Petition for Writ of Certiorari — Kemper Insurance Cos. v. Federal Express Corp.
Supreme Court brief2001
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eapy | SER) 10 2008
CORRECTED
(SJ)
No. 01-426 OFFICE OF THECLERK |
IN THE
Supreme Court of the United States
KEMPER INSURANCE COMPANIES,
Petitioner,
V.
FEDERAL EXPRESS CORPORATION,
Respondent.
ON PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE First CIRCUIT
PETITION FOR A WRIT OF CERTIORARI
RosBert J. GALLAGHER
Counsel of Record
ALAN J. HOWARTH
LigesE G HowarTH
GALLAGHER & Howarth, P.C.
132 Main Street
P.O. Box 387
Haydenviile, MA 01039-0387
(413) 268-0022
Attorneys for the Petitioner
169151 ce
COUNSEL PRESS
(800) 274-3321 + (800) 359-6859
— EE
i
QUESTION PRESENTED
For over a century, federal courts have allowed common
carriers to limit their liability by contract to a value declared
by the shipper, as long as the carrier s limitation of liability
does not exempt the carrier from liability for its negligent
acts. Federal Express’s limitation of liability for valuables
(jewelry, artwork, etc.) limits the value a shipper can declare
to a maximum of $500, although Federal Express accepts
and solicits for carriage valuables worth substantially more
than $500. Thus, by artful contracting, Federal Express
exempts itself from liability by offering no terms by which
a shipper of valuables can hold Federal Express liable for
any amount approaching the actual value of the goods.
The First Circuit nonetheless held in this case that Federal
Express’s limitation of liability for valuables is enforceable
under federal common law whether Federal Express was
acting as a motor carrier or an air carrier, a ruling that deprives
the shipping public of the right to freely declare the value of
the goods they entrust to common carriers and hold common
carriers liable up to the value declared.
The question presented is:
Can a common carrier legally limit its liability where it
contractually restricts the value a shipper can declare to a
given amount but accepts shipments worth well in excess of
that given amount, thereby exempting the common carrier
from liability for its negligent acts for the difference between
the amount allowed to be declared and the actual value of
the goods?
il
STATEMENT PURSUANT TO RULE 29.6
Petitioner, Kemper Insurance Companies, states
that it has no parent corporation and that no publicly held
company owns 10% or more of Kemper Insurance
Companies’ stock.
iil
TABLE OF CONTENTS
Page
Question Presented ...........-.- eee eeeeeees i
Statement Pursuant to Rule 29.6 .............-. ii
Table of Contents ... 0... ccc ccc ccc cece ccc ccees iil
Table of Cited Authorities ..............0+0005- 1V
Table of Appendices ...........-+seeeeeeeeee vi
Opinions Below ...........--.-eeeeee eee eeees 1
Statement of Jurisdiction ...............+++45: l
Statutory Provision Involved .............-+++: 1
Statement of the Case ............cccecccccees |
A. Procedural History .............--++-++: 3
Reasons for Granting the Writ ..............--- 5
I. The First Circuit’s Decision Is Inconsistent
With Prior Decisions Of This Court. ...... 5
A. Respondent Could Have Limited Its
Liability By Choosing To Limit The
Value Of Goods It Accepts. .......... 13
II. Consequences Of The Circuit Court’s Ruling
On The Shipping Public. ..............-- 16
et ive cehe eee saewi 20
TABLE OF CITED AUTHORITIES
Page
Cases:
Adams Express Company v. E.H. Croninger, 226 U.S.
SP EU bcs caeundwaeeesberseecanawens 8
Boston & M.R.R. v. Piper, 246 U.S. 439 (1918) ... 8
Boston & Maine Railroad v. Katherine Hooker,
Re EE wa dnecbbnsceeksednueasis 8
First Pennsylvania Bank, N.A. v. Eastern Airlines
Incorporated, 731 F.2d 1113 (3d Cir. 1984) ..6, 13, 14
George N. Pierce Company v. Wells Fargo
& Company, 236 U.S. 278 (1915) ............ 8
Hart v. Pennsylvania R. Co., 112 U.S. 331 (1884) ... 6,8
Kansas City Southern Railway Company v. J.M.
Cae, Gee Ce CUED: Sa hb 00k Sékaecdess 6, 8, 12
Klicker v. Northwest Airlines, Inc., 563 F.2d 1310
Sn NOE Wikes ch dchibeiviacdcuewaeeee 13, 14
Missouri Kansas & Texas Railway Company v.
Harriman Brothers, 227 U.S. 657 (1913) ...... 7,8
New York, N.H. & Hartford R. Co. v. Nothnagle,
PO Ts MIDE obceeendbb4sces siawees 6, 8, 17
v
Cited Authorities
Page
Santa Fe P. & PR. Co. v. Grant Bros. Construction
Co., 228 U.S. 177 (1913) ..... cece cee eeeees 9
Union Pacific R. Co. v. Burke, 255 U.S. 317 (1921)
peek betas aed e ccs 7, 8, 9, 10, 11, 12, 14
Universal Computer Sys., Inc. v. Allegheny Airlines,
Inc., 479 F. Supp. 639 (M.D. Pa. oe 13, 14
Statutes:
28 U.S.C. § 1254(1) 2.0... ccc ccccevcccccccess 1
49 U.S.C. § 14706 ...... cece ee cccccceee 1, 3, 4, 6, 19
vi
TABLE OFAPPENDICES
Appendix A — Opinion Of The United States Court
Of Appeals For The First Circuit Dated June 12,
SOGE 0.0cccctcevineenaaeadihess ss teens
Appendix B — Memorandum And Order Of The
United States District Court For The District Of
Massachusetts Dated September 20, 2000 .....
Appendix C — Relevant Statute ...............
Appendix D — Contract Provisions Of Federal
SD Ce w cncedcasevacdsucenenes
Page
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15a
38a
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Petitioner respectfully petitions for a writ of certiorari
to review the judgment of the United States Court of Appeals
for the First Circuit in this case.
OPINIONS BELOW
The district court’s opinion (per Hon. Douglas P.
Woodlock, U.S. District Judge) granting respondent’s
motion for partial summary judgment and denying
petitioner’s motion to amend the complaint is published at
115 F. Supp.2d 116. The court of appeals’ opinion
(per Torruella, C.J., joined by Bownes and Lipez, JJ.)
affirming is published at 252 F.3d 509.
STATEMENT OF JURISDICTION
The court of appeals entered its opinion and judgment
on June 12, 2001. Petitioner invokes this Court’s jurisdiction
pursuant to 28 U.S.C. § 1254(1).
STATUTORY PROVISION INVOLVED
The text of 49 U.S.C. § 14706 is attached at 38a-44a.
STATEMENT OF THE CASE
At the outset, petitioner would like to stress the
importance of the affect of the circuit court’s ruling upon
the shipping public. The circuit court held that a common
carrier need not provide the shipper with any means by which
the shipper can obtain insurance from the carrier for any
appreciable percentage of the value of the item the shipper
entrusts to the carrier. By limiting the value a shipper can
2
declare to a negligible amount in proportion to the value of
the property shipped, the shipper is denied the option of
insuring the property by declaring its value on the carrier’s
bill of lading. Under the circuit court’s holding in this case,
a shipper, be it a commercial shipper or a private citizen,
would have no alternative but to approach a private insurer
in order to have the item they entrust to a common carrier
insured. Such an anomaly is inconsistent with federal
common law concerning common carriage in interstate
commerce for the following reasons:
First, a shipper would not be able to obtain insurance
for the property shipped without going through the
cumbersome and time consuming process of approaching
private insurers, and waiting for underwriting to approve
providing coverage. Even then, the private insurer could elect
not to provide coverage. If shippers, especially private
citizens, were required to obtain coverage from piivate
insurers, transportation in this country would be unduly
encumbered. This result is in stark contrast to the traditional
requirements of federal common law whereby the shipper
could obtain full coverage from the carrier by simply
declaring the value of the property on the bill of lading and
paying a higher freight charge.
Second, the carrier would have no sufficient incentive
to safeguard the property entrusted to it by the shipping
public. If the common carrier is able to exempt itself from
liability for its negligence by severely limiting the amount
of value a shipper can declare on the bill of lading, the carrier
is allowed to provide no terms by which a shipper can hold
the carrier liable for any amount approaching the value of
the property accepted for carriage. As prior rulings of this
Court nave directed, a common carrier cannot exempt itself
3
from liability because doing so is inconsistent with the
common carrier’s duty under common law to safeguard the
goods entrusted to it by the public.
A. Procedural History
Petitioner filed this action in Suffolk Superior Court in
Suffolk County, Massachusetts on May 10, 1999, as a
subrogor to recover the value of jewelry contained in eight
packages which were lost or stolen while in the respondent’s
care, custody and control. The value of the jewelry in the
eight packages was $140,500. On July 15, 1999, respondent,
the defendant below, removed the case to the United States
District Court for the District of Massachusetts.
In its initial complaint, petitioner alleged tort claims
arising under state law and a claim of breach of the
transportation contract which alleged respondent’s limitation
of liability was unenforceable because it limited the value
shipper’s could declare for valuables to $500. Respondent
moved to dismiss petitioner’s state law tort claims on the
ground such claims were preempted by federal common law.
Respondent moved for partial summary judgment as to the
breach of contract claim seeking to enforce its limitation of
liability.
Upon oral argument at the motion to dismiss and motion
for partial summary judgment hearing held on February 16,
2000, the court took respondent’s motion to dismiss and
motion for partial summary judgment under advisement and
granted petitioner’s request that the parties file supplemental
briefs to include issues regarding the applicability of
49 U.S.C. § 14706 (the “Carmack Amendment” attached as
38a-44a) and to further brief whether respondent's limitation
4
of liability for valuables, including jewelry, violated federal
common law. In addition, the court allowed the petitioner to
file a motion to amend the complaint to include two counts
arising under federal common law: Rescission Due to
Material Breach and Willful and Wanton Misconduct, as well
as a count of violation of 49 U.S.C. § 14706, as four of the
eight shipments moved from New York to Boston entirely
by truck.
By its ruling issued on September 20, 2000, the district
court granted respondent’s motion to dismiss petitioner’s
state law tort claims on the ground that said claims were
preempted by federal law, and granted respondent’s motion
for partial summary judgment as to the breach of contract
claim on the ground that respondent’s limitation of liability
for valuables did not violate federal common law and was,
therefore, enforceable. In addition, the district court denied
petitioner’s motion to amend the complaint on the ground
that it would be futile to include counts of Rescission Due to
Material Breach, Willful and Wanton Misconduct and
Violation of 49 U.S.C. § 14706.
The petitioner filed a Notice of Appeal seeking review
of the district court’s holding granting respondent’s motion
for partial summary judgment as to the breach of contract
claim and denying petitioner’s motion to amend the
complaint to include claims of Willful and Wanton
Misconduct and Violation of 49 U.S.C. § 14706. The First
Circuit affirmed the district court’s decision.
The petitioner has filed a Petition for Writ of Certiorari
based upon the issues and argument presented herein.
\
5
REASONS FOR GRANTING THE WRIT
I. The First Circuit’s Decision Is Inconsistent With
Prior Decisions Of This Court.
The principle issue presented by this petition is whether
respondent’s limitation of liability pertaining to valuables
(referred to as “items of extraordinary value” in respondent’s
air waybill and Service Guide) partially exempts respondent
from liability for its negligence and, therefore, 1s
unenforceable under federal common law. The contractual
language of the limitation pertaining to valuables is as
follows:
For other shipments, the highest declared value
is $50,000 unless your package contains items of
“extraordinary value” in which case the highest
declared value allowed is $500. (Emphasis
added.)
Items of “extraordinary value” include shipments
containing such items as artwork, jewelry, furs,
precious metals, negotiable instruments, and other
items listed in our Service Guide.
(See 47a attached.)
It is plain that the limitation as it pertains to valuables
does not allow shippers the opportunity to declare a value
greater than $500. Therefore, although respondent accepts
for carriage valuables of any worth and even solicits large
shippers of such items, respondent provides no means by
which a shipper can hold respondent liable for its negligent
6
acts in an amount greater than $500. By this language,
respondent exempts itself from liability in a manner
inconsistent with federal common law. .
This Court has not considered the validity of a common
carrier’s limitation of liability since its decision in New York,
N.H. & Hartford R. Co. v. Nothnagle, 346 U.S. 128 (1953),
and has never considered the validity of an air carrier’s
limitation of liability. In Nothnagle and a series of cases
decided by this Court in the wake of the passage by Congress
of the Carmack Amendment to the Hepburn Act in 1906
(currently codified as 49 U.S.C. § 14706), this Court set forth
the requirements by which a carrier must abide in order to
legally limit its liability under federal common law.
A carrier is liable for the actual value of the property in
its care, custody and control unless it legally limits it
liability by contract. See Kansas City Southern Railway
Company v. J.M. Carl, 227 U.S. 639, 651 (1913), quoting
Hart v. Pennsylvania R. Co., 112 U.S. 331, 340-41 (1884).
See also First Pennsylvania Bank, N.A. v. Eastern Airlines
Incorporated, 731 F.2d 1113, 1116 (3d Cir. 1984) (applying
to air carriers this basic tenet of federal common law
governing limitations of liability.).' The principle that a
1. See First Pennsylvania at 1117 applying federal common
law to air carriers:
The same principle was carried over into federal
common law when air carriers were subjected to
regulation. The reguiatory statutes did not contain
language equivalent to the Carmack amendment.
However, both the Civil Aeronautics Board and the
Federal Aviation Act contained a savings provision
(Cont’d)
7
carrier can limit its liability is based on the idea that if the
shipper and the carrier agree on a value less than the actual
value in order for a lower freight charge to be applied, the
shipper is estopped from later seeking more damages than
the agreed upon, or “declared”, value. See, for example,
Missouri Kansas & Texas Railway Company v. Harriman
Brothers, 227 U.S. 657, 668 (1913), wherein this Court wrote
in upholding a carrier’s limitation of liability:
In any event, the rate sheets do provide for a
choice between two rates, one with and one
without a declared valuation. In one case the
carrier is liable for whatever loss or damage the
shipper sustains, and in the other its liability is
limited to the valuation upon which the rate was
based. The ground upon which the shipper is
limited to the valuation declared is that of estoppel
Id. See also, Union Pacific R. Co. v. Burke, 255 U.S. 317,
321 (1921).
Petitioner is aware of no case where a carrier’s limitation
was enforced in which the shipper did not have the option of
(Cont’d)
preserving “the remedies now existing at common
law or by statute .. .” 49 U.S.C. § 1506 (1976) [now
49 U.S.C. § 40120(c) and attached as 41a]. In accordance
with section 1506, the general policy of common carrier
liability and duty to maintain reasonable and non-
discriminatory rates were applied by the federal courts
so as to recognize the doctrine developed under railroad
regulation. That section 1506 “expressly incorporated
the entire federal common law applicable to carriers”
was declared in Klicker v. Northwest Airlines, Inc.,
563 F.2d 1310, 1314 (9* Cir. 1977).
8
declaring a value of the property shipped up to the value the
carrier accepted for carriage. Respondent’s limitation,
however, does not provide the shipper with the freedom of
choosing to declare a value over $500, although respondent
accepts valuables of any value. Therefore, shippers such as
petitioner’s subrogees cannot be estopped from recovering
the actual value of their property on the ground that they did
not declare the value of their property because respondent
has denied them the opportunity to do so.
Repeatedly in cases concerning the enforceability
of a carrier’s limitation of liability, this court has stressed
the basic common law tenet that for a limitation to be
enforceable, the carrier cannot exempt itself from liability.
Please see, Nothnagle at 136; Burke, at 321-22; Boston &.
M.R.R. v. Piper, 246 U.S. 439, 444 (1918); George N. Pierce
Company v. Wells Fargo & Company, 236 U.S. 278, 283
(1915); Boston & Maine Railroad v. Katherine Hooker, 233
U.S. 97, 120-21 (1914); Missouri Kansas & Texas Railway
Company v. Harriman Brothers, 227 U.S. 657, 672 (1913);
Kansas City Southern Railway Company v. J.M. Carl, 227
U.S. 639, 649-50 (1913); Adams Express Company v. E.H.
Croninger, 226 U.S. 491, 509 (1913); Hart v. Pennsylvania
R. Co., 112 U.S. 331, 338 (1884).
Each of the cases cited instructs in no uncertain terms
that a carrier cannot stipulate away its liability for negligence.
As reiterated by this Court in Union Pacific R. Co. v. Burke:
This court has consistently held the law to be that
it is against public policy to permit a common
carrier to limit its common-law liability by
contracting for exemption from the consequences
of its own negligence or that of its servants.
9
(112 U.S. 331, 338, 5 Sup. Ct. 151, 28 L.Ed. 717,
and 246 U.S. 439, 444, 38 Sup. Ct. 354, 62 L.Ed.
820, Ann. Cas. 1918E, 469, supra), and valuation
agreements have been sustained only on principles
of estoppel and in carefully restricted cases where
choice of rates was given — where ‘the rate was
‘tied to the release.
Id. at 331. Later, in Nothnagle this Court restated its position
by the following language:
But only by granting its customers a fair
opportunity to choose between higher or
lower liability by paying a correspondingly greater
or lesser charge can a carrier lawfully limit
recovery to an amount less than the actual loss
sustained ... (citations omitted). Binding
respondent by a limitation which she had no
reasonable opportunity to discover would
effectively deprive her of the requisite choice;
such an arrangement would amount to a forbidden
attempt to exonerate a carrier from the
consequences of its own negligent acts ...
(citations omitted). “The great object of the
common law governing common carriers was to
secure the utmost care in the rendering of a service
of the highest importance to the community.
A carrier who stipulates not to be bound to the
exercise of care and diligence seeks to put off the
essential duties of his employment.” It is
recognized that the carrier and the individual are
not on equal footing.
Id. at 135-36, citing Santa Fe P. & P.R. Co. v. Grant Bros.
Construction Co., 228 U.S. 177, 184-85 (1913).
10
By accepting valuables of any value but limiting the
amount a shipper can declare to $500, respondent exempts
itself from liability for any amount over $500. Under
respondent’s limitation for valuables, a shipper has only the
choice of declaring no value, in which case respondent is
liable in the amount of $100 for its negligence, or declaring
a value of $500 no matter the worth of the property shipped.
If a shipper declares a value in excess of $500, respondent
will accept the property for carriage but the most the shipper
can recover for respondent’s negligence is $500. The circuit
court held this limitation enforceable under federal common
law. However, this Court’s prior rulings illustrate that the
circuit court’s holding was erroneous.
The case decided by this Court which is most directly
on point is Union Pacific R. Co. v. Burke. In Burke, the
carrier’s limitation clause at issue read as follows:
It is expressly agreed that the goods named in this
bill of lading are hereby valued at not exceeding
$100 per package, * * * and the liabilities of the
companies therefor in case of the total loss of all
or any of the said goods from any cause shall not
exceed $100 per package.
(Id. at 319, as quoted in the opinion.) In Burke, the petitioner
shipped 56 packages via the carrier. The carrier offered no
terms by which shippers could hold it liable for any amount
over $100, although the carrier accepted shipments worth
well in excess of $100. The court struck down the limitation
on the ground that the carrier was exempting itself from
liability for the difference between $100 and the actual value
of the goods shipped:
:
|
|
11
Upon the facts thus stated the petitioner contends
that the agreed valuation of $100 per package or
case in the Yokohama bill of lading is necessarily
imported into the uniform bill of lading, becomes
the valuation “agreed upon” within the terms and
conditions quoted in that bill, and limits the
respondent’s recovery to that amount, $5,600,
regardless of the value of the property and of the
fact that it was lost by the carrier’s negligence.
Id. at 320.
“With this contention we cannot agree.”
This court has consistently held the law to be that
it is against public policy to permit a common
carrier to limit its common law liability by
contracting for exemption from the consequences
of its own negligence or that of its servants
[citations omitted], and valuation agreements have
been sustained only on principles of estoppel and
in carefully restricted cases where choice of rates
was given — where “the rate is tied to the release.”
Id. at 321. Later in the opinion this Court explained its
reasoning in finding the limitation unenforceable under
federal common law:
To allow the contention of petitioner would permit
carriers to contract for partial exemption from the
results of their own negligence without giving to
shippers any compensating privilege.
(Emphasis added.)
12
Id. at 323. This Court struck down the limitation because it
acted to partially exempt the carrier from the consequences
of its negligence. Therefore, the Court held that although
the carrier accepted some responsibility (up to $100) for its
negligent acts, that was not enough to save the limitation.
Likewise, in Kansas City Southern Railway Company v.
J.M. Carl, this Court stated succinctly that a carrier may not
partially exempt itself from liability. In that case, the carrier
sought to enforce a limitation where the released value was
$5 per case unless the shipper declared a higher value.
Importantly, and unlike respondent, the carrier did not limit
the value a shipper could declare and, therefore, this Court
upheld the limitation because it did not represent a partial
exemption of the carrier’s liability:
Is the contract here involved one for exemption
from liability for negligence, and therefore
forbidden? An agreement to release a carrier for
part of a loss due to negligence is no more valid
than one whereby there is complete exemption.
Id. at 650.
In this case, as in Burke, the respondent places a cap on
the value a shipper can declare, but accepts packages of any
value. In Burke, the carrier exempted itself from liability over
$100. Here, respondent exempts itself from liability for over
$500 for valuables, which by their very nature are often worth
much more than $500. Therefore, while respondent accepts
and solicits valuables worth well in excess of $500,
respondent partially exempts itself from liability because
respondent’s limitation offers no terms by which respondent
can be held liable for any amount over $500.
13
A. Respondent Could Have Limited Its Liability By
Choosing To Limit The Value Of Goods It Accepts.
Numerous circuit and district courts have upheld carriers’
limitations of liability wherein carriers escape the possibility
of large, unforeseen liability resulting from valuable items
being placed in their care, custody and control without the
carriers’ knowledge, when the limitations expressly state the
carrier does not accept commodities worth more than a certain
amount. Carriers can legally limit their liability by placing
an upper limit on the value of goods they accept for carriage. -
First Pennsylvania Bank, N.A. v. Eastern Airlines, 731 F.2d
1113, 1118 (3d Cir. 1984); Universal Computer Sys., Inc. v.
Allegheny Airlines, Inc., 479 F. Supp. 639 (M.D. Pa. 1979);
Klicker v. Northwest Airlines, Inc., 563 F.2d 1310 (9th Cir.
1977). So long as the carrier allows the shipper to declare a
value up to the value a carrier agrees to accept, carriers do
not violate the rule set forth by this Court that carriers cannot
exempt themselves for liability for their negligence.
For example, in First Pennsylvania, an often cited
case, the carrier’s tariff stated that goods valued at over $500
were not acceptable for carriage. /d. at 1118. In Universal
Computer Sys., the carrier did not accept items worth
more than $500. Likewise, in Klicker, the carrier’s tariff
stated it would not accept items with a value of over $5,000.
Id. at 1314-16.
In each case, the court found the limitation to be
enforceable, rulings which are not inconsistent with this
Court’s prior rulings because, in each case, the limitation
permitted the shipper to declare a value up to the value the
carrier agreed to accept. Therefore, the limitations did not
14
exempt the carriers from liability. The circuit court
specifically recognized that in First Penns) |vania, Universal
Computer and Klicker, the carriers’ limitations expressly
stated they do not accept shipments over a certain value.
(6a-8a attached.)
The limitations in those cases are in stark contrast to
respondent’s limitation in that respondent’s limitation does
not state that respondent will not accept items over $500,
but does state that shippers cannot declare a value greater
than $500. In this way, respondent’s limitation for valuables
is like the limitation struck down by this court in Burke,
wherein the carrier accepted packages of any value but did
not offer terms by which the carrier could be held liable for
an amount greater than $100.
The First Circuit disregarded this distinction, and the
prior rulings of this Court, without addressing this Court’s
prior rulings which prohibit a carrier from exempting itself
from the consequences of its negligence. (6a-8a attached)
The circuit court failed to consider this independent
prerequisite to the enforceability of a carrier’s limitation.
Instead, the circuit court based its decision on the idea that
allowing a shipper of “items of extraordinary value”
(as defined by respondent in its limitation) to choose between
a released rate of $100 or a maximum declared value of $500
gave the shipper a fair opportunity to declare the value of its
valuable item.
The circuit court’s opinion begs the question, How low
a value can a carrier limit a shipper to declare? If a carrier
has a released rate of $100, such as respondent, and limits
the value a shipper can declare to $500, could the carrier
have also limited the value a shipper can declare to $101?
—————————— eee
15
The circuit specifically declined to answer this question,
finding that $500 was high enough without explanation.
In footnote 4 of the opinion, the circuit court wrote:
Kemper coritends that this logic would approve
of an option providing only an extra dollar of
liability. We doubt that it carries that far; at any
rate, we agree with the district court that in this
case, $500 is opportunity enough.
(See 7a attached.) Petitioner notes that the circuit found that
“$500 was enough” in a case concerning a limitation for
goods described by respondent as “items of extraordinary
value.” Under this reasoning, what is enough for a limitation
concerning general freight? $300? $2007.
The circuit court’s ruling opens up the gates of
uncertainty where this Court’s prior rulings have kept it
closed. This Court’s rulings cited above have created a bright-
line rule; i.e. carriers must allow shippers the option of
declaring a value up to the value the carrier agrees to accept
for carriage. The circuit court has impermissibly blurred the
line, creating a situation harmful to the shipping public,
as addressed below.
That respondent will accept valuable items worth more
than $500 is undisputed. In fact, as recognized by the First
Circuit in its opinion, respondent solicits shippers of valuable
items. As stated in that opinion, “the record shows that FedEx
actively solicited the carriage of jewelry clearly worth more
than $500.” (See p. 8a attached hereto.)
The reason respondent did not choose the traditional
method utilized by common carriers of limiting the value of
16
items they will accept in order to guard against unexpectedly
large liability is obvious. If respondent stated in its limitation
that it would not accept valuable items worth more than $500,
respondent would not be able to solicit and accept high value
traffic in good faith. It would be acting in contradiction to
its own contractual terms each time it solicited or knowingly
accepted high value traffic and would not be able to reap the
profits of moving such traffic.”
Respondent exempts itself from liability for its
negligence by accepting shipments worth well in excess
of $500, but limits the value a shipper can declare and, thus
limits its liability, to $500. Therefore, the First Circuit’s
decision in this case is inconsistent with prior rulings of this
Court and this writ should be granted.
II. Consequences Of The Circuit Court’s Ruling On The
Shipping Public.
Under the First Circuit’s ruling in this case, a carrier can
limit the value a shipper of valuable items can declare to
$500, even though the carrier accepts and solicits shipments
of valuables of far greater value. This ruling creates the
potentiality of serious and unfavorable consequences for the
shipping public; both commercial shippers and private
citizens.
2. In the event shippers of high value traffic do declare a value
in excess of $500 despite the fact they are prohibited from doing so
by respondent’s limitation, respondent charges a higher rate,
but denies liability in excess of $500 if something happens to the
package. Therefore, respondent does not provide a rate commensurate
with the risk assumed by respondent as required by the decisions of
this Court cited above. Respondent charges a higher rate, but does
not offer additional liability coverage.
17
First, under this ruling, a common carrier can effectively
absolve itself from liability by providing no means for a
shipper to obtain liability coverage for a shipment by
declaring the value of the shipment on the carrier’s air waybill
or bill of lading. Commercial shippers, as well as private
citizens, are left with no way to obtain liability coverage
except through a private insurer. Federal common law has
never required a shipper to approach a private insurer in order
to obtain coverage. However, under this ruling, that is the
shipper’s only choice.
Federal common law has never allowed such a burden
to be placed on the shipping public. Under this ruling, private
citizens would have to attempt to get coverage by
approaching private insurance companies. Unlike larger
commercial shippers, private citizens would be unable to
offer the same volume of shipments and would likely have
to pay more for private insurance, if they were able to obtain
coverage at all. Obtaining private insurance is also time-
consuming. This is in stark contrast to the simplicity and
efficiency of being allowed to declare the value of an item
on a bill of lading or airbill and thereby obtain coverage.
Second, because, under this ruling, a common carrier
need not provide the shipper with the opportunity to declare
the value of goods shipped and thus hold the shipper liable
therefor, the common carrier has no incentive to safeguard
the goods entrusted to it by the shipping public.
As reemphasized by this Court in Nothnagle, the last case
where this Court considered the enforceability of a common
carrier’s limitation of liability: :
The great object of the law governing common
carriers was to secure the utmost care in the
18
rendering of a service of the highest importance
to the community. A carrier who stipulates not to
be bound to the exercise of care and diligence
seeks to seeks to put off the essential duties of his
employment.
Id. at 990.
If carriers are allowed to accept shipments but offer no
means for the shipping public to hold them liable for their
negligent acts beyond a negligible amount, carriers have no
adequate incentive to safeguard the goods tendered them.
Such has been the reasoning of this Court in requiring that
carriers cannot exempt themselves from liability. Jd.
Third, the circuit’s opinion applies to common carriers
in general and the opinion is applicable to all types of freight,
not just valuables. Petitioner alleged that four of the eight
shipments moved entirely by truck from New York to Boston
and, therefore, the Carmack Amendment applied to those
shipments. The circuit court, in rendering its decision,
accepted petitioner’s allegations as true, but ruled that the
distinction made no difference. (10a)
Therefore, under this ruling, trucking companies, airlines
and railroads carrying every type of freight could limit the
value shippers could declare on bills of lading or airbills to a
negligible amount in proportion to the value of the freight
being moved. For example, for a truck load shipment worth
$50,000, the trucking company could, under this ruling,
accept the shipment but limit the value a shipper could declare
to $500, thus exempting itself from liability for any amount
over $500. If a $20,000 claim arose, the carrier could simply
pay $500, as respondent currently does, and would have no
\
19
exposure over that amount. And, as pointed out above, there
is nothing in the opinion which disallows the trucking
company from limiting the declared value to $200 or $300.
Therefore, trucking companies could do as respondent
does and deny claims of over $500 (or a lower amount) not
because they are not liable under the Carmack Amendment
(49 U.S.C. § 14706, 39a-44a), but simply because they had
a provision which did not allow shippers to declare a value
over that amount, such as respondent has. That the entire
regulatory scheme concerning resolution of claims is
undermined by the First Circuit’s ruling is not an
overstatement.
More importantly, a private citizen shipping an item
worth $10,000, for example, would have no means of
obtaining coverage for that item, except to approach a private
insurance company. The carrier could accept the item, as
respondent currently accepts such items, and if the item is
lost or damaged while in the carrier’s possession, the carrier
could simply pay some negligible amount ($500 or lower
under the circuit court’s decision) to the individual and wash
its hands of the claim.
As shown above, such a result, which is aliowed by the
circuit court’s opinion, is contrary to over a century of federal
law governing common carriers. Therefore, this court should
grant this writ to fully consider the consequences the circuit
court’s ruling has on the shipping public.
20
CONCLUSION
The circuit court’s decision in this case is inconsistent
with prior rulings of this Court and thereby creates
consequences harmful to the shipping public. Therefore, this
writ should be granted.
Respectfully submitted,
ROBERT J. GALLAGHER
Counsel of Record
ALAN J. HOWARTH
LiEsE G. HOWARTH
GALLAGHER & HowarTH, P.C.
132 Main Street
P.O. Box 387
Haydenville, MA 01039-0387
(413) 268-0022
Attorneys for the Petitioner
APPENDIX
la
APPENDIX A — OPINION OF THE UNITED STATES
COURT OF APPEALS FOR THE FIRST CIRCUIT
DATED JUNE 12, 2001
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 00-2300
KEMPER INSURANCE COMPANIES,
Plaintiff, Appellant,
Vv.
FEDERAL.@XPRESS CORPORATION, ,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
TORRUELLA, Chief Judge,
BOWNES, Senior Circuit Judge,
and LIPEZ, Circuit Judge.
* * x
June 12, 2001
TORRUELLA, Chief Judge. This appeal involves
eight packages of jewelry shipped by defendant-appellee
2a
Appendix A
Federal Express (“FedEx”). The shipper, Holmes Protection
Group, Inc. (“Holmes”), purchased third-party insurance
from plaintiff-appellant Kemper Insurance Companies, Inc.
(“Kemper”). Kemper, as subrogee, sought to invalidate the
$100 limitation of liability provided for in the relevant
shipping documents. The district court concluded that the
limitation of liability was valid, and that attempts by Kemper
to amend its complaint to include: (i) claims under the
Carmack Amendment, 49 U.S.C. § 14706; and (ii) claims of
willful and wanton misconduct, were futile. Kemper Ins. Cos.
v. Fed. Express Corp., 115 F. Supp. 2d 116 (D. Mass. 2000).
For the reasons herein, we affirm.
BACKGROUND AND PROCEDURAL
HISTORY
The relevant facts in this appeal are undisputed, with
one exception, which we note below.
Holmes tendered eight packages containing jewelry to
FedEx between June 26 and December 22, 1998. Seven of
the packages never reached their destination; one arrived
empty. Each of the packages was sent under FedEx Master
Powership Agreements, which note that FedEx limits its
liability in a manner described in its Service Guide. The
Service Guide, in turn, explains that “liability with regard to
any package is limited to the sum of $100 unless a higher
value is declared on the airbill for the package at the time of
tender, and a greater charge paid as provided ... below.”
For most types of goods, FedEx allows shippers to declare a
value up to $50,000. However, for “items of extraordinary
value,” including jewelry, the maximum declared value is
3a
Appendix A
limited to $500. Moreover, the shipping agreement provides
that “any effort to declare a value in excess of the maximums
allowed in this service guide is null and void,” and disclaims
any liability “in excess of the declared value of a shipment.”
No value was declared for any of the shipments in question.
Kemper, acting in its capacity as subrogee to Holmes,
brought claims against FedEx sounding in tort and contract.
FedEx moved to dismiss the tort claims as preempted by the
Airline Deregulation Act (ADA). Although the district court
held that the savings clause of the ADA preserved federal
common law remedies in tort for lost shipments, id. at
120-21, it concluded that the airbill limited FedEx’s liability
to $100 per shipment, that Kemper could not “avoid this
limitation by recasting its claims as tort action,” id. at 121,
and therefore granted the motion to dismiss.
With respect to the claims sounding in contract, the
district court determined that under applicable federal
common law, specifically the “released value doctrine,” the
FedEx limitation of liability provision was valid because it
allowed the shipper to increase FedEx’s exposure to $500
by declaring a higher value and paying a correspondingly
higher shipping fee. Jd. at 122-24. Moreover, the district court
noted that limitations of liability are viewed in a particularly
generous light when the shipper chooses to take out private
insurance, as did Holmes in this case. /d. at 124. The court
therefore dismissed Kemper’s claim seeking to void the
limitation on liability as contrary to public policy, id., and
granted FedEx partial summary judgment on the breach of
contract claim based on the $100 limitation of liability, id.
4a
Appendix A
Kemper also sought to amend its complaint in two ways.
which, it contended, would provide legal support for
invalidation of the limitation clause without reliance on the
released value doctrine. First, Kemper claimed that because
four of the eight packages traveled entirely by truck (instead
of by air),' the Carmack Amendment’s allegedly stricter
standard made the limitation on liability invalid with respect
to those four packages. The district court did not determine
whether the Carmack Amendment applied, instead
concluding that because the contours of the Carmack
Amendment mirrored those of the released value doctrine,
Kemper’s desired amendment was futile. /d. at 126-27.
Second, Kemper sought to amend its complaint to include
claims of willful and wanton misconduct on the part of
FedEx. Kemper alleged that FedEx had been aware of, and
ignored, the repeated theft of valuable shipped goods by
employees. Kemper argued that FedEx’s knowledge of
rampant employee theft and lack of meaningful effort to
prevent future thefts from occurring constituted willful and
wanton misconduct, and that the conversion exception to the
released value doctrine should apply.” The district court held
that even if the exception included a “level of willful and
intentional conduct . . . so egregious as to rise to the level of
conversion for [a carrier’s] own use,” Kemper had not alleged
sufficient facts to reach such a level. Accordingly, the court
1. FedEx does not concede that the four packages in question
traveled only by truck. As we explain, this factual dispute is
ultimately irrelevant to the disposition of this appeal.
2. A carrier that has converted goods to its own use cannot
enforce an otherwise valid limitation on liability. See, e.g., Deiro v.
Am. Airlines, Inc., 816 F.2d 1360, 1366 (9th Cir. 1987).
Sa
Appendix A
refused to allow the amendment to the complaint because it
would have been futile to do so. /d. at 125-26.
DISCUSSION
Our review of a grant of summary judgment is de novo,
with all material facts viewed in the light most favorable to
the opposing party. Campbell v. Washington County
Technical Coll., 219 F.3d 3, 5 (1st Cir. 2000). We review
the denial of a motion to amend a complaint for abuse of
discretion. Glassman v. Computervision Corp., 90 F.3d 617,
623 (1st Cir. 1996).
I. Federal Common Law and the Released Value
Doctrine
When a shipper (or, as here, a subrogee standing in place
of a shipper) contests the validity of a contractual clause
that limits an air carrier’s liability,’ we apply federal common
law. See Hill Constr. Corp. v. Am. Airlines, Inc., 996 F.2d
1315, 1317 (1st Cir. 1993) (citing cases applying federal law);
Diero v. Am. Airlines, Inc., 816 F.2d 1360, 1365-66 (9th
Cir. 1987); First Pa. Bank, N.A. v. E. Airlines, Inc., 731 F.2d
1113, 1115-16 (3d Cir. 1984). Although traditional common
law forbade a carrier from disclaiming liability for its own
negligence, First Pa. Bank, 731 F.2d at 1116, the released
value doctrine allows an air carrier to “limit [its] liability
3. Both sides agree that FedEx qualifies as an “air carrier” under
federal law. See 49 U.S.C. § 40102(a)(2). However, Kemper alleges
that four of the packages traveled solely by ground transportation,
and that FedEx should not be treated as an air carrier with respect to
those packages. See infra Part II.
6a
Appendix A
for injury, loss, or destruction of baggage on a ‘released
valuation’ basis.” Diero, 816 F.2d at 1365 (citing Klicker v.
Northwest Airlines, 563 F.2d 1310, 1315 (9th Cir. 1977)).
In exchange for a lower shipping rate, the shipper is deemed
to have released the carrier from liability beyond a stated
amount. Jd. However, the shipper is bound by this agreement
only if (i) he has reasonable notice of the rate structure and
(ii) he is given a fair opportunity to pay a higher rate in order
to obtain greater protection. Jd.; see also New York, N.H. &
Hartford Rail Co. v. Nothnagle, 346 U.S. 128, 134-36
(establishing doctrine for common carriers); Hill, 996 F.2d
at 1317; First Pa. Bank, 731 F.2d at 1117.
Kemper concedes that the shipper, its insured, had
reasonable notice of the limitation of liability. However, it
contends that the FedEx rate structure is not one that gives
the shipper “a fair opportunity to pay a higher rate in order
to obtain greater protection.” Diero, 816 F.2d at 1365.
Kemper argues that the contractually allowed increase to
$500 of coverage is an insufficient difference to provide a
“fair opportunity,” especially when the $500 limit applies
only to goods of “extraordinary value” such as jewelry, which
are by definition worth significantly more than that limit.
This Court has noted that “[w]Jhere air carriage ...
offer[s] the shipper a choice of paying a higher rate for greater
protection, federal courts have normally found those
limitations lawful.” Hill, 996 F.2d at 1317 (citing numerous
cases). Although we have not had the opportunity to
determine when an alternative liability limit is sufficiently
high so as to provide a “fair opportunity” to the shipper,
other courts have upheld contractual limitations of a similar
7a
Appendix A
magnitude to the one at issue here. First Pa. Bank, 731 F.2d
at 1118 (choice between $50 and $500); see alse United
States Gold Corp. v. Fed. Express Corp.,719 F. Supp. 1217,
1219 & 1225-26 (S.D.N.Y. 1989) (choice between $100 and
$500); Universal Computer Sys., Inc. v. Allegheny Airlines,
Inc., 479 F. Supp. 639 (M.D. Pa. 1979) (choice between $50
and $500); Klicker, 563 F.2d at 1314-16 (choice between
$500 and $5000). Notably, Kemper has not cited, nor have
we discovered, any case in which a court invalidated a
contract providing two discrete levels of coverage.‘ We are
loath to police this line when other courts have chosen not
to do so.
Kemper seeks to distinguish the above precedent by
pointing out, correctly, that the relevant contractual
provisions in these cases provided that the carrier would not
accept goods with a declared value above the higher
limitation. See First Pa. Bank, 731 F.2d at 1118 (“Shipments
with a declared value in excess of $500.00 are not acceptable
for transportation under this tariff.”); Klicker, 563 F.2d at
1316 (“No participating carrier will accept [property], the
declared value of which exceeds ... $5,000.”); Universal
Computer, 479 F. Supp. at 641 (“Shipments with a declared
value in excess of $500.00 are not acceptable for
transportation under this tariff.”). By contrast, not only did
the FedEx contract in question not contain such a provision,
but the record shows that FedEx actively solicited the
carriage of jewelry clearly worth more than $500.
4. Kemper contends that this logic would approve of an option
providing only an extra dollar of liability. We doubt that it carries
that far; at any rate, we agree with the district court that in this case,
$500 is opportunity enough.
8a
Appendix A
We are not convinced that this distinction makes a
difference. First, the cases upholding limitations on liability
did not rest their holdings on the fact that the carriers could
refuse goods valued at more than the maximum amount.
Second, the fact that FedEx did not retain the ability to reject
packages with a declared value of more than $500 does not
mean that the $500 limit did not provide shippers with a fair
opportunity to increase their coverage by paying a higher
rate; it only meant that they could not necessarily insure their
packages at full value through the carrier. Kemper has
conceded that the released value doctrine does not require
carriers to offer a full value rate.
Moreover, the fact that third-party insurance was
available, and was purchased by the shipper, counsels against
invalidating the limitation on liability. “[A shipper] cannot
contend that it was not given a ‘fair opportunity’ to opt for
higher coverage [when that shipper] did opt for higher
coverage when it insured [its package] through an
independent entity.” Vision Air Flight Serv., Inc. v. M/V Nat'l
Pride, 155 F.3d 1165, 1169 (9th Cir. 1998); see also
Travelers Indem. Co. v. Vessel Sam Houston, 26 F.3d 895,
900 (9th Cir. 1994) (deliberate choice to opt-out of higher
coverage indicates existence of a fair opportunity). This is
especially true when the plaintiff is not the shipper itself,
but the subrogated third-party insurer of the package. In such
a case, “it is always in the best interest of a shipper’s
insurance company to argue that the shipper was denied a
fair opportunity to opt for higher liability. ... ‘As best we
can tell, [the insurer] is now bringing this lawsuit in an
attempt to shift . . . the burden of loss it was paid to insure.’ ”
Travelers Indem., 26 F.3d at 900 (citing Carman Tool &
9a
Appendix A
Abrasives, Inc. v. Evergreen Lines, 871 F.2d 897, 901 n.10
(9th Cir. 1989)). “The [third-party] insurer merely stands in
the shoes of the shipper, however, and cannot argue as if the
shipper did not make the decision to insure separately.” Read-
Rite Corp. v. Burlington Air Express, Ltd., 186 F.3d 1190,
1199 n.4 (9th Cir. 1999).
Lastly, we must point out that Kemper is in no way
harmed by this type of limitation clause; in fact, it is the
very existence of such a limitation that allows, Kemper to
market third-party package insurance. If FedEx altered its
contracts to offer the type of first-party insurance suggested
by Kemper, a shipper would either choose to insure through
FedEx and not purchase supplementary insurance from
Kemper, or would choose the lower released value and
purchase the same coverage from Kemper, which in that case
admits it would have no cause of action under the released
value doctrine. See Travelers Indem., 26 F.3d at 900 (“Why
would [the shipper] increase its costs by insuring the same
cargo twice?”’); cf. Glickfeld v. Howard Van Lines, 213 F.2d
723, 726-27 (lack of prejudice stemming from deviation in
bill of lading prevented recovery). Even if the released value
doctrine technically provides Kemper a cause of action as
subrogee, we are not overly sympathetic to the insurer’s
plight on these facts.
II. Claims Under the Carmack Amendment
Kemper alleges that four of the packages traveled
entirely by ground transportation, and that, as a result, the
Carmack Amendment, 49 U.S.C. § 14706, applies instead
of federal common law. Like the district court, we do not
10a
Appendix A
need to determine the applicability of the Carmack
Amendment to packages shipped solely using the ground
transportation services of an air carrier.* Instead, we agree
that, with respect to the fair opportunity to declare a higher
rate, the constraints on limitation clauses are the same for
motor carriers covered by the Carmack Amendment as they
are for air carriers covered by the released value doctrine.
Section 14706(c)(1) allows a carrier “to establish rates
for the transportation of property . . . under which the liability
of the carrier for such property is limited to a value
established . . . by written agreement between the carrier and
shipper if that value would be reasonable under the
circumstances surrounding the transportation.” In Camar
Corp. v. Preston Trucking Co., 221 F.3d 271, 276 (1st Cir.
2000), we indicated that this reasonableness requirement is
5. We note, however, that there is significant precedent
indicating that the Carmack Amendment simply does not apply to
an air carrier such as FedEx. See, e.g., Arkwright-Boston Mfrs. Mut.
Ins. Co. v. Great W. Airlines, 767 F.2d 425, 428 (8th Cir. 1985);
Williams v. Fed. Express Corp., No. CV 99-06252 MMM BQRX,
1999 WL 1276558, at *3 (C.D. Cal. Oct. 6, 1999); Assoc. X-Ray Corp.
v. Fed. Express Corp., Civ. No. 3:93CV02209(AVC), 1994 WL
897156, at *3 (D. Conn. July 22, 1994). None of these cases holding
the Carmack Amendment inapplicable to air carriers addresses the
specific facts alleged by Kemper, namely that certain packages
traveled wholly by ground transportation. However, in Federal
Express Corp. v. California Public Utilities Commission, 936 F.2d
1075, 1078 (9th Cir. 1991), the Ninth Circuit held that state law
was preempted by the Airline Deregulation Act vis-a-vis packages
shipped from Los Angeles to Oakland, California entirely by truck, |
suggesting that the Carmack Amendment does not apply to such
packages.
lla
Appendix A
met when the agreement affords the shipper “a reasonable
opportunity to choose between the regular rate and a rate
reflecting a higher level of liability.” As we described earlier,
this is virtually the same language that we and other courts
have used in applying the released value doctrine. See Hill,
996 F.2d at 1317; Diero, 816 F.2d at 1365; First Pa. Bank,
731 F.2d at 1116. Moreover, our cases have suggested that
the two inquiries apply essentially the same standard.
See Hill, 996 F.2d at 1317 (citing both “post-deregulation
air carrier cases” and “regulated carrier cases” to support
one proposition); Hollingsworth & Vose Co. v. A-P-A
Transp. Corp., 158 F.3d 617, 620 (1st Cir. 1998) (noting the
possibility that the air carrier case, Hill, had overruled a
Carmack Amendment case, Anton v. Greyhound Van Lines,
591 F.2d 103 (1st Cir. 1978), but choosing to overrule Anton
explicitly). Kemper has suggested no particular reason why
the Carmack Amendment would mandate a different result
than the released value doctrine in this case, and our review
of the case law has not indicated that such a difference exists.
We therefore agree that amendment of the complaint was
futile, and was appropriately denied by the district court.
See Carlo v. Reed Rolled Thread Die Co., 49 F.3d 790, 792
(1st Cir. 1995).
III. Willful and Wanton Misconduct
Alternatively, Kemper argues that it should be allowed
to amend its complaint to include claims of willful and
wanton misconduct, and that such misconduct should qualify
for the conversion exception to the released value doctrine.
However, we agree with the district court that the conversion
exception is far more narrow than would be necessary to
include the conduct alleged by Kemper.
“|
12a
Appendix A
In Glickfeld v. Howard Van Lines, 213 F.2d 723, 727
(9th Cir. 1954), the Ninth Circuit outlined the scope of the
conversion exception in the context of employee theft:
[I]f the property has been converted by the carrier,
it would be against public policy to permit the
carrier to limit its liability and thus to profit from
its own misconduct. However, the cases are
uniform in holding that the conversion doctrine
is pertinent only when there has been a true
conversion, i.e., where the carrier has appropriated
the property for its own use or gain. The carrier
may properly limit its liability where the
conversion is by third parties or even by its own
employees. In the latter circumstance, while the
carrier may have been guilty of negligence in the
selection of its employees, it has not been unjustly
enriched, nor has it been guilty of any misconduct.
Glickfeld strongly suggests that the conversion exception
only applies when a carrier has converted the property “for
its own use or gain.” Most other courts to address the subject
have interpreted Glickfeld in this manner. Am. Cyanamid Co.
v. New Penn Motor Express, Inc., 979 F.2d 310, 315-16 (3d
Cir. 1992) (“[N]othing short of intentional destruction or
conduct in the nature of theft will void the limitation on
liability.”); Diero, 816 F.2d at 1366 (“[O]nly an appropriation
of property by the carrier for its own use will vitiate limits
on liability.”); Rocky Ford Moving Vans v. United States,
501 F.2d 1369, 1372-73 (8th Cir. 1974) (willful misconduct
insufficient to invalidate value declaration in absence of
fraud); Aircraft Instrument & Radio, Co. v. United Parcel
13a
Appendix A
Serv., Inc., 117 F. Supp. 2d 1032, 1036 (D. Kan. 2000); Cash
Am. Pawn, L.P. v. Fed. Express Corp., 109 F. Supp. 2d 513,
525 (N.D. Tex. 2000). Because Kemper has made no
allegation that FedEx appropriated the property itself, or
profited from its conversion, the claim does not fit within
the doctrine as outlined in these cases.
Kemper points to our opinion in Hill to suggest that, in
this Circuit at least, the conversion exception might have a
slightly greater scope. In Hill, we noted that “we have found
a case that suggests, in dicta, that the willful nature of
misconduct might make a difference.” 996 F.2d at 1320
(citing Glickfeld, 213 F.2d at 727); see also Lerakoli, Inc. v.
Pan Am. World Airways, Inc., 783 F.2d 33, 37 (2d Cir. 1986)
(suggesting that proof of “willful or intentional conduct” on
the part of the carrier is sufficient).
However, both our decision in Hill and our review of
other cases indicate that the conversion exception requires
at least a stronger allegation of affirmative misdeeds than
the willful blindness alleged by Kemper. In Hill itself, we
chose not to decide the issue because no showing of
willfulness had been made. 996 F.2d at 1320. We also clearly
held that even egregious instances of negligence did not
qualify for the exception. /d. (“[C]ourts will not impute to
commercial parties (agreeing to a liability limitation) an
intent to litigate the degree to which loss-causing negligence
was ordinary, gross, or egregious.”). From these comments,
and from the almost universal position of other federal courts
to have addressed this issue, we conclude that — whether or
not the conversion exception to the released value doctrine
includes certain willful conduct not technically a conversion
l4a
Appendix A
and not benefitting the carrier — willful blindness to the
activity of third parties (even employees) does not qualify.
Therefore it would have been futile for Kemper to have
amended its complaint in this manner, and the district court
appropriately refused its request to do so. See Carlo, 49 F.3d
at 792.
CONCLUSION
We find that the contractual limitation of liability is valid
under the released value doctrine, and that Kemper’s
proposed amendments to its complaint would indeed have
been futile. The opinion of the district court is affirmed.
15a
APPENDIX B — MEMORANDUM AND ORDER OF
THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF MASSACHUSETTS DATED
SEPTEMBER 20, 2000
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CIVIL ACTION NO. 99-11523-DPW
KEMPER INSURANCE COMPANIES, INC.,
Plaintiff,
V.
FEDERAL EXPRESS CORPORATION
& :
DOES (unidentified employees
of Federal Express Corporation),
Defendants.
MEMORANDUM AND ORDER
September 20, 2000
An insurance company brings this action against an air
carrier in connection with the theft of eight shipments of
jewelry. The air carrier moved for dismissal and partial
summary judgment enforcing its limitation of liability
provision. At the hearing on that motion, I invited further
briefing and plaintiff thereafter moved to amend its complaint
to allege liability for four shipments as a motor carrier.
l6a
Appendix B
I will allow the motion for dismissal and for partial summary
judgement and deny the motion to amend as futile.
I. RELEVANT FACTS
A. The Parties
Plaintiff Kemper Insurance Companies, Inc. (“Kemper”)
is a corporation with a principal place of business in Summit,
New Jersey. :
- Defendant Federal Express Corporation (“FedEx”) is a
corporation with its principal place of business in Memphis,
Tennessee. Defendants Does are unidentified FedEx
employees who are alleged to have stolen the shipments
forming the basis of this dispute.
B. The Shipments
- This dispute involves eight packages of jewelry that were
shipped Via FedEx by various shippers, subrogees of Kemper.
The shippers used FedEx’s Powership System which permits
self-invoicing and generation of shipping labels by FedEx’s
customers. In its amended complaint Kemper asserts that
four of the packages did not move by air but rather were
transported by motor carrier.
A shipper can enter the following information into the
Powership System: recipient’s name and address, the FedEx
service desired, the number and weight of the package, and
a declared value. It is undisputed that none of the shippers
declared a value for any of the shipments and that the
17a
Appendix B
shipments were never delivered. FedEx is prepared to pay
$100.00 per shipment, the maximum liability under FedEx’s
contract of carriage.
C. The Contract of Carriage
FedEx’s contract of carriage consists of the Master
Powership Agreement (““Agreement’’) and Service Conditions
contained in the applicable FedEx Service Guide (“Service
Guide’’), incorporated by reference into the Agreement.
The Powership Agreement reads in part:
Section 10. Terms and Conditions of Carriage.
Customer agrees that carriage by FedEx of any
shipments tendered pursuant to this Agreement
shall be in accordance with terms, conditions and
limitations of liability contained in the Service
Guide. Customer agrees to comply in all respects
with terms and conditions of the Service Guide,
which is incorporated into this Agreement by
reference. ... Our liability for loss, damage,
delay, mis-delivery or non-delivery of your
shipment or for misinformation or failure to
provide information is limited. You may declare
a higher value. Consult the Service Guide for
details.
(Master Powership Agreement, J 10, Ex. 1, C.)
18a
Appendix B
The applicable sections of the Service Guide provide:
Declared Value and Limits of Liability
A. The declared value of any shipment represents
our maximum liability in connection with a
shipment, including, but not limited to any
loss, damage, delay, misdelivery, nondelivery,
misinformation or any failure to provide
information.
Exposure to and risk of any loss in excess of
the declared value is either assumed by the
shipper or transferred by the shipper to an
insurance carrier through the purchase of an
insurance policy. You should contact an
insurance agent or broker if insurance
coverage is desired. WE DO NOT PROVIDE
INSURANCE COVERAGE OF ANY KIND.
B. Our liability with regard to any package is
limited to the sum of $100 unless a higher
value is declared on the airbill for the package
at the time of tender, and a greater charge paid
as provided . . . below.
D. Except as limited below ... , the maximum
declared value per package . . . is $50,000... .
If no value is declared, the declared value and
19a
Appendix B
our liability will be limited to the actual value
or $100, whichever is less.
F. Packages containing following items of
extraordinary value are limited to a maximum
declared value of $500:
4. Jewelry, including, but not limited to,
watches ... , precious and semiprecious
gems or stones...
ANY EFFORT TO DECLARE A VALUE IN
EXCESS OF THE MAXIMUMS ALLOWED
IN THIS SERVICE GUIDE IS NULL AND
VOID...
(Def.’s Exs., Ex. 1, B at 88-89.)
The Service Guide further provides:
WE WILL NOT BE LIABLE FOR ANY
DAMAGES, WHETHER DIRECT, INCIDEN-
TAL, SPECIAL OR CONSEQUENTIAL, IN
EXCESS OF THE DECLARED VALUE OF A
SHIPMENT, WHETHER OR NOT WE KNEW
OR SHOULD HAVE KNOWN THAT SUCH
20a
Appendix B
DAMAGES MIGHT BE INCURRED, INCLU-
DING, BUT NOT LIMITED TO, LOSS OF
INCOME OR PROFITS.
D. Procedural History
Kemper filed this suit in Suffolk Superior Court on May
10, 1999. FedEx removed the case to this court on July 15,
1999, on the basis of diversity and federal question
jurisdiction. In its initial complaint, Kemper sought to impose
liability against FedEx under several legal theories,
including: conversion as to the Does and FedEx (Counts I
and II); breach of contract (Count III); voidability of FedEx’s
limitation of liability (Count IV); vicarious liability for Does’
intentional torts (Count V); negligent hiring of employees
(Count VI); negligent retention of employees (Count VII);
and negligent control and supervision of employees (Count
VIII).
Before me is FedEx’s motion to dismiss Counts I, II,
IV, V, VI, VII, and VIII of Kemper’s Complaint and its
motion for partial summary judgment as to Count III.
Kemper has since moved to amend its complaint seeking
to modify its claims.' Kemper asserts that FedEx’s limitation
of liability is invalid because FedEx materially breached the
contract (Count II), that FedEx was willful and wanton in its
failure to prevent theft by its employees (count III), and that
for four shipments FedEx’s limitation of liability is invalid under
the Carmack Amendment, 49 U.S.C. § 14706(c) (count IV).
1. See note 3 infra.
2la
Appendix B
This case turns upon the enforceability of the limitation
of liability provision. The parties dispute the applicable
principles under the Airline Deregulation Act (“ADA”) and
the motion to amend the complaint raises the potential
application of the Carmack Amendment.
Il. THE INITIAL COMPLAINT
A. Tort Claims (Counts I, II, V, VI, VII, VIII)
FedEx argues that Kemper’s tort claims are preempted
by the ADA. In the alternative, FedEx argues that under
federal common law its liability is limited, and that Kemper
may not avoid this liability limitation by recasting its claims
as tort actions. Kemper replies that its tort claims are not
preempted by the ADA because theft of cargo by FedEx’s
employees is not related to any service offered by an air
carrier. Kemper further argues that the term “loss” in the
airbill does not incorporate theft of cargo, making the
limitation of liability provision of the contract not applicable
to its tort claims.
The Fifth Circuit in Sam L. Majors v. ABX, Inc., 117
F.3d 922 (Sth Cir. 1997), noted that in enacting the ADA,
Congress added a savings clause providing that “|n]othing
in this chapter shall in any way abridge or alter the remedies
now existing at common law or by statute, but the provisions
of this Chapter are in addition to such remedies.” Jd. at 928,
citing 49 U.S.C. § 1506’. Because prior to deregulation,
federal common law governed lost shipment claims, the
2. This provision is now found at 49 U.S.C. § 40120(c).
22a
Appendix B
savings clause acted to preserve the application of the federal
common law. Majors, 117 F.3d at 928; but see Greer v.
Federal Express, 66 F. Supp.2d 870, 873 (D.Ky. 1999).
I concur with the reasoning of the Majors court that the
savings clause of the ADA preserved the applicability of
federal common law regarding suits against common carriers
for lost shipments. See First Pennsylvania Bank v. Eastern
Airlines, 731 F.2d 1113 (3d Cir. 1984) (holding that federal
common law doctrine governed suit against common carrier
that lost cargo). Thus, where a claim is for lost or damaged
shipments, federal law controls.
I view the circumstances of this case, the allegations of
thefts notwithstanding, to fall into the category of lost
shipments. In the event of such loss, the contract limited
FedEx’s liability. Specifically, the Powership Agreement
stated, “[oJur liability for loss, damage, delay, mis-delivery
or non-delivery of your shipment or for misinformation or
failure to provide information is limited.” I turn to federal
law to examine Kemper’s claim that the term “loss” does
not incorporate theft, rendering the limitation of liability
inapplicable to its tort claims.
Under federal law, a liability limitation provision may
reach even willful misconduct as long as the defendant did
not convert the misappropriated property to its own use or
gain. Deiro v. American Airlines, Inc., 816 F.2d 1360, 1366
(9th Cir. 1987) (holding that under federal common law,
“only an appropriation of property by the carrier for its own
use will vitiate limits on liability”). Consequently, if a
liability limitation is valid, recovery for loss cannot exceed
the limitation regardless of the degree of the carrier’s
23a
Appendix B (
negligence, absent a showing of appropriation for its own
use. Kemper has not demonstrated appropriation by FedEx
to invalidate the liability limitation. Thus, Kemper is limited
to the $100 liability limitation per shipment contained in the
airbill. Kemper cannot avoid this limitation by recasting its
claims as tort actions. For these reasons, I will grant FedEx’s
motion for dismissal of the tort counts.
B. Breach of Contract Claims (Counts III & IV)
1. Federal Law Applies
The question whether the contract between the parties
should be enforced with the limitation of liability provisions
(Count III) or whether the limitation of liability is void as
against public policy (Count IV) turns upon federal law. The
Supreme Court in American Airlines v. Wolens, 513 U.S.
219 (1995), outlined the limits on state law when the contract
of an air carrier is at issue. In American Airlines v. Wolens,
the Supreme Court held that the ADA’s preemption clause,
§ 1305(a)(1), read together with the FAA’s saving clause,
§ 1106 (preserving “the remedies now existing at common
law or by statute”),
stops States from imposing their own substantive
standards with respect to rates, routes or services,
but not from affording relief to a party who claims
and proves that an airline dishonored a term the
airline itself stipulated. This distinction between
what the State dictates and what the airline itself
undertakes confines courts, in breach-of-contract
actions, to the parties’ bargain, with no enlargement
24a
Appendix B
or enhancement based on state laws or policies
external to the agreement.
Wolens, 513 U.S. at 232.
A court deciding when air carriers may contractually
limit their liability for loss of or damage to shipped cargo
does not, of course, face a routine contract claim like the
one presented to the Court in Wolens. In Read-Rite Corp. v.
Burlington Air Express, Ltd., 186 F.3d 1190, 1197 (9th Cir.
1999), the Ninth Circuit observed:
Deciding whether a limited liability provision is
enforceable is a matter of ‘substantive standards’
and ‘policies external to the agreement.’ . . . Because
the imposition of state standards to decide whether
contractual limits on liability are enforceable is
contrary to the language, intent, and purpose of
the federal policy embodied in the ADA, we apply
the federal common law to this question.
Read-Rite, 186 F.3d at 1197; see also Reece v. Delta Air
Lines, 731 F. Supp. 1131 (D.Me. 1990) (applying federal
common law to air waybill limiting carrier’s liability).
2. FedEx’s Limitation of Liability
is Valid (Count III)
Under the federal common law, carriers may limit their
liability to the value of the shipment if (1) the shipper has
reasonable notice of the rate structure and (2) is given the
option to pay a higher price for greater protection. See Hill
25a
Appendix B
Constr. v. American Airlines, Inc., 966 F.2d 1315, 1317 (1st
Cir. 1993). The federal common law requirement that the
carrier give the shipper an option of greater protection in
order to limit its liability validly is called the “released value
doctrine.” See Deiro v. American Airlines, Inc., 816 F.2d
1360, 1365 (9th Cir. 1987); Neal v. Republic Airlines, Inc.,
605 F. Supp. 1145, 1148 (N.D.IIl. 1985). “When the facts of
a case Satisfy the released value doctrine, courts look to the
contract language to determine the rights of the parties.”
Reece, 731 F. Supp. at 1134, citing Neal, 605 F. Supp. at
1148; see also Read-Rite, 186 F.3d at 1197 (stating “[o]nce
it is determined that a limited liability clause is enforceable
under federal common law, then the precise content of the
contractual clause is a matter of ‘the parties’ bargain’ to
which state contract law applies”).
Limited liability provisions are prima facie valid if the
face of the contract recites the liability limitation and the
“means to avoid it.” Read-Rite, 186 F.3d at 1198, citing Royal
Ins. Co. v. Sea-Land Service Inc., 50 F.3d 723, 727 (9th Cir.
1995). The burden then shifts to the shipper to prove that it
did not have a “fair opportunity” to purchase greater liability
coverage. Read-Rite, 186 F.3d at 1198.
The contract of carriage between FedEx and the shippers
consists of the Powership Agreement and the provisions of
the Service Guide incorporated by reference into the
Agreement. The limits on liability are clearly recited in the
contract; indeed Kemper makes no notice argument. Kemper
argues, instead, that because FedEx limits its liability for
jewelry to $500, a shipper has ho opportunity, much less a
fair opportunity, to purchase higher liability. Because the
26a
Appendix B
Service Guide, as quoted above, clearly states that any effort
to declare a value in excess of the maximum allowed is null
and void, FedEx offers no terms under which a shipper could
hold FedEx liable for the full value of jewelry valued over
$500. Plaintiff argues that this choice of limitations of
liability, either $100 or a declared value up to $500, is
insufficient under the released value doctrine because it
provides no opportunity to “insure” for the full value of the
jewelry through FedEx.
Kemper, however, has misconstrued the released value
doctrine. It does not require the carrier to accept liability for
the full value of all goods it transports. Rather, it requires
that the carrier provide a “bona fide alternative” that gives
greater protection than the lower limitation. First
Pennsylvania, 731 F.2d at 1117. In the leading First Circuit
case, Hill Construction, the court held that “[wJhere air
carriage contracts set forth limitations on carrier cargo
liability in a ‘reasonably communicative’ form and offer the
shipper a choice of paying a higher rate for greater protection,
federal courts have normally fouiad those limitations lawful.”
Hill Construction, 996 F.2d, at 1317.
It is true that in some formulations of the doctrine, courts
have made reference to the requirement that carriers provide
an option of declaring “full” value, and of receiving
“unlimited” liability. See, e.g., Quasar Co. v. Atchison, 632
F. Supp. 1106, 1114 (N.D.IIl. 1986) (“At a minimum, a full
value rate for a deregulated service must actually be available
so the shipper can make a choice. Otherwise the liability
limitation is unenforceable.”); Hollingsworth & Vose Co. v.
A-P-A Transportation Corp., 158 F.3d 617 (1st Cir. 1998)
27a
Appendix B
(to validly enforce a liability limitation, a shipper must “also
make[ ] an unlimited liability rate available to the shipper
....”). However, an arguable obligation to provide the option
of declaring the “full” value of goods and paying a higher
rate to have “unlimited” liability has never been held to bar
a company from capping the highest valuation for which it
would accept liability. That is, no court has ever held that a
company cannot limit its liability, even as to the “declared
value,” if it clearly states that it will not accept a valuation
above a certain limit, either for some or all goods. The courts
that have used the language of “full” value, and “unlimited”
liability appear on close examination to have used that
language interchangeably with the language of “higher” value
and greater amounts of liability, and do not appear to have
intended to imply that the carrier cannot limit the amount a
shipper may declare under the declared value option. To the
degree that these courts intended the terms “unlimited” and
“full” to prohibit a carrier from placing any ceiling on the
value of goods for which it must accept liability, they have
overstated the doctrine and I decline to follow them.
In fact there are numerous cases in which courts have
enforced tariffs or contracts that limited the value that a
shipper could declare, for some or all goods, and therefore
effectively limited their liability, even for the higher level
of protection. Kemper argues that in each case in which a
court has held valid a cap on the valuation of the declared
value option, the carrier has refused to accept the goods
valued higher than the cap. See First Pennsylvania Bank v.
Eastern Airlines Inc., 731 F.2d 1113, 1118 (3d Cir. 1984);
Klicker v. Northwest Airlines, Inc., 563 F.2d 1310, 1316 (9th
Cir. 1977); Universal Computer Systems, Inc. v. Allegheny
28a
Appendix B
Airlines, Inc., 479 F.Supp. 639, 641 (M.D. Penn. 1979).
While in each of these cases, the carrier purported to refuse
to accept goods that had a value greater than its cap, closer
examination demonstrates these cases support the proposition
that actual refusal is not a requirement for a valid declared
value cap.
In Klicker, for example, the carrier’s liability was limited
to $500, unless the shipper declared a higher value (and paid
the corresponding higher rate), but in no case could the
declared value exceed $5,000. The tariff at issue stipulated
that “* ‘No participating carrier will accept for transportation
or for storage personal property, including baggage, the.
declared value of which exceeds ... (for Northwest) ...
$5,000.’ ” Klicker, 563 F.2d, at 1316. However, immediately
after reciting the tariff language, the court observed that “[the
language quoted above] functions merely as a ceiling on
valuations declared pursuant to Rule 370A [the rule that
allows a shipper to declare a value higher than $500].” In
other words, the court interpreted the right to refuse to accept
goods as simply a means to signify a cap on the declared
value at some amount meaningfully higher than the ordinary
limitation of liability, but not at the full value, no matter
how high. It did not require that the carrier actually refuse to
transport goods of higher value.
In Universal Computer Systems, the applicable tariff
stated that the ordinary limitation of liability was $50, unless
a shipper declared a higher value. But the ability to declare
a higher value was capped at $500. In this case, as Kemper
points out, the tariff stipulated that “[s]hipments with a
declared value in excess of $500.00 are not acceptable for -
29a
Appendix B
transportation under this tariff.” Universal Computer
Systems, 479 F. Supp., at 641. However, in the “airbill” (the
contract between the shipper and the carrier, and presumably
the document that gives the shipper the best notice of its
ability to opt out of the lower limitation of liability) the two
options were described, including the $500 cap on the higher
declared value liability, but nowhere was the refusal to accept
goods in excess of that value for shipment mentioned.
In First Pennsylvania, the same tariff as in Universal
Computer Systems applied, and the carrier’s airbill was the
same as well. In both cases the tariff recited that goods of
value in excess of the declared value cap of $500 may not be
transported, and in both cases the airbill made no mention
of the carrier’s refusal to transport goods of excess value.
Therefore the declared value cap served simply to limit
liability to $500, the maximum amount a shipper was
permitted to declare. In First Pennsylvania, the court found
the carrier’s limitation of liability was valid under the
released value doctrine.
It is further worth mentioning that when, as in the present
case, shippers are given the opportunity to purchase private
insurance, and in fact do so rather than opting for more
expensive coverage by the carrier, the liability limitation is
viewed in an even more generous light. As Judge Leisure
held, in a case strikingly similar to the present case, three
factors are relevant to whether a carrier has effectively limited
its liability: 1) adequate notice, 2) sophistication of parties,
and 3) “the availability of ‘spot’ insurance to cover a
shipper’s exposure.” United States Gold Corp. v. Federal
Express Corp., 719 F.Supp. 1217, 1225 (S.D.N.Y. 1989).
30a
Appendix B
The Ninth Circuit has been even more forceful in articulating
the relevance of private insurance to the released value
doctrine:
The function of the federal common law rule
requiring notice of limited liability is to ensure
that the shipper has an opportunity to make an
informed choice between, on the one hand,
shipping at a lower cost with limited liability, and,
on the other, separately purchasing insurance or
shipping at a higher cost without limited
liability... . The separate purchase of insurance
simply cannot be reconciled with a contention that
the shipper has been disadvantaged by a lost
opportunity to pay the carrier more money in
return for greater coverage.
Read-Rite Corp., 186 F.3d, at 1198 (emphasis added).
Here, the shipper not only had the opportunity to insure
privately, but chose to do so rather than pay the higher
declared value fee. The fact that the shipper had adequate
notice, opportunity to purchase a higher level of liability from
FedEx (capped at $500), and the opportunity to purchase
private insurance if the liability cap was insufficient for the
shipper’s purposes, suggest that in this case the goals of the
released value doctrine have been met. I conclude that the
limited liability provisions of the contract are enforceable
and will grant FedEx’s motion for partial summary judgment
as to Count III.
3la
Appendix B
3. The Limitation of Liability Provision is Not
Voidable as Against Public Policy (Count IV)
Count IV of Kemper’s complaint seeks to set aside the
liability limitation in FedEx’s contract of carriage because
the shipments were stolen by FedEx employees. Enforcement
of the contract under these circumstances, Kemper asserts,
would be against public policy. Because Kemper’s argument
seeks to enlarge the contract terms through reliance on
policies beyond the contract itself, the claim is preempted
by the ADA. Wolens, 513 U.S. at 232. As the First Circuit
has noted, “balancing advantages and disadvantages, both
Congress and the courts have approved the use of such
[limitation of liability] clauses.” Hill Construction, 996 F.2d
at 1317. Accordingly, I will grant FedEx’s motion for
dismissal of Count IV. !
C. Claims Against Does (Unidentified Employees)
The claims must be dismissed without prejudice against
the unidentified employees of FedEx who allegedly stole the
jewelry in question. The Federal Rules of Procedure make
no mention of mechanisms for pleading against unnamed
parties through the use of the legal fiction of John Doe or
Jane Roe. Of course, this fiction has been allowed in order
to proceed against parties who are not known at the time the
complaint is filed, but whose identities may be learned
through the discovery process. See, e.g., Bivens v. Six
Unknown Named Agents, 403 U.S. 388 (1971). “As Bivens
. recognize[s], when, as here, a party is ignorant of
defendants’ true identity, it is unnecessary to name them until
their identity can be learned through discovery or through
32a
Appendix B
the aid of the trial court.” Maclin v. Paulson, 627 F.2d 83,
87 (7th Cir. 1980). However, the Doe fiction may only be
used until such time as the actual identities can be learned.
“Fictitious parties must eventually be dismissed, if discovery
yields no identities.” Scheetz v. Morning Call, Inc., 130
F.R.D. 34, 37 (E.D.Penn. 1990). See also, e.g., Schiff v.
Kennedy, 691 F.2d 196, 198 (4th Cir. 1982); Gillespie v.
Civiletti, 629 F.2d 637, 642 (9th Cir. 1980). Here, the plaintiff
has not identified the unnamed parties nor is there any
prospect it will do so in this litigation; therefore its claims
against them are hereby dismissed without prejudice.
Ill. THE PROPOSED AMENDED COMPLAINT
' Kemper has filed a motion to amend its complaint to
include three additional issues.* Kemper argues that
1) FedEx’s limitation of liability has been rescinded because
FedEx materially breached the shipping contract when its
employees allegedly stole the packages; 2) FedEx’s
limitation of liability is invalid because it acted willfully
and intentionally to permit its employees to steal; and
3) because some shipments traveled by truck, the contract is
controlled by the Carmack Amendment, 49 U.S.C.
§ 14706(c). I find that none of these charges have merit, and
therefore deny the motion to amend as futile.
3. Kemper has also offered some amendments to Counts |
(Conversion as to Does) and III (Breach of Contract) from the
original complaint as new Counts V and I. These proposed
modifications do not materially change the original complaint
sufficient to warrant discussion.
33a
Appendix B
A. Recission of Limitation of Liability Due to
Material Breach (Count II)
Kemper argues that FedEx’s limitation of liability ought
to be rescinded because the alleged conversion of goods by
FedEx employees constituted a material breach of the
shipping contract. Kemper cites Hill Construction, 996 F.2d
at 1319, for the proposition that a limitation of liability shall
be rescinded when “transportation related circumstances”
arise which fall outside the expectations of the parties. In
Hill Construction, the First Circuit reversed the District
Court’s finding that a limitation of liability was invalid. At
best, Hill Construction can be read to support the proposition
that a limitation of liability in a shipping contract may not
be valid if “the carrier made a special separate promise to
the shipper,” /d. at 1319, which it then breached. In this case,
as in Hill Construction, no “special separate promise” was
made. Rather, FedEx attempted to limit its liability for a wide
range of eventualities; the shippers accepted the limitation
of liability and insured their shipments with Kemper to
protect themselves against loss. Even conversion by
employees of FedEx falls within this umbrella limitation of
liability, and therefore the “material deviation doctrine” is
inapplicable here.
B. Willful and Wanton Misconduct (Count III)
Plaintiff has alleged in its Motion to Amend that because
FedEx behaved in a willfully and wantonly negligent fashion,
its waiver of liability is not valid under federal law against a
claim of conversion. Indeed, a carrier, air or other, that has
converted goods to its own use, cannot enforce a limitation
34a
Appendix B
of liability. See, e.g., Deiro, 816 F.2d at 1366. There is even
some support for the proposition that a carrier that has
behaved willfully and intentionally may be unable to assert
its limitation of liability. See T.B.J. Industrial Corp. v. Emery
Worldwide, 900 F.Supp. 687, 693-94, (S.D.N.Y. 1995) citing
U.S. Gold Corp. v. Federal Express Corp., 719 F.Supp. 1217,
1225-26 (S.D.N.Y. 1989).‘ I take the court’s discussion of
willful and intentional misconduct in U.S. Gold to be a gloss
on the exception to the released value doctrine for carriers
that have converted property to their own use. However, dicta
in these two cases from the Southern District of New York
does not overcome direct holdings constituting persuasive
precedent from other circuits. In Neal, Judge Shadur held
that “[w]here interstate carriage is concerned, only an
appropriation of property by the carrier for its own use is
sufficient to get around limits on liability. Wilful misconduct
is not enough.” Neal, 605 F.Supp. at 1149, n.3. In Glickfeld
4. The other cases cited by the plaintiff, Thompson v. National
Railroad Passenger Corp., 621 F.2d 814 (6th Cir. 1980), UAlik v.
Penn. Central Railroad Co., 459 F.2d 460 (6th Cir. 1972), Mitchell v.
Union Pacific Railroad Co., 242 F.2d 598 (9th Cir. 1957), G.C. Martin
v. Greyhound Corp., 227 F.2d 501 (6th Cir. 1955), are inapplicable
here, not because they relate to railroad or bus services, as suggested
by the defendant, but because they are not on point. In Mitchell and
Uhlik, the plaintiffs allege willful and wanton misconduct, but the
courts did not reach the merits of their claims, because they based
their rulings on other grounds. Thompson and C.G. Martin involved
the ability of common carriers to limit their liability for personal
injuries to paying passengers. Under federal common law, common
carriers could not limit their liability for the personal injury of their
paying passengers. The instant case, however, involves the released
value doctrine, an exception to the rule that common carriers cannot
limit their liability, and thus these cases are not applicable.
35a
Appendix B
v. Howard Van Lines, Inc., the Ninth Circuit held that “the
cases are uniform in holding that the conversion doctrine is
only pertinent when there has been a true conversion,
i.e., where the carrier has appropriated the property for its
own use or gain. The carrier may properly limit its liability
where the conversion is by third parties or even by its own
employees.” Glickfeld, 213 F.2d 723, 727 (9th Cir. 1954).
Even if there could be some level of willful and intentional
conduct by a carrier that would be so egregious as to rise to
the level of conversion for its own use, I take the bar to be
very high. Kemper has not set forth facts sufficient to support
such a claim and meet this burden.
C. Carmack Amendment (Count IV)
Plaintiff argues that if the deliveries were actually made
by truck, rather than air, the agreement would be governed
by the Interstate Commerce Act, specifically the Carmack
Amendment, 49 U.S.C. § 14706 (1997), rather than the APA.
However, because the requirements for limiting liability
under the Carmack Amendment are materially the same as
under the APA, I hold that the motion to amend to raise this
issue is futile.
Under the Carmack Amendment “a carrier is fully liable
for the actual loss or injury to the property, unless it takes
specific actions to limit its liability.” Camar Corp. v. Preston
Trucking Co., Inc., 221 F.3d 271, 2000 WL 1134524, *4
(1st Cir. 2000). Thus a carrier governed by the Carmack
Amendment may not limit its liability at will. Rather, “only
by granting its customers a fair oppurtunity to choose
between higher or lower liability by paying a correspondingly
36a
Appendix B
carrier lawfully limit recovery to an amount less than the
actual loss sustained ....” Hollingsworth & Vose Co. v.
A-P-A Transportation Corp., 158 F.3d 617, 619-20 (Ist Cir.
1998) quoting New York, New Haven & Hartford R.R. v.
Nothnagle, 346 U.S. 128, 135-36 (1952).° The court in
Hollingsworth went on to state that “[t]his ‘fair opportunity’
language. . . has taken on a life of its own, and later circuits
have treated the rubric almost as if it were an independent
requirement of the Carmack Amendment.” J/d., at 620.
This “independent requirement” of the Carmack
Amendment has, however, the same contours as the “released
value” doctrine under federal common law, see discussion
supra section II(B)(1), which has been held to apply not only
to motor carriers (which are bound by the I.C.A.), but to all
common carriers including airlines. Therefore, for present
purposes, it does not matter whether the Carmack
Amendment or the APA applies. In either circumstance,
federal law applies, and the released value doctrine, or its
functional equivalent, controls. The Piaintiff’s claim that if
the Carmack Amendment applies, the ~ ‘efendant’s limitation
of liability is “void ab initio,” is simply incorrect.
5. In Camar Corp., 99-1007, at 10-11, the First Circuit
reaffirmed its commitment to the holding of Hollingsworth, 158 F.3d,
that the existence of a proper bill of lading is sufficient notice of a
limitation of liability. In Camar, as distinguished from
Hollingsworth, no formal bill of lading was issued, and thus no
sufficient notice was given of the limitation of liability. In the instant
case, airbills were issued in which the shippers opted not to declare
a value for the goods shipped.
37a
Appendix B
While motions to amend are treated liberally in this
Circuit, a court may deny them if, as a matter of law,
amendment would be futile. See Carlo v. Reed Rolled Thread
Die Co., 49 F.3d 790, 792 (1st Cir. 1995). In this case,
Kemper’s motion to amend the complaint to allege violations
of the Carmack Amendment is futile as a matter of law,
because the standard applied to a motor carrier under the
Carmack Amendment is for present purposes materially the
same as the standard applied to air carriers under federal
common law. Therefore, I do not reach the issue of whether
FedEx should be treated as an air carrier or motor carrier for
the purposes of the Carmack Amendment when it transports
goods entirely by truck.
IV. CONCLUSION
For the reasons set forth more fully above, I hereby
ALLOW Defendant FedEx’s motion to dismiss and for
partial summary judgment and DENY Plaintiff Kemper’s
motion to amend. I DISMISS the claims against the
Defendant Does without prejudice.
The clerk, upon certification from FedEx that it has
tendered the limitation amount to Kemper, is directed to enter
final judgment for Kemper in the amount of $800 on Count
III of the original complaint.
DOUGLAS P. WOODLOCK
UNITED STATES DISTRICT
JUDGE
38a
APPENDIX C — RELEVANT STATUTE
49 U.S.C. § 14706
§ 14706. Liability of carriers under receipts and bills of
lading
(a) General liability. —
(1) Motor carriers and freight forwarders. —
A carrier providing transportation or service subject
to jurisdiction under subchapter I or III of chapter
135 shall issue a receipt or bill of lading for property
it receives for transportation under this part. That
carrier and any other carrier that delivers the
property and is providing transportation or service
subject to jurisdiction under subchapter I or III of
chapter 135 or chapter 105 are liable to the person
entitled to recover under the receipt or bill of lading.
The liability imposed under this paragraph is for the
actual loss or injury to the property caused by
(A) the receiving carrier, (B) the delivering carrier,
or (C) another carrier over whose line or route the
property is transported in the United States or from
a place in the United States to a place in an adjacent
foreign country when transported under a through
bill of lading and, except in the case of a freight
forwarder, applies to property reconsigned or
diverted under a tariff under section 13702. Failure
to issue a receipt or bill of lading does not affect the
liability of a carrier. A delivering carrier is deemed
to be the carrier performing the line-haul
transportation nearest the destination but does not
include a carrier providing only a switching service
at the destination.
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Appendix C
(2) Freight forwarder. — A freight forwarder is
both the receiving and delivering carrier. When a
freight forwarder provides service and uses a motor
carrier providing transportation subject to
jurisdiction under subchapter I of chapter 135 to
receive property from a consignor, the motor carrier
may execute the bill of lading or shipping receipt
for the freight forwarder with its consent. With the
consent of the freight forwarder, a motor carrier may
deliver property for a freight forwarder on the freight
forwarder’s bill of lading, freight bill, or shipping
receipt to the consignee named in it, and receipt for
the property may be made on the freight forwarder’s
delivery receipt.
(b) Apportionment. — The carrier issuing the receipt or
bill of lading under subsection (a) of this section or delivering
the property for which the receipt or bill of lading was issued
is entitled to recover from the carrier over whose line or route
the loss or injury occurred the amount required to be paid to
the owners of the property, as evidenced by a receipt,
judgment, or transcript, and the amount of its expenses
reasonably incurred in defending a civil action brought by
that person.
(c) Special rules. —
(1) Motor carriers. —
(A) Shipper waiver. — Subject to the
provisions of subparagraph (B), a carrier
providing transportation or service subject
40a
Appendix C
to jurisdiction under subchapter I or III of
chapter 135 may, subject to the provisions
of this chapter (including with respect to a
motor carrier, the requirements of section
13710(a)), establish rates for the trans-
portation of property (other than household
goods described in section 13102(10)(A))
under which the liability of the carrier for
such property is limited to a value estab-
lished by written or electronic declaration
of the shipper or by written agreement
between the carrier and shipper if that value
would be reasonable under the circum-
stances surrounding the transportation.
(B) Carrier notification. — If the motor
carrier is not required to file its tariff with
the Board, it shall provide under section
13710(a)(1) to the shipper, on request of the
shipper, a written or electronic copy of the
rate, classification, rules, and practices upon
which any rate applicable to a shipment, or
agreed to between the shipper and the
carrier, is based. The copy provided by the
carrier shall clearly state the dates of
applicability of the rate, classification,
rules, or practices.
(C) Prohibition against collective estab-
lishment. — No discussion, consideration,
or approval as to rules to limit liability
under this subsection may be undertaken by
(d)
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Appendix C
carriers acting under an agreement approved
pursuant to section 13703.
(2) Water carriers. — If loss or injury to property
occurs while it is in the custody of a water carrier,
the liability of that carrier is determined by its bill
of lading and the law applicable to water
transportation. The liability of the initial or
delivering carrier is the same as the liability of the
water carrier.
Civil actions. —
(1) Against delivering carrier. — A civil action
under this section may be brought against a
delivering carrier in a district court of the United
States or in a State court. Trial, if the action is
brought in a district court of the United States is in
a judicial district, and if in a State court, is in a State
through which the defendant carrier operates.
(2) Against carrier responsible for loss. — A civil
action under this section may be brought against the
carrier alleged to have caused the loss or damage,
- in the judicial district in which such loss or damage
is alleged to have occurred.
(3) Jurisdiction of courts. — A civil action under
this section may be brought in a United States district
court or in a State court.
(4) Judicial district defined. — In this section,
“judicial district” means — -
42a
Appendix C
(A) in the case of a United States district
court, a judicial district of the United States;
and
(B) in the case of a State court, the
applicable geographic area over which such
court exercises jurisdiction.
a
(e) Minimum period for filing claims. —
(1) In general. — A carrier may not provide by
rule, contract, or otherwise, a period of less than
9 months for filing a claim against it under this
section and a period of less than 2 years for bringing
’ a civil action against it under this section. The period
| for bringing a civil action is computed from the date
the carrier gives a person written notice that the
carrier has disallowed any part of the claim specified
in the notice. ;
(2) Special rules. — For the purposes of this
subsection —
(A) an offer of compromise shall not
constitute a disallowance of any part of the
claim unless the carrier, in writing, informs
the claimant that such part of the claim is
disallowed and provides reasons for such
disallowance; and
(B) communications received from a
carrier’s insurer shall not constitute a
43a
Appendix C
disallowance of any part of the claim unless
the insurer, in writing, informs the claimant
that such part of the claim is disallowed,
provides reason for such disallowance, and
informs the claimant that the insurer is
acting on behalf of the carrier.
(f) Limiting liability of household goods carriers to
declared value. — A carrier or group of carriers subject to
jurisdiction under subchapter I or III of chapter 135 may
petition the Board to modify, eliminate, or establish rates
) for the transportation of household goods under which the
liability of the carrier for that property is limited to a value
established by written declaration of the shipper or by a
written agreement.
(g) Modifications and reforms. —
(1) Study. — The Secretary shali conduct a study
to determine whether any modifications or reforms
should be made to the loss and damage provisions
of this section, including those related to limitation
of liability by carriers.
(2) Factors to consider. — In conducting the study,
the Secretary, at a minimum, shall consider —
(A) the efficient delivery of transportation
services;
(B) international and intermodal harmony; -
44a
Appendix C
(C) the public interest; and
(D) the interest of carriers and shippers.
M
(3) Report. — Not later than 12 months after
January 1, 1996, the Secretary shall submit to
Congress a report on the results of the study, together
with any recommendations of the Secretary
(including legislative recommendations) for
implementing modifications or reforms identified
by the Secretary as being appropriate.
* * + *
45a
APPENDIX D — CONTRACT PROVISIONS
OF FEDERAL EXPRESS CORPORATION
Terms And Conditions
Definitions On this Airbill, “we,” “our” and “us” refer to
Federal Express Corporation, its employees, and agents.
“You” and “your” refer to the sender, its employees, and
agents.
Agreement ToTerms By giving us your package to deliver,
you agree to all the terms in our current Service Guide, which
is available on request. You also agree to those terms on
behalf of any third party with an interest in the package. If
there is a conflict between the Service Guide and this Airbill,
the Service Guide will control. No one is authorized to
change the terms of our Agreement.
Responsibility For Packaging And Completing Airbill
You are responsible for adequately packaging your goods
and properly filling out this Airbill. If you omit the number
of packages and/or weight per package, our billing will be
based on our best estimate of the number of packages we
received and/or an estimated “default” weight per package
as determined by us.
Responsibility For Payment Even if you give us different
payment instructions, you will always be primarily
responsible for all delivery costs, as well as any cost we incur
in either returning your package to you or warehousing it
pending disposition.
- 46a
Appendix D
Limitations On Our Liability And Liabilities Not Assumed
¢ Our liability for loss or damages to your package is limited
to your actual damage or $100, unless you declare a higher
value, pay an additional charge, and document your actual
loss in a timely manner. You may pay an additional charge
for each additional $100 of declared value. The declared
value does not constitute, nor do we provide cargo liability
insurance.
¢ In any event, we will not be liable for any damage, whether
direct, incidental, special, or consequential in excess of
the declared value of a shipment, whether or not Federal
Express had knowledge that such damages might be
incurred including but not limited to loss of income or
profits.
¢ We won't be liable:
— for your acts or omissions including but not limited to
improper or insufficient packing, securing, marking,
or addressing or those of the recipient or anyone else
with an interest in the package
— if you or the recipient violate any of the terms of our
Agreement
— for loss or damage to shipments of prohibited items
— for loss, damage, or delay caused by events we cannot
control, including but not limited to acts of God, perils
of the air, weather conditions, acts of public enemies,
47a
Appendix D
war, strikes, civil commotions, or acts of public
authorities with actual or apparent authority.
Declared Value Limits
¢ The highest declared value allowed for FedEx Letter and
FedEx Pak shipments is $500.
¢ For other shipments, the highest declared value allowed
is $50,000 unless your package contains items of
“extraordinary value,” in which case the highest declared
value allowed is $500.
¢ Items of “extraordinary value” include shipments
containing such items as artwork, jewelry, furs, precious
metals, negotiable instruments, and other items listed in
our Service Guide.
¢ You may send more than one package on this Airbill and
_ fill in the total declared value for all packages, not to
exceed the $100, $500 or $50,000 per package limit
described above. (Example: 5 packages can have a total
declared value of up to $250,000.) In that case, our
liability is limited to the actual value of the package(s)
lost or damaged, but may not exceed the maximum
allowable declared value(s) or the total declared value,
whichever is less. You are responsible for proving the
actual loss or damage.
Filing A Claim YOU MUST MAKE ALL CLAIMS IN
WRITING and notify us of your claim within strict time
limits set out in the current Service Guide.
48a
Appendix D
We’ll consider your claim filed if you notify our
Customer Service Department at 1*800*Go*FedEx (800) 463-
3339 and make your claim in writing as soon as possible.
Within 90 days after you notify us of your claim, you
must send us all the information you have about it. We aren’t
obligated to act on any claim until you have paid all
transportation charges, and you may not deduct the amount
of your claim from those charges.
If the recipient accepts your package without noting any
damage on the delivery record, we will assume the package
was delivered in good condition. For us to process your claim,
you must make the original shipping cartons and packing
available for inspection.
Right ToInspect We may, at our option, open and inspect
your packages before or after you give them to us to deliver.
Right Of Rejection Wereserve the right to reject a shipment
when such shipment would be likely to cause delay or
damage to other shipments, equipment, or personnel or if its
shipment is prohibited by law, or if the shipment would
violate any terms of our Agreement or our current Service
Guide.
C.O.D. Services C.O.D. SERVICE IS NOT AVAILABLE
WITH THIS AIRBILL. If C.O.D. Service is required, please
use a Federal Express C.O.D. airbill.
Air Transportation Tax Included A federal excise tax
when required by the Internal Revenue Code on the air
transportation portion of this service, if any, is paid by us.
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Appendix D
Money-Back Guarantee In the event of untimely delivery,
Federal Express will at your request and with some
limitations, refund or credit all transportation charges. See
current Service Guide for more information.
Freight Services There are several freight service options,
depending on your transit time needs.
¢ FedEx Overnight Freight: Next business-day service
to all points in the 48 states; rates are based upon the
distance shipped.
¢ FedEx 2Day Freight: Second business-day service to
all points in the 48 states; rates are based upon the distance
shipped.
¢ FedEx Express Saver Freight: Up to 3 business-day
service to all points in the 48 states; rates are based upon
the distance shipped.
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.