First Pennsylvania Bank, N.A. v. Eastern Airlines, Inc.
Decision Date | 10 April 1984 |
Docket Number | No. 83-1441,83-1441 |
Citation | 731 F.2d 1113 |
Parties | FIRST PENNSYLVANIA BANK, N.A., Appellant, v. EASTERN AIRLINES, INCORPORATED, Appellee. |
Court | U.S. Court of Appeals — Third Circuit |
Fred T. Magaziner (argued), Dechert Price & Rhoads, Philadelphia, Pa., for appellant.
Paul J. Bankes, Jr. (argued) Ownes, Whiteman & Bankes, Philadelphia, Pa., for appellee.
Before GIBBONS and BECKER, Circuit Judges and DUMBAULD, Senior District Judge. *
This case involves determination of some of the legal consequences of deregulation 1 of common carriers with respect to their liability for lost shipments. Specifically, we must define the scope of a common carrier's authority to limit its liability for the loss of a package carried by its low-cost express service. Appellant contends that after deregulation of air carriers and abolition of the authority of the Civil Aeronautics Board (CAB) over rates and tariffs, the question is to be determined by state law (that of the Commonwealth of Pennsylvania in the case at bar) and asserts that under Pennsylvania law a decision in appellant's favor is mandated. The district court, however, held that federal common law rules relating to rates based on value of the property shipped survive under deregulation, and rendered judgment for the shipper in the amount of $500, being the amount calculated in accordance with the released value specified in the carrier's shipping documents and tariffs. We affirm.
Counsel commendably expedited trial of this case by stipulating most of the facts. There is little if any disagreement as to the facts of the case, and in any event the trial court's findings cannot be challenged as "clearly erroneous." Fed.R.Civ.P. 52(a). A brief summary will suffice as background for the legal questions which are significant in this litigation.
Appellant, a prominent Philadelphia bank, has occasion for prompt transmission of checks in huge sums from its Virgin Islands office to Philadelphia. The sooner the checks reach the bank in Philadelphia the sooner the large sums of money involved can be invested profitably. In the past an employee of the bank traveled from St. Thomas as a courier, bringing the checks in a pouch (A-208). In search of a speedier method, the bank's Caribbean manager John Gimenez telephoned Eastern Airlines, and in due course had an interview with Ken Burch of Eastern. Burch explained a service offered under the name of SPRINT which required less time than than the passenger travel by courier which the bank was then using. Small packages could conveniently be delivered at the airline office without advance reservation and the shipment would travel on the next flight for the destination city.
However, SPRINT service is available only for shipments having a value of $500 or less. This was made clear to Mr. Gimenez by Mr. Burch. When Mr. Gimenez mentioned that the checks to be transported were worth millions of dollars, consisting in large part of U.S. Treasury checks deposited with First Pennsylvania by the Government of the Virgin Islands, Mr. Burch responded that Eastern had not ever lost any SPRINT packages (A-153-54).
For whatever significance they may have in our subsequent legal analysis, there is no doubt as to the existence of the following facts:
(1) Appellant was informed by Eastern and knew at the time of every shipment that SPRINT service was available only for shipments valued at $500 or less.
(2) On every shipment of checks a declared value of $500 was written on the air bill, to appellant's knowledge, and appellant continued to use SPRINT service for 147 shipments between January 31, 1978, through December 29, 1980. On January 17, 1981, the "fatal" shipment which was lost and never found by Eastern was made in accordance with the same procedures established when appellant first used the SPRINT service (A-292). The shipment of January 17, 1981, contained 574 checks, the largest of which was a Treasury check for $3,787,767.00. A replacement check for this amount was received by appellant on March 4, 1981. There were 573 checks totaling $364,313.45. Appellant ultimately recovered all but $12,932.12 of the funds represented by these checks.
(3) At all times when appellant used SPRINT service there was a published tariff provision in effect providing for $500 maximum liability on the part of Eastern. There was also in effect a published tariff provision relating to air freight service, permitting higher valuation and specifying a higher rate for the transportation. When appellant first used Eastern's SPRINT service the tariffs were filed in accordance with law with the CAB. After deregulation, the tariffs were publicly available in a compendium entitled "Official Airline Freight Rate Tariff Book." Appellant could at any time have consulted all of Eastern's tariffs and familiarized itself with the rates therein specified had it seen fit to do so.
(4) At no time did Eastern inform appellant of the existence of its alternative air freight service permitting higher valuation at a higher rate (A-105, 141, 146). Nor did Eastern ever show appellant its tariffs or suggest that it might be advisable for appellant to consult the tariff provisions to become aware of the options available for transporting valuable items (A-154).
Summarizing, it is beyond dispute that the bank by signing the shipping papers knew that the carrier's tariffs purported to limit liability to the $500 released value; and it is equally beyond dispute that no employee of the carrier personally disclosed to the bank the availability of alternative higher rates carrying greater liability.
Under these circumstances, what are the respective rights of the parties?
We hold that federal law, rather than Pennsylvania law, governs the enforceability of the released value clause. An understanding of the law regarding limitation of liability by common carriers and the law regarding released value rates must begin with the cases involving rail carriers, at and after enactment of the Interstate Commerce Act in 1887.
Under the common law of common carriers as applied by federal and state courts, it was generally held that public policy forbade contracts of carriage where the carrier sought to exculpate itself from liability for its own negligence. However, a sharp distinction was drawn between such exculpatory provisions and provisions which merely limited liability to the agreed value of the property shipped when the amount of the rate depended upon the value of the shipment. Here the limitation of the carrier's liability was a consequence of the calculation of the transportation charge based upon the agreed value, rather than an exculpation from negligence. In a suit against the carrier in such a case, the carrier's negligence was assumed to exist, rather than avoided; the limitation of the shipper's damages to the agreed value was merely a consequence of the assumption that the agreed upon value was the true value of the property transported. Without the released value agreement, the carrier's liability would be limited by common law principles to the actual true value of the property. The agreed upon value merely constituted an estoppel against the unfairness of asserting a larger amount as the true value when the carrier was sued for damages in spite of the fact that a smaller value had been used to calculate the rate. The legal validity of an agreed value contract merely enabled the carrier's rate to be reasonably measured in accordance with the risk to which it was exposed by reason of the value of the property transported.
An early leading case establishing this distinction is Hart v. Pennsylvania R.R., 112 U.S. 331, 337-38, 5 S.Ct. 151, 153-55, 28 L.Ed. 717 (1884). Valuable race horses were shipped as livestock. The court upheld limitation of recovery to $1200, as specified in the contract of carriage, saying:
There is no justice in allowing the shipper to be paid a large value for an article which he has induced the carrier to take at a low rate of freight on the assertion and agreement that its value is a less sum than that claimed after a loss. It is just to hold the shipper to his agreement, fairly made, as to value, even where the loss or injury has occurred through the negligence of the carrier.
112 U.S. at 340, 5 S.Ct. at 155. The court cited Lord Mansfield in Gibbon v. Paynton, 4 Burr. 2209, 2300, for the rule that the carrier's "reward ought to be proportionable to the risque." 112 U.S. at 341, 5 S.Ct. at 156. The Court summarized its decision as holding
that where a contract of the kind, signed by the shipper, is fairly made, agreeing on the valuation of the property carried, with the rate of freight based on the condition that the carrier assumes liability only to the extent of the agreed valuation, even in case of loss or damage by negligence of the carrier, the contract will be upheld as a proper and lawful mode of securing a due proportion between the amount for which the carrier may be responsible and the freight he receives, and of protecting himself against extravagant and fanciful valuations.
This rationale has persisted throughout various periods of regulatory legislation. Following the enactment of the Interstate Commerce Act of February 4, 1887, 24 Stat. 379, and the Hepburn Act of June 29, 1906, 34 Stat. 584, section 20 of which contained the provision known as the Carmack amendment, the same distinction was observed. See Adams Express Co. v. Croninger, 226 U.S. 491, 509-10, 33 S.Ct. 148, 153-54, 57 L.Ed. 314 (1913). In this case the Supreme Court made it clear that Congress had occupied the field and superseded the diversity of state regulation on the subject matter. Id. at 504-506, 33 S.Ct. at 151-152. 2 To the same effect is Kansas City...
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