Boston & Maine Railroad v. Aetna Casualty and Surety Co., 6222.

• Decision Date: 31 March 1964
• Docket Number: No. 6222.,6222.
• Parties: BOSTON & MAINE RAILROAD, Plaintiff, Appellant, v. The AETNA CASUALTY AND SURETY COMPANY, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

329 F.2d 602 (1964)

BOSTON & MAINE RAILROAD, Plaintiff, Appellant, v. The AETNA CASUALTY AND SURETY COMPANY, Defendant, Appellee.

No. 6222.

United States Court of Appeals First Circuit.

March 31, 1964.

Lawrence R. Cohen, Boston, Mass., with whom Newton H. Levee, Boston, Mass., was on brief, for appellant.

Richard Wait, Boston, Mass., for appellee.

Before WOODBURY, Chief Judge, and HARTIGAN and ALDRICH, Circuit Judges.

HARTIGAN, Circuit Judge.

This is an appeal from a judgment of the United States District Court for the District of Massachusetts, entered September 30, 1963, after a trial before the court sitting without a jury, dismissing a complaint filed by plaintiff-appellant, Boston & Maine Railroad, which sought recovery on a Railroad Blanket Bond issued by defendant-appellee, Aetna Casualty and Surety Company. The case was tried to the court below upon the basis of a pre-trial stipulation, seven documentary exhibits, and portions of the deposition of one John D. O'Connor.

On July 1, 1959 Aetna executed and delivered to the Boston & Maine Railroad a Railroad Blanket Bond under the terms of which Aetna agreed to indemnify Boston and Maine up to $100,000 "against any loss * * * for which the Insured is legally liable * * * through Culpable Negligence as defined in Section 4 on the part of, any one or more of the Employees. * * *" Section 4, which is entitled "Definition of Culpable Negligence," reads as follows:

"The words Culpable Negligence, as used in this bond, mean only gross carelessness in the performance or omission of duties, or the deliberate assumption of risk by an Employee in violation of printed or written instructions, rules or regulations of the Insured; but this bond shall not cover (a) any loss through mistake or error of judgment in the exercise of discretion vested in an Employee, or (b) any loss on account of injury to or death of any person or persons or damage to or destruction of property or (c) any loss through the failure properly to classify or compute freight or other charges."

The sole question presented is whether the loss which occurred to the plaintiff in the fashion hereinafter set forth was through the culpable negligence of O'Connor, an "Employee" of B & M under the provisions of a 1948 joint facility agreement entered into between the New Haven Railroad and B & M.

The joint facility agreement permitted the plaintiff to make use of a joint freight facility at Worcester, Massachusetts, maintained by the New Haven. The agreement provided that the facility be manned and actually operated by employees of the New Haven with costs of the facility allocated according to a formula spelled out in the contract.

During the period 1958 to 1960, the freight agent at the joint facility was O'Connor, a New Haven employee for over twenty years. His duties included general supervision of the freight house and freight office, seeing to it that freight was handled properly, that freight cars were properly placed, and that freight was delivered to consignees pursuant to the terms of applicable shipping documents.

One of the concerns to which freight was regularly shipped over the B & M was the Gardner Beef Company. Gardner had its own siding near the freight facility. All shipments to Gardner were on order-notify bills of lading which provided for payment under the bill of lading prior to the release of any car to Gardner. Gardner, however, had posted a delivery bond in the amount of $125,000. Under this bond it was permissible for the freight agents to release cars shipped on order-notify bills of lading without taking up the bills of lading at the time of placement on the siding, subject to two conditions: (1) that the aggregate value of shipments so placed should at no time exceed $125,000, (2) that each bill of lading should be surrendered within five days. The provision in Rule 7 of the Uniform Freight Classification made the bond inoperative if the railroad violated either of these two conditions.

In a letter dated August 19, 1958, from one J. E. Hines of the B & M Credit Bureau, O'Connor was advised that Gardner was not complying with the five-day requirement on the surrender of bills of lading, and O'Connor was instructed to "police this transaction very carefully." On October 22, 1958, by a letter from H. S. Harriman, Assistant Auditor of Revenue, B & M, O'Connor was again advised that the handling of shipments traveling to Gardner on order-notify bills of lading was "very unsatisfactory."

O'Connor "shut off" Gardner from receiving any additional freight in 1958 upon receipt of the letter from Hines, at which time unpaid-for shipments actually delivered to Gardner had reached a total of $195,000. After Gardner made appropriate payments, deliveries were resumed. Following receipt of the Harriman letter, O'Connor (who previous thereto had delegated to his assistants the responsibility for keeping track of the Gardner account) decided to personally police the account and thereafter he maintained a record book in which he entered the number of the car, the value of the car, and the date it was placed on Gardner's siding. From time to time O'Connor "shut off" Gardner whenever the aggregate of unpaid freight exceeded or closely approached the sum of $125,000. Each time that this happened deliveries to Gardner were halted until it brought itself within the conditions of the bond. O'Connor testified that this went on "pretty steadily" and that he would find out "probably every week or two weeks" that Gardner had failed to comply with the conditions of the bond, at which time he would "shut them off" until Gardner complied.

In September 1960, O'Connor discovered that with reference to Gardner "things were getting worse" and that it owed approximately $135,000. On September 6, O'Connor went to Isadore and Joseph Solomon, the two executives who operated Gardner Beef, told them that they were over their bond, and advised them that he "wasn't going to have anything more to do with them until such time as they got down and wanted to operate the way they were supposed to operate." After this meeting O'Connor returned to his office and called William Wedge who, according to the stipulation, was plaintiff's Regional Sales Manager in charge of freight traffic sales work for the Worcester, Fitchburg and Holyoke areas.

The introduction into evidence of that part of O'Connor's deposition containing the telephone conversation with Wedge was objected to at the trial on the ground of hearsay. The lower court correctly allowed the conversation for the limited purpose of showing O'Connor's state of mind and the condition upon which he acted subsequent to the telephone call. VI Wigmore on Evidence § 1729 (3d ed. 1940). Counsel stipulated that if O'Connor appeared at the trial as a witness he "would testify as he has done so in this deposition and what he...