Opinion
99 CIV. 2863 (DLC)
April 26, 2000.
Stephen A. Agus, Marcy J. Melnikoff, AGUS PARTNERS, P.C. Counsel for Plaintiffs
Paul A. Lange, Esq., LAW OFFICES OF PAUL A. LANGE Counsel for Defendants, AMERICAN INTERNATIONAL FREIGHT, INC., and AMERICAN INTERNATIONAL AIRWAYS, INC.
Paula LoMonaco, ADLER, MURPHY McQUILLEN
James P. Krauzlis, Esq., BADIAK, WILL RUDDY, LLP Counsel for Defendant, PILOT AIR FREIGHT
Richard J. Reisert, Esq., Mark J. Winter, Esq., CLARK, ATCHESON REISERT Counsel for Defendant, COSMOPOLITAN TRUCKING COMPANY
OPINION AND ORDER
The issues in this case are, for the most part, easily resolved through the application of the principles set forth inNippon Fire Marine Ins. Co. Ltd. v. Skyway Freight Systems. Inc., 45 F. Supp.2d 288 (S.D.N.Y. 1999) ("Nippon I") (DLC). The analysis in Nippon I is therefore incorporated here where relevant.
Plaintiff Krystaltech International, Inc. ("Krystaltech") is the shipper, owner, and consignee of the shipment of cellular phones which is the subject of the present case. Plaintiff Atlantic Mutual Insurance Company is the insurer of that shipment and has filed suit as subrogee of Krystaltech. Pilot Air Freight ("Pilot"), a cargo freight forwarder, took delivery of the goods in Florida from the vendor and arranged for American International Airways ("AIA") to transport the shipment of cellular phones from Miami, Florida to New York. AIA, an air carrier, conducted business as American International Freight ("AIF") at the time of the subject shipment. Cosmopolitan Trucking ("Cosmopolitan") contracted with AIA to transport the cargo from Newark Airport in New Jersey to John F. Kennedy Airport in New York.
Both AIA and AIF have been acquired by Kitty Hawk, Inc. and its subsidiaries and will be referred to collectively as AIA.
After discovery closed, defendants moved for summary judgment on the issue of the validity of the contractual limitations on their liability. For the reasons stated, defendants' motions are granted to the extent that the potential liability of all defendants is bound by the contractual limitations, the validity of which is here at issue.
BACKGROUND
The following facts are undisputed. On August 19, 1998, Krystaltech's vendor, BB Group, Inc. ("BB Group"), delivered a shipment of fifty-one boxes containing 1000 cellular phones with batteries to Pilot in Miami for transport to Krystaltech's warehouse in New York. The gross weight of the shipment was 1262 pounds. The boxes were shrink wrapped and packed onto two skids; each skid was marked "Do Not Unwrap". The freight forwarders invoice issued by Pilot to BB Group covering this shipment states:
CARRIER'S LIABILITY LIMITED: Unless a value is declared, declared value is agreed and understood to be $0.50 per lb., but not less than $50.00 per shipment or actual value of such piece(s), whichever is less.
BB Group declared no additional value on the invoice. The freight invoice box entitled "DECLARED VALUE" was marked "NVD" which is the accepted shorthand for "no value declared." On the reverse side of the freight invoice, the section entitled "Carrier's Liability" stated that
in consideration of Pilot's rate for the transportation of any shipment which is in part dependent upon the declared value of the shipment, Pilot's liability of any kind whatsoever shall be the lesser of: (a) the actual value of the goods lost or damaged, or (b) $0.50 per pound (where no value is declared) multiplied by: (1) the number of pounds of the shipment or, (2) in the case of a partial loss or damage the average weight of the part lost or damaged from the total shipment.
The conditions of the contract also included a statement that "carriage is subject to the rates and rules set forth in the most recent Pilot rules and Regulations Tariffs which is available for inspection and incorporated into this contract by reference."
The same day Pilot received the cargo, it delivered the entire shipment to AIA's facility at the Miami International Airport. Upon delivery, AIA issued an air waybill, which in the box labeled "Declared Value for Carriage" contains the letters "NVD" indicating "no value declared." The AIA air waybill states on its face that the goods accepted are:
SUBJECT TO THE CONDITIONS OF CONTRACT ON THE REVERSE HEREOF, THE SHIPPER'S ATTENTION IS DRAWN OF THE NOTICE CONCERNING CARRIER'S LIMITATION OF LIABILITY. Shipper may increase such limitation of liability by declaring a higher value for carriage and by paying a supplemental charge subject to conditions of contract on reverse side.
On the reverse side of the air waybill the "Conditions of Contract" specifically states that the
carrier's liability is limited to damages which occur while the shipment is in the custody of the carrier or its duly authorized agent and shall in no event exceed (1) 50¢ per pound, multiplied by the number of pounds which may have been delayed, lost, damaged or destroyed, unless a higher value is declared herein, or (2) the amount of any damages actually sustained, whichever is less; and that carrier's liability excludes all special and consequential damages for which the shipper has not given the carrier advance written notice on the airbill. . . .
In addition to the listed conditions, the "Conditions of Contract" states that the carriage is also subject to the provisions of the carrier's Official Freight Tariff Manual, available at Miami International Airport, AIA's website, and at all points where freight transportation or shipments are accepted by AIA. The Tariff Manual states that shipments must be indicated by "accurate and specific descriptions" on the air waybill, and that by tendering the shipment to AIA for transportation, the shipper, and all other parties having an interest in the shipment, agree to the limitations set forth in rules and regulations. For shipments with no declared value, the carrier's liability is limited to the lesser of fifty cents per pound for each pound missing or the amount of any damages actually sustained. If, however, a higher value is declared by the shipper, an additional transportation charge of sixty cents is generally required for each hundred dollars by which such higher value exceeds fifty cents per pound or fifty dollars per shipment, whichever is higher. The maximum declared value permitted on any shipment is $15,000.
AIA contracted to transport the shipment from Miami International Airport to JFK. AIA does not, however, service JFK directly, but rather transports the cargo via air to Newark and then by ground transport to JFK. In this case, AIA contracted with Cosmopolitan to transport the cargo from Newark to JFK.
On August 20, 1998, Pilot retrieved the cargo at JFK and transported it to the ultimate consignee, Krystaltech. The shipment that arrived at Krystaltech's warehouse on the afternoon of August 20 was incomplete: Pilot delivered thirty loose boxes (590 units of cellular phones) instead of fifty-one boxes on two skids. Krystaltech initially refused the shipment, instructing Pilot to take it back. During a conference call initiated by Krystaltech to advise BB Group, Pilot, and AIA of the loss, AIA admitted that it had unwrapped the two skids.
The weight of this incomplete delivery is unclear from the parties submissions.
On the morning of August 21, 1998, Pilot returned with the thirty boxes, at which point Krystaltech accepted the incomplete delivery. Krystaltech then discovered that out of the 590 units received, only 577 were complete. Six units arrived without either phone or battery; seven units arrived with phone but without battery. The missing portions of the shipment have never been located.
Plaintiffs thereafter filed this action, which was removed from state court on April 20, 1999. The complaint alleges three causes of action against AIA, Pilot, and Cosmopolitan. The first cause of action alleges that the defendants breached their duties and obligations as common carriers and bailees of merchandise for hire. The second and third causes of action allege negligence and conversion, respectively.
On June 30, 1999, defendant Pilot filed a cross-claim against defendants AIA and Cosmopolitan seeking indemnification. Pilot asserted that any loss was "occasioned in whole or in part by the fault, negligence, and/or breach of contract of carriage and/or bailment of AIA and/or Cosmopolitan."
On July 26, 1999, Cosmopolitan filed a cross-claim against AIA and Pilot stating that it "performed all the terms and conditions of said contract of carriage which it is was obliged to perform" such that any liability it may be found to have should be indemnified by AIA or Pilot.
On January 13, 2000, AIA moved for summary judgment in favor of AIA and against plaintiffs on all three counts of the complaint, and partial summary judgment in favor of AIA against Pilot limiting AIA's liability to the amount provided for in its air waybill. By letter dated January 18, Cosmopolitan joined in AIA's motion. By cross-notice of motion dated January 19, Pilot moved for partial summary judgment on the issue of the contractual limitation on its liability.
DISCUSSION
Summary judgment may not be granted unless the submissions of the parties taken together "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Rule 56(c), Fed.R.Civ.P. The moving party bears the burden of demonstrating the absence of a material factual question, and in making this determination the Court must view all facts in the light most favorable to the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Celotex Corp v. Catrett, 477 U.S. 317, 323 (1986); Azrielli v. Cohen Law Offices, 21 F.3d 512, 517 (2d Cir. 1994) ("[T]he court must resolve all ambiguities and draw all reasonable inferences in favor of the nonmoving party.") When the moving party has asserted facts showing that the nonmovant's claims cannot be sustained, the opposing party must "set forth specific facts showing that there is a genuine issue for trial," and cannot rest on the "mere allegations or denials" of his pleadings. Rule 56(e), Fed.R.Civ.P. See also Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir. 1995). In deciding whether to grant summary judgment, therefore, this Court must determine (1) whether a genuine factual dispute exists based on the evidence in the record, and (2) whether the fact in dispute is material based on the substantive law at issue.
1. Limitation of Liability
Federal common law governs actions against interstate air carriers for lost or damaged shipments. See Nippon I, 45 F. Supp.2d at 291 (collecting cases). The legal basis for permitting a carrier's limitation of its liability, the requirements for any such limitation, and the policy supporting these legal principles were delineated by this Court's recent decision in Nippon I and will not be repeated here. See id. at 291-92. Moreover, this Court's prior opinion described the principles governing the nature and extent of the shipper's right of recovery under a valid federal tariff and the fact that an enforceable limitation of liability clause precludes recovery by a shipper in tort on negligence, bailment, or conversion theories beyond the amount stated in the contract. See id. at 292.
2. Pilot's Liability
While recognizing the framework established in Nippon I, plaintiffs maintain that the limitation of liability in the air waybills and tariff manual should not limit their recovery from Pilot based on two arguments that plaintiffs contend distinguish this case. First, plaintiffs argue that Pilot is unable to rely on any limitation of liability under a material deviation theory imported from the law of admiralty. Second, they argue that defendants are liable in tort for conversion of goods because defendants intentionally and willfully unwrapped the pallets and have never accounted for the loss.
a. Material Deviation Doctrine
As to the material deviation argument, courts in interstate air carrier cases have applied this doctrine in an extremely limited fashion. See Nippon I, 45 F. Supp.2d at 292; Praxair Inc., v. Mayflower Transit. Inc., 919 F. Supp. 650, 655-56 (S.D.N.Y. 1996). In Nippon I, this Court followed Praxair Inc., which stated that
the case law establishes that in cases of shipment by air, rail, and truck where the shipper paid an additional charge to ensure specialized safety measures to reduce the risk of damage to its cargo, the carrier's failure to perform those very measures which resulted in damage to the cargo has been found to be a sufficient basis upon which the liability limitation in the shipping agreement may be rescinded.919 F. Supp. at 655-56. See Nippon I, 45 F. Supp.2d at 292-93. A carrier must have made a "separate, risk-related promise (special to the particular shipment at issue)" to allow a shipper to avoid a liability limitation under the material deviation doctrine.Hill Construction Corp. v. American Airlines. Inc., 996 F.2d 1315, 1319 (1st Cir. 1993). Thus, for example, in Praxair, special shipping instructions that required an "air-ride" truck and wrapping the goods in blankets created a triable issue of fact as to whether the material deviation doctrine should be applied. See Praxair Inc., 919 F. Supp. at 656.
Unlike the facts of Praxair, however, there is nothing in this record suggestive of special circumstances beyond those to which the limitation of liability clause was meant to apply. Plaintiffs assert that in addition to the defendants' general promise to transport the cargo at issue, the defendants undertook a special risk-related promise not to unwrap the shrink-wrap protecting the two pallets of goods transferred to the defendants. Plaintiffs emphasize that BB Group specifically shrink-wrapped the two pallets of goods and labeled "Do Not Unwrap" so as to prevent theft. In further support of the contention that a separate risk-related promise existed, plaintiffs argue that because Krystaltech paid all shipping costs and "it was [their] understanding that this covered shrink wrapping", there was consideration to support this additional promise. AIA has admitted unwrapping the skids after receipt.
The fact that the skids were shrink-wrapped and marked "Do Not Unwrap" does not create an exemption from a limitation of liability. In contrast to the shipping agreement in Praxair, plaintiffs in this case made no request of defendants for any special safety measures, and indeed no specialized terms or conditions were indicated on either the Pilot invoice or on the AIA air waybill. Nor does the evidence support the argument that additional consideration was paid for any special risk-related promise. Although it is undisputed that Krystaltech paid all necessary and required costs of the shipment — costs which may have been augmented by the inclusion of shrink-wrapping — this is insufficient to create a separate risk-related promise. Any additional cost imposed by the shrink-wrapping was paid by Krystaltech to BB Group, not to the defendants, and no additional costs were listed on either the Pilot or AIA air waybill for packaging costs. Although the additional weight of the shrink wrap may have resulted in a nominal increase in price, this cannot be asserted as special consideration for the acceptance of full liability. If this argument were accepted, all carriers who include the weight of shipping boxes or other packaging in determining prices will have accepted a "special risk-related promise." If every time a shipment is placed in special packaging and marked "Do Not Unwrap" the contract of carriage and its liability limitations are thereby rescinded, the commercial benefits of such clauses would be abolished. A special shipment can easily be protected by indicating special shipping instructions or declaring a higher value on the air waybill. No such additional conditions were placed on either the Pilot or AIA air waybill.
Plaintiffs' reliance on Coughlin v. Trans World Airlines. Inc., 847 F.2d 1432 (9th Cir. 1988), is misplaced. In Coughlin, the plaintiff sought damages above the limitations stated on her airline ticket when the airline lost baggage containing the cremated remains of plaintiff's husband. The court held that the liability limitations were inapplicable because the ticket agent refused to allow plaintiff to carry the remains on board. This refusal violated a specified provision of the contract of carriage requiring all valuables to be carried on by the passenger. Here, plaintiffs were in no way precluded from exercising any protections or rights granted in the contract of carriage.
b. Conversion
As its second argument, plaintiffs assert that defendants are liable in tort for conversion of goods because defendants intentionally and willfully unwrapped the pallets and have never accounted for the loss. In order to state a claim for conversion under federal law, the party asserting the conversion claim has the burden of establishing that the carrier was responsible for the loss due to some willful or intentional conduct on its part.Lerakoli, Inc. v. Pan American World Airways. Inc., 783 F.2d 33, 37 (2d Cir. 1986). To recover against a carrier for conversion, the evidence must establish appropriation by the defendant for its own use or gain. See Nippon Fire Marine Insurance Co. v. Holmes Transportation Inc., 616 F. Supp. 610, 611 (S.D.N.Y. 1985).See also Thypin Steel Co. v. Certain Bills of Lading Issued for Cargo of 3017 Metric Tons, More or Less. of Hot Rolled Steel Plate Laden on Board M/V Geroi Panfilovskv, 96 Civ. 2166, 1998 WL 912100, at *5 (S.D.N.Y. Dec. 30, 1998); Gluckman v. American Airlines. Inc., 92 Civ. 3740, 1994 WL 705324, at *2 (S.D.N Y Dec. 16, 1994). When a bailee commits the intentional tort of conversion, courts will not enforce limitation of liability provisions. Baloise Ins. Co.. Ltd., 723 F. Supp. at 198. Only an appropriation of property by the carrier for its own use, however, will vitiate limits on liability. Diero v. American Airlines. Inc., 816 F.2d 1360, 1366 (9th Cir. 1987). Thus, for example, in Baloise, the court held that the liability limiting provisions of the defendants' airbills were not overcome by plaintiffs' conversion claim where the carrier was unable to provide any explanation for the loss of the cargo but there was no evidence of affirmative acts of conversion. Baloise Ins. Co., Ltd., 723 F. Supp. at 198-99.
In this case, plaintiffs argue that the defendants committed an affirmative act by deliberately unwrapping the shipment and thereby facilitating the loss. Plaintiffs have presented no evidence, however, that defendants willfully and intentionally converted the goods for their own use.
Because plaintiffs cannot prevail on either a material deviation or conversion theory, Pilot's liability to plaintiffs is limited by the contractual provisions of the freight forwarder's invoice it issued and its tariff therein incorporated by specific reference. Since the weight of the shipment when it arrived at JFK Airport was four hundred and eighty-nine pounds short of its original weight, Pilot's maximum liability on that shipment is $244.50.
3. AIA and Cosmopolitan's Liability
The parties do not contest that AIA has a valid limitation of liability clause in its air waybill issued to Pilot. AIA argues that it may assert this limitation of liability against Krystaltech. Krystaltech argues that, regardless of any limitation on Pilot's liability, it may recover under various theories the full value of its loss from AIA and Cosmopolitan. As a subcontracting common carrier operating pursuant to its own air waybill containing a valid limitation of liability issued to the primary common carrier, AIA is not liable in tort to the original shipper. See Nippon I, 45 F. Supp.2d at 293-95 (discussing case law and rationale supporting this rule)
As a common carrier, AIA contracted to limit its liability to the amount selected by Pilot. The very purpose of a limitation of liability clause is to permit a carrier to anticipate the amount of risk it takes on, charge appropriately for bearing that risk, and avoid unforeseeable risk. AIA and Cosmopolitan, who was acting pursuant to the AIA air waybill, may not be subject to the very liability they contracted to avoid just because Krystaltech and not Pilot was the ultimate owner of the goods.
The similarity between the Pilot and AIA airbills means that both shipments were made pursuant to the same limitation on recovery.
Thus, plaintiffs may not maintain a cause of action in tort against defendants AIA or Cosmopolitan under a breach of common carrier duties, negligence, or conversion theory. Summary judgment in favor of AIA and Cosmopolitan against plaintiffs is therefore appropriate. In addition, since no party contests the enforceability of the AIA air waybill against Pilot, partial summary judgment in favor of AIA against Pilot is also appropriate, limiting AIA's liability to the amount provided for in its air waybill.
CONCLUSION
Defendant Pilot's motion for summary judgment is granted to the extent that Pilot's potential liability to plaintiffs is limited to that contractually provided. Defendants AIA and Cosmopolitan's motions for summary judgment are also granted, similarly limiting the potential liability of these defendants to the contractual provisions of the relevant air waybills. Plaintiffs shall submit a proposed judgment, on notice to the defendants, within ten days of the date of this Opinion.
SO ORDERED:
Dated: New York, New York April 26, 2000
____________________________ DENISE COTE United States District Judge
COPIES SENT TO:
Stephen A. Agus Paul A. Lange Marcy J. Melnikoff Law Offices AGUS PARTNERS, P.C. 885 Third Avenue, Suite 2900 28 West 44th Street, Suite 214 New York, N Y 10022-4082 New York, N Y 10036
Paula Lomonaco James P. Krauzlis ADLER MURPHY McQUILLEN BADIAK WILL MALOOF 190 South La Salle Street 120 Broadway, Suite 1040 Suite 1200 New York, N Y 10271 Chicago, IL 60603
Richard J. Reisert Mark J. Winter CLARK ATCHESON REISERT 535 Fifth Avenue New York, N Y 10017