H.K. Mallak, Inc. v. Fairfield FMC Corp.

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-1766
H.K. Mallak, Inc.,
Plaintiff-Appellant,
v.
Fairfield FMC Corp.,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 96-C-1207--Lynn Adelman, Judge.
Argued November 16, 1999--Decided April 11, 2000
Before Eschbach, Coffey, and Diane P. Wood, Circuit
Judges.
Diane P. Wood, Circuit Judge. This diversity case
requires us to construe a Wisconsin statute
designed to protect what the common law quaintly
called "innkeepers"--today’s hotels and motels--
from potentially astronomical liability for theft
of property stored by guests in their rooms. The
thieves here were either exceptionally lucky or
they knew only too well who their target was. As
he stepped into his room for the first time, with
more than $1 million in diamonds wrapped around
his body, salesman Eshagh Kashimallak was
assaulted by masked men and stripped of his
valuable inventory. Kashimallak and his employer,
H.K. Mallak, Inc. ("Mallak") sued Fairfield FMC
Corp., the owner of the hotel, seeking
respectively damages for personal injuries and
property loss. The district court granted summary
judgment for Fairfield on Mallak’s property
claim, and, after oral argument in this court,
entered a judgment dismissing Kashimallak’s claim
with prejudice. Only Mallak has appealed. The
narrow question now before us is whether the
Wisconsin statute on which the district court
relied unequivocally bars Mallak’s right to
recover. We conclude that it does not, and we
therefore reverse and remand for further
proceedings.
The underlying facts, which we recount in the

-- 1 of 8 --

light most favorable to Mallak, do not involve
much more than what we have already described.
Kashimallak was a salesperson for Mallak, a
wholesale jewelry business incorporated in New
York, with its principal place of business in
that state. Kashimallak is also a citizen of New
York. Kashimallak covered a wide geographical
area for Mallak, including the state of
Wisconsin. On August 23, 1995, he checked into
the Fairfield Inn in Brookfield, Wisconsin, which
was managed and operated by defendant Fairfield
FMC Corp. (a Delaware corporation with its
principal place of business in Maryland). This
was not his first visit to that Fairfield Inn; he
had stayed there seven or eight times previously
on earlier business trips to Wisconsin.
The Fairfield Inn at Brookfield does not assign
a room number to a guest with a reservation until
he or she checks in at the front desk. At that
time, the guest signs the reservation card, the
clerk hands the guest a plastic key card (known
as a "ving" card) that opens the security door to
both the floor and the guest’s room. It took only
two or three minutes for Kashimallak to complete
this process when he arrived on August 23. He
received his key card and was assigned to room
334. Unbeknownst to Kashimallak, however, there
were two peculiarities about room 334 that
affected its security. First, four days before
his arrival, the hotel had re-keyed room 334 (a
step it did not ordinarily take between guests)
in order to prevent a guest who had been evicted
from the room from re-entering it. At that point,
room 334 had three new key cards, the standard
number for all rooms at the hotel. Three other
guests may have used the room between the re-
keying and Kashimallak’s arrival. But by the time
Kashimallak checked in, only two key cards to
room 334 remained and the third was missing. No
one told Kashimallak about the missing key when
he checked in, or the fact that the holder of the
missing key would have access to his room.
After he checked in, Kashimallak went directly
to his room, carrying two bags. One bag contained
his personal effects and the other contained
jewelry. He also was carrying jewelry in a
special vest and a "money belt" hidden under his
shirt. He took the elevator to the third floor,
where his room was located, seeing no one either
on the elevator or in the hall as he walked to
his room. Between the elevator and his room, he
had to use his key card twice: once to pass
through the locked security door for the floor,
and once to get into room 334 itself. Once he had
the door open, Kashimallak went into the room,
closed the door behind him, secured the chain
lock, turned around, and took one step. Two
masked men attacked him violently, punching him

-- 2 of 8 --

in the head, threatening him with a gun, and
robbing him of the jewelry in the bag, the vest,
and the money belt. The attackers stole more than
$1 million in loose diamonds, bracelets,
necklaces, pendants, earrings, and solitaire
diamonds. Neither the attackers nor the stolen
property was ever found; thus, at this point no
one knows whether the assaulters were ordinary
thieves who had crept into the hotel undetected
and were lucky enough to choose Kashimallak as
their intended victim, hotel employees doing an
inside job, or people who knew Kashimallak’s
business and who had managed to reach room 334
just before he did.
Mallak and Kashimallak filed suit against
Fairfield in the United States District Court for
the Eastern District of New York, seeking damages
for Mallak’s property loss and Kashimallak’s
personal injuries. Later, the case was
transferred under 28 U.S.C. sec. 1404(a) to the
Eastern District of Wisconsin. That court granted
Fairfield’s motion for summary judgment on
Mallak’s claim on January 21, 1999, finding that
the Wisconsin Hotelkeeper’s Liability statute,
Wis. Stats. sec. 254.80, barred the property
claim as a matter of law. Initially, the parties
stipulated that Kashimallak’s claim would be
dismissed without prejudice and without costs,
and that the statute of limitations on that claim
would be tolled until the expiration of the final
appeal period for Mallak’s claim. This court
pointed out to the parties at oral argument that
this disposition in substance did not dispose of
all claims of all parties, as required by 28
U.S.C. sec. 1291 and our decisions in JTC
Petroleum Co. v. Piasa Motor Fuels, Inc., 190
F.3d 775 (7th Cir. 1999), and Continental
Casualty Co. v. Anderson Excavating & Wrecking
Co., 189 F.3d 512 (7th Cir. 1999). Although we
ordered supplemental briefing on the
jurisdictional issue, the parties responded by
returning to the district court, which promptly
entered an order on November 18, 1999, dismissing
Kashimallak’s personal injury claim with
prejudice and without costs. As in JTC Petroleum,
this modification has now eliminated the bar to
our jurisdiction, and we can proceed to decide
the merits of Mallak’s appeal.
The Wisconsin Hotelkeeper’s Liability statute
provides that a hotelkeeper who fulfills certain
obligations will not be held liable for a guest’s
loss of jewelry, precious metals, or gemstones.
The relevant section reads as follows:
(1) A hotelkeeper who complies with sub. (2) is
not liable to a guest for loss of money, jewelry,
precious metals or stones, personal ornaments or
valuable papers which are not offered for

-- 3 of 8 --

safekeeping.
(2) To secure exemption from liability the
hotelkeeper shall do all of the following:
(a) Have doors on sleeping rooms equipped with
locks or bolts.
(b) Offer, by notice printed in large plain
English type and kept conspicuously posted in
each sleeping room, to receive valuable articles
for safekeeping, and explain in the notice that
the hotel is not liable for loss unless articles
are tendered for safekeeping.
(c) Keep a safe or vault suitable for keeping
the articles and receive them for safekeeping
when tendered by a guest, except as provided in
sub. (3).
(3) A hotelkeeper is liable for loss of articles
accepted for safekeeping up to $300. The
hotelkeeper need not receive for safekeeping
property over $300 in value. This subsection may
be varied by written agreement between the
parties.
Wis. Stats. sec. 254.80. Also relevant is another
section of the Wisconsin Hotelkeeper’s Liability
Act, Wis. Stats. sec. 254.81, which addresses the
hotelkeeper’s duties once property is tendered to
it:
Every guest and intended guest of any hotel upon
delivering to the hotelkeeper any baggage or
other property for safekeeping, elsewhere than in
the room assigned to the guest, shall demand and
the hotelkeeper shall give a check or receipt, to
evidence the delivery. No hotelkeeper shall be
liable for the loss of or injury to the baggage
or other property of a hotel guest, unless it was
delivered to the hotelkeeper for safekeeping or
unless the loss or injury occurred through the
negligence of the hotelkeeper.
The district court concluded that sec. 254.80
operated to protect Fairfield from Mallak’s suit.
In its proposed findings of fact, submitted under
Local Rule 6.05, Fairfield had stated that the
Brookfield hotel complied with all of the
requirements of sec. 254.80(2). Mallak did not
object to that proposed finding, and the district
court accordingly took it as uncontested. Mallak
also admitted that Kashimallak had not tendered
his valuables to the hotel for safekeeping. It
argued instead that the posted notice provisions
of sec. 254.80(2)(b) did not control, because
there was no notice displayed at the registration
desk that a new guest could see while checking
in. Furthermore, it asserts, Kashimallak was not

-- 4 of 8 --

informed verbally of the tender requirement, and
he was assaulted before he ever had the chance to
see the notice posted on the back of the bathroom
door inside the room. In making this argument,
Mallak did not refer to sec. 254.81, but the
district court commented in its order granting
summary judgment that sec. 254.81 conceivably
might afford Mallak a theory of relief, but that
it had waived the point. The court specifically
noted that there would be a contested issue of
material fact over Fairfield’s negligence,
because it did not re-key room 334 when it
discovered that one of the three key cards was
missing. H.K. Mallak, Inc. v. Fairfield FMC
Corp., 33 F. Supp. 2d 748, 754 (E.D. Wis. 1999).
We agree with the district court that Mallak
has waived its chance at this stage to rely on
sec. 254.81, through its failure to argue the
point before the district court. The court’s
mention of the law in its opinion is not a
substitute for a party’s proper presentation of
the point. The opposing side is entitled to an
opportunity to argue the contrary, which would be
missing were we to find that the court’s
awareness of the law is sufficient. We also find
no fault in the district court’s decision to hold
Mallak to its acquiescence in the Rule 6.05
submission, which amounted to an admission that
Fairfield had satisfied the three hotelkeeper
duties outlined in sec. 254.80(2). We have
repeatedly held that district courts are entitled
to insist on compliance with local rules designed
to make the summary judgment process operate more
smoothly, and there is nothing in this case that
warrants an exception to that principle. See,
e.g., Markham v. White, 172 F.3d 486, 491 (7th
Cir. 1999); Bradley v. Work, 154 F.3d 704, 707-08
(7th Cir. 1998); Waldridge v. American Hoechst
Corp., 24 F.3d 918, 923 (7th Cir. 1994).
These omissions by Mallak may have been
perfectly reasonable, at least as to the facts,
despite Mallak’s efforts before this court to
stuff that genie back into the bottle. At this
point, they have the effect of distilling the
issue before us into the following: does sec.
254.80, which sets forth security measures
Wisconsin hotels must take in order to limit
their liability for lost jewelry (among other
things) and establishes in part a notice-based
regime, apply to a case in which the guest did
not and (in the light most favorable to him)
could not have received the required notice? This
was the central theory on which Mallak relied
before the district court, and so it is properly
before us.
There is a dearth of caselaw in Wisconsin
construing sec. 254.80, and so, as a federal

-- 5 of 8 --

court sitting in diversity, we must do a certain
amount of tea-leaf reading to decide whether
Wisconsin law supports Mallak’s right to recover
on this record. The parties agree that the
leading decision is the 82-year old ruling in
Busley v. Hotel Wisconsin Realty Co., 164 N.W.
826 (Wis. 1917), which construed the predecessor
to sec. 254.80. In Busley, as here, the parties
had stipulated that the innkeeper had complied
with the applicable statutory notice
requirements. An additional stipulation provided
that the loss in question occurred either through
the theft or the gross negligence of the
innkeeper’s servants. The court thus had only to
consider what was the extent of the innkeeper’s
liability for the loss of property delivered to
him, when that loss occurred without any
negligence on his part.
The court held that the statute did not
eliminate the innkeeper’s liability for loss
caused by the theft or gross negligence of
himself or his servants, although sec. 1726 of
the statute in question limited liability to $10
for packages placed under the care of the cashier
under the predecessor to sec. 254.81, sec. 1725a.
The innkeeper argued that the $10 limitation of
liability applied to the loss of money and
jewelry, but the court disagreed. Noting that
sec. 1725, the predecessor to sec. 254.80, was
limited to "money, jewelry and articles of gold
or silver manufacture," the court stated that
"[i]t never was the legislative intent to limit
an innkeeper’s liability to $10 for the contents
of a package of goods described in section 1725.
For the loss of such a package, caused by the
gross negligence of himself or his servants, the
value thereof is the true measure of damages."
164 N.W. at 828.
Busley therefore indicates that, at a minimum,
the notice and delivery provisions of the
predecessors to sec. 254.80 do not suffice to
protect an innkeeper from liability for its own
gross negligence or that of its employees. This
rule appears to be consistent with the general
understanding in the area, although we repeat
that there are not many cases to consult. The
following decisions, however, all indicate in one
way or the other that the statutory limitations
found in laws like Wisconsin’s (a) do not relieve
the hotelkeeper from liability based on acts of
its own employees, and (b) merely modify the duty
of insurer that the common law otherwise imposed
on innkeepers, replacing it with a negligence
regime. See, e.g., Shifflette v. Lilly, 43 S.E.2d
289, 293-94 (W. Va. 1947) (holding that a similar
statute requiring the deposit of jewelry in the
office and the posting of notices did not relieve
the innkeeper of the general duty to exercise due

-- 6 of 8 --

care in providing honest servants and to take
reasonable precautions to protect the person and
property of guests); Rockhill v. Congress Hotel
Co., 86 N.E. 740, 741-42 (Ill. 1908) (Illinois
statute did not apply to case involving theft of
handbag containing valuables and jewelry, where
the loss occurred by the negligence of the porter
or servants of the hotel); Shamrock Hilton Hotel
v. Caranas, 488 S.W.2d 151, 153 (Tex. Civ. App.
1972) (statute limiting hotel liability did not
apply to case alleging that loss occurred through
the negligence of the hotel); Kutbi v.
Thunderlion Enterprises, Inc., 698 P.2d 1044,
1048 (Or. App. 1985) (summary judgment improper
in case where plaintiff alleged negligence and
gross negligence, including through knowledge of
lost master key for area where plaintiff was
staying and through loss of key, where jewelry
was stolen from room; innkeepers’ law only
modified common law rule of strict liability).
In a case dealing with the check-out process,
rather than the check-in process, a New York
appellate court found that the hotel was not
entitled to summary judgment where a departing
guest’s tote bag, containing jewelry and other
valuables, was snatched away from her while she
sat in a livery cab in the hotel’s driveway. See
Penchas v. Hilton Hotels Corp., 603 N.Y.S.2d 48
(App. Div. 1993). Under those circumstances,
notwithstanding the hotelkeepers’ liability laws,
the hotel continued to have a duty to exercise
reasonable care to protect its guests from injury
at the hands of third persons who were not hotel
employees, and to protect them from the criminal
acts of third parties. Id. at 49-50. In our view,
in light of the cases mentioned above, we think
it likely that a Wisconsin court would follow a
similar rule for a guest who was subjected to a
criminal act during the process of checking in.
Just as the provisions for notice and a safe are
no longer useful for a guest who has checked out,
they cannot help a guest who has not even
penetrated the interior of his room and had a
chance to use them. Even if that prediction about
Wisconsin law is wrong, however, and Wisconsin
gives absolute protection to hotels that have the
proper notices posted in the rooms no matter
where or when the crime occurs, we are confident
that Wisconsin would not extend the protection of
the statute to the case of an inside job, as this
may have been. We have not found a single
jurisdiction that would go so far, and there is
no reason to think that Wisconsin would become
such an outlier.
Before concluding, we add a word about a
potentially important aspect of the case that is
not before us. In its motions for summary
judgment before the district court, Fairfield

-- 7 of 8 --

also argued that it owed no duty to Mallak or
Kashimallak to prevent harm from unforeseeable
criminal activity by a third party. It has not
pursued that argument on appeal as an alternate
ground in support of the district court’s
judgment. Furthermore, Fairfield does not appear
ever to have challenged Mallak’s right to
complain about the theft from Kashimallak. We
express no opinion at this point either on the
question whether Fairfield has therefore waived
its right to introduce that question into the
suit on remand, or what the correct answer should
be if the issue is properly in the case. We
conclude only that the district court erred in
granting summary judgment for Fairfield FMC
Corp., and the judgment is REVERSED and REMANDED for
further proceedings.

-- 8 of 8 --