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Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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In the 

United States Court of Appeals 

For the Seventh Circuit ____________________

No. 15‐3242

AMERICAN COMMERCIAL LINES, LLC,

Plaintiff‐Appellant,

v.

THE LUBRIZOL CORP.,

Defendant‐Appellee.

____________________

Appeal from the United States District Court for the

Southern District of Indiana, New Albany Division.

No. 12 C 135 — Sarah Evans Barker, Judge.

____________________

ARGUED FEBRUARY 26, 2016 — DECIDED MARCH 25, 2016

____________________

Before POSNER, FLAUM, and EASTERBROOK, Circuit Judges.

POSNER, Circuit Judge. The plaintiff and appellant in this

commercial suit, American Commercial Lines (ACL), manu‐

factures and operates tow boats and barges that ply the na‐

tion’s inland waterways. The defendant, Lubrizol, manufac‐

tures industrial lubricants and additives, including a diesel‐

fuel additive that it calls LZ8411A. A company named VCS

Chemical Corp. distributed the additive, and Lubrizol and

VCS jointly persuaded ACL to buy it from VCS. Before de‐

Case: 15-3242 Document: 23 Filed: 03/25/2016 Pages: 7
2 No. 15‐3242   

livery began, however, Lubrizol terminated VCS as a dis‐

tributor because of suspicion that it was engaging in unethi‐

cal conduct—one of Lubrizol’s employees had failed to dis‐

close to his employer that he was also a principal of VCS.

But Lubrizol did not inform ACL that VCS was no longer its

distributor.

No longer able to supply ACL with LZ8411A, VCS sub‐

stituted an additive that ACL contends is inferior to

LZ8411A. At least some of this other additive (which both

Lubrizol and ACL call the “Counterfeit Additive”) was pro‐

duced by Afton Chemical Corp. VCS didn’t inform ACL of

the substitution. According to ACL’s complaint, Lubrizol

learned of the substitution too but also didn’t inform ACL,

which when it discovered the substitution brought the pre‐

sent suit—a diversity suit alleging a variety of violations of

Indiana common law—against VCS, VCS’s principal owner

(who is also its CEO), and Lubrizol. ACL settled with VCS

and its owner, leaving Lubrizol as the only defendant. The

district judge dismissed part of the remaining suit on Lubri‐

zol’s motion to dismiss and the rest on its motion for sum‐

mary judgment.

VCS is a small company, which is probably why ACL

wasn’t content with the size of the settlement with it and so

has persisted in suing Lubrizol, making multiple claims. One

is that VCS was an agent, and alternatively an apparent

agent, of Lubrizol, see Gallant Ins. Co. v. Isaac, 751 N.E.2d

672, 675–77 (Ind. 2001); Leon v. Caterpillar Industrial, Inc., 69

F.3d 1326, 1336–37 (7th Cir. 1995) (Indiana law), and so

VCS’s substitution of the inferior additive should be imput‐

ed to Lubrizol as VCS’s principal, making Lubrizol liable for

VCS’s fraud and breach of contract. ACL further argues that

Case: 15-3242 Document: 23 Filed: 03/25/2016 Pages: 7
No. 15‐3242 3

Lubrizol had, and broke, a contract with VCS to supply

LZ8411A to ACL, and that ACL was a third‐party benefi‐

ciary of the contract. Another claim is that Lubrizol had a

quasi‐contract with ACL stemming from earlier work the

two firms had done jointly in testing the quality of the

LZ8411A additive and its suitability for ACL’s needs. Still

another charge made in the complaint is that Lubrizol was

guilty of constructive fraud because it had breached a duty

to notify ACL of the break with VCS and the substitution of

the inferior additive, and alternatively that Lubrizol commit‐

ted “civil deception” by not notifying ACL. But at least ACL

has abandoned an absurd claim of tortious interference with

contract; it had claimed that Lubrizol’s decision to terminate

VCS as a distributor of Lubrizol products and thus cause

VCS to breach its contracts with ACL had been motivated by

“disinterested malevolence” toward ACL, “meaning that ...

the defendant’s conduct was not only harmful, but done

with the sole intent to harm.” Twin Laboratories, Inc. v. Weider

Health & Fitness, 900 F.2d 566, 571 (2d Cir. 1990) (New York

law).  

A manufacturer has no duty at common law to protect

the customers of its distributors from misconduct by a dis‐

tributor. ACL could have asked Lubrizol, which it knew to

be VCS’s supplier, for a contractual guaranty against VCS’s

failing to perform its contract with ACL. It didn’t ask for a

guaranty, apparently trusting VCS. ACL is not some helpless

consumer, at the mercy of the companies it does business

with; its estimated value in 2010 was $800 million. See Plati‐

num Equity, “American Commercial Lines,” www.platin

umequity.com/american_commercial_lines (visited March

24, 2016). ACL argues that by helping VCS land the LZ8411A

contract with it, Lubrizol became a de facto party to the con‐

Case: 15-3242 Document: 23 Filed: 03/25/2016 Pages: 7
4 No. 15‐3242   

tract. But that would imply that a real estate agent who suc‐

cessfully brokers the sale of a house thereby becomes a seller

of the house along with its client, the owner. It was natural

for ACL, before deciding to buy LZ8411A from VCS, to con‐

sult the manufacturer of the additive (Lubrizol), who would

be able to give more authoritative answers to questions

about its quality and its suitability for use in ACL’s tow

boats than a distributor could give. That consultation did not

create a contract between Lubrizol and ACL.

Although as the ultimate consumer ACL could expect to

benefit from Lubrizol’s sale of the additive to its distributor,

that expectation did not make ACL a third‐party beneficiary

of the contract between VCS and Lubrizol. More was re‐

quired. See, e.g., Luhnow v. Horn, 760 N.E.2d 621, 628–29

(Ind. App. 2001). Otherwise a consumer would be a third‐

party beneficiary of any sales contract between a supplier of

a good and a distributor of the good to the consumer.

Nor was VCS, by virtue of being a distributor of Lubri‐

zol’s product, an agent of Lubrizol. “Every bar which adver‐

tises that they sell a particular brand of beer is not the agent

of the brewery whose name they advertise.” Leon v. Caterpil‐

lar Industrial, Inc., supra, 69 F.3d at 1336. A distributor buys

from his supplier and resells; an agent works on behalf of a

principal and if he acts within the actual or apparent scope

of the agency binds the principal. If you hire a real estate

broker to sell your house, authorizing him to sell it for no

less than a price you specify, and he complies with your di‐

rections, you are bound by the sale. Likewise if you said

something to a prospective buyer of property from you that

was likely to convince him that you had authorized a real

estate broker to make the sale, you’d be bound even if you

Case: 15-3242 Document: 23 Filed: 03/25/2016 Pages: 7
No. 15‐3242 5

hadn’t actually intended to sell the property. It would be a

case of “apparent agency”—you had created the appearance

that the broker was your agent, and that made him your

agent in the eyes of the law.

There is nothing like that in this case, any more than

there was in Leon v. Caterpillar Industrial, Inc., supra, 69 F.3d

at 1333–37, which held that a manufacturer was not liable on

grounds of either actual or apparent agency despite having

actively promoted its distributor to the distributor’s custom‐

ers. The harm of which ACL complains began when VCS

substituted the inferior additive, and no one suggests that by

doing that VCS was benefiting Lubrizol or acting at its direc‐

tion—Lubrizol had severed its relations with VCS. ACL

claims that Lubrizol held VCS out as its agent, but apparent‐

agency claims turn on what the alleged principal told the

third party, and ACL has disclosed no statement by Lubrizol

to it that made VCS out to be more than a distributor.

Lubrizol’s reluctance to inform ACL that it had broken

relations with VCS and that VCS had made an unauthorized

substitution of Afton’s diesel‐fuel additive for Lubrizol’s is

understandable. VCS would doubtless have responded to

the information by suing Lubrizol, asserting that Afton’s ad‐

ditive was just as good as Lubrizol’s and that in any event

Lubrizol had had no cause for breaking with VCS—that the

charge that VCS was “unethical” was unfounded, and thus

defamatory, and so Lubrizol had broken its contract with

VCS rather than vice versa. In fact, attached to ACL’s com‐

plaint as an exhibit is an email from Lubrizol’s legal depart‐

ment expressing concern that Lubrizol might be sued by

VCS should it discuss VCS with VCS’s customers.

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6 No. 15‐3242   

ACL argues that it had a “special relationship” with

Lubrizol which bound the latter, at whatever cost in possible

litigation with VCS, to inform ACL that VCS was supplying

an inferior additive to it. The “special relationship” is alleged

to give rise to a duty of “good faith and fair dealing,” mak‐

ing Lubrizol’s failure to inform ACL of the substitution

“constructive fraud.” By that is meant a fraud committed by

silence rather than a statement, and thus it presupposes a

duty to speak based on a fiduciary obligation, or assurances,

American Heritage Banco, Inc. v. Cranston, 928 N.E.2d 239,

247–49 (Ind. App. 2010), or a contract—all missing here. Had

ACL wanted such protection it could have negotiated a con‐

tract with Lubrizol that would have obligated the latter to

keep ACL apprised of Lubrizol’s dealings with VCS. ACL

argues that the complex nature of the product, a chemical

additive, put Lubrizol as supplier in a position of superiority

over it as buyer, and that Lubrizol had encouraged ACL to

trust it during the earlier field test of the product. But as a

sophisticated commercial entity ACL was well positioned to

protect itself against a faithless supplier. It may not have

asked Lubrizol for contractual protection against misfea‐

sance by VCS only because it knew it would have a contrac‐

tual or tort remedy if VCS defrauded it. Indeed it sought

such a remedy by suing VCS, and obtained at least partial

relief by settling.

A competent party—a big boy like ACL—should be re‐

quired to exhaust its contractual remedies before invoking

tort law and tort‐like extensions of contract law. A well‐ 

drafted contract provides a cleaner basis for a legal remedy

than does a nebulous body of jargony legal theories such as

“special relationship,” “constructive fraud,” “duty of good

Case: 15-3242 Document: 23 Filed: 03/25/2016 Pages: 7
No. 15‐3242 7

faith and fair dealing,” “disinterested malevolence,” and

“quasi‐contract.”

A word finally about that last term, quasi‐contract. ACL

treats it as if it were synonymous with contract, whereas the

term “quasi‐contract” actually denotes absence of a contract,

coupled with a sense that there would have been a contract

had it not been for some unexpected intervening event. The

classic example is the physician who chances on a person

lying unconscious on the ground and treats him. Because the

patient is unconscious there can be no contractual negotia‐

tion regarding the physician’s price for the treatment. Yet it

is customary for physicians to be paid for the medical ser‐

vices they render, and so the law treats the situation as if the

parties had contracted for treatment at the physician’s nor‐

mal rate. In Confold Pacific, Inc. v. Polaris Industries, Inc., 433

F.3d 952, 958 (7th Cir. 2006), we gave the example “of the

physician who renders services to an unconscious person

and later sends him a bill that the patient refuses to pay,”

and we pointed out that requiring the patient to pay “the

normal fee for such a medical service ... enforces reasonable

expectations.” This is called enforcing a “quasi‐contract” be‐

cause “the court is constructing a contractual relationship [ex

post facto] in order to bring about the result for which the

parties probably would have contracted had contracting

been feasible in the circumstances, which it was not.” Id. But

there was no obstacle in this case to ACL’s contracting with

Lubrizol.

AFFIRMED

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