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GOVERNMENT OF INDIA v. CARGILL

January 16, 1978

THE GOVERNMENT OF INDIA and THE FOOD CORPORATION OF INDIA, Plaintiffs,
v.
CARGILL, INC., Defendant



The opinion of the court was delivered by: TENNEY

TENNEY, J.

 Plaintiffs in this action claim that they have been victimized to their extensive financial loss by the fraudulent conduct of the defendant which allegedly resulted in the plaintiffs receiving, over the course of many years, huge amounts of grain seriously deficient in quantity and quality from that specified in supply contracts entered into by the parties. The defendant is one of the major grain dealers in this nation and, as will be further explained, has been supplying grain to the plaintiffs under the aegis of the United States Government. Two motions are before the Court at this time. Plaintiffs have moved pursuant to Rule 15(a) of the Federal Rules of Civil Procedure ("Rules") to amend their complaint filed on May 3, 1976. The proposed amended complaint, filed November 15, 1976, amplifies and rearranges the various theories of liability but contains essentially the same claims, i.e., fraud, breach of contract, unjust enrichment and liability for excessive cargo transportation costs. However, the proposed amended complaint adds as a new cause of action one for derivative civil liability based on the inducement of willful breach of the United States Warehouse Act, 7 U.S.C. §§ 270 et seq., and of the United States Grain Standards Act, 7 U.S.C. §§ 85 and 87b.

 For its part, defendant has protested the amendment of plaintiffs' complaint and has moved this Court for partial summary judgment on three grounds. First it contends that, despite the nomenclature, the plaintiffs' action is one for breach of contract only and that the New York statute of limitations governing such matters, N.Y.C.P.L.R. § 213(2) (McKinney 1972) bars all claims arising from alleged defects in cargo received by the plaintiffs more than four years before the filing of the complaint, i.e., prior to May 3, 1972. Alternatively, defendant asserts that even were this action to be dealt with as fraud, the applicable New York statutes of limitations, C.P.L.R. §§ 203(f) (McKinney 1972) and 213(8) (McKinney Supp. 1976-77), have run on all breaches which arose prior to May 3, 1970. Finally, defendant asks for partial summary judgment on any derivative claim for acts occurring before May 3, 1973, again on the theory that the statute of limitations has run.

 In 1975 the press revealed, and the United States Congress began to investigate, *fn1" reports of flagrant corruption in the fulfillment of this nation's statutory program of foreign grain sales mandated pursuant to the Agricultural Trade Development and Assistance Act of 1954 as amended (the "Public Law 480 Program"). By the terms of this program, the United States Government, in support of our own agricultural industry and balance-of-trade and foreign-aid policies, finances in part and directs procedures for the weighing, inspection and shipment of huge quantities of grain from American suppliers to both underproducing and famine-struck nations.

 The investigations into abuses revealed that fraudulent weight and grade certificates, later incorporated into documents of title received by grain buyers, were being issued at the behest of certain grain dealers by Government-licensed weighmasters and inspectors *fn2" at United States grain storage elevators and loading ports with the result that grain suppliers were being paid for a grade and quantity of grain less than that which they shipped. Although defendant is not under indictment for complicity in the scheme, it is apparently under investigation. *fn3"

 The plaintiffs, the Government of India and The Food Corporation of India, the agency created by that nation to supervise the receipt and internal distribution of foreign food supplies, have been participants in this program, ordering and paying for upwards of ten million tons of grain pursuant to a series of contracts with this defendant since 1961. More than 700 shipments are involved. A sample contract between the parties, submitted to the Court by plaintiffs and not alleged to be unrepresentative by defendant, includes a clause providing that the weight and quality of the grain shipped is to be determined and certified at the loading port, i.e., a United States port of embarkation, by a licensed weighmaster certified pursuant to 7 U.S.C. § 252 and the quality certified by an inspector licensed under the United States Grain Standards Act, 7 U.S.C. §§ 71 et seq. Likewise, the regulations promulgated by the Department of Agriculture pertaining to weight and grade of bulk wheat shipped under the Public Law 480 Program direct that "[the] weight shall be determined at point of loading to vessel and the grade shall be determined by an inspector holding a license under the U.S. Grain Standards Act or the Agricultural Marketing Act at point of loading to vessel." 7 C.F.R. § 17, Appendix A(A)(6). It is alleged that the fraud practiced upon the plaintiffs centered upon this process of loading and inspection: defendant would load grain of lesser quantity, grade and quality than that specified in the relevant purchase contract, and the inspector would then falsely certify that the loaded grain was of the correct quality, grade and quantity.

 In its motion to dismiss, defendant focuses not on this allegedly fraudulent loading process but upon the actions taken by the plaintiffs upon the grain's arrival in India. It is undisputed that the Government of India was aware of the apparent weight and quality discrepancies in each shipment of grain as it was off-loaded at various ports in India. Exhibit B to the Proposed Amended Complaint is a schedule of certain shortweight notations compiled by the plaintiffs specifying the vessel, the amount purportedly shipped and the amount weighed in at arrival. *fn4" Indeed, it is upon this document that plaintiffs base certain of their damage estimates. Defendant seizes on the plaintiffs' recognition and documentation of these disparities from 1961 on as absolutely fatal to plaintiffs' assertion that only after public revelations of the grain scandals in 1975 did they comprehend that they had a cause of action against defendant. Defendant asserts that plaintiffs, by failing to investigate the origin of these admittedly recorded differences, have permitted the statute of limitations to run on any pre-May 1970 fraud claims and have forfeited any right to an equitable tolling of the contract action statute of limitations and are thus barred from asserting breach of contract claims which arose prior to May 1973.

 Plaintiffs, on the other hand, vigorously contend that a concrescence of circumstances, primarily the fraudulent activities of the defendant, confused plaintiffs as to the very fact of their loss, reasonably diverted them from investigating its origin and prevented earlier exposure of the fraud. In support of their position plaintiffs first assert that the various methods of weighment employed at Indian off-loading docks are of so primitive a nature compared to the highly sophisticated and uniform modes used in United States grain elevators that, despite the fact that they now believe Indian weighment methods to be as accurate as, if far slower than, this nation's, at the time they received the short shipments they attributed the discrepancies to their own deficiencies. Plaintiffs allege that defendant was aware and took advantage of India's perception of her weighing system as antiquated and perhaps inadequate. Second, plaintiffs assert that since statute, custom and usage of trade justified reliance on the probity of licensed American weighmasters and inspectors, the weight and quality certificates covering each shipment were taken as conclusive, leaving plaintiffs without any cause to suspect the defendant's alleged defalcations. *fn5" Finally, plaintiffs assert that famine conditions in India were occasionally such that meticulous weighing and quality control were sacrificed in order to distribute food quickly and that defendant knew of such conditions and exploited the exigencies of the situation to its advantage.

 Under these circumstances, plaintiffs argue that defendant should be equitably estopped from asserting any statute of limitations which may have run in its favor; alternatively, plaintiffs contend that their suit bottoms in fraud and is timely under the statute of limitations for that tort.

 Fraud and Contract Claims

 A motion for summary judgment under Rule 12(c) is to be treated exactly like one under Rule 56, see Carter v. Stanton, 405 U.S. 669, 31 L. Ed. 2d 569, 92 S. Ct. 1232 (1972); 2A Moore's Federal Practice P 12.15, at 2348-49; thus, the motion cannot be granted if there is any genuine issue of material fact upon which reasonable men might reach different conclusions. Empire Electronics Co. v. United States, 311 F.2d 175 (2d Cir. 1962). Furthermore, "[summary] judgment is apt to be inappropriate in an action based on a complex scheme of fraud where the court is asked to decide the motion on lengthy affidavits and documents and voluminous depositions." 6 Moore's Federal Practice P 56.17[27] at 56-866; see Teledyne Industries, Inc. v. Eon Corp., 373 F. Supp. 191 (S.D.N.Y. 1974), aff'd, 546 F.2d 495 (2d Cir. 1976) (per curiam). The Court finds Professor Moore's description to be particularly appropriate here. The defendant argues, however, that the Court can avoid a confrontation with the complex mass of documents presented on this motion by treating the case as a basic action for breach of contract. Such a simple path is not available for two reasons.

 First, the contracts themselves, as well as the contract cause of action, may be vitiated by the fraud surrounding the initiation and implementation of the contracts. It is well established by the applicable New York law *fn6" that a misrepresented intention to perform a contract constitutes actionable fraud. Channel Master Corp. v. Aluminium Limited Sales, Inc., 4 N.Y.2d 403, 176 N.Y.S.2d 259, 151 N.E.2d 833 (1958); Sabo v. Delman, 3 N.Y.2d 155, 164 N.Y.S.2d 714, 143 N.E.2d 906 (1957). These fraudulent misrepresentations may be contained in the words of the contract itself. Perma Research & Development Co. v. Singer Co., 410 F.2d 572 (2d Cir. 1969); see Restatement, Contracts § 473 (1932); Restatement Second, Torts § 530, comment c (1977). Allegations of such misrepresentations are present in this case: in addition to alleging fraud in the second cause of action in their original complaint, plaintiffs alleged in their original contract claim that defendant "had actual or constructive knowledge that the [nonconforming shipments] were of lesser value than specified in the respective contracts." Complaint para. 9. The gravamen of the Proposed Amended Complaint is to the same effect, charging that the contractual relationship between the parties was tainted by defendant's fraudulent intent not to ship conforming goods and by the scheme utilized by defendant, the inspectors and others to realize that end.

 Second, bare reliance on a contract theory will not avail the defendant because the facts and circumstances lying at the heart of the fraud alleged in this case may also give rise to the application of the doctrine of equitable estoppel and thus bar a statute-of-limitations defense on the contract claim. This doctrine is grounded in the elements of discovery and due diligence, likewise the touchstones of the New York statute of limitations for fraud actions. Thus, the inquiry on either subject is substantially the same, turning as it does on questions of a plaintiff's knowledge, actual or imputed, in the face of a defendant's affirmative acts of fraudulent concealment.

 The doctrine of equitable estoppel in New York derives directly from Glus v. Brooklyn Eastern District Terminal, 359 U.S. 231, 3 L. Ed. 2d 770, 79 S. Ct. 760 (1959), the holding of which is expressed in the simple maxim that "no man may take advantage of his own wrong." Id. at 234. The New York Court of Appeals forthrightly adopted Glus in General Stencils, Inc. v. Chiappa, 18 N.Y.2d 125, 272 N.Y.S.2d 337, 219 N.E.2d 169 (1966). There the defendant bookkeeper had for years been siphoning funds from plaintiff's petty cash account unbeknownst to the plaintiff. The court held that the defendant should be estopped from asserting the statute of limitations as a defense "where it is the defendant's affirmative wrongdoing -- a ...


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