Indemnity Insurance v. Hanjin Shipping Co , 348 F.3d 628 ( 2003 )


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  •                              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