Franklin Mint Corp. v. Trans World Airlines, Inc.

• Decision Date: 28 September 1982
• Docket Number: No. 999,999
• Parties: FRANKLIN MINT CORPORATION, Franklin Mint Limited, and McGregor, Swire Air Services Limited, Plaintiffs-Appellants, v. TRANS WORLD AIRLINES, INC., Defendant-Appellee. Docket 82-7012,
• Court: U.S. Court of Appeals — Second Circuit

Page 303

690 F.2d 303

FRANKLIN MINT CORPORATION, Franklin Mint Limited, and McGregor, Swire Air Services Limited, Plaintiffs-Appellants, v. TRANS WORLD AIRLINES, INC., Defendant-Appellee.

Docket 82-7012, No. 999.

United States Court of Appeals, Second Circuit.

Argued April 22, 1982.

Decided Sept. 28, 1982.

John R. Foster, New York City (Donald M. Waesche, Waesche, Scheinbaum & O'Regan, P. C., New York City, of counsel), for plaintiffs-appellants Franklin Mint Corp., Franklin Mint Ltd. and McGregor, Swire Air Services, Ltd.

John N. Romans, New York City (Robert S. Lipton, Scott J. McKay, Wolas, Curtis, Mallet-Prevost, Colt & Mosley, New York City, of counsel), for defendant-appellee Trans World Airlines, Inc.

(Robert B. Hemley, Norman Williams, Gravel, Shea & Wright, Burlington, Vt., of counsel), for amici-curiae Jacques Roulin and Hugh Harley.

Before OAKES, CARDAMONE, and WINTER, Circuit Judges.

WINTER, Circuit Judge:

This is an appeal from a final judgment of the United States District Court for the Southern District of New York, Whitman Knapp, Judge, limiting the defendant's liability under the Warsaw Convention ("Convention") ¹ for loss of cargo. In determining the limit in United States dollars, Judge Knapp utilized the last official price of gold as a unit of conversion and awarded plaintiffs $6,475.98. 525 F.Supp. 1288 (S.D.N.Y.1981). Plaintiffs appeal, claiming the limit should have been calculated by other methods. While we agree with the result reached in this case and thus affirm, we hold the Convention's limit on liability prospectively unenforceable in United States Courts.

SUMMARY OF THE ISSUES AND DECISION

The facts in this case, if nothing else, are clear cut. In March, 1979, plaintiffs Franklin Mint Corporation, Franklin Mint Limited, and McGregor, Swire Air Services Limited (collectively, "Franklin Mint") contracted with defendant Trans World Airlines, Inc. ("TWA") for the carriage by air from the United States to England of 714 pounds of numismatic materials. Though the articles were worth more than $6,500, Franklin Mint made no special declaration of value. The articles were either lost or destroyed, thus rendering TWA liable under Article 18 of the Convention. ² Because of Article 22 limits the carrier's liability for injuries to both "checked baggage and ... goods" and "objects of which the passenger takes charge himself." ³ The various limits are stated in terms of a specified number of French gold or "Poincare" francs, a unit of account consisting of "65 1/2 milligrams of gold at a standard fineness of nine hundred thousandths." The limit on baggage or other goods is 250 Poincare francs per kilogram. The dollar value of that limit is calculated simply by converting the gold value of the specified unit into United States dollars, e.g., the limit per kilogram is 250 multiplied by the dollar value of 65 1/2 milligrams of gold.

the absence of a special declaration, TWA sought to limit its liability under Article 22 of the Convention.

The difficulty arises from the fact that when Article 22 was drafted, gold served official monetary functions and its price was set by law. The Convention thus selected it as the unit of conversion in order to ensure judgments of uniform value as well as a stable and easily calculable limitation on liability. The plain but highly troublesome fact is that by international agreement and United States domestic legislation gold has now lost its monetary functions and no longer has an official price. Unfortunately for parties to international airline transactions as well as for us, the terms of Article 22 continue to utilize gold as the unit of conversion. Thus, the parties raise the issue of what unit of account is now to be used to convert judgments under the Convention into United States dollars.

In arguing the issue, the parties offer four alternatives: (i) the last official price of gold in the United States; (ii) the free market price of gold; (iii) the Special Drawing Right ("SDR"), a unit of account established by the International Monetary Fund ("IMF") and recently proposed as a substitute for gold in the as yet unratified Montreal Protocols to the Convention; and (iv) the exchange value of the current French franc. While acknowledging that "the arguments in favor of ... the SDR (were) most persuasive," Judge Knapp nevertheless held that the last official price of gold was the appropriate standard. This choice was predicated on the view that this standard "has been ... espoused by the Civil Aeronautics Board ("CAB"), the government agency most intimately concerned with the transaction at hand," and has been "used by all domestic carriers-including TWA-in calculating the dollar value of the Article 22 limitation printed on their tariffs." 525 F.Supp. at 1289.

We share Judge Knapp's doubt about the result. Indeed, there are powerful arguments Every proffered solution thus appears to have a devastating argument against it. While the Convention has not been formally abrogated, enforcement by national judicial tribunals is impossible without their picking and choosing among alternative units of conversion according to their view of which is best as an initial policy matter. We have no power to select a new unit of account. We thus hold the Convention's limitation of liability unenforceable by United States Courts.

against each of the proffered solutions. The last official price of gold is a price which has been explicitly repealed by the Congress. See note 11, infra, and accompanying text. It thus lacks any status in law or relationship to contemporary currency values. The free market price of gold is the highly volatile price of a commodity determined in part by forces of supply and demand unrelated to currency values. SDR's are a creature of the IMF, modified at will by that body and having no basis in the Convention. The French franc is simply one domestic currency, subject to change by the unilateral act of a single government.

BACKGROUND

Drafted in the late 1920's, the Convention was designed both to protect the fledgling aviation industry from the alternatives of ruinous damage suits or exorbitant insurance premiums and to insure a certain degree of uniformity of legal obligation given the expected international character of the industry. See A. Lowenfeld and A. Mendelsohn, The United States and the Warsaw Convention, 80 Harvard L.Rev. 497, 499-501 (1967) (hereafter "Lowenfeld and Mendelsohn"); see also Reed v. Wiser, 555 F.2d 1079, 1089 (2d Cir.), cert. denied, 434 U.S. 922, 98 S.Ct. 399, 54 L.Ed.2d 279 (1977) and CAB Staff Memorandum, Warsaw Convention Liability Limits, March 18, 1980, at 5-6. (App. at 43-44). A series of rules governing liability, affirmative defenses and limitations accomplished the former goal, while the Convention's international scope accomplished the latter. Articles 17, 18 and 19 enunciate the carrier's liability for personal injuries, for damage or loss of baggage, and for damage due to delay. Articles 20 and 21 establish as affirmative defenses lack of fault and contributory negligence. Finally, Article 22 provides a limitation on the extent of liability for both personal injury and loss of luggage or other goods.

The personal injury limitations amounts have been subject to upward revision from time to time through protocols to the original agreement. These revisions have come in the wake of a continuing debate, with the developed countries, notably the United States, Great Britain and France, arguing for higher limits, and the less developed nations seeking reduction of the existing limit. ⁴ Lowenfeld and Mendelsohn at 504. Throughout this period, the level of the limitations on liability for loss or destruction of checked baggage and other goods has remained the same.

Defining recoveries in terms of a specified amount of gold was intended to produce stability and uniformity. Such a common standard allowed the conversion of liability limits into national currencies and insulated recoveries from the vicissitudes of currency fluctuation and devaluation. In drafting the Convention, a proposal to fix recoveries purely in terms of the French franc was rejected by Switzerland on the ground that use of a single national currency rendered the liability limit subject to change by the act of one government. See Second International Conference on Private Aeronautical Law, Minutes, October 4-12, 1929, Warsaw, at 88-89 (Horner and Legrez trans. 1975), (App. at 247-248). As the Swiss delegate put it, "Naturally one can say 'French franc' but ... its (France's) national law which determines it, and one need have only a modification of the national law to overturn the essence of this provision." Id. at 89-90, (App. at 248-249). Accordingly, the Swiss pressed for a standard which tied the limitation to a gold value regardless of the national currency actually named in the article. Id. at 90, (App. at 249). The conferees accepted the Swiss position and stated the limitation in terms of the Poincare franc defined as "65 1/2 milligrams of gold at a standard fineness of nine hundred thousandths." Convention, art. 22 § (4). ⁵

From October, 1934, when the United States first adhered to the Convention, until 1978, use of gold as the unit of account posed no problem for United States Courts or the judicial tribunals of other signatory nations. In 1934, the value of gold was set at $35 per troy ounce pursuant to statute, United States Gold Reserve Act of 1934, Pub.L.No.73-87, 48 Stat. 337 (1934). When the United States became a party to the International Monetary Fund (IMF) in 1945, see Bretton Woods Agreements Act, ch. 339, § 2, Pub.L.No.79-171, 59 Stat. 512 (1945) (codified at 22 U.S.C. § 286 (1976)), it promised to maintain (and, if necessary, redeem) the value of United States dollars in terms of gold. For purposes of the Convention's limits on liability, therefore, the relationship of gold and the dollar allowed judicial...