## Facts

- International Ore & Fertilizer Corp. (Interore) contracted to sell about 22,202 metric tons of fertilizer to a New Zealand buyer on a cost-and-freight basis.
- Interore chartered the M/V ADELINA to transport the fertilizer and was required to obtain an independent certificate that the vessel’s holds were clean before loading.
- Interore retained SGS Control Services, Inc. (SGS), as it had many times before, via an oral agreement confirmed by telex, to inspect the holds and issue cleanliness certificates.
- SGS inspected three of five holds and issued certificates stating the holds were clean and suitable for fertilizer.
- The holds were not properly cleaned; contaminants caused cargo contamination, and the buyer rejected the shipment upon arrival.
- Interore suffered economic losses associated with the rejected and contaminated cargo.

## Issues

1. Whether SGS’s alleged failure to inspect and certify properly created tort liability for negligent misrepresentation or only contractual liability.
2. Whether, without a cross-appeal by Interore from dismissal of its contract claim, the appellate court could affirm on a contract theory and increase Interore’s recovery.
3. Whether Rule 11 sanctions against SGS’s counsel for filing repetitive motions were proper.

## Decision

- The Second Circuit held SGS was not liable in tort for negligent misrepresentation because its duty to Interore arose from their inspection contract.
- The court concluded the record supported breach of contract, but Interore’s failure to cross-appeal the dismissal of the contract claim barred any increase in the damages award.
- The court affirmed the existing judgment amount (reduced for Interore’s comparative fault) and affirmed the Rule 11 sanctions against SGS’s counsel.
- Judgment affirmed in all respects.

## Legal Principles

- In a commercial service relationship where an inspection company’s obligations are defined by agreement and the claimed harm is economic loss from disappointed commercial expectations, the duty generally sounds in contract rather than tort.
- An appellee may defend a judgment on any ground supported by the record, but without a cross-appeal the appellee may not obtain relief that enlarges its rights under the judgment (including increased damages).
- Rule 11 sanctions may be imposed for repetitive, non-meritorious motion practice; appellate review is for abuse of discretion.

## Conclusion

The Second Circuit treated the inspection dispute as a contract matter rather than negligent misrepresentation, and it refused to increase the plaintiff’s recovery because the plaintiff did not cross-appeal the adverse contract ruling, while also sustaining Rule 11 sanctions for repetitive motions.


International Ore & Fertilizer Corp. v. SGS Control Servs., Inc., 38 F.3d 1279 (2d Cir. 1994)