Eli Lilly Do Brazil v. Federal Express Corp.

06-0530-cv
Eli Lilly do Brazil v. Federal Express Corp.
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3 _____________________
4
5 August Term, 2006
6
7
8 (Argued: September 22, 2006 Decided: September 11, 2007)
9
10
11 Docket No. 06-0530-cv
12 ______________________
13
14 ELI LILLY DO BRASIL, LTDA ,
15
16 Plaintiff-Appellant,
17 — v .—
18
19 FEDERAL EXPRESS CORPORATION ,
20 Defendant-Appellee.
21 _________________
22
23
24 Before: MESKILL, B. D. PARKER, & RAGGI, Circuit Judges.
25
26
27 __________________
28
29 Appeal from a judgment of the United States District Court for the Southern District of
30 New York (Lynch, J.) granting Federal Express enforcement of a damage limitation clause in a
31 waybill governing the transportation of cargo. AFFIRMED.
32
33 Judge Meskill dissents in a separate opinion.
34 __________________
35 MARTIN F. CASEY, Casey & Barnett, LLC, New
36 York, N.Y., for Appellant Eli Lilly do
37 Brasil, Ltda.
38
1 ROBERT R. ROSS , Federal Express Corporation,
2 Memphis, Tenn., for Appellee Federal
3 Express Corporation.
4
5 __________________
6
7 BARRINGTON D. PARKER, Circuit Judge:
8 Eli Lilly do Brasil (“Lilly”) contracted with Federal Express (“FedEx”) to ship drums of
9 pharmaceuticals from Brazil to J§apan. While being trucked in Brazil, the shipment was stolen.
10 This appeal considers whether the limitation on liability in FedEx’s waybill is enforceable and
11 the answer depends on whether federal common law or Brazilian law applies.
12 The United States District Court for the Southern District of New York (Lynch, J.)
13 agreed with FedEx that federal common law applied, under which the limitation was enforceable.
14 The District Court declined Lilly’s invitation to apply Brazilian law, under which Lilly contended
15 the clause would have been invalid if gross negligence were shown. The District Court
16 concluded that to do so would serve “to invalidate the liability limitations to which the parties
17 voluntarily bound themselves” and would disturb the parties’ justified expectation that their
18 contract was enforceable. We agree and we affirm.
19 I. BACKGROUND
20 In October 2002, Lilly contracted with Nippon Express do Brasil, who, in turn,
21 subcontracted with FedEx to transport fourteen drums of Cephalexin from Lilly’s factory in
22 Guarulhos, Brazil to Narita, Japan, through FedEx’s hub in Memphis. FedEx received the cargo
23 and consigned it to Jumbo Jet Transportes Internacionais Ltda. for transportation by truck to
2
1 Viracopos, Brazil. The truck was hijacked en route and the cargo, worth approximately
2 $800,000, was stolen.
3 The waybill for the shipment limited FedEx’s liability for stolen goods to $20 per
4 kilogram. If a customer, such as Lilly, was dissatisfied with the limitation, it was given the
5 option of securing additional coverage by declaring a higher value and paying additional
6 charges.1
7 The limitation of liability on the face of the waybill was conspicuous.2 Lilly did not elect
1
The waybill provides:
If the carriage involves an ultimate destination or stop in a country other than the
country of departure, the Warsaw Convention may be applicable and the
convention governs and in most cases limits the liability of the Carrier in respect
of loss, damage, or delay to cargo to 250 French gold francs per kilogramme
[indicated to be approximately USD $20.00 per kilogram], unless a higher value is
declared in advance by the shipper and a supplementary charge paid if required.
....
(4) Except as otherwise provided in Carrier’s tariffs or conditions of carriage, in
carriage to which the Warsaw Convention does not apply Carrier’s liability shall
not exceed US $20.00 or the equivalent per kilogramme of goods lost, damaged or
delayed, unless a higher value is declared by the shipper and a supplemental
charge paid.
2
The limitation specifies:
ALL GOODS MAY BE CARRIED BY ANY OTHER MEANS INCLUDING
ROAD OR ANY OTHER CARRIER UNLESS SPECIFIC CONTRARY
INSTRUCTIONS ARE GIVEN HEREON BY THE SHIPPER, AND SHIPPER
AGREES THAT THE SHIPMENT MAY BE CARRIED VIA INTERMEDIATE
STOPPING PLACES WHICH THE CARRIER DEEMS APPROPRIATE. THE
SHIPPER’S ATTENTION IS DRAWN TO THE NOTICE CONCERNING
CARRIER’S LIMITATION OF LIABILITY. Shipper may increase such
limitation of liability by declaring a higher value for carriage and paying a
supplemental charge if required.
3
1 to declare a higher value or to pay for additional coverage. The record is silent as to the
2 circumstances of the theft. It is not disputed that, if the limitation applied, FedEx’s exposure for
3 the loss was approximately $28,000.
4 Lilly, a Brazilian firm, chose not to sue FedEx in Brazil but instead sued in the Southern
5 District of New York. The parties cross-moved for partial summary judgment. FedEx sought to
6 limit its liability in accordance with the waybill and Lilly sought to have Brazilian law applied,
7 believing that the limitation might not be enforceable if it could prove that the trucking company
8 acted with gross negligence. Both parties assumed that federal common law choice-of-law
9 analysis applied but they disagreed as to the results of that analysis.
10 The District Court granted FedEx’s motion, ruling that substantive federal common law,
11 not Brazilian law, applied and, as a result, the limitation was valid. The court’s choice-of-law
12 analysis, relying on the Restatement (Second) of Conflict of Laws (the “Restatement”),
13 determined that Brazil had an interest in “regulating the liability of – and corollary standards of
14 care to be exercised by – carriers transporting goods within its borders.” The court then reasoned
15 that because of Brazil’s numerous contacts with the transaction, it undoubtedly had a significant
16 interest in regulating the transaction, while the United States had only a “general policy interest
17 in limiting the liability of FedEx as a federally-certified air carrier.”
18 After considering all the Restatement factors, however, including several that favored
19 Lilly, the court concluded that federal common law, which accords primacy to vindicating the
20 parties’ justified expectations, trumped Brazilian law. Specifically, Judge Lynch found that
21 because United States law would enforce the contract as written and Brazilian law might permit
4
1 the contract to be disregarded, “Brazil’s interests in defining the liability of carriers operating
2 within its borders, even taking into account its considerable contacts with the transaction, are not
3 so strong here as to occasion unsettling the private agreement of these particular parties, who, to
4 the extent they were aware of Brazilian law, opted to contract around it.” Heavily weighting this
5 factor, the court concluded that the United States is “the jurisdiction with the most significant
6 relationship to the transaction and the parties.” After the parties stipulated the amount of
7 damages, the court entered a judgment for Lilly in accordance with the limitation in the waybill.
8 This appeal followed.
9 II. DISCUSSION
10 A. Standard of Review
11 We review de novo the district court’s determination that federal law applies, Curley v.
12 AMR Corp., 153 F.3d 5, 11 (2d Cir. 1998); the district court’s determinations regarding questions
13 of Brazilian law, id.; Fed. R. Civ. P. 44.1; as well as the district court’s resolution of the cross-
14 motions for summary judgment, Terwilliger v. Terwilliger, 206 F.3d 240, 244 (2d Cir. 2000).
15 B. Choice of Law Analysis
16 Although the Supreme Court has cautioned that it is appropriate for courts to apply
17 federal common law in only a “few and restricted” instances, O’Melveny & Myers v. FDIC, 512
18 U.S. 79, 87 (1994) (internal quotation marks omitted), this Court has recognized that cases
19 involving the liability of air carriers for lost or damaged freight are controlled by federal common
20 law, see Nippon Fire & Marine Ins. Co., Ltd. v. Skyway Freight Sys., Inc., 235 F.3d 53, 59 (2d
21 Cir. 2000). Because this appeal requires us to consider FedEx’s liability for lost shipment of
5
1 freight, and since the parties have conceded the issue, a federal common law choice-of-law
2 analysis is appropriate.
3 As our prior cases indicate, when conducting a federal common law choice-of-law
4 analysis, absent guidance from Congress, we may consult the Restatement (Second) of Conflict
5 of Law. See Pescatore v. Pan Am. World Airways, Inc., 97 F.3d 1, 12 (2d Cir. 1996); see also
6 DaimlerChrysler Corp. Healthcare Benefits Plan v. Durden, 448 F.3d 918, 923 (6th Cir. 2006)
7 (turning to the Restatement where prior caselaw did not address the choice-of-law question at
8 issue); Huynh v. Chase Manhattan Bank, 465 F.3d 992, 997 (9th Cir. 2006) (“Federal common
9 law follows the approach outlined in the Restatement (Second) of Conflict of Laws.”).
10 In general, “[t]he federal common law choice-of-law rule is to apply the law of the
11 jurisdiction having the greatest interest in the litigation.” In re Koreag, Controle et Revision
12 S.A., 961 F.2d 341, 350 (2d Cir. 1992). As to the transportation of goods, § 197 of the
13 Restatement provides:
14 The validity of a contract for the transportation of passengers or goods and the
15 rights created thereby are determined, in the absence of an effective choice of law
16 by the parties, by the local law of the state from which the passenger departs or the
17 goods are dispatched, unless, with respect to the particular issue, some other state
18 has a more significant relationship under the principles stated in § 6 to the
19 contract and to the parties, in which event the local law of the other state will be
20 applied.
21
22 Restatement (Second) of Conflict of Laws § 197 (emphasis added).
23 Section 6 identifies a number of factors relevant to determining which state has the more
24 significant relationship with the parties and the contract:
25 a) the needs of the interstate and international systems,
26 b) the relevant policies of the forum,
6
1 c) the relevant policies of other interested states and the relative interests of those
2 states in the determination of the particular issue,
3 d) the protection of justified expectations,
4 e) the basic policies underlying the particular field of law,
5 f) certainty, predictability and uniformity of result, and
6 g) ease in the determination and application of the law to be applied.
7
8 Restatement (Second) of Conflict of Laws § 6(2).
9 Brazil’s interests in the contract and the parties are by no means insignificant. The
10 contract was negotiated and executed in Brazil, between a Brazilian company and a United States
11 company that regularly transacts business in Brazil. The purpose of the contract was to ship
12 goods located in Brazil, out of Brazil to Japan. The goods did not enter the United States and
13 would have done so only because Memphis is the FedEx transship center. These considerations
14 are important ones to the § 6 analysis. See id. § 188(2) (stating that the principles of § 6 should
15 be analyzed taking into account, among other things, the place of negotiation of the contract, the
16 place of performance, and the place of business of the parties). As explained in the Restatement,
17 the § 188 contacts serve to identify “[t]he states which are most likely to be interested,” namely
18 those states “which have one or more of the [section 188] contacts with the transaction or the
19 parties.” Id. § 188 cmt. e (emphasis added). Section 188, like § 197, thus establishes something
20 akin to a default rule based on a non-exhaustive list of contacts. In moving beyond the default
21 rule to a determination of what rule of law applies in a particular circumstance, the contacts are
22 “to be taken into account in applying the principles of § 6.” Id. § 188(2). However, they do not
23 subsume those principles and are not determinative in themselves. To hold otherwise would
24 render § 6 superfluous.
25 Thus, our recognition that Brazil’s interest, based only on § 188 contacts, is greater than
7
1 the United States’ cannot be the end of our inquiry or determinative of its conclusion. The
2 United States also has some interest in this transaction and the parties, being FedEx’s domicile.
3 See id. § 188(2)(e). Which state is most interested under § 188 is a different question from which
4 state has the more significant relationship with the parties and the contract for purposes of § 197.
5 In this case, even taking account of Brazil’s superior § 188 contacts, two of the § 6 factors
6 emerge as determinative of United States venue: (1) the relevant policies of other interested
7 states and the relative interest of those states in the determination of the particular issue in
8 dispute, § 6(2)(c), and (2) protection of the parties’ justified expectations, § 6(2)(d). Once Lilly –
9 for whatever reason – asked a United States court to consider its contract, it invited application of
10 the well-settled “presumption in favor of applying that law tending toward the validation of the
11 alleged contract.” Kossick v. United Fruit Co., 365 U.S. 731, 741 (1961); see also Pritchard v.
12 Norton, 106 U.S. 124, 137 (1882) (“The parties cannot be presumed to have contemplated a law
13 which would defeat their engagements.” (internal quotation marks omitted)). This presumption
14 is consistent with the general rule of contract construction that “presumes the legality and
15 enforceability of contracts.” Walsh v. Schlecht, 429 U.S. 401, 408 (1977); see Nat’l Labor
16 Relations Bd. v. Local 32B-32J Serv. Employees Int’l Union, AFL-CIO, 353 F.3d 197, 202 (2d
17 Cir. 2003) (acknowledging the presumption that an ambiguous contract should not be interpreted
18 so that it is rendered invalid and unenforceable); Restatement (Second) of Contracts § 203(a)
19 (“[A]n interpretation which gives a reasonable, lawful, and effective meaning to all the terms is
20 preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect.”); cf.
21 Kipin Indus., Inc., v. Van Deilen Int’l, Inc., 182 F.3d 490, 495-96 (6th Cir. 1999) (observing that
8
1 under the Restatement, even an explicit choice of law provision is to be considered a mistake if
2 the chosen law would invalidate an express portion of the contract).
3 The paramount importance of enforcing freely undertaken contractual obligations,
4 especially in commercial litigation involving sophisticated parties, was obvious to the District
5 Court and is obvious to us. The Restatement expressly provides that the justified expectation of
6 enforceability generally predominates over other factors tending to point to the application of a
7 foreign law inconsistent with such expectation. Comment b of § 188 of the Restatement
8 provides:
9 Parties entering a contract will expect at the very least, subject perhaps to rare
10 exceptions, that the provisions of the contract will be binding upon them. Their
11 expectations should not be disappointed by application of the local law rule of a
12 state which would strike down the contract or a provision thereof unless the value
13 of protecting the expectations of the parties is substantially outweighed in the
14 particular case by the interest of the state with the invalidating rule in having this
15 rule applied.
16
17 Id. § 188, cmt. b (emphasis added). Likewise, the comments to § 197 note that the default rule
18 favoring the local law of the state of dispatch may not apply when the contract would be invalid
19 under such law “but valid under the local law of another state with a close relationship to the
20 transaction and the parties.”3 Id. § 197 cmt. c. In such a situation, the default shifts to favor the
21 validating law “unless the value of protecting the expectations of the parties by upholding the
3
The dissent suggests that the United States does not have a “significant” or “close”
relationship with the contract for purposes of § 197. See Dissenting Op. at 8, 10. As we have
already noted, the United States is the domicile of FedEx. Moreover, the § 197 comments
suggest that the very fact that one interested state’s laws would render a contract valid, while
another’s would not, bolsters the “significance” of the first state’s relationship to the transaction
and the parties. See Restatement § 197 cmt. c.
9
1 contract is outweighed in the particular case by the interest of the state of departure or dispatch in
2 having its invalidating rule applied.” Id.
3 Under federal common law, the limitation in the waybill is valid. The “release value”
4 doctrine recognizes the validity of provisions limiting the liability of carriers for lost or damaged
5 cargo. See Nippon Fire, 235 F.3d at 59-60 (validating such provisions where they are “set forth
6 in a ‘reasonably communicative’ form so as to result in a ‘fair, open, just and reasonable
7 agreement’ between carrier and shipper” and “offer the shipper a possibility of higher recovery
8 by paying the carrier a higher rate”); accord Shippers Nat’l Freight Claim Council, Inc. v.
9 Interstate Commerce Comm’n, 712 F.2d 740, 746 (2d Cir. 1983); Hill Constr. Corp. v. Am.
10 Airlines, Inc., 996 F.2d 1315, 1317 (1st Cir. 1993).
11 We have little difficulty concluding that this case does not present a rare exception and
12 that the parties reasonably expected – or certainly should have expected – that their contract
13 would be enforceable. As we noted, the contract contained not only a loss limitation clause, but
14 offered Lilly the option of securing more insurance if it paid a higher premium – an option Lilly
15 did not avail itself of. Lilly has offered no satisfactory justification for expecting that it would be
16 permitted to finesse this commitment.
17 Lilly’s principal contention is that the District Court erred in attaching a presumption of
18 validity to the contract because it is commonplace in the sphere of international common
19 carriage, including in Brazil, that a carrier who acts with gross negligence will be precluded from
20 relying on a contractual liability limitation. While acknowledging that the contractual limitation
21 provision controls for simple negligence, Lilly, relying on § 6(2)(c) of the Restatement, contends
10
1 that under the laws of Brazil – the other interested state – the limitation provision is void if
2 FedEx acted with willful misconduct or gross negligence.
3 Lilly has not convinced us that this contention is correct. Lilly relies on a declaration by
4 Brazilian transportation attorney, Paulo de C. Machado, which Lilly submitted in support of its
5 motion for summary judgement. The declaration initially states that “there is NO legal limitation
6 for carriers in road or railroad transportation.” As the sole authority for this proposition, the
7 declaration refers to a Brazilian legislative decree which states that “[t]he railroads are
8 responsible for the total or partial loss, pilferage or damage to the merchandises which they
9 received to transport.” According to the declaration, this decree has been applied to
10 transportation by truck. With regards to air transportation, both domestic and international, the
11 declaration asserts that “[t]here is limitation of liability only in air carriage, but it does not apply
12 in case of gross negligence.” The following Brazilian law provisions are offered as support for
13 this proposition:
14 Decree No. 20.704/31, art. 25:
15 1) The carrier has no right to benefit of the dispositions of the [Warsaw]
16 Convention, which exclude or limit their liability, if the loss is consequence of
17 their malice or of their fault, when according to the law of the court analyzing the
18 case fault is equivalent to malice.
19
20 Law No. 7.565/86:
21 The limits of the indemnity, stated in this Chapter, are not applicable if it is
22 proved that the loss resulted from malice or gross fault of the carrier or of their
23 employees.
24 Lilly’s statements of Brazilian law prove too much. Brazilian law does not provide for
25 any specific limitations on liability for losses occurring during truck carriage. Limitations of
11
1 liability, under Brazilian law, are only expressly allowed in air carriage and are then subject to an
2 exception for gross negligence. Given no real support in the record for Lilly’s contention that
3 Brazil’s gross negligence exception even applies during ground carriage – let alone support for
4 the proposition that Brazil’s interest in applying such an exception outweighs the value of
5 upholding the contract, cf. Restatement § 197 cmt. c. – we are hard-pressed to see how the parties
6 could have had a justified expectation to that effect.4 In the absence of such support, we are
7 comfortable concluding that our own firmly grounded policy of enforcing contractual obligations
8 assumed by sophisticated commercial entities should apply. 5
4
We also disagree with the dissent that we are required to take Machado’s articulartion of
various propositions of Brazilian law at face value, see Dissenting Op. at 15-17, when Machado
then refers to and quotes specific provisions of Brazilian law that do not support those
representations. Unlike Curley v. AMR Corp., 153 F.3d at 12, we do not find that Lilly’s
submissions of Brazilian law were insufficient to conduct a proper choice of law analysis;
instead, we find that Lilly’s representations contradict the actual provisions of Brazilian law that
govern.
5
The dissent argues that a State’s strong policy interest predominates over the justified
expectations of the parties that a contractual damages provision is valid. See Dissenting Op. at
11-13. While it is possible that evidence of a strong policy interest may overcome the
presumption of enforceability of a contract provision, no such Brazilian policy has been
identified.
Confoundedly, the dissent argues that we need not concern ourselves with what Brazilian
law is, in determining Brazil’s policy interests. See Dissenting Op. at 14. It seems obvious to us
that whether or not Brazilian law has an invalidating rule governing ground transport is
particularly relevant to whether Brazil, in fact, has a strong policy interest in this issue that is
owed deference. The Restatement acknowledges that “[t]he content of the relevant local rule of a
state may be significant in determining whether this state is the state with the dominant interest.”
Restatement (Second) Conflict of Laws § 6 cmt. f. In this case, the provisions of Brazilian law
submitted by Lilly reflect policies that are either completely at odds with what the parties
contracted for (i.e., would never allow a provision that limits ground carriage damages) or that
have no relationship to the issue before us (i.e., would only apply to air carriage losses and not
ground carriage).
12
1 III. CONCLUSION
2 The judgment of the District Court is affirmed.
13
1 #06-0530
2 Eli Lilly v. Fed Ex
3
4 MESKILL, Circuit Judge, dissenting:
5 I agree that we should apply the federal common law’s
6 choice of law rules to determine whether this contract is
7 governed by Brazilian law or federal common law and that we may
8 look to the Restatement (Second) of Conflict of Laws (1971) (the
9 Restatement) for guidance. However, I disagree with the
10 majority’s conclusion that under federal common law and the
11 Restatement the United States has a greater interest in this
12 litigation than does Brazil. I believe that Brazil’s strong
13 interest in regulating commerce within its borders trumps any
14 interest of the United States in enforcing this contract.
15 Therefore, I respectfully dissent.
16 I. The Restatement (Second) of Conflict of Laws
17 The Restatement has four provisions that offer guidance
18 as to how we should resolve this conflict between Brazilian law
19 and federal common law. See Restatement §§ 6, 188, 197 and 207.
20 My analysis begins with the Restatement provisions that
21 specifically apply to conflicts in contract law because “a
22 specific statute controls over a general one.” Bulova Watch Co.
23 v. United States, 365 U.S. 753, 758 (1961); see also United
14
1 States v. Torres-Echavarria, 129 F.3d 692, 699-700 n.3 (2d Cir.
2 1997) (“The operative principle of statutory construction is that
3 a specific provision takes precedence over a more general
4 provision.”).
5 A. Section 197 of the Restatement Sets Brazil as the
6 Default Jurisdiction Because the Goods Were Dispatched
7 From Brazil
8 The FedEx Air Waybill called for the transportation of
9 Lilly’s goods from Brazil to Japan. The Waybill contained no
10 choice of law provision. Under Restatement § 197 contracts for
11 the transportation of goods are governed “by the local law of the
12 state from which . . . the goods are dispatched.” Section 197
13 sets Brazil as the default jurisdiction because the state of
14 dispatch “will naturally loom large in the minds of the parties”
15 and it “has a natural interest in the contract of transportation
16 and in many instances has a greater interest in the contract than
17 the state of destination, if for no other reason than that there
18 can be no absolute certainty at the time of the departure that
19 . . . the goods will reach the latter state.” Restatement § 197
20 cmt. b.
21 However, while § 197 sets Brazil as the default
22 jurisdiction, it also provides for the possibility that another
23 state may have “a more significant relationship under the
24 principles stated in § 6 to the contract and to the parties.”
15
1 Furthermore, “[o]n occasion” the law of a state other than the
2 state of dispatch might apply. Restatement § 197 cmt. c. This
3 may occur if the contract is invalid under the law of the state
4 of dispatch but valid under the law of a state with “a close
5 relationship to the transaction and the parties.” Id. Thus,
6 Brazil’s laws will govern this contract unless the United States
7 has either a “more significant relationship” to the contract and
8 to the parties than does Brazil, Restatement § 197 (emphasis
9 added), or the contract is invalid under Brazilian law and the
10 United States has a “close relationship” to the contract and to
11 the parties, Restatement § 197 cmt. c (emphasis added). Leaving
12 aside for the moment the issue of whether the FedEx Air Waybill
13 is valid under Brazilian law, I turn to Restatement § 188 for
14 guidance in determining whether the United States has a
15 significant or close relationship to the contract or to the
16 parties.
17 B. Under § 188 of the Restatement Brazil Has the Most
18 Substantial Contacts With the Contract and With the
19 Parties
20 Section 188 of the Restatement is designed to help
21 courts resolve a conflict of laws that involves “an issue in
22 contract.” Restatement § 188(1). To determine which state has
23 “the most significant relationship to the transaction and the
24 parties,” id., the court evaluates the following five contacts:
16
1 (a) the place of contracting,
2 (b) the place of negotiation of the contract,
3 (c) the place of performance,
4 (d) the location of the subject matter of the contract,
5 and
6 (e) the domicil, residence, nationality, place of
7 incorporation and place of business of the parties.
8 Id. § 188(2)(a)-(e). Once these contacts are known, the court
9 takes them “into account” by “applying the[m to] the principles
10 of § 6.” Id. at § 188(2). The § 6 principles are those general
11 considerations that “underlie all rules of choice of law,” id. at
12 § 188(1) cmt. b.:
13 (a) the needs of the interstate and international
14 systems,
15 (b) the relevant policies of the forum,
16 (c) the relevant policies of other interested states
17 and the relative interests of those states in the
18 determination of the particular issue,
19 (d) the protection of justified expectations,
20 (e) the basic policies underlying the particular field
21 of law,
22 (f) certainty, predictability and uniformity of result,
23 and
24 (g) ease in the determination and application of the
25 law to be applied.
26 Id. at § 6(1). Thus, to determine whether the United States has
27 a “significant” or “close” relationship to the contract and to
28 the parties, the Court must first evaluate each state’s § 188(2)
29 contacts with the FedEx Air Waybill.
30 1. The Place of Negotiation Was Brazil
31 The FedEx Air Waybill was negotiated between FedEx and
32 Lilly’s Brazilian freight forwarder Nippon Express do Brasil,
17
1 Ltda (Nippon Express) in Brazil. The contract between FedEx and
2 Jumbo Jet Transportes Internacionais, Ltda (Jumbo Jet), and the
3 contract between Lilly and Nippon Express, also were negotiated
4 in Brazil.
5 2. The Place of Contracting Was Brazil
6 The FedEx Air Waybill was issued to Nippon Express in
7 Brazil by the FedEx office in São Paolo. In addition, the
8 following contracts were executed in Brazil: (1) Lilly’s contract
9 with Nippon Express, (2) Nippon Express’ subcontract with FedEx,
10 and (3) FedEx’s subcontract with Jumbo Jet.
11 3. Performance Under the Contract Occurred Only In
12 Brazil
13 Lilly contracted with Nippon Express to transport the
14 fourteen drums of Cephalexin from Lilly’s factory in Cosmopolis,
15 São Paolo, Brazil to Lilly’s customer in Iwate, Japan. Nippon
16 Express picked up the pharmaceuticals from Lilly’s factory in São
17 Paolo and transported them to the Nippon Express freight
18 forwarding facility at Cumbica Airport in Guarulhos, Brazil.
19 Nippon Express then subcontracted with FedEx to deliver the
20 shipment to Narita International Airport in Chiba, Japan.
21 FedEx picked up and accepted the pharmaceutical cargo
22 at the Nippon Express freight forwarding facility in Guarulhos,
23 Brazil and subcontracted with Jumbo Jet to transport the cargo
24 locally from Guarulhos to an airport FedEx uses for international
18
1 shipments located in Viracopos, Brazil. While the goods were on
2 a Jumbo Jet truck on route to Viracopos the truck was hijacked
3 and the pharmaceuticals were stolen. Had the pharmaceuticals
4 made it to Viracopos, FedEx would have transported them to Chiba,
5 Japan via São Paolo and Memphis, Tennessee. However, because the
6 Jumbo Jet truck was hijacked the only performance that ever took
7 place under the contract occurred in Brazil.
8 Admittedly, performance under the contract also would
9 have taken place in the United States had the shipment not been
10 hijacked.1 However, the goods were only to enter the United
11 States briefly so that FedEx could route them through its hub in
12 Memphis before sending them on to Japan. The United States was
13 neither the final destination state nor the state of dispatch.
14 The cargo’s planned brief stopover in Memphis is an insignificant
15 contact when compared with the performance that actually took
16 place in Brazil, especially considering that the performance that
17 is the subject of this contract dispute -- the ground
18 transportation between Guarulhos to the airport located in
1
Restatement § 188(3) provides that when “the place of
negotiating the contract and the place of performance are in the
same state, the local law of this state will usually be applied.”
In this case, the place of negotiating was Brazil but the place
of performance was both Brazil and the United States.
Nevertheless, because what little performance occurred was in
Brazil, § 188(3) serves to highlight Brazil’s significant
interest in the contract.
19
1 Viracopos -- occurred only in Brazil. Therefore, while the
2 contract called for performance in both the United States and
3 Brazil, because the shipment originated in Brazil, the little
4 performance that occurred under the contract occurred in Brazil.
5 The goods never left Brazil. Thus the § 188(2)(c) contact weighs
6 heavily in favor of Brazil.
7 4. The Subject Matter of the Contract Was Located in
8 Brazil
9 The pharmaceutical cargo was in Brazil at the time of
10 contracting and FedEx never transported the cargo out of Brazil.
11 5. The Parties Involved Are Either Brazilian
12 Companies Or Companies That Regularly Conduct
13 Business in Brazil
14 Lilly, Nippon Express and Jumbo Jet are all Brazilian
15 companies domiciled in Brazil. FedEx is not a Brazilian company.
16 Nevertheless, FedEx regularly conducts business in Brazil and the
17 Air Waybill here was issued by the FedEx office in São Paolo.
18 C. When the § 188(2) Factors Are Taken Into Account and
19 Applied to the § 6 Principles Brazil Emerges as the
20 State With the Most Significant Relationship to the
21 Transaction and to the Parties
22 “The states which are most likely to be interested [in
23 the contract] are those which have one or more of the [§ 188(2)]
24 contacts.” Restatement § 188 cmt. e. Brazil has the most
25 substantial § 188(2) contacts with the FedEx Air Waybill and with
26 the parties. While the majority admits that Brazil’s § 188(2)
20
1 contacts are “important ones,” they never proceed to the next
2 step and take those contacts into account and apply them to the
3 principles of § 6. Instead, the majority concludes that two of
4 the § 6 principles -- (1) the relevant policies of other
5 interested states and the relative interests of those states in
6 the determination of the particular issue, and (2) the justified
7 expectations of the parties -- “emerge as determinative” in favor
8 of applying federal common law.
9 The majority concludes that federal common law applies
10 over Brazilian law without pointing to a single § 188(2) contact
11 that the United States has with either the FedEx Air Waybill or
12 with the parties. In addition, the majority never acknowledges
13 that under § 197 Brazil is the default jurisdiction whose laws
14 govern this contract unless the United States has a “significant”
15 or “close” relationship to the contract. In my view, §§ 188 and
16 197 are specific provisions addressing conflicts in contract law
17 that should take precedence over the more general § 6 principles.
18 See Bulova, 365 U.S. at 758. Therefore, I would follow the
19 Restatement and take each states’ § 188(2) contacts into account
20 and apply them to the § 6 principles. When this is done, Brazil
21 emerges as the only state with a “significant” or “close”
22 relationship to the contract and to the parties.
23 I agree with the majority that the most important § 6
21
1 principles implicated by this conflict of laws are (1) the
2 relevant policies of the forum, (2) the relevant policies of
3 other interested states and the relevant interests of those
4 states in the determination of the particular issue, and (3) the
5 protection of justified expectations. See Restatement § 6(b),(c)
6 & (d). I also agree with the majority’s conclusion that under
7 our federal common law choice of law rules there is “some
8 presumption in favor of applying that law tending toward the
9 validation of [an] alleged contract.” Kossick v. United Fruit
10 Co., 365 U.S. 731, 741 (1961).
11 The presumption in favor of applying the law that tends
12 to validate a contract is important where the alternative is no
13 contract at all. This was the conflict of laws choice presented
14 in Kossick, but it is not the conflict of laws choice presented
15 here. In this case application of Brazilian law may invalidate
16 one provision in the FedEx Air Waybill and then only under
17 limited circumstances. However, in Kossick the Court was faced
18 with a much more drastic choice: (1) apply the New York Statute
19 of Frauds, which would render the alleged oral contract wholly
20 invalid, or (2) apply federal maritime law, which generally
21 upholds oral contracts. 365 U.S. at 733-34. Even though the
22 application of New York law would have completely invalidated the
23 contract, the Kossick Court did not treat that factor as
22
1 dispositive, but instead analyzed whether the contract was
2 “sufficiently related to peculiarly maritime concerns” and
3 whether the contract “though maritime” was “maritime and local.”
4 Id. at 738 (internal quotation marks omitted).
5 The Kossick Court never treated the presumption in
6 favor of applying the law that would validate the contract as
7 dispositive, and under circumstances that presented a much more
8 compelling case for adherence to the presumption than those
9 presently before the Court. Instead, the presumption was just
10 one of “several considerations” the Kossick Court discussed in
11 its choice of law analysis. Id. at 741.2 I find no support in
12 Kossick for the majority’s conclusion that we must ignore all
13 other traditional choice of law factors and instead apply federal
14 common law because it validates this contract, particularly when
15 it is Brazil that has the dominant interest in this litigation
16 and applying Brazilian law could only affect the amount of
17 damages in a limited situation. Even if the presumption in favor
18 of applying the law that tends to validate contracts applies
19 here, with all of the § 188(2) contacts, Brazil has easily
20 rebutted the presumption.
2
The other considerations were whether the contract was
“essentially maritime [in] character,” whether the contract could
have been made “anywhere in the world” and whether its validity
“should be judged by one law wherever it was made,” and whether
New York had a significant interest in the contract. Id.
23
1 Furthermore, while the federal common law’s presumption
2 in favor of applying the law that tends to validate contracts
3 might mean that the United States has a general interest in
4 validating contracts, the United States still does not have a
5 “significant” or “close” relationship with this contract.
6 Therefore, under § 197 Brazil remains as the default jurisdiction
7 whose laws govern this contract of transportation regardless of
8 whether the liability limitation is valid under Brazilian law.
9 The Restatement does not elevate the forum state’s interests
10 above any other state’s, nor should we.3
11 I also disagree with the majority’s conclusion that the
12 protection of the justified expectations of the parties mandates
13 application of federal common law. First, because choice of law
14 is not expressed in the Waybill the justified expectations of the
15 parties, like the other § 6 principles, must be analyzed in
16 accordance with each state’s § 188 contacts. The United States
17 does not have any significant § 188 contacts with this contract.
18 However, Brazil served as the place of negotiation and execution
19 of the contract, the majority of the companies are domiciled in
20 Brazil, and the contract called for the transportation of goods
3
The United States’ interest in enforcing contracts will
arise in any choice of law contract case litigated in its courts,
even when the only contact it has with the contract is that it is
the state where the lawsuit was brought.
24
1 located in Brazil out of Brazil. Under these circumstances, I
2 believe that the parties would be wholly justified in expecting
3 that their contract was governed by Brazilian law.
4 Second, there has been no allegation by either party
5 that the contract would be rendered completely invalid under
6 Brazilian law. We are only concerned with the validity of the
7 limitation of liability provision and then only under certain
8 conditions. I agree with the Restatement commentary that while
9 “the expectations of at least one of the parties would presumably
10 be disappointed if the [damages] provision is found to be
11 invalid[,] [o]n the other hand, a rule declaring such a provision
12 invalid is likely to represent a strongly-felt policy which the
13 forum would be hesitant to override if the state with the
14 invalidating rule was the state with the dominant interest in the
15 issue to be decided.” Restatement § 207 cmt. c.4 Regardless of
4
Section 207 of the Restatement addresses conflict of laws
involving damages provisions in breach of contract claims. While
the text of § 207 provides that “[t]he measure of recovery for a
breach of contract is determined by the local law of the state
selected by application of the rules of §§ 187-188,” the
commentary minimizes the importance the justified expectations of
the parties have in cases such as this, where the only conflict
involves the measure of recovery:
[Q]uestions involving the measure of recovery for
breach of contract will be determined in accordance
with the law selected by application of the rule of
§ 188. This rule in turn calls for the application of
the choice-of-law principles stated in § 6, of which
one . . . is the protection of the justified
25
1 what the parties expectations were, Brazil is the state with the
2 dominant interest in this litigation and by applying federal
3 common law we are overriding Brazil’s “strongly-felt policy”
4 regarding the validity of the damages provision.
5 Third, while I agree with the majority that in many
6 cases “the protection of the justified expectations of the
7 parties is of considerable importance in contracts,” Restatement
expectations of the parties. This principle, however,
has little role to play with respect to the measure of
damages. In the absence of a provision in the contract
dealing explicitly with the question of damages, it is
improbable that the parties gave thought before
entering the contract to what the measure of damages
would be in the event of breach. Hence, the expectations
of the parties are unlikely to be disappointed by
application of the rule of one state rather than of the
rule of another state. In such circumstances, the
forum, in determining which is the state of the
applicable law with respect to the measure of damages,
will usually give primary weight to the choice-of-law
principle, also mentioned in § 6, which seeks the
effectuation of the relevant policies of the state with
the dominant interest in the issue to be determined.
The situation is essentially the same where the issue
involves the validity of a provision in the contract
dealing with the measure of damages. Here the
expectations of at least one of the parties would
presumably be disappointed if the provision is found to
be invalid. On the other hand, a rule declaring such a
provision invalid is likely to represent a
strongly-felt policy which the forum would be hesitant
to override if the state with the invalidating rule was
the state with the dominant interest in the issue to be
decided.
Id. at § 207 cmt. c.
26
1 § 188 cmt. b, I do not agree that to protect the justified
2 expectations of the parties we should enforce blindly the
3 contract as written where no choice of law is expressed and that
4 choice might determine the damages allowed. If the majority’s
5 interpretation of the Restatement is correct, then §§ 188, 197
6 and 207 serve no purpose, and we need never consider whether the
7 United States or any other interested state has any contacts with
8 a contract. I do not believe that the presumption in favor of
9 applying the law that tends toward the validation of the contract
10 has supplanted the traditional choice of law analysis embodied in
11 the Restatement.
12 Of course, where two states have significant interests
13 in the contract the common law presumption in favor of applying
14 the law of the state that tends to validate the contract might
15 prove dispositive. However, this is not such a case. Brazil’s
16 interest in regulating commerce within its own borders heavily
17 outweighs any interest the United States has in enforcing this
18 contract. The Supreme Court has instructed courts to “construe[]
19 ambiguous statutes to avoid unreasonable interference with the
20 sovereign authority of other nations.” F. Hoffmann-La Roche Ltd.
21 v. Empagran S.A., 542 U.S. 155, 164 (2004); see also Murray v.
22 The Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804)
23 (“[A]n act of congress ought never to be construed to violate the
27
1 law of nations if any other possible construction remains.”).
2 Here we are dealing only with a judicially created common law
3 presumption and not an act of Congress, yet the majority somehow
4 concludes that this presumption is an interest that trumps
5 Brazil’s sovereign authority.
6 II. Lilly’s Evidence of Brazilian Law
7 Finally, the majority faults Lilly for failing to
8 provide sufficient evidence that Brazilian law does not allow
9 common carriers to limit their damages when they are grossly
10 negligent. However, the issue before the Court is whether
11 Brazilian law applies -- not what Brazilian law is. I do not see
12 why we need to consider the particulars of Brazilian law at this
13 stage of the proceedings.
14 But even assuming arguendo that the content of
15 Brazilian law should play a role in resolving this conflict of
16 laws, Lilly has supplied sufficient evidence that Brazil treats
17 limitation of liability provisions differently than does the
18 United States. The majority dismisses the Machado declaration as
19 offering “no real support” for Lilly’s assertion that Brazilian
20 law does not allow FedEx to limit its liability for acts of gross
21 negligence. However, the Machado declaration plainly states that
22 “a common carrier is not entitled to limit its liability if found
23 to be grossly negligent in the care of the cargo while said cargo
28
1 was in its custody, control and possession or in the custody,
2 control and possession of its duly appointed agent or sub-
3 contractor.” Under the Federal Rules of Civil Procedure,
4 district courts are allowed to make determinations regarding
5 foreign law by considering “any relevant material or source,
6 including testimony, whether or not submitted by a party or
7 admissible under the Federal Rules of Evidence.” Fed. R. Civ. P.
8 44.1. We have “urge[d] district courts to invoke the flexible
9 provisions of Rule 44.1 to determine issues relating to the law
10 of foreign nations” because “such issues can be expected to come
11 to the federal courts with increasing frequency as the global
12 economy expands and cross-border transactions increase.” Curley
13 v. AMR Corp., 153 F.3d 5, 13 (2d Cir. 1998). Nevertheless, the
14 majority finds the Machado declaration insufficient despite the
15 Federal Rules of Civil Procedure and our case law that would
16 allow the district court to rely on it. This is an odd
17 conclusion because FedEx never challenged Lilly’s
18 characterization of Brazilian law.
19 In the district court proceedings FedEx decided not to
20 submit proof of Brazilian law because “such is premature at this
21 point,” and in its brief to this Court FedEx mistakenly informs
22 us that “the parties did not offer factual proof of the substance
23 of Brazilian law.” However, only FedEx failed to provide proof
29
1 of Brazilian law. Lilly’s characterization of Brazilian law and
2 the Machado declaration are unchallenged.5
3 I also disagree with the majority’s conclusion that
4 Lilly failed to address whether the parties could contract around
5 Brazilian law. The Machado declaration states that “a common
6 carrier is not entitled to limit its liability if found to be
7 grossly negligent.” The plain meaning of this sentence is that
8 common carriers in Brazil cannot limit their liability for
9 grossly negligent acts even if they try.
10 For the foregoing reasons, I respectfully dissent from
11 the majority opinion. I would vacate the district court’s
12 judgment and remand this case to allow the district court to
13 determine whether the limitation of liability provision in the
14 FedEx Air Waybill is valid and enforceable under Brazilian law.
5
FedEx even appears to concede that Brazilian law would
render the limitation provision invalid: “Eli Lilly seeks to
apply Brazilian law, which would not enforce the limitation if
Eli Lilly can prove that FedEx acted with gross negligence or
willful misconduct.”
30