Lake River Corp. v. Carborundum Co.

Carborundum Co. (Carborundum) (defendant) produces Ferro Carbo, which is a powder used in steel manufacturing. Carborundum entered into a distribution contract with Lake River Corp. (Lake River) (plaintiff), under which Lake River would bag the Ferro Carbo in its warehouses and ship it to Carborundum’s customers. Because Lake River had to purchase new equipment to fulfill the agreement, it insisted that Carborundum agree to ship a minimum quantity of Ferro Carbo within three years or pay the difference. Subsequently, demand for steel fell, and Carborundum did not meet the minimum shipments it had guaranteed. Lake River billed Carborundum for the $241,000 difference and refused to release the Ferro Carbo in its warehouses to Carborundum’s customers until Carborundum paid. Carborundum refused and spent $31,000 shipping in alternative product to fulfill its outstanding customer orders. Lake River sued in federal court under diversity jurisdiction, arguing that the minimum shipment requirement was effectively a liquidated damages clause. Carborundum counterclaimed, seeking to recover the Ferro Carbo Lake River retained and its expenses in replacing it, which totaled about $269,000. Lake River argued that it had not converted the Ferro Carbo, but rather that it had a lien. The judge sustained both parties’ claims. After offsetting the parties’ damages, Lake River owed Carborundum about $42,000. The parties cross-appealed to the United States Court of Appeals for the Seventh Circuit.