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Lerakoli Inc. v. Pan American World Airways Inc.

February 5, 1986

LERAKOLI, INC.; LONDON STAR, NEW YORK, INC.; TACHE ET CIE, S.A.; LIEBER & SOLOW, INC.; SOUCOL, LTD.; ROUGH DIAMOND TRADERS, INC.; AND SEVEN EIGHTEEN FIFTH AVENUE CORP., PLAINTIFFS-APPELLANTS,
v.
PAN AMERICAN WORLD AIRWAYS, INC., DEFENDANT-APPELLEE



Appeal from two orders of the United States District Court for the Eastern District of New York (Costantino, J.) applying the liability limitation of the Lausanne Convention to claims against an agent of the United States Postal Service Arising from the nondelivery of registered mail and applying federal common law to a claim for conversion of international mail. Affirmed.

Author: Miner

Before: PIERCE, MINER and DAVIS,*fn* Circuit Judges.

MINER, Circuit Judge:

the issues presented by this appeal are whether an agent of the United States Postal Service ("USPS") may assert the liability limitation of the United States Postal Union Convention, January 1, 1976, 27 U.S.T. 345, T.I.A.S. No. 5231 ("Lausanne Convention"), and whether federal or New York common law applies to a mail sender's claim of conversion against a carrier of international mail performing services for the USPS. We hold that an agent of the USPS is entitled to assert such a limitation and, regardless what law is applied, the conversion claim must be dismissed, since appellants have failed to present any evidence of willful or intentional conduct on the part of the mail carrier. We therefore affirm the district court's decision.

I. BACKGROUND

Appellants, collectively referred to as "Lerakoli," are the owners of eleven packages, alleged to have contained diamonds, delivered to the USPS in New York City for shipment to Belgium via registered mail in 1980. Upon receipt of the packages, the USPS placed them in three separate mail sacks and delivered the sacks to its mail carrier, appellee Pan American World Airways, Inc. ("Pan Am"), for shipment to Belgium postal authorities.*fn1 Two of these sacks never were delivered in Belgium and never were recovered. The third sack was delivered in Germany, where postal authorities discovered, upon breaking the seal, that Lerakoli's packages were missing from the sack.

Lerakoli commenced this action against the USPS and Pan Am, alleging liability for the loss on the part of the USPS under the Lausanne Convention, an international agreement which establishes a regulatory scheme for the transport of international mail, and on the part of Pan Am under common law principles of bailment, negligence and conversion.*fn2 On January 26, 1983, at the conclusion of a hearing on motions by the USPS and Pan Am for summary judgment, the district court dismissed the claims against the USPS on the ground that it had tendered to Lerakoli its limit of liability under Article 44 of the Lausanne Convention.*fn3 Article 44 limits the liability of "postal administrations" for the loss of registered mail to "40 francs [$15.76] per item."

On February 15, 1983, the district court issued a Memorandum of Decision and Order granting Pan Am's motion as to the bailment and negligence claims on the ground that the liability limitation of the Lausanne Convention also applied to Pan Am as an agent of the USPS. Lerakoli, Inc. v. Pan American Airways, Inc., 17 Av. Cas. (CCH) p18,107 (E.D.N.Y. 1983). However, the court denied Pan Am's motion as to the conversion claim, with leave to renew, following the established rule that liability limitations may not be applied to diminish liability for an intentional act of misconduct. The court therefore permitted Lerakoli an opportunity for discovery on the conversion claim. On April 17, 1985, after Pan Am's renewal of its motion, the court issued a second Memorandum of Decision and Order wherein it decided that federal law should apply to a conversion claim against a carrier-agent of the USPS. Lerakoli, Inc. v. Pan American Airways, Inc., No. 82-3663 (E.D.N.Y. April 17, 1985). Consequently, the court dismissed the claim on the ground that Lerakoli, after begin given an opportunity for discovery, had failed to present any evidence of n intentional act by Pan Am, as required by federal law.*fn4 See Berner v. British Commonwealth Pacific Airlines, Ltd., 346 F.2d 532, 536-37 (2d Cir. 1965), cert. denied, 382 U.S. 983, 86 S. Ct. 559, 15 L. Ed. 2d 472 (1966).

Lerakoli now challenges the district court's rulings on several grounds. First, it contends that the terms of the Lausanne Convention relating to limitations of liability apply only to the USPS itself and cannot be extended to include agents such as Pan Am. Lerakoli further argues that a broader interpretation of the Lausanne Convention would require us not only to amend the treaty language, but also would conflict with the general principle that independent contractors performing work for the government are not immune from claims arising out of work done negligently or in an intentionally improper manner. See Merritt, Chapman & Scott Corp. v. Guy F. Atkinson Co., 295 F.2d 14 (9th Cir. 1961); Green v. ICI America, Inc., 362 F. Supp. 1263 (E.D. Tenn. 1973). Finally, asserting that no reason exists to create federal common law in an action between private parties, Lerakoli contests the district court's applications of federal law, and its consequent failure to apply New York law, to the conversion claim. It contends that the New York rule for warehousemen, under which there would be a presumption that Pan Am had converted the packages, see I.C.C. Metals, Inc. v. Municipal Warehouse Company, 50 N.Y.2d 657, 431 N.Y.S.2d 372, 409 N.E.2d 849 (1980), should govern.

II. DISCUSSION

A. Liability Limitation Under the Lausanne Convention

The Lausanne Convention is one of an assortment of international agreements, federal statutes and agency regulations governing the transportation of domestic and international mail in the United States. Article 44 of the Convention, in pertinent part, provides that "postal administrations shall be liable only for the loss of registered items," and that "[i]n case of loss of a registered letter, the sender shall be entitled to an indemnity the amount of which shall be fixed at 40 francs [$15.76] per item."

Application of this liability provision to a carrier performing services for a postal administration has not yet been squarely addressed by the federal courts. At least one court, however, has considered a similar issue, albeit in dictum. Caribe Diamond Works, Inc. v. Eastern Airlines, Inc., No. 71-2875 (S.D.N.Y. June 24, 1974). In Caribe, the sender sought to recover from the postal carrier damages arising out of the nondelivery of certain diamonds sent via registered mail from Puerto Rico to New York. While dismissing the sender's claims on the ground that it had failed to prove the carrier's responsibility for the nondelivery, Judge Brieant noted the possible application to the carrier of certain liability limitations afforded the USPS under federal regulations relating to the level of insurance coverage for a specific package. Id. at 18; see C.F.R. ยงยง 161.2(a), 161.2(b)(2) (1985). He posited that if the USPS were to be considered a bailee,*fn5 the carrier then would be a sub-bailee. As such, the carrier would be "a party to all of the express or implied rights and privileges of its transferor [USPS] arising under the original bailment," Caribe, slip op. at 18-19, and, if any limitation of liability were available to the USPS, there would be "no reason why [it] should not inure to the benefit of all sub-bailees or successors in interest who acquired lawful possession from the original bailee to aid in accomplishing the purpose of the alleged bailment." Id. at 19.

We agree with the reasoning in Caribe and hold that Pan Am, as an agent of the USPS performing services that the USPS otherwise would perform pursuant to its bailment relationship with the sender, may assert Article 44 as a limitation upon its potential liability for the nondelivery. It is established common law doctrine that a sub-bailee may take advantage of a liability limitation contractually agreed upon between the original bailee and bailor. E.g., Berger v. 34th Street Garage, 3 N.Y.2d 701, 703, 171 N.Y.S.2d 824, 826, 148 N.E.2d 883 (1958); Schoeffer v. United Parcel Service of New York, Inc., 277 A.D. 569, 571, 101 N.Y.S.2d 451, 453 (1st Dep't 1950). Here, the Lausanne Convention, as part of the federal regulatory framework for the handling of international mail, prescribes some of the terms to which a sender of registered mail agrees when delivering a parcel to the USPS for transport. These ...


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