Kemper Insurance v. Federal Express

• Decision Date: 03 April 2001
• Docket Number: No. 00-2300,00-2300
• Citation: 252 F.3d 509
• Parties: (1st Cir. 2001) KEMPER INSURANCE COMPANIES, Plaintiff, Appellant, v. FEDERAL EXPRESS CORPORATION, Defendant, Appellee. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 509

252 F.3d 509 (1st Cir. 2001)

KEMPER INSURANCE COMPANIES, Plaintiff, Appellant, v. FEDERAL EXPRESS CORPORATION, Defendant, Appellee.

No. 00-2300

United States Court of Appeals For the First Circuit

Heard April 3, 2001

Decided June 12, 2001

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Douglas P. Woodlock, U.S. District Judge] Robert J. Gallagher, with whom Liese G. Howarth, Alan J. Howarth and Gallagher & Howarth, P.C., were on brief, for appellant.

R. Jeffery Kelsey, with whom Steven C. Scharaf, Dedire Brennan Regan, Robert John Maslek and Brody Hardoon Perkins & Kesten, were on brief, for appellee.

Before Torruella, Chief Judge, Bownes, Senior Circuit Judge, and Lipez, Circuit Judge.

TORRUELLA, Chief Judge.

This appeal involves eight packages of jewelry shipped by defendant-appellee Federal Express ("FedEx"). The shipper, Holmes Protection Group, Inc. ("Holmes"), purchased third-party insurance from plaintiff-appellant Kemper Insurance Companies, Inc. ("Kemper"). Kemper, as subrogee, sought to invalidate the $100 limitation of liability provided for in the relevant shipping documents. The district court concluded that the limitation of liability was valid, and that attempts by Kemper to amend its complaint to include: (i) claims under the Carmack Amendment, 49 U.S.C. § 14706; and (ii) claims of willful and wanton misconduct, were futile. Kemper Ins. Cos. v. Fed. Express Corp., 115 F. Supp. 2d 116 (D. Mass. 2000). For the reasons herein, we affirm.

BACKGROUND AND PROCEDURAL HISTORY

The relevant facts in this appeal are undisputed, with one exception, which we note below.

Holmes tendered eight packages containing jewelry to FedEx between June 26 and December 22, 1998. Seven of the packages never reached their destination; one arrived empty. Each of the packages was sent under FedEx Master Powership Agreements, which note that FedEx limits its liability in a manner described in its Service Guide. The Service Guide, in turn, explains that "liability with regard to any package is limited to the sum of $100 unless a higher value is declared on the air bill for the package at the time of tender, and a greater charge paid as provided . . . below." For most types of goods, FedEx allows shippers to declare a value up to $50,000. However, for "items of extraordinary value," including jewelry, the maximum declared value is limited to $500. Moreover, the shipping agreement provides that "any effort to declare a value in excess of the maximums allowed in this service guide is null and void," and disclaims any liability "in excess of the declared value of a shipment." No value was declared for any of the shipments in question.

Kemper, acting in its capacity as subrogee to Holmes, brought claims against FedEx sounding in tort and contract. FedEx moved to dismiss the tort claims as preempted by the Airline Deregulation Act (ADA). Although the district court held that the savings clause of the ADA preserved federal common law remedies in tort for lost shipments, id. at 120-21, it concluded that the air bill limited FedEx's liability to $100 per shipment, that Kemper could not "avoid this limitation by recasting its claims as tort action," id. at 121, and therefore granted the motion to dismiss.

With respect to the claims sounding in contract, the district court determined that under applicable federal common law, specifically the "released value doctrine," the FedEx limitation of liability provision was valid because it allowed the shipper to increase FedEx's exposure to $500 by declaring a higher value and paying a correspondingly higher shipping fee. Id. at 122-24. Moreover, the district court noted that limitations of liability are viewed in a particularly generous light when the shipper chooses to take out private insurance, as did Holmes in this case. Id. at 124. The court therefore dismissed Kemper's claim seeking to void the limitation on liability as contrary to public policy, id., and granted FedEx partial summary judgment on the breach of contract claim based on the $100 limitation of liability, id.

Kemper also sought to amend its complaint in two ways which, it contended, would provide legal support for invalidation of the limitation clause without reliance on the released value doctrine. First, Kemper claimed that because four of the eight packages traveled entirely by truck (instead of by air),¹ the Carmack Amendment's allegedly stricter standard made the limitation on liability invalid with respect to those four packages. The district court did not determine whether the Carmack Amendment applied, instead concluding that because the contours of the Carmack Amendment mirrored those of the released value doctrine, Kemper's desired amendment was futile. Id. at 126-27. Second, Kemper sought to amend its complaint to include claims of willful and wanton misconduct on the part of FedEx. Kemper alleged that FedEx had been aware of, and ignored, the repeated theft of valuable shipped goods by employees. Kemper argued that FedEx's knowledge of rampant employee theft and lack of meaningful effort to prevent future thefts from occurring constituted willful and wanton misconduct, and that the conversion exception to the released value doctrine should apply.² The district court held that even if the exception included a "level of willful and intentional conduct . . . so egregious as to rise to the level of conversion for [a carrier's] own use," Kemper had not alleged sufficient facts to reach such a level. Accordingly, the court refused to allow the amendment to the complaint because it would have been futile to do so. Id. at 125-26.

DISCUSSION

Our review of a grant of summary judgment is de novo, with all material facts viewed in the light most favorable to the opposing party. Campbell v. Washington County Technical Coll., 219 F.3d 3, 5 (1st Cir. 2000). We review the denial of a motion to amend a complaint for abuse of discretion. Glassman v. Computervision Corp., 90 F.3d 617, 623 (1st Cir. 1996).

I. Federal Common Law and the Released Value Doctrine

When a shipper (or, as here, a subrogee standing in place of a shipper) contests the validity of a contractual clause that limits an air carrier's liability,³ we apply federal common law. See Hill Constr. Corp. v. Am. Airlines, Inc., 996 F.2d 1315, 1317 (1st Cir. 1993) (citing cases applying federal law); Diero v. Am. Airlines, Inc., 816 F.2d 1360, 1365-66 (9th Cir. 1987); First Pa. Bank, N.A. v. E. Airlines, Inc., 731 F.2d 1113, 1115-16 (3d Cir. 1984). Although traditional common law forbade a carrier from disclaiming liability for its own negligence, First Pa. Bank, 731 F.2d at 1116, the released value doctrine allows an air carrier to "limit [its] liability for injury, loss, or destruction of baggage on a 'released valuation' basis." Diero, 816 F.2d at 1365 (citing Klicker v. Northwest Airlines, 563 F.2d 1310, 1315 (9th Cir. 1977)). In exchange for a lower shipping rate, the shipper is deemed to have released the carrier from liability beyond a stated amount. Id. However, the shipper is bound by this agreement only if (i) he has reasonable notice of the rate structure and (ii) he is given a fair opportunity to pay a higher rate in order to obtain greater protection. Id.; see also New York, N.H. & Hartford Rail Co. v. Nothnagle, 346 U.S. 128, 134-36 (establishing doctrine for common carriers); Hill, 996 F.2d at 1317; First Pa. Bank, 731 F.2d at 1117.

Kemper concedes that the shipper, its insured, had reasonable notice of the limitation of liability. However, it contends that the FedEx rate structure is not one that gives the shipper "a fair opportunity to pay a higher rate in order to obtain greater protection." Diero, 816 F.2d at 1365. Kemper argues that the contractually allowed increase to $500 of coverage is an insufficient difference to provide a "fair opportunity," especially when the $500 limit applies only to goods of "extraordinary value" such as jewelry, which are by definition worth significantly more than that limit.

This Court has noted that "[w]here air carriage . . . offer[s] the shipper a choice of paying a higher rate for greater protection, federal courts have normally found those limitations lawful." Hill, 996 F.2d at 1317 (citing numerous cases). Although we have not had the opportunity to determine when an alternative liability limit is sufficiently high so as to provide a "fair opportunity" to the shipper, other courts have upheld contractual limitations of a similar magnitude to the one at issue here. First Pa. Bank, 731 F.2d at 1118 (choice between $50 and $500); see also United States Gold Corp. v. Fed. Express Corp., 719 F. Supp. 1217, 1219 & 1225-26 (S.D.N.Y. 1989) (choice between $100 and $500); Universal Computer Sys., Inc. v. Allegheny Airlines, Inc., 479 F. Supp. 639 (M.D. Pa. 1979) (choice between $50 and $500); Klicker, 563 F.2d at 1314-16 (choice between $500 and $5000). Notably, Kemper has not cited, nor have we discovered, any case in which a court invalidated a contract providing two discrete levels of coverage.⁴ We are loath to police this line when other courts have chosen not to do so.

Kemper seeks to distinguish the above precedent by pointing out, correctly, that the relevant contractual provisions in these cases provided that the carrier would not accept goods with a declared value above the higher limitation. See First Pa. Bank, 731 F.2d at 1118 ("Shipments with a declared value in excess of $500.00 are not acceptable for transportation under this tariff."); Klicker, 563 F.2d at 1316 ("No participating carrier will accept [property], the declared value of which exceeds . . . $5,000."); Universal Computer, 479 F. Supp. at 641 ("Shipments with a declared value in excess of $500.00 are not acceptable for transportation under this tariff."). By contrast, not only did the FedEx contract in question not contain such a provision, but the record shows that FedEx...