Sompo Japan Insur v. Nippon Cargo Airline ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 06-3942 & 06-4032
SOMPO JAPAN INSURANCE, INC., as subrogee of
HITACHI DATA SYSTEMS CORPORATION,
Plaintiff-Appellee,
Cross-Appellant,
v.
NIPPON CARGO AIRLINES COMPANY, LIMITED,
Defendant-Appellant,
Cross-Appellee.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 02 C 9311—Joan Humphrey Lefkow, Judge.
____________
ARGUED SEPTEMBER 17, 2007—DECIDED APRIL 11, 2008
____________
Before FLAUM, RIPPLE and WOOD, Circuit Judges.
RIPPLE, Circuit Judge. Sompo Japan Insurance, Inc.
(“Sompo”), as an insurer subrogated to the rights of
Hitachi Data Systems Corporation (“HDS”), brought this
action against Yusen Air and Sea Service Company
(“Yusen”), Nippon Cargo Airlines (“NCA”) and Pace Air
2 Nos. 06-3942 & 06-4032
Freight (“Pace”). It sought compensation for damage to
computer equipment that the defendants transported from
Japan to HDS’s Indiana facility.1 Sompo settled its claims
with Yusen and Pace, but NCA proceeded to trial. After a
bench trial, the district court entered judgment against
NCA in the amount of $74,450.84 plus costs. NCA then
timely filed this appeal, and Sompo timely filed a cross
appeal that challenged the district court’s denial of pre-
judgment interest. For the reasons set forth in this opin-
ion, we affirm the judgment of the district court.2
I
BACKGROUND
HDS purchased a number of computer parts from its
manufacturer in Japan. HDS hired Yusen to arrange for
their transportation from Tokyo to its facility in Indiana.
Yusen contracted with NCA to transport the parts by air
from Tokyo to Chicago’s O’Hare Airport. HDS separately
retained Pace to transport the goods from O’Hare to
Indiana by truck.
On December 28, 2000, a portion of the shipment was
damaged while the goods were in the process of being
transferred from the loading dock to Pace’s trucks at
NCA’s cargo facility at O’Hare. The undisputed value of
the damaged cargo was at least $271,304. Sompo, a
subrogated insurer, paid the insurance proceeds to HDS
and commenced litigation against Pace, Yusen and NCA.
1
The district court’s jurisdiction was based on 28 U.S.C. § 1331.
2
Our jurisdiction is based on 28 U.S.C. § 1291.
Nos. 06-3942 & 06-4032 3
Before trial, however, Sompo settled its claims against
Pace and Yusen for $100,000 and $8,500, respectively.
Sompo then moved for summary judgment against NCA,
seeking recovery under the Warsaw Convention and
Montreal Protocol No. 4. The Warsaw Convention estab-
lishes a ceiling on damages recoverable against an airline,
limiting NCA’s potential liability to 17 Special Draw-
ing Rights (“SDRs”)3 per kilogram, or approximately
$74,450.84. NCA cross-moved for summary judgment;
it sought a setoff of the $108,500 Sompo had received
in settlements against the limited damages allowable
under the Warsaw Convention. Such a setoff, taken from
the limited liability amount, would reduce any potential
judgment against NCA to $0.
The district court initially granted Sompo’s motion
for summary judgment, denied NCA’s motion for sum-
mary judgment and entered judgment against NCA for
$76,923.03. After NCA moved to amend the judgment
under Federal Rule of Civil Procedure 59(e), the district
court vacated the judgment. It conducted a bench trial
and returned a verdict in favor of Sompo. It held that
NCA was entitled to a setoff of the settlement amounts
under Illinois law, but the court nevertheless refused
NCA’s motion to apply the setoff against the limited
liability amount established in the Warsaw Convention.
3
A Special Drawing Right (“SDR”) is an artificial currency,
established by a “basket” of global currencies (the U.S. dollar,
the euro, the Japanese yen and the British pound), and pub-
lished daily by the International Monetary Fund. The value of
an SDR fluctuates based on the global currency market, and,
under Article 22(6), it is determined “at the date of the judg-
ment.”
4 Nos. 06-3942 & 06-4032
Rather, it applied the $108,500 setoff against Sompo’s total
proven damages, $271,304, reducing that amount to
$167,114. The district court then entered judgment against
NCA in the amount of $74,450.84 plus costs, the maxi-
mum amount allowable under the Warsaw Convention’s
liability cap at the time of the judgment.
NCA now seeks review of the district court’s decision
to apply the setoff against the total amount of proven
damages rather than its limited liability amount. Sompo
cross-appeals the court’s denial of prejudgment interest.
A. The Warsaw Convention—History and Purpose
The Warsaw Convention4 was the product of two inter-
national conferences that occurred between 1925 and
1929, while the airline industry was in its infancy. The
Convention, largely a response to fears of airline carrier
bankruptcy, had two primary goals: (1) to establish unifor-
mity in the aviation industry regarding the procedural
and substantive law applicable to claims arising out of
international air travel; and (2) to limit air carriers’ poten-
tial liability in the event of an accident.5
4
Convention for the Unification of Certain Rules Relating to
International Transportation by Air, Oct. 12, 1929, 49 Stat. 3000,
T.S. No. 876 (1934), reprinted in 49 U.S.C. § 1502 (1970) [here-
inafter Warsaw Convention].
5
See, e.g., El Al Israel Airlines, Ltd. v. Tsui Yuan Tseng, 525 U.S.
155, 169 (1999); Erlich v. American Airlines, Inc., 360 F.3d 366,
370 (2d Cir. 2004) (citing In re Air Disaster at Lockerbie, Scotland
on Dec. 21, 1988, 928 F.2d 1267, 1270 (2d Cir. 1991)); see also
Paul Dempsey & Michael Milde, International Air Carrier
Liability: The Montreal Convention of 1999, at 11 (2005).
Nos. 06-3942 & 06-4032 5
The Warsaw Convention set out a scheme for limiting
an air carrier’s liability. It established a presumption of
liability against the air carrier for accidents arising out of
international air travel. Warsaw Convention, arts. 17-19.
Potential plaintiffs received the benefit of presumptive
liability against the carrier, but they also were subject to
certain affirmative defenses and a strict damages
ceiling. Id., arts. 20-22. The original Convention set the
liability cap at $8,500 for personal injury and approxi-
mately $20 per kilogram for damage to goods, thus protect-
ing the airlines from the risk of catastrophic damages.
Id., art. 22.
As the fledgling airline industry matured, it became
clear that the liability limitations of the Warsaw Con-
vention were far too low. Largely at the insistence of the
United States, the Warsaw Convention signatories recon-
vened in 1955 at the Hague to amend the Convention. See
Paul Dempsey & Michael Milde, International Air Carrier
Liability: The Montreal Convention of 1999, at 17 (2005).
Among other alterations, the Hague Protocol increased
the liability cap to approximately $16,500 for personal
injuries. Id. at 20. The United States ultimately refused to
ratify the Hague Protocol, in part because it saw the
amended liability cap as still too low. Id. at 20-21.
Recognizing the harsh results of the unamended Warsaw
Convention for potential plaintiffs, in 1965 the United
States gave notice of its denunciation of the Convention. Id.
at 29. Shortly before the denunciation was to take
effect, however, a large number of private air carriers
entered into an interim agreement, in which they volun-
tarily increased their personal injury liability limitation
to $75,000. This voluntary action by the airlines became
6 Nos. 06-3942 & 06-4032
known as the Montreal Agreement.6 Consequently, the
United States’ denunciation was withdrawn.
Efforts to modernize the Convention continued, and a
number of different amendments, most notably the Mon-
treal Protocols, were developed to address formally
concerns about under-compensation for plaintiffs. In
1998, the United States ratified Montreal Protocol No. 4
(“MP4”),7 which raised the liability cap for damage to
cargo to 17 SDRs per kilogram. At the time of ratification,
this equaled approximately $25 per kilogram. Id. at 28. The
MP4 went into effect in the United States on March 4, 1999.
Prior to 2003, then, a complex interplay of conventions,
treaties and domestic laws governed international air
carrier liability. See Dempsey & Milde, supra, at 1-2. The
Montreal Convention8 (not to be confused with the MP4
or Montreal Agreement) was the product of a United
Nations effort to reform the Warsaw Convention “so as to
harmonize the hodgepodge of supplementary amend-
ments and intercarrier agreements of which the Warsaw
6
Agreement Relating to Liability Limitation of the Warsaw
Convention and The Hague Protocol, CAB Order E-23680
(May 13, 1966), 31 Fed. Reg. 7302 (May 19, 1966).
7
Montreal Protocol No. 4 to Amend the Convention for the
Unification of Certain Rules Relating to International Carriage
by Air, Signed at Warsaw on 12 October 1929, as Amended
by the Protocol Done at the Hague on 28 September 1955,
Sept. 25, 1975, ICAO Doc. 9148 [hereinafter MP4].
8
Convention for the Unification of Certain Rules for Interna-
tional Carriage by Air, opened for signature May 28, 1999,
ICAO Doc. 9740 (entered into force on Nov. 4, 2003), reprinted
in S. Treaty Doc. No. 106-45, 1999 WL 33292734 (2000) [herein-
after Montreal Convention].
Nos. 06-3942 & 06-4032 7
Convention system of liability consists.” Erlich v. American
Airlines, Inc., 360 F.3d 366, 371 n.4 (2d Cir. 2004). In
May 1999, representatives of 121 nations gathered in
Montreal, Canada to negotiate and adopt a new treaty
that would replace the Warsaw Convention. Id. At the
end of a three-week conference, the delegates approved
the Montreal Convention, and fifty-two countries, includ-
ing the United States, immediately signed the treaty.
Id. The new treaty “unifies and replaces the system of
liability that derives from the Warsaw Convention,” id.,explicitly recognizing “the importance of ensuring pro-
tection of the interests of consumers in international
carriage by air and the need for equitable compensation
based on the principle of restitution.” Montreal Conven-
tion, pmbl. It establishes strict liability for personal injury
claims up to 100,000 SDRs, and presumptive liability
without limit above that amount. Montreal Convention,
art. 21. This Convention seems to have reversed one of
the premises of the original Warsaw Convention, which
favored the airlines at the expense of consumers. Erlich,
360 F.3d at 371 n.4. Nevertheless, the Montreal Convention
did not alter the original Warsaw Convention goal of
maintaining limited and predictable damage amounts
for airlines. The United States Senate ratified the treaty
on July 31, 2003, and it entered into force on September 5,
2003.
In this case, the incident giving rise to Sompo’s claim
took place on December 28, 2000—after the ratification
of MP4 but several years before the Montreal Convention
became effective in the United States. Therefore, NCA’s
liability here is governed by the Warsaw Convention as
amended by the MP4, not by the new Montreal Conven-
tion. Under Article 18 of the Warsaw Convention, NCA
8 Nos. 06-3942 & 06-4032
is presumptively liable for any damage sustained to
goods while they are in the airline’s custody. Under Article
22(2), however, NCA’s potential liability is limited to 17
SDRs per kilogram of damaged goods, or approximately
$74,450.84 in this case.
B. NCA’s Right to a Setoff
1.
Before trial, Sompo settled its claims against both Pace
and Yusen for $100,000 and $8,500, respectively. NCA
claims that it is entitled to a “setoff”—or, more precisely,
a reduction in the judgment amount—to the extent of
these settlement amounts. The district court held that a
setoff was appropriate under the Illinois Joint Tortfeasors
Contribution Act (“JTCA”), 740 Ill. Comp. Stat. 100/2(c).
We review such conclusions of law de novo. Johnson v.
West, 218 F.3d 725, 729 (7th Cir. 2000).
Relying on El Al Israel Airlines, Ltd. v. Tsui Yuan Tseng,
525 U.S. 155, 175 (1999), Sompo contends that the Warsaw
Convention generally preempts any domestic contribution
or setoff laws. El Al indeed stands for the proposition
that the Warsaw Convention preempts local law causes
of action to the extent that they are inconsistent with the
Convention. El Al, 525 U.S. at 161, 175. However, the
Convention’s preemption is not complete: “auxiliary
issues” not addressed by the Convention, such as who
may recover and for what harms they may be compen-
sated, are left to domestic law. Id. at 169-70; Zicherman v.
Korean Air Lines Co., 516 U.S. 217, 225 (1996) (holding that
the question of whether loss of society damages may be
recovered under the Warsaw Convention is an issue
governed by domestic law). An air carrier’s right to a
Nos. 06-3942 & 06-4032 9
setoff or contribution from a joint tortfeasor is, similarly,
incidental to the causes of action available under the
Convention and therefore not subject to its limited preemp-
tion.
Sompo further submits that the Convention contains its
own setoff provision, which specifically preempts other
domestic setoff or contribution laws. Article 25A states:
1. If an action is brought against a servant or agent of
the carrier arising out of damage to which this Conven-
tion relates, such servant or agent, if he proves that he
acted within the scope of his employment, shall be
entitled to avail himself of the limits of liability
which that carrier himself is entitled to invoke under
Article 22.
2. The aggregate of the amounts recoverable from the
carrier, his servants and agents, in that case, shall not
exceed the said limits.
Warsaw Convention as amended by MP4, art. 25A(1), (2).
In Sompo’s view, because Article 25A effectively allows an
air carrier a setoff against its limitation amount for any
payments made by its servants or agents, setoffs not
mentioned in the provision, such as setoffs against co-
defendants who are not such servants or agents, are not
permitted. Consequently, Sompo argues, NCA cannot
seek a setoff because Article 25A would not allow such
a setoff.
Article 25A simply is not a provision designed to deal
with joint and several liability. It addresses whether an
airline may effectively be held liable for damages above
the Convention’s liability cap because of judgments
against its agents. See, e.g., Reed v. Wiser, 555 F.2d 1079,
1083-97 (2d Cir. 1997) (examining the history of the MP4
10 Nos. 06-3942 & 06-4032
and noting that the purpose of Article 25A was to prevent
an end run around the liability limits in the Convention).
Article 25A fulfills the purpose of the Convention by
precluding suits against agents that could increase effec-
tively the liability of the airlines. Joint tortfeasors,
whose money flows from different sources, are not the
concern of Article 25A.
Cases about preemption, such as El Al, note the intent
of the Convention’s framers to create a uniform scheme
of regulation for international air carriers. The Conven-
tion’s concern with uniformity focuses on protecting
the airlines from catastrophic judgments and ensuring
them predictability in liability. El Al, 525 U.S. at 157(“Given the Convention’s comprehensive scheme of
liability rules and its textual emphasis on uniformity,
the Court would be hard put to conclude that the Warsaw
delegates meant to subject air carriers to the distinct,
nonuniform liability rules of the individual signatory
nations.”). The Convention precludes both state causes
of action and suits against agents because of their poten-
tial to erode the effectiveness of the treaty’s liability
limitations. The airline’s relationship to joint tortfeasors
is merely an “auxiliary issue,” however, and uniformity
in this context is, under the scheme of the Convention,
less important.
The Convention also contains a savings clause which
specifically notes that “[n]othing in this Convention
shall prejudice the question whether a person liable for
damage in accordance with its provisions has a right of
recourse against any other person.” Warsaw Convention,
art. 30A. Thus, it appears that the Convention refused
explicitly to preempt local contribution schemes. Further-
more, preemption of state laws by treaty is generally
disfavored. El Al, 525 U.S. at 181 (Stevens, J. dissenting)
Nos. 06-3942 & 06-4032 11
(“[A] treaty, like an Act of Congress, should not be con-
strued to preempt state law unless its intent to do is
clear.”); Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996).
Absent clear evidence of preemption, then, we decline
to rule that state setoff and contribution laws are pre-
empted by the Warsaw Convention.
2.
Having determined that the Warsaw Convention does
not, by its own terms, address the issue, we must look to
the law that would govern the parties’ setoff and con-
tribution rights absent the Convention. Zicherman v. Korean
Air Lines Co., Ltd., 516 U.S. 217, 229 (1996). Both parties
agree that, in the absence of the Convention, their dispute
would be governed by Illinois law; therefore, we turn to
an examination of Illinois law regarding contribution
and setoffs.
NCA claims a right of setoff under the Illinois Joint
Tortfeasor Contribution Act (“JTCA” or “Contribution
Act”), 740 Ill. Comp. Stat. 100/2(c). The JTCA provides in
pertinent part:
When a release . . . is given in good faith to one or
more persons liable in tort arising out of the same
injury . . . it reduces the recovery on any claim
against the others to the extent of any amount stated
in the release . . . or in the amount of the consider-
ation actually paid for it, whichever is greater.
Id. The setoff is applied “even if the resultant judgment is
thereby reduced to zero dollars.” Pasquale v. Speed Prods.
Eng’g, 654 N.E.2d 1365, 1382 (Ill. 1995). In order for the
JTCA to be applicable, however, both NCA and Pace must
12 Nos. 06-3942 & 06-4032
have been “liable in tort” for the “same injury.” 740 Ill.
Comp. Stat. 100/2(c). Both parties concede that the plain-
tiff here suffered a single, indivisible injury to its goods.
Their disagreement lies in whether both parties were
“liable in tort” for the purposes of the JTCA.
The purpose of the Contribution Act is to balance the
equities between all culpable parties while ensuring that
plaintiffs do not receive double recovery. Doyle v. Rhodes,
461 N.E.2d 382, 388 (Ill. 1984); Pasquale, 654 N.E.2d at 1381-
82. In furtherance of this purpose, the Supreme Court of
Illinois has construed “liability in tort” to mean “potential”
tort liability, Doyle, 461 N.E.2d at 387, and the Illinois
courts have construed broadly this “potential liability”
criterion.9 Illinois courts determine potential tort liability
“at the time of the injury to the plaintiff,” not when the
9
See, e.g., Giordano v. Morgan, 554 N.E.2d 810, 814 (Ill. App.
Ct. 1990) (holding that the JTCA is applicable in a contracts
case); Joe & Dan Int’l Corp. v. U.S. Fid. & Guar. Co., 533 N.E.2d
912, 918 (Ill. App. Ct. 1988) (noting that potential liability in tort
is determined at the time of injury, not at the time of the law-
suit, and the JTCA applies even when the plaintiff has sued in
contract); Cirilo’s, Inc. v. Gleeson, Sklar & Sawyers, 507 N.E.2d
81, 83 (Ill. App. Ct. 1987) (same). The Illinois courts recognize
that most other jurisdictions do not follow such a strict prefer-
ence for contribution. Kotecki v. Cyclops Welding Corp., 585
N.E.2d 1023, 1027 (Ill. 1991). Nevertheless, they find that their
state legislature has an especially strong preference for con-
tribution, and thus they interpret their state’s Contribution Act
quite liberally. Id. at 1027-28. As noted above, the Illinois
courts have examined and reexamined Doyle, and they main-
tain that affirmative defenses, even if they lead to ultimate
preemption of state law causes of action, do not negate poten-
tial liability in tort.
Nos. 06-3942 & 06-4032 13
basis for liability is actually decided by the court. Joe &
Dan Int’l Corp. v. U.S. Fid. & Guar. Co., 533 N.E.2d 912,
918 (Ill. App. Ct. 1988). The JTCA “focuses, as it was
intended to do, on the culpability of the parties rather
than on the precise legal means by which the plaintiff is
ultimately able to make each defendant compensate him
for his loss.” Doyle, 461 N.E.2d at 388.
Sompo contends that the Illinois statute is inapplicable
here because neither Pace nor NCA10 was potentially
liable in tort: Sompo’s complaint included claims against
NCA and Pace under the Warsaw Convention and the
Carmack Amendment, both of which provide their own
cause of action. In support of its contention, Sompo notes
that Illinois courts have looked to the pleadings to deter-
mine whether a party is potentially liable in tort.11 Al-
though a party’s complaint is relevant, Illinois courts
consistently have held that the plaintiff’s own theory
of liability is not conclusive for the purposes of the Con-
tribution Act.12 Furthermore, even if its pleadings were
10
Sompo does not dispute that Yusen, the other party to this
litigation that entered into a settlement agreement with
Sompo, was potentially liable in tort.
11
See, e.g., Ill. ex rel. Hartigan v. Cmty. Hosp. of Evanston, 545
N.E.2d 226, 230 (Ill. App. Ct. 1989) (noting that the pleadings
alleged only a breach of fiduciary duty, not tort claims,
and concluding that the defendant therefore was not entitled
to contribution under the JTCA).
12
See, e.g., Giordano, 554 N.E.2d at 814 (maintaining that “the
theory under which the plaintiff sued the defendants was not
dispositive as to whether both might be subject to liability in tort
to plaintiff for the same injury for purposes of contribution
(continued...)
14 Nos. 06-3942 & 06-4032
considered dispositive, that fact would not help Sompo
here. Sompo brought claims against NCA and Pace under
the Warsaw Convention and the Carmack Amendment; it
also, however, chose to include negligence claims against
NCA and Yusen in its original complaint and against
Pace in its amended complaint. Under Sompo’s own
theory of liability, then, the defendants were potentially
liable in tort.
Sompo next submits that NCA in fact never was poten-
tially liable in tort because its claim arose under the
Warsaw Convention, a federal liability scheme that has
been held to preempt state tort claims in cases involving
interstate carriers and a loss of goods. See El Al, 525 U.S. at
175. In its view, NCA likely could have defeated a state
law negligence claim by arguing that the Warsaw Con-
vention provides the exclusive grounds for recovery
against it. Id. Therefore, Sompo argues, NCA was not a
potential tortfeasor for the purposes of the JTCA.
The logic of the Supreme Court of Illinois, expressed
in Doyle, 461 N.E.2d 382, is helpful to our analysis. In
Doyle, the defendant employer maintained that its stat-
utory immunity under the Illinois Workers’ Compensa-
tion Act also immunized it from a contribution claim
under the JTCA; because the state Workers’ Compensa-
tion Act preempted other state law tort claims, the em-
ployer maintained that it had no potential liability in tort.
12
(...continued)
between them”); Joe & Dan, 533 N.E.2d at 918 (noting that
potential liability in tort is determined at the time of injury,
not at the time of the lawsuit); Cirilo’s, 507 N.E.2d at 83 (holding
that the Contribution Act applied even when the liability
arose out of contract claims rather than tort claims).
Nos. 06-3942 & 06-4032 15
Id. at 384. The court rejected this argument, concluding
that the defendant was potentially liable in tort at the time
of the incident, even though any common law tort action
ultimately would have been preempted by the workers’
compensation regime. Id. at 388. It reasoned that, although
preemption is a defense to any tort action brought by
an employee for a work-related incident, it is merely an
affirmative defense, not an outright bar to liability. Id. at
386-87. In its view, an employer could make the strategic
decision to defend against an employee’s tort claim on its
merits rather than invoke the protections of the workers’
compensation scheme, perhaps in the hopes that the
jury would find the evidence of negligence lacking. In
such a case, the employer’s legal exposure would be
based on liability in tort. Id. Such “potential liability” was
enough for the Supreme Court of Illinois to find the
JTCA applicable. Id.13
The reasoning in Doyle may be applied in this case. As
we noted earlier, the Warsaw Convention preempts
state tort laws to the extent that those state rules con-
flict with its own regulatory structure. See El Al, 525 U.S.
at 175 (“[T]he Convention’s preemptive effect is clear:
13
Doyle was reaffirmed recently by the Illinois Supreme Court
in Virginia Surety Co., Inc. v. N. Ins. Co. of New York et al., 866
N.E.2d 149, 154-55, 160 (Ill. 2007); see also Unzicker v. Kraft Food
Ingredients Corp., 783 N.E.2d 1024, 1033 (Ill. 2002) (explicitly
reaffirming Doyle); Braye v. Archer-Daniels-Midland Co., 676
N.E.2d 1295 (Ill. 1997) (holding that the Workers’ Compensation
Act is in the nature of an affirmative defense that may be
waived by the employer, and therefore the defendant was
still potentially liable in tort); Geise v. Phoenix Co. of Chicago, Inc.,
639 N.E.2d 1273 (Ill. 1994) (same).
16 Nos. 06-3942 & 06-4032
The treaty precludes passengers from bringing actions
under local law when they cannot establish air carrier
liability under the treaty.”). However, this preemption is
limited. Article 24 provides: “In the carriage of cargo, any
action for damages, however founded, whether under
this Convention or in contract or in tort or otherwise, can
only be brought subject to the conditions and limits of
liability set out in this Convention . . . .” (emphasis added).
Article 24 expressly contemplates that an action may be
brought in contract or in tort. The liability limitation
provisions of the Warsaw Convention simply operate as
an affirmative defense.14 Accordingly, the Supreme Court
of Illinois’ reasoning in Doyle suggests that the limited
preemption in the Warsaw Convention does not pre-
clude the application of the JTCA here.
Although the parties do not reference it, we acknowl-
edge that we previously have held that the JTCA did not
apply to a party sued under the Carmack Amend-
ment because the federal statute “preempt[ed] the field
formerly occupied by common law theories of liability.”
N. American Van Lines v. Pinkerton Sec. Sys., 89 F.3d 452,
458 (7th Cir. 1996). Nevertheless, we found that decision to
be consistent with the Illinois Supreme Court’s analysis in
Doyle because, in North American, liability could be pre-
mised solely on the Carmack Amendment. The plaintiff
14
See, e.g., Craddock Intern. Inc. v. W.K.P. Wilson & Son, Inc., 116
F.3d 1095, 1105-06 (5th Cir. 1997) (noting that the liability
limitations in the Warsaw Convention must be pleaded as
an affirmative defense); Distribuidora Dimsa v. Linea Aerea Del
Cobre S.A., 976 F.2d 90, 93 (2d Cir. 1992) (referring to the liabil-
ity limitations in the Warsaw Convention as an affirmative
defense).
Nos. 06-3942 & 06-4032 17
there “was foreclosed from suing in tort by the terms of
the Carmack Amendment, which preempts the field
formerly occupied by common law theories of liability.” Id.
at 458. Accordingly, there was no need for the defendant
to plead the liability limitations in the Carmack Amend-
ment as an affirmative defense: “the contract defined
both its liability and [the plaintiffs’] right to relief.” Id.
at 459.
Notably, we emphasized in North American that the
Carmack Amendment was unique. Id. at 458. It was
intended by Congress to be a consumer-friendly law,
establishing its own mechanism for contribution and
“relieving shippers of the burden of determining which of
the several carriers handling interstate shipments bears
the blame for loss or damage under diverse state laws.” Id.
at 457. The Warsaw Convention, on the other hand,
privileges the air carrier and provides it with a partial
affirmative defense to claims by potential plaintiffs. Unlike
the Carmack Amendment, the Warsaw Convention does
not have its own apportionment system, and it expressly
contemplates the use of state law to fill in the interstices.
See Warsaw Convention, art. 24 (“[A]ny action for dam-
ages, however founded, whether under this Convention
or in contract or in tort or otherwise, can only be brought
subject to the conditions and limits of liability set out in
this Convention without prejudice to the question as to
who are the persons who have the right to bring suit and
what are their respective rights.”); art. 30A (“Nothing
in this Convention shall prejudice the question whether
a person liable for damage in accordance with its provi-
sions has a right of recourse against any other person.”).
The Warsaw Convention therefore is particularly suited
to the application of state setoff and contribution schemes.
18 Nos. 06-3942 & 06-4032
Accordingly, the Carmack Amendment and the Warsaw
Convention are distinguishable, and our application of
Doyle here is consistent with our prior opinion in North
American.
Furthermore, the two other circuit courts that have
addressed the question have concluded that a right of
setoff or contribution is available for the airlines in claims
arising under the Warsaw Convention. See In re Air
Crash at Little Rock, Arkansas on June 1, 1999, 291 F.3d 503,
516-17 (8th Cir. 2002) (examining the question of tortfeasor
contribution under the Warsaw Convention, and directing
the district court to allow the defendant airline to file a
third-party claim for contribution against the United
States); Piamba Cortes v. American Airlines, Inc., 177 F.3d
1272, 1305 (11th Cir. 1999) (assuming that a state law
claim for contribution was proper under the Warsaw
Convention). Our conclusion that the Warsaw Conven-
tion is compatible with a state law contribution scheme,
therefore, is consistent with the interpretation of other
circuits.
Although we conclude that a claim for liability under
the Warsaw Convention is compatible with a claim for
contribution or setoff under the JTCA, our inquiry does not
end there. A party seeking contribution or a right of
setoff under the JTCA must show that the plaintiff poten-
tially had “a cause of action sounding in tort against both
the party seeking contribution and the party from whom
contribution is sought.” N. American, 89 F.3d at 456 (em-
phasis added). To seek a setoff under the JTCA, then,
NCA must show that Sompo could have brought a claim
sounding in tort against Pace and/or Yusen as well as
against the air carrier. Sompo does not dispute that Yusen
was potentially liable in tort here; accordingly, NCA is
Nos. 06-3942 & 06-4032 19
entitled to a setoff of the $8,500 Yusen paid to Sompo in the
settlement. Pace, however, was potentially liable only
under the Carmack Amendment, a fact that, as we have
already discussed, precludes NCA from seeking a setoff
of its payments under the JTCA. See N. American, 89 F.3d
at 458.
Even if Pace is not a potential “tortfeasor” within the
meaning of the JTCA, however, NCA can claim a setoff
right based on Illinois common law. See, e.g., Maher v.
Chicago Park Dist., 645 N.E.2d 295, 297 (Ill. App. Ct. 1994)
(noting that the JTCA is not the sole source of a setoff
right, and a setoff right existed at common law); Hentze
v. Unverfehrt, 604 N.E.2d 536, 541 (Ill. App. Ct. 1992)
(holding that a right of setoff is implied in contract cases,
even if not statutorily encompassed by the JTCA); Johnson
v. Belleville Radiologists, Ltd., 581 N.E.2d 750, 753 (Ill. App.
Ct. 1991) (“The provision for a setoff contained in the
Contribution Act is not the source of the defendants’ right
to a setoff; it is merely a codification of that right. Defen-
dants were entitled to a setoff at common law.”). Sompo
does not dispute the existence of this common law right,
and therefore we conclude that NCA is entitled to a
setoff of the entire settlement amount.
In sum, we hold that the Illinois Joint Tortfeasors Contri-
bution Act is not preempted by the Warsaw Convention,
and that NCA is entitled to a setoff of the entire amount
of the settlement under the JTCA and Illinois common
law. We next must determine whether the setoff should
be taken from the capped judgment amount ($74,450.84),
reducing Sompo’s award to zero, or from the total proven
damages amount ($271,304), granting Sompo the maxi-
mum damages allowable under the Convention.
20 Nos. 06-3942 & 06-4032
B. To Which Amount Does the Setoff Apply?
The district court found that the plaintiff in this case had
sustained at least $271,304 in proven damages. Applying
Illinois contribution law, it then reduced that amount by
$108,500, the amount that Sompo had received from Pace
and Yusen in settlements. The court therefore concluded
that Sompo was entitled to $162,804 in damages. As the
Warsaw Convention capped NCA’s liability at $74,450.84,
however, the district court awarded Sompo only
$74,450.84.
On appeal, NCA contests the district court’s method of
calculation. It submits that Sompo’s $108,500 settlement
with Pace and Yusen instead should have been applied
against the $74,450.84 limited liability figure, effectively
reducing NCA’s liability to $0. Sompo, on the other
hand, contends that the settlement amount correctly
was deducted from its total amount of proven damages,
or $271,304, leaving NCA responsible for the full amount
permissible under the Warsaw Convention. We review
de novo the district court’s decision to apply the setoff
to the total damage amount rather than to the reduced
liability amount. See Johnson v. West, 218 F.3d 725, 729 (7th
Cir. 2000).
The JTCA provides that a plaintiff’s settlement with a
joint tortfeasor “reduces the recovery on any claim” against
a non-settling defendant. 740 Ill. Comp. Stat. 100/2(c). In
NCA’s view, the term “recovery” means the “amount
finally collected” by a plaintiff. Black’s Law Dictionary
1276 (6th ed. 1990). Without citing legal authority, NCA
contends that the plain meaning of this statute therefore
requires the court to apply the setoff against the amount
finally collectable by the plaintiff—here, the $74,450.84
ultimately recoverable under the Warsaw Convention.
Nos. 06-3942 & 06-4032 21
In practice, however, NCA’s so-called “plain meaning”
reading of the statute makes little sense. As the district
court aptly noted, “[i]f the setoff were to be deducted
from the ‘amount finally collected’ by a plaintiff, . . . the
latter would no longer be the amount ‘finally collected.’
Applying the ‘plain meaning’ leads to an absurd result.”
Sompo Japan Ins., Inc. v. Nippon Cargo Airlines Co., No. 02
C 9311, 2004 WL 2931282, at *9 (N.D. Ill. Dec. 15, 2004).15
Contrary to NCA’s defendant-centered approach, an
Illinois court has said that the JTCA requires a setoff so that
“a payment by one tortfeasor diminishes a plaintiff’s claim
against all other tortfeasors responsible for the same
harm.” Hentze, 604 N.E.2d at 541. The court focused on
the plaintiff’s proven damages, not the defendant’s ulti-
mate liability: “The underlying current . . . is that a plain-
tiff’s claimed damages are to be reduced by any payments
he has received in compensation for the same harm or
injury.” Id.The purpose underlying the JTCA is the “long-recog-
nized principle in Illinois that a plaintiff shall have only
one satisfaction for an injury.” Pasquale, 654 N.E.2d at 1381.
15
Indeed, NCA’s definition of “recovery” is not the only
possible definition of the term. Black’s Law Dictionary also
defines the term “recovery” as, “in its most extensive sense,
the restoration or vindication of a right.” Black’s Law Dic-
tionary 1147 (5th ed. 1979). According to this definition,
“recovery on a claim” could mean the restoration or vindica-
tion of the plaintiff’s total damages—in short, making the
plaintiff whole. Such a definition comports with the district
court’s interpretation of the Act, which would focus on vin-
dication of the plaintiff’s claim rather than the amount the
defendant ultimately pays.
22 Nos. 06-3942 & 06-4032
The setoff right is plaintiff-centered, rather than focused on
the unique characteristics of the defendant. See Maher v.
Chicago Park Dist., 645 N.E.2d 295, 298 (Ill. App. Ct. 1994)
(noting that a defendant may receive a setoff in order to
prevent a plaintiff from receiving double recovery for the
same injury, irrespective of the defendant’s actions).
Therefore, applying the setoff to the plaintiff’s total dam-
ages, rather than the defendant’s total liability, com-
ports with the intent of the statute.
Such a result, as NCA suggests, conceivably could be
perceived as allowing “double recovery” for Sompo, for
although only NCA was held responsible for the accident,
Sompo recovered from multiple parties. Indeed, Sompo
recovered more in its settlement with Pace than it probably
would have been awarded had all the parties gone to trial.
This is not, however, the double recovery about which
the JTCA is concerned. Presumably, the settlement amount
recovered from Pace and Yusen was discounted by
those parties to reflect their estimation of the probability
that they would be found responsible for the accident.
Although, in hindsight, it appears that the settling defen-
dants paid far more than their legal liability, avoiding the
risk and the cost of litigation apparently was worth the
price of settlement for Pace and Yusen. Courts do not
second-guess such decisions absent evidence of bad faith.
Cleveringa v. J.J. Case Co., 549 N.E.2d 877, 880 (Ill. App. Ct.
1990). The purpose of the setoff statute is defeated by
a recovery from this type of settlement only if the plain-
tiff’s aggregate recovery is greater than his actual proven
damages.
Here, Sompo receives no unfair windfall by recovering
from both Pace and NCA. Even with recovery from both,
Sompo is still substantially under-compensated. The dis-
Nos. 06-3942 & 06-4032 23
trict court found that Sompo’s total damages were at
least $271,304. The Pace/Yusen settlement of $108,500 left
Sompo with $162,804 in unpaid damages. “Given that
NCA’s liability is limited to $74,450.84,” the district court
noted, “Sompo will not recover even one full compensa-
tion for its injuries, much less ‘double recovery.’ ” Sompo,
2004 WL 2931282, at *9.
On the other hand, NCA would receive a hefty windfall
were we to accept its interpretation of the JTCA. NCA asks
that we apply the amount of Pace’s and Yusen’s settle-
ments to its already-capped liability amount, reducing
the judgment against it to zero and leaving Sompo with
$162,804 in uncompensated damages. Under NCA’s
interpretation, despite the fact that NCA was found by
the district court to have been the sole party responsible
for the loss, it would be free from paying any damages.
The entire burden would fall upon Pace, Yusen and the
plaintiff—all innocent parties. Surely this is not the result
required by the JTCA, an act intended to properly distrib-
ute losses among culpable parties. See Doyle, 461 N.E.2d
at 386, 388 (stating that the JTCA was designed to “reach
anyone who is culpable regardless of whether they have
been immunized from a direct tort action by some
special defense or privilege,” and to enforce “an equitable
duty to share liability for the wrong done”); see also Jansen
v. Aaron Process Equip. Co., 149 F.3d 603, 609 (7th Cir. 1998)
(noting that “the culpable tortfeasor rather than the in-
jured victim will bear the financial responsibility” when
faced with an inequitable distribution of loss).
Such a result does not contradict the purposes of the
Warsaw Convention. Certainly, one of the leading pur-
poses of the original Warsaw Convention was to limit the
potential liability of air carriers. However, beginning
24 Nos. 06-3942 & 06-4032
with the Montreal Agreement and MP4, and culminating
in the most recent Montreal Convention,16 the modern
Warsaw regime has been driven by an attempt to better
balance the interests of air carriers and potential plain-
tiffs. This goal is achieved by limiting air carriers’ potential
liability to predictable, non-catastrophic damages and also
by preserving a plaintiff’s right to recover its losses up to
a certain amount. Applying the setoff to the total amount
of damages in this case results in a greater amount of
liability for the airline than if the statute had directed us to
take the reduction from the capped amount. Even when
applying the setoff to the total damages amount, how-
ever, the airline retains the protection of the Warsaw
Convention’s liability cap and therefore is assured that its
liability is predictable and limited. Our interpretation of
the setoff rule in no way increases the air carriers’ risk of
being subjected to unpredictable or catastrophic damages.
Accordingly, we conclude that the judgment of the
district court was correct. NCA is entitled to a setoff of the
settlement amounts, but the amount must be subtracted
from Sompo’s total proven damages rather than from
NCA’s limited liability under the Warsaw Convention.
Because Sompo’s post-settlement uncompensated dam-
ages far exceeded Sompo’s liability under the Warsaw
Convention, the award of $74,450.84 was correct.
16
We recognize, of course, that the Montreal Convention is
not directly applicable to the instant case, as it was ratified
after the events in question. Nevertheless, the trend toward
increased protection for consumers may inform our inter-
pretation of the Warsaw Convention, as amended by MP4, in
this case.
Nos. 06-3942 & 06-4032 25
D. Prejudgment Interest
In its cross-appeal, Sompo asks that we award prejudg-
ment interest on the judgment amount. The Supreme
Court has not addressed the availability of prejudgment
interest under the Warsaw Convention. This court, how-
ever, previously has held that prejudgment interest is not
appropriate under the terms of the treaty. Deere & Co. v.
Deutsche Lufthansa Aktiengesellschaft, 855 F.2d 385 (7th
Cir. 1988).
In Deere, we held that the Warsaw Convention’s goal of
fixing uniform limits on damages for airlines was “inher-
ently incompatible with full compensation to all custom-
ers.” Id. at 392. Consequently, making aggrieved airline
customers whole “was not a primary purpose of the
Convention.” Id. By contrast, “[t]he preeminent purpose
of the Convention was to fix definite and uniform limits
on the cost to airlines,” and allowing additional prejudg-
ment interest would contradict this goal. Id. at 391.17
Sompo suggests that Deere was decided before the
Montreal Protocol took effect in the United States, and thus
it is not necessarily a binding interpretation of current law.
Although the Deere opinion was written before MP4
became effective, the court was not unaware of the exis-
tence of the law. In fact, we addressed the Montreal
Protocol as persuasive authority in interpreting the Con-
17
This decision comported with the Second Circuit’s holding in
O’Rourke v. Eastern Air Lines, 730 F.2d 842 (2d Cir. 1984),
although it is in conflict with decisions in the Fifth Circuit and
the Ninth Circuit. See Motorola, Inc. v. Fed. Express Corp., 308
F.3d 995 (9th Cir. 2002); Domangue v. E. Airlines, Inc., 722 F.2d 256(5th Cir. 1984).
26 Nos. 06-3942 & 06-4032
vention. Id. at 392. We specifically determined that MP4’s
additional goals of speedy settlement of claims, as well as
some limited additional protection of the consumer,
were not significantly served by awarding prejudgment
interest. Id. at 392. As illustrated in this case, because
airlines are willing to incur substantial fees to litigate the
issues of damages, “prejudgment interest would constitute
only a minor deterrent to litigation-caused delays in
payment.” Id. The overarching goal of the Warsaw Con-
vention, to fix an airline’s potential damages at a predict-
able level, would not be served by allowing discretionary
prejudgment interest.
Sompo has failed to meet its burden of persuading us
that, despite the doctrine of stare decisis and precedent,
we ought to overhaul or modify our holding in Deere.
Conclusion
For the reasons explained above, we affirm the judg-
ment of the district court.
AFFIRMED
USCA-02-C-0072—4-11-08