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WELLIVER v. FEDERAL EXP. CORP.

January 17, 1990

NEIL WELLIVER AND ARLENE GOSTIN, PLAINTIFFS,
v.
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.

DISCUSSION

Federal Express is an all-cargo air carrier certified by the Civil Aeronautics Board and the Federal Aviation Administration 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, E, I.

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 (1918)).

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 ...


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