Magnus Electronics, Inc. v. Royal Bank of Canada

• Court: U.S. District Court — Northern District of Illinois
• Citation: Magnus Electronics, Inc. v. Royal Bank of Canada, 611 F.Supp. 436 (N.D. Ill. 1985)
• Decision Date: 15 May 1985
• Docket Number: No. 84 C 7630.,84 C 7630.
• Parties: MAGNUS ELECTRONICS, INC., Plaintiff, v. ROYAL BANK OF CANADA and Aerolineas Argentinas, Defendants.

611 F. Supp. 436

MAGNUS ELECTRONICS, INC., Plaintiff, v. ROYAL BANK OF CANADA and Aerolineas Argentinas, Defendants.

No. 84 C 7630.

United States District Court, N.D. Illinois, E.D.

April 8, 1985.

First Supplemental Opinion May 7, 1985.

Second Supplemental Opinion May 15, 1985.

Scott A. Brainerd, Brainerd & Bridges, Chicago, Ill., for plaintiff.

Alan S. Madans, Norman Barry, Rothschild, Barry & Myers, C. Kevin McCabe, Lord, Bissell & Brook, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Magnus Electronics, Inc. ("Magnus") has filed a multi-count First Amended Complaint (the "Complaint") against Aerolineas Argentinas ("Aerolineas") and the Royal Bank of Canada ("Bank") to recover the unpaid portion of the purchase price of two shipments of electronics equipment that, Magnus says, were delivered to the buyer in Argentina in breach of Aerolineas' and Bank's obligations to Magnus. Bank has in turn filed a First Amended Cross-claim (the "Cross-claim") against Aerolineas for indemnity or contribution, asserting the loss was attributable to Aerolineas' wrongful conduct.

Aerolineas now has moved under Fed.R. Civ.P. ("Rule") 12(b)(6) to dismiss both the Complaint and the Cross-claim because (1) Aerolineas' liability is governed by the terms of the Warsaw Convention (the "Convention," 49 Stat. 3000 TS 876, reprinted following 49 U.S.C.A. § 1502) and (2) the claims against Aerolineas are barred by the Convention's two-year limitations period. For the reasons stated in this memorandum opinion and order, Aerolineas' motion is granted.

Facts¹

In October 1981 Magnus contracted to sell three of its "Magnasync" generators to buyer Alfredo Di Lullo ("Di Lullo")² in Buenos Aires. Magnus engaged a freight forwarder to arrange for shipment to Di Lullo, and the freight forwarder then engaged Aerolineas to transport the generators from Miami to Buenos Aires. According to the Aerolineas air waybill the generators were to be delivered to Bank (as consignee) in Buenos Aires, with notice to Di Lullo of their arrival. Under the terms of its arrangement with Magnus, Bank was to hold the generators pending Di Lullo's payment of the full purchase price to Bank (for Magnus' account). Only upon payment in full was Di Lullo to take delivery of the goods.

Despite those arrangements, either Aerolineas or Bank (or perhaps the two together in some fashion) permitted delivery of the generators to Di Lullo without Bank's (and hence Magnus') receiving payment. Magnus has yet to collect any portion of the $68,946 purchase price.

In early March 1982 Magnus entered into a second transaction with Di Lullo, this time involving a shipment of transceivers. Again Aerolineas was engaged to carry the goods from Miami to Buenos Aires, where Bank was to take delivery as consignee pending payment in full of the $30,831 purchase price. On March 18 Di Lullo telephoned Magnus and said it had received the transceivers in good condition and would shortly tender payment—this despite the fact Di Lullo was not to get delivery before having paid the purchase price. To date Di Lullo has paid $30,000 on the 1982 shipment, leaving an outstanding balance of $831. Again Magnus claims the loss is attributable to either Aerolineas or Bank or both.

Warsaw Convention

"All international transportation of persons, baggage, or goods performed by aircraft for hire" (Convention Art. 1(1)) is governed by the Convention, a uniform set of rules drafted at international meetings held in Paris in 1925 and Warsaw in 1929. "International transportation" is defined in relevant part to include (Art. 1(2)):

any transportation in which, according to the contract made by the parties, the place of departure and the place of destination, whether or not there be a break in the transportation or transshipment, are situated ... within the territories of two High Contracting Parties....

Both the United States and Argentina are High Contracting Parties to the Convention.

Probably the most frequently invoked provisions of the Convention, in litigation terms, are those limiting the liability of air carriers for loss or damage to passengers or property in the course of air transportation. However, the focus of the present dispute is the limitations period under Convention Art. 29:

(1) The right to damages shall be extinguished if an action is not brought within 2 years, reckoned from the date of arrival at the destination, or from the date on which the aircraft ought to have arrived, or from the date on which the transportation stopped.

(2) The method of calculating the period shall be determined by the law of the court to which the case is submitted.

Aerolineas claims that provision bars the claims of both Magnus and Bank. They respond with several arguments in an effort to avoid dismissal:

1. Based upon the facts as set out in Magnus' Complaint, it is not clear the loss occurred "during transportation by air," in which event the Convention and its two-year limitations period would be inapplicable to Magnus' claim.

2. Bank's cross-claim is not subject to the Convention in any event.

3. Even if the Convention does apply to the claims, the Complaint's allegations leave open the possibility the limitations period has not run, at least as to the 1981 shipment.

4. Magnus' allegations of fraud on Aerolineas' part either render the two-year limitations period inapplicable or toll it on a fraudulent concealment theory.

5. Because Aerolineas is alleged to have engaged in "wilful misconduct," Convention Art. 25 says Aerolineas cannot avail itself of the two-year limitations period.

This opinion will deal successively with those contentions.

1. Applicability of the Convention to Both Claims

Article 18 defines the scope of a carrier's liability under the Convention:

(1) The carrier shall be liable for damages sustained in the event of the destruction or loss of, or damage to, any checked baggage or any goods, if the occurrence which caused the damage so sustained took place during the transportation by air.

(2) The transportation by air within the meaning of the preceding paragraph shall comprise the period during which the baggage or goods are in charge of the carrier, whether in an airport or on board an aircraft, or, in the case of a landing outside an airport, in any place whatsoever.

(3) The period of the transportation by air shall not extend to any transportation by land, by sea, or by river performed outside an airport. If, however, such transportation takes place in the performance of a contract for transportation by air, for the purpose of loading, delivery or transshipment, any damage is presumed, subject to proof to the contrary, to have been the result of an event which took place during the transportation by air.

Article 24(1) then provides that in cases covered by Article 18:

any action for damages, however founded, can only be brought subject to the limits and conditions set out in this convention.

Magnus and Bank argue that, on the basis of the facts alleged in the Complaint, it is not clear the improper delivery of the goods to Di Lullo occurred "during the transportation by air."

That notion is simply untenable. Magnus' contract with Aerolineas specifically required delivery of the goods shipped to Bank as Magnus' consignee. As Complaint ¶ 5 puts it:

AA undertook ... to deliver the goods to and only to the named consignee, RBC, upon the latter's proper identification or instructions at destination.

For presumptive liability purposes, Article 18(3)'s terms expressly embrace an air carrier's contractual undertaking for land delivery within "transportation by air"—a term of art. Here Aerolineas' contract necessarily called for such "transportation by air" (though non-air transportation in common parlance) by Magnus once the goods arrived at their city of destination.³

True enough, if the claimed damages take place during any such non-air leg of the carriage, Article 18(3) leaves open to the carrier the possibility of escaping absolute liability under Article 18(1) by proof that someone else was responsible. But that does not limit the defined scope of "transportation by air." So long as the goods remain in the air carrier's actual or constructive possession pursuant to the terms of the carriage contract, the period of "transportation by air" does not end. If Aerolineas had put the Magnus shipments on (say) a truck and transported them from the airport in Buenos Aires to another location where Di Lullo took possession, neither Magnus nor Aerolineas would have any basis for claiming "transportation by air" had ceased. Accordingly Article 24(1) makes Magnus' action for damages subject to the terms of the Convention, including the Article 29(1) limitations period.

Even if the Convention is thus plainly applicable to Magnus' claim, Bank urges it should not be construed to apply to the Cross-claim. Pointing to language dealing with rights to damages under the Convention, Bank Mem. 8 argues:

This phrasing, like the language in other pertinent Convention provisions, plainly provides rights to, and imposes corresponding burdens upon, only the plaintiff shipper.

Aerolineas correctly responds that argument reflects only a partial reading of the Convention. As consignee for both the 1981 and 1982 shipments, Bank is a direct beneficiary of the Convention. Article 13 provides in relevant part:

(1) The consignee shall be entitled, on arrival of the goods at the place of destination, to require the carrier to hand over to him the air waybill and to deliver the goods to him....

* * * * * *

(3) If the carrier admits the loss of the goods, or if the goods have not arrived at the expiration of seven days after the date on which they ought to have arrived, the consignee shall be entitled to put into force against the carrier the rights which flow from the contract of transportation.

And Article 14 says the consignee may enforce his rights under Article...