Chicago Prime Packer v. Northam Food Trading

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 04-2551
CHICAGO PRIME PACKERS, INC.,
Plaintiff-Appellee,
v.
NORTHAM FOOD TRADING CO.,
Defendant-Appellant.
____________
Appeal from the United States District Court for
the Northern District of Illinois, Eastern Division.
No. 01 C 4447—Geraldine Soat Brown, Magistrate Judge.
____________
ARGUED JANUARY 4, 2005—DECIDED MAY 23, 2005
____________
Before FLAUM, Chief Judge, and EVANS and WILLIAMS,
Circuit Judges.
FLAUM, Chief Judge. Defendant-appellant Northam Food
Trading Company (“Northam”) contracted with plaintiff-
appellee Chicago Prime Packers, Inc. (“Chicago Prime”) for
the purchase of 40,500 pounds of pork back ribs. Following
delivery, Northam refused to pay Chicago Prime the con-
tract price, claiming that the ribs arrived in an “off condi-
tion.” Chicago Prime filed this diversity action for breach of
contract against Northam. Following a bench trial, the
district court awarded Chicago Prime $178,200.00, the
2 No. 04-2551
contract price, plus prejudgment interest of $27,242.63.
Northam appeals the award. For the reasons stated herein,
we affirm.
I. Background
The district court found the following facts based on the
stipulations of the parties and the evidence presented at
trial. Because neither party contends that any of the find-
ings of fact in this section are “clearly erroneous,” we accept
them as established for purposes of this appeal. See Fed. R.
Civ. P. 52(a).
Chicago Prime, a Colorado corporation, and Northam, a
partnership formed under the laws of Ontario, Canada, are
both wholesalers of meat products. On March 30, 2001,
Chicago Prime contracted to sell Northam 1,350 boxes
(40,500 pounds) of pork back ribs. Northam agreed to pay
$178,200.00 for the ribs, with payment due within seven
days of receipt of the shipment. The contract also set forth
a description of the ribs, the price, and the date and location
for pick-up.
Chicago Prime purchased the ribs specified in the con-
tract from meat processor Brookfield Farms (“Brookfield”).
When a pork loin is processed at Brookfield, it is broken into
various segments, one of which is the back rib. After proc-
essing, Brookfield packages back ribs “flat” (horizontally),
layer by layer, in 30-pound boxes. The ribs are placed first
in a blast freezer and then transferred to an outside freezer
where they remain until shipped.
In addition to its own freezers, Brookfield stored the ribs
at issue in this case in as many as two independent cold
storage facilities: B&B Pullman Cold Storage (“B&B”), and
Fulton Market Cold Storage (“Fulton”). According to
Brookfield’s temperature logs and quality control records for
its own facilities, the ribs were maintained at acceptable
No. 04-2551 3
temperatures and were processed and maintained in
accordance with Brookfield’s procedures. Records presented
at trial also indicate that the ribs were stored at or below
acceptable temperatures during the entire time they were
in B&B’s possession. The parties offered no evidence re-
garding storage of the ribs at Fulton.
On April 24, 2001, Brown Brother’s Trucking Company
(“Brown”), acting on behalf of Northam, picked up 40,500
pounds of ribs from B&B. Chicago Prime, the seller, never
possessed the ribs. When Brown accepted the shipment,
it signed a bill of lading, thereby acknowledging that the
goods were “in apparent good order.” The bill of lading also
indicated, however, that the “contents and condition of con-
tents of packages [were] unknown.” The next day, Brown
delivered the shipment to Northam’s customer, Beacon
Premium Meats (“Beacon”). Like Chicago Prime, Northam,
the buyer, never possessed the ribs. Upon delivery, Beacon
signed a second bill of lading acknowledging that it had
received the shipment “in apparent good order,” except for
some problems not at issue in this case.
Under the terms of the contract, Northam was obligated
to pay Chicago Prime by May 1, 2001. Sandra Burdon, who
negotiated the contract on behalf of Northam, testified that,
on that date, Northam had no basis for withholding pay-
ment. In fact, she thought that a check had been sent to
Chicago Prime prior to May 1, 2001, but subsequently dis-
covered that the check had not been mailed. On May 2, 2001,
Chicago Prime, not having heard from Northam, demanded
payment.
On May 4, 2001, Beacon began “processing” a shipment of
ribs and noticed that the product appeared to be in an “off
condition.” Beacon asked Inspector Ken Ward of the United
States Department of Agriculture (“USDA”) to examine the
product. Ward inspected the ribs at the Beacon facility,
found that the meat “did not look good,” and ordered Beacon
4 No. 04-2551
to stop processing it. Ward then placed a “U.S. Retained”
tag on the shipment, noting “yellow, green, temp[erature],
abused, spoiled,” and had the ribs placed in Beacon’s
freezer. The same day, Northam and Chicago Prime learned
of a potential problem with the ribs.
Inspector Ward returned to Beacon on May 7 and 8, 2001
and examined both frozen and thawed samples of the prod-
uct. On May 23, 2001, Dr. John Maltby, Ward’s supervisor,
also conducted an on-site inspection of the ribs. When
Dr. Maltby arrived, Beacon employees were “reworking” the
ribs, trying to salvage any good portions. Dr. Maltby
reviewed Beacon’s shipping records and temperature logs
from the relevant time period and found no “anomalies” or
“gaps.” In addition, he examined approximately 20 cases of
ribs and prepared a written report. According to this report,
Beacon gave Dr. Maltby two pallets of frozen ribs untouched
by Beacon, as well as some of the product that Beacon had
reworked. Looking inside the intact pallets, Dr. Maltby found
ribs stacked both horizontally and vertically, with some
frozen individually and others frozen together in larger units.
The individually frozen ribs were “putrid,” while the ribs
frozen in larger units were “good.”
Examining samples of the thawed, reworked product,
Dr. Maltby found putrid, green, slimy ribs, but no sign of
temperature abuse. He concluded in his report that the in-
spected product was rotten, that it arrived at Beacon in a
rotten condition, and that it appeared to have been “as-
sembled from various sources.” Dr. Maltby also concluded
that there was no opportunity for salvage and that all of the
product should be condemned. The same day, the USDA
issued a Notice of Receipt of Adulterated or Misbranded
Product and the entire shipment of 1,350 boxes of ribs was
condemned. After Northam informed it of the results of
Dr. Malby’s inspection, Chicago Prime continued to demand
payment and eventually filed suit.
No. 04-2551 5
At trial, it was undisputed that the parties entered into
a valid and enforceable contract for the sale and purchase
of ribs, that Chicago Prime transferred a shipment of ribs
to a trucking company hired by Northam, and that Northam
had not paid Chicago Prime for the ribs. Northam argued
that it was relieved of its contractual payment obligation
because the ribs were spoiled when its agent, Brown, received
them. The district court concluded that it was Northam’s
burden to prove nonconformity, and held that Northam had
failed to prove that the ribs from Chicago Prime were
spoiled at the time of transfer to Brown. The court went on
to state alternative holdings in favor of Chicago Prime
based on its finding that, “even if the ribs were spoiled at
the time of transfer, Northam . . . failed to prove that it
examined the ribs, or caused them to be examined, within as
short a period as is practicable under the circumstances, or
that it rejected or revoked its acceptance of the ribs within
a reasonable time after it discovered or should have dis-
covered the alleged non-conformity.” Chi. Prime Packers,
Inc. v. Northam Food Trading Co., 320 F. Supp. 2d 702, 711
(N.D. Ill. 2004). The court awarded Chicago Prime the
contract price of $178,200.00, plus prejudgment interest of
$27,242.63.
II. Discussion
The district court held, and the parties do not dispute, that
the contract at issue is governed by the United Nations
Convention on Contracts for the International Sale of Goods
(“CISG”), reprinted at 15 U.S.C.A. Appendix (West 1997), a
self-executing agreement between the United States and
other signatories, including Canada. Under the CISG, “[t]he
seller must deliver goods which are of the quantity, quality
and description required by the contract,” and “the goods do
not conform with the contract unless they . . . [a]re fit for
the purposes for which goods of the same description would
6 No. 04-2551
ordinarily be used.” CISG Art. 35(1)-(2). The risk of loss
passes from the seller to the buyer when the goods are
transferred to the buyer’s carrier. CISG Art. 67(1). While
the seller is liable “for any lack of conformity which exists at
the time when risk passes to the buyer,” CISG Art. 36(1),
the buyer bears the risk of “[l]oss of or damage to the goods
after the risk has passed to the buyer . . . unless the damage
is due to an act or omission of the seller.” CISG Art. 66. In
other words, Chicago Prime is responsible for the loss if the
ribs were spoiled (nonconforming) at the time Northam’s
agent, Brown, received them from Chicago Prime’s agent,
Brookfield, while Northam is responsible if they did not
become spoiled until after the transfer.
The parties agree that the main factual issue before the
district court was whether the ribs were spoiled at the time
of transfer. On appeal, Northam makes two arguments: (1)
that the district court erred in placing upon Northam the
burden of proving that the ribs were spoiled at the time of
transfer, and (2) that the evidence presented at trial does
not support the district court’s finding that the ribs became
spoiled after Brown received them from Brookfield.
A. Burden of Proof
Northam asserts that Chicago Prime should bear the bur-
den of proving that the ribs were not spoiled at the time of
transfer because the quality of the goods is an essential
element of Chicago Prime’s breach of contract claim.
Chicago Prime counters that nonconformity is an affirma-
tive defense for which Northam, as the defendant-buyer,
has the burden of proof. Proper assignment of the burden of
proof is a question of law that we review de novo. Estate of
Kanter v. Comm’r of Internal Revenue, 337 F.3d 833, 851
(7th Cir. 2003), rev’d on other grounds, Ballard v. Comm’r
of Internal Revenue, 125 S. Ct. 1270 (Mar. 7, 2005).
No. 04-2551 7
The CISG does not state expressly whether the seller
or buyer bears the burden of proof as to the product’s con-
formity with the contract. Because there is little case law
under the CISG, we interpret its provisions by looking to its
language and to “the general principles” upon which it is
based. See CISG Art. 7(2); see also Delchi Carrier SpA v.
Rotorex Corp., 71 F.3d 1024, 1027-28 (2d Cir. 1995). The
CISG is the international analogue to Article 2 of the
Uniform Commercial Code (“UCC”). Many provisions of the
UCC and the CISG are the same or similar, and “[c]aselaw
interpreting analogous provisions of Article 2 of the [UCC],
may . . . inform a court where the language of the relevant
CISG provision tracks that of the UCC.” Delchi Carrier SpA,
71 F.3d at 1028. “However, UCC caselaw ‘is not per se appli-
cable.’ ” Id. (quoting Orbisphere Corp. v. United States, 726
F. Supp. 1344, 1355 (Ct. Int’l Trade 1989)).
A comparison with the UCC reveals that the buyer bears
the burden of proving nonconformity under the CISG.
Under the UCC, the buyer may plead breach of the implied
warranty of fitness for ordinary purpose as an affirmative
defense to a contract action by the seller for the purchase
price. See Comark Merch., Inc. v. Highland Group, Inc., 932
F.2d 1196, 1203 (7th Cir. 1991); Alberts Bonnie Brae, Inc. v.
Ferral, 544 N.E.2d 422, 423 (Ill. App. 1989); see also 77A
CORPUS JURIS SECUNDUM SALES § 287 (2004) (“[T]he buyer,
when sued for the purchase price, may set up a breach of
warranty as a defense to the seller’s action.”). In such an
action it is the defendant-buyer’s burden to prove the
breach of the warranty. See Comark Merch., 932 F.2d at
1203; Alberts Bonnie Brae, 544 N.E.2d at 424-25.
Section 2-314 of the UCC provides that a warranty that
goods are “fit for the ordinary purpose for which such goods
are used” is implied unless the contract states otherwise.
Mirroring the structure and content of this section,
Article 35(2) of the CISG provides that unless the contract
states otherwise, “goods do not conform with the contract
8 No. 04-2551
unless they . . . [a]re fit for the purposes for which goods of
the same description would ordinarily be used.” See
RALPH H. FOLSOM, 1 INTERNATIONAL BUSINESS TRANSACTIONS
§ 1.15, at 39 (2d ed. 2002) (the CISG’s approach “produces
results which are comparable to the ‘warranty’ structure of
the UCC.”). Accordingly, just as a buyer-defendant bears
the burden of proving breach of the implied warranty of
fitness for ordinary purpose under the UCC, under the CISG,
the buyer-defendant bears the burden of proving nonconform-
ity at the time of transfer. See Larry A. DiMatteo et al., The
Interpretive Turn in International Sales Law: An Analysis
of Fifteen Years of CISG Jurisprudence, 24 NW. J. INT’L L. &
BUS. 299, 400 (2004) (Under the CISG, “[t]he buyer is al-
located the burden of proving that the goods were defective
prior to the expiration of the seller’s obligation point.”); see
also FOLSOM, 1 INTERNATIONAL BUSINESS TRANSACTIONS
§ 1.15, at 41. The district court was correct to conclude that
Northam bears the burden of proving that the ribs were
spoiled at the time of transfer.
B. Conformity of the Ribs at the Time of Transfer
The district court held that Northam failed to prove that
the ribs were spoiled, or nonconforming, at the time of trans-
fer. First, the court found that other evidence undermined
Dr. Maltby’s testimony that the ribs were rotten when they
arrived at Beacon:
Chicago Prime points out several problems with
Northam’s reliance on Dr. Maltby’s conclusion. Most
significantly, neither Dr. Maltby nor anyone else could
confirm that the meat Dr. Maltby inspected was in fact
the product that was sold to Northam by Chicago Prime,
and evidence was produced at trial to suggest that they
were not the same ribs. Even though the rib boxes were
labeled with Brookfield establishment numbers, the evi-
dence showed that Beacon had purchased and received
No. 04-2551 9
other loads of ribs originating from Brookfield prior to
April 25, 2001. Furthermore, some of the ribs examined
by Dr. Maltby (from one of the Intact Pallets) were
stacked both horizontally and vertically. Brookfield pack-
ages its loin back ribs only horizontally. Dr. Maltby had
no personal knowledge of how or where the meat was
stored from April 25, 2001 to May 23, 2001, and the
first time any government inspector viewed the meat
was on May 4, 2001. According to Dr. Maltby, loin back
ribs, if kept at room temperature, could spoil in five to
seven days. Surprisingly, Northam did not present any
witness affiliated with Beacon to address those issues.
Chi. Prime Packers, 320 F. Supp. 2d at 710 (citations omitted).
Next, the district court found that three witnesses had
credibly testified that “the ribs delivered by Brookfield were
processed and stored in acceptable conditions and tempera-
tures from the time they were processed until they were
transferred to Northam on April 24, 2001.” Id. Despite
Northam’s attempts to discredit the testimony of these
witnesses by pointing to deficiencies in Brookfield’s record-
keeping during the relevant period, the district court found
“nothing in the evidence demonstrating that Brookfield,
B&B or Fulton did anything improper with respect to the
ribs or that the ribs were spoiled prior to being transferred
to Northam.” Id. Based on these factual findings, the district
court concluded that Northam had not met its burden of
demonstrating that the ribs were spoiled at the time of
transfer. Id. at 711.
By highlighting Dr. Maltby’s testimony and potential gaps
in Chicago Prime’s evidence, Northam suggests that the
opposite holding is also supportable. This, however, is not
the correct inquiry. On appeal from a bench trial, we will
not set aside the factual conclusions of the district court
“unless clearly erroneous.” Fed. R. Civ. P. 52(a). “Under this
standard, one who contends that a finding is clearly
erroneous has an exceptionally heavy burden to carry on
10 No. 04-2551
appeal.” Spurgin-Dienst v. United States, 359 F.3d 451, 453
(7th Cir. 2004). This is especially true when the appellant
argues that the district court erred in crediting or discredit-
ing a witness’s testimony. See id.Northam argues that the district court erred in discredit-
ing Dr. Maltby’s testimony, and contends that Dr. Maltby’s
conclusion that the ribs were rotten before the transfer
should be determinative. Even if the district court could
have given Dr. Maltby’s conclusion more weight, however,
Northam has not shown that the court clearly erred in find-
ing the evidence undermining his conclusion to be more per-
suasive.
The evidence supporting Northam’s position was not so
overwhelming that it was clear error to find in favor of
Chicago Prime. Northam offered no credited evidence show-
ing that the ribs were spoiled at the time of transfer or
excluding the possibility that the ribs became spoiled after
the transfer. In addition, it presented no evidence that
Brookfield stored the ribs in unacceptable conditions that
could have caused them to become spoiled before the trans-
fer. Finally, Northam did not present a witness from Beacon
to respond to the evidence suggesting that the ribs examined
by Dr. Maltby were not those sold to Northam by Chicago
Prime. Upon this record, the district court did not clearly
err in finding that Northam did not meet its burden of proof
as to its affirmative defense of nonconformity.
Because we hold that the district court correctly assigned
to Northam the burden of proving nonconformity and did
not clearly err in finding that Northam had not met this
burden, we need not reach the district court’s alternative
holdings.
III. Conclusion
We AFFIRM the district court’s award to Chicago Prime.
No. 04-2551 11
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—5-23-05