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Ruston Gas Turbines Inc. v. Pan American World Airways

March 7, 1985


Appeal from a judgment of the United States District Court for the Southern District of New York, Mary Johnson Lowe, Judge, holding a carrier liable in full for damages sustained in shipping a gas turbine because the carrier had not sustained its affirmative defense of limitation liability. Reversed.

Author: Oakes

Before OAKES, CARDAMONE, and PIERCE, Circuit Judges

OAKES, Circuit Judge

Deregulation of certain common carriers returns us to the common law. Only recently this court had occasion to consider the response of the common law to limitations of liability in agreements between a carrier and shipper, in Shippers National Freight Claim Council, Inc. v. ICC, 712 F.2d 740, 745-47 (2d Cir. 1983), cert. denied, 467 U.S. 1251, 104 S. Ct. 3534, 82 L. Ed. 2d 839 (1984). There we noted that "so long as the limitation was granted by the shipper in consideration for a lower rate of freight than would reasonably be charged for the carrier's unlimited liability" an agreement limiting a carrier's liability for loss of the shipper's property could be enforceable since "the carrier [is] entitled to know the extent of its potential liability for loss of the property and to be compensated in proportion to the risk assumed." Id. at 746 (citing, inter alia, Hart v. Pennsylvania Railroad, 112 U.S. 331, 340, 28 L. Ed. 717, 5 S. Ct. 151 (1884)). As we said in Shippers,

So long as the limitation of liability was the result of a "fair, open, just and reasonable agreement" between carrier and shipper, entered into by the shipper "for the purpose of obtaining the lower of two or more rates of charges proportioned to the amount of risk," . . . and the shipper was given "the option of higher recovery upon paying a higher rate," . . . the agreement was enforceable at common law.

712 F.2d at 746 (quoting Adams Express Co. v. Croninger, 226 U.S. 491, 509-10, 57 L. Ed. 314, 33 S. Ct. 148 (1913), and Boston & Maine Railroad v. Piper, 246 U.S. 439, 444, 62 L. Ed. 820, 38 S. Ct. 354 (1918)).

Ruston Gas Turbines, Inc., and Ruston Gas Turbines, Ltd. (Ruston), contracted with Pan American World Airways to ship a series of turbines from London to Houston, Texas. Pam [Pan] Am in turn engaged Pinto Trucking Service, Inc., a common carrier, to truck the turbines from New York's John F. Kennedy International Airport ("JFK") to Houston. Most of the turbines reached Houston without mishap, but one fell from the Pinto truck shortly after leaving JFK. Pan Am paid Ruston in full for the damage, $192,029.00, plus prejudgment interest in the sum of $57,928.75, the total loss falling short of the $9.07 per pound liability limit established by the Warsaw Convention.*fn1 Pan Am then sought and obtained indemnity against Pinto. The only question on this appeal is whether Pinto is liable for Pan Am's entire expense of $249,957.75 or whether Pinto's liability is limited to the amount stated in its bill of lading - $.50 per pound for shipments weighing in excess of 100 pounds, or $15,574 for the 31,148-pound turbine - plus prejudgment interest. The United States District Court for the Southern District of New York, Mary Johnson Lowe, Judge, held for Pan Am for reasons below stated. We reverse.

The parties stipulated that the rates tariff filed by Pinto wit the Interstate Commerce Commission (ICC) prior to deregulation provided for a base transportation rate of $2,720 for movements from JFK to Houston, applicable to shipments weighing more than 100 pounds only when released to a value of $.50 per pound. A different tariff outlining rules and regulations, ICC-PNTS-100-A, also offered three released valuation alternatives, including one permitting release to a value not exceeding $9.07 per pound, the upper limit of Pan Am's liability under the Warsaw Convention, upon payment of the base transportation rate plus 10%.

Pinto's authority under regulation to issue these alternative rates is somewhat suspect. Pinto claimed to derive authority for ICC-PNTS-100-A from two ICC Released Rates Orders, No. MC-638 of October 12, 1965, and No. MC-949 of October 26, 1977. However, the tariff rates differed from those authorized in both No. MC-638 and No. MC-949. Moreover, Pinto was neither a member of the National Motor Freight Traffic Association, Inc., which requested the authority granted in No. MC-638, nor included in the group covered by No. MC-949, which consisted of carriers who participated in the motor freight tariff of the Air Freight Motor Carriers Conference, Inc.

However questionable Pinto's tariffs may have been while No. MC-638 and No. MC-949 were in effect, the ICC Released Rates Orders ceased to apply to shipments like that at issue here on July 1, 1980, when the deregulatory statute removed ICC jurisdiction over transportation of property by motor carrier, if that transportation is immediately preceded or followed by transportation by air. 49 U.S.C. ยง 10526(a)(8)(B) (1982). Pinto was thereafter free to make contracts of limited liability when continuing a shipment begun by an air carrier such as Pan Am, provided it afforded a choice of rates and was otherwise in compliance with the requirements of the common law.

Having reasonable rates, rules and regulations already in place, Pinto decided to continue to operate under its tariffs after deregulation, with its usual form of bill of lading incorporating the tariffs and their liability limitation by reference. It implemented this election by letter to all of its customers, dated July 24, 1980, reading:

As a result of the Motor Carrier Act of 1980 deregulating air freight, we wish to advise you that all rates, rules and regulations found in Pinto tariffs PNTS 100 and PNTS 200 remain the basis for all traffic to be moved hereafter, whether regulated or non-regulated.

Pinto supplemented this notice in a letter dated October 8, 1980, which both alerted Pan Am to the limitation of liability in the tariffs and offered to negotiate that limitation:

At the present time our coverage of the base rate is limited to fifty cents (50 cents) per pound. However, for a surcharge of ten per cent (10%) of the rate, we do extend coverage to the Warsaw Convention Nine Dollars and Seven Cents ($9.07) per pound. Pinto would be most happy to ...

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