United States District Court, Southern District of New York
January 17, 1990
NEIL WELLIVER AND ARLENE GOSTIN, PLAINTIFFS,
FEDERAL EXPRESS CORPORATION, DEFENDANT.
The opinion of the court was delivered by: Kevin Thomas Duffy, District Judge:
MEMORANDUM AND ORDER
Plaintiffs Neil Welliver and Arlene Gostin bring this
diversity action against defendant Federal Express Corporation
("Federal Express") for failure to deliver and loss of a
package containing two original watercolor paintings. Federal
Express moves pursuant to Fed.R.Civ.P. 56 for summary judgment
dismissing certain causes of action and adjudging that the
liability of Federal Express for all causes of action asserted
by plaintiffs is limited to $500. Gostin cross-moves pursuant
to Fed. R.Civ.P. 56 for summary judgment on the first cause of
action alleging breach of contract of carriage.*fn1
The uncontradicted facts are as follows. In 1987, Welliver
created two original watercolor paintings for publication in
a limited edition luxury book, published by the Limited
Editions Club. Gostin, a professor at the University of the
Arts in Philadelphia and a professional printmaker, has been
Welliver's printer since 1980. While Gostin was producing
plates from the two paintings, she was authorized by Welliver
to ship the paintings from Philadelphia to the Limited
Editions Club in New York on his behalf.
On April 28, 1987, Gostin contacted Federal Express to
arrange for shipment of the paintings. She also requested that
the courier provide all necessary documentation and packaging
materials. Gostin then prepared the watercolors for shipment
by wrapping them in paper and masonite packaging material.
When the courier arrived, he informed Gostin that he was in
a great hurry and did not have time to wait for her to fill
out the necessary documents or to repackage the shipment into
Federal Express' packaging materials. She agreed to have him
fill out the airbill, number 1672350190. She gave him the
necessary information on a piece of paper, which indicated the
package was to be sent to Ben Schiff at the Limited Editions
Club in New York. The courier assured her that he would take
care of the rest, including completion of the necessary
documentation. When she requested a receipt, the courier went
out to his truck with the package and returned with a blank
shipper's copy of the airbill on which he wrote the date and
his employee number.
The face of the airbill expressly limits potential liability
of Federal Express to $100 for any loss or damage to cargo.
The reverse side of the airbill, as well as the Service Guide
that the airbill incorporates by reference, provides that the
shipper can declare a higher value than $100 for the cargo,
with the freight rate charge increased accordingly. It also
provides that a shipper of items of "extraordinary" value,
such as artwork, may declare up to $500.
The package containing the paintings was never received by
Limited Editions and Federal Express admits that it was lost
in transit. Memorandum of Law in Support of Plaintiff Arlene
Gostin's Cross-Motion for Summary Judgment and in Plaintiff's
Joint Opposition to Defendant's Motion for Summary Judgment
("Plaintiffs' Memo. in Support of Cross-Motion"), Exh. A. To
date, it has not been located. Plaintiffs seek to recover the
full value of Welliver's two original works of art. Four
causes of action are alleged in the complaint: (1) breach of
the contract of carriage; (2) negligence based on the loss of
the package; (3) negligence based on the courier's alleged
promise to fill out the airbill and his failure to do so; and
(4) fraud based on the allegation that the courier knew his
promise to fill out the airbill was false when he made it.
Federal Express is an all-cargo air carrier certified by the
Civil Aeronautics Board and the Federal Aviation
to provide interstate cargo transportation services to the
public. The liability of interstate common carriers for the
loss, damage, or delay of goods in transit in general is
controlled by federal law. North American Phillips Corp. v.
Emery Air Freight Corp., 579 F.2d 229, 233-34 (2d Cir. 1978).
Specifically, the declared value limitation of liability has
survived deregulation of the airline industry as part of the
federal common law of air carrier liability. See, e.g., First
Pennsylvania Bank, N.A. v. Eastern Airlines, Inc.,
731 F.2d 1113, 1120-22 (3d Cir. 1984).
The declared value limitation in a contract of carriage
applies whether the action sounds in tort or contract.
Hopper Furs, Inc. v. Emery Air Freight Corp., 749 F.2d 1261,
1264 (8th Cir. 1984). Indeed, under federal common law the
declared value limitation of liability provision in Federal
Express' airbills has been held to be enforceable. See, e.g.,
United States Gold Corp. v. Federal Express Corp., 719 F. Supp. 1217,
1225 (S.D.N.Y. 1989) (collecting cases).
Although it is not contested that Gostin did not declare or
pay for a higher value for the package, Gostin asserts that
the declared value limitation in the airbill is unenforceable
against her because she was not afforded "reasonable notice"
of the provision. Federal Express argues that Gostin had such
notice because she requested that the package be shipped
pursuant to an airbill and received a copy of it, and she
admits having previously shipped packages with Federal Express
using airbills with language identical to the limitation of
the liability provision at issue here. Simms Affid. Exhs. F,
While it is not necessary that Gostin actually read the
terms on the airbill to be bound by the liability limitation,
that provision is enforceable only if two requirements are
met. The limitation of liability must have been the result of
a "a (1) `fair, open, just and reasonable agreement' between
carrier and shipper, entered into by the shipper `for the
purposes of obtaining the lower of two or more rates of
charges proportioned to the amount of risk' . . . and (2) the
shipper was given `the option of higher recovery upon paying
a higher rate.'" Shippers Nat'l Freight Claim Council, Inc. v.
ICC, 712 F.2d 740, 746 (2d Cir. 1983), cert. denied,
467 U.S. 1251, 104 S.Ct. 3534, 82 L.Ed.2d 839 (1984) (quoting Adams
Express Co. v. Croninger, 226 U.S. 491, 509-10, 33 S.Ct. 148,
153-54, 57 L.Ed. 314 (1913) and Boston & Main Railroad v.
Piper, 246 U.S. 439, 444, 38 S.Ct. 354, 355, 62 L.Ed. 820
In determining whether these requirements for enforceability
have been met, courts have considered such factors as (1)
whether the carrier has given adequate notice of the
limitation of its liability to the shipper, (2) the economic
stature and commercial sophistication of the parties, and (3)
the availability of "spot" insurance to cover a shipper's
exposure. United States Gold, 719 F. Supp. at 1225 (citations
omitted). The reasonableness of notice is a question of law to
be determined by the court. Deiro v. American Airlines, Inc.,
816 F.2d 1360, 1364 (9th Cir. 1987).
That Gostin was afforded reasonable notice is not supported
by the record before me. Gostin's version of the circumstances
surrounding the pick-up of the package are not contradicted by
Federal Express. Indeed, Federal Express' own telephone logs
concerning the search for the missing package state that the
courier verified Gostin's account of the incident.
See Federal Express Customer Exception Request, 5/14/87,
Plaintiffs' Memo. in Support of Cross-Motion, Exh. B. The
courier was in a great hurry and never gave Gostin an
opportunity to either fill out or review the airbill containing
the limitation of liability provision prior to her turning over
the package. Thus, it appears that she was not even given a
copy of the airbill until after the courier had taken
possession of the package, and therefore had no opportunity to
read it until after the courier had departed with the package.
Accordingly, Gostin was afforded neither reasonable notice of
the limitation of liability provision nor a fair opportunity to
declare a higher value for the shipment.
The cases relied on by Federal Express with regard to
"reasonable notice" are unpersuasive because all involve
either experienced, sophisticated shippers familiar with
liability limitation provisions or shippers who actually
declared a value for their shipments. See, e.g., United States
Gold, 719 F. Supp. at 1225 (undisputed that both parties were
sophisticated commercial entities and that shipper, from its
extensive previous use of Federal Express, had more than
adequate notice of the liability limitation, and even secured
protection for its shipment from an outside insurer). Gostin
does not have an account with Federal Express, having made no
more than three shipments with Federal Express prior to April
1987. In addition, none of those shipments involved items that
were irreplaceable or of significant value. Gostin Affid. ¶¶ 8,
19. Gostin thus had no reason to use the declared value option
previously or to be familiar with the special limits for items
of "extraordinary value." Moreover, Gostin avers that she had
no knowledge of Federal Express' limitation of liability
clause, and that if she had known of it, she would have made
other arrangements for shipment of Welliver's paintings. Gostin
Affid. ¶¶ 21-22. In these circumstances, the fact that Gostin
eventually received a copy of the airbill does not constitute
On the record before me, the liability limitation was not
the result of a "fair, open, just and reasonable agreement"
and Gostin was not given a fair opportunity to choose among
different rates to obtain different coverage. The
circumstances surrounding the pick-up of the package and the
delivery of the airbill to Gostin outweigh the mere existence
of the limitation provision. I find that the limitation of
liability provision is therefore unenforceable and Federal
Express is liable for the full value of the two lost
The only submission to the court with regard to the value of
Welliver's two watercolors is the affidavit of Welliver's
exclusive sales agent, who values the watercolors, sight
unseen, at $8,000 each. Mognaz Affid., Plaintiffs' Memo. in
Support of Cross-Motion, Exh. C, ¶ 7. Standing alone, that
declaration is insufficient. Because an issue of fact exists as
to the value of the lost art works, that question is hereby
referred to a Magistrate for determination of damages.
In sum, Gostin's motion for summary judgment as to the first
cause of action for breach of contract of carriage is granted.
The remaining causes of action are dismissed. Federal Express'
motion for summary judgment is denied. These proceedings are
hereby referred to Magistrate Naomi Reice Buchwald for an
inquest on damages.