U.S. Court of Appeals for the 7th Circuit
Docket No. 15-3242 Opinion: March 25, 2016
In this case about manufacturer liability in the setting of a commercial distribution relationship, a customer attempts to hold the manufacturer of a product liable for the distributor’s failures. The customer’s claims are based on the so-called “special relationship” between the distributor and manufacturer, as well as the customer’s status as an alleged intended beneficiary of the distribution arrangement. The 7th Circuit, however, was having none of it.
American Commercial Lines (ACL) manufactures and operates tow boats and barges that operate on US inland waterways. Lubrizol manufactures industrial lubricants and additives. VCS Chemical Corp. (VCS) distributed Lubrizol products to customers such as ACL.
Lubrizol and VCS jointly persuaded ACL to buy product through VCS. But before delivery began Lubrizol terminated VCS as a distributor – without informing ACL. VCS did not inform ACL either. Instead of telling ACL that it could no longer provide the Lubrizol product, VCS supplied a substitute. When ACL figured out the switch it sued both VCS and Lubrizol, arguing that the two must have enjoyed a “special relationship” because of their apparent cooperating in selling ACL on the idea of buying the Lubrizol product.
In its lawsuit in the District Court, ACL claimed that it had been duped by VCS who was acting on behalf of Lubrizol, and that as a result both companies were liable for the switch. ACL settled. Lubrizol brought a Motion to Dismiss and the District Court dismissed it. ACL appealed the dismissal of Lubrizol to the 7th Circuit.
7th Circuit Opinion
The 7th Circuit affirmed the dismissal of Lubrizol by the District Court and rejected ACL’s claims that Lubrizol had a “special relationship” that required it to disclose its dismissal of VCS; or that VCS was Lubrizol’s “apparent agent;’ or that a “quasi contract” had arisen between ACL (the customer of VCS) and Lubrizol (the supplier of VCS).
The Court pointed out that generally speaking a manufacturer has no duty to its distributor’s customers, except in special circumstances. ACL argued that such circumstances existed here and that it was the intended beneficiary (however indirect) of the relationship between Lubrizol and distributor VCS. Moreover, as ACL saw it, helping VCS land the supply contract made Lubrizol a defacto party to the relationship. In response the Court pointed out that this would be like making a real estate agent a party to every transaction it facilitated. The Court also went on to point out that while ACL could expect to benefit from Lubrizol’s sale of product to VCS, that expectation alone did not elevate ACLS to the position of a “3rd party intended beneficiary” with special rights and privileges. Nor was a so-called “quasi contract” created between Lubrizol and ACL.