Eli Lilly & Co. v. Air Express International USA, Inc.

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED

________________________ U.S. COURT OF APPEALS

ELEVENTH CIRCUIT

AUGUST 23, 2010

No. 09-12725

JOHN LEY

________________________

CLERK

D.C. Docket No. 06-23048 CV-KMM

ELI LILLY AND COMPANY, individually and

f.u.b.o. Elgo Insurance Company Limited, individually and

f.u.b.o. Certain London Market Reinsurance Underwriters,

Plaintiffs-Appellees,

versus

AIR EXPRESS INTERNATIONAL USA, INC.,

d.b.a. DHL Danzas Air & Ocean,

d.b.a. DHL Global Forwarding,

Defendant-Appellant.

________________________

Appeal from the United States District Court

for the Southern District of Florida

________________________

(August 23, 2010)

Before MARCUS, WILSON and COX, Circuit Judges.

COX, Circuit Judge:

The Convention for the Unification of Certain Rules for International Carriage

(“Montreal Convention”) limits international air carrier liability for damage to cargo.

This case involves a purported contractual waiver of those limits.

Defendant Air Express International USA, Inc. (“DHL”) is a provider of supply

chain logistics. Plaintiff Eli Lilly and Company and DHL entered into a long-term

service agreement under which DHL agreed to provide logistics services related to

the international shipment of Eli Lilly pharmaceuticals. Among other things, DHL

arranged for third-party air cargo carriers to transport pharmaceuticals from Europe

to the United States. This case arises out of the spoliation of temperature-sensitive

insulin products, which were shipped by air from France to Indiana and were exposed

to sub-freezing temperatures en route. Pursuant to its service agreement with Eli

Lilly, DHL arranged for Lufthansa Cargo AG to transport the insulin. Although the

exposure to sub-freezing temperatures was the result of human error attributable to

Lufthansa, DHL is liable as a contracting carrier for any damage to the cargo.

Seeking to recover for damage to the insulin products, Eli Lilly and its insurers

sued DHL for breach of the long-term service agreement and for breach of two air

waybill contracts for carriage of the damaged products. The district court dismissed

the claim for breach of the service agreement because it was preempted by the

Montreal Convention. In the same order, the court granted Plaintiffs summary

2

judgment on the issue of liability for breach of the air waybill contracts. And, the

court held that, under a provision in the long-term service agreement, DHL waived

the liability limitations of the Montreal Convention. DHL appeals; its primary

contention is that its liability should be limited pursuant to the Montreal Convention.

DHL also argues that Plaintiffs are not entitled to summary judgment because they

failed to show that the cargo was damaged in transit and because certain evidence

offered to prove its damage is inadmissible. DHL further argues that the court abused

its discretion in denying its motion for sanctions for spoliation of evidence. After

review, we affirm the grant of summary judgment to Plaintiffs on the issue of liability

and the denial of DHL’s motion for spoliation sanctions. But we reverse the ruling

that DHL stipulated that the air waybill contracts are subject to limits of liability

greater than those provided for in the Montreal Convention.

I. BACKGROUND

A. The Montreal Convention

We consider in this case certain provisions of the Montreal Convention, a

treaty which sets forth uniform rules for international air carriage. We begin with a

brief overview of the Convention and its relevant provisions.

International air carrier liability for damage to cargo and injury to passengers

has been governed by a set of uniform rules since 1933, when the Warsaw

3

Convention, adopted by delegates of thirty-three nations in 1929, took effect. The

Warsaw Convention created a liability scheme which served as the sole means to

remedy injuries suffered in the course of international air transportation of persons,

baggage, or goods. See King v. Am. Airlines, Inc., 284 F.3d 352, 356-57 (2d Cir.

2002) (summarizing provisions of the Convention for the Unification of Certain

Rules Relating to International Transportation by Air, Oct. 12, 1929, 49 Stat. 3000,

T.S. No. 876 (1934), reprinted in 49 U.S.C. § 40105 note (1997) (hereinafter

“Warsaw Convention”). To shield air carriers from catastrophic liability, the

Convention set limits on damages, and it restricted the types of claims that could be

brought against carriers. Id. To protect passengers and shippers, it required carriers

to issue air waybills detailing the conditions of carriage, and it created a presumption

of liability against carriers for injuries to passengers or damage to cargo. Id. Over

the years, subsequent international agreements changed its liability scheme, but

several features of the Warsaw Convention—caps on damages for injuries suffered

in international air transportation, a presumption of liability against carriers, and a

requirement that carriers issue air waybills—remain in effect in some form today.

In 1999, fifty-two nations including the United States signed the Montreal

Convention, a treaty to replace the Warsaw Convention. Convention for the

Unification of Certain Rules for International Carriage by Air, ICAO Doc. 9740,

4

reprinted in Treaty Doc. No. 106-45, 1999 WL 33292734 (2000). The United States

Senate ratified the Montreal Convention in September 2003, and it entered into force

on November 4, 2003, after at least thirty nations did the same. Id. Art. 53

The Montreal Convention provisions related to carrier liability for damage to

baggage and cargo are relevant to this case. Article 22(3) of the Convention limits

potential liability to seventeen “Special Drawing Rights” (“SDRs”) per kilogram of

cargo shipped. An SDR is an artificial currency, published daily by the International

Monetary Fund, which fluctuates based on the global currency market. Sompo Japan

Ins., Inc. v. Nippon Cargo Airlines Co., 522 F.3d 776, 779 n.3 (7th Cir. 2008). These

limits may be increased in one of two ways. First, Article 22(3) provides that

damages may exceed 17 SDRs per kilogram if “the consignor has made, at the time

when the package was handed over to the carrier, a special declaration of interest in

delivery at destination and has paid a supplementary sum if the case so requires.”

This provision did not represent a change in the law; it is nearly identical to Article

22(2) of the original Warsaw Convention. Second, Article 25 of the Montreal

Convention, entitled “Stipulation on Limits,” states “[a] carrier may stipulate that the

contract of carriage shall be subject to higher limits of liability than those provided

for in this Convention or to no limits of liability whatsoever.” Article 25 is new;

there is no parallel provision in the Warsaw Convention or its subsequent

5

amendments. So, the Warsaw Convention as amended expressly provided that limits

on liability for damage to cargo could be increased if a shipper declared a value for

the cargo and paid a supplementary sum if the case so required; it is unclear whether

this was the sole means to increase a carrier’s potential liability.1 After November

2003, when the Montreal Convention entered into force, limits on carrier liability

could be increased either by the shipper declaring a value for the cargo or by the

carrier stipulating that the contract of carriage, i.e. the air waybill, shall be subject to

higher limits of liability. See St. Paul Ins. Co. v. Venezuelan Int’l Airways, Inc., 807

F.2d 1543, 1547 n.6 (11th Cir. 1987) (noting that one of the functions of an air

waybill is to serve as the contract of carriage of goods.)

B. Factual Background

Eli Lilly is one of the world’s largest pharmaceutical companies. It has

manufacturing plants in thirteen countries, conducts clinical research in more than

fifty countries, and markets products in 143 countries. Eli Lilly regularly ships

1

The Warsaw Convention permitted a passenger and carrier to agree to a higher limit of

liability for death or personal injury “by special contract.” Warsaw Convention Art. 22(1). See

generally Thomas J. Whalen, Update on the IATA Intercarrier Agreement, 13 AIR & SPACE LAW 1

(1998) (describing intercarrier agreements invoking Article 22(1) of the Warsaw Convention to

increase limits on liability for passenger death or personal injury). This “special contract” provision

did not expressly apply to baggage or cargo. But, a special contract to waive limits on liability for

damage to or loss of cargo may have been valid under Article 33 of the Warsaw Convention, which

provides “[n]othing contained in this convention shall prevent the carrier either from refusing to

enter into any contract of transportation or from making regulations which do not conflict with the

provisions of this Convention.”

6

products around the world, and due to its complex supply chain, it engages providers

of international logistic services who assist Eli Lilly in coordinating shipping,

warehousing, and distribution of its products. DHL is the world’s largest provider of

logistics services. Among other things, it provides international freight forwarding

services; it arranges, through various third-party carriers, air and ocean freight

services, ground transportation, and warehousing.

DHL and Eli Lilly entered into a long-term service agreement covering a period

of five-years beginning on January 1, 2003, eleven months before the Montreal

Convention entered into force. The agreement states that DHL will provide Eli Lilly

the following services related to the transport of pharmaceuticals to and from Europe

and the United States: airfreight, ocean freight, multimodal service, customs clearance

and brokerage services, land transportation, warehousing and distribution, project

management, and customer service support. (R. 2-93 Ex. C at 4.) It further states that

DHL “is to utilize high quality airfreight service providers or if requested, to use a

carrier selected by Lilly.” (Id. at 5.) Article Five of the agreement is entitled

“Indemnification.” The first paragraph provides that DHL agrees to indemnify Eli

Lilly against third-party claims arising from breach of the service agreement. (Id. at

10.) The second paragraph contains a limitation of liability stating, in part, that

damages that either party is required to pay for whatever reason shall be limited to

7

two times the amount of the total fees payable to DHL under the service agreement.

(Id. at 11.) It also states that neither party shall be liable for loss of profits arising out

of obligations under the agreement. (Id.)

Eli Lilly France, S.A., an Eli Lilly affiliate, manufactures pharmaceuticals at

a plant in Fegersheim, France. Eli Lilly France regularly ships pharmaceuticals

between Fegersheim and the United States. Lufthansa is Eli Lilly’s preferred carrier

for these shipments, and Eli Lilly purchased a shipping service from Lufthansa called

“Cool/td.” Through this service, Lufthansa ships products in insulated containers

designed to keep cargo cool during transit. The containers do not protect cargo from

freezing temperatures, but Eli Lilly France places temperature recording devices in

the containers to monitor the air temperature to which the container and cargo are

exposed during transit. Under the Cool/td service, Lufthansa provides trucking from

the Fegersheim plant to the airport of departure, airport storage of the containers,

loading of the containers onto airplanes, air transport to Chicago O’Hare airport, and

trucking service from O’Hare to an Eli Lilly facility in Indiana.

Eli Lilly regularly directed DHL, pursuant to the long-term service agreement,

to arrange for Lufthansa to ship containers of pharmaceuticals by air from Fegersheim

to the United States. In December 2004, Eli Lilly France requested that DHL arrange

a shipment from Fegersheim to Indiana of eight containers of cold-sensitive insulin

8

and growth hormone utilizing the Cool/td service. The eight containers were divided

into two shipments, and DHL arranged for the shipments to depart from Munich,

Germany. DHL then issued two “house air waybills,” which are contracts of carriage

between Eli Lilly and DHL. It also issued two “master air waybills,” which are

contracts of carriage between DHL and Lufthansa. All waybills contained a box

labeled “Declared Value for Carriage.” Eli Lilly’s practice with respect to the

shipments handled by DHL and Lufthansa was never to declare any value for the

shipments. Consistent with this practice, the boxes were marked “NVD,” or no value

declared. The waybills also instructed the carrier to refrigerate the cargo at eight

degrees Celsius and to avoid freezing.

The shipments were transported from the Fegersheim plant to the Munich

airport in heated trucks hired by Lufthansa. Due to admitted human error by

Lufthansa personnel, the containers were left outside in sub-freezing temperatures

before they were loaded on to airplanes for shipment to the United States. When the

shipments arrived in Indiana, temperature recording devices inside the insulated

containers showed that the contents of seven of the eight containers had been

subjected to sub-freezing temperatures.

A few days after the shipments arrived in Indiana, Eli Lilly France gave notices

of claim to DHL for damage to the cargo, and DHL gave notices of claim to

9

Lufthansa. A DHL agent then sent an e-mail to Eli Lilly’s insurance company

representatives requesting that the damaged insulin products not be destroyed. Eli

Lilly permitted DHL representatives to examine the insulin products, but did not

allow them to be removed from the Eli Lilly facility. Eli Lilly asserts that it destroyed

the insulin products shipped in the containers in which temperature recording devices

registered below freezing temperatures, but that it salvaged some of the growth

hormone. It claims that destroying the insulin was necessary because determining

whether it remained viable after being exposed to sub-freezing temperatures would

have required that the insulin be subjected to destructive testing. Eli Lilly has not

produced records documenting the destruction of the insulin products, and DHL

contests whether they were actually destroyed.

Eli Lilly made a claim to its insurer, Elgo Insurance Company, in the amount

of $10,251,432.50, which represented the “transfer price” of the insulin products.

The transfer price is the price at which an Eli Lilly affiliate in the supply chain that

is in possession of a product at a certain point in time sells the product to another Eli

Lilly affiliate or a third-party. It encompasses all of the costs incurred throughout the

Eli Lilly supply chain and all of the profit that is earned in each step of the supply

chain by an Eli Lilly affiliate up to that point in time. The insurer and reinsurers

ultimately paid Eli Lilly $9,000,000 to satisfy the claim.

10

II. PROCEDURAL HISTORY

Eli Lilly, individually and for the use and benefit of its insurer Elgo Insurance

Company Limited, individually and for the use and benefit of Certain London Market

Reinsurance Underwriters, filed this action against DHL and Lufthansa in the United

States District Court for the Southern District of Florida.2 The complaint asserts a

claim against DHL for breach of the long-term service agreement. It also asserts

claims for breach of the air waybill contracts against Lufthansa and DHL. Defendants

answered the complaint, and DHL filed a cross-claim against Lufthansa for breach

of contract and indemnification or contribution.

All parties moved for summary judgment and moved to strike certain affidavits.

Defendants also sought sanctions for spoliation of evidence. The district court issued

an omnibus order in which it (1) dismissed the claim for breach of the service

agreement because it is preempted by the Montreal Convention, Eli Lilly & Co. v. Air

Express Int’l USA, Inc., 602 F. Supp. 2d, 1260, 1268-69 (S.D. Fla. 2009); (2) held

that DHL, as a contracting carrier, and Lufthansa, as an actual carrier, are liable under

the Montreal Convention for breach of the air waybills, id. at 1269-75; (3) held that

Lufthansa’s liability for the damaged cargo is capped at seventeen SDRs per kilogram

2

The Complaint also named as defendants Danzas Corporation, Deutsche Post World Net,

and DHL Express (USA), Inc. These defendants were dismissed without prejudice at an early stage

in the litigation.

11

pursuant to Article 22(3) of the Montreal Convention, id. at 1275; (4) held that DHL’s

liability is not limited by the Montreal Convention and is instead governed by the

terms of the liability provision contained in the long-term service agreement, id. at

1276-78; (5) held that damages are to be calculated based on the transfer price of the

damaged cargo, id. at 1278-79; (6) held that Eli Lilly did not commit spoliation of

evidence, id. at 1279-80; and (7) denied all motions to strike, id. at 1280-81.

Thereafter, Plaintiffs settled all claims against Lufthansa and all parties stipulated to

Lufthansa’s dismissal from the case. (R.5-258.) In addition, Plaintiffs and DHL

stipulated, without waiving DHL’s rights to contest certain rulings contained in the

omnibus order, that judgment may be entered against DHL and in favor of Plaintiffs

for the sum of $10,216,958.12. (R.5-259.) The court then entered a final judgment

in favor of Plaintiffs against DHL (R.5-260) and dismissed all claims against

Lufthansa with prejudice. DHL appeals, challenging: (1) the grant of summary

judgment in favor of Plaintiffs on the issue of liability and the denial of its motion for

summary judgment on that issue; (2) the ruling that DHL’s liability is governed by

the liability provision in the long-term service agreement; and (3) the denial of its

motion for sanctions for spoliation of evidence.

12

III. ISSUES ON APPEAL AND CONTENTIONS OF THE PARTIES

The main issue on appeal is whether DHL’s liability should be limited to

seventeen SDRs per kilogram of the damaged cargo pursuant to Article 22(3) of the

Montreal Convention, or whether the long-term service agreement between DHL and

Eli Lilly constitutes a stipulation to waive those limits. DHL argues: (1) because the

court dismissed Plaintiffs’ claim for breach of the service agreement as preempted by

the Montreal Convention, it erred in applying the terms of that agreement to

Plaintiffs’ remaining claims for breach of the air waybill contracts; (2) the court

improperly incorporated the terms of the service agreement into the separate air

waybill contracts because the air waybill contracts were marked “no value declared”;

(3) DHL did not breach the service agreement, and the liability limitation contained

therein applies only if Eli Lilly sought indemnity from third-party claims arising from

breach of the agreement; and (4) the liability limitation in the service agreement is

ambiguous, and the court erred in interpreting that provision in favor of the drafter,

Eli Lilly. Plaintiffs counter that: (1) the service agreement provides that all air

waybill contracts between the parties would be subject to limits of liability in excess

of 17 SDRs per kilogram; (2) the Montreal Convention permits parties to enter into

an agreement collateral to the air waybill contracts waiving the Convention’s limits;

(3) there was no reason for Eli Lilly to declare a value on the air waybills because

13

under the service agreement the parties opted out of the Montreal Convention liability

regime; (4) the liability provision applied not only to indemnity claims but to all

claims arising from the agreement; and (5) it was not ambiguous.3

DHL also contends that in concluding that the pharmaceuticals were damaged,

the court erred in considering an affidavit of Rene Scheer, an Eli Lilly logistics

manager. It argues that the contents of the affidavit were not based on Scheer’s

personal knowledge, that they were hearsay, that attached documents were not

authenticated, and that the documents were translated from French to English by

Scheer himself, who is not a certified translator. Plaintiffs counter that the district

court did not rely on the challenged portions of the affidavit, that the contents of the

affidavit were drawn from Scheer’s personal knowledge gained from his job duties

as a logistics manager, that the translations comport with the Federal Rules of

3

DHL also contends that even if the court did not err in holding that the Montreal Convention

limits were waived by the long-term service agreement, it erred in calculating damages based upon

the transfer price of the damaged insulin products as opposed to the cost of replacement. It argues

that the transfer price includes lost profits, which the liability provision precludes Eli Lilly from

recovering. Plaintiffs counter that the transfer price represents the real value of the cargo; while it

includes profits lost by Eli Lilly affiliates, it does not include any of the profits to which Eli Lilly

itself would have been entitled in a sale of the pharmaceuticals to third parties. Because we conclude

that the Montreal Convention limits DHL’s liability to seventeen SDRs per kilogram, we do not

address whether the court erred in calculating damages based upon the transfer price of the damaged

insulin.

14

Evidence, and that the attached documents fall under the business records exception

to the hearsay rule.

DHL further contends that summary judgment was inappropriately granted on

the issue of whether the pharmaceuticals were damaged in transit. It points out that

Plaintiffs did not present proof that the pharmaceuticals were in fact destroyed, and

it claims that Eli Lilly refused to produce the pharmaceuticals for testing and

inspection by DHL. Plaintiffs counter that they presented evidence that the insulin

products were subjected to sub-freezing temperatures during transit, and this exposure

rendered them worthless whether or not actual damage occurred.

Finally, DHL contends that the court abused its discretion in holding that Eli

Lilly did not commit spoliation of evidence by refusing to permit testing and

inspection of the pharmaceuticals. Plaintiffs counter that a party moving for

sanctions for spoliation of evidence must prove prejudice. And, federal regulations

mandate destruction of pharmaceutical products subjected to sub-freezing

temperatures whether or not they are in fact damaged. Given that the pharmaceuticals

were worthless regardless of their condition, Plaintiffs argue that DHL did not suffer

prejudice from not having the opportunity to inspect the pharmaceuticals before they

were destroyed.

15

IV. STANDARD OF REVIEW

We consider de novo a grant or denial of summary judgment, applying the

same legal standards as the district court. Baker v. Birmingham Bd. of Educ., 531

F.3d 1336, 1337 (11th Cir. 2008).

A district court’s evidentiary rulings are reviewed for abuse of discretion.

General Elec. Co. v. Joiner, 522 U.S. 136, 141, 118 S. Ct. 512, 517 (1997).

A district court’s decision regarding spoliation sanctions is reviewed for abuse

of discretion. Harris v. Chapman, 97 F.3d 499, 506 (11th Cir. 1996).

V. DISCUSSION

A. The Montreal Convention limits DHL’s liability to 17 SDRs per kilogram

of the damaged pharmaceuticals.

The Montreal Convention limits on liability may be waived under Article 22(3)

if the shipper declares a value for the cargo or under Article 25 if the carrier stipulates

that the contract of carriage shall be subject to higher limits of liability. It is

undisputed that Eli Lilly did not declare a value for the cargo. At issue is whether a

provision in the long-term service agreement constitutes a stipulation to waive the

Montreal Convention limits.

The district court dismissed Plaintiffs’ claim for breach of the long-term service

agreement because it was preempted by the Montreal Convention, and this ruling is

16

not contested on appeal.4 Plaintiffs’ remaining claims allege breach of the air waybill

contracts. The court noted that “[t]he parties did not stipulate in any of the air

waybills that the shipments in question would be subject to higher limits of liability

than those provided for in the Montreal Convention.” Eli Lilly, 602 F. Supp. 2d at

1276. Nevertheless, it held that DHL stipulated to waive the Convention’s limits

through the liability provision in the long-term service agreement. Id. The court

explained that “the Liability Limitation clearly and unambiguously establishes that

DHL’s liability is limited to two times the total fees payable to DHL for the duration

of the Service Agreement.” Id. The air waybills and the service agreement are

separate contracts, and they were not executed contemporaneously. Therefore, in

concluding that a provision in the service agreement serves as a stipulation to subject

the waybills to increased limits on liability, the court implicitly held that the service

agreement is incorporated into the air waybill contracts.

In addressing whether the liability provision of the service agreement

constitutes a stipulation to waive the Montreal Convention limits, we first interpret

the terms of the service agreement and the air waybill contracts; we must discern the

4

Article 29 of the Convention preempts state law actions falling within its scope. It reads,

in part, “[i]n the carriage of passengers, baggage and cargo, any action for damages, however

founded, whether under this Convention or in contract or in tort or otherwise, can only be brought

subject to the conditions and such limits of liability as are set out in this Convention . . . .” See

Paradis v. Ghana Airways Ltd., 348 F. Supp. 2d 106, 111 (S.D.N.Y. 2004).

17

meaning of the liability provision and discern whether the parties intended to

incorporate that provision into the air waybill contracts. We generally apply state law

to such questions of contract interpretation, and the parties assume that Florida law

controls.5 See e.g. In re Chira, 567 F.3d 1307, 1311 (11th Cir. 2009) (“The

interpretation of private contracts is ordinarily a question of state law.”) (quotations

and citations omitted). If we conclude that the parties did intend for the liability

provision to serve as such a stipulation, we would have to consider whether that

stipulation is effective. We would examine Article 25 of the Montreal Convention

to determine what a carrier must do to effectively stipulate that a contract of carriage

shall be subject to limits of liability in excess of seventeen SDRs per kilogram.

Because this involves interpretation of an international treaty, it is a question of

federal law. See Maugnie v. Compagnie Nationale Air France, 549 F.2d 1256, 1258

(9th Cir. 1977) (“The scope of the Warsaw Convention is a matter of federal law and

federal treaty interpretation, and must be determined from an examination of the ‘four

corners of the treaty.’”) (citations omitted).

5

Neither the service agreement nor the air waybill contracts contain a choice of law provision.

Eli Lilly is an Indiana corporation, and DHL is a foreign corporation, but its headquarters is in

Florida. The incidents giving rise to this dispute occurred in France, Germany, and Indiana. It is

unclear what law governs the interpretation of the service agreement and the air waybill contracts.

We need not dwell on choice of law issues, however, because we apply general rules of contract

interpretation to discern the meaning of the contracts. We would reach the same conclusions as to

these issues regardless of what law we applied.

18

Before turning to whether the parties intended to incorporate the liability

provision of the service agreement into the air waybill contracts, we pause to note that

it is an open question whether Article 25 of the Montreal Convention permits parties

to agree to waive the Convention’s limits in a document separate from the air

waybills. DHL contends that a stipulation under Article 25 is valid only if contained

in the contract of carriage, i.e. the air waybill, itself. We are aware of no authority

supporting this position. And, Article 25 does not state that the stipulation must be

“in” the contract of carriage. Further, Article 27 provides that “[n]othing contained

in this Convention shall prevent the carrier . . . from waiving any defences available

under the Convention, or from laying down conditions which do not conflict with the

provisions of this Convention.” So, it appears from the language of the Montreal

Convention that a stipulation to increase a carrier’s potential liability may be valid

even if it is not set forth in the waybill itself. Nevertheless, we need not decide this

issue. We assume that a carrier may stipulate to waive the Convention’s limits in a

document separate from the air waybill. But, we conclude that the parties did not

intend for the liability provision in Article 5 of the long-term service agreement to be

such a stipulation.

19

The first paragraph of Article 5 is a third-party indemnity provision. It reads:

Article 5: Indemnification

Except for claims for personal injury or property damage which are

caused by the failure of Lilly to observe any of the terms and conditions

of this agreement and those claims for personal injury or property

damage which arise from the gross negligence or willful misconduct of

Lilly, Supplier hereby agrees to indemnify and hold Lilly harmless

against and from any and all claims arising from any breach or default

in the performance of any obligation on Supplier’s part to be performed

under the terms of the agreement, or arising from any act, neglect, fault,

or omission of Supplier or of its agents, employees, visitors, invitees, or

licensee and from and against all costs, attorney’s fees, expenses, and

liabilities incurred in or about any such claims or any action against

customer by reason of such claim. Supplier, upon notice of Lilly, shall

defend same at Supplier’s expense.

(R.2-93 Ex. C. at 10.) This provision appears to require DHL to indemnify Eli Lilly

from third-party claims that arise from DHL’s breach of the service agreement. The

second paragraph of Article 5 is entitled “Liability Limitations.” It reads:

Except for a party’s obligations of this Agreement, any damages that

either party is required to pay for any reason whatsoever and regardless

of the form of action, in the aggregate, shall be limited to two times the

amount of the total fees payable to Supplier hereunder. Neither Supplier

nor Lilly shall be liable for any special, punitive or consequential

damages, or loss of profits arising out of or in connection with their

respective obligations under this Agreement. Notwithstanding the

foregoing, if any claim against Supplier is a claim covered by any

insurance policy maintained by Supplier, any recovery of proceeds

under such policy shall be paid to Lilly to the extent Lilly’s damages

exceed the foregoing limitation of liability.

20

(Id. at 11.) This provision appears to cap either party’s potential liability to two times

the amount of the total fees payable to DHL under the agreement. Because the

liability provision is contained in a section of the agreement addressing

indemnification, the parties dispute whether it applies only where Eli Lilly seeks

indemnification from third party claims arising from DHL’s breach of the service

agreement, or whether it applies to any and all claims arising from the service

agreement. We need not resolve this dispute. Whatever the scope of the liability

provision, we have no reason to conclude that the parties intended for it to apply to

the separate air waybill contracts so as to subject those contracts to limits of liability

in excess of those imposed by law.

The service agreement took effect January 1, 2003, eleven months before the

Montreal Convention entered into force. The governing law in January 2003 (the

Warsaw Convention as amended by subsequent international agreements) did not

include a provision parallel to Article 25 of the Montreal Convention—one providing

that a carrier may stipulate that a contract of carriage would be subject to increased

limits on liability. Had the parties intended for the service agreement to constitute a

stipulation to waive limits on liability, this would not have been expressly permitted

21

by the Warsaw Convention, and may have been invalid.6 This suggests that the

parties did not intend such a result. In addition, the service agreement makes no

mention of the Montreal Convention, the Warsaw Convention, the concept of

declared value, or limits of liability imposed by law. Nor does it contemplate that the

service agreement would modify any subsequently executed air waybill contracts. In

sum, there is no indication that the parties intended to opt out of the Montreal

Convention liability regime through Article 5 of the service agreement.

The air waybill contracts at issue were executed after the Montreal Convention

took effect. The parties knew of the limits on air carrier liability and the ways to

contract around those limits—declaring a value for the cargo or stipulating to waive

the limits. The waybills show that the parties declined to do so. They note that

potential liability is limited to seventeen SDRs per kilogram of cargo7 and state, “[t]he

shipper’s attention is drawn to the notice concerning carrier’s limitation of liability.

Shipper may increase such limitation of liability by declaring a higher value for

carriage and paying a supplemental charge if required.” (R.1-1 Ex’s A-D.)

6

But see supra note 1 (suggesting that a stipulation to waive the Warsaw Convention limits

on liability may have been valid under Article 33 of that convention).

7

The notices of limited liability are printed on the reverse side of the air waybills. The

reproductions of these documents contained in the record are illegible. (R.5-217 Ex. A at 2.) Both

parties acknowledge, however, that the air waybill contracts contain a clause limiting liability to

seventeen SDRs per kilogram. (Appellee’s Br. at 35; Appellant’s Br. at 24.)

22

Furthermore, the air waybill contracts indicate no intent to incorporate the service

agreement’s liability provision. “Where a written contract refers to and sufficiently

describes another document, that other document or so much of it as is referred to,

may be regarded as part of the contract and therefore is properly considered in its

interpretation.” See e.g. Hurwitz v. C.G.J. Corp., 168 So. 2d 84, 86 (Fla. 3d DCA

1964) (internal quotation and citation omitted). There is no mention of the service

agreement in the air waybill contracts. Had the parties agreed to incorporate the

service agreement’s liability provision so as to waive the Convention’s limits, they

could have noted their intent to do so. But they did not.

The conduct of and course of dealings between the parties supports our

conclusion. Eli Lilly purchased insurance to fully cover the value of the cargo in the

event of its damage or loss in transit (R.5-218 at 89). This suggests that Eli Lilly

declined to opt out of the Montreal Convention liability regime. See Groupe

Chegaray/V. De Chalus v. P&O Containers, 251 F.3d 1359, 1363 (11th Cir. 2001)

(noting that shippers, instead of paying increased freight by declaring the value of

what is shipped, generally buy insurance from cargo insurers). And, in 2002, before

the service agreement took effect, DHL arranged for air cargo transport of a number

of shipments of Eli Lilly pharmaceuticals. Eli Lilly, 602 F. Supp. 2d at 1265 (“Since

at least 2002, Lilly France instructed DHL to arrange bookings with Lufthansa for six

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to eight containers to be shipped per week.”) Eli Lilly declined to declare a value for

these shipments. (R.5-218 at 68) (acknowledging that Eli Lilly never declared a value

for cargo). After the service agreement became effective, DHL arranged for

additional shipments, including the two that gave rise to this case. Eli Lilly declined

to declare a value for these shipments as well. This suggests that the parties did not

intend for the long-term service agreement to have any effect on DHL’s potential

liability under the air waybills; it shows that, before and after the agreement

commenced, they intended for all air waybill contracts to be subject to limits of

liability imposed by the Warsaw or Montreal Conventions.

The long-term service agreement makes no mention of the Montreal

Convention, its predecessor the Warsaw Convention, or to limits on air carrier

liability imposed by law. Nor does the face of the air waybill contracts show that the

parties intended to incorporate the terms of the service agreement into those contracts.

And, the conduct and course of dealings between the parties does not suggest

otherwise. For these reasons, we conclude that the parties did not intend for the

liability provision of the long-term service agreement to subject the air waybill

contracts to increased limits of liability. We need not reach the question whether that

provision constitutes an effective stipulation under Article 25 of the Montreal

Convention. Our conclusion is drawn solely from our interpretation of the contracts,

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not by considering whether Article 25 of the Convention would have permitted the

purported stipulation.

B. The district court did not abuse its discretion in considering certain

affidavits and deposition testimony.

DHL argues that the court erred in considering an affidavit of Rene Scheer,

logistics manager of Eli Lilly France, in determining whether the cargo was delivered

to DHL and Lufthansa in good condition.8 According to DHL, the affidavit is not

based on Scheer’s personal knowledge, is hearsay, attached documents were not

authenticated, and those documents were not translated from French to English by a

certified translator. These arguments are without merit. The court “only relied on

that portion of Scheer’s affidavit that sets forth and attaches the business records

relating to the shipments in question: i.e., packing lists for the subject cargo generated

by Lilly France, protocols of manufacture, analysis, and release; certificates of

analysis; and checklists for the containers.” Eli Lilly, 602 F. Supp. 2d at 1280. We

find no error in the district court’s analysis in its omnibus order concluding that

Scheer is qualified to testify concerning the documents at issue, that those documents

fall within the business records exception to the hearsay rule, Fed. R. Evid. 803(6),

8

DHL also argues that the court erred in considering deposition testimony of Michael Mabe

and William C. Harris to conclude that the pharmaceuticals were damaged in transit. Upon review

of the record, we conclude that these arguments are without merit.

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and that Scheer’s translations of the documents from French to English could be

considered. (Id. at 1280-81.)

C. Summary judgment was appropriately granted on the issue of whether the

cargo was damaged in transit, and Plaintiffs did not commit spoliation of evidence.

DHL argues that because Plaintiffs failed to produce documents showing that

the pharmaceuticals had been destroyed, they failed to present evidence sufficient to

show that they were damaged in transit. DHL further argues that because Plaintiffs

denied DHL an opportunity to inspect and test the pharmaceuticals, they committed

spoliation of evidence warranting an adverse inference on this issue. But, Plaintiffs

produced records showing that the insulin was subjected to sub-freezing temperatures

and evidence showing that the devices which measured the temperatures were tested

and certified for accuracy before and after use. Further, federal regulations provide

that pharmaceuticals subjected to sub-freezing temperatures must be tested for safety

and purity prior to being salvaged. 21 C.F.R. § 211.208. And, Plaintiffs presented

uncontradicted expert testimony that any testing of insulin subjected to sub-freezing

temperatures would result in destruction of the insulin. Because Plaintiffs presented

undisputed evidence that the insulin was subjected to sub-freezing temperatures and

undisputed evidence that the insulin is unsaleable regardless whether actual damage

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occurred, Plaintiffs are entitled to summary judgment on the issue of whether the

insulin products were damaged in transit.

As to DHL’s spoliation claim, a party moving for sanctions must establish,

among other things, that the destroyed evidence was relevant to a claim or defense

such that the destruction of that evidence resulted in prejudice. See Flury v. Daimler

Chrysler Corp., 427 F.3d 939, 943 (11th Cir. 2005) (explaining that spoliation

analysis hinges upon the significance of the evidence and the prejudice suffered as

a result of its destruction.) The destruction of the insulin products did not affect

DHL’s ability to make a claim or defense; the exposure to sub-freezing temperatures

rendered the products worthless regardless of the results of any tests that DHL may

have conducted. Because DHL suffered no prejudice, the district court did not abuse

its discretion in denying its claim for spoliation of evidence.

VI. CONCLUSION

For the reasons stated in this opinion, we affirm the grant of summary judgment

in favor of Plaintiffs on the issue of liability, affirm the denial of DHL’s motion for

summary judgment, and affirm the denial of DHL’s motion for sanctions for

spoliation of evidence. We reverse the ruling that DHL’s liability shall be governed

by the terms of the long-term service agreement and therefore vacate the final

judgment entered by the district court. We remand to the district court for

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proceedings not inconsistent with this opinion and with instructions that DHL’s

liability shall be capped at 17 SDRs per kilogram of the damaged cargo pursuant to

Article 22 of the Montreal Convention.

AFFIRMED IN PART; REVERSED IN PART; JUDGMENT VACATED;

AND REMANDED WITH INSTRUCTIONS.

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