Loders’s freight than
it had been carrying before March 2003). Prime con-
tended, to the contrary, that the word “traffic” in a back-
solicitation clause refers to the existence of a shipper,
and the general nature of its transportation needs,
rather than the gross weight of goods that the shipper
tenders to carriers. On this understanding Prime did not
learn of Loders’s “traffic” through Alliance.
When denying Prime’s motion for summary judg-
ment, the district judge stated that the word “traffic” is
ambiguous. Come the trial, the judge did not define the
word for the jury. Nor did the judge tell the jurors that
they needed to decide whether the word “traffic” means
the existence of a shipper and the general nature of its
No. 09-3489 5
needs, or instead means the volume of transportation
services a (known) shipper requires. The judge gave
the jurors no guidance on that topic and did not frame
any concrete question that required resolution. Instead
the judge allowed both sides to argue their positions.
Because the judge was non-directive (something that
the parties knew long before the jury instructions were
delivered), each side attempted to bolster its position
with testimony from experts. The meaning of “traffic”
might depend, for example, on the customs and general
understandings of the industry, and then the jurors
would need evidence about usage of trade to reach a
verdict. But neither side introduced any evidence about
how people in the transport (or 3PL) businesses under-
stand the word “traffic.” Instead Alliance produced
an expert who testified that shippers usually notify
3PL companies of their existing clientele, which may be
provided for expressly in a back-solicitation clause.
When Prime argued on appeal that experts should not
be allowed to define words in legal documents—that
this is a function for the judge, see Bammerlin v. Navistar
International Transportation Corp., 30 F.3d 898 (7th Cir.
1994)—Alliance replied that its expert had not so much
as hinted at the meaning of the word “traffic” but had
simply furnished the jurors with background about the
industry. For its part, Prime tendered an expert who
proposed to testify that the background narrated by
Alliance’s expert was not factual. The district judge
prevented Prime’s expert from testifying about that
subject, and Prime protests the asymmetric treatment.
6 No. 09-3489
Whether the judge abused her discretion in the handling
of the expert testimony is another topic we need not
explore, because Alliance’s disclaimer of any trade-
specific meaning of the word “traffic” undermines the
verdict. Alliance’s evidence concerned how many loads
Prime had carried for Loders before March 2003, rather
than the meaning of the word “traffic”. The jury
evidently concluded that Prime should be held to its
old level of business after the Loders-Alliance contract
ended. But that’s possible only if “traffic” has the
meaning that Alliance favors.
Prime relies on the ordinary meaning of the word
“traffic” plus the ordinary function of a clause such as
this one: to prevent the carrier from poaching business
that it learned about only through the 3PL’s (costly)
efforts to match a shipper with the optimal carrier. Had
it never done any business through Alliance, Prime was
bound to get in contact with Loders again as soon as
Alliance ceased to be Loders’s sole agent for procuring
transport. Prime’s straightforward position has the
support of Illinois law, which supplies the rule of deci-
sion: Illinois understands non-compete clauses to cover
no more than the reasonable import of their language
and does not allow expansive readings of restrictive
covenants, because more competition often serves the
public interest in low prices. See Cambridge Engineering,
Inc. v. Mercury Partners 90 BI, Inc., 378 Ill. App. 3d 437,
447, 879 N.E.2d 512, 522 (2007).
A party that wants to depart from a straightforward
understanding of contractual language has two princi-
No. 09-3489 7
pal routes: parol evidence and usage of trade. Yet
Alliance did not offer any parol evidence showing that,
when Prime and Alliance negotiated their contract, they
discussed what the word “traffic” means, or that the
negotiation history favors one meaning of “traffic” over
another. This leaves the possibility that “traffic” is a
term of art in the transportation business. As we have
recounted, however, Alliance denies that its expert
testified about usage of trade. Reading “traffic” to mean
“increase in traffic” or “oodles of traffic” therefore lacks
any support on this record. At oral argument, Alliance’s
lawyer suggested that the expert’s testimony supports
reading “traffic” to mean “the sort of freight carried under
this contract”—but if that’s the word’s meaning, then
Alliance loses, because Prime did not learn through
Alliance that Loders ships fats and oils in bulk tankers,
and the back-solicitation clause covers only traffic that
Prime “first knew” about as a result of doing business
with Alliance.
The people who were managing Loders and Prime
in 2009, when the case was tried, testified that in 2005
and 2006 they did not know what freight Prime had
carried for Loders from 1998 through 2003. The knowl-
edge of Loders’s managers is irrelevant under the back-
solicitation clause, which asks what Prime knew rather
than what Loders remembered. And the fact that Prime’s
managers, hired after 2003, had not been briefed about
Prime’s work for Loders while their predecessors were
in charge does not affect the fact that Prime as an
entity knew about the subject (which the new managers
eventually brushed up on). A corporation knows what
8 No. 09-3489
its managers know, and it does not acquire amnesia
when the management team changes. See Prime Eagle
Group Ltd. v. Steel Dynamics, Inc., No. 09-1663 (7th Cir.
July 27, 2010). By 2007, when Prime bid on the Loders
business, its managers were cognizant of the work
Prime had done for Loders in 1998 to 2003.
Although Prime first knew in 1998 (if not earlier) about
Loders’s traffic, it might have been possible for Alliance
to argue that it did not know about “such” traffic. The
word “such” might carry the weight that Alliance tried
to place on “traffic”. But Alliance did not contend in
the district court, or in its appellate brief, that the word
“such” designates an increase or change in traffic during
the contract’s term. Prime reads “such” as a reference
to earlier mentions of “traffic”—legalese for the proposi-
tion that “this use of the word ‘traffic’ refers to the
same ‘traffic’ that this clause already mentioned.” That
seems to us the most likely meaning of “such” in this
clause. See Bryan A. Garner, A Dictionary of Modern
Legal Usage 849 (2d ed. 1995). The district court there-
fore should have granted Prime’s motion under Rule 50
for judgment as a matter of law.
R EVERSED
8-2-10