The opinion of the court was delivered by: Cote, District Judge.
The issue presented here is whether a shipper may recover from its
common carrier or its common carrier's sub-contractor the amount of its
loss beyond that covered by the limitation of liability in its carrier's
airbill. The answer is no.
Plaintiff Nippon Fire & Marine Ins. Co., Ltd. ("Nippon") was the
insurer of two shipments of laptop computers made by Toshiba America
Information Systems, Inc. ("Toshiba"). Defendant Skyway Freight Systems,
Inc. ("Skyway"), an air and ground carrier, agreed to ship the laptops
and then contracted with defendant American International Airways, Inc.
("AIA"), another air carrier, for their transportation. Most of the first
and all of the second shipments were lost and never delivered. Prior to
any formal discovery, plaintiff and both defendants now move for summary
The following facts are undisputed. Toshiba is a manufacturer and
distributor of laptop computers and other electronic equipment. Defendant
Skyway is a domestic air and ground common carrier that entered into a
contract with Toshiba to ship Toshiba's goods. Under this contract,
Skyway agreed to carry a shipment of 50 Toshiba laptops on September 8,
1997, and a second shipment of 157 Toshiba laptops on September 9, 1997.
Both shipments were shipped on "3S" or three-day air terms, requiring
delivery on the third business day following pickup. 3S is Skyway's
slowest method of air service. The laptops were to be shipped from
Toshiba's facilities in Irvine, California and delivered to Toshiba's
consignee, Inacom Corporation, in New Jersey.
The backside of the airbills indicates that the shipments are governed
by Skyway's Air Freight and Express Truck Rules and Regulations Tariff
No. 1. The tariff states that "Skyway's liability shall, in no event,
exceed the declared value of the shipment . . ." The tariff defines
declared value as follows:
(Emphasis supplied.) The airbills issued by Skyway contain boxes that
permit Toshiba to declare the value of the goods. If it had declared a
value, the fee for shipping the goods would have been increased at a rate
dependent on the value declared. The tariff provides:
An additional charge of 75 cents shall be assessed for
each $100.00 (or fraction thereof) by which the value
declared on the Airbill, at the time of receipt of the
shipment from the shipper, exceeds 50 cents per pound or
$50.00, whichever is higher.
Choosing instead to insure the shipment of the laptops through Nippon,
Toshiba left the boxes for a declared value blank. Toshiba declared a
weight of 600 pounds on the bill of lading for the first shipment and 1,
606 pounds on the bill of lading for the second shipment.
Rather than transport the goods itself, Skyway shipped the goods from
California to Pennsylvania through AIA. AIA issued two airway bills for
the shipments, and "NVD" or no value declared was written in the box
entitled "Declared Value for Carriage" on that bill. Each airway bill
states on its face that the goods are
subject to the conditions of contract on the reverse
hereof, the shipper's attention is drawn to the notice
concerning carrier's limitation of liability. Shipper
may incease 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.
(Emphasis supplied.) The reverse side contains the following limitation
of liability provision:
[the] carrier's liability is limited to damages which
occur while the shipment is in the custody of carrier
or its duly authorized agent and shall in no event
exceed (1) 50 ¢ per pound; multiplied by the number
of pounds (or fraction thereof) of each piece(s) of the
shipment which may have been delayed, lost, damaged,
or destroyed (but not less than $50 per shipment), unless
a higher value is declared herein and applicable charges
are paid thereon, plus the amount of any transportation
charges for which the carrier may be liable, 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 of the circumstances
which will result in the occurrence of such damages, as
provided in carrier's Official Freight Tariff Manual.
The AIA tariff manual contains similar limitations.
Skyway delivered both shipments to AIA's facility at the Los Angeles
International Airport in California. Both shipments arrived in
Philadelphia at 8:40 a.m. on Thursday, September 11, 1997 (the third
business day following the September 8, 1997 shipment; the second
business day following the September 9, 1997 shipment), and AIA held them
for Skyway's pick-up at its Philadelphia airport warehouse. Skyway did
not retrieve the shipments in a timely manner, and neither shipment was
delivered on time. With respect to the first shipment, 20 of the 50
laptops, with a value of $51,306, were eventually reported missing by
Skyway. The remaining laptops were delivered late.*fn1 With respect to
the second shipment of 146 laptop computers, with a value of $337,000,
all were eventually reported missing by Skyway. None of these laptops
have been recovered.
Nippon, as Toshiba's cargo insurer, reimbursed Toshiba for the loss
and filed this action on June 24, 1998, to recover from both Skyway and
AIA. The complaint alleges four causes of action. The first cause of
action alleges breach of contract and federal common law duties. The
second cause of action alleges negligent damage to property. The third
cause of action alleges breach of bailment and warehouseman's
obligations. The fourth cause of action alleges conversion. Defendant
Skyway has also filed a cross-claim against defendant AIA seeking
indemnification. Although the complaint seeks recovery from both
defendants on all four theories, Nippon no longer seeks recovery against
AIA on the contract theory.
Plaintiff now moves for summary judgment against both defendants on
the ground that they are liable in tort and not entitled to assert the
contractual limitation of liability defense. Both Skyway and AIA move for
summary judgment seeking to limit their liability.
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 non-moving party. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 247, 106 S.Ct. 2595, 91 L.Ed.2d 202 (1986); Celotex Corp.
v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
When the moving party has asserted facts showing that the non-movant'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.; accord Rexnord Holdings, Inc. v. Bider, nann, 21 F.3d 522,
525-26 (2d Cir. 1994). 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 Sam L. Majors Jewelers v. ABX, Inc.,
117 F.3d 922, 928-29 (5th Cir. 1997); First Pennsylvania Bank, N.A. v.
Eastern Airlines, Inc., 731 F.2d 1113, 1119 (3d Cir. 1984). See also
North American Phillips Corp. v. Emery Air Freight Corp., 579 F.2d 229,
234 (2d Cir. 1978) (pre-deregulation). At common law, a common carrier is
liable for damages to goods it transports absent particular exceptional
circumstances. See Shippers National Freight Claim Council, Inc. v. ICC,
712 F.2d 740, 745 (2d Cir. 1983). In addition, "courts refuse to
enforce an agreement between carrier and shipper purporting to relieve
the carrier from all liability for loss of property . . . ." Id. at 746.
Nonetheless, a carrier may limit its liability if
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.
Id. at 746 (internal citations and quotations omitted).
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
Williams Dental Co., Inc. v. Air Express Int'l, 824 F. Supp. 435, 441
(S.D.N.Y. 1993) (citations omitted). See also Welliver v. Federal Express
Corp., 737 F. Supp. 205, 207 (S.D.N.Y. 1990); United States Gold Corp.
v. Federal Express Corp., 719 F. Supp. 1217; 1224-25 (S.D.N.Y. 1989).
The legal basis for permitting a limitation of liability is estoppel.
See Union Pac. R. Co. v. Burke, 255 U.S. 317, 321, 41 S.Ct. 283, 65
L.Ed. 656 (1921). The policy basis for permitting carriers to limit their
liability is that "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." Ruston Gas Turbines, Inc. v. Pan American
World Airways, 757 F.2d 29, 30 (2d Cir. 1985) (internal quotations
omitted); Shippers National, 712 F.2d at 746. See also United States
Gold; 719 F. Supp. at 1224 ("The legal validity of an agreed value
contract enabled the carrier's rate to be reasonably proportioned to the
risk to which it was exposed.").
Under federal law, "a carrier's valid federal tariffs which are
applicable to the shipment at issue govern not only the nature and extent
of its liability, but also the nature and extent of the shipper's right
of recovery." North American Phillips, 579 F.2d at 233. As a result, the
existence of an enforceable limitation of liability clause precludes
recovery by plaintiff in tort on negligence, bailment, or conversion
theories beyond the amount stated in the contract.*fn2 See Owens-Corning
Fiberglas Corp. v. U.S. Air, 853 F. Supp. 656, 665 (E.D.N.Y. 1994);
United States Gold; 719 F. Supp. at 1225. See also Baloise Ins. Co. v.
United Airlines, Inc., 723 F. Supp. 195; 198 (S.D.N.Y. 1989); Precious
Gem Resources, Inc. v. Federal Express Corp., 86 Civ. 7576, 1989 WL
31705, at *3 (S.D.N.Y. Mar.30, 1989); Nippon Fire & Marine Ins. Co.,
Ltd. v. Holmes Transp. Inc., 616 F. Supp. 610, 611 (S.D.N.Y. 1985).
Courts have also refused to permit state law claims based on
warehouseman's duties, where the storage was only incidental to the
interstate shipment. See Baloise, 723 F. Supp. at 199; Royal Ins. v.
Amerford Air Cargo, 654 F. Supp. 679, 681 (S.D.N.Y. 1987). See also
United States Gold; 719 F. Supp. at 1226-27.
2. Skyway's Liability
Nippon argues that the limitation of liability in the Skyway tariff
should not limit its recovery against Skyway for two reasons. First, it
argues that Skyway is liable in tort for conversion as a warehouseman
since it chose to suspend carriage of the laptops by failing to pick them
up. Second, it argues that Skyway is unable to rely on any limitation of
liability under a material deviation theory imported from the law of
Nippon argues that Skyway was acting as a warehouseman and not as a
common carrier when it decided to suspend delivery and held the goods at
AIA's warehouse after the three day delivery date, and thus, cannot
invoke the limitation on liability. Nonetheless, the law is clear that a
failure to deliver and storage incidental to carriage is insufficient to
convert Skyway into a warehouseman and thereby create a whole new series
of duties for it in addition to those in the contract. See, e.g.,
Owens-Corning, 853 F. Supp. at 666; Baloise, 723 F. Supp. at 199. Skyway
was engaged to ship the laptops by air, and any storage was temporary and
incidental to that primary goal. "In contrast, a warehouseman `is a
person engaged in the business of storing goods for hire.' N.Y. U.C.C.
§ 7-102 1)(h) (McKinney 1964)." Royal Ins., 654 F. Supp. at 681.
As its second argument, Nippon relies on the doctrine of material
deviation. Courts in interstate air carrier cases have applied the
doctrine in an extremely limited fashion. See Praxair Inc., v. Mayflower
Transit Inc., 919 F. Supp. 650, 655-56 (S.D.N.Y. 1996). Specifically,
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.
Id. at 656. As described by then Judge Breyer, 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. Hill
Construction Carp. v. American Airlines, Inc., 996 F.2d 1315, 1319 (1st
Cir. 1993). In Praxair, the court found that 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, 919 F. Supp. at 656.
There is nothing in the record that points to the existence of special
circumstances beyond those to which the limitation of liability clause
was meant, to apply. The only special circumstance suggested by Nippon is
the three-day delivery term. Such a standard delivery term — which
was the slowest method of air transport offered by Skyway — does
not create an exemption from a limitation of liability. See United States
Gold; 719 F. Supp. at 1225 (overnight delivery). As a result, Nippon's
motion for summary judgment against Skyway is denied. Skyway's partial
motion for summary judgment is granted, limiting its liability to Nippon
to the amount stated in the contract. Since twenty of the fifty laptops
in the first shipment were lost, Skyway's liability on that shipment is
$120. Since all of the second shipment was lost, Skyway's liability on
that shipment is $803.
3. AIA's Liability
The parties do not contest that AIA has a valid limitation of
liability clause in its airbill issued to Skyway. AIA argues that it may
assert this limitation of liability against Nippon. Nippon argues that,
regardless of any limitation on Skyway's liability, it may recover under
various tort theories the full value of its loss from AIA.*fn3
As a subcontracting common carrier operating pursuant to its own
airbill containing a valid limitation of liability issued to the primary
common carrier, AIA is not liable in tort to the original shipper. As a
general matter, "[a] common carrier can assume that one presenting goods
for shipment either owns them or has authority to ship them." Puerto Rico
Maritime Shipping Auth. v. Crowley Towing and Transportation Co.,
747 F.2d 803, 804 (1st Cir. 1984).
This must, be, since nothing in the duties of a common
carrier by the remotest implication can be held to
imply the power to sit in judgment on the title of the
prospective shipper who has tendered the goods for
ICC v. Delaware, L. & W. R. Co., 220 U.S. 235, 252, 31 S.Ct. 392, 55
L.Ed. 448 (1911). See also Chicago, Milwaukee, St. Paul & Pac. R. Co. v.
Acme Fast Freight, Inc., 336 U.S. 465, 487, 69 S.Ct. 692, 93 L.Ed. 817
(1949). Applying these principles, then District Court Judge Leval wrote
in a decision under the Carriage of Goods by Sea Act ("COGSA") that a
should be able, absent special circumstances, to
assume that the individual who proffers the goods for
shipment can accept a bill of lading under the terms
and conditions of shipment stated therein. Absent
special circumstances, the risk that the individual
goods for shipment is unauthorized is better borne by the
actual owners of the goods than a common carrier.
Atlantic Mutual Ins. Co. v. M/W President Tyler, 765 F. Supp. 815, 818
n. 3 (S.D.N Y 1990). Based on these principles, Judge Leval determined
that it would be "unreasonable" to hold a carrier liable "beyond the
terms of its bill of lading," even where it had no dealings with the
shipper. Id. at 818.
Application of these common carrier principles to the present facts
precludes the plaintiff's tort claims against AIA. As a common carrier,
AIA contracted to limit its liability to the amount selected by Skyway.
As described above, 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 may not be subject to the very liability it contracted to avoid
just because plaintiff and not Skyway was the ultimate owner of the
goods. As a common carrier, AIA was forbidden to base its decision to
ship upon an inquiry regarding ownership. Allowing plaintiff to hold AIA
liable beyond the amount in AIA's contract would increase AIA's exposure
on shipments where the owners did not ship the goods directly, even
though AIA would not be in a position to know precisely which shipments
those would be and would be unable to charge a higher rate commensurate
with its increased risk of exposure. Tort liability may therefore not be
imposed on AIA.
This holding is not unfair to plaintiff since its original
expectations are protected. According to the deal plaintiff struck with
Skyway, plaintiff expected to recover from the carrier of the goods, in
the event that the goods were not delivered, precisely what it will
recover in this action — the amount provided for in Skyway's
airbill, including the limitation of liability contained therein.
Precluding any further recovery in tort against AIA is therefore
consistent with plaintiffs original expectations; permitting plaintiff to
collect against AIA would actually provide the plaintiff with an
One who ships goods at a declared value substantially below
their actual worth in order to receive a reduced freight rate is
gambling that the goods will not be lost through someone's negligence.
Perera Co., Inc. v. Varig Brazilian Airlines,
Inc., 775 F.2d 21, 24 (1985).
Although no court has apparently addressed these issues head on, there
is ample support for this holding in the case law. Two district courts in
this circuit have reached essentially the same result, without belaboring
the rationale for their decisions. In Owens-Corning Fiberglas Corp. v.
U.S. Air, 853 F. Supp. 656 (E.D.N Y 1994), the shipper, Owens-Corning,
contracted for shipment of goods with U.S. Express, who in turn
contracted with USAir. Both U.S. Express, and USAir are common carriers.
After the goods were lost, Owens-Corning sued both U.S. Express and USAir
in tort and contract. The court concluded that all of Owens-Corning's
claims against U.S. Express were precluded by the valid limitation of
liability in the U.S. Express airway bill. See id. at 667. With respect
to USAir, the court found that "Owens-Corning is not entitled to maintain
a [contract] cause of action directly against USAir" because
Owens-Corning was not a party to the contract between U.S. Express and
USAir and not an intended beneficiary of that contract. Id. The Court
then dismissed the tort claims against USAir because of plaintiffs
failure to create a question of material fact
that USAir had intentionally converted the goods for its own use or
functioned as a bailee. Id. In a case with similar facts the court
reached the same result, allowing each common carrier to assert the
limitation of liability clause contained in its airbill: the first common
carrier's limitation clause being asserted against the shipper, and the
second common carrier's clause being asserted against the claim for
indemnification. See Baloise Ins. Co., v. United Airlines, Inc.,
723 F. Supp. 195, 199 (S.D.N.Y. 1989).
Additional support can be found in a series of cases in which a caner
has been permitted to assert a limitation of liability clause against
parties other than the shipper with whom it contracted, although none of
these cases involve a subcontracting carrier operating according to its
own limitation of liability. For example, in Hampton by Hampton v.
Federal Express Corp., 917 F.2d 1119, 1120-21 (8th Cir. 1990), a relative
of a decedent filed a wrongful death action against Federal Express on
the ground that it failed to deliver blood samples sent by decedent's
hospital to another hospital. With respect to any contract claim by
plaintiff, the Court held that, even assuming that plaintiff is a third
party beneficiary of the shipping contract, plaintiff cannot maintain a
claim because "the damages suffered by [plaintiff] were not reasonably
foreseeable . . ." since they were not within the contemplation of the
contracting parties. Id. at 1124. With respect to any tort claims, the
Eighth Circuit applied general tort principles and held that plaintiff
could not recover against Federal Express since it "had no knowledge of
the contents [of the package], and hence could not reasonably foresee the
injury and damages that could be suffered . . . ." Id at ll26.
A similar result was reached in Neal v. Republic Airlines, Inc.,
605 F. Supp. 1145, 1146-47 (N.D.Ill. 1985), in which children and heirs
sought to recover for improper shipment of the decedent's body on the
ground that, since they were not the shippers, their recovery was not
barred by the limitation of liability in the airbill. The court held that
"neither [the shipper] nor those on whose behalf it acted — parties
with an interest in the shipment — may look to anything but the
airbill itself as a basis for recovery from [the carrier]." Id. at 1149.
In justifying this conclusion, the court noted that "there is no
indication plaintiffs dealt directly with [the carrier] and that controls
the current motion." Id. at 1150 n. 4. The court accepted the carrier's
argument that "its liability runs to the parties with whom it dealt, not
to parties who stand at some remove from the transaction." Id. at 1150.
See also Downey v. Federal Express Corp., C-92-4956, 1993 WL 463283, at
*2 (N.D.Cal. Oct.29, 1993) (consignee bound by terms of airbill as third
party beneficiary); Reece v. Delta Air Lines, Inc., 731 F. Supp. 1131,
1135 (D.Me. 1990) (wife and heirs of decedent whose body was shipped are
bound by airbill entered into by funeral home). Each of these cases
limited the liability of a carrier to the deal it struck with the shipper
and avoided exposing the carrier to liability beyond what it expected.
None of the arguments made by Nippon compel a different result. Nippon
likens this case to a line of cases following Robert C. Herd & Co. v.
Krawill Machinery Corp., 359 U.S. 297, 79 S.Ct. 766, 3 L.Ed.2d 820
(1959), a maritime case which held that stevedores, as agents of a
carrier, could not seek the protection of the carrier's limitation of
liability for their own negligence. See id. at 301, 79 S.Ct. 766. See
also Hartford Fire Ins. Co. v. Empresa Ecuatoriana de Aviacion,
945 F. Supp. 51, 55 (S.D.N.Y. 1996) (applying Herd to ground handling
company of an air carrier). The Eighth Circuit in Arkwright-Boston
Manufacturers Mutual Ins. Co. v. Great Western Airlines, Inc.,
767 F.2d 425, 428 (8th Cir. 1985), applied Herd to a situation where the
shipper sought to recover against the original carrier's subcontractor.
In that case, the shipper sent goods pursuant to four Federal Express
that included limitation of liability clauses. To transport the goods,
Federal Express shipped them through a company called Great Western
Airlines, which lost the goods in a crash. The agreement between Federal
Express and Great Western indicated that Grest Western operated "for the
sole and exclusive use of [Federal Express]" and did nbt contain any
limitation of liability or explicitly extend the Federal Express
limitation to Great Western. Id. at 426 The Eighth Circuit found that
since Great Western was acting as an agent of Federal Express, Herd
applied, and Great Western was liable for its own negligence. See
Arkwright-Boston, 767 F.2d at 426. Although involving a second carrier,
Arkwright-Boston is distinguishable from the present case. Great Western
was not a common carrier, but instead was a specialized caner whose sole
occupation was to transport goods for Federal Express. As a result, Great
Western was acting as an agent, as were the stevedores in Herd.
Futhermore, Great Western neither shipped pursuant to its own airbill nor
relied on its own limitation of liability; it only sought protection
under the Federal Express airbills. As such, unlike AIA, Great Western
arguably could have anticipated liability from unknown plaintiffs, and
took no steps to avoid this liability either in the terms of the Federal
Express airbills or its contract with Federal Express. As a result, this
Court declines to extend the holding of Arkwright-Boston to the present
In summary, Nippon may not maintain a cause of action in tort
against defendant AIA under a negligence, warehouseman or conversion
theory. Summary judgment in favor of AIA against Nippon is therefore
appropriate. In addition, since no party contests the enforceability of
the AIA airbill against Skyway, partial summary judgment in favor of AIA
against Skyway is also appropriate, limiting AIA's liability to the
amount provided for in its airbill, which would be Skyway's actual
Plaintiffs motion for summary judgment is denied. Defendant Skyway's
partial motion for summary judgment is granted. Defendant Skyway shall pay
plaintiff $923. Defendant AIA's partial motion for summary judgment is
granted. Defendant AIA's obligation to pay Skyway is limited to $923.