Read Rite Corp. v. Burlington Air Express

• Decision Date: 27 September 1999
• Docket Number: READ-RITE,No. 98-16962,98-16962
• Citation: 186 F.3d 1190
• Parties: (9th Cir. 1999) CORPORATION AND AMERICAN HOMES ASSURANCE COMPANY, Plaintiffs-Appellants, v. BURLINGTON AIR EXPRESS, LTD; CARGOLUX AIRLINES INTERNATIONAL, S.A.,DENYING Defendants-Appellees
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1190

186 F.3d 1190 (9th Cir. 1999)

READ-RITE CORPORATION AND AMERICAN HOMES ASSURANCE COMPANY, Plaintiffs-Appellants, v. BURLINGTON AIR EXPRESS, LTD; CARGOLUX AIRLINES INTERNATIONAL, S.A.,DENYING Defendants-Appellees.

No. 98-16962

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted June 17, 1999

Decided August 12, 1999

As Amended on Denial of Rehearing and Rehearing En Banc September 27, 1999

[Copyrighted Material Omitted]

David M. Salentine, San Francisco, California, for the plaintiffs-appellants.

Michael W. Lodwick, Porter, Groff & Lodwick, Long Beach, California, for defendant-appellee Burlington Air Express.

Stephen E. Kyle, Kenney & Markowitz, San Francisco, California, for defendant-appellee Cargolux Airlines International.

Appeal from the United States District Court for the Northern District of California Claudia Wilken, District Judge, Presiding. D.C. No. CV-97-03113-FW/BZ.

Before: David R. Thompson and William A. Fletcher, Circuit Judges, and Susan Oki Mollway, District Judge¹

OPINION

W. FLETCHER, Circuit Judge:

The question in this case is whether, under federal common law applicable to carriage of goods by air, defendants have successfully limited their liability by contractual provisions in their air waybills.

Plaintiff Read-Rite Corp. ("Read-Rite") contracted with defendants Burlington Air Express Ltd. ("Burlington") and Cargolux Airlines International, S.A. ("Cargolux") to transport by air from England to San Francisco a machine that applies a protective coating to compact discs, called a "cluster sputter." Part of the machine was damaged en route, and Read-Rite and its insurer, plaintiff American Home Assurances Company, sued Burlington and Cargolux in an attempt to recover full compensation for the damages. Burlington and Cargolux argued that their air waybills limited their liability to an amount based on the weight of the damaged portion of the machine. The district court applied English law to Burlington's air waybill and federal common law to Cargolux's air waybill. Summary judgment was entered on behalf of both Burlington and Cargolux, and Read-Rite appeals. We affirm based on federal common law as to both defendants.

District Court Proceedings

Read-Rite, a California corporation, ordered the cluster sputter from Nordiko, Ltd. ("Nordiko"), a manufacturer in Havant, England. Burlington, a freight forwarder acting on Read-Rite's behalf, arranged for Cargolux to provide air transportation from England to California. Burlington prepared two air waybills, one from itself and one from Cargolux. The air waybill from Burlington identified the place of departure as "Portsmouth," while the other, from Cargolux, identified "London Heathrow" as the place of departure. Both identified the destination as "San Francisco."

The reverse sides of the air waybills set forth the terms of carriage. Both air waybills limited the liability of the carrier. Burlington's liability was limited to the lesser of the value of the damaged goods, or "two Special Drawing Rights as defined by the International Monetary Fund . . . per kilo of gross weight of any goods lost or damaged"; Cargolux's liability was limited to $20 per kilogram of the damaged package.

Because of the cluster sputter's size and weight, it was broken down and shipped in ten separate crates. The crates were picked up from Nordiko's facility at Havant and taken by truck to Burlington's facility near Heathrow Airport. The crates were weighed there and then transferred by truck to the Cargolux facility near, but not within the perimeter of, Heathrow Airport. At the Cargolux facility, a ground handling agent accidentally damaged one of the crates and themachinery within. The nine undamaged crates continued to California without interruption, but the damaged part of the cluster sputter was returned to Nordiko for repairs. It eventually arrived in San Francisco four days after the first nine crates.

Despite what was written on the air waybills, the cluster sputter did not leave Heathrow Airport by airplane. The actual arrangement was shipment by truck to Dover, England, by ferry to Calais, France, by another truck on the continent, and finally by air to San Francisco from Luxembourg. Read-Rite claims that all of these stops and the "deceit " of the air waybill listing Heathrow rather than Luxembourg as the "place of departure" violated the treaty known as the Warsaw Convention. Convention for the Unification of Certain Rules Relating to International Transportation by Air, Oct. 12, 1929, 49 Stat. 3000, 3014, T. S. No. 876 (1934), note following 49 U.S.C. S 40105. The district court held that the Warsaw Convention does not apply to this case because Article 18(3) of the Convention states that it "shall not extend to any transportation by land, by sea or by river performed outside an airport."

Because the Warsaw Convention does not apply, this case is governed by the air waybills issued by Burlington and Cargolux. Although neither Read-Rite nor Burlington invoked it, Burlington's air waybill contained a choice-of-law provision requiring application of English law. Cargolux's air waybill had no choice-of-law provision. At the hearing on summary judgment, the district court believed that limited liability for Burlington was appropriate but expressed doubt that federal common law would allow that result because Read-Rite had not seen Burlington's air waybill prior to shipment. The district court found a way out of the dilemma by holding the limitation of liability clause enforceable under English law. The problem for Cargolux was somewhat easier because Burlington, acting as Read-Rite's agent, had seen (indeed, had prepared) the Cargolux air waybill prior to shipment. The district court relied on English law in granting summary judgment for Burlington, and on federal common law in granting summary judgment for Cargolux.

Discussion

I. The Warsaw Convention

The Warsaw Convention is an international treaty governing the liability of air carriers engaging in international air travel (note following 49 U.S.C. S 40105). The Convention's scope is limited by Article 18:

(1) The carrier shall be liable for damage sustainedin 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.

It is undisputed that the goods in this case were destroyed during ground transportation that was close to -but clearly outside -London's Heathrow Airport.² We agree with the district court that, by the plain terms of Article 18, the Warsaw Convention does not apply. See Victoria Sales Corp. v. Emery Air Freight, Inc., 917 F.2d 705, 707 (2d Cir. 1990).

Read-Rite attempts to avoid the plain language of Article 18 by emphasizing the "deceit" of the air waybill. The face of Cargolux's air waybill indicated that the cargo would be flown out of Heathrow, but in fact, Cargolux flew it out of Luxembourg. Read-Rite argues that it had no notice that the cargo would be shipped by this route. Read-Rite might have a viable argument if the damage to the cluster sputter had occurred during an undisclosed and unforeseeable ferry trip across the English Channel. But we leave that question for a case in which it is presented. In this case, the damage occurred when the crates arrived at the Cargolux facility near Heathrow, a portion of the transportation that was entirely predictable and would have occurred whether the cargo was flown out of Heathrow or any other airport.

II Federal Common Law

The district court followed English law in construing Burlington's air waybill, although neither Burlington nor Read-Rite had sought its application. Similarly, in this court, neither Read-Rite nor Burlington argues that English law should be applied. Read-Rite, Burlington, and Cargolux believe, and we agree, that in the absence of the Warsaw Convention federal common law governs the construction of both the Burlington and Cargolux air waybills. See Deiro v. American Airlines, Inc., 816 F.2d 1360, 1364 (9th Cir. 1987).

Although settings in which federal common law is applied are "few and restricted," application of federal common law is appropriate where there is a "significant conflict between some federal policy or interest and the use of state law." O'Melveny & Myers v. FDIC, 512 U.S. 79, 87 (1994) (internal quotation omitted). We have previously held that federal common law applies to the carriage contract of an air carrier, holding that the "deregulation of air carriers in 1978 did not change the applicability or substantive content of the relevant federal common law." Deiro, 816 F.2d at 1365; see Airline Deregulation Act of 1978, 49 U.S.C. S 40120(c). However, the Supreme Court's decision in O'Melveny & Myers, as well as our own recent decisions regarding federal preemption of state law applied to air carriers, see, e.g., Charas v. Trans World Airlines, Inc., 160 F.3d 1259 (9th Cir. 1998) (en banc), suggest the desirability of our reviewing here the basis for applying federal common law to actions arising from loss or damage to cargo shipped by an air carrier.

The Court of Appeals for the Fifth Circuit in Sam L. Majors Jewelers v. ABX, Inc., 117 F.3d 922, 926-29 (5th Cir. 1997), exhaustively canvassed the history of federal common law applied to common carriers, of federal regulation of air carriers, and of the eventual deregulation of air carriers. The court in Sam L. Majors Jewelers reached two conclusions. First, a cause of action against air carriers for lost or damaged goods is "clearly established" under federal common law. Id. at 928...