Petition for Writ of Certiorari — Lerakoli, Inc. v. Pan American World Airways, Inc.
Supreme Court brief1986
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In THE 4
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LERK
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.,
Petitioners,
—against—
PAN AMERICAN WORLD AIRWAYS, INC.,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
EE EO LT VAI ET a a a ET SE SI eS EE
JOHN R. FOSTER
120 Broadway, Suite 1825
New York, New York 10271
(212) 227-3550
Counsel for Petitioners
WAESCHE, SHEINBAUM &
O’REGAN, P.C.
Of Counsel
June 20, 1986
i
Questions Presented
1. Whether the federal courts have subject-matter jurisdic-
tion in a removed action over a non-diverse party against which
solely state-law claims are asserted?
2. Whether the courts of the United States should create fed-
eral common law in a dispute between private parties over the
loss of property handled as air mail?
3. If federal common law is applicable, whether a negligent
agent is entitled to the statutory limitation of liability protecting
its principal?
ill
TABLE OF CONTENTS
PAGE
ibe bce bss baer esewctees i
EE 1
re ea ee es he UU os eh Od doe od 6 y 4
TREATY AND STATUTORY PROVISIONS INVOLVED ........ 2
STATEMENT OF THE CASE .............2200- 2
REASONS FOR GRANTING THE WRIT ..............--- 4
Point I—The federal courts lack subject-matter jurisdiction
UE Gees GEUUO-TRW GURUS... ccc nee 4
Point II—The circuit court erroneously created federal
common law in an action between private parties ..... 7
Point I1]—Federal common law, if applicable, should not
be changed to protect negligent airlines ............ 10
eo ee eee eter SUPE RECESS chee cea dace s 14
APPENDIX:
OPINION OF THE UNITED STATES COURT OF APPEALS FOR
ee Al
MEMORANDUM OF DECISION AND ORDER OF 15 FEBRUARY
1983 OF THE UNITED STATES DISTRICT COURT FOR
THE EASTERN DISTRICT OF NEW YORK ........... Al2
MEMORANDUM OF DECISION AND ORDER OF 17 APRIL
1985 OF THE UNITED STATES DISTRICT COURT FOR
THE EASTERN DISTRICT OF NEW YORK............ Al6
iV
JUDGMENT OF THE UNITED STATES COURT OF APPEALS
se Re eee A20
ORDER OF THE UNITED STATES COURT OF APPEALS FOR
THE SECOND CIRCUIT DENYING REHEARING ....... A22
ARTICLE 44 OF THE UNIVERSAL PosTAL UNION CONVEN-
NN i aS aus ba ate a Ro Be a ee ee oe A23
Be El | ere rer ee re rrr eee re re ee A24
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc., No.
Vicars CORA. U. FOE Be, TOT) oc ce ccs cacnee A25
DESIGNATION OF CORPORATE RELATIONSHIPS ........ A39
TABLE OF AUTHORITIES
Cases:
Aldinger v. Howard, 427 U.S. 1 (1976) ........... 5, 6, 7
American Fire & Casualty Co. v. Finn, 341 U.S.6 (1951) 6
Berger v. 34th Street Garage, 3 N.Y.2d 701, 171 N.Y.S.2d
i MF go & & ee. | easy eannare ee 12
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc., No.
71-2875 (S.D.N.Y. June 24, 1974) .........6- 12, 13
Charles D. Bonanno Linen Service, Inc. v. McCarthy, 708
F.2d 1 (1st Cir.), cert. denied, 464 U.S. 936 (1983)... 6,7
Conwell v. Vorhees, 13 Oh. 523 (1844) ............
«gp ae OR Ba Re Rg.) rr rere
Erie Railroad “9. v. Tompkins, 304 U.S. 64 (1938) .... 8
Five Per Cent. Discount Cases, The, 243 U.S.97 (1917)... 14
Four Packages of Cut Diamonds v. United States, 256 F.
Be ae re Se hk ba ee HERE ks ok et es 3, 13
Gardner and Florence Call Cowles Foundation v. Empire,
es be Bo By Ge |) eee 7
Vv
Givens v. W.T. Grant Co., 472 F.2d 1039 (2d Cir. 1972) 5
Green v. ICI America, Inc., 362 F. Supp. 1263 (E.D. Tenn.
SP Tiwana hn CAN Wh ER Oe kins Cb en eeers 12
In re “Agent Orange” Product Liability Litigation, 635 F.2d
987 (2d Cir. 1980), cert. denied, 454 U.S. 1128 (1981) 10
Keifer & Keifer v. Reconstruction Finance Corp., 306 U.S.
eee ee eR SE eT rat Tye OTe eee ree :~ fa
Maximov v. United States, 373 U.S. 49 (1963) ......... 14
Merritt, Chapman & Scott Corp. v. Guy F. Atkinson Co.,
mee Fiame 2 Coe CH. EDGES occ ews occ vecetuavs 12
Miree v. DeKalb County, 433 U.S. 25 (1977) ......... 8
Reed v. Wiser, 555 F.2d 1079 (2d Cir.), cert. denied, 434
Se EE 0. 5 a ack a0 Sawa w cow b bb kaleee 13
Robert C. Herd & Co., Inc. v. Krawill Machinery Corp., 359
es ee Re bv kid onaoeeew eee enn 10, 11, 13, 14
Sawyer v. Corse, 58 Va. (17 Grat.) 230 (1867) ....... 9
Schoeffer v. United Parcel Service of New York, Inc., 277
A.D. 569, 101 N.Y.S.2d 451 (1st Dep’t 1950) ...... 12
Sloan Shipyards Corp. v. United States Shipping Board
Emergency Fleet Corp., 258 U.S. 549 (1922) .:..... 12
Standard Fruit and Steamship Co. v. United States, 103 Ct.
EE CCl can esta sckvehd ees cee sean 13
Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176
CR inte ee ease eyo te ee end Wai 14
Texas Industries Inc. v. Radcliffe Materials, Inc., 451 U.S.
3 ere are eres rpg 8,9
Union Pacific Railroad Co. v. Burke, 255 U.S. 317 (1921) 13
Wallis v. Pan American Petroleum Corp., 384 U.S. 63
oC Pr re ir sh tc Siew IGE ee aac
Wheeldin v. Wheeler, 373 U.S. 647 (1963) ...........
Vi
Statutes and International Agreements:
| 6.” en ieee eee 2
Pe SERN pace se eeb essen seveseeeeseanees 5
8 8 od | See ee ee 2, 6, 7
RT eS” See nee 9 ee ee es 5
ER, BEE SD ecw eee seencevnscene- none’ 11
Convention for the Unification of Certain Rules relating to
International Transportation by Air, opened for signa-
ture October 12, 1929, 49 Stat. 3000, T.S. No. 876
(1934), 137 L.N.T.S. 11, reprinted in 49 U.S.C. §1502
8. |) ce kw eae ee be ae
Hague Protocol, done September 28, 1955, 478 U.N.T.S.
371, reprinted in A. Lowenfeld, Aviation Law 955 (2d
ed. Doc. Supp. 1981) ......-0 eee eee cece eees ~ ae
Universal Postal Union Convention, 27 U.S.T. 345, T.I.A.S.
No. 8321, entered into force 1 January 1976...... passim
Other Authorities:
1A Moore’s Federal Practice, §0.163[4.-5] (1985) ..... 7
Sw
<=
In The
SUPREME COURT OF THE UNITED STATES
October Term 1985
a>
— |
LERAKOLI, INC.; LONDON Star, NEW York, INC.;
TACHE Et Clie, S.A.; LIEBER & SoLow, INc.; SouCOL LTD.;
ROUGH DIAMOND TRADERS, INC.; and SEVEN EIGHTEEN
FIFTH AVENUE CorpP.,
Petitioners,
—against—
—
PAN AMERICAN WORLD Airways, INC.,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Petitioners, Lerakoli, Inc. et al. (collectively “Lerakoli”) ,*
request that a writ of certiorari issue to review the judgment and
opinion of the United States Court of Appeals for the Second Cir-
cuit entered in this action on 5 February 1986, which affirmed
a final judgment of the United States District Court for the East-
ern District of New York. Specifically, Lerakoli requests that this
action be remanded to the district court with the instruction to
remand the case to the New York state court where the action
originated.
US
Opinions Below
The opinion of the Court of Appeals, reported at 783 F.2d
33 (2d Cir. 1986), is reprinted in the Appendix at Al. The opin-
*Petitioners’ designation of corporate relationships pursuant to Rule 28.1
is stated at page A39. References in the form “A _ ” are to the pages of the
Appendix to this petition.
2
ions of the District Court, unofficially reported at 17 Av. Cas.
(CCH) 18,107 (E.D.N.Y. 1983) and 19 Av. Cas. (CCH)
17,290 (E.D.N.Y. 1985), are reprinted at Al2 and A16, respec-
tively.
an
Jurisdiction
The judgment of the Court of Appeals issued on 5 February
1986 and was entered the same day (A20). Lerakoli subsequently
made a timely motion for a rehearing; and this motion was denied
by the court on 24 March 1986 (A22). This petition is being
filed within ninety days of the circuit court’s denial of a rehearing.
The Supreme Court has jurisdiction to review the judgment of
the Court of Appeals pursuant to 28 U.S.C. §1254(1).
Treaty and Statutory Provisions Involved
The treaty and statutory provisions involved are Article 44 of
the Lausanne Convention and 28 U.S.C. §1441, which are set
out at pages A23 and A24, respectively.
Statement of the Case
The Petitioners are the owners of 11 packages mailed in New
York City in 1980. The packages contained diamonds with a total
value of about $4.8 million and were to go by registered air mail
to Belgium. The United States Postal Service (“USPS”) accepted
these packages, put them into mail sacks, and then handed the
sacks over to Pan American World Airways, Inc. (“Pan Am”)
for air transportation to Belgium. Sometime after Pan Am ac-
cepted possession of the mail, Lerakoli’s packages disappeared.
In October 1982 Lerakoli started this action in state court
and contended that Pan Am was liable for the loss based on com-
mon-law principles of bailment, conversion and negligence. A
3
claim was also asserted against the USPS under federal law, spe-
cifically the so-called Lausanne Convention.*
The action was removed to the federal district court by the
defendants in November 1982, and the USPS then moved to dis-
miss the complaint against it. Pan Am also moved for a dismissal
and claimed that it had the same immunity from liability as that
enjoyed by the USPS. At a hearing on these motions on 8 Jan-
uary 1983, the district court granted the USFS motion. A final
judgment was accordingly entered, which was not appealed.
In its decision of 15 February 1983 (A12), the district court
also held that for the claims founded on negligence and bailment
Lerakoli could not recover from Pan Am for more than the
USPS’s limit of liability, which was $15.76 per package. The
rationale for this holding was that Pan Am, as sub-bailee or
agent of the USPS, was entitled to the same limited liability as
the Postal Service. Lerakoli could, however, recover in full on
the basis of conversion; and the district court gave Lerakoli an
opportunity for discovery on this issue.
Following discovery, Pan Am renewed its request to limit its
liability to $15.76 per package; and the district court granted the
motion (A16). By analogy to decisions concerning federal car-
rier law, the district court held that Lerakoli was required to es-
tablish clearly that Pan Am had contributed to the mail’s disap-
pearance by some intentional act. Because this burden was not
satisfied, Pan Am was entitled to limit if§ liability.
Lerakoli appealed and contended that New York, and not fed-
eral, common law was applicable to its claims against Pan Am
*Formally known as the Universal Postal Union Convention, 27 U.S.T.
345, T.I.A.S. No. 8321, entered into force 1 January 1976. This postal
convention is not a true treaty because it has not received the Senate’s ad-
vice and consent. Instead, it is considered an administrative regulation.
See, Four Packages of Cut Diamonds v. United States, 256 F. 305 (2d
Cir. 1919).
4
and that the airline was not entitled to shield itself with the Postal
Service’s limitation.
In its decision of 5 February 1986 (A1), the court of appeals
rejected Lerakoli’s contentions and held that federal common
law was applicable to the relationship between Lerakoli and Pan
Am and that the airline was entitled to the limitation afforded
to postal administrations under the Lausanne Convention. More-
over, federal law required affirmative proof of wilful misconduct
in order to establish conversion.
Lerakoli requested a rehearing on the matter and pointed out
the lack of subject-matter jurisdiction in the federal courts. The
petition for rehearing was denied on 24 March 1986 (A22).
Reasons for Granting the Writ
Certiorari should be granted because this case concerns the
significant issues of (1) the exercise of pendent-party jurisdiction,
(2) the creation of federal common law, and (3) the ability un-
der federal common law of a negligent agent to rely on a statu-
tory limitation of liability protecting the principal. On all these
points the Second Circuit ruled contrary to the decisions of this
Court, and it is consequently necessary to review the lower court’s
decision so as to bring it into conformity with this Court’s prece-
dents.
POINT I
The federal courts lack subject-matter jurisdiction over
these state-law claims.
As noted above, Lerakoli started this action in state court.
Recovery was sought against the Postal Service under the Lau-
sanne Convention and against Pan Am on the basis of common
law rights.
5
If, as Lerakoli submits, the common law governing its relation-
ship with Pan Am is state and not federal, then removal of these
state claims against Pan Am was improper and, more impor-
tantly, the federal courts have never had subject-matter jurisdic-
tion over these claims. Consequently, even at this stage of the
proceeding, the case should be remanded to state court. See, e.g.,
Gardner and Florence Call Cowles Foundation v. Empire Inc.,
754 F.2d 478 (2d Cir. 1985); Givens v. W.T. Grant Co., 472
F.2d 1039 (2d Cir. 1972).
This conclusion turns upon the issue of pendent-party juris-
diction, a subject that the Court has described as “subtle and com-
plex.” Aldinger v. Howard, 427 U.S. 1, 2, 18 (1976). Although
restricting its decision to the §1983 claim before it, the Court
in Aldinger disapproved of the use of a jurisdictional statute to
open the federal courts to state law claims against pendent par-
ties. The Court in essence held that the issue was largely one of
statutory construction and that the scope of the jurisdictional
statute was to be gauged by the statute providing the cause of ac-
tion: “[T]he reach of the statute conferring jurisdiction should be
construed in light of the scope of the cause of action as to which
the federal judicial power “2s been extended by Congress.” 427
U.S. at 17; emphasis in original.
On Lerakoli’s claim against the Postal Service, the district
court would have original, although not exclusive, jurisdiction
under 28 U.S.C. §1339 or 39 U.S.C. §409.* Lerakoli’s cause of
action against the USPS is provided by Article 44 of the Lau-
sanne Convention, which provides in pertinent part:
1. Postal administrations shall be liable only for the loss
of registered items. Their liability shall be as binding for
items conveyed a découvert as for those forwarded in closed
mails. (A23)
This language is very narrow; and there is no indication, either
*The Postal Service relied on this latter provision in its removal papers.
6
explicitly or implicitly, of any intent to create a private cause of
action in favor of mail senders against independent contractors
such as Pan Am. See Cort v. Ash, 422 U.S. 66 (1975). Conse-
quently, as in Aldinger, the provision creating the cause of ac-
tion limits the federal court’s power to exert jurisdiction over a
pendent party.
There is no other basis for federal jurisdiction over Pan Am.
Diversity of citizenship does not exist because Pan Am and all
of the plaintiffs, except one, are New York corporations. For the
reasons described in the following section, Lerakoli’s claim
against Pan Am does not arise under federal law. The Postal Ser-
vice never cross-claimed against Pan Am, so there is no ques-
tion of ancillary jurisdiction.
Yet Aldinger is insufficient to resolve the matter because, un-
like Aldinger, the present case involves removal. Thus the issue
is whether the removal statute, 28 U.S.C. §1441 (A24), provides
a basis for jurisdiction that would otherwise be lacking. Lerakoli
contends that this provision does not do so.
Subsection (b) of §1441 allows removal only of a case that
the plaintiff might have brought in federal court directly, and thus
it provides no additional basis for jurisdiction. Charles D. Bo-
nanno Linen Service, Inc. v. McCarthy, 708 F.2d 1, 8 (1st Cir.),
cert. denied, 464 U.S. 936 (1983). Subsection (c), however, al-
lows the district court to take jurisdiction of a “separate and in-
dependent” cause of action that it might not otherwise have statu-
tory authority to hear. Yet under the holding of America Fire &
Casualty Co. v. Finn, 341 U.S. 6 (1951), these state claims
against Pan Am are not “separate and independent” from those
against the Postal Service.
It is well-settled that when a plaintiff seeks to recover damages
for a single wrong arising from “an interlocked series of trans-
actions,” Finn, supra, 341 U.S. at 14, and sues several defendants,
the plaintiff is not asserting “separate and independent” claims
7
that warrant removal under §1441(c). See, e.g., Gardner and
Florence Call Cowles Foundation, supra; 1A Moore’s Federal
Practice, §0.163[4.-5] (1985).
Each plaintiff is claiming for a single wrong, the loss of its
property. The claims against the Postal Service are predicated
on federal law, and the claims against Pan Am are on different
grounds under state law. Yet only one recovery is sought. Hence
the “separate and independent” requirement of §1441(c) is not
satisfied.
In essence, then, Aldinger closes the door to the “pendent
party” claims against Pan Am, and §1441 does not reopen it.
Since the federal courts lack subject-matter jurisdiction over the
claims against Pan Am, these state-law claims must be remanded
to the state court where they originated.
The above analysis is taken from Judge Breyer’s opinion in
Charles D. Bonanno Linen Service, Inc., supra, 708 F.2d at 6-11;
and his reasoning should have been adopted by the Second Cir-
cuit in the present case.
Remand is particularly appropriate in this case when the fed-
eral party was dismissed from the litigation shortly after removal.
Remand also avoids the need for the federal court to surmise as
to the outcome of novel issues of state law. See A9, 11.
POINT Il
The circuit court erroneously created federal common
law in an action between private parties.
Lerakoli sued Pan Am on claims of negligence, bailment, and
conversion arising from the airline’s wrongful handling of Lera-
koli’s property carried as registered mail. Lerakoli’s causes of
action against Pan Am did not arise under any statute or treaty,
8
but rather were founded on rights under the common law. The
question is: Is the governing common law state or federal? The
circuit court concluded that federal common law was applicable
and thereby misapplied the analysis required Ke the prior deci-
sions of this Court.
The Court in Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78
(1938), stated that there is “no federal general common law” and
later cautioned in Wheeldin v. Wheeler, 373 U.S. 647, 651
(1963), that the instances for the courts to develop federal com-
mon law are “few and restricted.”
Similarly, in Wallis v. Pan American Petroleum Corp., 384
U.S. 63 (1966), the Court held that the creation of federal com-
mon law was for an exceptional circumstance:
In deciding whether rules of federal common law should be
fashioned, normally the guiding principle is that a signifi-
cant conflict between some federal policy or interest and
the use of state law in the premises must first be specifically
shown. It is by no means enough that, as we may assume,
Congress could under the Constitution readily enact a com-
plete code of law governing transactions in federal mineral
leases among private parties. (At 68; quoted with approval
in Miree v. DeKalb County, 433 U.S. 25, 31-32 (1977).)
More recently, in Texas Industries Inc. v. Radcliffe Materials,
Inc., 451 U.S. 630 (1981), the Court provided the guiding prin-
ciple on the creation of federal common law:
Rather, absent some congressional authorization to formu-
late substantive rules of decision, federal common law exists
only in such narrow areas as those concerned with the rights
and obligations of the United States, interstate and interna-
tional disputes implicating the conflicting rights of States or
our relations with foreign nations, and admiralty cases. In
these instances, our federal system does not permit the con-
troversy to be resolved under state law, either because the
9
authority and duties of the United States as sovereign are
intimately involved or because the interstate or international
nature of the controversy makes it inappropriate for state
law to control. (At 641; footnotes omitted. )
The case at bar involves a dispute between private parties, and
the Government has sharply contrasting interests in the outcome.
On the one hand, the Postal Service has an interest in promoting
the safe handling of the mail and in protecting those who rely
on the mail. The Government also, however, has an interest in
the independent contractors, such as Pan Am, who provide trans-
portation services. Each interest will be furthered only if the fed-
eral rule of law to be created favors that particular group. Lera-
koli submits that the extent to which the interest of independent
contractors should be favored over those relying on the mails is
a policy question for the Congress.
Nevertheless, the circuit court determined that “We find that
the federal interest in maintaining a uniform scheme of regula-
tion of international mail requires the application of uniform lia-
bility standards for claims arising from the nondelivery of the
mail.” A9-10, Lerakoli agrees that this proposition is true with
respect to claims against the U.S. Postal Service. In that situation
the “rights and obligations of the United States”, Texas Industries
Inc., supra, are at issue.
Yet with respect to one New York corporation (Lerakoli, Inc. )
suing another New York corporation (Pan Am) for negligence,
bailment, or conversion claims arising from the mishandling of
property, Lerakoli contends that there is no compelling reason
to create federal common law on the question.
Not creating a uniform, federal common law in this case means
exposing Pan Am to different liabilities in different states. That
result is one of the drawbacks of a federal system. Yet it is also
the situation faced by railroads. Compare Conwell v. Vorhees,
13 Oh. 523 (1844), with Sawyer v. Corse, 58 Va. (17 Grat.)
10
230 (1867). It is also a situation that presumably could be
changed if the Legislature so desired.
The Second Circuit in In re “Agent Orange” Product Liability
Litigation, 635 F.2d 987 (2d Cir. 1980), cert. denied, 454 U.S.
1128 (1981), was also faced with this issue of federal common
law. In that case veterans claimed against several chemical com-
panies for injuries suffered in the line of duty, and the appeals
court rejected the argument that federal common law should be
created. The claims there were brought against private manu-
facturers, not the United States, and did not directly implicate
the rights and duties of the United States. The circuit court held
that there was no identifiable federal policy at stake warranting
the creation of federal common law rules.
Lerakoli respectfully submits that if the Government’s interest
in military matters and a war effort do not justify the creation of
federal common law, then neither is there an identifiable federal
interest requiring the courts of the United States to create for Pan
Am’s benefit “uniform liability standards for claims” (A9).
POINT III
Federal common law, if applicable, should not be
changed to protect negligent airlines.
In section II.A of its decision (A5-8), the circuit court holds
that Pan Am can take advantage of the liability limitation afforded
to the USPS under Article 44 of the Lausanne Convention. If
federal common law is applicable, then Lerakoli contends that
in reaching its conclusion the lower court failed to follow prin-
ciples stated by this Court.
In Robert C. Herd & Co., Inc. v. Krawill Machinery Corp.,
359 U.S. 297 (1959), the Court was faced with the issue of
whether a shipowner’s agent could take advantage of the limita-
11
tion provisions of 46 U.S.C. §1304(5). In rejecting the argument
that the agent could use the statutory limitation available to its
principal, the unanimous Court held that:
From its early history this Court has consistently held that
an agent is liable for all damages caused by his negligence,
unless exonerated therefrom, in whole or in part, by a stat-
ute or a valid contract binding on the person damaged... .
This Court has several times held that an agent’s only shield
from liability “for conduct harmful to the plaintiff . . . is
a constitutional rule of law that exonerates him.” Sloan
Shipyards Corp. v. Emergency Fleet Corp., 257 U.S., at
567; Brady v. Roosevelt S.S. Co., 317 U.S., at 584. Any
such rule of law, being in derogation of the common law,
must be strictly construed, for “[nJo statute is to be con-
strued as altering the common law, farther than its words
impart. It is not to be construed as making any innovation
upon the common law which it does not fairly express.” Shaw
v. Railroad Co., 101 U.S. 557, 565; see Texas & Pacific R.
Co. v. Abilene Cotton Oil Co., 204 U.S. 426, 437.
Under the common law as declared by this Court, peti-
tioner was liable for all damages caused by its negligence
unless exonerated therefrom, in whole or in part, by a con-
stitutional rule of law. No statute has limited its liability,
and it was not a party to nor a beneficiary of the contract
of carriage between the shipper and the carrier, and hence
its liability was not limited by that contract. It follows that
petitioner’s common-law liability for damage caused by its
negligence was in no way limited, and the judgment below
so holding was correct and must be affirmed. (359 U.S. at
303-5, 308.)
In addition to Herd, the circuit court also failed to distinguish,
or even to discuss, the line of cases from this Court holding that
an independent contractor acting on government business is sub-
ee
12
ject to liability when (as Lerakoli claims is the case here) the
work is negligently done. See Keifer & Keifer v. Reconstruction
Finance Corp., 306 U.S. 381, 388 (1939); Sloan Shipyards
Corp. v. United States Shipping Board Emergency Fleet Corp.,
258 U.S. 549, 567 (1922); see also 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, 1265 (E.D.Tenn.
1973).
In support of its conclusion that the airline can rely on the
protection afforded to the USPS, the Second Circuit relied on
three cases: Berger v. 34th Street Garage, 3 N.Y.2d 701, 171
N.Y.S.2d 824, 148 N.E.2d 883 (1958); Schoeffer v. United Par-
cel Service of New York, Inc., 277 A.D. 569, 101 N.Y.S.2d 451
(1st Dep’t 1950); Caribe Diamond Works, Inc. v. Eastern Air-
lines, Inc., No. 71-2875 (S.D.N.Y. June 24, 1974) (not officially
reported) (included in the Appendix at A25).
Berger and Schoeffer are distinguishable from the present ac-
tion because those New York cases involved limitations of lia-
bility to which the plaintiffs had agreed as a matter of contract.
In the matter| at hand, by contrast, the only limitation that has been
mentioned is that contained in Article 44 of the Lausanne Con-
vention (A23).
Caribe Diamond, which concerned domestic mail, did not in-
volve a claim for negligence or conversion as exists in the present
matter. Furthermore, that portion of the decision dealing with
limitation of liability is clearly dicta, as was recognized by the
trial judge in his opinion at A37. Judge Brieant was not required
to consider any of the substantive questions because the plaintiff
had failed in its proof, whatever the legal validity of its claim.
Further, in Caribe Diamond there was also an element of con-
sent applicable to the limitation of liability. As the district court
points out, for this domestic mail shipment the plaintiff had the
option of fees. If the lower fee was paid (as was done) the USPS
liability was limited to a maximum of $1,000 (A37).
13
The present case involves international mail to Belgium, and
for such mail there was no insurance with the USPS. Lerakoli
did take advantage of registration, but that is only a security ser-
vice offered to senders. Unlike Caribe Diamond, Lerakoli had
no choice of rates; and it is the existence of a choice to declare
a higher value (and pay a correspondingly higher freight rate)
that justifies a limitation of liability in a contract. Union Pacific
Railroad Co. v. Burke, 255 U.S. 317 (1921).
What is at issue is not a contractual limit of liability. The limit
is one imposed by a postal convention, which has the force of
an administrative regulation. Four Packages of Cut Diamonds
v. United States, supra; Standard Fruit and Steamship Co. v.
United States, 103 Ct.Cl. 659, 682 (1945). As this Court held
in Herd, supra, “Any such rule of law, being in derogation of the
common law, must be strictly construed, .. . .” 309 U.S. at 304.
The Second Circuit also analogizes to the Warsaw Conven-
tion.* The analogy is not a good one, however, as is shown by
examining the circuit court’s own decision in Reed v. Wiser, 555
F.2d 1079 (2d Cir.), cert. denied, 434 U.S. 922 (1977). In Reed
the appeals court considered the official French language of the
Convention and the views of civil law commentators to show
how the drafters’ intention had been to protect employees such
as pilots. Furthermore, in 1955 any doubt as to the protection
extended to agents was removed by the Hague Protocol,** which
has been widely adopted by the Convention’s signatories.
The factors present in Reed are precisely what are missing in
the Second Circuit’s interpretation of the Lausanne Convention.
*Formally known as the Convention for the Unification of Certain
Rules Relating to International Transportation by Air, opened for signa-
ture October 12, 1929, 49 Stat. 3000, T.S. No. 876 (1934), 137 L.N.T\S.
11, reprinted in 49 U.S.C. §1502 note (1970).
**Hague Protocol, done September 28, 1955, 478 U.N.T.S. 371, re-
printed in A. Lowenfeld, Aviation Law 955 (2d ed. Doc. Supp. 1981).
14
There has been nothing cited, such as legislative history, case law,
or commentators, to indicate that the drafters of the Lausanne
Convention intended the term “postal administrations” in Article
44 to include independent contractors such as Pan Am. There is
simply no justification to stretch the postal convention language
beyond its plain meaning. See Sumitomo Shoji America, Inc. v.
Avagliano, 457 U.S. 176, 180 (1982); Maximov v. United States,
373 U.S. 49, 54 (1963); The Five Per Cent. Discount Cases, 243
U.S. 97, 106 (1917) (“a strong presumption that the literal
meaning is the true one”).
If federal common law governs the relationship between Lera-
koli and Pan Am, then the lower courts should have followed
this Court’s analysis in Herd. In failing to do so, the circuit court
made a fundamental error on a matter of importance to those
who use and rely on the mails.
Conclusion
Certiorari should be granted.
Respectfully submitted,
JOHN R. FOSTER
120 Broadway, Suite 1825
New York, New York 10271
(212) 227-3550
Counsel for Petitioners
WAESCHE, SHEINBAUM &
O’REGAN, P.C.
Of Counsel
June 20, 1986
Al
Opinion of the United States Court of Appeals
for the Second Circuit.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
>
’
No. 196—August Term, 1985
(Argued October 22, 1985 Decided February 5, 1986)
Docket No. 85-7503
LERAKOLI, INC.; LONDON STAR, NEW YorRK, INC.;
TACHE ET CIE, S.A.; LIEBER & SoLow, INC.;
SoucoL, LTp.; RouGH DIAMOND TRADERS, INC.;
and SEVEN EIGHTEEN FIFTH AVENUE CorpP.,
Plaintiffs-A ppellants,
—against—
PAN AMERICAN WORLD Airways, INC.,
Defendant-A ppellee.
Before:
PreERCE, MINER and Davis*,
Circuit Judges.
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.
JOHN R. FosTER, New York, N.Y., (Waesche,
Sheinbaum & O’Regan, New York, N.Y.
of counsel), for Plaintiff-A ppellant.
*Honorable Oscar H. Davis, of the United States Court of Appeals for
the Federal Circuit, sitting by designation.
A2
Opinion of the United States Court of Appeals
for the Second Circuit
JoHN R. Romans, New York, N.Y., (Curtis,
Mallet-Prevost, Colt & Mosle, New York,
N.Y., of counsel), for Defendant-A ppellee.
MINER, Circuit Judge:
The issues presented by this appeal are whether an agent of
the United States Postal Service (“USPS”) may assert the liabil-
ity limitation of the United States Postal Union Convention, Jan-
uary 1, 1976, 27 U.S.T. 345, T.LA.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 own-
ers of eleven packages, alleged to have contained diamonds, de-
livered 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.’
Two of these sacks never were delivered in Belgium and never
were recovered. The third sack was delivered in Germany, where
1Pan Am was given AV-7 forms with each sack. These forms gave the
serial numbers of the sacks and their gross weights but did not state the
contents of each package.
A3
Opinion of the United States Court of Appeals
for the Second Circuit
postal authorities discovered, upon breaking the seal, that Lera-
koli’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 es-
tablishes 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.? 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 Conven-
tion.* 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 bail-
ment and negligence claims on the ground that the liability limi-
tation of the Lausanne Convention also applied to Pan Am as
an agent of the USPS. Lerakoli, Inc. v. Pan American Airways,
Inc., No. 82-3663 (E.D.N.Y. Feb. 15, 1983). However, the
court denied Pan Am’s motion as to the conversion claim, with
leave to renew, following the established rule that liability limi-
tations may not be applied to diminish liability for an intentional
act of misconduct. The court therefore permitted Lerakoli an op-
portunity 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
*The action initially was commenced in New York State Supreme Court
and was removed to federal district court by the USPS.
3Lerakoli does not appeal this aspect of the district court’s decision.
a
A4
Opinion of the United States Court of Appeals
for the Second Circuit
carrier-agent of the USPS. Lerakoli, Inc v. Pan American Air-
ways, Inc., No. 82-3663 (E.D.N.Y. April 17, 1985). Conse-
quently, the court dismissed the claim on the ground that Lera-
koli, after being given an opportunity for discovery, had failed
to present any evidence of an intentional act by Pan Am, as re-
quired by federal law.* See Berner v. British Commonwealth Pa-
cific Airlines, Ltd., 346 F.2d 532, 536-37 (2d Cir. 1965), cert.
denied, 382 U.S. 983 (1966).
Lerakoli now challenges the district court’s rulings on several
grounds. First, it contends that the terms of the Lausanne Con-
vention 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 Lau-
sanne 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, Lera-
koli contests the district court’s application 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 1.C.C. Metals, Inc. v. Municipal
Warehouse Company, 50 N.Y.2d 657, 431 N.Y.S.2d 372 (1980),
should govern.
4Soucol, Inc., one of the plaintiffs, also moved for partial summary judg-
ment on the issue of liability on the conversion claim. The district court
denied this motion.
AS
Opinion of the United States Court of Appeals
for the Second Circuit
Il. Discussion
A. Liability Limitation Under the Lausanne Convention
The Lausanne Convention is one of an assortment of interna-
tional agreements, federal statutes and agency regulations gov-
erning the transportation of domestic and international mail in
the United States, Article 44 of the Convention, in pertinent part,
provides that “[p]ostal administrations shall be liable only for
the loss of registered items,” and that “[iJn case of loss of a regis-
tered 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 ad-
dressed 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 cer-
tain 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 non-
delivery, 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 39 C.F.R. §§ 161.2(a), 161.2
(b)(2) (1985). He posited that if the USPS were to be con-
sidered a bailee,® the carrier then would be a sub-bailee. As such,
the carrier would be “a party to all of the express or implied rights
*The USPS has been characterized as a bailee of registered mail in past
litigation. United States Fidelity & Guaranty Co. v. United States, 246
F. 433, 435 (9th Cir. 1917).
eee
A6
Opinion of the United States Court of Appeals
for the Second Circuit
and privileges of its transferor [USPS] arising under the original
bailment,” Caribe, slip op. at 18-19, and, if any limitation of lia-
bility 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.” Jd.
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 other-
wise would perform pursuant to its bailment relationship with
the sender, may assert Article 44 as a limitation upon its poten-
tial liability for the nondelivery. It is established common law
doctrine that a sub-bailee may take advantave of a liability lim-
itation 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 (1958); Schoeffer v. United Parcel Ser-
vice 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 interna-
tional mail, prescribes some of the terms to which a sender of
registered mail agrees when delivering a parcel to the USPS for
transport. These terms form the equivalent of a contractual agree-
ment between the sender and the USPS limiting the liability of
the USPS, and, pursuant to agency principles, that limitation is
passed on to any party performing services for the USPS.
The nature of air mail carriage under federal law compels this
conclusion. While the USPS is empowered to contract with air
carriers for the carriage of mail where present systems are in-
adequate, 39 U.S.C.A. § 5402 (West Supp. 1985), air carriers
also may be conscripted to provide “necessary and adequate fa-
cilities and service for the transportation of mail” pursuant to
the provisions of their certificates of public convenience and nec-
A7
Opinion of the United States Court of Appeals
for the Second Circuit
essity. 49 U.S.C.A. §§ 1371, 1375 (West Supp. 1985).* It would
be unjust indeed to require air carriers, as a condition of their
operation, to perform services otherwise the responsibility of the
USPS while at the same time denying them the benefit of the
USPS’s liability limitation.
In addition, application of Article 44 to Pan Am is appropriate
in light of the reasoning of this and other courts in decisions hold-
ing that the liability limitations for air carriers under the War-
saw Convention should be extended to employees and agents of
such carriers. E.g., Reed v. Wiser, 555 F.2d 1079, 1081 (2d Cir.)
(employees of air carrier may assert liability limitations under
Warsaw Convention even though only air carrier itself is covered
expressly), cert. denied, 434 U.S. 922 (1977); Baker v. Landsdell
Protective Agency, Inc., 590 F. Supp. 165, 170-71 (S.D.N.Y.
1984) (agents of air carrier may assert liability limitation under
Warsaw Convention) ; Julius Young Jewelry Manufacturing Com-
pany V. Delta Air Lines, 67 A.D.2d 148, 151, 414 N.Y.S.2d 528,
530 (1st Dep’t 1979) (same).
The liability limitation provision of the Warsaw Convention
could be circumvented by a suit against an employee of a carrier,
rather than against a carrier itself, without the expansive inter-
pretation we accorded that provision in Reed. This would require
a carrier “to provide indemnity for higher recoveries as the price
for service by employees who are essential to the continued oper-
ation of its airline,” Reed, 555 F.2d at 1082, and, in turn, would
require this added expense to be passed on to airline passengers.
Id.
®While Pan Am alleges that it is a contract carrier for the USPS, the
record is unclear as to whether Pan Am was carrying Lerakoli’s mail pur-
suant to a contract with the USPS or pursuant to a provision in its cer-
tificate of necessity and convenience.
A8
Opinion of the United States Court of Appeals
for the Second Circuit
The implications of failing to extend the Lausanne Convention
provision to agents of the USPS are no less severe. While the rec-
ord reveals nothing to suggest that the USPS would be compelled
to indemnify Pan Am for any recovery in this instance, it is be-
yond speculation that a limited interpretation of the Lausanne
Convention would have a major influence on the USPS’s ability
to contract with airlines for the carriage of mail in the future. At
the very least, air carriers would demand higher rates from the
USPS for this service, with such added government costs then
being passed on to the public in the form of higher postage prices.
This, in turn, would be in conflict with the obvious intent of Ar-
ticle 44: to limit the financial repercussion of the nondelivery of
registered mail on the government agency. Accordingly, Article
44 must be extended to cover the claims against Pan Am.’
B. The Conversion Claim
As Lerakoli frames the issue, disposition of its conversion claim
depends entirely upon whether we deem federal or state common
law to apply. Under federal law relating to the carriage of goods,
the party asserting a conversion claim has the burden of estab-
lishing that the carrier was responsible for the loss due to some
TLerakoli’s contentions relating to the ability of the court to extend the
protection of the Lausanne Convention beyond that which is provided by
the exact language of Article 44, and the inconsistency between such an
expansive interpretation and principles governing the liability of indepen-
dent contractors who deal with the government, are meritless. As to the
limitations of statutory construction, a more restrictive approach than the
one which we now take would not only affect Pan Am and other carriers,
but, as we have stated, also would impact upon the USPS in the long-term.
The interpretation which Lerakoli would have us adopt, therefore, would
be in direct contravention of the underlying intent of Article 44. As to
the principles governing independent contractors, such cases, which deal
with issues of sovereign immunity, have little application here.
A9
Opinion of the United States Court of Appeals
for the Second Circuit
willful or intentional conduct on its part. E.g., Glickfeld v. How-
ard Van Lines, Inc., 213 F.2d 723, 727 (9th Cir. 1954) (con-
version claim arising under the Interstate Commerce Act);
Clairol, Inc. vy. Moore-McCormack Lines, Inc., 79 A.D.2d 297,
299, 436 N.Y.S.2d 279, 280-81 (1st Dep’t 1981) (conversion
claim arising under the Carriage of Goods by Sea Act). By con-
trast, under New York law governing warehousemen, a prima facie
claim for conversion is established upon proof of delivery to the
bailee and of failure by the bailee to return the goods to the bailor
upon request. 1.C.C. Metals, 50 N.Y.2d at 665, 431 N.Y.S.2d
at 376. The bailee then has the burden of proving the cause of
the loss. Id.
The district court concluded that, like other federal provisions
governing the international carriage of goods, the Lausanne Con-
vention requires the application of federal law, and thus the court
dismissed the claim since Lerakoli had not presented “one scin-
tilla of evidence to support an inference of willful misconduct or
unjust enrichment on the part of [Pan Am].” Lerakoli II, slip op.
at 4. We agree with the district court as to the necessity for ap-
plying a federal standard of willful conduct, but also believe that
in all likelihood a New York court, applying state law, would
not apply the /.C.C. Metals rule to the facts here.
Application of federal common law to a claim depends upon
a balancing of the state and federal interests affected. In re “Agent
Orange” Liability Litigation, 635 F.2d 987, 990-95 (2d Cir.
1980), cert. denied, 454 U.S. 1128 (1981). “[BJefore federal
common law rules should be fashioned, the use of state law must
pose a threat to an ‘identifiable’ federal policy.” Id. at 995; ac-
cord Wallis vy. Pan American Petroleum Corp., 384 U.S. 63, 68
(1966). We find that the federal interest in maintaining a uni-
form scheme of regulation of international mail requires the ap-
plication of uniform liability standards for claims arising from
Al10
Opinion of the United States Court of Appeals
for the Second Circuit
the nondelivery of the mail. International mail delivery is reg-
ulated exclusively under federal law. Such a scheme necessarily
calls for uniform liability standards.
This is not uniformity “prized for its own sake,” In re “Agent
Orange” Liability Litigation, 635 F.2d at 994, but rather it is
uniformity for the preservation of federal regulatory control over
the mail. If New York law applied to all cases of nondelivery of
international mail arising in the state, the liability limitation of
the Lausanne Convention, which we have applied to Pan Am,
would be totally vitiated. Air carriers, required by federal statute
to carry mail for the USPS, would then be held liable for any
nondelivery unless they could set forth specific justifiable reasons
for the loss of the items. Such a liability standard would not only
be inequitable, given the lack of choice an air carrier has in ac-
cepting mail for delivery and its lack of knowledge of the con-
tents of specific packages, but also would be inconsistent with
federal regulation of international mail.
Conversion claims arising out of the international carriage of
goods by air or sea long have been subject to federal rules relat-
ing to burden of proof. This court and other courts routinely
have required ‘he claimant to establish a defendant’s willful or
intentional misconduct in the prosecution of claims for nonde-
livery of goods under the Warsaw Convention, admiralty law and
the Interstate Commerce Act. E.g., Berner v. British Common-
wealth Pacific Airlines, Ltd., 346 F.2d at 536-37 (Warsaw Con-
vention); Glickfeld v. Howard Van Lines, Inc., 213 F.2d at 727
(Interstate Commerce Act) ; Insurance Company of North Amer-
ica v. Deutsche Lufthansa A/G and Summit Airlines, Inc., 18
Av. Cas. (CCH) 18,232 (S.D.N.Y. 1984) (Warsaw Conven-
tion); Clairol, Inc. v. Moore-McCormack Lines, Inc., 79 A.D.
2d at 299, 436 N.Y.S.2d at 280-81 (admiralty law). The same
standard should apply here.
All
Opinion of the United States Court of Appeals
for the Second Circuit
Lerakoli’s attempt to distinguish the foregoing cases on the
ground that they deal with statutes or treaties which specifically
regulate the relationship between the two parties at issue, where-
as the Lausanne Convention merely regulates the sender’s rights
vis-a-vis the USPS, is unconvincing. By holding that Pan Am may
take advantage of the liability limitation in the Lausanne Con-
vention, we have concluded that the Lausanne Convention does
affect the relationship between the two parties here.
Finally, even if state law were to be applied, we are not con-
vinced that New York would apply the rule of I.C.C. Metals. At
issue there was the liability of a warehouseman commissioned to
store packages in a specific warehouse. The court reasoned that
because the bailee was in sole control of the packages throughout
the bailment period, it was in the best position to explain the
loss of the property. I.C.C. Metals, Inc. v. Municipal Warehouse
Company, 50 N.Y.2d at 665, 431 N.Y.S.2d at 377. The carriage
of mail by an agent of the USPS, however, obviously is quite a
different case. Mail, by its nature, does not stay in one place,
but rather changes hands numerous times in transport. Conse-
quently, the lack of control of the goods readily distinguishes this
case from I.C.C. Metals.
III. Conclusion
For the reasons set forth above, the decision of the district
court is affirmed.
Al2
Memorandum of Decision and Order of 15 February
1983 of the United States District Court for the
Eastern District of New York
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
ae
LERAKOLI, INC., ef al.,
Plaintiff,
—against—
PAN AMERICAN WORLD AIRWAYS, INC., ef ano.,
Defendant.
MEMORANDUM OF DECISION
AND ORDER
CV-82-3663
COSTANTINO, D.J.
In the above-entitled action, three motions are before the court. |
Defendant United States Postal Service has moved for an order
granting summary judgment dismissing the complaint against it
pursuant to Rule 56 of the Federal Rules of Civil Procedure. For
the reasons stated on the record at the hearing on these motions
on January 26, 1983, the court has granted the Postal Service’s
motion for summary judgment.
The second motion before the court is brought on behalf of
defendant Pan American World Airways (“Pan Am”). Defend-
ant Pan Am has also moved for summary judgment pursuant to
Rule 56 of the Federal: Rules of Civil Procedure. At the hear-
ing on this motion, the “court reserved decision. For the reasons
set forth below, the court has determined that the defendant’s
motion for summary judgment must be denied at this time, with
leave to renew if plaintiff fails to establish evidence of the al-
leged conversion.
Al3
Memorandum of Decision and Order of 15 Eebruary 1983
of the United States District Court for the
Eastern District of New York
The facts in this case may be simply stated. The plaintiff de-
livered parcels to the United States Postal Service and arranged
to have them mailed from New York to Belgium by registered
mail. The Postal Service accepted the parcels for registered mail
and delivered the parcels to defendant Pan Am to be flown to
Belgium. The parcels apparently never arrived at their destina-
tion, causing plaintiff to sustain damages of allegedly over four
million dollars.
This court’s dismissal of the complaint against the Postal Ser-
vice was predicated upon its determination that the Postal Service
had tendered to the plaintiff the maximum indemnity allowed
by law. It is the contention cf defendant Pan Am, that as either
an agent or sub-bailee of the Postal Service, it is entitled to that
same limitation of liability. If this action was one limited to ques-
tions of liability based on common-law principles of bailment or
negligence, the court would not quarrel with Pan Am’s assertion.
In a similar case, Caribe Diamond Works, Inc. v. Eastern Air-
lines, 71 Civ. 2875 (S.D.N.Y. June 24, 1974), Judge Brieant in-
dicated little doubt that an air carrier in these circumstances,
would be deemed a sub-bailee of the Postal Service. As such, its
liability would not exceed that of the bailee from whom the sub-
bailee received the original bailor’s goods. See Berger v. 34th
Street Garage, Inc., 171 N.Y.S.2d 824 (1958). In the case at
bar, the plaintiff in addition to negligence and bailment theories,
has also alleged that the loss was due to the defendant Pan Am’s
conversion of the parcels. It is well settled that prior limitations
of liability may not be applied so as to diminish one’s liability for
injuries resulting from an intentional act of misconduct. J.C.C.
Metals, Inc. v. Municipal Warehouse Co., 431 N.Y.S.2d 372
(1980); Restatement, Torts 2d, §500. Policy considerations sim-
ply could not allow such limitations on liability.
Al4
Memorandum of Decision and Order of 15 February 1983
of the United States District Court for the
Eastern District of New York
Accordingly, it is the order of this court that summary judg-
ment must be denied at this time, with leave for defendant Pan
Am to renew the motion should discovery by plaintiff fail to pro-
duce evidence of conversion.
The final motion before the court in this matter is plaintiff's
motion pursuant to Rule 12(f) of the Federal Rules of Civil Pro-
cedure, to strike Pan Am’s seventh affirmative defense as legally
insufficient.
In its seventh affirmative defense, Pan Am has raised the two-
year limitation on actions set forth by the Warsaw Convention.
It is the position of the plaintiff that this convention is inappli-
cable to the present dispute and therefore this defense should be
stricken pursuant to Rule 12(f). For the reasons set forth below,
this court agrees and thereby grants plaintiff's motion to strike.
Article 2(2) of the Warsaw Convention eliminates interna-
tional mail shipments from the scope of the Convention’s cover-
age:
(2) This convention shall not apply to transportation per-
formed under the terms of any international postal con-
vention.
At the time that Pan Am. was carrying plaintiff's packages,
there was in effect the so-called Lausanne Convention, between
the United States, Belgium, and other nations, governing the car-
riage of air mail between the United States and Belgium. The
court has determined that the Lausanne Convention is applicable
to the parties here. It is relied upon by the plaintiff in his cause
of action against the Postal Service and by the Postal Service
for its motion for summary judgment. Pan Am, although not a
signatory of the Convention, was the self-described “agent” or
Al15
Memorandum of Decision and Order of 15 F ebruary 1983
of the United States District Court for the
Eastern District of New York
“sub-bailee” of the Postal Service, and is therefore bound by that
Convention as well.
Accordingly, plaintiff's motion to strike Pan Am’s seventh af-
firmative defense is hereby granted.
Finally, defendant Pan Am has requested that this court cer-
tify for appeal its orders denying Pan Am summary judgment
and granting plaintiff's motion to strike Pan Am’s seventh affir-
mative defense. The court is of the opinion that 28 U.S.C. §1292
is applicable to these matters and believes that an immediate ap-
peal might materially advance the ultimate termination of the
litigation.
So ordered.
U.S.D.J.
Al6
Memorandum of Decision and Order of 17 April 1985
of the United States District Court for the
Eastern District of New York
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
>
—¢
LERAKOLI, INC., et al
Plaintiffs,
—against—
PAN AMERICAN WoRLD AIRWAYS, INC., et ano.,
ad Defendants.
MEMORANDUM OF DECISION
AND ORDER
CV-82-3663
COSTANTINO, D. J.
Defendant, Pan American World Airways, Inc. (“Pan Am”)
renews its motion for partial summary judgment on the issue of |
liability. Plaintiff, Soucal, Ltd., cross-moves for summary judg-
ment on the issue of liability. |
By Memorandum of Decision and Order dated February 13,
1983, this court held that Pan Am was either an agent or sub-
bailee of the United States Postal Service (“U.S.P.S.”), and as
such, plaintiffs recovery would be limited to those amounts set
forth in the Lausanne Convention with respect to causes of action
sounding in bailment and negligence.
Plaintiffs’ complaint additionally alleged a cause of action in
conversion. As to this claim it was determined that the limitation
of liability would be unavailable with respect to injuries resulting
from willful misconduct.
|
Al7
Memorandum of Decision and Order of 17 April 1985
of the United States District Court for the
Eastern District of New York
Accordingly, plaintiff was given the opportunity to conduct
discovery regarding its conversion cause of action. Similarly, de-
fendant was given leave to renew the instant application “should
discovery by plaintiff fail to produce evidence of conversion.”
Familiarity with the court’s order of February 13, 1983 is pre-
sumed. For the purposes of this motion, the issues presented are
as follows:
a. whether plaintiff has established a prima facie cause of ac-
tion in conversion, and
b. the choice of law to be applied in ascertaining the elements
of such a claim.
DISCUSSION
It is plaintiffs’ position that New York law should govern the
within action and that in accordance therewith, the elements of
a conversion action have been established. Defendant disagrees
and argues that federal law is more appropriately applied in this
action.
This court holds that all issues arising under the Lausanne Con-
vention must be decided according to federal law. Cf. Benjamin
v. British European Airways, 572 F.2d 913 (2d Cir. 1978). To
the extent that the Lausanne Convention creates a comprehensive
scheme regarding international transportation of mail it occupies
the field to the exclusion of state law. North American Phillips
Corp. v. Emery Air Freight Corp., 579 F.2d 229, 233-34 (2d
Cir. 1978); see also Insurance Company of North America v.
Deutsche Lufthansa A/G, 83 Civ. 8231 (S.D.N.Y. September 7,
1984) (it is inappropriate to look to state law for elucidation of
the standards to be applied under an international convention).
Al8
Memorandum of Decision and Order of 17 April 1985
of the United States District Court for the
Eastern District of New York
Conversion by an air carrier and conversion of items placed
in the mails are not areas unknown to federal law.
Accordingly, in cases involving the Warsaw Convention courts
have required the plaintiff to clearly establish that the defendant
air carrier contributed to the disappearance by some intentional
act. See Berner v. British Commonwealth Pacific Airlines, Inc.,
346 F.2d 532, 536-37 (2d Cir. 1965), cert. denied, 382 U.S. 983
(1966); see also, Olshin v. El Al Israel Airlines, 15 Av. Cas.
(CCH) 17, 463 (E.D.N.Y. 1979).
The analogy is similarly drawn in cases involving common car-
riers operating under the Interstate Commerce Act. In such cases,
courts have required the plaintiff to prove an intentional tort on
the part of the carrier before the limitation upon liability is abro-
gated. See Glickfeld v. Howard Van Lines, Inc., 213 F.2d 723
(9th Cir. 1954).
See also, Tishman & Lipp, Inc. v. Delta Airlines, 275 F. Supp.
471 (S.D.N.Y. 1967), aff'd., 413 F.2d 1401 (2d Cir. 1969)
wherein the court held:
Proof of delivery to the carrier and failure to return con-
stitute a technical conversion. The evidence has established
such a conversion. However, in order to relieve the defen-
dant [carrier] of its tariff protection, it is necessary for the
plaintiff to prove more than mere technical conversion which
has amounted to no more than negligence. Even gross neg-
ligence or proof that an employee of the defendant actually
stole the jewelry would not suffice to render the [limitation
on liability in] the tariff inapplicable . . . The plaintiff pre-
sented no evidence of conversion by the defendant itself for
its own use of the lost jewelry. [/d. at 480-81.]
Al9
Memorandum of Decision and Order of 17 April 1985
of the United States District Court for the
Eastern District of New York
_ and also, Franklin v, United Airlines, Inc., 184 F. Supp. 814
(S.D.N.Y. 1960):
Where there has been no willful wrongdoing by an unjust en-
richment of the defendant carrier, plaintiff cannot avoid
the contractual limitation of defendants’ liability by char-
acterizing a misdelivery caused by negligence or mistake,
as a “conversion.” [/d.]
The court has reviewed all of the materials submitted on the
instant motion as well as the previous motion for summary judg-
ment and finds not one scintilla of evidence to support an infer-
ence of willful misconduct or unjust enrichment on the part of
defendant.
Accordingly, Pan Am’s motion for partial summary judgment
is granted. Soucal, Ltd.’s cross-motion is denied.
So ordered.
U.S.D.J.
A20
Judgment of the United States Court of Appeals
for the Second Circuit
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
¢@
At a stated Term of the United States Court of Appeals for the
Second Circuit, held at the United States Courthouse in the City
of New York, on the fifth day of February one thousand nine
hundred and eighty-six.
Present:
HON.: LAWRENCE W. PIERCE,
HON.: ROGER J. MINER, Circuit Judges
HON.: OSCAR H. DAVIS*,
LERAKOLI, INcC.; LONDON STAR, NEW York, INC.;
TACHE Et Cir, S.A.; LigeBER & SoLow, INC.;
SoucoL, Ltp.; RouGH DIAMOND TRADERS, INC.;
and SEVEN EIGHTEEN FIFTH AVENUE COoRP.,
Plaintiffs-A ppellants,
—against—
PAN AMERICAN WORLD AIRWAYS, INC.,
Defendant-A ppellee.
Docket No. 85-7503
Appeal from the United States District Court for the Eastern
District of New York
This cause came on to be heard on the transcript of record from
the United States District Court for the Eastern District of New
York, and was argued by counsel.
*Honorable Oscar H. Davis, of the United States Court of Appeals for
the Federal Circuit, sitting by designation.
A21
Judgment of the United States Court of Appeals
for the Second Circuit
ON CONSIDERATION WHEREOF, it is now hereby or-
dered, adjudged and decreed that the Order of said District Court
be and it hereby is Affirmed in accordance with the opinion of
this court with costs to be taxed against the appellants.
ELAINE B. GOLDSMITH
Clerk
By Epwarp J. GUARDARO
Deputy Clerk
A22
Order of the United States Court of Appeals for the
Second Circuit denying rehearing
UNITED STATES COURT OF APPEALS
SECOND CIRCUIT
~~
At a stated term of the United States Court of Appeals, in and
for the Second Circuit, held at the United States Courthouse,
in the City of New York, on the 24th day of March one thou-
sand nine hundred and eighty-six.
LERAKOLI, INc.; LONDON STAR, NEW YorK, INC.;
LieBer & SALow, INc.; SoucoL, LtTp.; RouGH DIAMOND
TRADER, INC.; and SEVEN EIGHTEEN FIFTH AVENUE CorpP.,
Plaintiffs-A ppellants,
—against—
PAN AMERICAN WORLD Airways, INC.,
Defendant-Appellee.
Docket No. 85-7503
A petition for rehearing containing a suggestion that the ac-
tion be reheard in banc having been filed herein by counsel for
the Appellant—LERAKOLI INC.
Upon consideration by the panel that heard the appeal, it is
Ordered that said petition for rehearing is DENIED.
It is further noted that the suggestion for rehearing in banc
has been transmitted to the judges of the court in regular active
service and to any other judge that heard the appeal and that no
such judge has requested that a vote be taken thereon.
ELAINE B. GOLDSMITH
Clerk
A23
Article 44 of the Universal Postal Union Convention
UNIVERSAL POSTAL UNION CONVENTION
Article 44
Principle and extent of liability of postal administrations
1. Postal administrations shall be liable only for the loss of
registered items. Their liability shall be as binding for items con-
veyed a découvert as for those forwarded in closed mails.
2. Administrations may agree to total theft of or total dam-
age to the contents of registered items being equated with the
loss thereof, provided that the packing was recognized as suffi-
cient to effectively guarantee the contents against accidental risks
of theft or damage and that the irregularities in question were
established before delivery of the item was taken by the ad-
dressee, or by the sender in the case of return to origin.
3. In 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 per item; this amount may be raised to 200 francs for
each special bag of printed papers such as is mentioned in article
19, §11.
4. The sender may waive this right in favour of the addressee.
The sender or the addressee may authorize a third person to re-
ceive the indemnity if internal legislation allows this.
5. Notwithstanding §3, the addressee shall be entitled to the
indemnity after taking delivery of a totally rifled or totally dam-
aged item where administrations make use of the option pro-
vided in §2. He may waive his rights in favour of the sender.
A24
28 U.S.C. §1441
Actions removable generally
(a) Except as otherwise expressly provided by Act of Con-
gress, any civil action brought in a State court of which the dis-
trict courts of the United States have original jurisdiction, may
be removed by the defendant or the defendants, to the district
court of the United States for the district and division embracing
the place where such action is pending.
(b) Any civil action of which the district courts have original
jurisdiction founded on a claim or right arising under the Con-
stitution, treaties or laws of the United States shall be removable
without regard to the citizenship or residence of the parties. Any
other such action shall be removable only if none of the parties
in interest properly joined and served as defendants is a citizen
of the State in which such action is brought.
(c) Whenever a separate and independent claim or cause of
action, which would be removable if sued upon alone, is joined
with one or more otherwise non-removable claims or causes of
action, the entire case may be removed and the district court may
determine all issues therein, or, in its discretion, may remand all
matters not otherwise within its original jurisdiction.
(d) Any civil action brought in a State court against a for-
eign state as defined in section 1603(a) of this title may be re-
moved by the foreign state to the district court of the United
States for the district and division embracing the place where such
action is pending. Upon removal the action shall be tried by the
court without jury. Where removal is based upon this subsection,
the time limitations of section 1446(b) of this chapter may be
enlarged at any time for cause shown.
A25
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc.,
No. 71-2875 (S.D.N.Y. June 24, 1974)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
}
CARIBE DIAMOND WorKS, INC.,
Plaintiff,
—against—
EASTERN AIRLINES, INC.,
Defendant.
71 Civ. 2875-CLB
# 40855
FINDINGS AND CONCLUSIONS
Brieant, J.
By this action commenced in the Supreme Court of the State
and County of New York on or about June 3, 1971, and removed
to this Court June 29, 1971, plaintiff, a corporation existing un-
der the laws of Puerto Rico, sued Eastern Airlines, Inc., a Dela-
ware corporation having its principal office in Florida (herein-
after “Eastern”), to recover damages arising out of the non-
delivery at New York of diamonds sent there from Puerto Rico
by registered United States mail. Judgment in the amount of
$27,472.15 was demanded.
The single claim is pleaded as three separate causes of action.
The first, based on negligence, was withdrawn. The second cause
of action asserts a theory of liability for breach of an implied
contract of bailment. In its third cause of action plaintiff seeks
to recover as a third-party beneficiary of the contracts or arrange-
ments for the carriage of air mail made by the United States Pos-
tal Service with defendant.
A26
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc.
No. 71-2875 (S.D.N.Y. June 24, 1974)
The Court has jurisdiction of the subject matter by reason of
diversity of citizenship in a matter in which the claim exceeds
the sum of $10,000.00, exclusive of interest and costs [28 U.S.C.
§1332(a)(1)], and in addition may have such jurisdiction under
28 U.S.C. §§1331(a), 1339, because the action is one relating
to the postal service, and because the activities of Eastern are reg-
ulated by the Federal Aviation Act of 1958 (49 U.S.C. §1301,
et seq.), and the Postal Service Act (39 U.S.C. §1, et seq.).
Defendant filed its answer on July 2, 1971. Besides pleading a
general denial. Eastern asserted that the complaint does not state
a claim, and that because it was required, by reason of various
federal statutes, to receive and transport all mail tendered to it
by the United States Postal Service, it was acting with respect
to the mail as a public agent for the sovereign, as opposed to the
consensual relationship of bailment. Defendant also asserts that
its liability, if any, for loss or damage to U.S. mail in its custody.
runs only to its principal, the United States Postal Service, and
that there is no privity of contract or obligation between plain-
tiff and defendant giving rise to any right or claim to proceed
directly against the carrier of mail. Defendant also pleaded that
its liability was limited to the fine or a penalty which might be
levied against it by the Postal Service, in accordance with its
various regulations.
The case was tried before me without a jury on January 2 and
January 11, 1974. Decision was reserved, and the briefs and post-
trial memoranda of the parties have been received and considered.
Plaintiff, a diamond merchant, in 1969 purchased rough in-
dustrial diamonds in Israel, and had them sawed and polished
there. The rough diamonds, bought in two lots, cost $21,514.00.
Plaintiff's expenditure in Israel for cutting and polishing amounted
to $2,115.23, making a total cost of $23,629.23, stated as
$23,654.23 in plaintiff's deposition.
A27
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc.
No. 71-2875 (S.D.N.Y. June 24, 1974)
After the diamonds arrived in Puerto Rico, they comprised
147.41 carats of polished stones. Mr. Henry Reinhold, President
of plaintiff, inspected the diamonds, and they were packed under
his supervision into a cardboard box for mailing, measuring ap-
proximately 5% inches in length, 3% inches in width, and 2
inches in depth. The diamonds as so packaged were addressed to
Reinbro Corporation (Attention: A. R.), 277 Park Avenue, New
York, N.Y. 10017. “Reinbro” is an abbreviation for Reinhold
Brothers, a firm affiliated with plaintiff.
Plaintiff's mailing activities were supervised by the witness Bo-
relli, who shows a satisfactory chain of possession from the time
when the 147.41 carats of diamonds were set aside for consign-
ment to New York by Henry Reinhold, until their delivery to a
messenger for transportation to the U.S. Post Office at Old San
Juan Station, San Juan, Puerto Rico.
Plaintiff, as a regular user of registered mail for this purpose,
had been assigned a series of parcel numbers for its use and was
permitted to fill out United States Post Office Form 3877, Exhibit
2, a document by which the Postal Service acknowledges receipt
of a list of registered items mailed by such a patron. The number
assigned to this particular parcel was L 6-698X. In the regular
course of business, the book containing P.O.D. Form 3877, al-
ready filled out in duplicate with carbon paper in it, and the pack-
age, with three others not relevant to this case, were taken to
the aforementioned Post Office where a postal clerk checked the
packages against the receipt form, signed one copy for plaintiff's
records, and put the Post Office stamp or “plug” of the Old San
Juan Station, dated November 3, 1969, thereon, to indicate re-
ceipt of the package and payment of the postage and registry
fees. Plaintiff declared a value thereon of $23,000.00.
I am satisfied, based upon the Exhibits and the testimony ad-
A28
Caribe Diamond Works, inc. v. Eastern Airlines, Inc.
No. 71-2875 (S.D.N.Y. June 24, 1974)
duced before me that plaintiff has proven receipt of the package
by the U.S. Postal Service at Old San Juan Station on November
3, 1969, and that the package actually contained the diamonds
hereinbefore referred to, and that the value thereof at the time
of shipment was $23,000.00. While the inventory value is slightly
in excess of that amount, and tie sum contains no allowance for
profit, transportation or duty, the Court considers plaintiff es-
topped by its own declaration to claim here a greater value than
the sum of $23,000.00 stated to the Postal Service authorities at
the time of shipment. This declaration is viewed as an admission
against interest.’
Plaintiff's registered package No. L 6-698X next came into
the possession of the General Post Office at San Juan on Novem-
ber 3, 1969. Postal employees there prepared P.O.D. Form 3853
(Exhibit 6), recorded on its records as waybill No. 728. There,
some 49 items of registered mail, all destined for the General
Post Office at New York, New York (located at 8th Avenue and
2°rd Street in Manhattan, hereinafter for convenience “GPO,
N.Y.” or “General Post Office at New York”), were placed in
a mail bag, within another, locked mail bag or pouch, and were
listed on Exhibit 6, with the offices of origin. Included therein
was plaintiff's aforementioned registered package containing the
diamonds.
This record, Exhibit 6, is regularly kept in the course of the
business of the U.S. Postal Service. A copy is retained at the Gen-
eral Post Office in San Juan, and the original is placed in the
interior mail sack, along with the registered mail listed thereon.
Upon receipt of that locked bag or pouch at GPO, N.Y., the right
hand side would have been torn off, stamped and dated with
Plaintiff has collected the sum of $27,472.15 from its insurance un-
derwriters against a loan receipt, and the action is in fact being main-
tained by the insurer as subrogee.
A29
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc.
No. 71-2875 (S.D.N.Y. June 24, 1974)
New York’s plug, and returned to San Juan Post Office by or-
dinary mail. As to this waybill, no such receipt was ever returned.
In the event of non-delivery, the copy of the waybill retained at
San Juan is point of beginning for investigation by the Postal
Inspector of non-delivery.
In the regular course of business of the Postal Service, the air
mail route and flight number is entered on the waybill at two
places. This particular pouch or sack is indicated as EA-928. The
EA stands for Eastern Airlines, and flight 928 is the number
of a regularly scheduled flight which Eastern operated from San
Juan, Puerto Rico to John F. Kennedy International Airport
(hereinafter “JFK”) in New York City on November 3, 1969.
Accordingly, this document is some evidence that the registered
parcel containing plaintiff's diamonds was in fact consigned and
delivered to that flight, and accepted and carried by defendant.
Defendant receives such bags up to the limits of weight and vol-
ume which its aircraft can accept. Under regular procedures, it
issues no detailed receipts or manifests, and obtains no record
identifying what is discharged.
Testimony indicates the controverted fact of carriage by East-
ern of this particular pouch cannot be determined with absolute
certainty. In the event of delays or confusion between the Post
Office loading dock and the airplane, the cancellation of a par-
ticular flight, or other reasons, it is possible for air mail to leave
on a different flight of the same carrier, or indeed, on the air-
craft of a different carrier.
An expert witness testified that with respect to practices at JFK,
which he and the Court believes are followed generally in the
Postal Service, it was “95% certain” that the mail would have
been carried on the noted flight, and by the carrier listed on the
waybill. Obviously the entry on the waybill listing the carrier
A30
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc.
No. 71-2875 (S.D.N.Y. June 24, 1974)
and flight is a required entry, which the form indicates is to be
made by the Postal authorities, and we assume that they do not
make such entry simply for a useless purpose, or other than in
the regular course of business.
The designation of a flight on a waybill will be inaccurate un-
der circumstances known in the industry as “creeping delay,” that
is, the cancellation or delay of a flight which results in mail which
is already bagged, being taken away from that flight and given
to another flight of the same carrier, or a different carrier. When
this occurs, the waybill cannot be changed because it is already
within the locked pouch, which is presumably then standing on
a cart with other pouches on the tarmac awaiting loading. The
witness Muessig explained, and the Court finds that (Tr. p. 44):
“A. ... You can have the situation where you have a can-
celled flight at the last minute. You could have a de-
layed flight over two hours. You could have a creep-
ing delay in which the airline themselves don’t know
what time they are going to leave. They keep telling
you later and later. Eventualiy, you take the package
away.
ca + *
THE COURT: ‘A different carrier or a different flight?
THE WITNESS: Sometimes a different carrier.
THE COURT: Without changing the bill?
THE WITNESS: Yes.
THE COURT: Something can go on a different air-
line with a bill made out to Eastern?
THE WITNESS: Providing the airline has service.
Q. ... it’s possible to conclude, then, if things go smoothly,
then, the Post Office knows what flight gets what bag
of mail?
A. I would say yes.”
WL
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc.
No. 71-2875 (S.D.N.Y. June 24, 1974)
In 1969, in addition to Eastern, Pan American and Trans-
Caribbean airlines were carrying mail from San Juan to JFK.’
Plaintiff has proved to my satisfaction by a preponderance of
the credible evidence, that Eastern’s flight No. 928 did in fact re-
ceive plaintiff's registered parcel from the Post Office. The oc-
currence of this fact is “more likely or probable than not,” and
that is the standard which we follow. United States v. Masiello,
235 F.2d 279, 286 (2d Cir. 1956, conc.op. Frank, J.), cert.
denied sub nom United States v. Stickel, 352 U.S. 882 (1956).
There is no evidence in this particular case that the flight listed
was not the flight used for the shipment, or that it was late, or
cancelled on that date. I find that the entry of the Postal Service
made on Exhibit 6 at San Juan on November 3, 1969 was made
in the regular course of business, and is valid.
Once aboard Eastern’s aircraft, there is a difficulty of proof
as to what happened to plaintiff's diamonds. Post Office records
do not indicate whether the Post Office Air Mail Facility at JFK
(“AMF Kennedy”) received the bag or pouch that contained
the mail with the registry numbers shown on Exhibit 6, including
plaintiff's diamonds. Nor would such records be expected to show
the receipt or non-receipt thereof. The pouch or mail sack was
labeled directly for “New York, N.Y.”, and according to the wit-
ness Muessig, would go in transit to GPO, N.Y. without being
opened or recorded at AMF Kennedy.
2Mail could be shifted from the carrier and flight designated on the way-
bill, to another flight, or a different carrier, simply by loading it on another
aircraft, and this could be done without violating any postal regulation.
Also, all air mail is required to be prepared ready for shipment forty-five
minutes before the departure time of the aircraft, to permit loading and
weighing. This is known as the “cut off time”. If postal employees have a
partially completed waybill in course of preparation, and don’t make the cut
off time for any reason, that mail would go on the next available flight,
regardless of what flight might be shown on the document.
A32
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc.
No. 71-2875 (S.D.N.Y. June 24, 1974)
Under the circumstances affecting Exhibit 6, it would, in the
ordinary course of events, be received inside the pouch at the New
York, N.Y. General Post Office, and stamped and signed there
to be returned to San Juan as a receipt for the entire shipment.
If no such receipt were received within five days, San Juan would
notify the Inspection Service, which initiates a “classified,” or
quasi-criminal case, and makes a detailed investigation of every
step through which the pouch would have passed.
Classified files of the U.S. Postal Service showed that the
pouch containing plaintiff's diamonds never reached the destina-
tion at GPO, N.Y. This was true with respect to all the registered
mail listed on the waybill.
Testimony of the witness Muessig that it is “almost impossible”
that the pouch did come into AMF Kennedy is not credited by
the Court. The steps which the pouch would have followed is
that it would be unloaded from Eastern Airlines flight No. 928
on the tarmac by personnel employed by Eastern. It would be
transported from the aircraft to the postal premises referred to
as the “wind tunnel” at AMF Kennedy by a motor vehicle also
operated by Eastern employees. It would then be placed by pos-
tal employees in a locked truck and proceed by highway to the
General Post Office, New York, N.Y., at 8th Avenue and 33rd
Street, Manhattan, where another postal employee having a key
to the truck would unlock it. The pouch would then be opened,
receipted, and the right, or receipt half of Exhibit 6 mailed to San
Juan as previously noted.
It is most likely that the pouch was stolen. But it is equally
likely that it could have been stolen at any point between the
unlocking of the cargo doors of the aircraft at JFK, and arrival
and unloading of the locked truck at the New York General Post
Office. Accordingly, plaintiff fails in its proof that the package
was stolen while it was in the possession of Eastern.
A33
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc.
No. 71-2875 (S.D.N.Y. June 24, 1974)
At the wind tunnel in AMF Kennedy, there is a receiving clerk
employed by the postal service. He checks the label to determine
whether a pouch or bag is addressed either to GPO, New York,
N.Y. or AMF Kennedy (for re-sort). The bag then goes through
the conveyor belt system. If consigned to GPO, New York, N.Y.,
it would go right from the belt onto the truck for that Post Office.
As noted, there is no receipt signed at Kennedy, and no record
made with respect to a pouch such as the one at issue in this case.
There is no record regularly maintained to indicate that this
specific pouch was discharged from the aircraft at Kennedy, or
that it passed through the Air Mail Facility of the Postal Service
there. All evidence is to the effect that it was never received
at New York, N.Y. General Post Office.
On the entire record before me, it is equally consistent with the
known facts that the theft could have occurred at AMF Kennedy,
or en route to General Post Office, N.Y., or even within the Gen-
eral Post Office; as that it could have occurred while the package
was in the possession of Eastern. This finding is made, however,
recognizing that the security maintained once the pouch entered
a postal service building is much greater than the security in the
hands of Eastern. The truck transporting mail to the General
Post Office, New York, N.Y. is locked; keys are in the possession
of persons at both ends of the trip, and anyone stealing plaintiff's
package would have had to steal the entire mail sack, a difficult,
but not impossible task.*
8Inspector Dolan testified:
“A. It’s not been my experience while there that we could ever pin-
point any losses occurring between Kennedy and GPO New
York where an employee had grabbed a whole pouch of mail.
The only time we had ever arrested postal employees where an
individual piece, where there may have been a bag cut, where
(Footnote continued on following page)
A34
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc.
No, 71-2875 (S.D.N.Y. June 24, 1974)
We now examine the evidence bearing on plaintiff’s contention
that the entire pouch was stolen at JFK, while in the possession
of Eastern.
Postal Inspector Dolan testified for plaintiff. His duties included
investigation of thefts of mail. In 196° Mr. Dolan was investigat-
ing the theft or disappearance of the particular bag which con-
tained the registry waybill, Exhibit 6, and was investigating other
losses at JFK. There was in Inspector Dolan’s words, “a pattern
of losses involving the same carrier (Eastern) at that time.” (Tr.
p. 99). Dolan considered the mail listed on Exhibit 6 as to have
been lost or stolen, and made an official investigation with re-
spect thereto. He acted in the course of his regular duties as a
postal inspector. Mr. Dolan admitted that he “couldn’t pinpoint
that particular loss.” (Tr. p. 105) except that none of the items
listed on Exhibit 6 were received at the General Post Office in
New York.
Prior to November 3rd, the Postal Service had under surveil-
lance one Perroni, an Eastern Airlines employee at JFK, and
one Cappucci, who was not an employee of Eastern. These thieves,
for such they were, were arrested on November 26, 1969 at 2:00
A.M. at Kennedy Airport. When arrested they had four air mail
(Footnote continued from previous page)
one piece is taken out of a bag, or possibly employees working
in a post office will grab a letter, two letters, or whatever.
BY THE COURT:
Q. But you are telling us you have never had the driver of a truck
Operating in the fashion in which the truck operates between
Kennedy and the General Post Office in Nek York steal an
entire pouch? Is that it?
Not during my time there, your Honor.
And that is the basis on which you conclude that it did not
happen to this particular pouch?
A. Yes, sir.”
o>
A35
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc.
No. 71-2875 (S.D.N.Y. June 24, 1974)
pouches containing registered mail which had arrived at JFK that
particular night by means of an Eastern Airlines flight. They
were arrested at a remote spot a mile and a half from the Air
Mail Facility at JFK, but within the perimeter of the Airport
property. The mai! bags or pouches found in the possession of
the two thieves did not include the bag of November 3rd in which
plaintiff's diamonds were contained.
It is normal practice for officials investigating crimes, when
they make an arrest, to conclude that the apprehended male-
factors are also the authors of all crimes within the recent past
evincing the same modus operandi. Mr. Dolan concluded that
Perroni and Cappucci were also responsible for the theft from
Eastern of the pouch mailed from San Juan on November 3rd.
Dolan attributed to them, not unreasonably, all the thefts occur-
ring about the same time and while Perroni and Cappucci were
under surveillance. He did so, notwithstanding such surveillance
had not shown them engaged in the theft of a pouch on or about
November 3rd. Accordingly, he considered all such crimes, in-
cluding that of November 3rd, solved. Perroni was the driver of
the vehicle which met Eastern’s planes on the tarmac and brought
the mail from Eastern’s planes into the “wind tunnel” of the Air
Mail Facility. His accomplice was just an outsider.
Inspector Dolan’s conclusion in this regard was eminently sen-
sible and reasonable, and represente an inference drawn from
facts, in reliance upon which the investigatory and prosecutory
functions of government reasonably may be administered. But
the November 26th theft certainly is not competent evidence
that Cappucci and Perroni stole a particular sack of mail on No-
vember 3rd. We are unable to infer solely from the subsequent
act of November 26th, coupled with the number of prior crimes
affecting Eastern having the same modus operandi, and Perroni’s
presence at the scene, employed in a sensitive job, that these two
A36
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc.
No. 71-2875 (S.D.N.Y. June 24, 1974)
thieves were the same thieves who stole another sack from Eastern
on November 3rd. Ross v. Ackerman, 46 N.Y. 210 (1871). Ac-
cordingly, there is a failure of proof that the sack was stolen at
JFK while in Eastern’s possession.
Assuming existence of the legal relationship of bailment be-
tween plaintiff and Eastern, plaintiff has failed to prove non-
delivery, an essential element of its cause of action. The burden
is upon bailor to show non-delivery by the bailee according to
the terms of the implied agreement of bailment. Roberts v. Chit-
tenden, 88 N.Y. 33, 35 (1882). Here the agreement of bailment,
if there were one, a contention Eastern controverts, called for
delivery to postal employees at AMF Kennedy, and plaintiff has
the burden of proving the failure to do so. It is this burden it has
failed to discharge, because it is just as likely as it is unlikely that
such delivery was made, and the parcel stolen later.
It is therefore unnecessary to consider in depth the legal de-
fenses raised by Eastern, previously adverted to. We should not
burden this record, and our reports with dicta, except to note that
there is substantial authority to the effect that Eastern’s position
in the matter is that of a mere agent or contractor employed to
furnish cargo space, and that no bailment relationship arises. Fur-
ther, the defendant, if regarded as an agent of the sovereign, dis-
charging a governmental function, may be immune from liabil-
ity. We do not reach these questions. Certainly there was no dona-
tive intent on the part of the Postal Service, necessary to create
a third-party beneficiary relationship for plaintiff, as pleaded in
the third count.
A further element is present in the case, although not adverted
to. Plaintiff was a substantial user of registered mail to transport
its diamonds. A person sending property by registered mail may,
at his option, pay one, higher schedule of fees, for goods not cov-
ered by commercial or other insurance.
A37
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc.
No, 71-2875 (S.D.N.Y. June 24, 1974)
Alternatively, if as here, the goods are also covered by insur-
ance, he may pay a lesser fee, in which event Postal Service lia-
bility is limited to a maximum of $1,000.00 subject to the co-
insurance pro-rating of recovery as to that amount, if the de-
ductible limit on the private insurance is less than $1,000.00. See
39 C.F.R. §§161.2(a) and 161.2(b)(2). Exhibit 2 in this case
shows plaintiff paid $3.45 surcharge, precisely equal to the fee
for a registered parcel valued, in 1969 at $23,000.00, and cov-
ered by commercial insurance. See 39 C.F.R. §161.2(a), Rev.
January 1, 1969.
If the Postal Service be regarded as a bailee, Eastern, as a
carrier of mail, which received possession of the chattel, not from
plaintiff but from the Postal Service, should be regarded as a
sub-bailee. The Postal Service had at least implied authority to
transfer possession to a scheduled airline. As such transferee of
possession, Eastern is a party to all of the express or implied rights
and privileges of its transferor arising under the original bail-
ment. If, as is apparently the case, the original bailee (Postal
Service) limited its liability to $1,000.00 or less by agreement,
or as a result of an election, or unilateral action taken by the
shipper having the effect of an agreement, then there seems to
be no reason why this limitation 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. See Robinson v. New York &
T.S.S. Co., 63 App. Div. 211, 71 N.Y.S. 424 (1st Dept. 1901);
White v. Weir, 33 App. Div. 145, 53 N.Y.S. 465 (1st Dept.
1898). This point was not argued, and of course it is unnecessary
for us to reach it, since we find that the plaintiff failed to prove
Eastern’s non-delivery by a preponderance of credible evidence.
All motions to strike evidence as to which decision was re-
served at the trial are denied. It is adjudged that all relief shall
A38
Caribe Diamond Works, Inc. v. Eastern Airlines, Inc.
No. 71-2875 (S.D.N.Y. June 24, 1974)
be denied. The Clerk of this Court is directed to enter judgment
to that effect in accordance with Rule 58(1), F.R.Civ.P.
The foregoing constitutes findings of fact and conclusions of
law pursuant to Rule 52, F.R.Civ.P.
Dated: New York, New York
June 24, 1974
CHARLES L. BRIEANT, JR.
U.S.D.J.
A39
Designation of Corporate Relationships
Lerakoli, Inc., et al., filing this petition for a writ of certiorari
as petitioners in this proceeding state that:
1. This is their original Designation of Corporate Relation-
ships pursuant to Rule 28.1.
2. Seven Eighteen Fifth Avenue Corp. is a wholly-owned sub-
sidiary of Harry Winston, Inc.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.