Underwriters at Lloyds Subscribing to Cover Note B0753PC1308275000 v. Expeditors Korea Ltd.

Decision Date16 February 2018
Docket NumberNo. 16-10985,16-10985
Parties UNDERWRITERS AT LLOYDS SUBSCRIBING TO COVER NOTE B0753PC1308275000, Plaintiff–Appellee, v. EXPEDITORS KOREA LTD., Forward Air, Inc., Defendants–Appellants.
CourtU.S. Court of Appeals — Eleventh Circuit

David T. Maloof, Thomas M. Eagan, Maloof Browne & Eagan, LLC, Rye, NY, Brian T. Scarry, Horr Novak & Skipp, PA, Miami, FL, for PlaintiffAppellee.

Lawrence Jeffrey Roberts, David William Smith, Lawrence J. Roberts & Associates, PA, Coral Gables, FL, for DefendantsAppellants.

Before JORDAN and JILL PRYOR, Circuit Judges, and PROCTOR,* District Judge.

JILL PRYOR, Circuit Judge:

Expeditors Korea Ltd. and Forward Air, Inc. (together, the "transporters") damaged cargo that they were responsible for transporting internationally. In this case, the Underwriters at Lloyds ("Lloyds"), having compensated its insured—the cargo's owner—for the damage to the cargo, seeks to recover from the transporters. The transporters admit their liability; the only question is how much they owe. Lloyds and the transporters disagree over the rules that govern the amount the transporters must pay. There are two possibilities: (1) the Montreal Convention,1 a multinational treaty that provides uniform rules for liability in international air carriage, or (2) the waybill, the contract between the transporters and the company that shipped the cargo. The Convention and the waybill establish nearly identical limitations of liability, in each case capping damages based on the weight of the damaged shipment. The only potential difference, for our purposes, is that when damage to one part of a shipment renders the rest of the shipment less valuable, the Montreal Convention calculates liability based on the weight of the entire shipment, while the waybill is ambiguous about whether the weight of the damaged part alone should be used. Because the transporters damaged one part of a machine that could not operate without the damaged part, the extent of the transporters' liability may depend on whether the Montreal Convention or the waybill controls. We therefore must address whether the Montreal Convention applies under the circumstances present here: After the cargo had been flown from South Korea to Miami, Florida, en route to Orlando, Florida, it was damaged either at a trucking company's warehouse outside Miami International Airport or while aboard a truck bound for Orlando.

We hold that the district court erred in ruling that the Montreal Convention governs the transporters' liability. The Convention does not apply based on the district court's factual findings regarding where the cargo was damaged. By default, then, the waybill governs the transporters' liability. Because the waybill is ambiguous about the weight that should be used to calculate liability, we remand the case for the district court to address the issue in the first instance.

I. BACKGROUND
A. The Montreal Convention

We begin with a brief overview of the relevant provisions of the Montreal Convention. The Convention, which was ratified by both the United States and South Korea, caps a carrier's liability for cargo damaged during international air transport. See Eli Lilly & Co. v. Air Express Int'l USA, Inc. , 615 F.3d 1305, 1308 (11th Cir. 2010). The Convention's Article 22 limits a carrier's potential liability to 19 Special Drawing Rights (SDRs) per kilogram of cargo shipped.2 See Montreal Convention art. 22(3). "An SDR is an artificial currency, published daily by the International Monetary Fund, which fluctuates based on the global currency market." Eli Lilly , 615 F.3d at 1308. Central to the dispute in this case, Article 22 provides that if only part of the cargo is damaged, then only the weight of the damaged package or packages is used to calculate liability, but if damage to some packages affects the value of other, undamaged packages, then the weight of the undamaged packages will also be included in the calculation. See Montreal Convention art. 22(4).

The Convention, and thus Article 22's limitation of liability, applies only to cargo damaged during "carriage by air." Id. art. 18(1). Article 18 defines carriage by air as "the period during which the cargo is in the charge of the carrier." Id. art. 18(3). The fourth paragraph of Article 18 expressly excludes from that definition "any carriage by land, by sea or by inland waterway performed outside an airport." But there are two exceptions to this exclusion that extend the reach of "carriage by air." First, the Montreal Convention establishes a rebuttable presumption that cargo damaged at an unknown point during a journey that includes at least some carriage by air will be governed by the Convention. See id. art. 18(4). Second, if a carrier substitutes non-air carriage for air carriage without the permission of the sender, the Convention deems the non-air carriage to have been carriage by air. See id. It is plain, then, that the Convention reaches further than literal air transit, but how much further depends on the interplay between paragraphs three and four of Article 18. We examine Article 18 in greater detail below.

B. The Waybill

In this case, if the Montreal Convention does not apply, then the waybill under which the cargo was shipped governs the transporters' liability. A waybill is "[a] document acknowledging the receipt of goods by a carrier ... and the contract for the transportation of those goods." Waybill , Black's Law Dictionary (10th ed. 2014). Here, the waybill Expeditors issued provided for airport-to-airport transportation of the cargo from Incheon, South Korea, to Orlando, Florida.3

The waybill capped the carrier's liability for damage to cargo at the same amount as the Montreal Convention, 19 SDRs per kilogram. Like the Convention, the waybill also provided that the weight used to calculate damages was to be the same weight that was used to calculate the shipping charges. The waybill described what would happen if only part of the shipment was damaged:

In any case of loss, damage, to, or delay to part of the cargo, the weight to be taken into account in determining Expeditors' limit of liability shall be only the weight of the package or packages concerned.

Air Waybill ¶ 6 (Doc. 78-3).4 The parties disagree about whether the waybill's reference to "package or packages concerned" indicates that only the weight of packages actually lost, damaged, or delayed may be considered or whether the weight of packages that diminished in value due to the loss, damage, or delay of related packages may also be included in calculating the carrier's liability.

The waybill contained one other term that is relevant here. The waybill gave Expeditors the right to substitute non-air carriage for air carriage, absent specific instructions to the contrary.

C. The Shipment

TriQuint Semiconductor, Inc., a manufacturer of components used in electronics, purchased a machine for coating silicon wafers from Cybortrack Solutions Inc., a South Korean company. The machine consisted of various process stations where the wafers were prepared and a robotic arm that moved the wafers among these process stations. Cybortrack hired Expeditors to transport the machine to TriQuint in ten separate shipping crates from Incheon, South Korea to Orlando, Florida.

Even though the waybill provided for airport-to-airport transportation between the two cities, Expeditors did not fly the ten crates directly from Incheon to Orlando. Instead, it flew them to Miami and then arranged for a multi-step journey by land to Orlando. After the crates arrived in Miami, a cargo handling company delivered them from Miami International Airport to Expeditors' warehouse near the airport. Expeditors then hired Forward Air to drive the crates by truck to Forward Air's Orlando facility. Along the way, Forward Air stored the crates for a short period of time in its Miami warehouse. Finally, Expeditors hired Crazy Joe's Airfreight to transport the crates by truck from Forward Air's Orlando facility to TriQuint's delivery agent.

Unfortunately, the machine was damaged somewhere between Miami and Orlando. Forward Air employees noted no damage to the crates when they arrived at Forward Air's Miami warehouse. And the company's policy was to decline shipments of damaged items. When the crates arrived at Forward Air's Orlando facility, a Forward Air employee reported that two of the crates were damaged, one of them severely. The severely damaged crate contained the silicon coating machine's robotic arm. The Forward Air employee testified that the crate containing the robotic arm had been crushed either while it was being loaded onto the truck at Forward Air's Miami facility or while traveling in the truck from Miami to Orlando, as a result of improper loading. Upon picking the crates up from Forward Air's Orlando facility, a driver for Crazy Joe's observed that one crate had a hole in it and two crates were missing legs. A Forward Air supervisor also observed the damage when the crates were picked up by the Crazy Joe's driver.5

By the time it reached TriQuint, the robotic arm was damaged beyond use.6 TriQuint received no replacement arm for approximately five months, and the rest of the machine was inoperable without the arm. The company filed a claim with its insurer, Lloyds, which paid it $918,000 in compensation for the damage.

D. Procedural History

Lloyds then filed this action against Expeditors and Forward Air in federal district court, alleging that in damaging the cargo Expeditors breached its duties under the Montreal Convention, Forward Air was negligent, and both defendants breached the waybill. Lloyds sought $920,000 in damages.7 After discovery, the transporters moved for partial summary judgment, arguing that the Montreal Convention did not apply and that the waybill capped their liability. The district court denied the motion and then held a bench trial.

After trial, the court entered findings of fact and conclusions of law, determining...

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