Hill Construction Corp. v. American Airlines, Inc.

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 92-1903
HILL CONSTRUCTION CORPORATION,
D/B/A HILL HELICOPTERS RENTAL SERVICE,
Plaintiff, Appellee,
v.
AMERICAN AIRLINES, INC.,
Defendant, Appellant.
No. 92-1992
HILL CONSTRUCTION CORPORATION,
D/B/A HILL HELICOPTERS RENTAL SERVICE,
Plaintiff, Appellant,
v.
AMERICAN AIRLINES, INC.,
Defendant, Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jose Antonio Fuste, U.S. District Judge]
Before
Breyer, Chief Judge,
Torruella* and Selya, Circuit Judges.
Ricardo F. Casellas with whom Jacqueline D. Novas and Fiddler,
Gonzalez & Rodriguez were on brief for American Airlines, Inc.
Jose E. Alfaro Delgado with whom Calvesbert & Brown was on
brief for Hill Construction Corp.
June 29, 1993
*Judge Torruella heard oral argument in this matter, and
participated in the semble but, after deciding that he should
recuse himself, he did not participate in the drafting or the
issuance of the panel's opinion. The remaining two panelists
therefore issue this opinion pursuant to 28 U.S.C. 46(d).
BREYER, Chief Judge. American Airlines appeals a
judgment requiring it to pay approximately $22,000 to Hill
Construction Corporation as a result of American's having
temporarily lost, and then damaged, a helicopter blade that
Hill had asked American to ship from Puerto Rico to
California. American does not contest the fact of
liability. Rather, it argues that the court lacked the
power to award damages greater than the maximum permissible
under a contract provision limiting American's liability for
cargo "lost, damaged or delayed" to $9.07 per pound (a total
of $1,814 in this case). The district court found that the
"liability limitation" did not apply. In our view, however,
the limitation is valid and applicable. And, well-
established legal principles require us to reverse the
district court's determination.
I
Background
The record, read favorably to Hill, shows the
following:
1) On August 10, 1990, a Hill Construction
employee brought a helicopter blade to
American Airlines' cargo terminal in San
Juan, Puerto Rico, and signed (on Hill's
behalf) an American "air waybill" -- a
contract that obliged American, in return for
payment, to ship the blade to California.
2) The air waybill said on its face that
provisions on its "reverse side" would
"limit" American's "liability for loss,
damage, or delay in certain instances." The
reverse side said, among other things, that
American's liability for cargo "lost,
damaged, or delayed" was limited to $9.07 per
pound (plus transportation charges) unless
the shipper declared a higher value and paid
an additional charge. Hill's employee did not
fill in the "declared value" box on the front
of the bill, nor did the employee, in any
other way, declare a higher value, nor did
the employee pay any additional charge.
3) American accepted the blade for carriage and
promptly lost the blade.
4) About seven months later, in March 1991, in a
San Juan air cargo warehouse near the sea,
American found a crate containing what it
thought was the missing blade. It contacted
Hill's "administrator," Ms. Dorothy Hill, who
came to the warehouse. An American employee
(contrary to Ms. Hill's advice) began to open
the crate with a forklift. Inside, Ms. Hill
found the missing blade, seriously damaged
both by the forklift and by the salty sea
air.
After these events, Hill Construction brought this
lawsuit against American. After a trial, the district court
found American "negligent in the handling of plaintiff's
cargo." It decided that the liability limitation either
was invalid or, alternatively, did not apply to so serious a
violation of the transportation contract. And, it
consequently awarded full compensatory damages of almost
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$22,000, the value of the blade. American now appeals this
damage award.
II
The Law
Where 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 found
those limitations lawful. See (1) post-deregulation air
carrier cases, e.g., Deiro v. American Airlines, Inc., 816
F.2d 1360, 1364-65 (9th Cir. 1987); Husman Constr. Co. v.
Purolator Courier Corp., 832 F.2d 459, 461 (8th Cir. 1987);
Arkwright-Boston Mfrs. Mutual Ins. Co. v. Great Western
Airlines, Inc., 767 F.2d 425, 426-27 (8th Cir. 1985); First
Pennsylvania Bank v. Eastern Airlines, Inc., 731 F.2d 1113,
1115, 1122 (3d Cir. 1984); Reece v. Delta Airlines, Inc.,
731 F. Supp. 1131, 1134 (D.Me. 1990); Neal v. Republic
Airlines, Inc., 605 F. Supp. 1145, 1148-49 (N.D.Ill. 1985);
see also Saul Sorkin, 2 Goods in Transit [hereinafter, Goods
in Transit] 13.07[1] at 13-79-82 & n.11, 13.07 [3][b] at
13-90 & n.48 (1976 & Supp. 1990) and cases cited therein
(noting continued enforcement of liability limitations
despite deregulation of air carriers); (2) regulated carrier
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cases, e.g., American Cyanamid Co. v. New Penn Motor
Express, Inc., 979 F.2d 310, 313, 316 (3d Cir. 1992); Hughes
Aircraft Co. v. North American Van Lines, Inc., 970 F.2d
609, 611-13 (9th Cir. 1992); Co-Operative Shippers, Inc. v.
Atchison, Topeka & Santa Fe Ry. Co., 840 F.2d 447, 451-52
(7th Cir. 1988); Polyplastics, Inc. v. Transconex, Inc., 827
F.2d 859 (1st Cir. 1987); Anton v. Greyhound Van Lines, 591
F.2d 103 (1st Cir. 1978); National Motor Freight Traffic
Ass'n, Inc. v. Interstate Commerce Comm'n, 590 F.2d 1180(D.C. Cir. 1978), cert. denied, 442 U.S. 909 (1979); North
American Phillips Corp. v. Emery Air Freight Corp., 579 F.2d
229, 232 (2d Cir. 1978); Dassin v. Eastern Airlines, 501
F.2d 74 (9th Cir. 1974), cert. denied, 419 U.S. 1121 (1975);
Thomas v. Trans World Airlines, 457 F.2d 1053 (3d Cir.
1972); Quasar Co. v. Atchison, Topeka & Santa Fe Ry. Co.,
632 F. Supp. 1106, 1111-13 (N.D. Ill. 1986); cf. (3)
statutes allowing limitations on liability, e.g., 46 U.S.C.
1304(5) (carriage of goods at sea); 49 U.S.C. 10505(e)
(rail carriers), 10730(b)(1) (motor transport), 11707(c)(4)
(common carriers).
In a commercial context, liability limitations
have certain advantages. They permit a carrier to avoid
unforeseeably high liability for especially valuable cargo;
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they permit shippers of ordinary items to pay somewhat lower
freight bills; and they permit shippers of valuable items to
choose between paying an insurance premium to the carrier
and obtaining, perhaps less expensive, insurance on their
own. See Husman Constr. Co., 832 F.2d at 462; cf. Alan
Schwartz & Robert E. Scott, Commercial Transactions 122-23
(1991). On the other hand, such clauses risk unfairness,
where, for example, a shipper is, in fact, unaware of the
limitation and his choices. Yet, the requirements of
reasonably communicative notice and an opportunity to buy
increased coverage for a premium payment lessen the risk of
unfairness. And, as we have said, balancing advantages and
disadvantages, both Congress and the courts have approved
the use of such clauses.
The contract before us contains typical, standard
form clauses which reasonably communicate the limitation on
liability. The reverse side of the "air waybill" contains a
series of clauses setting forth transport conditions,
written in ordinary sized print and separated by spacing.
On the copy submitted at trial, these clauses are fairly
easy to read (except for the blurring of a few non-critical
words that may reflect poor duplication). The clauses make
clear that the carrier limits its liability for cargo that
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is "lost, damaged or delayed" to $9.07 per pound, but that
the shipper may avoid the limitation by declaring a higher
value and paying a greater charge. The front side of the
bill clearly refers the reader to the back of the bill, for
it says, in ordinary sized type, set forth clearly and
separately from other words on the page:
This nonnegotiable airbill is a contract
governed by Law and by the provisions on
the reverse side. Such provisions,
among
other things, exclude or limit the
Carrier's liability for loss, damage or
delay in certain circumstances.
The front side of the bill also contains a box captioned
"declared value," which, in this case, was left blank. Cf.
Federal Express v. Paris Business Forms, Inc., 46 Pa. D. &
C. 3d 262 (1988) (standard provisions clearly printed on
front and reverse of airbill afforded sufficient opportunity
to declare higher value).
Ms. Hill testified that American's agent did not
tell either her or her employee about the liability
limitation clauses, and that, in fact, neither she, nor her
employee, knew about such clauses. But, we do not believe
that, in these factual circumstances, American was obliged
to call the liability limitation to its customers' attention
orally. The context is commercial. Hill Construction had
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been in business in Puerto Rico for eighteen years. Its
employees had previously shipped helicopter parts from
Puerto Rico to the mainland. In this context, a reasonably
prominent writing, not in particularly small print, set
forth with reasonable clarity on the front of a printed
airbill, would seem sufficient to communicate the liability
limitation, or at least to impose upon the commercial
customer a further obligation to read (rather than to impose
upon the carrier a further obligation to point to) what is
written. See Husman Constr. Co., 832 F.2d at 461 (citing
First Pennsylvania Bank, 731 F.2d at 1115); cf. Hopper Furs,
Inc. v. Emery Air Freight Corp., 749 F.2d 1261, 1264 (8th
Cir. 1984).
The carrier also has fulfilled its obligation to
offer a further "insurance" option. The contract makes
clear that the carrier can declare a higher value and buy
full coverage for an additional fee. Hill has offered no
evidence to suggest that the amount of this fee for
additional cargo protection was unreasonable for an air
carrier in American's market.
This valid liability limitation applies in the
present situation. The provisions refer to cargo that is
"lost, damaged or delayed," and the circumstances here fall
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within this language. The clause is enforceable despite the
fact that American may never have put the blade on an
airplane. A remedial contract clause, such as this one, is
designed to take effect precisely where, as here, the
carrier has broken the basic carriage contract. As Judge
Kaufman pointed out more than forty years ago,
Only in case of a misdelivery, negligent
injury, loss or similar misfortune does
a valuation clause come into use. Hence
the Federal courts have rightly held
that the limitation of liability clause
is designed for and does survive a
breach of the contract of carriage.
Lichten v. Eastern Airlines, Inc., 87 F.Supp. 691, 697
(S.D.N.Y. 1949). Compare Restatement (Second) of Contracts
237 (breach discharges other party's duties under contract)
with, e.g., American Cyanamid Co., 979 F.2d at 316 (citing
Quasar Co., 632 F.Supp. at 1108 (breach does not invalidate
liability-limiting remedial provision designed to govern
consequences of breach)).
Hill argues that a Ninth Circuit case, Coughlin v.
Trans World Airlines, Inc., 847 F.2d 1432 (9th Cir. 1988),
is to the contrary, but Coughlin involved rather special
circumstances. A special contract provision gave a
passenger the right to carry valuables in the airplane
cabin; the airline refused to allow a widow to carry her
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husband's ashes in the cabin; the airline lost the ashes;
and the court (in a brief per curiam opinion) held
inapplicable a provision limiting the airline's liability
for loss of valuables. Unlike this case, the Coughlin
contract involved a separate, liability-limitation-related
contractual promise, namely a promise that the passenger
might personally monitor the safety of the valuables by
carrying them in the cabin. One might read the liability
limitation as conditioned on fulfillment of that promise.
See 2 Goods in Transit 13.07[4] at 13-90 & n.49. Then,
since the carrier did not permit the passenger to carry the
ashes, it failed to satisfy the condition, and the liability
limitation did not take effect. See id. at 1433. We do not
see how otherwise, consistent with prior authority, to read
this case. See, e.g., Pinion v. Dow Chemical, 928 F.2d
1522, 1536 (11th Cir.) (case should be read as consistent
with prior precedent if possible), cert. denied, 112 S. Ct.
438 (1991). And, as so read, the case provides no support
for Hill's claim here, where there is no relevant special,
liability-limitation-related condition that the carrier
failed to fulfill. As we have just pointed out, the
contract here does not condition the liability limitation
upon the carrier's satisfying its basic, general promise to
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transport the goods, for the parties normally intend a
liability limitation to apply, not to disappear, when this
type of general promise is breached. See pp. 8-9, supra.
Hill makes one further argument. It points to a
legal doctrine, called the "deviation doctrine," which
originated in maritime law. Applying that doctrine, courts
would hold liability limitations inapplicable when ships
departed significantly from prearranged routes that they had
promised to take. See 2 Goods in Transit 13.13[1] at 13-
140-42 and cases cited therein. Hill has found two state
cases, construing federal law, which applied this doctrine
outside the maritime context, where the carrier acted so as
"fundamentally" to change the foreseeable risks to the
cargo. See, e.g., Information Control Corp. v. United
Airlines Corp., 73 Cal. App. 3d 630 (1977); Philco Corp. v.
Flying Tiger Line, Inc., 171 N.W.2d 16 (Mich. Ct. App.
1969). But see Grant Gilmore & Charles L. Black, Jr., The
Law of Admiralty 3-42 at 182 (2d ed. 1975) ("deviation
doctrine" limited to geographic departures). Given
American's seriously negligent conduct, says Hill, those
state cases require us to invoke the "deviation doctrine" to
set aside the liability limitation here.
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We do not believe, however, that these cases
require the result for which Hill argues. In each of the
state cases, the carrier made a special, separate promise to
the shipper about special conditions of carriage designed to
lessen the risk of harm to the shipper's particular cargo.
In the first case, United Airlines promised Information
Control Corporation (and later specially confirmed in a
telephone conversation) that it would place Information
Control's computers on a specific flight and fly without
stopovers. See Information Control, 73 Cal. App. 3d at 632-
33. In the second case, Flying Tiger specifically promised
Philco that it would store its computer materials upright.
See Philco Corp., 171 N.W.2d at 17-18. We suspect that, as
in Coughlin, the state courts saw failure to live up to
these separate, risk-related promises (special to the
particular shipment at issue) as a "fundamental" departure
from conditions precedent to the "boilerplate" liability
limitation's taking effect. See Restatement (Second) of
Contracts 203(c) & cmt. e (specific provisions or later
additions supersede more general contract language); Baloise
Ins. Co. v. United Airlines, 723 F. Supp. 195, 199 (S.D.N.Y.
1989) (distinguishing Information Control where carrier was
under no obligation to follow specific route).
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In the case before us there was no breach of a
special transport promise. Nor was there any "deviation"
from the kind of thing one might expect to find when a
carrier has "lost, damaged, or delayed" cargo. The record
does not provide adequate basis for a court's finding
transportation-related circumstances that fell outside the
range of those in which the parties intended the liability
limitation to apply. See, e.g., American Cyanamid, 979 F.2d
at 315 (citing Deiro, 816 F.2d at 1366 (liability limitation
valid "regardless of the degree of the carrier's
negligence")); Coughlin, 847 F.2d at 1433; C.A. La Seguridad
v. Delta Steamship Lines, 721 F.2d 322, 325 (11th Cir. 1983)
(limitation valid where cargo never delivered); Hellyer v.
Nippon Yesen Kaisya, 130 F. Supp. 209, 210-11 (S.D.N.Y.
1955) (same); Rockwell Int'l Corp. v. M/V Incotrans Spirit,
707 F. Supp. 272, 273 (S.D. Tex. 1989) (limitation valid
where damage occurred in warehouse); Neal, 605 F. Supp. at
1149 & n.3 (suggesting limitation valid even in case of
willful misconduct); Schiff v. Emery Air Freight Corp., 332
F. Supp. 1057, 1059 (D. Mass. 1971) (distinguishing Philco
to uphold limitation where no intentional wrong shown); cf.
Rocky Ford Moving Vans, Inc. v. United States, 501 F.2d
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1369, 1372 (8th Cir. 1974) (refusing to apply deviation
doctrine outside maritime law).
These federal rulings apply even though the
negligence here was serious, for (as these cases show) in
the absence of some special indication, courts 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. We
add that we have found a case that suggests, in dicta, that
the willful nature of misconduct might make a difference.
Glickfield v. Howard Van Lines, Inc., 213 F.2d 723, 727 (9th
Cir. 1954); cf. Schiff, 332 F. Supp. at 1059. But, we need
not decide whether or not we agree with that dicta for, in
this case, there is no showing of willfulness.
For these reasons, the district court's
determination that the liability limitation was inapplicable
in this case is reversed. The judgment is vacated and the
case is remanded for further proceedings consistent with
this opinion. (Our disposition of the case makes it
unnecessary to consider Hill's cross-appeal.)
So ordered.
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