Paper Magic Group v. J.B. Hunt Transport, No. 01-3500.

• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
• Writing for the Court: Ambro
• Citation: 318 F.3d 458
• Parties: THE PAPER MAGIC GROUP, INC. v. J.B. HUNT TRANSPORT, INC., Appellant.
• Docket Number: No. 01-3500.
• Decision Date: 16 January 2003

318 F.3d 458 THE PAPER MAGIC GROUP, INC.
v.
J.B. HUNT TRANSPORT, INC., Appellant. No. 01-3500. United States Court of Appeals, Third Circuit. January 16, 2003.

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James A. Wescoe, (Argued), Timothy J. Abeel, Rawle & Henderson LLP, Philadelphia, for Appellant.

Charles L. Howard, Gollatz, Griffin & Ewing, Philadelphia, George Carl Pezold, Raymond A. Sevaggio, (Argued), Augello, Pezold & Hirschmann, P.C., Huntington, for Appellee.

Before BECKER, Chief Judge, ALITO and AMBRO, Circuit Judges.

OPINION OF THE COURT

AMBRO, Circuit Judge.

This case involves an award of damages against a carrier caused by a four-month delay in its delivery of a shipment of seasonal goods. The District Court awarded the shipper the entire invoice value for damages. The carrier appeals, arguing that the award constituted impermissible special damages. Because the award represents actual (or general) damages, we affirm.

I. Background

The Paper Magic Group, Inc. ("Paper Magic"), a maker of greeting cards and seasonal paper goods, delivered a shipment of boxed Christmas cards and related holiday merchandise, specially developed and packaged for Paper Magic's customer, Target Stores, Inc. ("Target"), to J.B. Hunt Transport, Inc. ("Hunt") on October 16, 1998. Hunt was to transport the goods from Danville, Pennsylvania, to Target in Oconomowoc, Wisconsin. The shipment's invoice value was $130,080.48. Shipments of this nature are usually delivered within two to three days, but the bill of lading did not specify a delivery time or indicate that the goods were time-sensitive in nature.

This shipment got lost in the shuffle. Hunt located it on February 5, 1999, almost four months after it received the goods, at its facility in Chicago, Illinois. It then notified Paper Magic, which had been unaware of the delay because Target was not scheduled to pay for the goods until March 1999. Hunt offered to deliver the goods first to Target, and then to Paper Magic, but both refused — the goods were worthless to Target because it was now after Christmas, and worthless to Paper Magic because the cards were packaged with Target's private label and could not therefore be sold to other vendors.

Paper Magic was a regular Hunt customer, and their relationship was governed by a 1995 transportation agreement. This agreement set out Hunt's liability, in the case of a shipment being "lost, damaged, or destroyed," as "the price charged by Shipper to its customers" with reasonable salvage value of any damaged goods deducted from the price paid. This presumes that the shipper, rather than the carrier, sold the goods for their salvage value, a presumption that, as noted below, did not occur.

On April 26, 1999, Paper Magic demanded the full invoice price from Hunt for the lost shipment. In June of that year, Hunt sold the goods at salvage for $49,645.96. It offered this amount "as a full and final settlement" of Paper Magic's claim. Paper Magic rejected the offer, and filed an action against Hunt under 49 U.S.C. § 14706, the Carmack Amendment to the Interstate Commerce Act, seeking the full contract price in damages. Both parties moved for summary judgment. The District Court granted Paper Magic's motion, awarding $130,080.48 plus interest, and denied Hunt's cross-motion. Hunt appealed.¹

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II. Discussion

The Carmack Amendment governs the liability of common carriers on bills of lading. A bill of lading is a transportation contract between a shipper/consignor (i.e., a seller of goods) and a carrier. EF Operating Corp. v. American Bldgs., 993 F.2d 1046, 1050 (3d Cir.1993). The person named in the bill of lading as the person "to whom or to whose order the bill promises delivery" is the consignee. U.C.C. § 7-102 (2002). To establish a prima facie case against a carrier under the Carmack Amendment, a shipper must prove "(1) delivery of goods to the initial carrier in good condition, (2) damage of the goods before delivery to their final destination, and (3) amount of the damages." Beta Spawn, Inc. v. FFE Trans. Serv., Inc., 250 F.3d 218, 223 (3d Cir.2001) (citation omitted). The burden then shifts to the carrier to prove it was not negligent and the damage was caused entirely by "[an] act of God[,] ... the public enemy[,]... the act of the shipper [itself,] ... public authority[,] ... or the inherent vice or nature of the goods." Id. at 226.

Under the Carmack Agreement, the measure of damages in the event that goods are damaged or delivery is delayed is "the difference between the market value of goods at the time of delivery, and the time when they should have been delivered." Starmakers Publ'g Corp. v. Acme Fast Freight, Inc., 615 F.Supp. 787, 791 (S.D.N.Y.1985) (Starmakers I). This measure of damages is reflected in the transportation agreement between Paper Magic and Hunt, which, as noted above, describes the measure of damages as the invoice price minus the salvage price. Because the invoice value conforms to the market value of the cards at the time they should have been delivered, and the salvage value conforms to the market value of the cards at the time they were delivered, the two measures of damages produce the same results.

There is no question as to the first element of Paper Magic's claim. The goods were delivered in good condition. As for the second element, Hunt does not appeal the District Court's finding that the delay made the goods' value equivalent to nothing beyond their salvage value and that they were so diminished in value by the four-month delay that the late delivery was "in effect a non-delivery."

The only issue on appeal is the District Court's calculation of damages. Hunt alleges that by awarding Paper Magic the full invoice amount of $130,080.48, the District Court awarded special, instead of general, damages. General damages are those "foreseeable to a reasonable [person]." Hector Martinez & Co. v. Southern Pac. Transp. Co., 606 F.2d 106, 109 (5th Cir.1979). Special damages are "those that a carrier did not have a reason to foresee as ordinary, natural consequences of a breach when the contract was made." Contempo Metal Furniture Co. v. East Tx. Motor Freight Lines, Inc., 661 F.2d 761, 765 (9th Cir.1981). The common law rule is that "special, or consequential, damages are not usually recoverable in an action for breach of contract." Id.; see also Main Road Bakery, Inc. v. Consol.

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Freightways, Inc., 799 F.Supp. 26, 28 (D.N.J.1992). The Carmack Amendment did not alter that rule; courts award special damages only where a shipper actually notified the carrier that the goods required special handling of some kind, thereby giving the carrier notice and making the damages foreseeable. Id.

The distinction between "special" and "general" damages has a distinguished lineage in the common law, including chestnuts such as that favorite of first-year law casebooks — Hadley v. Baxendale, Ex. 341, 156 Eng. Rep. 145, 5 Eng. Rul. Cas 502 (1854). In Hadley, the business of a mill ground to a halt when the crankshaft of the steam engine broke. The carriers caused a delay in shipping the new crankshaft, and the mill owners sued for lost profits. Because the mill owners had not informed the carriers of how crucial the crankshaft was to their business, the lost profits were not foreseeable, and the mill owners could not recover special damages.

Recent cases analyzing the distinction are Main Road Bakery, Inc., 799 F.Supp. at 26; Starmakers Publ'g Corp. v. Acme Fast Freight, Inc., 646 F.Supp. 780 (S.D.N.Y.1986) (Starmakers II); and Starmakers I, 615 F.Supp. at 787. In Main Road Bakery, Inc., a new bake oven was damaged in transit, and the shipper bakery was without a functional oven for several days. 799 F.Supp. at 27. The Court rejected as impermissible special damages its claim of lost profits as a result of being without a functional oven. Id. at 28. The Court dismissed in Starmakers II the claim that a "later delivery resulted in a total loss of value." 646 F.Supp. at 782. In Starmakers I, the Court dismissed a claim for lost business stemming from the delivery of movie posters five weeks late (and after the release of the movie that was their subject) as special damages. 615 F.Supp. at 791.

Paper Magic is not seeking special damages. It is not seeking recovery for its loss of use, its lost future profits, or its additional labor. Instead, it is seeking...